<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 22, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------------
ROSEDALE DECORATIVE PRODUCTS LTD.
(Name of Small Business Issuer as specified in its charter)
<TABLE>
<S> <C> <C>
ONTARIO, CANADA N/A 5110
(State or other jurisdiction of (I.R.S. Employer (Primary Standard Industrial
incorporation or organization) Identification Number) Classification Code Number)
</TABLE>
731 MILLWAY AVENUE
CONCORD, ONTARIO
CANADA L4K 3S8
(416) 593-4519
(Address and telephone number of principal executive offices)
ALAN FINE, CHIEF EXECUTIVE OFFICER
731 MILLWAY AVENUE
CONCORD, ONTARIO
CANADA L4K 3S8
(416) 593-4519
(Name, address and telephone number of agent for service)
COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
GREGORY SICHENZIA, ESQ. ERNEST H. DELONG, ESQ.
SINGER ZAMANSKY LLP DELONG, CALDWELL & WISEBRAM, LLC
40 EXCHANGE PLACE 945 EAST PACES FERRY ROAD
NEW YORK, NEW YORK 10005 SUITE 1770
TELEPHONE NO.: (212) 809-8550 ATLANTA, GEORGIA 30326
FACSIMILE NO.: (212) 344-0394 TELEPHONE NO.: (404) 842-0555
FACSIMILE NO.: (404) 842-0565
</TABLE>
------------------------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as 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, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
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 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 THE REGISTRATION STATEMENT ON SUCH DATE AND
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
MAXIMUM
AMOUNT MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1) PRICE(1) FEE
<S> <C> <C> <C> <C>
Units, each consisting of two shares of Common Stock, no par
value per share, and two Class A Warrants(2)................... 718,750 $ 8.00 $ 5,750,000 $1,696.25
Common Stock, no par value per share, underlying Units........... 1,437,500
Class A Warrants underlying Units................................ 1,437,500
Common Stock, no par value per share, issuable upon exercise of
Class A Warrants(3)............................................ 1,437,500 4.50 6,468,750 $1,908.28
Underwriter's Unit purchase option............................... 1 10 $ 10 $ .01
Units, each consisting of two shares of Common Stock, no par
value per share, and two Class A Warrants, issuable upon
exercise of Underwriter's option............................... 62,500 9.60 $ 600,000 $ 177.00
Common Stock, no par value per share, underlying Underwriter's
Options........................................................ 125,000
Class A Redeemable Warrants issuable upon exercise of
Underwriter's Options(4)....................................... 125,000
Common Stock, no par value per share, issuable upon exercise of
Class A Warrants underlying Underwriter's options(5)........... 125,000 4.50 562,500.00 $ 165.94
Total...................................................... $ 13,381,260.00 $3,947.47
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Includes up to 93,750 Units issuable upon exercise of the Underwriter's
over-allotment option.
(3) Represents shares of Common Stock issuable upon exercise of the Warrants
offered pursuant to this Registration Statement.
(4) Reserved for issuance upon exercise of the Underwriter's Option together
with such indeterminate number of Warrants and/or Common Stock as may be
issuable pursuant to anti-dilution provisions under the Underwriter's
Purchase Option or the Warrants.
(5) Reserved for issuance upon exercise of the Warrants obtained upon exercise
of the Underwriter's Purchase Option.
ii
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM SB-2 ITEM NUMBER AND CAPTION CAPTIONS IN PROSPECTUS
----------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Front of Registration Statement and Outside Front
Cover of Prospectus................................ Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Cover Page, Inside Cover Page, Outside Back Page
3. Summary Information and Risk Factors................. Prospectus Summary, Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Cover Page, Underwriting
6. Dilution............................................. Dilution
7. Selling Securityholders.............................. *
8. Plan of Distribution................................. Prospectus Summary, Underwriting
9. Legal Proceedings.................................... Business
10. Directors, Executive Officers, Promoters and Control
Persons............................................ Management, Principal Stockholders
11. Security Ownership of Certain Beneficial Owners and
Management......................................... Principal Stockholders
12. Description of Securities............................ Description of Securities
13. Interest of Named Experts and Counsel................ *
14. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................... Management
15. Organization Within Last Five Years.................. Prospectus Summary, Business
16. Description of Business.............................. Prospectus Summary, Business
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
19. Certain Relationships and Related Transactions....... Certain Transactions
20. Market for Common Equity and Related Shareholder
Matters............................................ Front Cover Page, Description of Securities
21. Executive Compensation............................... Management
22. Financial Statements................................. Financial Statements
23. Changes in and Disagreements with Accounts on
Accounting and Financial Disclosure................ *
</TABLE>
- ------------------------
* Not Applicable
iii
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY , 1998
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 OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
ROSEDALE DECORATIVE PRODUCTS LTD.
625,000 UNITS, EACH UNIT CONSISTING OF TWO SHARES OF COMMON STOCK AND
TWO CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Rosedale Decorative Products Ltd. (the "Company") is hereby offering to the
public 625,000 Units (the "Units"), each Unit consisting of two (2) shares of
common stock, no par value (the "Common Stock"), and two (2) class A redeemable
common stock purchase warrants (the "Warrants"). The Common Stock and the
Warrants will be separately transferable 90 days after the closing of the
offering or such earlier date as Fin-Atlantic Securities, Inc. (the
"Underwriter") may determine. The offering of the Units, Shares and Warrants
hereby is sometimes referred to as the "Offering" herein.
Each Warrant entitles the holder to purchase one share of Common Stock at an
exercise price of $4.50 per share, subject to adjustment in certain events,
during the four year period commencing one year from the date of this Prospectus
(the "Effective Date"). The Warrants are subject to redemption by the Company at
$.10 per Warrant, at any time commencing one year from the Effective Date (or
earlier with the consent of the Underwriter) and prior to their expiration, on
not less than 30 days' written notice to the holders of the Warrants, provided
the closing bid price per share of Common Stock if traded on the Nasdaq SmallCap
Market, or the last sales price per share if listed on the Nasdaq National
Market or a national exchange has been at least 250% ($10 per share) of the
current Warrant exercise price, for a period of 10 consecutive business days
ending on the third day prior to the date upon which the notice of redemption is
given. The Warrants shall be exercisable until the close of the business date
preceding the date fixed for redemption. See "Description of
Securities--Warrants."
Prior to the Offering, there has been no market for the Units, Common Stock
or Warrants, and there can be no assurance that a market will develop for the
Company's securities in the future or that if developed, it will be sustained.
The Company is applying for quotation of the Units, Common Stock and Warrants on
the Nasdaq SmallCap Market under the trading symbols " ", " " and
" ", respectively, and for listing on the Boston Stock Exchange under the
symbols " ", " " and " ", respectively.
The per share public offering price of the Units and the exercise price and
the other terms of the Warrants offered hereby were determined by negotiation
between the Company and the Underwriter and do not necessarily bear any direct
relationship to the Company's assets, earnings, book value per share or other
generally accepted criteria of value. See "Underwriting".
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 9
AND "DILUTION" ON PAGE 16.
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 COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND
PRICE TO PUBLIC COMMISSIONS(1)
<S> <C> <C>
Per Unit............................................... $8.00 $.80
Total(3)............................................. $5,000,000 $500,000
<CAPTION>
PROCEEDS TO
THE COMPANY(2)
<S> <C>
Per Unit............................................... $7.20
Total(3)............................................. $4,500,000
</TABLE>
(1) Does not include additional consideration to be received by the Underwriter
in the form of (i) a non-accountable expense allowance equal to 3% of the
gross offering proceeds, (ii) any value attributable to the Underwriter's
Purchase Option ("Underwriter's Warrant") entitling the Underwriter to
purchase up to 62,500 Units at a price per share equal to 120% of the
initial public offering price per Unit, and (iii) a financial consulting
agreement with the Underwriter for a period of twelve months for an
aggregate consideration of $50,000 payable in full on the closing of the
Offering. In addition, the Company has agreed to indemnify the Underwriter
against certain liabilities under the Securities Act of 1933, as amended
(the "Act"). See "Underwriting".
(2) After deducting discounts and commission payable to the Underwriter, but
before payment of the Underwriter's non-accountable expense allowance of
$150,000 (or $172,500 if the Over-Allotment Option, defined below, is
exercised in full) or the other expenses of the Offering, estimated at
$320,000 payable by the Company. See "Underwriting".
(3) The Company has granted the Underwriter an option, exercisable for 45 days
after the Effective Date to purchase up to an additional 93,750 Units from
the Company upon the same terms and conditions set forth above, solely for
the purpose of covering over-allotments, if any (the "Over-Allotment
Option"). If the Over-Allotment Option is exercised in full, the total Price
to the Public, Underwriting Discounts and Commissions, Proceeds to the
Company will be $5,750,00, $747,500 and $4,682,500 respectively. See
"Underwriting."
The Units offered by the Prospectus are being offered by the Underwriter on
a "firm commitment" basis, when, as and if delivered to and accepted by the
Underwriter, subject to prior sale, and other conditions and legal matters. The
Underwriter reserves the right to withdraw, cancel or modify the Offering and to
reject orders, in whole or in part, for the purchase of any of the securities
offered notwithstanding tender by check or otherwise. It is expected that
delivery of the certificates representing the Units will be made against payment
therefor at the offices of the Underwriter, 33 N.E. 2nd Street, Suite 300, Ft.
Lauderdale, Florida on or about , 1998.
FIN-ATLANTIC SECURITIES, INC.
----------------
The date of this Prospectus is , 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK AND
WARRANTS OFFERED HEREBY, INCLUDING PURCHASES OF THE COMMON STOCK OR WARRANTS TO
STABILIZE THEIR MARKET PRICE, PURCHASES OF THE COMMON STOCK OR WARRANTS TO COVER
SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK OR WARRANTS MAINTAINED BY
THE UNDERWRITER AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING".
----------------------------
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS
The Company and its officers, directors and auditors are residents of Canada
and substantially all of the assets of the Company are or may be located outside
the United States. As a result, service of process may be effected upon the
Company through the offices of Singer Zamansky LLP in New York, but it may be
difficult for investors to effect service of process within the United States
upon non-resident officers and directors, or to enforce against them judgments
obtained in the United States courts predicated upon the civil liability
provision of the Securities Act or state securities laws. The Company has been
advised by its Canadian legal counsel, Torkin, Manes, Cohen & Arbus that a
judgment of a United States court predicated solely upon civil liability under
the Securities Act would probably be enforceable in Canada if the United States
court in which the judgment was obtained had a basis for jurisdiction in the
matter that was recognized by a Canadian court for such purposes. However, there
is uncertainty whether an action could be brought in Canada in the first
instance on the basis of liability predicated solely upon such laws. If
investors have questions with regard to these issues, they should seek the
advice of their individual counsel. The Company has also been advised by its
Canadian legal counsel Torkin, Manes, Cohen & Arbus that, pursuant to the
Currency Act (Canada), a judgment by a court in any Province of Canada may only
be awarded in Canadian currency. Pursuant to the provision of the Courts of
Justice Act (Ontario), however, a court in the Province of Ontario shall give
effect to the manner of conversion to Canadian currency of an amount in a
foreign currency, where such manner of conversion is provided for in an
obligation enforceable in Ontario.
EXCHANGE RATE DATA
The Company maintains its books of account in Canadian dollars, but has
provided the financial data in this Prospectus in United States dollars with its
audit conducted in accordance with generally accepted auditing standards in the
United States of America. All references to dollar amounts in this Prospectus,
unless otherwise indicated, are in United States dollars.
The following table sets forth, for the periods indicated, certain exchange
rates based on the noon buying rate in New York City for cable transfers in
Canadian dollars. Such rates are the number of United States dollars per one
Canadian dollar and are the inverse of rates quoted by the Federal Reserve Bank
of New York for Canadian dollars per US$1.00. The average exchange rate is based
on the average of the daily exchange rates during such periods. On January 7,
1998, the exchange rate was Cdn.$1.00 per US$.6994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
<S> <C> <C> <C> <C>
1994 1995 1996 1997
--------- --------- --------- ---------
RATE AT END OF PERIOD............................. $ 0.7128 $ 0.7323 $ 0.7301 $ 0.6999
AVERAGE RATE DURING PERIOD........................ 0.7320 0.7288 0.7333 0.7222
HIGH.............................................. 0.7632 0.7527 0.7513 0.7487
LOW............................................... 0.7103 0.7023 0.7235 0.6945
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
(INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE
CONTEXT OTHERWISE REQUIRES, THE TERM "COMPANY" REFERS TO ROSEDALE DECORATIVE
PRODUCTS LTD. AND ITS WHOLLY-OWNED SUBSIDIARIES ROSEDALE WALLCOVERINGS & FABRICS
INC. ("ROSEDALE") AND ONTARIO PAINT & WALLPAPER LTD. ("ONTARIO"). EXCEPT AS
OTHERWISE INDICATED HEREIN, THE INFORMATION CONTAINED IN THIS PROSPECTUS GIVES
NO EFFECT TO THE EXERCISE OF (I) THE OVER-ALLOTMENT OPTION, (II) THE
UNDERWRITER'S WARRANTS, (III) WARRANTS OFFERED HEREBY, OR (IV) OPTIONS GRANTED
UNDER THE COMPANY'S STOCK OPTION PLAN. ALL PER SHARE INFORMATION IN THIS
PROSPECTUS HAS BEEN ADJUSTED TO REFLECT A 26,166.67 FOR ONE STOCK SPLIT OF THE
COMPANY'S COMMON STOCK EFFECTED IN MAY 1997.
THE COMPANY
The Company, through its two wholly-owned subsidiaries, Ontario and
Rosedale, designs, markets and distributes high quality residential
wallcoverings and designer fabrics. The Company also operates a retail paint and
wallpaper store located in downtown Toronto, Canada which has been in continuous
operation since 1913. The Company's products include wallpaper and wallpaper
borders (which are collectively referred to as wallcoverings), designer fabrics
and paint.
The Company designs wallcovering and designer fabric collections that it
distributes under its own brand names. Wallcoverings and fabrics sold under
Company brand names are manufactured for the Company on an outsource basis by
third party manufacturers. In addition to selling its own brand name
wallcoverings and fabrics, the Company is also a wholesale distributor of
wallcoverings designed and manufactured by other manufacturers. Wholesale
distribution of other manufacturers' wallcoverings is done through the Company's
Ontario subsidiary. Design and distribution of Company brand wallcoverings is
accomplished mainly through the Rosedale subsidiary and to a lesser extent
through the Ontario subsidiary.
Sales of Company brand wallcoverings accounts for approximately 54% of the
Company's total revenues, and wholesale distribution of wallcoverings under
non-company brand names accounts for approximately 29% of the Company's total
revenues. Sales of designer fabrics accounts for approximately 12% of the
Company's revenues, and the Company's retail paint and wallpaper store generates
approximately 5% of the Company's annual revenues.
In 1996, the Company distributed approximately 26 Company brand wallcovering
and fabric collections to its customer base of wholesale distributors who sold
the Company's products to approximately 10,000 to 20,000 retail wallpaper and
paint stores and interior designers worldwide. In addition, the Company's
Ontario subsidiary distributed approximately 47 non-Company brand wallcovering
collections to approximately 1,700-2,000 home decorating stores in Canada in
1996.
The Company believes that its product mix of wallcoverings, designer fabrics
and paints, along with its newer offerings of floor coverings and ceiling tiles
presents significant cross marketing opportunities. Rosedale has recently
introduced wallcovering and fabric sample books that include coordinated carpets
and area rugs.
As part of the Company's growth strategy, its Rosedale subsidiary has
recently expanded its product lines to include coordinated products, namely
decorative fabrics, soft window treatments and Floor coverings. The Company's
decorative fabric products are sold under the Kingsway brand name and are
intended to be utilized by consumers for draperies, upholstery and bed
coverings.
The Company intends to expand the products offered by its Ontario subsidiary
to include a line of decorative ceiling tiles for commercial and residential
customers. The decorative ceiling tiles are designed to fit into standard
suspension ceiling frameworks and are embossed with designs that emulate
ceilings
3
<PAGE>
found in many turn of the century buildings. The Company believes that its
decorative ceiling tiles will be attractive to commercial users, such as
restaurants looking to recreate turn of the century decor.
The Company believes that offering a combination of wallcoverings,
decorative fabrics and floor coverings provides significant opportunities for
cross merchandising of the Company's products. For example, by offering
coordinated lines of wallcoverings, fabrics, and floor coverings, consumers
looking to purchase wallcoverings will be exposed to the Company's designer
fabric and floor covering lines. The end result being that the Company's
products are presented to a wider variety of retail stores and consumers
enabling the Company to diversify its customer base.
The Company's strategy is to continue to capitalize on the brand name
recognition enjoyed by many of its product lines and to utilize its distribution
network to distribute a greater variety of products manufactured by third
parties. The Company intends to increase the number of retail locations that
carry products that are either manufactured, designed or distributed by the
Company, to increase the amount of products carried by such stores and to
penetrate other geographic markets including the United States, with special
emphasis on foreign markets.
Rosedale Decorative Products Ltd., was formed under the laws of Ontario,
Canada on May 14, 1997, to consolidate the business of its two wholly-owned
operating subsidiaries, Ontario Paint & Wallpaper Ltd., a company organized
under the laws of the Province of Ontario, Canada ("Ontario"), and Rosedale
Wallcoverings & Fabrics, Inc., a Company organized under the laws of the
Province of Ontario, Canada ("Rosedale"). Unless the context otherwise requires,
the term "Company" refers to Rosedale Decorative Products Ltd. and its
wholly-owned subsidiaries Ontario and Rosedale.
The Company's principal offices are located at , 731 Millway Avenue,
Concord, Ontario, Canada L4K 3S8 and its telephone number is (416) 593-4519.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered.............. 625,000 Units. Each Unit consists of two (2) Shares of
Common Stock and two (2) Warrants. Each Warrant shall
entitle the holder to purchase one share of Common Stock
at $4.50 per share. The Common Stock and Warrants will be
separately transferable 90 days after the closing of this
Offering or such earlier date as the Underwriter may
determine.
Common Stock Outstanding
Prior to Offering(1).......... 3,140,000
Common Stock to be Outstanding
After Offering(1)............. 4,390,000
Warrants Outstanding
Prior to Offering(1).......... 0
Warrants to be Outstanding
After Offering(1)............. 1,250,000. Each Warrant is exercisable at an exercise
price of $4.50 per share. The exercise price of the
Warrants is subject to adjustment in certain
circumstances. The Warrants are exercisable during the
four year period commencing one year from the date of the
prospectus. The Warrants are redeemable by the Company
commencing one year from the date of the prospectus (or
earlier with the consent of the Representative) at a price
of $.10 per Warrant on 30 days' prior written notice
provided the last sales price of the Common Stock for 30
consecutive business days equals or exceeds 250% of the
current Warrant exercise price. See "Description of
Securities", "Principal Stockholders" and "Underwriting".
Use of Proceeds................. The net proceeds to the Company from the sale of the
Securities are estimated to be approximately $4,030,000
after deducting commissions and expenses of the Offering,
which expenses are estimated at $470,000. The Company
intends to use the net proceeds of this Offering for new
product development, sales and marketing, hiring
additional personnel, the repayment of certain
indebtedness and for working capital and general corporate
purposes including potential synergistic acquisitions. See
"Use of Proceeds."
Proposed Nasdaq SmallCap
Market Symbols(2):............ RDPLU; RDPLF; RDPLW
Proposed Boston Stock
Exchange Symbols(2):.......... RDPU; RDP; RDPW
Risk Factors.................... The securities offered hereby are speculative, involve a
high degree of risk and immediate substantial dilution,
and should be considered only by investors who can afford
to sustain a loss of their entire investment. See "Risk
Factors" and "Dilution."
</TABLE>
- ------------------------
(1) Does not include an aggregate of 1,875,000 shares which may be issued upon
exercise of (i) the Warrants included in the Units offered hereby; (ii) the
Underwriter's Option; and (iii) the Underwriter's over-allotment option;
(iv) other outstanding options; and (v) 750,000 shares of Common Stock which
may be issued pursuant to an executive bonus plan. See "Management,"
"Description of Securities" and "Underwriting."
(2) Notwithstanding quotation on the Nasdaq SmallCap Market and listing on the
Boston Stock Exchange, there can be no assurance that an active trading
market for the Company's securities will develop or, if developed, will be
sustained.
5
<PAGE>
SUMMARY COMBINED FINANCIAL INFORMATION
STATEMENT OF INCOME DATA:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------------------- ----------------------------
1997 1996 1996 1995
---------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Revenues................... $ 16,251,371 $ 14,780,258 $ 18,927,369 $ 18,552,166
Gross Profit............... 5,876,689 5,069,096 6,625,768 6,946,170
Income from operations..... 1,068,146 953,640 912,617 429,435
Earnings (loss) per
share(1)................. .17 .14 .13 (.18)
Weighted average number of
shares outstanding(1).... 3,140,000 3,140,000 3,140,000 3,140,000
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------------- DECEMBER 31, DECEMBER 31,
AS ADJUSTED(2) ACTUAL 1996 1995
----------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Working capital.............. $ 6,557,829 $ 2,527,829 $ 2,164,962 $ 1,104,959
Total assets................. 18,055,424 15,125,424 13,042,385 12,490,738
Long-term liabilities........ 2,670,956 2,670,956 2,622,877 1,705,798
Total liabilities............ 12,319,971 13,419,971 11,866,358 11,732,467
Total shareholders' equity... 5,735,453 1,705,453 1,176,027 758,271
</TABLE>
- ------------------------
(1) After giving effect to an approximate 1:26,167 stock split which increased
total shares outstanding from 120 to 3,140,000.
(2) Reflects the issuance of 625,000 Units, each unit consisting of 2 shares of
Common Stock and 2 Warrants, offered hereby and the application of the net
proceeds therefrom.
6
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, IN
ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH INVESTMENTS IN THE SECURITIES OFFERED HEREBY. THIS PROSPECTUS CONTAINS
CERTAIN FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. AN INVESTMENT IN THE SECURITIES
OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
1. UNCERTAINTY OF NEW PRODUCT DEVELOPMENT AND NO ASSURANCE OF MARKET
ACCEPTANCE. The perpetuation of the Company's success is dependent upon
continued name recognition and acceptance of the Company's existing and new
products. No assurances can be made that any or all products will achieve or
maintain consumer acceptance. Continued product development and
commercialization efforts are subject to all of the risks inherent in the
development of new products including achieving market acceptance, competition.
There is no assurance that the Company will be able to develop, manufacture and
distribute new products which achieve market acceptance. See "Business".
2. DEPENDENCE ON SUPPLIERS FOR WHOLESALE DISTRIBUTION. The Company is
dependent upon wallcovering suppliers for non-Company brand name wallcoverings
that the Company distributes for third parties. Wholesale distribution of
non-Company brand name wallcoverings accounts for a significant portion of the
Company's total revenues. Any disruption in the supply of wallcoverings could
have a significant adverse impact upon the Company.
3. DEPENDENCE ON THIRD PARTY MANUFACTURERS FOR COMPANY BRAND NAME
WALLCOVERINGS AND FABRICS. The Company is dependent upon third parties to
manufacture its Company Brand Name wallcovering and fabric collections. The
Company enters into agreements with wallcovering and fabric manufacturers on a
collection by collection basis and maintains no long term agreements with its
manufacturers. It is the Company's intention to use current or additional third
parties to manufacture its Company Brand Name wallcoverings and fabrics. The
Company believes that it will be able to enter into arrangements with third
parties to manufacture its products, as needed, however, no assurance can be
given that it will be able to do so on reasonable terms or otherwise.
4. DEPENDENCE ON THIRD PARTY FREIGHT HAULERS. The Company is dependent on
independent freight haulers to ship the Company's products to distribution
facilities. The ability of the Company to control its freight expenses is a
significant factor in the Company's gross profit margin. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." There
is no assurance that the Company will be able to maintain acceptable freight
pricing and arrangements. Furthermore, a labor slowdown, strike or other matters
beyond management's control may adversely affect the Company's ability to ship
its products on a timely basis or at all. See "Business."
5. DEPENDENCE ON MAJOR CUSTOMERS. Approximately 14% of the Company's
revenue is derived from sales to one customer, The Blonder Company. No other
customer accounts for more than 10% of the Company's revenues. There is no
assurance that the Company will maintain its relationship with The Blonder
Company. In the event The Blonder Company does not continue acquiring products
from the Company, the Company's business and results of operations would be
materially adversely effected.
6. UNCERTAINTY AS TO COMPANY'S ABILITY TO EXPAND INTO UNITED STATES AND
OTHER MARKETS. In order to further penetrate the U.S. and other markets, the
Company will have to devote significant resources to advertising and marketing
in such countries in order to develop consumer awareness of its products and to
procure sufficient shelf space for its products. There can be no assurance that
the Company will be successful in its efforts. The Company intends to devote a
portion of the net proceeds of this Offering toward the continued expansion into
the U.S. market and other markets. See "Business".
7
<PAGE>
7. INTENSE COMPETITION IN WALLCOVERING/FABRIC MARKET. The Company's
business is subject to significant competition. The Company's primary business
of designing and distributing wallcoverings and decorative fabrics is highly
competitive. The Company competes with other wholesale distributors of
wallcoverings and fabrics and with manufacturers of wallcoverings and fabrics
that maintain their own distribution network. All of the competitors that
manufacturer wallcoverings and fabrics have greater financial resources than the
Company and greater control over the products they distribute. Certain of the
Company's competitors that distribute wallcoverings and fabrics, but do not
manufacture, have greater financial resources than the Company.
The Company's Brand Name wallcoverings and fabrics, such as Concord-TM-,
Ridley Nash-TM-, Rosedale-TM-, Cambridge Studios-TM-, Hamilton House-TM-, and
Kingsway Fabrics-TM-compete with other brands of wallcoverings and fabrics
primarily on the basis of quality, design and color and are therefore subject to
consumers' tastes and preferences which may change at any time. In addition, the
Company Brand Name wallcoverings and fabrics compete against brands produced and
distributed by competitors that may have greater financial resources than the
Company.
The company also competes with national and regional retail distributors,
many of which have greater financial and other resources of the Company. See
"Business--Competition".
8. UNCERTAINTIES OF GOVERNMENT REGULATION. The Company is subject to
various Canadian and United States regulations relating to health and safety
standards. Regulations in new markets and future changes in existing regulations
may adversely impact the Company by raising the cost of production. See
"Business-Government Regulation".
9. DEPENDENCE ON KEY PERSONNEL. The Company's future success will depend to
a significant extent on the efforts of key management personnel, including
Sidney Ackerman its President, Alan Fine, its Chief Executive Officer, and other
key personnel. The Company is in the process of entering into employment
agreements with Sidney Ackerman and Alan Fine and other key employees. The loss
of one or more of these key employees could have a material adverse effect on
the Company's business. The Company anticipates acquiring key-person life
insurance policies on its executive officers. In addition, the Company believes
that its future success will depend in large part upon its continued ability to
attract and retain highly qualified management, technical and sales personnel.
There can be no assurance that the Company will be able to attract and retain
the qualified personnel necessary for its business. See "Management".
10. POTENTIAL REVENUE CANADA TAX LIABILITY. In 1992, The Company's Rosedale
subsidiary formed a California corporation for the purpose of manufacturing
window blinds to be sold as an accompaniment to its existing wallcovering and
other products. The window blind company was sold in 1994, and in connection
therewith, Rosedale claimed a business loss deduction on their investment in
such company. Rosedale was subsequently informed by Revenue Canada that the
deduction which it claimed was being allowed as a capital loss and not as a
business loss deduction, and, as a result, Rosedale owed an additional $652,110
in taxes. The Company's Rosedale subsidiary has filed a formal notice of
objection contesting Revenue Canada's classification of its deduction. No
assurance can be given that Rosedale will be able to reach an agreement with the
tax authorities, that the tax authorities will not immediately seek payment of
the taxes, or that the tax authorities will not commence an action or file a
lien against Rosedale in order to recover the taxes. See "Business--Legal
Proceedings."
11. CONTROL BY EXISTING STOCKHOLDERS. Upon the completion of this Offering,
the Company's management will collectively beneficially own approximately 63%
(60% if the Underwriters' Over-Allotment Option is exercised in full) of the
Company's outstanding Common Stock. Because of their beneficial stock ownership,
these stockholders will be in a position to continue to elect the majority
members of the Board of Directors and decide matters requiring stockholder
approval. See "Principal Stockholders."
12. NO PRIOR PUBLIC MARKET. Prior to this Offering, there has been no
public market for the Units, Common Stock and/or Warrants. Accordingly, there
can be no assurance that an active trading market will
8
<PAGE>
develop and be sustained upon the completion of this Offering. The initial
public offering price of the Units has been determined by negotiations between
the Company and the Underwriter and does not necessarily bear any relation to
the Company's asset value, earnings or other objective criteria. See
"Underwriting." The stock market has, from time to time, experienced extreme
price and volume fluctuations which often have been unrelated to the operating
performance of particular companies. Although it has no obligation to do so, the
Underwriter intends to engage in market-making activities or solicited brokerage
activities with respect to the purchase or sale of the Units on the Nasdaq
SmallCap Market. However, no assurance can be given that the Underwriter will
continue to participate as a market-maker in the securities of the Company or
that other broker/ dealers will make a market in such securities which may
adversely impact the liquidity of the securities. Regulatory developments and
economic and other external factors, as well as period-to-period fluctuations in
financial results, may also have a significant impact on the market price of
such securities. See "Description of Securities."
13. NEED FOR ADDITIONAL FINANCING. The Company believes that the proceeds
of the Offering will, together with revenues from operations, be sufficient to
finance the Company's working capital requirements for a period of at least 24
months following the completion of the Offering. In addition, a part of the
Company's strategy is to expand its product mix, increase market share, and
develop markets in Europe and Southeast Asia. The continued expansion and
operation of the Company's business beyond such 24 month period and its ability
to expand its business may be dependent upon its ability to obtain additional
financing. There can be no assurance that additional financing will be available
on terms acceptable to the Company, or at all. In the event that the Company is
unable to obtain such additional financing as it becomes necessary, the Company
may not be able to achieve all of its business plans. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
14. IMMEDIATE AND SUBSTANTIAL DILUTION. This Offering involves an immediate
and substantial dilution to investors. Purchasers of Shares in the Offering will
incur an immediate dilution of $2.69 per Share in the net tangible book value of
their investment from the initial public offering price, which dilution amounts
to approximately 67% of the initial public offering price per Share. Investors
in the Offering will pay $4.00 per Share, assuming no value is attributed to the
Warrants, as compared with an average cash price of $.54 per share of Common
Stock paid by existing stockholders. See "Dilution."
15. BROAD DISCRETION IN APPLICATION OF PROCEEDS BY
MANAGEMENT. Approximately 49.6% of the net proceeds of this offering will be
applied towards new product development and 9.4% of the net proceeds of this
Offering will be applied to working capital and general corporate purposes.
Accordingly, management of the Company will have broad discretion over the use
of proceeds. See "Use of Proceeds".
16. SHARES ELIGIBLE FOR FUTURE SALE. Of the 4,390,000 shares of Common
Stock of the Company to be outstanding upon completion of this Offering,
3,140,000 shares shall be "restricted securities," which are owned by
"affiliates" of the Company, as those terms are defined in Rule 144 promulgated
under the Act. Absent registration under the Act, the sale of such shares is
subject to Rule 144, as promulgated under the Act. All of the "restricted
securities" are eligible for resale under Rule 144. In general, under Rule 144,
subject to the satisfaction of certain other conditions, a person, including an
affiliate of the Company, who has beneficially owned restricted shares of Common
Stock for at least one year is permitted to sell in a brokerage transaction,
within any three-month period, a number of shares that does not exceed the
greater of 1% of the total number of outstanding shares of the same class, or if
the Common Stock is quoted on Nasdaq or a stock exchange, the average weekly
trading volume during the four calendar weeks preceding the sale. Rule 144 also
permits a person who presently is not and who has not been an affiliate of the
Company for at least three months immediately preceding the sale and who has
beneficially owned the shares of Common Stock for at least two years to sell
such shares without regard to any of the volume limitations as described above.
Holders of 3,140,000 shares of Common Stock are affiliates of the Company. All
of the Company's shareholders who are affiliates have agreed not to sell or
otherwise dispose of any of their shares of Common Stock now owned or issuable
upon the exercise of any option for
9
<PAGE>
a period of 18 months from the Effective Date, without the prior written consent
of the Underwriter. No prediction can be made as to the effect, if any, that
sales of shares of Common Stock or the availability of such shares for sale will
have on the market prices of the Company's securities prevailing from time to
time. The possibility that substantial amounts of Common Stock may be sold under
Rule 144 into the public market may adversely affect prevailing market prices
for the Common Stock and Warrants and could impair the Company's ability to
raise capital in the future through the sale of equity securities. See "Shares
Eligible for Future Sale".
17. NO DIVIDENDS AND NONE ANTICIPATED. To date, no dividends have been
declared or paid on the Common Stock, and the Company does not anticipate
declaring or paying any dividends in the foreseeable future, but rather intends
to reinvest profits, if any, in its business. Investors should, therefore, be
aware that it is unlikely that any dividends will be paid on the Common Stock in
the foreseeable future. See "Dividends".
18. RISK OF LOW PRICE STOCKS. The Company has applied to list the Units,
Common Stock and Warrants on the Boston Stock Exchange ("BSE") and expects to
list its securities on this exchange and it is anticipated that such securities
will also be traded on the Nasdaq SmallCap Market. If the Company's securities
are delisted from the BSE, they could become subject to Rule 15g-9 under the
Exchange Act, which imposes additional sales practice requirements on
broker-dealers which sell such securities to persons other than established
customers and accredited investors. For transactions in securities covered by
Rule 15g-9, a broker-dealer must make a special suitability determination for
the purchaser and have received the purchaser's written consent to the
transaction prior to the sale. Consequently, such rule may adversely affect the
ability of broker-dealers to sell the Company's securities and may adversely
affect the ability of purchasers in this Offering to sell in the secondary
market any of the Company's securities acquired hereby.
19. UNDERWRITER'S INFLUENCE ON THE MARKET. A significant amount of the
Units offered may be sold to customers of the Underwriter. Such customers
subsequently may engage in transactions for the sale or purchase of such Units
and may otherwise effect transactions in such securities. If they participate in
the market, the Underwriter may exert substantial influence on the market, if
one develops, for the Units, Common Stock and Warrants. Such market-making
activity may be discontinued at any time. The price and liquidity of the Units,
Common Stock and Warrants may be significantly affected by the degree, if any,
of the Underwriter's participation in such market. See "Underwriting."
20. POSSIBLE RESTRICTIONS IN MARKET-MAKING ACTIVITIES IN THE COMPANY'S
SECURITIES. The Underwriter has advised the Company that it intends to make a
market in the Company's securities. Regulation M, which was adopted to replace
Rule 10b-6 and certain other rules promulgated under the Exchange Act, may
prohibit the Underwriter from engaging in any market-making activities with
regard to the Company's securities for a period of five business days (or such
other applicable period as Regulation M may provide) prior to any solicitation
by the Underwriter of the exercise of Warrants until the latter of the
termination of such solicitation activity or the termination (by waiver or
otherwise) of any right that the Underwriter may have to receive a fee for the
exercise of the Warrants following such solicitation. As a result, the
Underwriter may not be able to provide a market for the Company's securities
during certain periods when the Warrants are exercisable. Any cessation of the
Underwriter's market-making activities could have an adverse effect on the
market price of the Company's securities. See "Underwriting."
21. POSSIBLE ADVERSE EFFECT OF PENNY STOCK REGULATIONS ON THE LIQUIDITY OF
THE COMPANY'S SECURITIES. The Company intends to apply for listing of its
securities on the Nasdaq SmallCap Market. In the absence of the Common Stock
being quoted on Nasdaq and if the Common Stock is not listed on an exchange,
trading in the Common Stock would be covered by Rule 15g-9 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") if the Common
Stock is a "penny stock." Under such rule, broker-dealers who recommend such
securities to persons other than established customers and accredited
10
<PAGE>
investors must make a special written suitability determination for the
purchaser and receive the purchaser's written agreement to a transaction prior
to sale. Securities are exempt from this rule if the market price is at least
$5.00 per share.
The Commission adopted regulations that generally define a penny stock to be
any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Such exceptions include an equity security listed
on Nasdaq, and an equity security issued by an issuer that has (i) net tangible
assets of at least $2,000,000, if such issuer has been in continuous operation
for three years, (ii) net tangible assets of at least $5,000,000, if such issuer
has been in continuous operation for less than three years, or (iii) average
revenue of at least $6,000,000 for the preceding three years. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith.
If the Company's Common Stock were to become subject to the regulations
applicable to penny stocks, the market liquidity for the Common Stock and
Warrants would be severely affected, limiting the ability of broker-dealers to
sell the Common Stock and Warrants and the ability of purchasers in this
Offering to sell their Common Stock and Warrants in the secondary market. There
is no assurance that trading in the Common Stock and Warrants will not be
subject to these or other regulations that would adversely affect the market for
such securities.
22. POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. The Warrants
offered hereby are redeemable, in whole or in part, at a price of $.10 per
Warrant, commencing one year after the Effective Date (or earlier with the
consent of the Underwriter) and prior to their expiration; provided that (i)
prior notice of not less than 30 days is given to the Warrantholders; (ii) the
closing bid price of the Common Stock if traded on the Nasdaq SmallCap Market,
or the last sales price per share if listed on the Nasdaq National Market or a
national exchange, on each of the 10 consecutive business days ending on the
third business day prior to the date on which the Company gives notice of
redemption has been at least 250% ($11.25 per share) of the current Warrant
exercise price; and (iii) Warrantholders shall have exercise rights until the
close of the business day preceding the date fixed for redemption. Notice of
redemption of the Warrants could force the holders to exercise the Warrants and
pay the Exercise Price at a time when it may be disadvantageous for them to do
so, or to sell the Warrants at the current market price when they might
otherwise wish to hold them, or to accept the redemption price, which may be
substantially less than the market value of the Warrants at the time of
redemption. See "Description of Securities-Warrants."
23. REQUIREMENTS OF CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION IN
CONNECTION WITH THE EXERCISE OF THE WARRANTS. The Warrants offered hereby are
not exercisable unless, at the time of exercise, (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 in the jurisdictions in
which the various holders of Warrants reside. There can be no assurance,
however, that the Company will be successful in maintaining a current
registration statement. After a registration statement becomes effective, it may
require updating by the filing of a post-effective amendment. A post-effective
amendment is required (i) any time after nine months subsequent to the effective
date when any information contained in the prospectus is over sixteen 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 months following the date of this Prospectus or until September
, 1998 assuming a post effective amendment is not filed by the Company. The
Warrants will be separately tradeable and separately transferable from the
Common Stock offered hereby immediately commencing on the Effective Date. The
Company intends to qualify the Warrants and the shares of Common Stock issuable
upon exercise of the Warrants in a limited number of states, although certain
exemptions under state securities ("blue sky") laws may permit the Warrants to
be transferred to
11
<PAGE>
purchasers in states other than those in which the Warrants were initially
qualified. The Company will be prevented, however, from issuing shares of 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 holders of the Warrants reside. In such a case, the Warrants
of those holders will expire and have no value if such Warrants cannot be
exercised or sold. See "Description of Securities".
24. NON-REGISTRATION IN CERTAIN JURISDICTIONS OF SHARES UNDERLYING THE
WARRANTS. Although the Common Stock and the Warrants will not knowingly be sold
to purchasers in jurisdictions in which they are not registered or otherwise
qualified for sale, purchasers may buy the Common Stock or Warrants in the
aftermarket or may move to jurisdictions in which the shares of Common Stock
issuable upon exercise of the Warrants are not so registered or qualified during
the period that the Warrants are exercisable. In such event, the Company could
be unable to issue shares to those persons desiring to exercise their Warrants
unless and until the shares could be registered or qualified for sale in the
jurisdiction in which such purchasers reside, or an exemption to such
qualification exists or is granted in such jurisdiction. If the Company was
unable to register or qualify the shares in a particular state and no exemption
to such registration or qualification was available in such jurisdiction, in
order to realize any economic benefit from the purchase of the Warrants, a
holder might have to sell the Warrants rather than exercising them. No assurance
can be given, however, as to the ability of the Company to effect any required
registration or qualification of the Common Stock or Warrants in any
jurisdiction in which registration or qualification has not already been
completed. See "Description of Securities--Warrants."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of Securities
offered hereby at public offering prices of $8.00 per Unit, after deducting
underwriting commissions and offering expenses to be paid by the Company, is
estimated to be $4,030,000. The Company expects to apply the net proceeds of the
Offering as follows:
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE OF
APPLICATION OF PROCEEDS AMOUNT NET PROCEEDS
- ------------------------------------------------------------------ ------------ ---------------
<S> <C> <C>
New Product Development(1)........................................ $ 2,000,000 49.6%
Sales and Marketing(2)............................................ 320,000 7.9%
Hire Additional Personnel(3)...................................... 180,000 4.5%
Payment of Financial Advisory Fee(4).............................. 50,000 1.3%
Repayment of Trade Payables(5).................................... 1,100,000 27.3%
Working Capital(6)................................................ 380,000 9.4%
------------ ---
Total....................................................... 4,030,000 100%
------------ ---
------------ ---
</TABLE>
- ------------------------
(1) The net proceeds allocated to new product development are expected to be
applied towards the development of new lines of wallcoverings and designer
fabrics as well as the development of new products such as decorative
ceiling tiles and floor coverings.
(2) The net proceeds allocated to marketing and sales are expected to be applied
towards the promotion of the Company's brands in their respective markets,
including North America, Europe and Southeast Asia, and expansion of the
Company's markets in the United States and Asia over the next 24 months. The
proceeds are expected to be applied to market research, distributor
incentive programs and sales person incentive programs.
(3) The Company anticipates hiring additional sales and operations employees and
has allocated these net proceeds to fund certain incremental costs over the
next 24 months.
(4) $50,000 will be paid to the Underwriter pursuant to a twelve month financial
advisory agreement, all of which is payable upon consummation of the
Offering.
(5) The net proceeds allocated to trade payables are expected to be applied
towards (i) payment of overdue accounts with certain suppliers which include
The Borden Company, Zen Wallcoverings and Hawthorne Prints; and (ii)
payments required to finance the increase in the Company's product
inventories of Company brand wallcoverings and designer fabrics as well as
paints and, to a lesser extent, non Company brand wallcoverings necessary to
service the Company's continued growth and expansion of its markets.
(6) The net proceeds allocated to working capital includes funds for general
corporate purposes.
The foregoing represents the Company's estimate of the allocation of the net
proceeds of the Offering, based upon the current status of its operations and
anticipated business needs. It is possible, however, that the application of
funds will differ considerably from the estimates set forth herein due to
changes in the economic climate and/or the Company's planned business operations
or unanticipated complications, delays and expenses, as well as any potential
acquisitions that the Company may consummate, although no specific acquisition
has been identified. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Any reallocation of the net proceeds will
be at the discretion of the Board of Directors of the Company.
Any additional net proceeds realized from the exercise of the Over-Allotment
Option (up to approximately $652,500) will be added to the Company's working
capital.
13
<PAGE>
Pending application, the net proceeds will be invested principally in
short-term certificates of deposit, money market funds or other short-term
interest-bearing investments.
The Company estimates that the net proceeds from this Offering will be
sufficient to meet the Company's liquidity and working capital requirements for
a period of 12 months from the completion of this Offering. In the event that
the Company consummates any acquisition, although no specific acquisition has
been identified, such funds will be derived from the funds currently allocated
to working capital or from revenues generated from the Company's operations.
DIVIDEND POLICY
The Company has never paid or declared dividends on its Common Stock. The
payment of cash dividends, if any, in the future is within the discretion of the
Board of Directors and will depend upon the Company's earnings, its capital
requirements, financial condition and other relevant factors. The Company
intends, for the foreseeable future, to retain future earnings for use in the
Company's business.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 and as adjusted to reflect the sale of 625,000 Units, each
Unit consisting of two shares of Common Stock and two Warrants, offered hereby.
The information provided below should be read in conjunction with the other
financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
---------- -----------
Long-term liabilities, less current maturities...................... 2,670,956 2,670,956
Shareholders' equity:
Capital Stock, unlimited shares authorized: 3,140,000 issued and
outstanding(1); and 4,390,000 issued and outstanding as
adjusted(2)....................................................... 163 4,030,163
Foreign currency transaction adjustment............................. (117,784) (117,784)
Retained earnings................................................... 1,823,074 1,823,074
Total shareholders' equity........................................ 1,705,453 5,735,453
Total capitalization.............................................. 4,376,409 8,406,409
</TABLE>
- ------------------------
(1) Represents the rollover of 120 shares in the existing companies into
3,140,000 shares of Common Stock of the Company. Does not include 750,000
shares of Common Stock provided for issuance under the Company's Stock
Option Plan.
(2) Reflects the issuance of 1,250,000 shares of Common Stock by the Company in
connection with this Offering. Does not include 750,000 shares of Common
Stock provided for issuance under the Company's Stock Option Plan.
15
<PAGE>
DILUTION
Dilution represents the difference between the initial public offering price
paid by the purchasers in the Offering and the net tangible book value per share
immediately after completion of the Offering. Net tangible book value per Share
represents the amount of the Company's total assets minus the amount of its
liabilities and intangible assets divided by the number of shares outstanding.
As of September 30, 1997, the net tangible book value of the Company's Common
Stock was $1,705,453 or $.54 per share. Without taking into account any changes
in net tangible book value after September 30, 1997, other than to give effect
to the sale of the Units offered hereby and the receipt of the net proceeds of
this Offering, the pro forma net tangible book value of the Company as of
September 30, 1997 would have been $5,735,453 or $1.31 per share. Consequently,
there will be an immediate increase in net tangible book value of $.77 per Share
to the existing shareholders and an immediate substantial dilution (i.e. the
difference between the offering price of $4.00 per share, assuming no value is
attributed to the Warrants, and the pro forma net tangible book value per Share
after the Offering) of $2.69 or 67% to new investors purchasing the Shares
offered hereby.
The following table illustrates, as of September 30, 1997, this per share
dilution:
<TABLE>
<S> <C> <C>
Public offering price per Share............................... $ 4.00
Net tangible book value before Offering(1).................. $ .54
Increase per Share attributable to new investors............ $ .77
Pro forma net tangible book value per Share after
Offering(1)................................................. $ 1.31
---------
Dilution per Share to new investors(1)........................ $ 2.69
---------
---------
</TABLE>
The following table summarizes, as of September 30, 1997, the total number
of shares of Common Stock purchased from the Company, the total consideration
paid, and the average price per share paid by the existing shareholders and by
new investors who purchase Units pursuant to this Offering. The computation
excludes any value ascribed to or proceeds relating to the Warrants.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE AVERAGE
SHARES UNDERLYING OF TOTAL AGGREGATE OF TOTAL PRICE
UNITS PURCHASED(1) SHARES CONSIDERATION CONSIDERATION PER SHARE
------------------ ------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Existing
Shareholders...... 3,140,000 72% $ 1,705,453 25% .54
New Investors....... 1,250,000 28% $ 5,000,000 75% 4.00
---------- --- ------------- ---
Total......... 4,390,000 100% $ 6,705,453 100%
---------- --- ------------- ---
---------- --- ------------- ---
</TABLE>
- ------------------------
(1) This information does not include (i) 750,000 Shares that may be issued
under the Company's Stock Option Plan, (ii) 62,500 units issuable upon the
exercise of the Underwriters' Option and (iii) 93,750 units available from
the Company under the over-allotment option.
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<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data and other
operation information of the Company. The selected historical financial data in
the table for the years ended December 31, 1996 and 1995 is derived from the
audited financial statements of the Company. The selected financial data set
forth below should be read in conjunction with the Company's financial
statements and notes thereto and with the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------------------- ----------------------------
<S> <C> <C> <C> <C>
1997 1996 1996 1995
--------------- --------------- ------------- -------------
Total revenues............. $ 16,251,371 $ 14,780,258 $ 18,927,369 $ 18,552,166
Total costs and expenses... 15,711,205 14,347,271 18,503,798 19,125,056
Net income (loss).......... 540,166 432,987 423,571 (572,890)
Net income(loss) per common
share(1)................. 0.17 0.14 0.13 (0.18)
Weighted average common
shares outstanding(1).... 3,140,000 3,140,000 3,140,000 3,140,000
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------- DECEMBER 31, DECEMBER 31,
AS ADJUSTED(2) ACTUAL 1996 1995
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Working capital.................... $ 6,557,829 $ 2,527,829 $2,164,962 $1,104,959
Total assets....................... 18,055,424 15,125,424 13,042,385 12,490,738
Total liabilities.................. 12,319,971 13,419,971 11,866,358 11,732,467
Total stockholders' equity......... 5,735,453 1,705,453 1,176,027 758,271
</TABLE>
- ------------------------
(1) Reflects the issuance of 3,140,000 shares of Common Stock of the Company in
exchange for all of the outstanding common stock of the predecessor
companies.
(2) Reflects the issuance of 625,000 Units, each unit consisting of 2 shares of
Common Stock and 2 Warrants, offered hereby and the application of the net
proceeds therefrom.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The statements contained in this Prospectus that are not historical are
forward looking statements, including statements regarding the Company's
expectations, intentions, beliefs or strategies regarding the future. Forward
looking statements include the Company's statements regarding liquidity,
anticipated cash needs and availability and anticipated expense levels. All
forward looking statements included in this prospectus are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward looking statement. It is important to note
that the Company's actual results could differ materially from those in such
forward looking statements. Among the factors that could cause actual results to
differ materially are the factors detailed in the risks discussed in the " Risk
Factors" section included in this Prospectus at page 9.
The wallcoverings, decorative fabrics and paint markets are highly
competitive and consists of foreign and domestic manufacturers and distributors
most of whom are larger and have greater resources than the Company.
The Company's future success as a designer and distributor of high quality
wallcoverings and designer fabrics will be influenced by several factors
including the ability of the Company to efficiently meet the quality and design
requirements of its customers, management's ability to evaluate the public's
quality and design requirements and to achieve market acceptance of its
wallcoverings and designer fabrics collections. Further factors impacting the
Company's operations are increases in expenses associated with continued sales
growth, the ability of the Company to control costs, to develop products with
satisfactory profit margins and the ability to develop and manage the
introduction of new product lines and competition.
The Company's customer base is divided among national and regional wholesale
distributors, professional interior designers and large retail chains in the
United States and Canada. The Blonder Company accounts for 14 % of the Company's
sales. No other customer accounts for more than 10% of the Company's sales.
Approximately 21.54% of the Company's sales are to national distributors, 21.51%
are to regional distributors, 0.42% to interior designers and 16.22% to retail
chains. The remaining 40.31% are to independent retail stores.
The Company is not dependent upon any major customers for a significant
portion of its revenues. However approximately 12 customers account for 44% of
the Company's revenues. These include The Blonder Company, Color Your World, Key
Wallcoverings, Gardner Wallcoverings, Fashion Wallcoverings, Seabrook
Wallcoverings, Images Wallcoverings, Atlas Wallcoverings, G & W Wallcoverings,
Hunter & Co., Sears Canada and Walltrends.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996.
Revenues for the nine months ended September 30, 1997 were $16,251,371, a
9.95% increase over prior year revenues of $14,780,258. This increase was due to
greater acceptance of product lines in the market, increased market share from
the independent retail stores, increased residential real estate sales and
expansion of the export market coupled with the improving economic climate in
North America.
Gross profit for the Company for the nine months ended September 30, 1997
was 36.16% of sales, an improvement as compared to the same period one year ago,
which was 34.30%. This positive change can be attributed to higher sales prices,
more efficient buying practices and an increase in sales to independent retail
stores.
18
<PAGE>
Selling expenses for the Company increased by 2.20%, from $1,717,262 to
$1,755,077 for the nine month period ended September 30, 1997 as compared to the
nine month period ended September 30, 1996. This increase is attributable to an
increase in sales and resultant higher warehouse costs.
General and administrative expenses for the Company increased by 16.55%, to
$1,655,914 for the nine months ended September 30, 1997 from $1,420,784 for the
nine months ended September 30, 1996. In 1996, management payroll was reduced as
part of a cost reduction plan.
Rosedale develops wallpaper and fabric sample books which are created for
each collection and sold through distributors. The majority of expenditures for
the creation of sample books are incurred in the quarter before the launch of a
collection. Some expenditures are incurred as early as six to eight months in
advance. Revenues generated from the sale of sample books are netted from the
costs incurred in the same period and the net amount is shown on the income
statement. Because expenditures are made in the quarter before the launch of a
collection, there is not always a matching of revenues and expenses e.g. costs
for a January launch would be recorded the last quarter of the preceding fiscal
year, while the revenue would be recorded in the following year. The Company
ensures that there are firm orders in place from customers before significant
expenditures are incurred to produce the sample books. Therefore, there is
little speculative risks in their production. Book development costs for the
nine month period ended September 30, 1997 was $219,065, compared to a recovery
of ($129,355) for the same period last year. This is attributable to delays in
the launching of certain collections during 1997.
Design studio expenses for the Company decreased $67,024 to $628,876 for the
nine months ended September 30, 1997 versus $695,900 for the same period last
year. This reduction is attributable lower staff requirements as a result of the
implementation of the computer aided design ("CAD") design computer system for
the studio.
Operating income for the nine months ended September 30, 1997 was $1,068,146
an increase of 12.01% over the Company's operating income for the nine months
ended September 30, 1996 of $953,640. This increase in income from operations is
directly a result of continued sales growth and improved margins coupled with
strict cost control.
Interest expense for the Company for the nine months ended September 30,
1997 decreased 7.26% to $214,722 from $231,523 for the nine months September 30,
1996. This increase in interest expense is directly attributable to lower
interest rates.
Insurance premiums on life insurance policies taken out by the Company on
the lives of three of two of its executives and one shareholder have been
presented below operating income because of the magnitude of the premiums.
Premium expense for the nine months ended September 30, 1997 decreased 12.27% to
$125,826 from $143,432 resulting from an increase in capitalization of premiums
to the cash surrender values of the life insurance policies.
Net income for the nine months ended September 30, 1997 increased 24.75%
over the same period September 30, 1996. The improvement is attributable to
higher prices for product lines, better mix of sales and stricter cost control.
FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1995
Revenues for the fiscal year December 31, 1996 were $18,927,369, a 2.02%
increase over the prior year revenues of $18,552,166. This marginal increase is
a direct result of a turnaround in the Canadian economy resulting in a larger
volume of sales to independent retail stores.
Gross profit for the Company for the fiscal year ended December 31, 1996 was
35%, a 2.44% decrease as compared to the prior year which was 37.44%. This
decrease is attributable to clearance sales of old collections and overstocks
and a reduction in sales to the United States in 1996 which have higher margins.
19
<PAGE>
Selling expenses for the Company decreased by 10.72%, to $2,437,576 for the
fiscal year ended December 31, 1996 from $2,730,318 for the fiscal year ended
December 31, 1995. This decrease is selling expense is attributable to stricter
cost control and consolidation of sales territories.
General and administrative expenses for the Company decreased by 15.91% from
$2,003,119 to $2,382,302 in the fiscal year ended December 31, 1996 as compared
to the fiscal year ended December 31, 1995. This significant decrease in general
and administrative expense is attributable to a reduction in management payroll
in 1996 as part of a cost reduction plan, a $441,200 reversal in unpaid
management bonuses from 1993 and stricter cost controls.
Book development cost recovery for the fiscal year ended December 31, 1997
provided income to the Company of $278,079, an increase of $97,840 in book
development cost recovery over the same period for the prior year. This increase
was due to increased sales and improved timing of launches of collections.
Income from operations increased $483,182 in fiscal 1996 from $429,435 to
$912,617 an increase of 112%. As a percentage of sales, income improved to 4.82%
as compared to 2.31% for 1996. This increase is a direct result of sales growth
and improved gross margins.
Interest expense decreased by $523,795 in fiscal 1996 from $758,660 in
fiscal 1995 to $234,865 in fiscal 1996. In 1995, approximately $519,000 was
either paid or accrued in the financial statements as interest expense on the
loans taken out with the Laurentian Bank of Canada to fund the premiums on
$22,000,000 of life insurance taken out by the Company on the lives of two key
executives and one shareholder. In 1996, the unutilized portion of these loans
which were previously invested in term deposits were collapsed and proceeds used
to pay down the loans. This resulted in a significant reduction in the interest
expense.
Insurance premiums increased marginally by $1,258 in 1996 from $190,587 to
$191,845. This represents the estimated annual expense portion of the premiums
on the insurance policies on the lives of three key executives.
Net income for 1996 was $423,571 compared to a loss of $572,890 for 1995.
This significant turnaround is directly attributable to increased sales
especially to independent retail stores resulting form an improved economic
climate in North America, higher prices and more efficient buying practices. In
addition, strict cost control and the reduction in interest expenses assisted in
the Company being able to achieve this turnaround.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1995, the Company had a net decrease in cash from operations of
$937,676. The principal cause of this decrease was attributable to decline in
sales in North America of approximately $4.9 million during 1994 as a result of
recessions in Canada and the United States. The Company continued to acquire
inventory in the amount of $1,183,734 financed primarily from an add back of
amortization of $595,176 and collections of accounts receivable of $754,099.
Bank indebtedness increased by $1,931,185 which was used to purchase capital
equipment of $902,570 and inventory and to pay trade payables in the amount of
$460,691.
In 1996, the Company used net cash in operating activities of $27,194 and
was able to reduce its bank indebtedness by $71,725. The principal source of
cash was from net income of $423,571, a decrease in inventory of $676,507 and an
addback of amortization of $651,143. The Company purchased capital equipment in
the amount of $871,703 which was financed primarily by loans from directors of
$510,298 and long-term debt of $510,414. During the year the Company negotiated
special payment terms with certain major suppliers and implemented strict
budgetary and financial controls. As a result, the Company was able to pay down
its trade debt in the amount of $1,299,429. Receivables increased $487,558.
However, the Company was still able to reduce its bank indebtedness by $71,725.
20
<PAGE>
The Company used cash of $525,056 in operating activities for the nine
months ended September 30, 1997 as compared to the same period ended September
30, 1996 when it used cash of $1,156,135 in operating activities. This
represents a reduction of $631,079 or 54% form the nine month period ended
September 30, 1996. The principal source of cash was from net income of
$540,166, addback of amortization of $549,611 and an increase in payables of
$1,043,722. Accounts receivable and inventory increased by $1,647,732 and
$1,165,691, respectively. Cash flows used in investing activities were $813,160
for the nine month period ended September 30, 1997 compared to $440,100 for the
nine month period ended September 30, 1996. The main items were acquisition of
capital equipment and an investment in two mortgages held by related companies.
Net cash provided by financing activities for the nine month period ended
September 30, 1997 was $72,292 compared to $669,198 for the nine month period
ended September 30, 1996. This reduction in financing requirements is
attributable to the increasing profitability of the Company resulting in loans
from directors of $159,405 for the nine months ended September 30, 1997 compared
to $547,111 for the nine months ended September 30, 1996. Overall, bank
indebtedness increased by $1,242,558 for the nine month period ended September
30, 1997 compared to $934,404 for the nine-month period ended September 1996 due
to increased receivables and purchase of inventory.
The Company has secured credit arrangements with the National Bank of Canada
up to a maximum of $5,250,000. Of this amount, the Company's Ontario subsidiary
has available $1,810,151 pursuant to a demand operating loan and $905,076
pursuant to a line of credit. The Company's Rosedale subsidiary has a credit
facility in the amount of $2,534,212 pursuant to an operating loan and/or
letters of credit on a revolving demand loan agreement. The credit facilities
bear interest at rates varying between the National Bank of Canada's prime rate
and prime plus 1.5%. All borrowings are collateralized by the assets of the
Company.
The Company will receive net proceeds of this Offering in an amount
estimated to be 4,030,000. The Company believes that the net proceeds of the
Offering, coupled with income form operations and the credit facilities of
Ontario and Rosedale will fulfill the Company's working capital needs for at
least the next two years. As the Company continues to grow, bank borrowings, or
other debt placements and equity offerings may be considered, in part, or in
combination, as the situation warrants.
21
<PAGE>
BUSINESS
HISTORY OF THE COMPANY
The Company commenced operations as a single retail store, Ontario Paint &
Wallpaper Limited, in 1913 and has operated as a family owned business since its
inception. The focus of the business during its early years was the sale of
paint to homeowners and major contractors. The retail store is still in
operation in its original location and has become a Toronto landmark. In the
early 1970's, Ontario Paint & Wallpaper Limited diversified into wallpaper
distribution. In 1981, the Company's Rosedale subsidiary commenced operations
under the name Desart Wallcoverings Inc. In 1988, Desart Wallcoverings Inc.
changed its name to Rosedale Wallcoverings Inc. and in 1995 the name was changed
to Rosedale Wallcoverings & Fabrics Inc. Over the years, the Company has become
one of the largest independent wholesale wallpaper distributors in Canada. In
the early 1990's the Company continued to diversify by designing wallcovering
collections for distribution in Canada, the United States, Europe, South America
and Asia.
On May 14, 1997 the Company was formed by the shareholders of Rosedale and
Ontario for the purpose of consolidating the business of the two subsidiaries.
GENERAL
The Company, through its two wholly-owned subsidiaries, Ontario and
Rosedale, designs, markets and distributes residential wallcoverings and
designer fabrics. The Company also operates a retail paint and wallpaper store
located in downtown Toronto, Canada which has been in continuous operation since
1913. The Company's products include wallpaper and wallpaper borders (which are
collectively referred to as wallcoverings), designer fabrics and paint.
The Company designs wallcovering and designer fabric collections that it
distributes under its own brand names. Wallcoverings and fabrics sold under
Company brand names are manufactured for the Company on an outsource basis by
third party manufacturers. In addition to selling its own brand name
wallcoverings and fabrics, the Company is also a wholesale distributor of
wallcoverings designed and manufactured by other manufacturers. Wholesale
distribution of other manufacturers' wallcoverings is done through the Company's
Ontario subsidiary. Design and distribution of Company brand wallcoverings is
accomplished primarily through its Rosedale subsidiary and to a lesser extent
through its Ontario subsidiary.
The Company's Rosedale subsidiary has received a number of industry
recognized awards. Since 1994, the Rosedale subsidiary has been received the
"Estate Award for Excellence in Wallcovering Design" on four separate occasions.
This award is presented by a leading trade publications and is given in
recognition of wallcovering collections that exhibit outstanding design
characteristics. In addition, Rosedale has received the "Hot Line Elite" award
on numerous occasions which is presented by another leading trade publication to
the wallcovering producer whose collections have been cited by independent
retail stores throughout the United States as top sellers. Rosedale has also
twice been named "Supplier of the Year" by its largest distributor, The Blonder
Company, most recently in 1997. Rosedale achieved the honor of being The Blonder
Company's supplier of the year twice despite the fact that its collections
represent only approximately 5% of the total wallcovering collections offered by
The Blonder Company in each year.
Sales of Company Name Brand wallcoverings accounts for approximately 54% of
the Company's total revenues and wholesale distribution of wallcoverings under
non-company brand names accounts for approximately 29% of the Company's total
revenues. Sales of designer fabrics accounts for approximately 12% of the
Company's revenues and the Company's retail paint and wallpaper store generates
approximately 5% of the Company's annual revenues.
The Company distributed approximately 26 Company brand wallcovering and
fabric collections to approximately 10,000 to 20,000 retail wallpaper and paint
stores worldwide in 1996. In addition, the
22
<PAGE>
Company's Ontario subsidiary distributed approximately 47 non-Company brand
wallcovering collections to approximately 1,700-2,000 home decorating stores in
Canada in 1996.
The Company believes that its product mix of wallcoverings, designer fabrics
and paints, along with its newer offerings of floor coverings and ceiling tiles
presents significant cross marketing opportunities. Rosedale has recently
introduced wallcovering and fabric sample books that include coordinated carpets
and area rugs, a first in the industry.
COMPANY BRANDS
The Company designs and distributes approximately 10 different lines of
wallcoverings and fabrics sold under the Company's own brand names each year. A
variety of wallcovering and fabric collections are sold under each of the
Company's brand names. Each wallcovering collection sold by the Company consists
of a variety of coordinated wallpapers, borders and fabrics. Collections take
approximately twelve months to develop and are generally available in the
marketplace for a minimum of 2 years after launch. The Company's Rosedale
subsidiary designs and distributes 6 wallcovering collections and 2 fabric
programs per year, sold under 5 brand names, and the Ontario subsidiary designs
and distributes 2 wallcovering collections per year, sold under 2 brand names.
Such products are distributed to approximately 10,000 to 20,000 retail stores
and interior designers worldwide.
Wallcovering and designer fabric collections are developed by the Company's
design staff using a variety of color schemes to create thematically consistent
collections. Each collection is tailored to fit the particular target market for
the brand name for which the collection is being created. The Company's
management, design, marketing and sales staff approve collections for production
based upon their assessment of the commercial potential of those collections in
each of the Company's target markets.
Each of the Company's subsidiaries maintains its own design studio and
creative staff. Rosedale's design studio is located in its Concord, Ontario
facility. Recently, the Company's Rosedale subsidiary installed a state of the
art computer aided design (CAD) system, with two workstations, for the creation
and coloring of wallcovering and fabric designs. The system provides Rosedale's
design staff with the ability to produce a wide variety of designs and color
schemes and has reduced the time required for producing finished designs. The
Company's Ontario subsidiary maintains a design studio and staff in London,
England.
Company brand name wallcoverings and fabrics include; Rosedale, Cambridge
Studios, Hamilton House, Kingsway Fabrics, Concord and Ridley Nash. The
Company's brand name wallcoverings and fabrics are targeted for middle and upper
middle income consumers and to the high end interior designer market where the
Company's wallcoverings can compete based upon quality and design. The Company
does not design wallcovering and fabric collections for the lower end of the
market where competition is based primarily upon price.
The Company's Rosedale and Cambridge Studios brands were established in 1987
and 1993, respectively, and are designed and marketed by the Company's Rosedale
subsidiary. The Concord and Ridley Nash lines of wallcoverings were established
in 1992 and 1995, respectively, and are designed by the design staff of the
Company's Ontario subsidiary. The Company produces approximately 8 different
lines of wallcoverings under its Rosedale, Cambridge Studios, Concord and Ridley
Nash brands each year. Wallcovering collections sold under all four brand names
are targeted to middle to and upper middle income consumers.
The Company's Hamilton House brand, which was introduced in 1995 by the
Company's Rosedale subsidiary in order to provide the Company with a brand which
is specifically designed for the interior design market and decorator boutiques.
With the addition of the Hamilton House brand line of wallcoverings, Rosedale's
product mix was expanded to cover all major price categories from the middle
level market through to the high end interior designer market.
23
<PAGE>
The Concord and Ridley Nash brands were established by the Company's Ontario
subsidiary to provide Ontario with its own brand name of wallpaper products for
introduction into the United States market. Both brands are created in London,
England by the Company's design staff. The Company designs and distributes one
wallcovering collection per year under each brand name. Both lines of
wallcoverings are targeted for middle to upper income consumers.
The Company's various brands enable the Company to take advantage of the
changing nature of the North American wholesale distribution business, including
the growth of large national distributors as well as the trend towards
consolidation amongst the smaller regional distributors, and to broaden its
product mix to cover all major price categories with the market with the
exception of the low margin, mass merchant business.
DECORATIVE FABRICS AND FLOOR COVERINGS
As part of the Company's growth strategy, its Rosedale subsidiary has
recently expanded its product lines to include coordinated products, namely
decorative fabrics, soft window treatments and floor coverings. The Company's
decorative fabric products are sold under the Kingsway Fabrics brand name and
are intended to be utilized by consumers for draperies, upholstery and bed
coverings. The expansion into the coordinated fabric market has been undertaken
in order to take advantage of the tremendous trend towards coordinated selling
in the home decorating industry. These changes encompass the way that products
are introduced into the market as well as the nature of consumer buying habits.
Designer fabrics represent approximately 12% of Rosedale's annual revenues.
Rosedale designs and markets two fabric collections per year which are
coordinated with its wallcovering collections. Recently, Rosedale has added
coordinated area rugs and runners to compliment its wallcovering and fabric
offerings.
The Company believes that offering a combination of wallcoverings,
decorative fabrics and floor coverings provides significant opportunities for
cross merchandising of the Company's products. This in turn opens other markets
for the Company's product lines. For example, by offering coordinated lines of
wallcoverings, fabrics, and floor coverings, consumers looking to purchase
wallcoverings will be exposed to the Company's designer fabric and floor
covering lines. The Company believes that it is now able to offer consumers a
complete home decorating package. The end result being that the Company's
products are saleable to a wider variety of retail stores and consumers.
THIRD PARTY MANUFACTURING
Company brand wallcoverings are manufactured for the Company by wallcovering
manufacturers in the United Kingdom, Canada and the United States. The Company's
Rosedale and Cambridge Studios lines of wallcoverings are manufactured in the
United Kingdom by Borden Wallcoverings Ltd. ("Borden") and Zen Wallcoverings
Ltd. ("Zen"). Borden manufacturers the majority of the Company's wallcoverings
and has been a contract manufacturer with the Company since 1985. The Company's
Hamilton House brand is manufactured in the United States by Hawthorne
Wallcoverings. The Company's wallcoverings are also manufactured in Canada by
Blue Mountain Wallcoverings Ltd. and Sunworthy Wallcoverings Inc.
Designer fabric collections designed by the Company and sold under the
Kingsway Fabrics brand name are manufactured in the United States by two
manufacturers, Santee Print Works Ltd. ("Santee") and New London Textiles, Inc.
("New London").
The Company generally enters into contracts with its manufacturers to
produce its designs to the Company's specifications on a "make and ship" basis
which means that the manufacturers hold no inventory of the Company's products.
The Company's products are manufactured on a pattern by pattern basis. The terms
and conditions of production are outlined by the Company in written instructions
provided to the manufacturers for each new design that the Company produces. The
Company maintains
24
<PAGE>
the exclusive copyrights to each of its designs and the manufacturers do not
have rights to sell the Company's designs unless permitted by the Company.
WHOLESALE DISTRIBUTION OF WALLCOVERINGS MANUFACTURED BY THIRD PARTIES
The Company, through its Ontario subsidiary is a wholesale distributor of
wallcoverings designed and produced by manufacturers located in the United
Kingdom and Canada. The Company markets wallcovering collections produced by
third party manufactures under each manufacturer's brand names. The Company has
distribution agreements with John Wilman Limited ("John Wilman") and Vymura
International PLC ("Vymura"), located in the United Kingdom, and with Norwall
Group Inc. ("Norwall"), located in Canada. The Company's distribution agreements
with John Wilman, Vymura and Norwall provide the Company with the exclusive
Canadian distribution rights for each manufacturers' wallcovering lines. The
Company believes that its position as one of the few remaining distributors not
owned by a manufacturing facility, makes it an attractive distributor to
manufacturers that do not want to sell their products to competitive
manufacturers for distribution.
NEW PRODUCTS
The Company intends to expand the products offered by its Ontario subsidiary
to include a line of retro art decorative ceiling tiles for commercial and
residential customers. The decorative ceiling tiles are designed to fit into
standard suspension ceiling frameworks and are embossed with designs that
emulate ceilings found in many turn of the century buildings. This provides
commercial and residential customers with the ability to add victorian style
ceilings to their decor. The Company believes that its decorative ceiling tiles
will be attractive to commercial users, such as restaurants looking to recreate
the look of the late 1800's.
RETAIL OPERATION
The Company's retail operation, Ontario Paint & Wallpaper, has been in
continuous operation since 1913 and the store has become a landmark in
metropolitan Toronto. The retail store sells Benjamin Moore paints and related
sundry products, including wallcoverings to customers ranging from individual
homeowners to large industrial accounts. The store offers a full line of
wallcoverings, include all brands distributed by the Company. The majority of
Ontario Paint & Wallpaper's paint sales are made to local movie studios for set
designs and to commercial customers for apartment and office buildings. Sales to
commercial customers have been growing steadily over the past two years. The
retail store is the largest single source distributor of Benjamin Moore Paints
in Canada.
The retail store offers special services to attract and maintain commercial
customers. The store maintains detailed records of paint purchases by commercial
customers. Commercial customers that have purchased paint in the past can order
additional paint simply by telephoning the store and indicating which area of
their building requires paint. The store manager then retrieves the stored
information about the building, selects the correct paint colors for the
commercial customer and then delivers the paint to the customer. In addition,
the Company has a portable paint scanner which provides retail store employees
with the ability to visit a building and scan the building's paints and return
to the store where the scanned information is transferred to a paint mixer which
then mixes matching paint colors.
The paint store is also the setting for a monthly home decorating television
show which is broadcast from the store. The television show is hosted by City
T.V., and provides practical advice on home painting and repairs. The television
show is taped from the store in front of a live audience. In June 1997, the
retail store also began presenting bi-monthly seminars for homeowners providing
elementary to advanced instruction on various painting techniques. The seminars
are conducted in conjunction with a local TV personality. The program has been
quite successful with all classes being oversold.
25
<PAGE>
MARKETING AND DISTRIBUTION (COMPANY BRANDS)
The Company distributes its brand name wallcoverings and fabrics in the
United States and Canada through regional and national distributors. The Company
appoints a single distributor to a particular geographical area and their
territories generally do not overlap. The Company does not maintain formal
distribution agreements with its distributors, as is the custom in the industry.
It is understood and common practice in the industry that neither the
distributor nor the manufacturer is obligated to maintain a relationship other
than on a collection by collection basis. It is the Company's policy that each
of its distributors is obligated to purchase every collection the Company
markets or forfeit its right to be a Company distributor.
In addition the Company sells directly to selected large national and
regional retail chains and specialty stores that specialize in the sale of
wallcoverings and designer fabrics.
The Company markets and promotes its products through the distribution and
sale of sample books. The Company prepares a sample book for each of its Company
brand collections of wallcoverings and fabrics designs. The majority of the
sample books prepared by the Company contain partial sheets of wallpaper,
coordinated borders and fabrics. Recently, the Company has added coordinated
floor coverings to its sample books. In addition, sample books contain
photographs of model room settings demonstrating how the Company's
wallcoverings, coordinated designer fabrics and floor coverings look in
simulated home environments. By offering coordinated wallcoverings and fabric
collections in its sample books, the Company is able to have its entire product
line shown to a wider variety of end users. The Company also produces sample
books which contain only designer fabric samples which it distributes to fabric
wholesalers. In 1996, the Company distributed over 80,000 Company brand
wallcovering sample books and 12,000 Company brand designer fabric sample books.
The number of sample books that the Company prepares for any given
collection is determined based upon orders from the Company's distributors. The
distributors inform the Company how many books they will require for each
collection and the Company produces the sample books. The Company does not
produce sample books unless a distributor has requested them. The Sample books
are sold to distributors and the distributors, in turn, place the sample books
with retail and interior design customers who ultimately sell the Company's
products to consumers. In addition to purchasing the Company's sample books,
each distributor is also required to purchase inventory for each pattern in each
collection.
It takes between 10 to 12 months from the time that the Company approves
designs for a collection to the shipping of sample books for that collection.
Recently, the Company's Rosedale subsidiary began producing preview copies of
its sample books using its in house computer aided design ("CAD") system. This
allows Rosedale to preview its collections to distributors and to make changes
to its collections based upon feedback from distributors before the final
printing of sample books. This has resulted in a large cost saving to the
Company. Rosedale believes that this innovation will also allow it to more
specifically tailor its collections and sample books to consumer trends in the
markets on a more timely basis.
CANADIAN DISTRIBUTION
The Company sells approximately 45% of its wallcoverings and fabrics in
Canada through its Ontario subsidiary. The balance of its sales are through
regional distributors and national chains such as Color Your World and Sears
Canada. Regional distributors include Crown Wallcoverings, the largest
distributor to the Canadian interior design market, Images Wallcoverings and
Odyssey. Images Wallcoverings Ltd. and Odyssey Designs Inc., both are
distributors located on the west coast of Canada.
UNITED STATES DISTRIBUTION
Approximately 49% of the Company's wallcovering sales are made in the United
States. Distribution of the Company's wallcoverings in the United States is done
through sales to national and regional
26
<PAGE>
distributors as well as sales to large retail wallpaper chains. Regional
distributors in the United States include Walltrends, Hunter & Co., Key
Wallcoverings, G&W Distributors, Fashion Wallcoverings, Atlas Wallcoverings,
Eisenhardt Wallcoverings and Aztec. National distributors include The Blonder
Company, which distributes the Company's Cambridge Studios brand, and Seabrook
Wallcoverings, which distributes the Company's Hamilton House line of
wallcoverings.
The Company also sells directly to retail chains in the United States which
include Wallpapers to Go, Sherwin Williams, Gardener Wallcoverings, Horners and
Tretiaks.
In 1993, Rosedale embarked on the development of a separate distribution
network of wholesalers throughout North America for the purpose of distributing
its decorative fabrics. The Company designer fabrics are sold by approximately
ten independent salespersons who also sell products produced by other fabric
companies. The other fabrics sold by these salespersons generally do not compete
directly with the Company's designer fabrics in either look or price points. The
salespersons are compensated on a commission only basis. The Company does not
have contracts with any of these salespersons.
WALLCOVERING MARKET
Over two billion rolls of wallcoverings were sold worldwide in 1994, with
over 161 million rolls sold in Canada and the United States and over 500 million
rolls of residential wallcoverings were sold in Europe during the same period.
Sales of wallcoverings tend to have a direct relationship to the level of home
renovations and the economy in general, but have little relationship to new
housing starts.
The trend at the distribution level of the industry has been towards a
market characterized by fewer distributors with higher distribution volumes. The
Company has developed strong relationships with independent regional
distributors. The Company is also well positioned to take advantage of growth in
mass merchandising through its relationship with its national distributors and
large retail chains. In addition, the Company hopes to penetrate alternative
fabric markets such as apparel and soft goods industries.
PATENTS AND TRADEMARKS
The Company trademarks the names of each of its collections and brand names.
In addition, the Company copyrights designs created for its Company brand
wallcovering and fabrics.
GOVERNMENT REGULATION
The Company is subject to various Canadian regulations relating to health
and safety standards applicable warehouse operations.
EMPLOYEES
As of October 9, 1997, the Company employs 64 persons, which includes 8
senior executives, 18 sales staff persons, 8 designers, 17 support staff persons
and 13 warehouse workers. The Company has no unionized employees and believes
that its relationship with its employees is satisfactory.
PROPERTIES AND FACILITIES
The Company leases facilities in Concord, Ontario for each of its
subsidiaries. The Company leases an approximately 78,000 square foot facility
for its Ontario subsidiary. The lease was amended July 13, 1995 and expires on
October 31, 2004 with an annual base rent of Cdn. $260,027. The building houses
Ontario's executive offices, warehouse and showroom. The Company leases a 47,000
square foot facility for its Rosedale subsidiary. The lease for the Rosedale
facility runs through October 31, 2004 and has a base annual rent of
Cdn.$176,640. The Rosedale subsidiary houses its design facilities, executive
offices, warehouse and showroom. Management believes that this space is adequate
for its design and warehouse
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<PAGE>
needs in the foreseeable future. Management also believes that there is ample
room for expansion in the future.
The Company also leases space for its retail paint store, located in
downtown Toronto, from a company owned by Alan Fine, Chief Executive Officer of
the Company, and Sid Ackerman, the Company's President. The lease calls for
rental payments in the amount of Cdn. $24,000 per annum, plus general sales
taxes, payable in equal monthly instalments of Cdn. $2,000. The lease is for a
one year term, automatically renewable from year to year unless terminated in
writing by either the landlord or the tenant on 30 days written notice. See
"Certain Transactions."
LEGAL PROCEEDINGS
The Company is involved in legal proceedings with two former suppliers.
Economy Color Card, Co., Inc., a supplier of wallcovering sample books, filed a
claim against the Company's Rosedale subsidiary seeking payment of Cdn.
$83,715.04 for amounts allegedly due for certain wallcovering sample books. The
Company believes that it has a meritorious defense and intends to vigorously
contest the action. Ernst & Young, Inc. has filed a claim against each of the
Company's subsidiaries as receiver and manager of Cape Breton Wallcoverings, a
former wallcovering supplier. Ernst & Young, Inc. is seeking damages of
approximately Cdn$133,700 for amounts it claims were due Cape Breton
Wallcoverings from Rosedale and Ontario. The Company believes that it has a
meritorious defense and intends to vigorously contest the action.
The Company is involved in legal proceedings with Revenue Canada. The
Revenue Canada proceeding involves the Company's challenge to a Revenue Canada
decision to disallow a business loss deduction taken by Rosedale for losses it
incurred when attempting to create a startup company in California. Rosedale
started the California company in 1992 to make window blinds as an adjunct to
its wallcovering and fabric business. The California company's growth did not
meet the Company's expectations and subsequently was sold in 1994. Rosedale
claimed losses incurred during the operation of the California business as a
business loss deduction on its 1994 tax return. Revenue Canada allowed the
deduction as a capital loss only. Rosedale has filed a formal notice of
objection to Revenue Canada's classification of the deduction. In the event that
Revenue Canada's decision is upheld, Rosedale would be required to pay $652,110
plus interest to satisfy its tax obligation. The Company believes that it has a
meritorious defense and is working to try to settle the matter. The Company is
not aware of any other material legal proceedings pending or threatened against
the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Directors
and Executive Officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Alan Fine.................... 52 Chief Executive Officer and Chairman of the Board
Sidney Ackerman.............. 52 President and Director
Norman G. Maxwell............ 49 Chief Financial Officer, Operations Manager and Director
Sheldon Isenberg............. 54 Treasurer, Corporate Secretary and Director
</TABLE>
Set forth below is a biographical description of each director and executive
officer of the Company based on information supplied by each of them.
Alan Fine has served as the Chief Executive Officer and Chairman of the
Board of the Company since its inception in May 1997. In 1982, Mr. Fine founded
Rosedale Wallcoverings & Fabrics Inc. and since that time he has served as the
President of Rosedale Wallcovering & Fabrics, Inc. Mr. Fine has also served as
the Secretary and Treasurer for Ontario Paint & Wallpaper Ltd since 1978. From
1972 to 1977 Mr. Fine was the Manager of Wallpaper Distribution for Ontario
Paint & Wallpaper Ltd.
Sidney Ackerman has served as the President of the Company since its
inception in May 1997. In 1971, Mr. Ackerman was responsible for the development
of Ontario Wallcoverings which became the wallpaper distribution arm of Ontario
Paint & Wallpaper Ltd. In December 1978, Mr. Ackerman was elected Director and
Treasurer of Ontario Paint & Wallpaper Ltd. Since 1994, Mr. Ackerman has served
as the President of Ontario Paint & Wallpaper Ltd.
Norman G. Maxwell has been Chief Financial Officer and Operations Manager of
the Company since its inception in May 1997 and has served as a director of the
Company since May 1997. Prior thereto, since 1992, Mr. Maxwell has served as the
Vice President of Finance with Ontario. From 1989 to 1992, Mr. Maxwell served as
the Comptroller of Ontario. Mr. Maxwell has been in the wallcovering industry
for over 20 years and has been a Certified Management Accountant since 1977.
Sheldon Isenberg has served and the Company's Treasurer, Corporate Secretary
and Director since May, 1997. Prior thereto, from 1992 to 1997 Mr. Isenberg was
the General Manager, Wallpaper Manufacturing for the Company's Rosedale
subsidiary. Mr. Isenberg completed the Chartered Accounting Course at Queen's
University in 1964 and prior to joining the Company, he worked for a national
apparel manufacturer where he attained the position of Executive Vice President.
COMPENSATION OF DIRECTORS
The Company has not paid compensation to any director for acting in such
capacity. The Company is currently reviewing its policy on compensation of
outside directors and may pay outside directors in the future.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by the Company during each of the last two fiscal years to the Company's
Chief Executive Officer and to each of the Company's executive officers who
earned in excess of $100,000.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
OTHER
-------------------- ANNUAL
YEAR SALARY($) BONUS($) COMPENSATION
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
NAME AND PRINCIPAL POSITION
- -------------------------------------------------
Alan Fine(1)..................................... 1996 41,068 121,003 8,582
Chief Executive Officer 1995 195,250 67,755 11,635
1994 163,994 -- 11,692
Sidney Ackerman(1)............................... 1996 41,068 121,003 8,621
President 1995 195,250 67,755 6,898
1994 163,994 -- 4,254
</TABLE>
- ------------------------
(1) Reflects total compensation received from both the Company's Ontario and
Rosedale subsidiaries.
EMPLOYMENT AGREEMENTS
On the Effective Date, Alan Fine and Sidney Ackerman will both have three
year employment agreements with the Company's Rosedale subsidiary and the
Company's Ontario subsidiary respectively. Alan Fine will be retained as Chief
Executive Officer of the Company at an annual salary of Cdn. $80,000. Sidney
Ackerman will be retained as President of the Company at an annual salary of
Cdn. $80,000.
The employment agreements with Alan Fine and Sidney Ackerman provide that
upon the death of any of the two employees that three years full salary will be
paid to the employee's estate in a lump sum payment. They also provide for
reimbursement of reasonable business expenses.
Alan Fine and Sidney Ackerman are entitled to bonuses of up to Cdn. $10,000
each based on achieving sales, profitability and good management as
predetermined by the Board of Directors or compensation committee and other
subjective criteria as determined by the Board of Directors or compensation
committee.
Alan Fine and Sidney Ackerman shall each receive Cdn. $20,000 per year
additional compensation including car allowance, insurance and retirement
savings matched contributions by the Company and such other perquisites.
Upon the resignation, retirement upon reaching the age of 60 or based upon
any wrongful termination of either Alan Fine or Sidney Ackerman, the Company
shall pay the employee a lump sum resignation allowance of three years salary.
In the event that there is a change in control of the Company, through an
acquisition where any person acquires more than 50% of the shares of the
Company, an amalgamation, consolidation or merger with another corporation
resulting in at least 50% of the voting shares of the surviving corporation
being controlled by a new acquirer or the sale directly or otherwise of all of
the assets of the Company to a third party in a non-distress situation, then the
Company shall pay to Alan Fine and Sidney Ackerman a lump sum payment equal to
the sum of one and one-half times their respective annual salaries paid or
payable in respect of the most recently completed fiscal year.
STOCK OPTION PLAN
After the effective date of this Offering, the Company intends to adopt a
Stock Option Plan (the "1998 Plan"), pursuant to which 750,000 shares of Common
Stock are reserved for issuance.
The 1998 Plan will be administered by the compensation committee or the
board of directors, who determine among other things, those individuals who
shall receive options, the time period during which
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<PAGE>
the options may be partially or fully exercised, the number of shares of Common
Stock issuable upon the exercise of the options and the option exercise price.
The 1998 Plan will be for a period for ten years. Options may be granted to
officers, directors, consultants, key employees, advisors and similar parties
who provide their skills and expertise to the Company. Options granted under the
1998 Plan may be exercisable for up to ten years, may require vesting, and shall
be at an exercise price all as determined by the board. Options will be
non-transferable except to an option holder's personal holding company or
registered retirement savings plan and except by the laws of descent and
distribution or a change in control of the Company, as defined in the 1998 Plan,
and are exercisable only by the participant during his or her lifetime. Change
in control includes (i) the sale of substantially all of the assets of the
Company and merger or consolidation with another, or (ii) a majority of the
board changes other than by election by the shareholders pursuant to board
solicitation or by vacancies filled by the board caused by death or resignation
of such person.
If a participant ceases affiliation with the Company by reason of death,
permanent disability or retirement at or after age 70, the option remains
exercisable for three months from such occurrence but not beyond the option's
expiration date. Other termination gives the participant three months to
exercise, except for termination for cause which results in immediate
termination of the option.
Options granted under the 1998 Plan, at the discretion of the compensation
committee or the board, may be exercised either with cash, Common Stock having a
fair market equal to the cash exercise price, the participant's personal
recourse note, or with an assignment to the Company of sufficient proceeds from
the sale of the Common Stock acquired upon exercise of the Options with an
authorization to the broker or selling agent to pay that amount to the Company,
or any combination of the above.
The exercise price of an option may not be less than the fair market value
per share of Common Stock on the date that the option is granted in order to
receive certain tax benefits under the Income Tax Act of Canada (the "ITA"). The
exercise price of all future options will be at least 85% of the fair market
value of the Common Stock on the date of grant of the options. A benefit equal
to the amount by which the fair market value of the shares at the time the
employee acquires them exceeds the total of the amount paid for the shares or
the amount paid for the right to acquire the shares shall be deemed to be
received by the employee in the year the shares are acquired pursuant to
paragraph 7(1) of the ITA. Where the exercise price of the option is equal to
the fair market value of the shares at the time the option is granted, paragraph
110(1)(d) of the ITA allows a deduction from income equal to one quarter of the
benefit as calculated above. If the exercise price of the option is less than
the fair market value at the time it is granted, no deduction under paragraph
110(1)(d) is permitted. Options granted to any non-employees, whether directors
or consultants or otherwise will confer a tax benefit in contemplation of the
person becoming a shareholder pursuant to subsection 15(1) of the ITA.
Options under the 1998 Plan must be issued within ten years from the
effective date of the 1998 Plan.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the Company become available again for issuance under
the 1998 Plan.
The 1998 Plan may be terminated or amended at any time by the board of
directors, except that the number of shares of Common Stock reserved for
issuance upon the exercise of options granted under the 1998 Plan may not be
increased without the consent of the shareholders of the Company.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The by-laws of the Company provide that the Company shall indemnify to the
fullest extent permitted by Canadian law directors and officers (and former
officers and directors) of the Company. Such indemnification includes all costs
and expenses and charges reasonably incurred in connection with the defense of
any civil, criminal or administrative action or proceeding to which such person
is made a party by reason of being or having been an officer or director of the
Company if such person was substantially
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<PAGE>
successful on the merits in his or her defense of the action and he or she acted
honestly and in good faith with a view to the best interests of the Company, and
if a criminal or administrative action that is enforced by a monetary penalty,
such person had reasonable grounds to believe his or her conduct was lawful.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities in connection with
this Offering, including liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
and the Underwriter pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses,
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person or by the Underwriter in connection with
the securities being registered, the Company 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 of whether such indemnification by it
is against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of the date hereof,
and as adjusted to give effect to the sale of 625,000 Units, each Unit
consisting of two shares of Common Stock and two Warrants, by the Company with
respect to the beneficial ownership of the Common Stock by each beneficial owner
of more than 5% of the outstanding shares thereof, by each director, each
nominee to become a director and each executive named in the Summary
Compensation Table and by all executive officers, directors and nominees to
become directors of the Company as a group, both before and after giving effect
to the Offering.
PERCENTAGE OF OUTSTANDING COMMON STOCK BENEFICIALLY OWNED
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED OFFERING OFFERING
- ----------------------------------------------------- ------------------- ----------- -----------
<S> <C> <C> <C>
Sidney Ackerman(2)................................... 785,000 25% 18%
Alan Fine(3)......................................... 1,177,500 37.5% 27%
Rosalyn Fine(4)...................................... 392,500 12.5% 9%
The Ackerman Family Trust(5)......................... 785,000 25% 18%
All Executive Officers and Directors as a Group(2)
persons............................................ 1,962,500 62.5% 44.7%
</TABLE>
- ------------------------
(1) Unless otherwise indicated, the address is c/o Rosedale Decorative Products
Ltd., 731 Millway Avenue, Concord, Ontario, Canada L4K 3S8.
(2) Does not include 785,000 shares of Common Stock held by the Ackerman Family
Trust. Includes 222,750 shares of Common Stock owned by 1274152 Ontario Inc.
of which Sidney Ackerman is a 25% owner.
(3) Includes 785,000 shares of Common Stock owned by 454590 Ontario Limited of
which Alan Fine is the sole shareholder and includes 334,125 shares of
Common Stock owned by 1274152 Ontario Inc. of which Alan Fine is a 37.5%
owner.
(4) Includes 111,375 shares of Common Stock owned by 1274152 Ontario, Inc. of
which Rosalyn Fine is a 12.5% owner. Rosalyn Fine is the former wife of Alan
Fine and the sister of Sidney Ackerman.
(5) The Ackerman Family Trust owns 785,000 shares of Common Stock, including
222,750 shares of Common Stock owned by 1274152 Ontario, Inc. of which The
Ackerman Family Trust is a 25% owner, held in trust for the benefit of
Sidney Ackerman's wife and two minor children. Sheldon Shapiro and Fred
Stoppell are trustees of The Ackerman Family Trust. Under the terms of the
trust instrument, the trustees have the power to vote the shares.
VOTING AGREEMENT
Effective November 1997, Sidney Ackerman, Alan Fine, The Ackerman Family
Trust and 454590 Ontario Limited (the "Shareholders"), entered into a Common
Stock voting agreement. Pursuant to the terms of the voting agreement, each of
the Shareholders agrees to vote all of their Shares unanimously in respect of
any matter to be voted on at any meeting of the shareholders of the Company. In
the event the Shareholders cannot express unanimity or any of them abstains from
voting then the Shareholders agree to vote all of their Shares against such
matter or withhold all of their votes in respect of such matter as applicable
and to so instruct their proxies. The provisions of the voting agreement shall
apply to any shares in the capital stock of the Company to which voting rights
attach which may be issued to the Shareholders at any time during the term of
the voting agreement and any shares in the capital stock of the Company which
are issued in replacement of any shares or after acquired shares. The voting
agreement does not
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<PAGE>
apply to any shares that are sold or transferred to a Shareholder and does not
apply to any shares that are sold or transferred to a third party in an
arm's-length transaction.
The voting agreement terminates upon Sidney Ackerman or Alan Fine being no
longer employed by the Company or any of its subsidiaries or the date upon which
any Shareholder divests itself of all shares in an arm's-length transaction for
fair market consideration, whichever is earlier.
CERTAIN TRANSACTIONS
In 1995, Alan Fine, Chief Executive Officer of the Company and Sidney
Ackerman, President of the Company each loaned funds to the Company's Ontario
and Rosedale subsidiaries. As at September 30, 1997, the outstanding amounts of
loans made by Alan Fine to Ontario and Rosedale were $371,557 and $571,391,
respectively, and the outstanding amount of the loans made by Sidney Ackerman to
Ontario and Rosedale were $312,465 and $374,878, respectively. These loans are
secured by the real or personal property of Rosedale and Ontario and bear
interest at a rate equal to the prime rate of interest charged by the National
Bank of Canada plus 1.5% per annum and are payable on demand.
In 1995, 521305 Ontario Inc., a which was the sole shareholder of Rosedale,
loaned funds to Rosedale and was granted a general security interest in the real
and personal property of Rosedale. As at September 30, 1997, the outstanding
balance of the loan was $224,951. The loan bears interest at a rate equal to the
prime rate of interest charged by the National Bank of Canada plus 1.5%.
Alan Fine, Chief Executive Officer of the Company, and Sidney Ackerman,
President of the Company, own all of the issued and outstanding capital stock of
966578 Ontario Inc. and 976168 Ontario Inc. The Company leases space for its
retail store, located in downtown Toronto, from 966578 Ontario Inc. The lease
calls for rental payments in the amount of $16,800 per annum, plus general sales
taxes, payable in equal monthly instalments of $1,400. The lease is for a one
year term, automatically renewable from year to year unless terminated in
writing by either the landlord or the tenant on 30 days written notice.
In 1995, two related companies, 966578 Ontario Inc. and 976168 Ontario Inc.
loaned funds to the Company. As of September 30, 1997, the Company had
outstanding loans receivable from 966578 Ontario Inc. and 976168 Ontario Inc. in
the amount of $7,216 and $27,488, respectively. The loans bear interest at a
rate equal to the prime rate of interest as charged by the National Bank of
Canada plus 1.5% and are payable on demand.
The Company has second mortgages from two related companies, 1216748 Ontario
Inc. and 1217576 Ontario Inc., both of which are 50% owned by Sidney Ackerman,
President and Alan Fine, Chief Executive Officer. The principal amount of the
loans from 1216748 Ontario Inc. and 1217576 Ontario Inc. are $198,744 and
$185,717, respectively. The mortgages are secured by land and buildings and bear
interest at 9% per annum and are payable on demand.
The Company has available credit facilities up to a maximum of $5,249,439
which bear interest at rates varying between the bank's prime rate and prime
plus 1.5%. The credit facilities are personally guaranteed, up to $735,000, by
each of Alan Fine and Sidney Ackerman, up to $1,467,000 by 521305 Ontario Inc.
and 1010037 Ontario Inc., and up to $917,000 by 966578 Ontario Inc. and 976168
Ontario Inc.
All future transactions and loans between the Company and its officers,
directors and 5% shareholders will be on terms no less favorable than could be
obtained from unaffiliated third parties and will be approved by a majority of
the independent, disinterested directors of the Company.
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<PAGE>
DESCRIPTION OF SECURITIES
The total authorized capital stock of the Company consists of an unlimited
number of shares of Common Stock, with no par value, and an unlimited number of
shares of Preferred Stock, with no par value per share. The following
descriptions contain all material terms and features of the Securities of the
Company, are qualified in all respects by reference to the Certificate of
Incorporation and By laws of the Company, copies of which are filed as Exhibits
to the Registration Statement of which this Prospectus is a part.
UNITS
Each Unit consists of two shares of Common Stock, no par value per share,
and two Class A Redeemable Common Stock purchase Warrants. The Common Stock and
the Warrants will be separately transferable 90 days after the closing of the
offering or such earlier date as Fin-Atlantic Securities, Inc. (the
"Underwriter") may determine.
COMMON STOCK
The Company is authorized to issue an unlimited number of shares of Common
Stock, no par value per share, of which as of the date of this Prospectus
3,140,000 shares of Common Stock are outstanding, not including the Shares
offered herein.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. Holders of Common
Stock are entitled to receive ratably dividends as may be declared by the board
of directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of the Common
Stock are entitled to share ratably in all assets remaining, if any, after
payment of liabilities. Holders of Common Stock have no preemptive rights and
have no rights to convert their Common Stock into any other securities.
Pursuant to the Business Corporation Act, Ontario ("BCA"), a shareholder of
an Ontario Corporation has the right to have the corporation pay the shareholder
the fair market value for his shares of the corporation in the event such
shareholder dissents to certain actions taken by the corporation such as
amalgamation or the sale of all or substantially all of the assets of the
corporation and such shareholder follows the procedures set forth in the BCA.
WARRANTS
Warrants will be issued pursuant to a Warrant Agreement between the Company
and Continental Stock Transfer & Trust Co. (the "Transfer and Warrant Agent")
and will be in registered form. Each Warrant entitles its holder to purchase,
during the four year period commencing on the date of this Prospectus, one share
of Common Stock at an exercise price of $4.50 per share, subject to adjustment
in accordance with the anti-dilution and other provision referred to below.
The Warrants may be redeemed by the Company at any time commencing one year
from the date of this Prospectus (or earlier with the consent of the
Representative) and prior to their expiration, at a redemption price of $.10 per
Warrant, on not less than 30 days' prior written notice to the holders of such
Warrants, provided that the closing bid price of the Common Stock if traded on
the Nasdaq SmallCap Market, or the last sale price per share of the Common
Stock, if listed on the Nasdaq National Market or on a national exchange, is at
least 250% ($10 per share, subject to adjustment) of the exercise price of the
Warrants for a period of 10 consecutive business days ending on the third day
prior to the date the notice of redemption is given. Holders of Warrants shall
have exercise rights until the close of the business day preceding the date
fixed for redemption.
The exercise price and the number of shares of Common Stock purchasable upon
the exercise of the Warrants are subject to adjustment upon the occurrence of
certain events, including stock dividends, stock
35
<PAGE>
splits, combinations or classification of the Common Stock. The Warrants do not
confer upon holders any voting or any other rights of shareholders of the
Company.
No Warrant will be exercisable unless at the time of exercise the Company
has filed with the Commission a current prospectus covering the issuance of
Common Stock issuable upon the exercise of the Warrant and the issuance of
shares has been registered or qualified or is deemed to be exempt from
registration or qualification under the securities laws of the state of
residence of the holder of the Warrant. The Company has undertaken to use its
best efforts to maintain a current prospectus relating to the issuance of shares
of Common Stock upon the exercise of the Warrants until the expiration of the
Warrants, subject to the terms of the Warrant Agreement. While it is the
Company's intention to maintain a current prospectus, there is no assurance that
it will be able to do so. See "Risk Factors-Requirements of Current Prospectus
and State Blue Sky Registration in Connection with the Exercise Warrants".
CLASS A SPECIAL SHARES
The Company's Articles of Incorporation authorize the issuance of an
unlimited number of shares of Class A Special Shares with designations, rights
and preferences determined from time to time by its Board of Directors.
Accordingly, the Company's Board of Directors is empowered, without stockholder
approval, to issue Class A Special Shares with voting, liquidation, conversion,
or other rights that could adversely affect the rights of the holders of the
Common Stock. Although the Company has no present intention to issue any shares
of its Class A Special Shares, there can be no assurance that it will not do so
in the future.
TRANSFER AGENT, REGISTRAR AND REDEEMABLE WARRANT AGENT
The transfer agent, registrar and warrant agent for the Common Stock and
Warrants is Continental Stock Transfer & Trust Co., New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this Offering, the Company will have 4,570,000
shares of Common Stock outstanding. In addition, the Company has reserved for
issuance 750,000 shares upon the exercise of options eligible for grant under
the Company's Stock Option Plan. Of the shares to be issued and outstanding
after this Offering, the 1,250,000 Shares offered hereby (plus any additional
Shares sold upon exercise of the Over-Allotment Option) will be freely tradeable
without restriction or further registration under the Act, except for any shares
purchased or held by an "affiliate" of the Company (in general, a person who has
a control relationship with the Company) which will be subject to the
limitations of Rule 144 adopted under the Act ("Rule 144"). In general, under
Rule 144, subject to the satisfaction of certain other conditions, a person,
including an affiliate of the Company, who has beneficially owned restricted
shares of Common Stock for at least one year is permitted to sell in a brokerage
transaction, within any three-month period, a number of shares that does not
exceed the greater of 1% of the total number of outstanding shares of the same
class, or if the Common Stock is quoted on Nasdaq or a stock exchange, the
average weekly trading volume during the four calendar weeks preceding the sale.
Rule 144 also permits a person who presently is not and who has not been an
affiliate of the Company for at least three months immediately preceding the
sale and who has beneficially owned the shares of Common Stock for at least two
years to sell such shares without regard to any of the volume limitations as
described above. The remaining 3,140,000 shares of Common Stock are "restricted
securities" as that term is defined under Rule 144, and may not be sold unless
registered under the Act or exempted therefrom. Of the 3,140,000 restricted
shares, 2,140,000 are currently eligible to be sold in accordance with the
exemptive provisions and the volume limitations of Rule 144, however, the owners
of such shares have agreed with the Representative not to sell or otherwise
dispose their shares for 18 months from the Effective Date without the consent
of the Underwriter, except pursuant to gifts or pledges in which the donee or
pledgee agrees to be bound by such restrictions. The remaining 1,000,000 shares
of Common Stock outstanding are eligible for resale under Rule 144 on
, 1998, subject to a 12 month lock up during which such shares
36
<PAGE>
may not be sold without the prior written consent of the Underwriter. The
Underwriter has agreed not to release such lock-up earlier.
All of the Company's directors and executive officers, (who hold in the
aggregate 2,747,500 shares), have agreed not to sell, offer to sell or otherwise
dispose of the 2,747,500 shares of the Company's Common Stock until 24 months
from the Effective Date, except pursuant to gifts or pledges in which the donee
or pledgee agrees to be bound by such restrictions, without the prior written
consent of the Representative. These agreements are enforceable only by the
parties thereto, and are subject to rescission or amendment at any time without
approval of other stockholders.
Sales of the Company's Common Stock by certain of the present stockholders
in the future, under Rule 144, may have a depressive effect on the price of the
Company's Common Stock.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following describes the principal United States federal income tax
consequences of the purchase, ownership and disposition of the Common Stock and
the Warrants and upon the exercise, redemption or expiration of the Warrants by
a Warrant holder, that is a citizen or resident of the United States or a United
States domestic corporation or that otherwise will be subject to United States
federal income tax (a "U.S. Holder"). This summary is based on the United States
Internal Revenue Code of 1986, as amended (the "Code"), administrative
pronouncements, judicial decisions and existing and proposed Treasury
Regulations, changes to any of which subsequent to the date of this Prospectus
may affect the tax consequences described herein. This summary discusses only
the principal United States federal income tax consequences to those beneficial
owners holding the securities as capital assets within the meaning of Section
1221 of the Code and does not address the tax treatment of a beneficial owner
that owns 10% or more of the Common Stock. It does not address the consequences
applicable to certain specialized classes of taxpayers such as certain financial
institutions, insurance companies, dealers in securities or foreign currencies,
or United States persons whose functional currency (as defined in Section 985 of
the Code) is not the United States dollar. Persons considering the purchase of
these securities should consult their tax advisors with regard to the
application of the United States and other income tax laws to their particular
situations. In particular, a U.S. Holder should consult his tax advisor with
regard to the application of the United States federal income tax laws to his
situation.
COMMON STOCK
A U.S. Holder generally will realize, to the extent of the Company's current
and accumulated earnings and profits, foreign source ordinary income on the
receipt of cash dividends, if any, on the Common Stock equal to the United
States dollar value of such dividends determined by reference to the exchange
rate in effect on the day they are received by the U.S. Holder (with the value
of such dividends computed before any reduction for any Canadian withholding
tax). U.S. Holders should consult their own tax advisors regarding the treatment
of foreign currency gain or loss, if any, on any dividends received which are
converted into United States dollars on a date subsequent to receipt. Subject to
the requirements and limitations imposed by the Code, a U.S. Holder may elect to
claim Canadian tax withheld or paid with respect to dividends on the Common
Stock as a foreign credit against the United States federal income tax liability
of such holder. Dividends on the Common Stock generally will constitute "passive
income" or, in the case of certain U.S. Holders, "financial services income" for
United States foreign tax credit purposes. U.S. Holders who do not elect to
claim any foreign tax credits may claim a deduction for Canadian income tax
withheld. Dividends paid on the Common Stock will not be eligible for the
dividends received deduction available in certain cases to United States
corporations.
Upon a sale or exchange of a share of Common Stock, a U.S. Holder will
recognize gain or loss equal to the difference between the amount realized on
such sale or exchange and the tax basis of such Common
37
<PAGE>
Stock. Any such gain or loss will be capital gain or loss, and will be long term
capital gain or loss if at the time of sale or exchange the Common Stock has
been held for more than one year.
WARRANTS
No gain or loss will be recognized by the holder of a Warrant upon the
exercise of the Warrant. The cost basis of the Common Stock acquired upon such
exercise will be the cost basis of the Warrant plus any additional amount paid
upon the exercise of the Warrant. Gain or loss will be recognized upon the
subsequent sale or exchange of the Common Stock acquired by the exercise of the
Warrant, measured by the difference between the amount realized upon the sale or
exchange and the cost basis of the Common Stock so acquired.
If a Warrant is not exercised, but is sold or exchanged (whether pursuant to
redemption or otherwise), gain or loss will be recognized upon such event,
measured by the difference between the amount realized by the holder of the
Warrant as a result of sale, exchange or redemption and the cost basis of the
Warrant.
If a Warrant is not exercised and is allowed to expire, the Warrants will be
deemed to be sold or exchanged on the date of expiration. In such event, the
holder of the Warrant will recognize a loss to the extent of the cost basis of
the Warrant.
Generally, any gain or loss recognized as a result of the foregoing will be
a capital gain or loss and will either be long-term or short-term depending upon
the period of time the Common Stock sold or exchanged or the Warrant sold,
exchanged, redeemed, or allowed to expire, as the case may be, was held. A
holding period of more than one year results in long-term gain or loss
treatment. If a Warrant is exercised, the holding period of the Common Stock so
acquired will not include the period during which the Warrant was held.
THIS SUMMARY IS OF GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND SHOULD NOT
BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PROSPECTIVE INVESTOR AND NO
REPRESENTATION WITH RESPECT TO THE TAX CONSEQUENCES TO ANY PARTICULAR INVESTOR
IS MADE.
38
<PAGE>
INVESTMENT CANADA ACT
The Investment Canada Act is a Federal Canadian statute which regulates the
acquisition of control of existing Canadian businesses and the establishment of
new Canadian businesses by an entity that is a "non-Canadian" as that term is
defined in the Investment Canada Act.
The Company believes that it is not currently a "non-Canadian" for purposes
of the Investment Canada Act. If the Company were to become a "non-Canadian" in
the future, acquisitions of control of Canadian businesses by the Company would
become subject to the Investment Canada Act. Generally, the direct acquisition
by a "non-Canadian" of an existing Canadian business with gross assets of
$5,000,000 or more is reviewable under the Investment Canada Act, with a
threshold of $168 million for 1996 for "NAFTA investors" as defined under the
Investment Canada Act.
Indirect acquisitions of existing Canadian businesses (with gross assets
over certain threshold levels) as well as acquisitions of businesses related to
Canada's cultural heritage or national identity (regardless of the value of
assets involved) may also be reviewable under the Investment Canada Act. In
addition, acquisitions of control of existing investments to establish new,
unrelated businesses are not generally reviewable but do require that a notice
of the investment be given under the Investment Canada Act. An investment in a
new business that is related to the non-Canadian's existing business in Canada
is not notifiable under the Investment Canada Act unless such investment relates
to Canada's cultural heritage or national identity.
Investments which are reviewable under the Investment Canada Act are
reviewed by the Minister, designated as being responsible for the administration
of the Investment Canada Act. Reviewable investments may not be implemented
prior to the Minister determining that the investment is likely to be of "net
benefit to Canada" based on the criteria set out in the Investment Canada Act.
39
<PAGE>
UNDERWRITING
The Company has agreed to sell, and the Underwriter has agreed, subject to
the time and conditions of the Underwriting Agreement, to purchase from the
Company on a firm commitment basis, the respective number of Units set forth
opposite their names below.
The Underwriter has advised the Company that it proposes to offer the Units
to the public at the public offering price set forth on the cover page of this
Prospectus and that they may allow to selected dealers who are members of the
NASD, concessions of not in excess of $. per Unit, of which not more than
$. per Unit may be re-allowed to certain other dealers who are members of
the NASD. After the public offering, the public prices, concessions and
reallowances may be changed by the Underwriter.
The Underwriting Agreement further provides that the Underwriter will
receive from the Company a non-accountable expense allowance of 3% of the
aggregate public offering price of the Units sold (including any Units sold
pursuant to the Underwriters' Over-Allotment Option), which allowance amounts to
$150,155 (or $172,672.50 if the Underwriter's Over-Allotment Option is exercised
in full).
The Company has granted to the Underwriter the Over-Allotment Option, which
is exercisable for a period of 45 days after the Closing, to purchase up to an
aggregate 1107,250 additional Units (up to 15% of the Units being offered) at
the public offering price, less underwriting discounts and commissions, solely
to cover over-allotments, if any.
The Underwriter has informed the Company that the Underwriter will not make
sales of the Units offered by this Prospectus to accounts over which they
exercise discretionary authority.
The Company has agreed to sell to the Underwriter for a nominal
consideration the Underwriter's Option to purchase 62,500 Units, exclusive of
the Over-Allotment Option. The Underwriter's Option will be nonexercisable for
one year after the date of this Prospectus. Thereafter, for a period of four
years, the Underwriter's Option will be exercisable at $9.60 per Unit. The
Warrants underlying the Units which underlie the Underwriter's Option will be
substantially identical to the Warrants offered to the public except they are
not subject to redemption by the Company until the Underwriter's Option has been
exercised and the underlying Warrants are outstanding, and that the exercise
price of such Warrants shall be $4.50 per share of Common Stock. The
Underwriter's Option is not transferable for a period of one year after the date
of this Prospectus, except to officers and stockholders of the Underwriter and
to members of the selling group and their officers and partners. The Company has
agreed to file, during the four year period beginning one year from the date of
this Prospectus, on one occasion at the Company's cost, at the request of the
holders of a majority of the Underwriter's Options and the underlying Units, and
to use its best efforts to cause to become effective, a post-effective amendment
to the Registration Statement or a new registration statement under the
Securities Act, as required to permit the public sale of Common Stock and
Warrants issued or issuable upon exercise of the Underwriter's Option. In
addition, the Company has agreed to give advance notice to holders of the
Underwriter's Option of its intention to file certain registration statements
commencing one year and ending four years after the date of this prospectus, and
in such case, holders of such Underwriter's Option or underlying shares of
Common Stock and Warrants shall have the right to require the Company to include
all or part of such shares of Common Stock and Warrants underlying such
Underwriter's Option in such registration statement at the Company's expense.
For the life of the Underwriter's Option, the holders thereof are given, at
nominal costs, the opportunity to profit from a rise in the market price of the
Company's securities with a resulting dilution in the interest of other
shareholders. Further, the holders may be expected to exercise the Underwriters'
Option at a time when the Company would in all likelihood be able to obtain
equity capital on terms more favorable than those provided in the Underwriters'
Option.
40
<PAGE>
The Company has agreed that upon closing of this Offering, it will for a
period of not less than three years, invite a designee of the Underwriter to
attend all meetings of the board of directors. Such designee will be entitled to
the same notices and communications sent by the Company to its directors and to
attend directors meetings, but will not be entitled to vote or be compensated
therefor.
The Company has agreed to retain the Underwriter as a financial consultant
for a period of twelve months to commence on the closing of this Offering, at a
monthly fee of $4,166.66 all of which ($50,000) shall be payable in advance on
the closing of the Offering. Pursuant to this agreement, the Underwriter will be
obligated to provide general financial advisory services to the Company on an
"as needed" basis with respect to possible future financing or acquisitions by
the Company and related matters. The agreement does not require the Underwriter
to provide any minimum number of hours of consulting services to the Company.
The public offering price of the Units offered hereby and the exercise price
and other terms of the Warrants have been determined by negotiation between the
Company and the Underwriter. Factors considered in determining the offering
price of the Units offered hereby and the exercise price of the Warrants
included the business in which the Company is engaged, the Company's financial
condition, an assessment of the Company's management, the general condition of
the securities markets and the demand for similar securities of comparable
companies.
The Company has agreed, for a period of one year from the date of this
Prospectus not to issue any shares of Common Stock, Warrants or any options or
other rights to purchase Common Stock without the prior written consent of the
Underwriter, except Warrants to be issued upon closing of this Offering, as
discussed herein.
In connection with this Offering, the Underwriter and selling group members
and their respective affiliates may engage in transactions that stabilize,
maintain or otherwise affect the market price of the Common Stock and Warrants.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Units, Common Stock or Warrants for the purpose of stabilizing their
respective market prices. The Underwriter also may create a short position for
the account of the Underwriter by selling more shares of Common Stock or
Warrants in connection with the Offering than they are committed to purchase
from the Company, and in such case may purchase Units, shares of Common Stock or
Warrants in the open market following completion of the Offering to cover all or
a portion of such short position. The Underwriter may also cover all or a
portion of such short position by exercising the Over-Allotment Option. In
addition, the Underwriter may impose "penalty bids" under contractual
arrangements with the Underwriter whereby it may reclaim from an Underwriter (or
dealer participating in the Offering) for the account of other Underwriter, the
selling concession with respect to Units that are distributed in the Offering
but subsequently purchased for the account of the Underwriter in the open
market. Any of the transactions described in this paragraph may result in the
maintenance of the price of the Units, Common Stock and Warrants at a level
above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are
undertaken they may be discontinued at any time.
Commencing one year after the date of this Prospectus, the Company will pay
the Underwriter a fee of 5% of the exercise price of each Warrant exercised,
provided (i) the market price of the Common Stock on the date the Warrant was
exercised was greater than the Warrant exercise price on that date; (ii) the
exercise price of the Warrant was solicited by a member of the NASD; (iii) the
Warrant was not held in discretionary account; (iv) the disclosure of
compensation arrangements was made both at the time of this Offering and at the
time of exercise of the Warrant; (v) the solicitation of the exercise of the
Warrant was not a violation of Regulation M promulgated under the Exchange Act;
and (vi) the Warrant holder designates in writing which broker-dealer made the
solicitation. The Underwriter and any other soliciting broker-dealers may be
prohibited from engaging in any market-making activities or solicited brokerage
activities with regard to the Company's securities during the periods prescribed
by Regulation M, five
41
<PAGE>
business days (or other applicable period as Regulation M may provide) before
the solicitation of the exercise of any Warrant until the later of the
termination of such solicitation activity or the termination of any right the
Underwriters and any other soliciting broker/dealer may have to receive a fee
for the solicitation of the exercise of the Warrants.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities in connection with
this Offering, including liabilities under the Securities Act.
The foregoing is a summary of the material terms of the Underwriting
Agreement, the Underwriter's Option and the Consulting Agreement. Reference is
made to the copies of the Underwriting Agreement, the Underwriter's Option and
the Consulting Agreement, which are filed as exhibits to the Registration
Statement of which this Prospectus forms a part.
LEGAL MATTERS
Certain legal matters relating to Ontario law, including the validity of the
issuance of the Common Stock and Warrants offered herein, will be passed upon
for the Company by Torkin, Manes, Cohen & Arbus. Certain legal matters in
connection with the Offering will be passed upon for the Company by its United
States counsel, Singer Zamansky LLP, 40 Exchange Place, 20th Floor, New York,
New York, 10005. Singer Zamansky LLP has served, and continues to serve, as
counsel to the Underwriter in matters unrelated to this Offering. Certain legal
matters will be passed upon for the Underwriter by DeLong, Caldwell & Wisebram,
LLC.
EXPERTS
The combined financial statements of Ontario Wallcoverings Ltd. and Rosedale
Wallcoverings & Fabrics Inc. for each of the fiscal years ended December 31,
1996 and 1995, appearing in this Prospectus and Registration Statement have been
audited by Schwartz Levitsky Feldman, Chartered Accountants, as set forth in
their reports thereon appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under the
Act with respect to the Securities offered hereby. This Prospectus omits certain
information contained in the Registration Statement and the exhibits thereto,
and reference is made to the Registration Statement and the exhibits thereto for
further information with respect to the Company and the Securities offered
hereby. Each such statement is qualified in its entirety by such reference. The
Registration Statement, including exhibits and schedules filed therewith, may be
inspected without charge at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549 and at the regional offices of the Commission located at 7 World
Trade Center, Suite 1300, New York, New York 10048, and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such materials may be obtained from the Public Reference Section of the
Commission, Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, and its public reference facilities in New York, New York and Chicago,
Illinois upon payment of the prescribed fees. Electronic registration statements
filed through the Electronic Data Gathering, Analysis, and Retrieval System are
publicly available through the Commission's Website (http://www.sec.gov). At the
date hereof, the Company was not a reporting company under the Securities
Exchange Act of 1934, as amended.
42
<PAGE>
ONTARIO PAINT & WALLPAPER LIMITED AND
ROSEDALE WALLCOVERINGS & FABRICS INC.
FINANCIAL STATEMENT INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors............................................................................. F-2
Combined Balance Sheets as of September 30, 1997 (unaudited), December 31, 1996
and December 31, 1995.................................................................................... F-3
Combined Statements of Income for the nine months ended September 30, 1997 and September 30, 1996
(unaudited) and for the year ended December 31, 1996,
December 31, 1995 and December 31, 1994.................................................................. F-4
Combined Statements of Cash Flows for the nine months ended September 30, 1997 and September 30, 1996
(unaudited) and for the year ended December 31, 1996,
December 31, 1995 and December 31, 1994.................................................................. F-5
Combined Statements of Stockholders' Equity as of December 31, 1993, 1994, 1995 and 1996................... F-6
Notes to Combined Financial Statements..................................................................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Ontario Paint & Wallpaper Limited and
Rosedale Wallcoverings and Fabrics Inc.
We have audited the accompanying combined balance sheets of Ontario Paint &
Wallpaper Limited and Rosedale Wallcoverings and Fabrics Inc. (incorporated in
Canada) as of December 31, 1996 and 1995 and the related combined statements of
income, cash flows and changes in stockholders' equity for the years ended
December 31, 1996, 1995 and 1994. These combined financial statements are the
responsibility of the management of Ontario Paint & Wallpaper Limited and
Rosedale Wallcoverings and Fabrics Inc. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Ontario Paint &
Wallpaper Limited and Rosedale Wallcoverings and Fabrics Inc. as of December 31,
1996 and 1995 and the results of their operations and their cash flows for the
years ended December 31, 1996, 1995 and 1994, in conformity with generally
accepted accounting principles in the United States of America.
Toronto, Ontario
April 4, 1997 for Ontario Paint & Wallpaper Limited Chartered Accountants
April 15, 1997 for Rosedale Wallcoverings and Fabrics Inc.
Except for Note 13(d) which is dated November 28, 1997
F-2
<PAGE>
ONTARIO PAINT & WALLPAPER LIMITED AND
ROSEDALE WALLCOVERINGS AND FABRICS INC.
COMBINED BALANCE SHEETS
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
SEPTEMBER 30, ------------- -------------
1997
-------------
(UNAUDITED)
(SEE NOTE 1)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash.............................................................. $ 265,564 $ 1,079,823 $ 615,526
Accounts receivable (note 2)...................................... 5,527,244 3,914,762 3,446,290
Inventory (note 3)................................................ 7,392,079 6,277,999 6,984,685
Prepaid expenses and sundry assets................................ 91,957 135,859 85,127
------------- ------------- -------------
Total current assets.......................................... 13,276,844 11,408,443 11,131,628
LOANS RECEIVABLE FROM AFFILIATED COMPANIES (note 4)................. 28,444 64,545 27,834
DEFERRED POLICY COSTS (note 5)...................................... -- 126,369 101,760
MORTGAGES RECEIVABLE (note 6)....................................... 384,461 -- --
PROPERTY, PLANT AND EQUIPMENT (note 7).............................. 1,435,675 1,443,028 1,229,516
------------- ------------- -------------
Total assets.................................................. 15,125,424 13,042,385 12,490,738
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (note 8)........................................ $ 4,027,080 $ 3,598,780 $ 3,206,208
Accounts payable and accrued expenses (note 9).................... 6,469,459 5,470,806 6,796,326
Income taxes payable.............................................. 165,572 54,505 24,135
Current portion of long-term debt (note 10)....................... 86,904 119,390 --
------------- ------------- -------------
Total current liabilities..................................... 10,749,015 9,243,481 10,026,669
LONG-TERM DEBT (note 10)............................................ 799,280 871,418 485,337
LOANS PAYABLE TO STOCKHOLDERS (note 11)............................. 224,951 252,209 253,430
ADVANCES FROM DIRECTORS (note 12)................................... 1,617,763 1,470,066 967,031
DEFERRED INCOME TAXES............................................... 28,962 29,184 --
------------- ------------- -------------
Total liabilities............................................. 13,419,971 11,866,358 11,732,467
------------- ------------- -------------
STOCKHOLDERS' EQUITY
CAPITAL STOCK (note 13)............................................. 163 163 163
CUMULATIVE TRANSLATION ADJUSTMENT................................... (117,784) (107,044) (101,229)
RETAINED EARNINGS................................................... 1,823,074 1,282,908 859,337
------------- ------------- -------------
Total stockholders' equity.................................... 1,705,453 1,176,027 758,271
------------- ------------- -------------
Total liabilities and stockholders' equity.................... 15,125,424 13,042,385 12,490,738
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ONTARIO PAINT & WALLPAPER LIMITED AND
ROSEDALE WALLCOVERINGS AND FABRICS INC.
COMBINED STATEMENTS OF INCOME
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995 1994
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
(SEE NOTE 1) (SEE NOTE 1)
SALES................................ $ 16,251,371 $ 14,780,258 $ 18,927,369 $ 18,552,166 $ 23,546,070
COST OF SALES........................ 10,374,682 9,711,162 12,301,621 11,605,996 14,989,135
------------- ------------- ------------- ------------- -------------
GROSS PROFIT......................... 5,876,689 5,069,096 6,625,748 6,946,170 8,556,935
------------- ------------- ------------- ------------- -------------
OPERATING EXPENSES
Selling............................ 1,755,077 1,717,262 2,437,576 2,730,318 3,057,180
General and administrative......... 1,655,914 1,420,784 2,003,119 2,382,302 2,575,992
Book development costs
(recovery)....................... 219,065 (129,355) (278,079) (180,239) 276,329
Design studio...................... 628,876 695,900 899,372 988,638 935,644
Amortization....................... 549,611 410,865 651,143 595,716 666,211
------------- ------------- ------------- ------------- -------------
TOTAL OPERATING EXPENSES............. 4,808,543 4,115,456 5,713,131 6,516,735 7,511,356
------------- ------------- ------------- ------------- -------------
OPERATING INCOME..................... 1,068,146 953,640 912,617 429,435 1,045,579
Interest expense................... 214,722 231,523 234,865 758,660 154,348
Insurance Premiums................. 125,826 143,432 191,845 190,587 191,522
Loan receivable written-off
(note 14)........................ -- -- -- -- 1,063,758
------------- ------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES.... 727,598 578,685 485,907 (519,812) (364,049)
Income taxes (recovery)
(note 15)........................ 187,432 145,698 62,336 53,078 (4,027)
------------- ------------- ------------- ------------- -------------
NET INCOME (LOSS).................... 540,166 432,987 423,571 (572,890) (360,022)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net income (loss) per weighted
average common share............... 0.17 0.14 0.13 (0.18) (0.11)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Weighted average number of common
shares outstanding [note 13(d)].... 3,140,000 3,140,000 3,140,000 3,140,000 3,140,000
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ONTARIO PAINT & WALLPAPER LIMITED AND
ROSEDALE WALLCOVERINGS AND FABRICS INC.
COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995 1994
------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
(SEE NOTE 1) (SEE NOTE 1)
Cash flows from operating activities:
Net income (loss)................................ $ 540,166 $ 432,987 $ 423,571 $ (572,890) $ (360,022)
------------- ------------- ------------ ------------ ------------
Adjustments to reconcile net income to net cash
(used in) provided operating activities:
Amortization..................................... 549,611 410,865 651,143 595,716 666,211
Loss on write off of loan receivable............. -- -- -- -- 1,063,758
(Increase) decrease in accounts receivable....... (1,647,732) (2,248,470) (487,558) 754,099 (83,030)
(Increase) decrease in inventory................. (1,165,691) 965,160 676,507 (1,183,734) (1,072,830)
Decrease (increase) in prepaid expenses and
sundry assets.................................. 43,013 21,360 (51,405) (60,055) 51,561
(Decrease) increase in accounts payable and
accrued expenses............................... 1,043,722 (877,470) (1,299,429) (460,691) 1,135,803
Increase (decrease) in income taxes payable...... 111,855 139,433 30,642 (10,121) (1,496)
Increase (decrease) in deferred income taxes..... -- -- 29,335 -- (36,606)
------------- ------------- ------------ ------------ ------------
Total adjustments.............................. (1,065,222) (1,589,122) (450,765) (364,786) 1,723,371
------------- ------------- ------------ ------------ ------------
Net cash (used in) provided by operating
activities..................................... (525,056) (1,156,135) (27,194) (937,676) 1,363,349
------------- ------------- ------------ ------------ ------------
Cash flows from investing activities:
Increase (decrease) in deferred policy costs..... 125,826 (18,861) (25,227) (22,148) (79,362)
Purchases of property, plant and equipment....... (553,240) (421,249) (871,703) (902,570) (743,989)
Increase in mortgages receivable................. (385,746) -- -- -- --
Increase in loan receivable...................... -- -- -- -- (1,063,758)
------------- ------------- ------------ ------------ ------------
Net cash used in investing activities............ (813,160) (440,110) (896,930) (924,718) (1,887,109)
------------- ------------- ------------ ------------ ------------
Cash flows from financing activities:
(Repayment of) proceeds from loans with
affiliated companies........................... 35,729 (40,206) (37,034) (25,501) 904,800
(Repayment of) proceeds from long-term debt...... (97,415) 162,293 510,414 212,735 270,884
Repayment of stockholders' loans................. (25,427) -- -- -- (340,127)
(Repayment of) proceeds from loans with
directors...................................... 159,405 547,111 510,298 (225,764) 838,651
------------- ------------- ------------ ------------ ------------
Net cash (used in) provided by financing
activities..................................... 72,292 669,198 983,678 (38,530) 1,674,208
------------- ------------- ------------ ------------ ------------
Effect of foreign currency exchange rate changes... 23,365 (7,357) 12,171 (30,261) 91,883
------------- ------------- ------------ ------------ ------------
Net (decrease) increase in cash and cash
equivalents...................................... (1,242,559) (934,404) 71,725 (1,931,185) 1,242,331
Cash and cash equivalents
Beginning of period/year......................... (2,518,957) (2,590,682) (2,590,682) (659,497) (1,901,828)
------------- ------------- ------------ ------------ ------------
End of period/year................................. (3,761,516) (3,525,086) (2,518,957) (2,590,682) (659,497)
------------- ------------- ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------
Income taxes paid (refunds received)............... -- 54,741 59,553 45,146 42,740
------------- ------------- ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------
Interest paid...................................... 214,722 231,523 358,756 452,972 154,348
------------- ------------- ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ONTARIO PAINT & WALLPAPER LIMITED AND
ROSEDALE WALLCOVERINGS AND FABRICS INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
COMMON
CLASS A STOCK CUMULATIVE
NUMBER NUMBER RETAINED TRANSLATION
OF SHARES OF SHARES AMOUNT EARNINGS ADJUSTMENTS
------------- ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance as of December 31, 1993....................... 20 220 $ 163 $ 1,792,249 $(251,502)
Foreign currency translation........................ -- -- -- -- 117,892
Net loss for the year............................... -- -- -- (360,022) --
--
--- ----- ------------ -----------
Balance as of December 31, 1994....................... 20 220 163 1,432,227 (133,610)
Foreign currency translation........................ -- -- -- -- 32,381
Net loss for the year............................... -- -- -- (572,890) --
--
--- ----- ------------ -----------
Balance as of December 31, 1995....................... 20 220 163 859,337 (101,229)
Foreign currency translation........................ -- -- -- -- (5,815)
Net income for the year............................. -- -- -- 423,571 --
--
--- ----- ------------ -----------
Balance as of December 31, 1996....................... 20 220 163 1,282,908 (107,044)
--
--
--- ----- ------------ -----------
--- ----- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ONTARIO PAINT & WALLPAPER LIMITED AND
ROSEDALE WALLCOVERINGS AND FABRICS INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
COMMON
CLASS A STOCK CUMULATIVE
NUMBER NUMBER RETAINED TRANSLATION
OF SHARES OF SHARES AMOUNT EARNINGS ADJUSTMENTS
------------- ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance as of December 31, 1995....................... 20 220 $ 163 $ 859,337 $(101,229)
Foreign currency translation........................ -- -- -- -- 3,077
Net income for the period........................... -- -- -- 432,987 --
--
--- ----- ------------ -----------
Balance as of September 30, 1996...................... 20 220 163 1,292,324 (98,152)
--
--
--- ----- ------------ -----------
--- ----- ------------ -----------
Balance as of December 31, 1996....................... 20 220 163 1,282,908 (107,044)
Foreign currency translation........................ -- -- -- -- (10,740)
Net income for the period........................... -- -- -- 540,166 --
--
--- ----- ------------ -----------
Balance as of September 30, 1997...................... 20 220 163 1,823,074 (117,784)
--
--
--- ----- ------------ -----------
--- ----- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
ONTARIO PAINT & WALLPAPER LIMITED AND
ROSEDALE WALLCOVERINGS AND FABRICS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN US DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) BASIS OF PRESENTATION
The combined financial statements of Ontario Paint & Wallpaper Limited
("Ontario") and Rosedale Wallcoverings and Fabrics Inc. ("Rosedale") combine the
accounts of the following companies as at their respective year ends:
<TABLE>
<S> <C>
Ontario Paint & Wallpaper Limited.......... December 31, 1996, 1995 and
1994 and September 30, 1997 and
1996
Rosedale Wallcoverings and Fabrics Inc..... December 31, 1996, 1995 and
1994 and September 30, 1997 and
1996
</TABLE>
All material inter-company accounts and transactions have been eliminated.
The combined financial statements for the nine months ended September 30,
1997 and 1996 are unaudited. The interim results are not necessarily indicative
of the results for any future period.
B) PRINCIPAL ACTIVITIES
The companies, Ontario Paint and Wallpaper Limited and Rosedale
Wallcoverings and Fabrics Inc. were incorporated in Canada on December 3, 1971
and April 7, 1981 respectively. The companies are principally engaged in the
designing, manufacturing and marketing of wallpapers and decorative fabrics in
Canada, U.S. and Europe.
C) CASH AND CASH EQUIVALENTS (BANK INDEBTEDNESS)
Cash and cash equivalents (bank indebtedness) includes cash on hand, amounts
due from and to banks, and any other highly liquid investments purchased with a
maturity of three months or less. The carrying amounts approximate fair values
because of the short maturity of those instruments.
D) OTHER CURRENT FINANCIAL INSTRUMENTS
The carrying amount of the companies' accounts receivable and payable
approximates fair value because of the short maturity of these instruments.
E) LONG-TERM FINANCIAL INSTRUMENTS
The fair value of each of the companies' long-term financial assets and debt
instruments is based on the amount of future cash flows associated with each
instrument discounted using an estimate of what the companies' current borrowing
rate for similar instruments of comparable maturity would be.
F) INVENTORY
Inventory is valued at the lower of cost and fair market value. Cost is
determined on the first-in, first-out basis.
F-8
<PAGE>
ONTARIO PAINT & WALLPAPER LIMITED AND
ROSEDALE WALLCOVERINGS AND FABRICS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
G) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and are amortized on the
basis of their estimated useful lives at the undernoted rates and methods:
<TABLE>
<S> <C> <C>
Leasehold improvements 10% Straight-line
Cylinders and related design Straight-line
costs 33%
Equipment furniture and Declining balance
fixtures 20%
Computer equipment 30% and 20% Declining balance
Automobile 30% Declining balance
</TABLE>
Amortization for assets acquired during the year/period are recorded at
one-half of the indicated rates, which approximate when they were put into use.
H) INCOME TAXES
The companies account for income tax under the provisions of Statement of
Financial Accounting Standards No. 109 , which requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Deferred
income taxes are provided using the liability method. Under the liability
method, deferred income taxes are recognized for all significant temporary
differences between the tax and financial statement bases of assets and
liabilities.
I) FOREIGN CURRENCY TRANSLATION
The companies maintain their books and records in Canadian dollars. Foreign
currency transactions are translated using the temporal method. Under this
method, all monetary items are translated into Canadian funds at the rate of
exchange prevailing at balance sheet date. Non-monetary items are translated at
historical rates. Income and expenses are translated at the rate in effect on
the transaction dates. Transaction gains and losses are included in the
determination of earnings for the year/period.
The translation of the financial statements from Canadian dollars ("CDN $")
into United States dollars is performed for the convenience of the reader.
Balance sheet accounts are translated using closing exchange rates in effect at
the balance sheet date and income and expense accounts are translated using an
average exchange rate prevailing during each reporting period. No representation
is made that the Canadian dollar amounts could have been, or could be, converted
into United Sates dollars at the rates on the respective dates and or at any
other certain rates. Adjustments resulting from the translation are included in
the cumulative translation adjustments in stockholders' equity.
J) SALES
Sales represents the invoiced value of goods supplied to customers. Sales
are recognized upon delivery of goods and passage of title to customers.
F-9
<PAGE>
ONTARIO PAINT & WALLPAPER LIMITED AND
ROSEDALE WALLCOVERINGS AND FABRICS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
K) NET INCOME PER WEIGHTED AVERAGE COMMON STOCK
Net income per common stock is computed by dividing net income for the
year/period by the weighted average number of common stock outstanding as
presented on a pro-forma basis as explained in note 13(d).
L) USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect certain reported amounts of assets and
liabilities and disclosures 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.
M) ACCOUNTING CHANGES
On January 1, 1996, the companies adopted the provisions of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of. SFAS No. 121 requires that long-lived assets to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS No. 121 is effective for financial statements for fiscal years
beginning after December 15, 1995. Adoption of SFAS No. 121 did not have a
material impact on the companies' result of operations.
In December 1995, SFAS No. 123, Accounting for Stock-Based Compensation, was
issued. It introduced the use of a fair value-based method of accounting for
stock-based compensation. It encourages, but does not require, companies to
recognize compensation expense for stock-based compensation to employees based
on the new fair value accounting rules. Companies that choose not to adopt the
new rules will continue to apply the existing accounting rules contained in
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. However, SFAS No. 123 requires companies that choose not to adopt the
new fair value accounting rules to disclose pro forma net income and earnings
per share under the new method. SFAS No. 123 is effective for financial
statements for fiscal years beginning after December 15, 1995. The companies
have adopted the disclosure provisions of SFAS No. 123.
2. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
(SEE NOTE 1)
Accounts receivable.............................. $ 5,655,789 $4,799,124 $4,191,214
Less: Allowance for doubtful accounts............ 128,545 884,362 744,924
------------- ------------ ------------
Accounts receivable, net......................... 5,527,244 3,914,762 3,446,290
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
During 1997, two accounts receivable amounting to approximately $780,000,
previously provided for were written off against the allowance for doubtful
accounts.
F-10
<PAGE>
ONTARIO PAINT & WALLPAPER LIMITED AND
ROSEDALE WALLCOVERINGS AND FABRICS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
3. INVENTORY
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
(SEE NOTE 1)
Inventory comprised the following:
Raw materials.................................... $ 31,000 $ 140,035 $ 340,720
Finished goods................................... 7,361,079 6,137,964 6,643,965
------------- ------------ ------------
7,392,079 6,277,999 6,984,685
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
4. LOANS RECEIVABLE FROM AFFILIATED COMPANIES
The loans receivable from affiliated companies which are related through
common ownership bear interest at prime plus 1.5%, have no specific repayment
terms, and are not expected to be repaid prior to October 1, 1998.
5. DEFERRED POLICY COSTS
Deferred policy costs represents the prepaid portion of premiums on the life
insurance policies referred to in note 20.
6. MORTGAGES RECEIVABLE
Second mortgages from companies related through common ownership, secured by
land and buildings, bear interest at 9% and are payable on demand. No repayments
are expected prior to October 1, 1998.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- --------------- ---------------
<S> <C> <C> <C>
(UNAUDITED)
(SEE NOTE 1)
1216748 Ontario Inc. ............................ $ 198,744 $ -- $ --
1217576 Ontario Inc. ............................ 185,717 -- --
------------- ----- -----
384,461 -- --
------------- ----- -----
------------- ----- -----
</TABLE>
The fair value of the mortgages receivable is estimated to be $350,000.
F-11
<PAGE>
ONTARIO PAINT & WALLPAPER LIMITED AND
ROSEDALE WALLCOVERINGS AND FABRICS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
7. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
(SEE NOTE 1)
Leasehold improvements........................... $ 32,451 $ 32,700 $ 32,859
Automobile....................................... 20,774 20,933 21,034
Equipment and furniture.......................... 264,469 266,346 266,394
Furniture and fixtures........................... 300,632 297,688 268,627
Computer and equipment........................... 339,830 308,867 287,955
Cylinders and related design costs............... 2,772,742 2,277,325 1,971,299
------------- ------------ ------------
Cost............................................. 3,730,898 3,203,859 2,848,168
------------- ------------ ------------
Less: Accumulated amortization
Leasehold improvements...................... 10,020 7,635 4,386
Automobile.................................. 16,695 15,608 13,391
Equipment and furniture..................... 186,593 174,174 151,863
Furniture and fixtures...................... 196,044 177,847 152,414
Computer and equipment...................... 226,030 209,073 182,235
Cylinders and related design costs.......... 1,659,841 1,176,494 1,114,363
------------- ------------ ------------
2,295,223 1,760,831 1,618,652
------------- ------------ ------------
Net Assets....................................... 1,435,675 1,443,028 1,229,516
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
8. BANK INDEBTEDNESS
The companies have available credit facilities up to a maximum of $5,250,000
($7,250,000 Canadian), which bear interest at rates varying between the bank's
prime rate and prime plus 1.5%. The indebtedness is secured by general
assignments of book debts, pledge of inventory under Section 427 of the Bank Act
of Canada, general security agreements providing a first floating charge over
all assets, guarantees and postponement of claims to a maximum of $735,000 each
from two officers, guarantees and postponement of claims to a maximum of
$1,467,000 from the parent companies, guarantees from affiliated companies up to
$917,000, assignment of life insurance of $1,470,000 each on the lives of two
key officers and assignment of fire insurance.
F-12
<PAGE>
ONTARIO PAINT & WALLPAPER LIMITED AND
ROSEDALE WALLCOVERINGS AND FABRICS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
(SEE NOTE 1)
Accounts payable and accrued expenses comprised
the following:
Trade payables............................... $ 6,356,414 $5,369,538 $6,185,410
Accrued expenses................................. 113,045 101,268 610,916
------------- ------------ ------------
6,469,459 5,470,806 6,796,326
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
10. LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
(SEE NOTE 1)
A) SETTLEMENT PAYABLE
Subsequent to December 31, 1996, Rosedale agreed to a $290,733
settlement of a claim initiated by a third party.The terms of
payments are as follows: $18,248 monthly from January to March,
1997, $7,242 monthly thereafter................................ $ 192,534 $ 291,843 $ --
B) INSURANCE LOAN
Amount in excess of cash surrender values of life insurance
policies (note 20) which is payable on demand but is expected
to become due for payment in the year 2004. The loan bears
interest at prime plus 1.5% and is secured by letters of
guarantee from a major Canadian Chartered Bank and a second
collateral mortgage on the assets of the companies............. 693,650 698,965 485,337
------------- ------------ ------------
886,184 990,808 485,337
Less: Current portion.............................................. (86,904) (119,390) --
------------- ------------ ------------
Long-term portion.................................................. 799,280 871,418 485,337
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
11. LOANS PAYABLE TO STOCKHOLDERS
Stockholder's advances are secured by general security agreements, bears
interest at prime plus 1.5%, have no specific repayment terms, and the
stockholders are not expected to demand repayment prior to October 1, 1998.
F-13
<PAGE>
ONTARIO PAINT & WALLPAPER LIMITED AND
ROSEDALE WALLCOVERINGS AND FABRICS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
12. ADVANCES FROM DIRECTORS
Advances from directors are secured by general security agreements, bears
interest at prime plus 1.5%, have no specific repayment terms, and the directors
are not expected to demand repayment prior to October 1, 1998.
13. CAPITAL STOCK
A) ONTARIO PAINT & WALLPAPER LIMITED
AUTHORIZED
500,020 Class A Preference shares, 8% non-cumulative, non-voting,
redeemable at $12,500 per share
25,000 Class B Preference shares, 8% non-cumulative, non-voting,
redeemable at paid up amount
249,980 Common shares
ISSUED
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
(UNAUDITED)
(SEE NOTE 1)
20 Class A Preference shares..................... $ 1 $ 1 $ 1
20 Common shares................................. 2 2 2
-- -- --
3 3 3
-- -- --
-- -- --
</TABLE>
B) ROSEDALE WALLCOVERINGS AND FABRICS INC.
AUTHORIZED
3,600 Preference shares, 9% non-cumulative, non-voting, redeemable at
the amount paid up plus a premium of 10%
4,000 Common shares
ISSUED
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
(UNAUDITED)
(SEE NOTE 1)
100 Common shares................................ $ 160 $ 160 $ 160
----- ----- -----
----- ----- -----
</TABLE>
F-14
<PAGE>
ONTARIO PAINT & WALLPAPER LIMITED AND
ROSEDALE WALLCOVERINGS AND FABRICS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
13. CAPITAL STOCK (CONTINUED)
C) ISSUED--COMBINED
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
(UNAUDITED)
(SEE NOTE 1)
20 Class A Preference shares..................... $ 1 $ 1 $ 1
120 Common shares................................ 162 162 162
----- ----- -----
163 163 163
----- ----- -----
----- ----- -----
</TABLE>
D) WEIGHTED AVERAGE NUMBER OF COMMON SHARES
On May 14, 1997, a newly incorporated holding company, Rosedale Decorative
Products Ltd. (the "Registrant"), was formed by the shareholders of the
companies for the purpose of consolidating their 100% ownership interests in
anticipation of an initial public offering.
For the purpose of determining earnings per share, the weighted average
number of common shares has been presented on a pro-forma basis, giving effect
to the following subsequent events:
The shareholders of the companies completed the transfer of all the
outstanding common shares of the companies to the Registrant in exchange for
3,140,000 common shares of the Registrant.
After giving effect to the above transactions, there are 3,140,000 issued
and common shares of the Registrant. Accordingly, the total weighted average
number of common shares as presented on a pro-forma basis is 3,140,000.
14. LOAN RECEIVABLE WRITTEN OFF
The loan receivable written off represents advances of funds by Rosedale to
Newport Window Fashions Inc. ("Newport"), a California company who was a
manufacturer and distribution of laminated vertical and horizontal window
blinds. The loan was made with the expectation that Rosedale was going to be
able to increase its own sales by supporting Newport. Newport's operations were
unsuccessful and Rosedale was unable to recover the loan.
F-15
<PAGE>
ONTARIO PAINT & WALLPAPER LIMITED AND
ROSEDALE WALLCOVERINGS AND FABRICS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
15. INCOME TAXES (RECOVERY)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
SEPTEMBER SEPTEMBER DECEMBER DECEMBER DECEMBER
30, 30, 31, 31, 31,
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(SEE NOTE (SEE NOTE
1) 1)
<S> <C> <C> <C> <C> <C>
a) Current......................... $ 187,432 $ 145,698 $ 33,152 $ 53,078 $ 32,579
Deferred (draw-down)........... -- -- 29,184 -- (36,606)
----------- ----------- ----------- ----------- -----------
187,432 145,698 62,336 53,078 (4,027)
----------- ----------- ----------- ----------- -----------
b) Current income taxes comprised
as follows:
Amount calculated at basic
Canadian federal and provincial
rates.......................... 320,143 254,621 213,800 (228,717) (158,410)
Increase (decrease) representing
from: Timing differences....... -- -- (29,184) -- 36,606
Non-deductible expenses.......... 60,923 63,110 91,189 80,566 117,410
Application of losses
carry-forward.................. (193,634) (172,033) (242,653) -- --
Losses carried-forward......... -- -- 148,768 36,973
Other adjustments.................. -- -- -- 52,461 --
----------- ----------- ----------- ----------- -----------
187,432 145,698 33,152 53,078 32,579
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
c) Deferred income taxes represented the tax charges derived from temporary
differences between amortization of property, plant and equipment and amounts
deducted from taxable income.
16. RELATED PARTY TRANSACTIONS
Amounts due from or paid to companies which are related through common
ownership.
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER DECEMBER
30, 31, 31,
1997 1996 1995
----------- ----------- -----------
(UNAUDITED)
(SEE NOTE
1)
<S> <C> <C> <C>
Loan--966578 Ontario Inc................ $ 7,216 $ -- $ --
Loan--976168 Ontario Inc................ 27,488 27,699 27,833
Mortgage receivable--1216748 Ontario
Inc................................... 198,744 -- --
Mortgage receivable--1217576 Ontario
Inc................................... 185,177 -- --
Rent paid--966578 Ontario Inc........... 15,256 20,534 10,727
</TABLE>
17. SEGMENTED INFORMATION
Rosedale is engaged primarily in the design, manufacturing, marketing, and
distribution whilst Ontario is engaged primarily in the marketing and
distribution of wallpaper and designer fabrics.
F-16
<PAGE>
ONTARIO PAINT & WALLPAPER LIMITED AND
ROSEDALE WALLCOVERINGS AND FABRICS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
17. SEGMENTED INFORMATION (CONTINUED)
a) The breakdown of sales by geographic area is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1997
--------------------------------
ONTARIO ROSEDALE TOTAL
--------- --------- ----------
(UNAUDITED, SEE NOTE 1)
<S> <C> <C> <C>
United States of America................ $ 603,190 $6,972,677 $7,575,867
Canada.................................. 5,781,168 1,381,991 7,163,159
Other................................... 795,893 716,452 1,512,345
--------- --------- ----------
7,180,251 9,071,120 16,251,371
--------- --------- ----------
--------- --------- ----------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1996
--------------------------------
ONTARIO ROSEDALE TOTAL
--------- --------- ----------
(UNAUDITED, SEE NOTE 1)
<S> <C> <C> <C>
United States of America................ $ 778,672 $6,523,648 $7,302,320
Canada.................................. 5,520,827 1,440,778 6,961,605
Other................................... 59,546 456,787 516,333
--------- --------- ----------
6,359,045 8,421,213 14,780,258
--------- --------- ----------
--------- --------- ----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------
ONTARIO ROSEDALE TOTAL
--------- ---------- ----------
<S> <C> <C> <C>
United States of America............... $1,166,573 $9,233,118 $10,399,691
Canada................................. 6,067,758 1,530,499 7,598,257
Other.................................. 113,887 815,534 929,421
--------- ---------- ----------
7,348,218 11,579,151 18,927,369
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------
ONTARIO ROSEDALE TOTAL
--------- ---------- ----------
<S> <C> <C> <C>
United States of America............... $1,739,101 $9,478,947 $11,218,048
Canada................................. 5,086,322 1,335,491 6,421,813
Other.................................. 157,391 754,914 912,305
--------- ---------- ----------
6,982,814 11,569,352 18,552,166
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
---------------------------------
ONTARIO ROSEDALE TOTAL
--------- ---------- ----------
<S> <C> <C> <C>
United States of America............... $1,345,655 $12,110,728 $13,456,383
Canada................................. 6,612,089 2,339,683 8,951,772
Other.................................. -- 1,137,915 1,137,915
--------- ---------- ----------
7,957,744 15,588,326 23,546,070
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
F-17
<PAGE>
ONTARIO PAINT & WALLPAPER LIMITED AND
ROSEDALE WALLCOVERINGS AND FABRICS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
17. SEGMENTED INFORMATION (CONTINUED)
b) The companies' accounting records do not readily provide information on
net income by geographic area. Management is of the opinion that the proportion
of net income based principally on sales, presented below, would fairly present
the results of operations by geographic area.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1997
-------------------------------
ONTARIO ROSEDALE TOTAL
--------- --------- ---------
(UNAUDITED, SEE NOTE 1)
<S> <C> <C> <C>
United States of America...................... $ 19,446 $ 228,761 $ 248,207
Canada........................................ 194,459 44,564 239,023
Other......................................... 29,169 23,767 52,936
--------- --------- ---------
243,074 297,092 540,166
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1996
-------------------------------
ONTARIO ROSEDALE TOTAL
--------- --------- ---------
<S> <C> <C> <C>
United States of America...................... $ 25,460 $ 170,034 $ 195,494
Canada........................................ 184,583 33,123 217,706
Other......................................... 2,121 17,666 19,787
--------- --------- ---------
212,164 220,823 432,987
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------
ONTARIO ROSEDALE TOTAL
--------- --------- ---------
<S> <C> <C> <C>
United States of America...................... $ 18,298 $ 238,089 $ 256,387
Canada........................................ 94,922 116,381 141,303
Other......................................... 1,144 24,737 25,881
--------- --------- ---------
114,364 309,207 423,571
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------
ONTARIO ROSEDALE TOTAL
--------- --------- ---------
<S> <C> <C> <C>
United States of America.................... $ 35,805 $(551,406) $(575,601)
Canada...................................... 91,762 (107,417) (15,755)
Other....................................... 15,755 (57,289) (41,534)
--------- --------- ---------
125,701 (508,004) (572,890)
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
-------------------------------
ONTARIO ROSEDALE TOTAL
--------- --------- ---------
<S> <C> <C> <C>
United States of America.................... $ 74,804 $(616,038) $(541,234)
Canada...................................... 365,223 (120,007) 245,216
Other....................................... -- (64,004) (64,004)
--------- --------- ---------
440,027 (800,049) (360,022)
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-18
<PAGE>
ONTARIO PAINT & WALLPAPER LIMITED AND
ROSEDALE WALLCOVERINGS AND FABRICS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
17. SEGMENTED INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
-------------------------------
ONTARIO ROSEDALE TOTAL
--------- --------- ---------
<S> <C> <C> <C>
</TABLE>
c) The breakdown of identifiable assets by geographic area is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1997
--------------------------------
ONTARIO ROSEDALE TOTAL
--------- --------- ----------
(UNAUDITED, SEE NOTE 1)
<S> <C> <C> <C>
United States of America................ $ -- $1,007,520 $1,007,520
Canada.................................. 6,253,719 7,004,808 13,258,527
Other................................... 149,790 709,587 859,377
--------- --------- ----------
6,403,509 8,721,915 15,125,424
--------- --------- ----------
--------- --------- ----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------
ONTARIO ROSEDALE TOTAL
--------- --------- ----------
<S> <C> <C> <C>
United States of America................ $ -- $1,053,006 $1,053,006
Canada.................................. 5,077,164 6,023,127 11,100,291
Other................................... 305,455 583,633 889,088
--------- --------- ----------
5,382,619 7,659,766 13,042,385
--------- --------- ----------
--------- --------- ----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------
ONTARIO ROSEDALE TOTAL
--------- --------- ----------
<S> <C> <C> <C>
United States of America................ $ -- $1,199,567 $1,199,567
Canada.................................. 4,728,225 5,860,900 10,589,125
Other................................... 159,498 542,548 702,046
--------- --------- ----------
4,887,723 7,603,015 12,490,738
--------- --------- ----------
--------- --------- ----------
</TABLE>
F-19
<PAGE>
ONTARIO PAINT & WALLPAPER LIMITED AND
ROSEDALE WALLCOVERINGS AND FABRICS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
17. SEGMENTED INFORMATION (CONTINUED)
d) Sales to major customers are as follows:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER SEPTEMBER
30, 30,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
(SEE NOTE (SEE NOTE
1) 1)
<S> <C> <C>
Sales.............................................. $2,267,780 $1,094,758
----------- -----------
% of total sales................................... 14% 7%
----------- -----------
Amounts included in accounts receivable............ $ 333,100 $ 824,908
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER DECEMBER DECEMBER
31, 31, 31,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Sales................................... $1,968,456 $2,313,870 $3,560,470
----------- ----------- -----------
% of total sales........................ 10% 12% 15%
----------- ----------- -----------
Amounts included in accounts
receivable............................ $ 365,794 $ 148,372 $ 438,092
----------- ----------- -----------
</TABLE>
e) Purchases from a major supplier are as follows:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER SEPTEMBER
30, 30,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
(SEE NOTE (SEE NOTE
1) 1)
<S> <C> <C>
Purchases.......................................... $4,596,210 $3,195,448
----------- -----------
% of total purchases............................... 37% 34%
----------- -----------
Amounts included in accounts payable............... $3,072,781 $1,926,347
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER DECEMBER DECEMBER
31, 31, 31,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Purchases............................... $4,267,626 $6,859,565 $8,474,286
----------- ----------- -----------
% of total purchases.................... 33% 53% 51%
----------- ----------- -----------
Amounts included in accounts payable.... $2,480,178 $1,792,158 $2,634,660
----------- ----------- -----------
</TABLE>
18. CONTINGENCIES
a) The company is contingently liable under contested lawsuits amounting to
approximately $189,200. Management is of the opinion that the company's defence
is meritorious and the lawsuit will result in no material loss. Accordingly, no
provision is included in the accounts for possible related losses. Should any
expenditures be incurred by the company for resolution of these lawsuits, it
will be charged to the operations of the year in which such expenditures are
incurred.
F-20
<PAGE>
ONTARIO PAINT & WALLPAPER LIMITED AND
ROSEDALE WALLCOVERINGS AND FABRICS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
18. CONTINGENCIES (CONTINUED)
b) The company has been re-assessed by Revenue Canada taxation for fiscal
years ended December 31, 1993 and December 31, 1994 for additional taxes
estimated to be $652,110 ($900,630 Canadian). The company has objected to these
re-assessments and has no obligation to pay until the objections have been
processed.
19. COMMITMENTS
Minimum payments under operating leases for premises amount to approximately
$331,000 per annum, exclusive of insurance and other occupancy charges. The
leases expires on October 31, 2004. The future minimum lease payments over the
next four years are as follows:
<TABLE>
<CAPTION>
SEPTEMBER SEPTEMBER DECEMBER DECEMBER DECEMBER
30, 30, 31, 31, 31,
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(SEE NOTE (SEE NOTE
1) 1)
<S> <C> <C> <C> <C> <C>
Payable during the following
periods:
Within one year.................. $ 324,246 $ 328,438 $ 330,222 $ 328,366 $ 323,896
Over one year but not exceeding
two years...................... 324,246 328,438 330,222 328,366 323,896
Over two years but not exceeding
three years.................... 324,246 328,438 330,222 328,366 323,896
Over three years but not
exceeding four years........... 324,246 328,438 330,222 328,366 323,896
Over four years but not exceeding
five years..................... 324,246 328,438 330,222 328,366 323,896
</TABLE>
20. LIFE INSURANCE POLICIES
The companies are the beneficiaries of life insurance policies with The
Prudential of America Life Insurance Company (Canada) ("PruCan") taken out on
the lives of three of the officers for a total insured value of $22 million. In
consideration for this benefit, the companies agreed to fund the premiums
payable on the policies. Funding is being provided by advances from the
Laurentian Bank of Canada ("Laurentian").
The Laurentian has a legal right of set-off of the cash surrender values of
the life insurance policies against the debt owing to it by the companies.
Accordingly the related assets and liabilities have been offset in the financial
statements.
The amounts offset were as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash surrender value of life insurance policies................................ $ 1,647,123
Advances....................................................................... (1,647,123)
</TABLE>
The amount in excess of the cash surrender value of the life insurance
policies is included in long-term debt (see note 10).
The advances from Laurentian are payable on demand but are expected to
become due for payment in the year 2004. The companies are liable for the
interest on the advances. Security is provided by first charges on the insurance
policies, letters of credit from a major Canadian chartered bank and general
security agreements creating a second over all corporate assets.
F-21
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The by-laws of the Company provide that the Company shall indemnify
directors and officers of the Company. The pertinent section of Canadian law is
set forth below in full. In addition, upon effectiveness of this registration
statement, management intends to obtain officers and directors liability
insurance.
See the second and third paragraphs of Item 28 below for information
regarding the position of the Securities and Exchange Commission (the
"Commission") with respect to the effect of any indemnification for liabilities
arising under the Securities Act of 1933, as amended (the "Securities Act").
Section 136 of the Canadian Business Corporation Act provides as follows:
(1) INDEMNIFICATION OF DIRECTORS--A corporation may indemnify a director
or officer of the corporation, a former director or officer of the
corporation or a person who acts or acted at the corporation's request as a
director or officer of a body corporate of which the corporation is or was a
shareholder or creditor, and his or her heirs and legal representatives,
against all costs, charges and expenses, including an amount paid to settle
an action or satisfy a judgment, reasonably incurred by him or her in
respect of any civil, criminal or administrative action or proceeding to
which he or she is a party by reason of being or having been a director or
officer of such corporation or body corporate, if,
(a) he or she acted honestly and in good faith with a view to the
best interests of the corporation; and
(b) in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he or she has reasonable grounds
for believing that his or her conduct was lawful.
(2) INDEM.--A corporation may, with the approval of the court, indemnify
a person referred to in subsection (1) in respect of an action by or behalf
of the corporation or body corporate to procure a judgment n its favor, to
which the person is made a party by reason of being or having been a
director or an officer of the corporation or body corporate, against all
costs, charges and expenses reasonably incurred by the person in connection
with such action if he or she fulfills the conditions set out in clauses
(1)(a) and (b).
(3) IDEM.--Despite anything in this section, a person referred to in
subsection (1) is entitled to indemnity from the corporation in respect of
all costs, charges and expenses reasonably incurred by him in connection
with the defense of any civil, criminal or administrative action or
proceeding to which he or she is made a party by reason of being or having
been a director or officer of the corporation or body corporate, if the
person seeking indemnity;
(a) was substantially successful on the merits in his or her defense
of the action or proceeding; and
(b) fulfills the conditions set out in clauses (1)(a) and (b).
(4) LIABILITY INSURANCE--A corporation may purchase and maintain
insurance for the benefit of any person referred to in subsection (1)
against any liability incurred by the person,
(a) in his or her capacity as a director or officer of the
corporation, except where the liability relates to the person's failure
to act honestly and in good faith with a view to the best interests of
the corporation; or
(b) in his or her capacity as a director or officer of another body
corporate where the person acts or acted in that capacity at the
corporation's request, except where the liability relates to the
II-1
<PAGE>
person's failure to act honestly and in good faith with a view to the
best interests of the body corporate.
(5) APPLICATION TO COURT--A Corporation or a person referred to in
subsection 91) may apply to the court for an order approving an indemnity
under this section and the court may so order and make any further order it
thinks fit.
(6) IDEM--Upon application under subsection (5), the court may order
notice to be given to any interested person and such person is entitled to
appear and be heard in person or by counsel.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with the
issuance and distribution of the securities offered hereby.
<TABLE>
<S> <C>
SEC registration fee........................................... $ 4,054.92
NASD registration fee.......................................... 1,838.13
Nasdaq SmallCap Market listing fee............................. 15,000.00
Boston Stock Exchange listing fee.............................. 7,500.00
Printing and engraving......................................... 55,000.00
Accountants' fees and expenses................................. 25,000.00
Legal fees..................................................... 100,000.00
Transfer agent's and warrant agent's fees and expenses......... 5,000.00
Blue Sky fees and expenses..................................... 52,500.00
Underwriter's non-accountable expense allowance................ 150,000.00
Underwriter's consulting agreement............................. 50,000.00
Miscellaneous.................................................. 4,106.95
----------
Total.................................................... $470,000.00
----------
----------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In the past three years the Company has issued securities to a limited
number of persons as described below. Except as indicated, there were no
underwriters involved in the transactions and there were no underwriting
discounts or commissions paid in connection therewith:
In May 1997, the Company issued an aggregate of 3,140,000 shares of its
common stock to 521305 Ontario Inc. and 1010037 Ontario Inc. in exchange for all
of the outstanding capital stock of Ontario Paint & Wallcoverings Inc. and
Rosedale Decorative Products Ltd.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Selected Dealers Agreement
1.3 Form of Agreement Among Underwriters*
3.1(a) Articles of Incorporation of Registrant
3.1(b) Articles of Amendment
3.2 By-Laws of Registrant
4.1 Form of Underwriters' Purchase Option
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
4.2 Form of Warrant Agreement
4.3 Specimen Common Stock Certificate*
4.4 Specimen Class A Redeemable Common Stock Purchase Warrant*
5.1 Opinion of Singer Zamansky LLP*
9.1 Form of Voting Agreement*
10.1 Form of Financial Advisory Agreement with Underwriters
10.2 1998 Stock Option Plan*
10.3 Leases of Company's Facilities*
10.4 Employment Agreement with Alan Fine*
10.5 Employment Agreement with Sidney Ackerman*
10.6 National Bank of Canada Demand Loan with Rosedale*
10.7 National Bank of Canada Demand Loan with Ontario*
10.7 National Bank of Canada Demand Credit Facility with Rosedale*
10.8 National Bank of Canada Demand Credit Facility with Ontario*
21.1 List of Subsidiaries of Registrant*
23.1 Consent of Schwartz Levitsky Feldman, the Company's Independent Auditors
23.2 Consent of Singer Zamansky LLP (incorporated into Exhibit 5.1)*
23.3 Consent of Torkin, Manes, Cohen & Arbus*
25.1 Powers of Attorney (see Page II-5)*
</TABLE>
- ------------------------
(*) To be filed by amendment
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to any charter provision, by-law, contract arrangements,
statute, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the small business issuer 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 small business issuer
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.
The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement: (i) To include
any Prospectus required by section 10(a)(3) of the Act; (ii) To reflect in
the Prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in
the information set forth in the registration statement;
II-3
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the Offering of
such securities at that time shall be deemed to be the initial bona fide
Offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
(4) 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 a form of 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.
(5) For determining any liability under the Act, treat each
post-effective amendment that contains a form of Prospectus as a new
registration statement at that time as the initial bona fide Offering of
those securities.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, the Registrant certifies that it
has reasonable grounds to believe that it meets all of the requirement for
filing on Form SB-2 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Province of
Ontario, Canada on January , 1998.
<TABLE>
<S> <C> <C> <C> <C> <C>
ROSEDALE DECORATIVE PRODUCTS LTD.
By: By:
----------------------------------- -----------------------------------
Alan Fine, Chief Executive Officer Sidney Ackerman, President
</TABLE>
Pursuant to the requirements of the Act, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
We, the undersigned officers and directors of ROSEDALE DECORATIVE PRODUCTS
LTD. hereby severally constitute and appoint Sidney Ackerman and Alan Fine, our
true and lawful attorneys-in-fact and agents with full power of substitution for
us and in our stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and all
documents relating thereto, and to file the same, with all exhibits thereto and
other documents in connection therewith with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing necessary or advisable
to be done in and about the premises, as fully to all intents and purposes as
they might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or their substitutes, may lawfully do or cause to
be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------------------------- -------------------
<C> <S> <C>
------------------------------------ Chairman of the Board of Directors and Chief January , 1998
Alan Fine Executive Officer
------------------------------------ President and Director January , 1998
Sidney A. Ackerman
------------------------------------ Chief Financial Officer, Operations Manager January , 1998
Norman Maxwell and Director
------------------------------------ Treasurer, Corporate Secretary and Director January , 1998
Sheldon Isenberg
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------- ---------
<S> <C> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Selected Dealers Agreement
1.3 Form of Agreement Among Underwriters*
3.1(a) Articles of Incorporation of Registrant
3.1(b) Articles of Amendment
3.2 By-Laws of Registrant
4.1 Form of Underwriters' Purchase Option
4.2 Form of Warrant Agreement
4.3 Specimen Common Stock Certificate*
4.4 Specimen Class A Redeemable Common Stock Purchase Warrant*
5.1 Opinion of Singer Zamansky LLP*
9.1 Form of Voting Agreement*
10.1 Form of Financial Advisory Agreement with Underwriters
10.2 1998 Stock Option Plan*
10.3 Leases of Company's Facilities*
10.4 Employment Agreement with Alan Fine*
10.5 Employment Agreement with Sidney Ackerman*
10.6 National Bank of Canada Demand Loan with Rosedale*
10.7 National Bank of Canada Demand Loan with Ontario*
10.7 National Bank of Canada Demand Credit Facility with Rosedale*
10.8 National Bank of Canada Demand Credit Facility with Ontario*
21.1 List of Subsidiaries of Registrant*
23.1 Consent of Schwartz Levitsky Feldman, the Company's Independent Auditors
23.2 Consent of Singer Zamansky LLP (incorporated into Exhibit 5.1)*
23.3 Consent of Torkin, Manes, Cohen & Arbus*
25.1 Powers of Attorney (see Page II-5)*
</TABLE>
- ------------------------
(*) To be filed by amendment
<PAGE>
EXHIBIT 1.1
625,000 Units (each Unit Consisting of Two Shares of Common Stock and
Two Class A Redeemable Common Stock Purchase Warrants)
ROSEDALE DECORATIVE PRODUCTS INC.
UNDERWRITING AGREEMENT
New York, New York
____ __, 1997
Fin-Atlantic Securities, Inc.
33 N.E. 2nd Street
Suite 300
Ft. Lauderdale, Florida 33301
Rosedale Decorative Products Inc., a corporation organized under the
laws of the Province of Ontario, Canada (the "Company"), proposes to issue and
sell to you (the "Underwriter"), an aggregate of 625,000 Units ("Units), each
Unit consisting of two (2) shares of Common Stock and two (2) Class A Redeemable
Common Stock Purchase Warrants ("Warrant"). The Units, Common Stock and
Warrants may be collectively referred to hereinafter as the "Securities." Each
Warrant entitles the registered holder thereof to purchase one (1) share of
Common Stock at an exercise price of $4.50 for a period of four (4) years,
commencing _____ __, 1999 (one (1) year from the Effective Date) through
_______ __, 2003. The Warrants are subject to redemption by the Company upon not
less than thirty (30) days' notice at any time after ________ __, 1999 (twelve
(12) months from the Effective Date) or earlier with the consent of the
Underwriter, at $.10 per warrant, if the closing sale price per share of Common
Stock has equaled or exceeded 250% of the then exercise price of the Warrants on
all 10 of the trading days ending on the third day prior to the written notice
of redemption. In addition, the Company proposes to grant to the Underwriter
the option referred to in Section 2(b) to purchase all or any part of an
aggregate of 62,500 additional Units.
Unless the context otherwise requires, the aggregate of 625,000 Units to be
sold by the Company and the shares of Common Stock and the Warrants comprising
the Units are herein called the "Units." The Common Stock to be outstanding
after giving effect to the sale of the Units are also called the "Shares."
You have advised the Company that you desire to purchase the Units. The
Company confirms the agreements made by it with respect to the purchase of the
Units by the Underwriter as follows:
<PAGE>
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to, and agrees with you that:
(a) A registration statement (File No. 333-_____) on Form SB-2
relating to the public offering of the Units, including a form of prospectus
subject to completion, copies of which have heretofore been delivered to you,
has been prepared in conformity with the requirements of the Securities Act of
1933, as amended (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 and one or more
amendments to such registration statement may have been so filed. After the
execution of this Agreement, the Company will file with the Commission either
(i) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, a prospectus in the
form most recently included in an amendment to such registration statement (or,
if no such amendment shall have been filed in such registration statement), with
such changes or insertions as are required by Rule 430A under the Act or
permitted by Rule 424(b) under the Act and as have been provided to and approved
by you prior to the execution of this Agreement, or (ii) if such registration
statement, as it may have been amended, has not been declared by the Commission
to be effective under the Act, an amendment to such registration statement,
including a form of prospectus, a copy of which amendment has been furnished to
and approved by you prior to the execution of this Agreement. As used in this
Agreement, the term "Registration Statement" means such registration statement,
as amended at the time when it was or is declared effective, including all
financial schedules and exhibits thereto and including any information omitted
therefrom pursuant to Rule 430A under the Act and included in the Prospectus (as
hereinafter defined); the term "Preliminary Prospectus" means each prospectus
subject to completion filed with such registration statement or any amendment
thereto (including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto at the time it was or is
declared effective); and the term "Prospectus" means the prospectus first filed
with the Commission pursuant to Rule 424(b) under the Act, or, if no prospectus
is required to be filed pursuant to said Rule 424(b), such term means the
prospectus included in the Registration Statement; except that if such
registration statement or prospectus is amended or such prospectus is
supplemented, after the effective date of such registration statement and prior
to the Option Closing Date (as hereinafter defined), the terms "Registration
Statement" and "Prospectus" shall include such registration statement and
prospectus as so amended, and the term "Prospectus" shall include the prospectus
as so supplemented, or both, as the case may be.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus. At the time the Registration Statement
becomes effective and at all times subsequent thereto up to and on the First
Closing Date (as hereinafter defined) or the Option Closing Date, as the case
may be, (i) the Registration Statement and Prospectus will in all respects
conform to the requirements of the Act and the Rules and Regulations; and (ii)
neither the Registration Statement nor the Prospectus will include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make statements therein not misleading; provided,
however, that the Company makes no representations, warranties or
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agreements as to information contained in or omitted from the Registration
Statement or Prospectus in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of the Underwriter
specifically for use in the preparation thereof. It is understood that the
statements set forth in the Prospectus with respect to stabilization, under the
heading "Underwriting" and the identity of counsel to the Underwriter under the
heading "Legal Matters" constitute for purposes of this Section and Section 6(b)
the only information furnished in writing by or on behalf of the Underwriter for
inclusion in the Registration Statement and Prospectus, as the case may be.
(c) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation with full corporate power and authority to own its properties and
conduct its business as described in the Prospectus and is duly qualified or
licensed to do business as a foreign corporation and is in good standing in each
other jurisdiction in which the nature of its business or the character or
location of its properties requires such qualification, except where the failure
to so qualify will not materially adversely affect the Company's business,
properties or financial condition.
(d) The authorized, issued and outstanding capital stock of the
Company, including the predecessors of the Company, is as set forth the
Company's financial statements contained in the Registration Statement; the
shares of issued and outstanding capital stock of the Company set forth therein
have been duly authorized, validly issued and are fully paid and nonassessable;
except as set forth in the Prospectus, no options, warrants, or other rights to
purchase, agreements or other obligations to issue, or agreements or other
rights to convert any obligation into, any shares of capital stock of the
Company have been granted or entered into by the Company; and the capital stock
conforms to all statements relating thereto contained in the Registration
Statement and Prospectus.
(e) The Units and the shares of Common Stock, when paid for, issued
and delivered pursuant to this Agreement, will have been duly authorized, issued
and delivered and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms, except as enforceability may
be limited by bankruptcy, insolvency or other laws affecting the right of
creditors generally or by general equitable principles, and entitled to the
rights and preferences provided by the Certificate of Incorporation, which will
be in the form filed as an exhibit to the Registration Statement. The terms of
the Common Stock conform to the description thereof in the Registration
Statement and Prospectus.
The Warrants, when paid for, issued and delivered pursuant to this
Agreement, will have been duly authorized, issued and delivered and will
constitute valid and legally binding obligations of the Company enforceable in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency or other laws affecting the right of creditors generally
or by general equitable principles, and entitled to the benefits provided by the
warrant agreement pursuant to which such Warrants are to be issued (the "Warrant
Agreement"), which will be substantially in the form filed as an exhibit to the
Registration Statement. The shares of Common Stock issuable upon exercise of
the Warrants have been reserved for issuance upon the exercise of the Warrants
and
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when issued in accordance with the terms of the Warrants and Warrant Agreement,
will be duly and validly authorized validly issued, fully paid and non-
assessable and free of preemptive rights. The Warrant Agreement has been duly
authorized and, when executed and delivered pursuant to this Agreement, assuming
due authorization, execution and delivery by the transfer agent, will have been
duly executed and delivered and will constitute the valid and legally binding
obligation of the Company enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency or other laws affecting
the rights of creditors generally or by general equitable principles. The
Warrants and Warrant Agreement conform to the respective descriptions thereof in
the Registration Statement and Prospectus.
The Purchase Option (as defined in the Registration Statement), when
paid for, issued and delivered pursuant to this Agreement will constitute valid
and legally binding obligations of the Company enforceable in accordance with
their terms and entitled to the benefits provided by the Purchase Option, except
as enforceability may be limited by bankruptcy, insolvency or other laws
affecting the rights of creditors generally or by general equitable principles.
The Units issuable upon exercise of the Purchase Option (and the shares of
Common Stock issuable upon exercise of the Warrants) when issued and paid for in
accordance with this Agreement, the Purchase Option and the Warrant Agreement,
will be duly authorized, validly issued, fully paid and non-assessable and free
of preemptive rights.
(f) This Agreement has been duly and validly authorized, executed and
delivered by the Company. The Company has full power and authority to
authorize, issue and sell the Units to be sold by it hereunder on the terms and
conditions set forth herein, and no consent, approval, authorization or other
order of any governmental authority is required in connection with such
authorization, execution and delivery or in connection with the authorization,
issuance and sale of the Units or the Purchase Option, except such as may be
required under the Act or state securities laws.
(g) Except as described in the Prospectus, or which would not have a
material adverse effect on the condition (financial or otherwise), business
prospects, net worth or properties of the Company (a "Material Adverse Effect"),
the Company is not in violation, breach or default of or under, and consummation
of the transactions herein contemplated and the fulfillment of the terms of this
Agreement will not conflict with, or result in a breach or violation of, any of
the terms or provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any of the
property or assets of the Company, pursuant to the terms of any material
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company is a party or by which the Company may be bound
or to which any of the property or assets of the Company is subject, nor will
such action result in any violation of the provisions of the certificate of
incorporation or the by-laws of the Company, as amended, or any statute or any
order, rule or regulation applicable to the Company of any court or of any
regulatory authority or other governmental body having jurisdiction over the
Company.
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(h) Subject to the qualifications stated in the Prospectus, the
Company has good and marketable title to all properties and assets described in
the Prospectus as owned by it, free and clear of all liens, charges,
encumbrances or restrictions, except such as are not materially significant or
important in relation to its business; all of the material leases and subleases
under which the Company is the lessor or sublessor of properties or assets or
under which the Company holds properties or assets as lessee or sublessee as
described in the Prospectus are in full force and effect, and, except as
described in the Prospectus, the Company is not in default in any material
respect with respect to any of the terms or provisions of any of such leases or
subleases, and, to the best knowledge of the Company, no claim has been asserted
by anyone adverse to rights of the Company as lessor, sublessor, lessee or
sublessee under any of the leases or subleases mentioned above, or affecting or
questioning the right of the Company to continued possession of the leased or
subleased premises or assets under any such lease or sublease except as
described or referred to in the Prospectus; and the Company owns or leases all
such properties described in the Prospectus as are necessary to its operations
as now conducted and, except as otherwise stated in the Prospectus, as proposed
to be conducted as set forth in the Prospectus.
(i) Schwartz Levitsky Feldman, which has given its report on certain
financial statements filed with the Commission as a part of the Registration
Statement, is with respect to the Company, independent public accountants as
required by the Act and the Rules and Regulations.
(j) The financial statements, and schedules together with related
notes, set forth in the Prospectus or the Registration Statement present fairly
the financial position and results of operations and changes in cash flow
position of the Company on the basis stated in the Registration Statement, at
the respective dates and for the respective periods to which they apply. Said
statements and schedules and related notes have been prepared in accordance with
generally accepted accounting principles applied on a basis which is consistent
during the periods involved except as disclosed in the Prospectus and
Registration Statement.
(k) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus and except as otherwise
disclosed or contemplated therein, the Company has not incurred any liabilities
or obligations, direct or contingent, not in the ordinary course of business, or
entered into any transaction not in the ordinary course of business, which would
have a Material Adverse Effect, and there has not been any change in the capital
stock of, or any incurrence of short-term or long-term debt by, the Company or
any issuance of options, warrants or other rights to purchase the capital stock
of the Company or any material adverse change or any development involving, so
far as the Company can now reasonably foresee a prospective adverse change in
the condition (financial or otherwise), net worth, results of operations,
business, key personnel or properties of it which would have a Material Adverse
Effect.
(l) Except as set forth in the Prospectus, there is not now pending
or, to the knowledge of the Company, threatened, any action, suit or proceeding
to which the Company is a party before or by any court or governmental agency or
body, which might result in any material adverse change in the financial
condition, business prospects, net worth, or properties of the
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Company, nor are there any actions, suits or proceedings related to
environmental matters or related to discrimination on the basis of age, sex,
religion or race; and no labor disputes involving the employees of the Company
exist or to the knowledge of the Company, are threatened which might be expected
to have a Material Adverse Effect.
(m) Except as disclosed in the Prospectus, the Company has filed all
necessary federal, state and foreign income and franchise tax returns required
to be filed as of the date hereof and have paid all taxes shown as due thereon;
and there is no tax deficiency which has been, or to the knowledge of the party,
may be asserted against the Company.
(n) Except as disclosed in the Registration Statement or Prospectus,
the Company has sufficient licenses, permits and other governmental
authorizations currently necessary for the conduct of its business or the
ownership of its properties as described in the Prospectus and is in all
material respects complying therewith and owns or possesses adequate rights to
use all material patents, patent applications, trademarks, service marks,
trade-names, trademark registrations, service mark registrations, copyrights and
licenses necessary for the conduct of such business and has not received any
notice of conflict with the asserted rights of others in respect thereof. To
the best knowledge of the Company, none of the activities or business of the
Company are in violation of, or cause the Company to violate, any law, rule,
regulation or order of the United States, any state, county or locality, or of
any agency or body of the United States or of any state, county or locality, the
violation of which would have a Material Adverse Effect.
(o) The Company has not, directly or indirectly, at any time (i)
made any contributions to any candidate for political office, or failed to
disclose fully any such contribution in violation of law or (ii) made any
payment to any state, federal or foreign governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law. The Company's
internal accounting controls and procedures are sufficient to cause the Company
to comply in all material respects with the Foreign Corrupt Practices Act of
1977, as amended.
(p) On the Closing Dates (hereinafter defined) all transfer or other
taxes, (including franchise, capital stock or other tax, other than income
taxes, imposed by any jurisdiction) if any, which are required to be paid in
connection with the sale and transfer of the Units to the Underwriter hereunder
will have been fully paid or provided for by the Company and all laws imposing
such taxes will have been complied with in all material respects.
(q) All contracts and other documents of the Company which are, under
the Rules and Regulations, required to be filed as exhibits to the Registration
Statement have been so filed.
(r) Except as disclosed in the Registration Statement, the Company
has no Subsidiaries.
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(s) Except as disclosed in the Registration Statement, the Company
has not entered into any agreement pursuant to which any person is entitled
either directly or indirectly to compensation from the Company for services as a
finder in connection with the proposed public offering.
(t) Except as previously disclosed in writing by the Company to the
Underwriter or as disclosed in the Registration Statement, no officer, director
or stockholder of the Company has any National Association of Securities
Dealers, Inc. (the "NASD") affiliation.
(u) No other firm, corporation or person has any rights to underwrite
an offering of any of the Company's securities.
2. PURCHASE, DELIVERY AND SALE OF THE UNITS.
(a) Subject to the terms and conditions of this Agreement, and upon
the basis of the representations, warranties, and agreements herein contained,
the Company agrees to issue and sell to the Underwriter and the Underwriter
agrees to buy from the Company at the place and time hereinafter specified,
625,000 Units, each Unit consisting of two shares of Common Stock and two
Warrants at $8.00 per Unit (the "First Units").
Delivery of the First Units against payment therefor shall take place
at the offices of DeLong, Caldwell & Wisebram, LLC, 945 East Paces Ferry Road,
Suite 1770, Atlanta, Georgia 30326 (or at such other place as may be designated
by agreement between the Underwriter and the Company) at 10:00 a.m., New York
time, on ________, 1998, or at such later time and date as the Underwriter may
designate in writing to the Company at least two business days prior to such
purchase, such time and date of payment and delivery for the First Units being
herein called the "First Closing Date."
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, the Company hereby grants an option to the Underwriter (the
"Over-Allotment Option") to purchase all or any part of an aggregate of an
additional 93,750 Units to cover over allotments at the same price as the
Underwriter shall pay for the First Units being sold pursuant to the provisions
of subsection (a) of this Section 2 (such additional Units being referred to
herein as the "Option Units"). This option may be exercised within 45 days
after the effective date of the Registration Statement upon written notice by
the Underwriter to the Company advising as to the amount of Option Units as to
which the option is being exercised, the names and denominations in which the
certificates for such Option Units are to be registered and the time and date
when such certificates are to be delivered. Such time and date shall be
determined by the Underwriter but shall not be earlier than four nor later than
ten full business days after the exercise of said option (but in no event more
than 55 days after the Effective Date), nor in any event prior to the First
Closing Date, and such time and date is referred to herein as the "Option
Closing Date." Delivery of the Option Units against payment therefor shall take
place at the offices of DeLong, Caldwell & Wisebram, LLC, 945 East Paces Ferry
Road, Suite 1770,
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Atlanta, Georgia 30326 (or at such other place as may be designated by agreement
between the Underwriter and the Company). The option granted hereunder may be
exercised only to cover over-allotments in the sale by the Underwriter of First
Units referred to in subsection (a) above. No Option Units shall be delivered
unless all First Units shall have been delivered to the Underwriter as provided
herein.
(c) The Company will make the certificates for the Units to be
purchased by the Underwriter hereunder available to you for checking at least
two full business days prior to the First Closing Date or the Option Closing
Date (which are collectively referred to herein as the "Closing Dates"). The
certificates shall be in such names and denominations as you may request, at
least three full business days prior to the Closing Dates. Delivery of the
certificates at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriter.
Definitive certificates in negotiable form for the Units to be
purchased by the Underwriter hereunder will be delivered by the Company to you
for the account of the Underwriter against payment of the respective purchase
prices by the Underwriter, by wire transfer or certified or bank cashier's
checks in New York Clearing House funds, payable to the order of the Company.
In addition, in the event the Underwriter exercises the option to
purchase from the Company all or any portion of the Option Units pursuant to the
provisions of subsection (b) above, payment for such Units shall be made to or
upon the order of the Company by wire transfer or certified or bank cashier's
checks payable in New York Clearing House funds at the offices of DeLong,
Caldwell & Wisebram, LLC, 945 East Paces Ferry Road, Suite 1770, Atlanta,
Georgia 30326, at the time and date of delivery of such Units as required by
the provisions of subsection (b) above, against receipt of the certificates for
such Units by you for your account registered in such names and in such
denominations as you may reasonably request.
It is understood that the Underwriter proposes to offer the Units to
be purchased hereunder to the public upon the terms and conditions set forth in
the Registration Statement, after the Registration Statement becomes effective.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective. If required, the Company will file the
Prospectus and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rule 424(b) under the Act. Upon
notification from the Commission that the Registration Statement has become
effective, the Company will so advise you and will not at any time, whether
before or after the effective date, file any amendment to the Registration
Statement or supplement to the Prospectus of which you shall not previously have
been advised and furnished with a copy or to which you or your counsel shall
have reasonably objected in writing or which is not in compliance with the Act
and the Rules and Regulations. At any time prior to the later of (A) the
completion by the
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Underwriter of the distribution of the Units contemplated hereby (but in no
event more than nine months after the date on which the Registration Statement
shall have become or been declared effective) and (B) 25 days after the date on
which the Registration Statement shall have become or been declared effective,
the Company will prepare and file with the Commission, promptly upon your
request, any amendments or supplements to the Registration Statement or
Prospectus which, in the opinion of counsel to the Company and the Underwriter,
may be reasonably necessary or advisable in connection with the distribution of
the Units.
As soon as the Company is advised thereof, the Company will advise
you, and provide you copies of any written advice, of the receipt of any
comments of the Commission, of the effectiveness of any post-effective amendment
to the Registration Statement, of the filing of any supplement to the Prospectus
or any amended Prospectus, of any request made by the Commission for an
amendment of the Registration Statement or for supplementing of the Prospectus
or for additional information with respect thereto, of the issuance by the
Commission or any state or regulatory body of any stop order or other order or
threat thereof suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Units for offering in any jurisdiction,
or of the institution of any proceedings for any of such purposes, and will use
its best efforts to prevent the issuance of any such order, and, if issued, to
obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each
Preliminary Prospectus, and the Company has consented and hereby consents to the
use of such copies for the purposes permitted by the Act. The Company
authorizes the Underwriter and dealers to use the Prospectus in connection with
the sale of the Units for such period as in the opinion of counsel to the
Underwriter and the Company the use thereof is required to comply with the
applicable provisions of the Act and the Rules and Regulations. In case of the
happening, at any time within such period as a Prospectus is required under the
Act to be delivered in connection with sales by the Underwriter or dealer of any
event of which the Company has knowledge and which materially affects the
Company or the securities of the Company, or which in the opinion of counsel for
the Company and counsel for the Underwriter should be set forth in an amendment
of the Registration Statement or a supplement to the Prospectus in order to make
the statements therein not then misleading, in light of the circumstances
existing at the time the Prospectus is required to be delivered to a purchaser
of the Units or in case it shall be necessary to amend or supplement the
Prospectus to comply with law or with the Rules and Regulations, the Company
will notify you promptly and forthwith prepare and furnish to you copies of such
amended Prospectus or of such supplement to be attached to the Prospectus, in
such quantities as you may reasonably request, in order that the Prospectus, as
so amended or supplemented, will not contain any untrue statement of a material
fact or omit to state any material facts necessary in order to make the
statements in the Prospectus, in the light of the circumstances under which they
are made, not misleading. The preparation and furnishing of any such amendment
or supplement to the Registration Statement or amended Prospectus or supplement
to be attached to the Prospectus shall be without expense to the Underwriter,
except that in case the Underwriter is required, in connection with the sale of
the Units to deliver a Prospectus nine months or more after the effective date
of the Registration Statement,
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the Company will upon request of and at the expense of the Underwriter, amend or
supplement the Registration Statement and Prospectus and furnish the Underwriter
with reasonable quantities of prospectuses complying with Section 10(a)(3) of
the Act.
The Company will comply with the Act, the Rules and Regulations and
the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations thereunder in connection with the offering and issuance of the
Units.
(b) The Company will furnish such information as may be required and
to otherwise cooperate and use its best efforts to qualify or register the Units
for sale under the securities or "Blue-Sky" laws of such jurisdictions as you
may designate and will make such applications and furnish such information as
may be required for that purpose and to comply with such laws, provided the
Company shall not be required to qualify as a foreign corporation or a dealer in
securities or to execute a general consent of service of process in any
jurisdiction in any action other than one arising out of the offering or sale of
the Units. The Company will, from time to time, prepare and file such
statements and reports as are or may be required to continue such qualification
in effect for so long a period as the counsel to the Company and the Underwriter
deem reasonably necessary.
(c) If the sale of the Units provided for herein is not consummated
as a result of the Company not performing its obligations hereunder in all
material respects, the Company shall pay all costs and expenses incurred by it
which are incident to the performance of the Company's obligations hereunder,
including but not limited to, all of the expenses itemized in Section 8,
including the accountable expenses of the Underwriter, (including the reasonable
fees and expenses of counsel to the Underwriter).
(d) The Company will use its best efforts to (i) cause a registration
statement under the Exchange Act to be declared effective concurrently with the
completion of this offering and will notify you in writing immediately upon the
effectiveness of such registration statement, and (ii) to obtain and keep
current a listing in the Standard & Poor's or Moody's OTC Industrial Manual.
(e) For so long as the Company is a reporting company under either
Section 12(g) or 15(d) of the Exchange Act, the Company, at its expense, will
furnish to its stockholders an annual report (including financial statements
audited by independent public accountants), in reasonable detail and at its
expense, will furnish to you during the period ending five (5) years from the
date hereof, (i) as soon as practicable after the end of each fiscal year, but
no earlier than the filing of such information with the Commission a balance
sheet of the Company as at the end of such fiscal year, together with statements
of income, surplus and cash flow of the Company for such fiscal year, all in
reasonable detail and accompanied by a copy of the certificate or report thereon
of independent accountants; (ii) as soon as practicable after the end of each of
the first three fiscal quarters of each fiscal year, but no earlier than the
filing of such information with the Commission, consolidated summary financial
information of the Company for such quarter in reasonable detail; (iii) as soon
as they are publicly available, a copy of all reports (financial or other)
mailed to security holders;
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(iv) as soon as they are available, a copy of all non-confidential reports and
financial statements furnished to or filed with the Commission or any securities
exchange or automated quotation system on which any class of securities of the
Company is listed; and (v) such other information as you may from time to time
reasonably request.
(f) In the event the Company has an active subsidiary or
subsidiaries, such financial statements referred to in subsection (e) above will
be on a consolidated basis to the extent the accounts of the Company and its
subsidiary or subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) The Company will deliver to you at or before the First Closing
Date two signed copies of the Registration Statement including all financial
statements and exhibits filed therewith, and of all amendments thereto, and will
deliver to the Underwriter such number of conformed copies of the Registration
Statement, including such financial statements but without exhibits, and of all
amendments thereto, as the Underwriter may reasonably request. The Company will
deliver to or upon your order, from time to time until the effective date of the
Registration Statement, as many copies of any Preliminary Prospectus filed with
the Commission prior to the effective date of the Registration Statement as you
may reasonably request. The Company will deliver to the Underwriter on the
effective date of the Registration Statement and thereafter for so long as a
Prospectus is required to be delivered under the Act, from time to time, as many
copies of the Prospectus, in final form, or as thereafter amended or
supplemented, as the Underwriter may from time to time reasonably request.
(h) The Company will make generally available to its security holders
and to the registered holders of its Warrants and deliver to you as soon as it
is practicable to do so but in no event later than 90 days after the end of
twelve months after its current fiscal quarter, an earnings statement (which
need not be audited) covering a period of at least twelve consecutive months
beginning after the effective date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the sale of the
Units substantially for the purposes set forth under "Use of Proceeds" in the
Prospectus and, except as set forth therein, shall not use any proceeds to pay
any (i) debt for borrowed funds, or (ii) debt or obligation owed to any insider
outside of salary in the ordinary course of business.
(j) The Company will promptly prepare and file with the Commission
any amendments or supplements to the Registration Statement, Preliminary
Prospectus or Prospectus and take any other action, which in the opinion of
counsel to the Underwriter and counsel to the Company, may be reasonably
necessary or advisable in connection with the distribution of the Units, and
will use its best efforts to cause the same to become effective as promptly as
possible.
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(k) The Company will reserve and keep available the maximum number of
its authorized but unissued securities which are issuable upon exercise of the
Purchase Option outstanding from time to time.
(l)(1) For a period of two (2) years from the First Closing Date,
no officer, director or shareholder of any securities prior to the offering
(collectively, "Insiders") will, directly or indirectly, offer, sell (including
any short sale), grant any option for the sale of, acquire any option to dispose
of, or otherwise dispose of any shares of Common Stock without the prior written
consent of the Underwriter, other than as set forth in the Registration
Statement. In addition, the Insiders must also agree to an additional one (1)
year lockup if the Company has not had after-tax net earnings of $2,000,000 U.S.
for the second full fiscal year following the First Closing Date. In order to
enforce this covenant, the Company shall impose stop-transfer instructions with
respect to the securities owned by every shareholder prior to the offering until
the end of such period (subject to any exceptions to such limitation on
transferability set forth in the Registration Statement). If necessary to
comply with any applicable Blue-Sky Law, the shares held by such shareholders
will be escrowed with counsel for the Company or otherwise as required.
(2) Except for the issuance of shares of capital stock by the
Company in connection with a dividend, recapitalization, reorganization or
similar transactions or as result of the exercise of warrants or options to
purchase up to 500,000 shares of Common Stock pursuant to an incentive and
non-qualified stock option plan disclosed in or issued or granted pursuant to
plans disclosed in the Registration Statement, the Company shall not, for a
period of three (3) years following the First Closing Date, directly or
indirectly, offer, sell, issue or transfer any shares of its capital stock, or
any security exchangeable or exercisable for, or convertible into, shares of the
capital stock or (including stock options) register any of its capital stock
(under any form of registration statement including Form S-8), without the prior
written consent of the Underwriter upon at least 30 days' notice. Options
granted pursuant to plans must be exercisable at the fair market value on the
date of grant.
(m) Upon completion of this offering, the Company will make all
filings required, including registration under the Exchange Act, to obtain the
listing of the Units, Common Stock and the Warrants in the Nasdaq SmallCap
system, and will use its best efforts to effect and maintain such listing for at
least five years from the date of this Agreement.
(n) Except for the transactions contemplated by this Agreement and as
disclosed in the Prospectus, the Company represents that it has not taken and
agrees that it will not take, directly or indirectly, any action designed to or
which has constituted or which might reasonably be expected to cause or result
in the stabilization or manipulation of the price of any of the Units.
(o) On the First Closing Date and simultaneously with the delivery of
the Units, the Company shall execute and deliver to you the Purchase Option.
The Purchase Option will be substantially in the form filed as an Exhibit to the
Registration Statement.
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(p) On the First Closing Date, the Company will have in force key
person life insurance on the lives of Alan Fine and Sid Ackerman in an amount of
not less than $1,000,000 per person, payable to the Company, and will use its
best efforts to maintain such insurance during the three year period commencing
with the First Closing Date.
(q) So long as any Warrants are outstanding and the exercise price of
the Warrants is less than the market price of the Common Stock, the Company
shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the Act and
without any lapse of time between the effectiveness of any such post-effective
amendments and cause a copy of each Prospectus, as then amended, to be delivered
to each holder of record of a Warrant and to furnish to the Underwriter as many
copies of each such Prospectus as such Underwriter or dealer may reasonably
request. The Company shall not call for redemption of any of the Warrants
unless a registration statement covering the securities underlying the Warrants
has been declared effective by the Commission and remains current at least until
the date fixed for redemption.
(r) For a period of five (5) years following the Effective Date, the
Company will maintain registration with the Commission pursuant to Section 12(g)
of the Exchange Act and will provide to the Underwriter copies of all filings
made with the Commission pursuant to the Exchange Act. In the event that the
Company fails to maintain registration with the Commission pursuant to Section
12(g) during such five year period, the Company will provide reasonable access
to an independent accountant designated by the Underwriter, to all books,
records and other documents or statements that reflect the Company's financial
status at least once each quarter, at the Company's expense.
(s) The Company agrees to pay the Underwriter a warrant solicitation
fee of 5% of the exercise price of any of the Warrants exercised beginning one
(1) year after the Effective Date (not including warrants exercised by the
Underwriter) if (a) the market price of the Company's Common Stock on the date
the Warrant is exercised is greater than the exercise price of the Warrant, (b)
the exercise of the Warrant was solicited by the Underwriter and the holder of
the warrant designates the Underwriter in writing as having solicited such
Warrant, (c) the Warrant is not held in a discretionary account, (d) disclosure
of the compensation arrangement is made upon the sale and exercise of the
Warrants, (e) soliciting the exercise is not in violation of Regulation M under
the Exchange Act, and (f) solicitation of the exercise is in compliance with
the NASD Notice to Members 81-38 (September 22, 1981).
(t) For a period of two years from the Effective Date, at the request
of the Underwriter, the Company shall provide promptly, at the expense of the
Company, copies of the Company's monthly transfer sheets furnished to it by its
transfer agent and copies of the securities position listings provided to it by
the Depository Trust Company.
(u) Intentionally Omitted.
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(v) For a period of twelve (12) months from the Effective Date, the
Company will engage the Underwriter or a representative of the Underwriter as
its financial consultant, in consideration of the payment by the Company to the
Underwriter of a consulting fee of $50,000 which is to be paid in full at the
first closing.
(w) For a period of two (2) years following the Effective Date the
Company, at its expense, shall cause its regularly engaged independent certified
public accountants to review (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 10-Q quarterly
report and the mailing of quarterly financial information to stockholders,
provided that the Company shall not be required to file a report of such
accountants relating to such review with the Commission. The Company will
retain its present legal counsel and independent certified public accountants
for at least one year from the Closing Date.
(x) For the two (2) year period commencing on the First Closing Date,
the Company shall recommend and use its best efforts to elect a designee of the
Underwriter as a member of the Company's Board of Directors. Such designee shall
serve on the Compensation Committee of the Board of Directors so long as such
designee would qualify as disinterested for the purpose of Section 162(m) of the
Internal Revenue Code of 1986, as amended. Alternatively, the Underwriter may
appoint an advisor who will be able to attend all meetings of the Board of
Directors. However, the Board of Directors shall have the right to require such
advisor to execute a confidentiality agreement satisfactory to the Company. The
Underwriter shall also have the right to written notice no later than notice to
other directors of each meeting and to obtain copies of the minutes, if
requested, from all Board of Directors meetings for two (2) years following the
Effective Date of the Registration Statement, whether or not a nominee of the
Underwriter attends or participates in any such Board meeting. To the extent
permitted by law, the Company will indemnify the Underwriter and its designee
for the actions of such designee as a director of the Company. The Company will
use its best efforts to obtain liability insurance not to exceed $50,000 per
year in premiums to cover acts of officers and directors, including said
designee. The Company agrees to reimburse the Underwriter immediately upon the
Underwriter's request therefor of any reasonable travel and lodging expenses
directly incurred by the Underwriter in connection with its designee or
representative attending Company Board meetings on the same basis for other
Board members.
(y) For a period of thirty (30) days from and after the Effective
Date, the Company will not issue a press release or engage in any publicity
other than promotion by the Company of its products and services and other press
releases in the ordinary course of its business, without the Underwriter's prior
written consent, unless required by law.
(z) The Company agrees that it will use dual check signers, one of
such check signers will be acceptable to the Underwriter.
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4. CONDITIONS OF UNDERWRITER'S OBLIGATION. The obligations of the
Underwriter to purchase and pay for the Units which it has agreed to purchase
hereunder, are subject to the accuracy (as of the date hereof, and as of the
Closing Dates) of and compliance with the representations and warranties of the
Company herein, to the performance by the Company of its obligations hereunder,
and to the following conditions:
(a) The Registration Statement shall have become effective and you
shall have received notice thereof not later than 10:00 A.M., New York time, on
the day following the date of this Agreement, or at such later time or on such
later date as to which you may agree in writing; on or prior to the Closing
Dates no stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that or a similar purpose shall
have been instituted or shall be pending or, to your knowledge or to the
knowledge of the Company, shall be contemplated by the Commission; any request
on the part of the Commission for additional information shall have been
complied with to the satisfaction of the Commission; and no stop order shall be
in effect denying or suspending effectiveness of such qualification nor shall
any stop order proceedings with respect thereto be instituted or pending or
threatened. If required, the Prospectus shall have been filed with the
Commission in the manner and within the time period required by Rule 424(b)
under the Act.
(b) At the First Closing Date, you shall have received the opinion,
dated as of the First Closing Date, of Singer Zamansky LLP, counsel for the
Company, in form and substance satisfactory to counsel for the Underwriter, to
the effect that:
(i) The Registration Statement was declared effective
under the Act on ____________ __, 1998; to the best of our knowledge, no stop
order suspending the effectiveness of the Registration Statement has been
issued, and no proceedings for that purpose have been instituted or are pending,
threatened or contemplated under the Act or applicable state securities laws;
(ii) The Registration Statement and the Prospectus, as of
the Effective Date (except for the financial statements and other financial data
included therein or omitted therefrom, as to which we express no opinion),
comply as to form in all material respects with the requirements of the Act and
Regulations and the conditions for use of a registration statement on Form SB-2
have been satisfied by the Company;
(iii) The description in the Registration Statement and
the Prospectus of statutes, regulations, contracts and other documents have been
reviewed by us, and, based upon such review, are accurate in all material
respects and present fairly the information required to be disclosed, and to the
best of our knowledge, there are no material statutes or regulations, or, to the
best of our knowledge, material contracts or documents, of a character required
to be described in the Registration Statement or the Prospectus or to be filed
as exhibits to the Registration Statement, which are not so described or filed
as required.
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To the best of their knowledge, none of the material
provisions of the contracts or instruments described above violates any existing
applicable law, rule or regulation or judgment, order or decree known to us of
any United States governmental agency or court having jurisdiction over the
Company or any of its assets or businesses;
(vi) To the best of their knowledge, except as set forth
in the Prospectus, no holders of any of the Company's securities has any rights,
"demand," "piggyback" or otherwise, to have such securities registered under the
Act;
(v) They have participated in reviews and discussions in
connection with the preparation of the Registration Statement and the
Prospectus. Although they are not passing upon and do not assume responsibility
for the accuracy, completeness or fairness of the statements contained in the
Registration Statement, no facts came to their attention which lead them to
believe that (A) the Registration Statement (except as to the financial
statements and other financial data contained therein, as to which they express
no opinion), on the Effective Date, contained any untrue statement of a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, or
that (B) the Prospectus (except as to the financial statements and other
financial data contained therein, as to which they express no opinion) contains
any untrue statement or a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(c) At the Closing Date, you shall have received the opinion of
Torkin, Manes, Cohen & Arbus, special Canadian counsel to the Company with
respect to Canadian law, dated as of such Closing Date, addressed to the
Underwriters and in form and substance satisfactory to counsel to the
Underwriters, to the effect that:
(i) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the Province of Ontario, Canada,
with full corporate power and authority, and all licenses, permits,
certifications, registrations, approvals, consents and franchises to own or
lease and operate its properties and to conduct its business as described in the
Registration Statement. The Company is duly qualified to do business as a
foreign corporation and is in good standing in all jurisdictions wherein such
qualification is necessary and failure so to qualify could have a material
adverse effect on the financial condition, results of operations, business or
properties of the Company;
(ii) The Company has full corporate power and authority
to execute, deliver and perform the Underwriting Agreement, the Consulting
Agreement, the Warrant Agreement and the Purchase Option and to consummate the
transactions contemplated thereby. The execution, delivery and performance of
the Underwriting Agreement, the Consulting Agreement, the Warrant Agreement and
the
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Purchase Option by the Company, the consummation by the Company of the
transactions therein contemplated and the compliance by the Company with the
terms of the Underwriting Agreement, the Consulting Agreement, the Warrant
Agreements and the Purchase Option have been duly authorized by all necessary
corporate action, and each of the Underwriting Agreement, the Consulting
Agreement, the Warrant Agreement and the Purchase Option has been duly executed
and delivered by the Company. Each of the Underwriting Agreement, the
Consulting Agreement, the Warrant Agreements and the Purchase Option is a valid
and binding obligation of the Company, enforceable in accordance with their
respective terms, subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting the
rights of creditors generally and the discretion of courts in granting equitable
remedies and except that enforceability of the indemnification provisions and
the contribution provisions set forth in the Underwriting Agreement may be
limited by the federal securities laws or public policy underlying such laws;
(iii) The execution, delivery and performance of the
Underwriting Agreement, the Consulting Agreement, the Warrant Agreement and the
Purchase Option by the Company, the consummation by the Company of the
transactions therein contemplated and the compliance by the Company with the
terms of the Underwriting Agreement, the Consulting Agreement, the Warrant
Agreement and the Purchase Option do not, and will not, with or without the
giving of notice or the lapse of time, or both, (A) result in a violation of the
Articles of Incorporation, as the same may be amended, or by-laws of the
Company; (B) to the best of our knowledge, result in a breach of, or conflict
with, any terms or provisions of or constitute a default under, or result in the
modification or termination of, or result in the creation or imposition of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company pursuant to, any indenture, mortgage, note, contract,
commitment or other material agreement or instrument to which the Company is a
party or by which the Company or any of its properties or assets are or may be
bound or affected, except where any of the foregoing would not result in a
material adverse effect upon the Company's business or operations; (C) to the
best of their knowledge, violate any existing applicable law, rule or regulation
or judgment, order or decree known to them of any governmental agency or court,
domestic or foreign, having jurisdiction over the Company or any of its
properties or business; or (D) to the best of their knowledge, have any effect
on any permit, certification, registration, approval, consent, license or
franchise necessary for the Company to own or lease and operate its properties
and to conduct its business or the ability of the Company to make use thereof;
(iv) No authorization, approval, consent or license of
any Canadian governmental or regulatory body, agency or instrumentality is
required in connection with the conduct of the business of the Company as
described in the Prospectus;
(v) The Company has obtained, or is in the process of
obtaining, all licenses, permits and other governmental authorizations necessary
to conduct its business as described in the Prospectus, and such licenses,
permits and other governmental authorizations obtained are in full force and
effect, and the Company is in all material respects complying therewith;
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(vi) To the best of their knowledge, no authorization,
approval, consent, order, registration, license or permit of any court or
governmental agency or body (other than under the Act, the Regulations and
applicable state securities or Blue Sky laws) is required for the valid
authorization, issuance, sale and delivery of the Units, the Option Units, the
Common Stock, the Warrants, the Warrant Shares, or the Purchase Option, and the
consummation by the Company of the transactions contemplated by the Underwriting
Agreement, the Consulting Agreement, the Warrant Agreement or the Purchase
Option;
(vii) The outstanding Units, Common Stock and Warrants
have been duly authorized and validly issued. The outstanding Common stock is
fully paid and nonassessable. To the best of their knowledge, none of the
outstanding Common Stock has been issued in violation of the preemptive rights
of any shareholder of the Company. None of the holders of the outstanding
Common Stock is subject to personal liability solely by reason of being such a
holder. The authorized Common Stock conforms to the description thereof
contained in the Registration Statement and Prospectus.
(viii) The issuance and sale of the Units, the Option
Units, the Common Stock, the Warrants, the Warrant Shares and the Purchase
Option have been duly authorized and when issued will be validly issued, fully
paid and nonassessable, and the holders thereof will not be subject to personal
liability solely by reason of being such holders. Neither the Units, the Option
Units, nor the Common Stock are subject to preemptive rights of any stockholder
of the Company. The certificates representing the Units are in proper legal
form;
(ix) The issuance and sale of the Warrant Shares and the
Purchase Option have been duly authorized and, when paid for, issued and
delivered pursuant to the terms of the Underwriters' Agreement or the Purchase
Option, as the case may be, the Warrants, the Warrant Shares and the Purchase
Option will constitute the valid and binding obligations of the Company,
enforceable in accordance with their terms, to issue and sell the Warrants, the
Warrant Shares and/or the Purchase Option. All corporate action required to be
taken for the authorization, issuance and sale of the Units has been duly,
validly and sufficiently taken. The Common Stock and the Warrants have been
duly authorized by the Company to be offered in the form of the Units. The
Warrants, the Warrant Shares and the Purchase Option conform to the descriptions
thereof contained in the Registration Statement and Prospectus;
(x) The Underwriters have acquired good title to the
Units, free and clear of all liens, encumbrances, equities, security interests
and claims;
(xi) Assuming that the Underwriters exercise the
over-allotment option to purchase the Option Units and make payments therefor in
accordance with the terms of the Underwriting Agreement, upon delivery of the
Option Units to the Underwriters thereunder, the Underwriters will acquire good
title to the Option Units, free and clear of any liens, encumbrances, equities,
security interests and claims;
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(xii) To the best of their knowledge, there are no claims,
actions, suits, proceedings, arbitrations, investigations or inquiries before
any governmental agency, court or tribunal, foreign or domestic, or before any
private arbitration tribunal, pending or threatened against the Company or
involving its properties or business, other than as described in the Prospectus,
such description being accurate, and other than litigation incident to the kind
of business conducted by the Company which, individually and in the aggregate,
is not material, and, except as otherwise disclosed in the Prospectus and the
Registration Statement, the Company has complied with all federal and state
laws, statutes and regulations concerning its business;
(xiii) Such counsel is familiar with all contracts or other
agreements entered into by the Company with other Canadian companies, entities,
banking institutions or individuals referred to in the Registration Statement
and Prospectus, including the employment agreements with Sid Ackerman, its
President and Alan Fine, its Chief Executive Officer (collectively, the
"Canadian Agreements"), and all such Canadian Agreements are valid, binding and
enforceable under Canadian law, and to the knowledge of such counsel, the
Company is not in default under any of the Canadian Agreements;
(xiv) The description in the Registration Statement and
the Prospectus of statutes, regulations, contracts and other documents have been
reviewed by them, and, based upon such review, are accurate in all material
respects and present fairly the information required to be disclosed, and to the
best of our knowledge, there are no material statutes or regulations, or, to the
best of our knowledge, material contracts or documents, of a character required
to be described in the Registration Statement or the Prospectus or to be filed
as exhibits to the Registration Statement, which are not so described or filed
as required.
(xv) The Company is not in violation of or in default
under its Articles of Incorporation or by-laws, or to the knowledge of such
counsel, in the performance or observance of any material obligation, agreement,
covenant or condition contained in any bond, debenture, note or other evidence
of indebtedness or in any contract, indenture, mortgage, loan agreement or
instrument to which the Company is a party or by which it or any of its
properties may be bound, or in violation of any material order, rule,
regulation, writ, injunction or decree of any government or governmental
instrumentality or court; and
(xvi) They have participated in reviews and discussions in
connection with the preparation of the Registration Statement and the
Prospectus. Although they are not passing upon and do not assume responsibility
for the accuracy, completeness or fairness of the statements contained in the
Registration Statement, no facts came to their attention which lead them to
believe that (A) the Registration Statement (except as to the financial
statements and other financial data contained therein, as to which they express
no opinion), on the Effective Date, contained any untrue statement of a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, or
that (B) the Prospectus (except as to the financial statements and other
financial data contained therein, as to which we express no opinion) contains
any untrue statement or a material fact or omits
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to state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(d) On or prior to the Closing Date, counsel for the Underwriters
shall have been furnished such documents, certificates and opinions as they may
reasonably require for the purpose of enabling them to review the matters
referred to in subparagraphs (e) and (f) of this Paragraph 9, or in order to
evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained.
(e) All corporate proceedings and other legal matters relating to
this Agreement, the Registration Statement, the Prospectus and other related
matters shall be satisfactory to or approved by DeLong, Caldwell & Wisebram,
LLC, counsel to the Underwriter.
(f) You shall have received a letter prior to the Effective Date and
again on and as of the First Closing Date from Schwartz Levitsky Feldman,
independent public accountants for the Company, substantially in the form
reasonably acceptable to you, providing you with such "cold comfort" as you may
reasonably require.
(g) At the Closing Date, (i) the representations and warranties of
the Company contained in this Agreement shall be true and correct in all
material respects with the same effect as if made on and as of the Closing Date
taking into account for the Option Closing Date the effect of the transactions
contemplated hereby and the Company shall have performed all of its obligations
hereunder and satisfied all the conditions on its part to be satisfied at or
prior to such Closing Date; (ii) the Registration Statement and the Prospectus
and any amendments or supplements thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and shall in all material respects conform to the requirements
thereof, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain 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; (iii) there shall have
been, since the respective dates as of which information is given, no material
adverse change, or to the Company knowledge, any development involving a
prospective material adverse change, in the business, properties, condition
(financial or otherwise), results of operations, capital stock, long-term or
short-term debt or general affairs of the Company from that set forth in the
Registration Statement and the Prospectus, except changes which the Registration
Statement and Prospectus indicate might occur after the effective date of the
Registration Statement, and the Company shall not have incurred any material
liabilities or entered into any material agreement not in the ordinary course of
business other than as referred to in the Registration Statement and Prospectus;
(iv) except as set forth in the Prospectus, no action, suit or proceeding at law
or in equity shall be pending or threatened against the Company which would be
required to be set forth in the Registration Statement, and no proceedings shall
be pending or threatened against the Company before or by any commission, board
or administrative agency in the United States or elsewhere, wherein an
unfavorable decision, ruling or finding would materially and adversely affect
the business, property, condition (financial or otherwise), results of
operations or general affairs of the Company, and (v) you shall have received,
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at the First Closing Date, a certificate signed by each of the President and the
principal operating officer of the Company, dated as of the First Closing Date,
evidencing compliance with the provisions of this subsection (g).
(i) Upon exercise of the Over-Allotment Option provided for in
Section 2(b) hereof, the obligations of the Underwriter to purchase and pay for
the Option Units referred to therein will be subject (as of the date hereof and
as of the Option Closing Date) to the following additional conditions:
(j) The Registration Statement shall remain effective at the Option
Closing Date, and no stop order suspending the effectiveness thereof shall have
been issued and no proceedings for that purpose shall have been instituted or
shall be pending, or, to your knowledge or the knowledge of the Company, shall
be contemplated by the Commission, and any reasonable request on the part of the
Commission for additional information shall have been complied with to the
satisfaction of the Commission.
(k) At the Option Closing Date there shall have been delivered to you
the signed opinion of Singer Zamansky, LLP, counsel to the Company, dated as of
the Option Closing Date, in form and substance reasonably satisfactory to
DeLong, Caldwell & Wisebram, LLC, counsel to the Underwriter, which opinion
shall be substantially the same in scope and substance as the opinion furnished
to you at the First Closing Date pursuant to Sections 4(b) hereof, except that
such opinion, where appropriate, shall cover the Option Units.
(l) At the Option Closing Date there shall have been delivered to you
the signed opinion of Torkin, Manes, Cohen & Arbus, Canadian counsel to the
Company, dated as of the Option Closing Date, in form and substance reasonably
satisfactory to DeLong, Caldwell & Wisebram, LLC, counsel to the Underwriter,
which opinion shall be substantially the same in scope and substance as the
opinion furnished to you at the First Closing Date pursuant to Sections 4(c)
hereof, except that such opinion, where appropriate, shall cover the Option
Units.
(m) At the Option Closing Date there shall have be delivered to you a
certificate of the President and the principal operating officer of the Company,
dated the Option Closing Date, in form and substance reasonably satisfactory to
DeLong, Caldwell & Wisebram, LLC, counsel to the Underwriter, substantially the
same in scope and substance as the certificate furnished to you at the First
Closing Date pursuant to Section 4(g) hereof.
(n) At the Option Closing Date there shall have been delivered to you
a letter in form and substance satisfactory to you from Schwartz Levitsky
Feldman, dated the Option Closing Date and addressed to the Underwriter
confirming the information in their letter referred to in Section 4(f) hereof
and stating that nothing has come to their attention during the period from the
ending date of their review referred to in said letter to a date not more than
five business days prior to the Option Closing Date, which would require any
change in said letter if it were required to be dated the Option Closing Date.
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(o) All proceedings taken at or prior to the Option Closing Date in
connection with the sale and issuance of the Option Units shall be reasonably
satisfactory in form and substance to you, and you and DeLong, Caldwell &
Wisebram, LLC, counsel to the Underwriter, shall have been furnished with all
such documents, certificates, and opinions as you may reasonably request in
connection with this transaction in order to evidence the accuracy and
completeness of any of the representations, warranties or statements of the
Company or its compliance with any of the covenants or conditions contained
herein.
(p) No action shall have been taken by the Commission or the NASD the
effect of which would make it improper, at any time prior to the Closing Date,
for members of the NASD to execute transactions (as principal or agent) in the
Units and no proceedings for the taking of such action shall have been
instituted or shall be pending, or, to the knowledge of the Underwriter or the
Company, shall be contemplated by the Commission or the NASD. The Company and
the Underwriter represent that at the date hereof each has no knowledge that any
such action is in fact contemplated against it by the Commission or the NASD.
(q) If any of the conditions herein provided for in this Section
shall not have been fulfilled in all material respects as of the date indicated,
this Agreement and all obligations of the Underwriter under this Agreement may
be canceled at, or at any time prior to, each Closing Date by the Underwriter
notifying the Company of such cancellation in writing or by telegram at or prior
to the applicable Closing Date. Any such cancellation shall be without
liability of the Underwriter to the Company.
5. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY, The obligation of the
Company to sell and deliver the Units is subject to the following conditions:
(a) The Registration Statement shall have become effective not later
than 10:00 A.M. New York time, on the day following the date of this Agreement,
or on such later date as the Company and the Underwriter may agree in writing.
(b) At the Closing Dates, no stop orders suspending the effectiveness
of the Registration Statement shall have been issued under the Act or any
proceedings therefor initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided for in
this Section have been fulfilled on the First Closing Date but are not fulfilled
after the First Closing Date and prior to the Option Closing Date, then only the
obligation of the Company to sell and deliver the Units on exercise of the
Over-Allotment Option provided for in Section 2(b) hereof shall be affected.
6. INDEMNIFICATION.
(a) The Company agrees (i) to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or
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Section 20(a) of the Exchange Act against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees), to which such Underwriter or
such controlling person may become subject, under the Act or otherwise, and (ii)
to reimburse, as incurred, the Underwriter and such controlling persons for any
legal or other expenses reasonably incurred in connection with investigating,
defending against or appearing as a third party witness in connection with any
losses, claims, damages or liabilities; insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) relating to (i) and (ii) arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, (B) any blue
sky application or other document executed by the Company specifically for that
purpose containing written information specifically furnished by the Company and
filed in any state or other jurisdiction in order to qualify any or all of the
Units under the securities laws thereof (any such application, document or
information being hereinafter called a "Blue Sky Application"), or arise out of
or are based upon the omission or alleged omission to state in the Registration
Statement, any Preliminary Prospectus, Prospectus, or any amendment or
supplement thereto, or in any Blue Sky Application, a material fact required to
be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company will not be required to indemnify the
Underwriter and any controlling person or be liable in any such case to the
extent, but only to the extent, that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the Underwriter
specifically for use in the preparation of the Registration Statement or any
such amendment or supplement thereof or any such Blue Sky Application or any
such preliminary Prospectus or the Prospectus or any such amendment or
supplement thereto, provided, further that the indemnity with respect to any
Preliminary Prospectus shall not be applicable on account of any losses, claims,
damages, liabilities or litigation arising from the sale of Units to any person
if a copy of the Prospectus was not delivered to such person at or prior to the
written confirmation of the sale to such person. This indemnity will be in
addition to any liability which the Company may otherwise have.
(b) The Underwriter will indemnify and hold harmless the Company,
each of its directors, each nominee (if any) for director named in the
Prospectus, each of its officers who have signed the Registration Statement and
each person, if any, who controls the Company within the meaning of the Act,
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and reasonable attorneys' fees) to which the Company or any
such director, nominee, officer or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or
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<PAGE>
alleged omission was made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or any Blue
Sky Application in reliance upon and in conformity with written information
furnished to the Company by the Underwriter specifically for use in the
preparation thereof and for any violation by the Underwriter in the sale of such
Units of any applicable state or federal law or any rule, regulation or
instruction thereunder relating to violations based on unauthorized statements
by Underwriter or its representative; provided that such violation is not based
upon any violation of such law, rule or regulation or instruction by the party
claiming indemnification or inaccurate or misleading information furnished by
the Company or its representatives, including information furnished to the
Underwriter as contemplated herein. This indemnity agreement will be in addition
to any liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify in writing the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that the reasonable fees and expenses of such
counsel shall be at the expense of the indemnifying party if (i) the employment
of such counsel has been specifically authorized in writing by the indemnifying
party or (ii) the named parties to any such action (including any impleaded
parties) include both the indemnified party and the indemnifying party and in
the reasonable judgment of the counsel to the indemnified party, it is advisable
for the indemnified party to be represented by separate counsel (in which case
the indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party, it being understood, however, that
the indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for the
indemnified party, which firm shall be designated in writing by the indemnified
party). No settlement of any action against an indemnified party shall be made
without the consent of the indemnified party, which shall not be unreasonably
withheld in light of all factors of importance to such indemnified party. If it
is
24
<PAGE>
ultimately determined that indemnification is not permitted, then an indemnified
party will return all monies advanced to the indemnifying party.
7. CONTRIBUTION.
In order to provide for just and equitable contribution under the Act
in any case in which the indemnification provided in Section 6 hereof is
requested but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case, notwithstanding the fact that the express provisions of
Section 6 provide for indemnification in such case, then the Company and each
person who controls the Company, in the aggregate, and the Underwriter shall
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (which shall, for all purposes of this Agreement, include, but
not be limited to, all reasonable costs of defense and investigation and all
reasonable attorneys' fees) (after contribution from others) in such proportions
that the Underwriter is responsible in the aggregate for that portion of such
losses, claims, damages or liabilities represented by the percentage that the
underwriting discount for each of the Units appearing on the cover page of the
Prospectus bears to the public offering price appearing thereon and the Company
shall be responsible for the remaining portion; provided, however, that if such
allocation is not permitted by applicable law then allocated in such proportion
as is appropriate to reflect relative benefits but also the relative fault of
the Company and the Underwriter and controlling persons, in the aggregate, in
connection with the statements or omissions which resulted in such damages and
other relevant equitable considerations shall also be considered. The relative
fault shall be determined by reference to, among other things, whether in the
case of an untrue statement of a material fact or the omission to state a
material fact, such statement or omission relates to information supplied by the
Company or the Underwriter and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriter agree that it would not be just and
equitable if the respective obligations of the Company and the Underwriter to
contribute pursuant to this Section 7 were to be determined by pro rata or per
capita allocation of the aggregate damages or by any other method of allocation
that does not take account of the equitable considerations referred to in this
Section 7. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. As used in this
paragraph, the word "Company" includes any officer, director, or person who
controls the Company within the meaning of Section 15 of the Act. If the full
amount of the contribution specified in this paragraph is not permitted by law,
then the Underwriter and each person who controls the Underwriter shall be
entitled to contribution from the Company, its officers, directors and
controlling persons, and the Company, its officers, directors and controlling
persons shall be entitled to contribution from the Underwriter to the full
extent permitted by law. The foregoing contribution agreement shall in no way
affect the contribution liabilities of any persons having liability under
Section 11 of the Act other than the Company and the Underwriter. No
contribution shall be requested with regard to the settlement of any matter from
any party who did not consent to the settlement; provided, however,
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<PAGE>
that such consent shall not be unreasonably withheld in light of all factors of
importance to such party.
8. COSTS AND EXPENSES.
(a) Whether or not this Agreement becomes effective or the sale of
the Units to the Underwriter is consummated, the Company will pay all costs and
expenses incident to the performance of this Agreement by the Company including,
but not limited to, the fees and expenses of counsel to the Company and of the
Company's accountants; the costs and expenses incident to the preparation,
printing, filing and distribution under the Act of the Registration Statement
(including the financial statements therein and all amendments and exhibits
thereto), Preliminary Prospectus and the Prospectus, as amended or supplemented,
the fee of the NASD in connection with the filing required by the NASD relating
to the offering of the Units contemplated hereby; all expenses, including
reasonable fees not to exceed $35,000 and disbursements of counsel to the
Underwriter, in connection with the qualification of the Units under the state
securities or blue sky laws which the Underwriter shall designate; the cost of
printing and furnishing to the Underwriter copies of the Registration Statement,
each Preliminary Prospectus, the Prospectus, this Agreement, and the Blue Sky
Memorandum, any fees relating to the listing of the Units, Common Stock and
Warrants on Nasdaq or any other securities exchange, the cost of printing the
certificates representing the Units; fees for bound volumes and prospectus
memorabilia and the fees of the transfer agent and warrant agent. The Company
shall pay any and all taxes (including any transfer, franchise, capital stock or
other tax imposed by any jurisdiction) on sales to the Underwriter hereunder.
The Company will also pay all costs and expenses incident to the furnishing of
any amended Prospectus or of any supplement to be attached to the Prospectus as
called for in Section 3(a) of this Agreement except as otherwise set forth in
said Section.
(b) In addition to the foregoing expenses, the Company shall at the
First Closing Date pay to the Underwriter a non-accountable expense allowance of
$150,000. In the event the overallotment option is exercised, the Company
shall pay to the Underwriter at the Option Closing Date an additional amount in
the aggregate equal to 3% of the gross proceeds received upon exercise of the
overallotment option. In the event the transactions contemplated hereby are not
consummated by reason of any action by the Underwriter (except if such
prevention is based upon a breach by the Company of any covenant, representation
or warranty contained herein or because any other condition to the Underwriter's
obligations hereunder required to be fulfilled by the Company is not fulfilled)
the Company shall not be liable for any expenses of the Underwriter, including
the Underwriter's legal fees. In the event the transactions contemplated hereby
are not consummated by reason of the Company being unable to perform its
obligations hereunder in all material respects, the Company shall be liable for
the actual accountable out-of-pocket expenses of the Underwriter, including
reasonable legal fees.
(c) Except as disclosed in the Registration Statement, no person is
entitled either directly or indirectly to compensation from the Company, from
the Underwriter or from any other
26
<PAGE>
person for services as a finder in connection with the proposed offering, and
the Company agrees to indemnify and hold harmless the Underwriter, against any
losses, claims, damages or liabilities, joint or several (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all reasonable attorneys' fees), to which the Underwriter
or person may become subject insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon the
claim of any person (other than an employee of the party claiming indemnity) or
entity that he or it is entitled to a finder's fee in connection with the
proposed offering by reason of such person's or entity's influence or prior
contact with the indemnifying party.
9. EFFECTIVE DATE.
The Agreement shall become effective upon its execution except that
you may, at your option, delay its effectiveness until 11:00 A.M., New York time
on the first full business day following the effective date of the Registration
Statement, or at such earlier time on such business day after the effective date
of the Registration Statement as you in your discretion shall first commence the
public offering of the Units. The time of the initial public offering shall
mean the time of release by you of the first newspaper advertisement with
respect to the Units, or the time when the Units are first generally offered by
you to dealers by letter or telegram, whichever shall first occur. This
Agreement may be terminated by you at any time before it becomes effective as
provided above, except that Sections 3(c), 6, 7, 8, 12, 13, 14 and 15 shall
remain in effect notwithstanding such termination.
10. TERMINATION.
(a) After this Agreement becomes effective, this Agreement, except
for Sections 3(c), 6, 7, 8, 12, 13, 14 and 15 hereof, may be terminated at any
time prior to the First Closing Date, by you if in your judgment (i) trading
in securities on the New York Stock Exchange or the American Stock Exchange
having been suspended or limited, (ii) material governmental restrictions have
been imposed on trading in securities generally (not in force and effect on the
date hereof), (iii) a banking moratorium has been declared by federal or New
York state authorities, (iv) an outbreak of major international hostilities
involving the United States or other substantial national or international
calamity has occurred, (v) a pending or threatened legal or governmental
proceeding or action relating generally to the Company's business, or a
notification has been received by the Company of the threat of any such
proceeding or action, which would materially adversely affect the Company; (vi)
the passage by the Congress of the United States or by any state legislative
body of similar impact, of any act or measure, or the adoption of any orders,
rules or regulations by any governmental body or any authoritative accounting
institute or board, or any governmental executive, which is reasonably believed
likely by the Underwriter to have a material adverse impact on the business,
financial condition or financial statements of the Company; or (vii) any
material adverse change having occurred, since the respective dates of which
information is given in the Registration Statement and Prospectus, in the
earnings, business prospects or general condition of the Company, financial or
otherwise, whether or not arising in the ordinary course of business.
27
<PAGE>
(b) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section 10, the Company shall be
promptly notified by you, by telephone or telegram, confirmed by letter.
11. PURCHASE OPTION.
At or before the First Closing Date, the Company will sell the
Underwriter or its designees for a consideration of $10, and upon the terms and
conditions set forth in the form of Purchase Option annexed as an exhibit to
the Registration Statement, a Purchase Option to purchase an aggregate of 71,500
Units. In the event of conflict in the terms of this Agreement and the Purchase
Option with respect to language relating to the Purchase Option, the language
of the Purchase Option shall control.
12. REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITER.
The Underwriter represents and warrants to the Company that it is
registered as a broker-dealer in all jurisdictions in which it is offering the
Units and that it will comply with all applicable state or federal laws relating
to the sale of the Units, including but not limited to, violations based on
unauthorized statements by the Underwriter or its representatives.
13. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
The respective indemnities, agreements, representations, warranties
and other statements of the Company and the Underwriter and the undertakings set
forth in or made pursuant to this Agreement will remain in full force and effect
until three years from the date of this Agreement, regardless of any
investigation made by or on behalf of the Underwriter, the Company or any of its
officers or directors or any controlling person and will survive delivery of and
payment of the Units and the termination of this Agreement.
14. NOTICE.
Any communications specifically required hereunder to be in writing,
if sent to the Representative, will be mailed, delivered or telecopied and
confirmed to them at Fin-Atlantic Securities, Inc., 33 N.E. 2nd Street, Suite
300, Ft. Lauderdale, Florida, 33301, with a copy sent to DeLong, Caldwell &
Wisebram, LLC, 945 East Paces Ferry Road, Suite 1770, Atlanta, Georgia 30326,
Attention: Ernest H. DeLong, Esq., or if sent to the Company, will be mailed,
delivered or telecopied and confirmed to it at 731 Millway Avenue, Concord,
Ontario, Canada L4K 358, with a copy sent to Singer Zamansky LLP, 40 Exchange
Place, New York, New York 10005, Attention: Gregory Sichenzia. Notice shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication.
15. PARTIES IN INTEREST.
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<PAGE>
The Agreement herein set forth is made solely for the benefit of the
Underwriter, the Company, any person controlling the Company or the Underwriter,
and directors of the Company, nominees for directors (if any) named in the
Prospectus, its officers who have signed the Registration Statement, and their
respective executors, administrators, successors, assigns and no other person
shall acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser, as such purchaser,
from the Underwriter of the Units.
16. APPLICABLE LAW.
This Agreement will be governed by, and construed in accordance with,
of the laws of the State of New York applicable to agreements made and to be
entirely performed within New York.
17. COUNTERPARTS.
This agreement may be executed in one or more counterparts each of
which shall be deemed to constitute an original and shall become effective when
one or more counterparts have been signed by each of the parties hereto and
delivered to the other parties (including by fax, followed by original copies by
overnight mail).
18. ENTIRE AGREEMENT; AMENDMENTS.
This Agreement constitutes the entire agreement of the parties hereto
and supersedes all prior written or oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may not
be amended except in writing, signed by the Underwriter and the Company.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this agreement, whereupon it will become a
binding agreement between the Company and the Underwriter in accordance with its
terms.
Very truly yours,
ROSEDALE DECORATIVE PRODUCTS, INC.
By:
-----------------------------------
Name: Sidney Ackerman
Title: President
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
FIN-ATLANTIC SECURITIES, INC.
29
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By:
-----------------------------------
Name:
Title:
30
<PAGE>
EXHIBIT 1.2
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. NO OFFER
TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE CAN BE
RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY SUCH
OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY KIND,
AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE DATE.
ROSEDALE DECORATIVE PRODUCTS INC.
625,000 UNITS (EACH UNIT CONSISTING OF TWO SHARES OF COMMON STOCK AND
TWO REDEEMABLE CLASS A COMMON STOCK PURCHASE WARRANTS)
SELECTED DEALERS AGREEMENT
_______ __, 1998
Dear Sirs:
1. Fin-Atlantic Securities, Inc. (the "Underwriter"), has agreed to offer
on a firm commitment basis, subject to the terms and conditions and execution of
the Underwriting Agreement, 625,000 Units ("Units") each consisting of two (2)
shares of common stock (the "Common Stock") of Rosedale Decorative Products Inc.
(the "Company") and two (2) Redeemable Class A Common Stock Purchase Warrants
("Warrant") (hereinafter, collectively referred to as the "Units" including any
shares of Common Stock and Warrants offered pursuant to an over-allotment
option, the "Firm Units"). Each Warrant is exercisable to purchase one (1)
share of Common Stock. The Firm Units are more particularly described in the
enclosed Preliminary Prospectus, additional copies of which, as well as the
Prospectus (after effective date), will be supplied in reasonable quantities
upon request.
2. The Underwriter is soliciting offers to buy Units, upon the terms and
conditions hereof, from Selected Dealers, who are to act as principals,
including you, who are (i) registered with the Securities and Exchange
Commission ("the Commission") as broker-dealers under the Securities Exchange
Act of 1934, as amended ("the 1934 Act"), and members in good standing with the
National Association of Securities Dealers, Inc. ("the NASD"), or (ii) dealers
or institutions with their principal place of business located outside the
United States, its territories and possessions and not registered under the 1934
Act who agree to make no sales within the United States, its territories and
possessions or to persons who are nationals thereof or residents therein and, in
making sales, to comply with the NASD's interpretation with respect to free-
riding and withholding. The Units are to be offered to the public at a price of
$8.00 per Unit. Selected Dealers will be allowed a concession
<PAGE>
of not less than __% of the aggregate offering price. You will be notified of
the precise amount of such concession prior to the effective date of the
Registration Statement. The offer is solicited subject to the issuance and
delivery of the Units and their acceptance by the Underwriter, to the approval
of legal matters by counsel and to the terms and conditions as herein set forth.
3. Your offer to purchase may be revoked in whole or in part without
obligation or commitment of any kind by you any time prior to acceptance and no
offer may be accepted by us and no sale can be made until after the registration
statement covering the Units has become effective with the Commission. Subject
to the foregoing, upon execution by you of the Offer to Purchase below and the
return of same to us, you shall be deemed to have offered to purchase the number
of Units set forth in your offer on the basis set forth in paragraph 2 above.
Any oral notice by us of acceptance of your offer shall be immediately followed
by written or telegraphic confirmation preceded or accompanied by a copy of the
Prospectus. If a contractual commitment arises hereunder, all the terms of this
Selected Dealers Agreement shall be applicable. We may also make available to
you an allotment to purchase Units, but such allotment shall be subject to
modification or termination upon notice from us any time prior to an exchange of
confirmations reflecting completed transactions. All references hereafter in
this Agreement to the purchase and sale of the Securities assume and are
applicable only if contractual commitments to purchase are completed in
accordance with the foregoing.
4. You agree that in re-offering the Units, if your offer is accepted
after the Effective Date, you will make a bona fide public distribution of same.
You will advise us upon request of the Units purchased by you remaining unsold,
and we shall have the right to repurchase such Units upon demand at the public
offering price less the concession as set forth in paragraph 2 above. Any of
the Units purchased by you pursuant to this Agreement are to be re-offered by
you to the public at the public offering price, subject to the terms hereof and
shall not be offered or sold by you below the public offering price before the
termination of this Agreement.
5. Payment for Units which you purchase hereunder shall be made by you
on such date as we may determine by certified or bank cashier's check payable in
New York Clearing house funds to Fin-Atlantic Securities, Inc. Certificates for
the Units shall be delivered as soon as practicable at the offices of
Fin-Atlantic Securities, Inc., 33 N.E. 2nd Street, Suite 300, Ft. Lauderdale,
Florida 33301. Unless specifically authorized by us, payment by you may not be
deferred until delivery of certificates to you.
6. A registration statement covering the offering has been filed with the
Commission in respect to the Units. You will be promptly advised when the
registration statement becomes effective. Each Selected Dealer in selling the
Units pursuant hereto agrees (which agreement shall also be for the benefit of
the Company) that it will comply with the applicable requirements of the
Securities Act of 1933 and of the 1934 Act and any applicable rules and
regulations issued under said Acts. No person is authorized by the Company or
by the Underwriter to give any information or to make any representations other
than those contained in the Prospectus in connection with the sale of the Units.
Nothing contained herein shall render the Selected Dealers a member of the
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underwriting group or partners with the Underwriter or with one another.
7. You will be informed by us as to the states in which we have been
advised by counsel the Units have been qualified for sale or are exempt under
the respective securities or blue sky laws of such states, but we have not
assumed and will not assume any obligation or responsibility as to the right of
any Selected Dealer to sell Units in any state.
8. The Underwriter shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to the offering or
arising thereunder. The Underwriter shall not be under any liability to you,
except such as may be incurred under the Securities Act of 1933 and the rules
and regulations thereunder, except for lack of good faith and except for
obligations assumed by us in this Agreement, and no obligation on our part shall
be implied or inferred herefrom.
9. Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate when the
offering is completed. Nothing herein contained shall be deemed a commitment on
our part to sell you any Units; such contractual commitment can only be made in
accordance with the provisions of paragraph 3 hereof.
10. You represent that you are a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD") and registered as a
broker-dealer or are not eligible for membership under Section I of the By-Laws
of the Association who agree to make no sales within the United States, its
territories or possessions or to persons who are nationals thereof or residents
therein and, in making sales, to comply with the NASD's interpretation with
respect to free-riding and withholding. Your attention is called to the
following: (a) Rules 2730, 2740,2420 and 2750 of the NASD Conduct Rules and the
interpretations of said Sections promulgated by the Board of Governors of the
NASD including the interpretation with respect to "Free-Riding and Withholding";
(b) Section 10(b) of the 1934 Act and Regulation M and Rule and 10b-10 of the
general rules and regulations promulgated under said Act; (c) Securities Act
Release #3907; (d) Securities Act Release #4150; and (e) Securities Act Release
#4968 requiring the distribution of a Preliminary Prospectus to all persons
reasonably expected to be purchasers of Securities from you at least 48 hours
prior to the time you expect to mail confirmations. You, if a member of the
Association, by signing this Agreement, acknowledge that you are familiar with
the cited law, rules and releases, and agree that you will not directly and/or
indirectly violate any provisions of applicable law in connection with your
participation in the distribution of the Units.
11. In addition to compliance with the provisions of paragraph 10 hereof,
you will not, until advised by us in writing or by wire that the entire offering
has been distributed and closed, bid for or purchase Units or their component
securities in the open market or otherwise make a market in such securities or
otherwise attempt to induce others to purchase such securities in the open
market. Nothing contained in this paragraph 11 shall, however, preclude you
from acting as agent in the execution of unsolicited orders of customers in
transactions effectuated for them through a market maker.
3
<PAGE>
12. You understand that the Underwriter may in connection with the
offering engage in stabilizing transactions. If the Underwriter contracts for
or purchases in the open market in connection with such stabilization any Units
sold to you hereunder and not effectively placed by you, the Underwriter may
charge you the Selected Dealer's concession originally allowed you on the
Securities so purchased, and you agree to pay such amount to us on demand.
13. By submitting an Offer to Purchase you confirm that your net capital
is such that you may, in accordance with Rule 15c3-1 adopted under the 1934 Act,
agree to purchase the number of Securities you may become obligated to purchase
under the provisions of this Agreement.
14. You agree that (i) you shall not recommend to a customer the purchase
of Firm Units unless you shall have reasonable grounds to believe that the
recommendation is suitable for such customer on the basis of information
furnished by such customer concerning the customer's investment objectives,
financial situation and needs, and any other information known to you, (ii) in
connection with all such determinations, you shall maintain in your files the
basis for such determination, and (iii) you shall not execute any transaction in
Firm Units in a discretionary account without the prior specific written
approval of the customer.
15. You represent that neither you nor any of your affiliates or
associates owns any Common Stock of the Company.
16. All communications from you should be directed to us at the office of
Fin-Atlantic Securities, Inc., 2500 Westchester Avenue, Purchase, New York
10577. All communications from us to you shall be directed to the address to
which this letter is mailed.
Very truly yours,
FIN-ATLANTIC SECURITIES, INC.
By:
--------------------------------
Name:
Title:
ACCEPTED AND AGREED TO AS OF THE ______
DAY OF ____________, 1998
[Name of Dealer]
By: ____________________________
Its
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<PAGE>
TO: Fin-Atlantic Securities, Inc.
33 N.E. 2nd Street
Suite 300
Ft. Lauderdale, Florida 33301
We hereby subscribe for Units of Rosedale Decorative
Products Inc. in accordance with the terms and conditions stated in the
foregoing letter. We hereby acknowledge receipt of the Prospectus referred to
in the first paragraph thereof relating to said Units. We further state that in
purchasing said Units we have relied upon said Prospectus and upon no other
statement whatsoever, whether written or oral. We confirm that we are a dealer
actually engaged in the investment banking or securities business and 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 and its
possessions and not registered as a broker or dealer under the Securities
Exchange Act of 1934, as amended, who hereby agrees not to make any sales within
the United States, its territories or its possessions or to persons who are
nationals thereof or residents therein. We hereby agree to comply with the
provisions of Rule 2740 of the NASD Conduct Rules, and if we are a foreign
dealer and not a member of the NASD, we also agree to comply with the NASD's
interpretation with respect to free-riding and withholding, to comply, as though
we were a member of the NASD, with the provisions of Rules 2730 and 2750 of the
NASD Conduct Rules.
Name of
Dealer:
----------------------------------
By:
----------------------------------
Address:
----------------------------------
----------------------------------
Dated: , 1998
--------------------------
<PAGE>
EXHIBIT 3.1a
ARTICLES OF INCORPORATION
1. The name of the Corporation is:
ROSEDALE DECORATIVE PRODUCTS LTD.
2. The address of the registered office:
731 Millway Avenue
Concord, Ontario L4K3S8
3. Number (or minimum and maximum number ) of directors is:
Minimum of one and maximum of ten
4. The first director(s) is/are:
First name initials and surname:
Sidney Ackerman
Residence address, giving Street & No. or R.R. No., Municipality and Postal
Code:
359 Lytton Boulevard
Toronto, Ontario M5N 1R9
Resident Canadian State Yes or No
Yes
5. Restrictions, if any, on business the corporation may carry on or on
powers the corporation may exercise:
None
6. The classes and any maximum number of shares that the corporation is
authorized to issue:
The Corporation is authorized to issue an unlimited number of shares
of one class designated as common shares.
7. Rights, privileges, restrictions and conditions (if any) attaching to
each class of shares and directors authority with respect to any class of
shares which may be issued in series:
(a) Each common share shall entitle the holder thereof to receive dividends for
each financial year of the Corporation, when, as and if declared by the
board of directors of the Corporation, out of the monies of the Corporation
properly applicable to the payment of
<PAGE>
dividends;
(b) In the event of the liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, the holders of the common
shares shall be entitled to receive the remaining property of the
Corporation;
(c) The holders of the common shares shall be entitled to receive notice of and
to attend any meeting of the shareholders of the Corporation and shall be
entitled to one (1) vote in respect of each common share held at all
meetings of the shareholders of the Corporation.
8. The issue, transfer or ownership of shares is/is not restricted and
the restrictions (if any) are as follows:
the right to transfer shares of the Corporation shall be restricted in that
no share shall be transferred without the previous consent of the board of
directors of the Corporation, to be signified by a resolution passed by the
board or an instrument or instruments in writing signed by all of the
directors.
9. Other provisions, if any, are:
(a) The number of shareholders of the Corporation, exclusive of persons who are
in its employment and exclusive of persons who, having been formerly in the
employment of the Corporation, were, while in that employment, and have
continued after the termination of that employment to be shareholders of
the Corporation, is limited to not more than 50, 2 or more persons who are
the joint registered owners of 1 or more shares being counted as 1
shareholder.
(b) Any invitation to the public to subscribe for securities of the Corporation
is prohibited.
(c) The directors of the Corporation may, without authorization of the
shareholders:
(1) borrow money on the credit of the Corporation;
(2) issue, reissue, sell or pledge bonds, debentures, notes or other
evidences of indebtedness or guarantees of the Corporation whether
secured or unsecured;
(3) to the extent permitted by the Act, give directly or indirectly
financial assistance to any person by means of a loan, guarantee on
behalf of the Corporation to secure performance of any present or
future indebtedness, liability or obligation of any person, or
otherwise; and
(4) mortgage, hypothecate, pledge or otherwise create a security interest
in all or any currently owned or subsequently acquired real or
personal, movable or immovable, property of the Corporation including
book debts, rights, powers, franchises and
<PAGE>
undertakings to secure any such bonds, debentures, notes or other
evidences of indebtedness or guarantee or any other present or future
indebtedness, liability or obligation of the Corporation.
The board of directors may from time to time delegate to a committee of the
board of directors, a director or an officer of the Corporation or any
other person designated by the board of directors or by the Act to such
extent and in such manner as the board of directors may determine at the
time of the delegation.
10. The names and addresses of the incorporators are first name, initials
and surname or corporate name:
Sidney Ackerman
Full residence address or address of registered office or of principal
place of business giving street & No. or R.R. No., municipality and
postal code:
359 Lytton Boulevard
Toronto, Ontario M5N 1R9
/S/ Sidney Ackerman
---------------------------
Sidney Ackerman
----------------------
<PAGE>
EXHIBIT 3.1b
ARTICLES OF AMENDMENT
1. The name of the Corporation is:
ROSEDALE DECORATIVE PRODUCTS LTD.
2. Date of incorporation:
May 14, 1997
3. The articles of the Corporation are amended as follows:
A. By changing the classes and any maximum number of shares that the
Corporation is authorized to issue by creating an unlimited number of Class
A Special shares.
B. By providing that, after giving effect to the foregoing, the classes and
any maximum number of shares that the Corporation is authorized to issue
are:
An unlimited number of Class A Special shares; and
An unlimited number of common shares.
C. By providing that the rights, privileges, restrictions and conditions
attaching to the Class A Special shares are as follows:
CLASS A SPECIAL SHARES
(1) The holders of the Class A Special shares shall not be entitled to
receive any dividends.
(2) Except in connection with the retraction rights of Class A Special
shareholders as provided in subsection (4) below, the Corporation
shall not be entitled to redeem the Class A Special Shares.
(3) In the event of the liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, the holder of each
Class A Special share shall not be entitled to share in any
distribution of the property or assets of the Corporation.
(4) Any registered holder of Class A Special shares may, at his option,
upon giving notice as hereinafter provided, require the Corporation at
any time or times to redeem all or any part of the Class A Special
shares held by him, and the Corporation shall pay to such holder for
each such share which the holder requires to be redeemed an amount
equal to the stated capital per share (the "Class A Retraction
Amount"). In the event that any registered holder of Class A Special
shares desires to require the redemption, as aforesaid, of all or any
part of the Class A Special shares held by him, such registered holder
shall mail by prepaid mail addressed to the Corporation at its
registered office notice in writing of his intention to require
redemption, which notice shall also specify therein the number of
Class A Special shares to be so redeemed. On the date 14 days next
following the receipt of such notice by the Corporation (herein called
the "Class A Retraction Date"), the Corporation shall pay or cause to
<PAGE>
be paid to the order of the registered holder of such Class A Special
shares the redemption price on presentation and surrender at the
registered office of the Corporation of the certificates representing
the Class A Special shares specified in the notice. If a part only of
the Class A Special shares represented by any certificate shall be
redeemed, a new certificate for the balance shall be issued at the
expense of the Corporation. From and after the Class A Retraction
Date, the holder of the Class A Special shares to be redeemed as
aforesaid shall not be entitled to exercise any of the rights as
shareholder in respect thereof unless payment of their redemption
price shall not be made upon presentation of certificates in
accordance with the foregoing provisions, in which case the rights of
the holder shall remain unaffected.
(5) The holders of the Class A Special shares shall be entitled to receive
notice of and to attend all meetings of the shareholders of the
Corporation and each Class A Special share shall confer a right to
vote in person or by proxy at all meetings of shareholders of the
Corporation. Subject to the foregoing, the total number of votes to
which the holders of the Class A Special shares as a class shall be
entitled at all such meetings of shareholders shall be equal to 200%
of the votes attaching to all of the then outstanding shares of the
Corporation other than the Class A Special shares, each Class A
Special share being entitled to the number of votes equal to the total
number of votes available to the Class A Special shares as aforesaid,
divided by the number of Class A Special shares then issued and
outstanding.
(6) The holders of the Class A Special shares shall not be entitled to
vote separately as a class or to dissent upon a proposal to amend the
Articles of the Company to:
(a) Increase or decrease any maximum number of authorized shares of
such class, or increase any maximum number of authorized shares
of a class having rights or privileges equal or superior to the
shares of such class;
(b) Effect an exchange, reclassification or cancellation of all or
part of the shares of such class; or
(c) Create a new class of shares equal or superior to the shares of
such class;
4. The amendment has been duly authorized as required by Sections 168 and 170
(as applicable) of the Business Corporations Act.
5. The resolution authorizing the amendment was approved by the
shareholders/directors (as applicable) of the Corporation on
ROSEDALE DECORATIVE
PRODUCTS LTD.
By: /s/
-------------------------
<PAGE>
EXHIBIT 3.2
BY-LAW NO. 1
a by-law relating generally
to the conduct of the affairs of
ROSEDALE DECORATIVE PRODUCTS LTD.
(the "Corporation")
CONTENTS
ARTICLE 1 - Interpretation
ARTICLE 2 - Seal, Registered Office and Financial Year
ARTICLE 3 - Directors
ARTICLE 4 - Meetings of Directors
ARTICLE 5 - Officers
ARTICLE 6 - Protection of Directors and Officers and Others
ARTICLE 7 - Meetings of Shareholders
ARTICLE 8 - Shares and Transfers
ARTICLE 9 - Voting Shares in Other Companies
ARTICLE 10 - Information Available to Shareholders
ARTICLE 11 - Dividends
ARTICLE 12 - Notices
ARTICLE 13 - Custody of Securities
ARTICLE 14 - Execution of Instruments
<PAGE>
ARTICLE 1
INTERPRETATION
1.1 In this by-law and all other by-laws of the Corporation, unless the context
otherwise specifies or requires:
(i) "ACT" means the Business Corporations Act, R.S.O. 1990, c. B.16 as
from time to time amended and every statute that may be substituted
therefor;
(ii) "REGULATIONS" means the Regulations made under the Act as from time
to time amended and every regulation that may be substituted
therefor;
(iii) "BOARD" means the Board of Directors of the Corporation;
(iv) all terms which are used in this or any other by-law of the
Corporation and which are defined in the Act or the Regulations
shall have the meanings given to them in the Act or the
Regulations;
(v) words importing the singular number include the plural and vice
versa;
(vi) words importing the masculine gender include the feminine and
neuter genders; and
(vii) the word "person" includes individuals, bodies corporate,
corporations, companies, partnerships, syndicates, trusts and
unincorporated organizations.
ARTICLE 2
SEAL, REGISTERED OFFICE AND FINANCIAL YEAR
2.1 SEAL - The Corporation may but need not have a corporate seal. Any
corporate seal adopted for the Corporation shall be such as the Board of
Directors may from time to time approve by resolution.
2.2 REGISTERED OFFICE - The shareholders may from time to time by special
resolution fix the municipality or geographic township in Ontario in which the
Corporation's registered office is located. The directors may from time to time
by resolution fix the location of the registered office within such municipality
or geographic township.
2.3 FINANCIAL YEAR - The financial year of the Corporation shall terminate on
such date in each year as the directors may from time to time by resolution
determine.
ARTICLE 3
DIRECTORS
<PAGE>
3.1 POWER OF DIRECTORS - Subject to any unanimous shareholder agreement, the
directors shall manage or supervise the management of the business and affairs
of the Corporation.
3.2 NUMBER AND QUORUM -The Board of Directors shall consist of the number of
directors set out in the Articles of the Corporation or, where a minimum and
maximum number is provided for in the Articles, such number of directors as
shall be determined from time to time by special resolution or, if the special
resolution empowers the directors to determine the number, by resolution of the
directors. The quorum for the transaction of business at any meeting of the
Board shall consist of a majority of the number of directors.
3.3 QUALIFICATION - Each director shall be eighteen (18) or more years of age
and no person who is not an individual, who has the status of a bankrupt or who
is of unsound mind and has been so found by a court in Canada or elsewhere shall
be a director. A director need not be a shareholder.
3.4 RESIDENT CANADIANS - A majority of the directors shall be resident
Canadians, but where the Corporation has only one or two directors, that
director or one of the two directors, as the case may be, shall be a resident
Canadian.
3.5 ELECTION AND TERM - The election of directors shall take place at each
annual meeting of shareholders and all the directors then in office shall retire
but, if qualified, shall be eligible for re-election. The number of directors to
be elected at any such meeting shall be the number of directors then in office
unless the directors or shareholders shall have otherwise determined in
accordance with the Act. If an election of directors is not held at the proper
time, the incumbent directors shall continue in office until their successors
are elected.
3.6 REMOVAL OF DIRECTORS - Subject to the provisions of the Act, the
shareholders may by ordinary resolution passed at an annual or special meeting
of shareholders, remove any director or directors from office before the
expiration of his term of office and the vacancy created by such removal may be
filled at the same meeting failing which it may be filled by the directors.
3.7 VACANCIES - Vacancies among the directors shall be filled in compliance
with the Act.
3.8 VACATION OF OFFICE - The office of a director shall ipso facto be vacated:
(a) if he dies; (b) if he becomes bankrupt or suspends payment of his debts
generally or compounds with his creditors or makes an authorized assignment or
is declared insolvent; (c) if he is found to be of unsound mind or a mentally
incompetent person; or (d) subject to the provisions of the Act if by notice in
writing to the Corporation he resigns his office. Any such resignation shall be
effective at the time it is received by the Corporation or at the time specified
in the resignation, whichever is later.
3.9 COMMITTEE OF DIRECTORS - The directors may appoint from among their number
a committee of directors and, subject to the provisions of the Act, may delegate
to such committee any of the powers of the directors. A majority of the
directors of any such committee must be
<PAGE>
resident Canadians.
3.10 TRANSACTION OF BUSINESS - The powers of a committee of directors may be
exercised by a meeting at which a quorum is present or by resolution in writing
signed by all the members of such committee who would have been entitled to vote
on that resolution at a meeting of the committee. Meetings of such committee may
be held at any place within or outside Ontario.
3.11 PROCEDURE - Unless otherwise determined by the Board, each committee shall
have the power to fix its quorum at not less than a majority of its members, to
elect its Chairman and to regulate its procedure.
3.12 REMUNERATION OF DIRECTORS - The remuneration to be paid to the directors
shall be such as the Board shall from time to time determine and such
remuneration shall be in addition to the salary paid to any officer or employee
of the Corporation who is also a member of the Board. The directors may also
award special remuneration to any director undertaking any special services on
the Corporation's behalf other than the routine work ordinarily required of a
director by the Corporation and the confirmation of any such resolution or
resolutions by the shareholders shall not be required. The directors shall also
be entitled to be paid their traveling and other expenses properly incurred by
them in connection with the affairs of the Corporation.
3.13 DISCLOSURE OF INTEREST - Every director or officer of the Corporation who
is a party to a material contract or a proposed material contract with the
Corporation or who is the director or an officer of, or has a material interest
in, any person who is a party to a material contract, or a proposed material
contract, with the Corporation shall disclose the nature and extent of his
interest at the time and in the manner provided by the Act.
ARTICLE 4
MEETINGS OF DIRECTORS
4.1 NOTICE OF MEETING - Meetings of the Board shall be held from time to time
at such place, at such time and on such day as the Chairman of the Board, if
any, the President or any two directors may determine, and the Secretary shall
call meetings when so directed or so authorized. Notice of every meeting so
called shall be delivered or mailed or sent by telegram, telex, facsimile or
other electronic means to each director not less than forty-eight (48) hours
before the time when the meeting is to be held. No notice of a meeting shall be
necessary if all the directors are present or if those absent have waived notice
of or have otherwise signified their consent to the holding of such meeting.
4.2 FIRST MEETING OF NEW BOARD - For the first meeting of the Board to be held
immediately following the election of directors by the shareholders or for a
meeting of the Board at which a director is appointed to fill a vacancy in the
Board, no notice of such meeting shall be necessary to the newly elected or
appointed director or directors in order to legally constitute the meeting,
provided that a quorum of the directors is present.
<PAGE>
4.3 PLACE OF MEETING - Meetings of the Board and of a committee of directors
may be held at any place within or outside of Ontario and in any financial year
of the Corporation a majority of the meetings of the Board of Directors of the
Corporation need not be held within Canada.
4.4 MEETINGS BY TELEPHONE - If all the directors present at or participating in
a meeting consent, a meeting of the directors or of a committee of directors may
be held by means of such telephone, electronic or other communication facilities
as permit all persons participating in the meeting to communicate with each
other simultaneously and instantaneously, and a director participating in such a
meeting by such means shall be deemed to be present at the meeting. Any such
consent shall be effective whether given before or after the meeting to which it
relates. Any such consent shall be effective whether given before or after the
meeting to which it relates and may be given with respect to all meetings of the
Board and of committees of the Board held while a director holds office.
4.5 VOTING - At all meetings of the Board, every question shall be decided by a
majority of the votes cast. In case of an equality of votes the Chairman of the
meeting shall not be entitled to a second or casting vote in addition to his
original vote.
4.6 CHAIRMAN - The Chairman of the Board, if elected and present, and otherwise
the President, shall be Chairman of any meeting of the Board. If no such officer
is present the directors present shall choose one of their members to be
Chairman.
4.7 TRANSACTION OF BUSINESS BY SIGNATURE - A resolution in writing signed by
all the directors entitled to vote on that resolution at a meeting of directors
or a committee of directors is as valid as if it had been passed at a meeting of
directors or a committee of directors.
ARTICLE 5
OFFICERS
5.1 APPOINTMENT - The Board may annually, or more often as may be necessary,
appoint a Chairman of the Board, a Managing Director, a President, one or more
Vice-Presidents, a Secretary, a Treasurer and such other officers as the Board
may determine including one or more assistants to any of the officers so
appointed. None of the said officers, except the Chairman of the Board and the
Managing Director, need be a director. Any two of the said offices may be held
by the same person. If the same person holds the office of Secretary and
Treasurer, he may, but need not, be known as the Secretary-Treasurer. The Board
may from time to time appoint such other officers and agents as it shall deem
necessary who shall have such authority and shall perform such duties as may
from time to time be determined by the Board.
5.2 REMUNERATION AND REMOVAL - The terms of employment and remuneration of all
officers appointed by the Board (including the President) shall be determined,
or the manner of determination thereof provided for, from time to time by the
Board. The fact that any officer or employee is a director or shareholder of the
Corporation shall not disqualify him from receiving such remuneration as may be
determined. All officers, in the absence of agreement to the contrary, shall
<PAGE>
be subject to removal by the Board at any time, with or without cause.
5.3 CHAIRMAN OF THE BOARD - From time to time the Board may appoint a Chairman
of the Board who shall be a director. If so appointed, the Chairman of the Board
shall, if present, preside at all meetings of the Board and at all meetings of
shareholders. In addition, the Chairman of the Board shall be the chief
executive officer of the Corporation and shall have the same duties as the
President and he shall have such other powers and duties as the Board may
prescribe. During the absence or disability of the Chairman of the Board, his
duties shall be performed and his powers exercised by the Managing Director, if
any, or by the President.
5.4 MANAGING DIRECTOR - The Managing Director shall, if appointed, be a
resident Canadian and shall exercise such powers and have such authority as may
be delegated to him by the Board in accordance with the provisions of the Act.
During the absence or disability of the President, or if no President has been
appointed, the Managing Director shall also have the powers and duties of that
office.
5.5 PRESIDENT - The President shall have responsibility for the general
management and direction of the business and affairs of the Corporation, subject
to the authority of the Board. During the absence or disability of the Managing
Director, or if no Managing Director has been appointed, the President shall
also have the powers and duties of that office.
5.6 VICE-PRESIDENT - A Vice-President shall perform such duties and exercise
such powers as the President may from time to time delegate to him or as the
Board may prescribe.
5.7 SECRETARY - The Secretary shall give, or cause to be given, all notices
required to be given to shareholders, directors, auditors and members of
committees. He shall attend all meetings of the directors and of the
shareholders and shall enter or cause to be entered in books kept for that
purpose minutes of all proceedings at such meetings. He shall be the custodian
of all books, papers, records, documents and other instruments belonging to the
Corporation. He shall perform such other duties as may from time to time be
prescribed by the Board or the chief executive officer.
5.8 TREASURER - The Treasurer shall ensure that adequate accounting records are
prepared and maintained and shall keep, or cause to be kept, full and accurate
books of account in which shall be recorded all receipts and disbursements of
the Corporation and, subject to the direction of the Board, shall control the
deposit of money, the safekeeping of securities and the disbursement of funds of
the Corporation. He shall provide to the Board whenever required of him an
account of all his transactions as Treasurer and of the financial position of
the Corporation and he shall perform such other duties as may from time to time
be prescribed by the Board or the chief executive officer.
5.9 OTHER OFFICERS - The duties of all other officers of the Corporation shall
be such as the terms of their engagement call for or the Board requires of them.
Any of the powers and duties of an officer to whom an assistant has been
appointed may be exercised and performed by such assistant, unless the Board
otherwise directs.
5.10 VARIATION OF POWERS AND DUTIES - The Board may from time to time and
subject
<PAGE>
to the provisions of the Act, vary, add to or limit the powers and duties of any
officer.
5.11 TERM OF OFFICE - The Board, in its discretion, may remove any officer of
the Corporation, without prejudice to such officer's rights under any employment
contract. Otherwise each officer appointed by the Board shall hold office until
his successor is appointed.
ARTICLE 6
PROTECTION OF DIRECTORS AND OFFICERS AND OTHERS
6.1 LIMITATION OF LIABILITY - No director or officer shall be liable for the
acts, receipts, neglects or defaults of any other director or officer or
employee, or for joining in any receipt or other act for conformity, or for any
loss, damage or expense happening to the Corporation through the insufficiency
or deficiency of title to any property acquired for or on behalf of the
Corporation, or for the insufficiency or deficiency of any security in or upon
which any of the moneys of the Corporation shall be invested, or for any loss or
damage arising from the bankruptcy, insolvency or tortious acts of any person
with whom any of the moneys, securities or effects of the Corporation shall be
deposited, or for any loss occasioned by any error of judgment or oversight on
his part, or for any other loss, damage or misfortune whatever which shall
happen in the execution of the duties of his office or in relation thereto,
unless the same are occasioned by his own wilful neglect or default; providing
that nothing herein shall relieve any director or officer from the duty to act
in accordance with the Act and the regulations thereunder or from liability for
any breach thereof.
6.2 INDEMNITY - Subject to the limitations contained in the Act, the
Corporation shall indemnify a director or officer, a former director or officer,
or a person who acts or acted at the Corporation's request as a director or
officer of a body corporate of which the Corporation is or was a shareholder or
creditor (or a person who undertakes or has undertaken any liability on behalf
of the Corporation or any such body corporate) and his heirs and legal
representatives, against all costs, charges and expenses, including an amount
paid to settle an action or satisfy a judgment, reasonably incurred by him in
respect of any civil, criminal or administrative action or proceeding to which
he is made a party by reason of being or having been a director or officer of
the Corporation or such body corporate, if
(a) he acted honestly and in good faith with a view to the best
interests of the Corporation; and
(b) in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he had reasonable grounds
for believing that his conduct was lawful.
6.3 INSURANCE - Subject to the limitations contained in the Act, the
Corporation may purchase and maintain such insurance for the benefit of its
directors and officers as such, as the Board may from time to time determine.
ARTICLE 7
<PAGE>
MEETINGS OF SHAREHOLDERS
7.1 ANNUAL MEETING - The annual meeting of shareholders shall be held on such
day in each year and at such time and place in or outside Ontario as the
directors may determine for the purpose of hearing and receiving the reports and
statements required by the Act to be placed before the shareholders at any
annual meeting, electing directors, appointing auditors (unless the Corporation
is exempted from appointing auditors) and fixing or authorizing the Board of
Directors to fix their remuneration and for the transaction of such other
business as may properly be brought before the meeting.
7.2 SPECIAL MEETINGS - The Board, the Chairman of the Board, the Managing
Director, the President or a Vice-President who is a director shall have the
power at any time to call a special meeting of the shareholders of the
Corporation to be held at any time and place in or outside Ontario.
The phrase "meeting of shareholders" wherever it occurs in this by-law
shall mean and include an annual meeting of shareholders, a special meeting of
shareholders and any meeting of any class or classes of shareholders.
7.3 PLACE OF MEETINGS. Meetings of shareholders shall be held at the registered
office of the Corporation or elsewhere in the municipality in which the
registered office is situate or, if the Board shall so determine, at some other
place in or outside Canada.
7.4 NOTICE - Notice of the time and place of each meeting of shareholders shall
be given not less than ten (10) days nor more than fifty (50) days before the
day on which the meeting is to be held, to the auditor (if any), the directors
and to each shareholder entitled to vote at the meeting. Notice of a special
meeting of shareholders shall state the nature of the business to be transacted
in sufficient detail to permit the shareholders to form a reasoned judgment and
shall state the text of any special resolution to be submitted to the meeting.
A meeting of shareholders may be held at any time without notice if all of the
shareholders entitled to vote thereat are present or represented by proxy and do
not object to the holding of the meeting or those not so present or represented
by proxy have waived notice, if the auditor (if any) and the directors are
present or have waived notice of or otherwise consent to such meeting being
held.
7.5 OMISSION OF NOTICE - The accidental omission to give notice of any meeting
or the non-receipt of any notice by any shareholder or shareholders, by any
director or directors or by the auditor of the Corporation shall not invalidate
any resolution passed or any proceedings taken at any meeting of shareholders.
7.6 LIST OF SHAREHOLDERS ENTITLED TO NOTICE - For every meeting of
shareholders, the Corporation shall prepare a list of shareholders entitled to
receive notice of the meeting, arranged in alphabetical order and showing the
number of shares held by each shareholder entitled to vote at the meeting. If a
record date for the meeting is fixed pursuant to section 7.7, the shareholders
listed shall be those registered at the close of business on that record date.
If no record date is fixed, the shareholders listed shall be those registered at
the close of business on the day immediately preceding the day on which notice
of the meeting is given or, where no such notice is
<PAGE>
given, on the day on which the meeting is held. The list shall be available for
examination by any shareholder during usual business hours at the registered
office of the Corporation or at the place where the central securities register
is maintained and at the meeting for which the list was prepared. Where a
separate list of shareholders has not been prepared, the names of persons
appearing in the securities register at the requisite time as the holder of one
or more shares carrying the right to vote at such a meeting shall be deemed to
be a list of shareholders.
7.7 RECORD DATE FOR NOTICE - The Board may fix in advance a date, preceding the
date of any meeting of shareholders by not more than fifty (50) days and not
less than 21 days, as a record date for the determination of the shareholders
entitled to notice of the meeting, and notice of any such record date shall be
given not less than seven (7) days before the record date, by newspaper
advertisement in the manner provided in the Act. If no such record date is so
fixed, the record date for the determination of the shareholders entitled to
receive notice of the meeting shall be at the close of business on the day
preceding the day on which the notice is given or, if no notice is given, shall
be the day on which the meeting is held.
7.8 CHAIRMAN, SECRETARY AND SCRUTINEERS - The Chairman of any meeting of
shareholders shall be the first mentioned of such of the following officers as
have been appointed and who is present at the meeting: Chairman of the Board,
President, Managing Director, or a Vice-President who is a shareholder. If no
such officer is present within fifteen (15) minutes from the time fixed for
holding the meeting, the persons present and entitled to vote shall choose one
of their number to be Chairman. Notwithstanding the foregoing, the person
designated to act as Chairman of a meeting of shareholders pursuant to the first
sentence of this section 7.8 shall have the right to appoint any person, who
need not be a shareholder, to act as Chairman of such meeting in his place and
stead. If the Secretary of the Corporation is absent, the Chairman shall appoint
some person, who need not be a shareholder, to act as secretary of the meeting.
If desired, one or more scrutineers, who need not be shareholders, may be
appointed by a resolution or by the Chairman with the consent of the meeting.
7.9 PERSONS ENTITLED TO BE PRESENT - The only persons entitled to attend a
meeting of shareholders shall be those entitled to vote thereat, the directors
of the Corporation, the auditor of the Corporation (if any) and others who
although not entitled to vote are entitled or required under the provisions of
the Act or by-laws of the Corporation to be present at the meeting. Any other
person may be admitted only on the invitation of the Chairman of the meeting or
with the consent of the meeting.
7.10 QUORUM - Subject to the Act, a quorum for the transaction of business at
any meeting of shareholders shall be two persons present in person, each being a
shareholder entitled to vote at the meeting or a duly appointed proxyholder or
representative for a shareholder so entitled. If a quorum is present at the
opening of any meeting of shareholders, the shareholders present or represented
may proceed with the business of the meeting even if a quorum is not present
throughout the meeting. If a quorum is not present at the time appointed for the
meeting or within a reasonable time thereafter that the shareholders may
determine, the shareholders present or represented may adjourn the meeting to a
fixed time and place but may not transact any other business.
<PAGE>
7.11 RIGHT TO VOTE - Subject to the provisions of the Act as to authorized
representatives of any other body corporate, at any meeting of shareholders in
respect of which the Corporation has prepared the list referred to in section
7.6, every person who is named in such list shall be entitled to vote the shares
shown thereon opposite his name except, where the Corporation has fixed a record
date in respect of such meeting pursuant to section 7.7, to the extent that such
person has transferred any of his shares after such record date and the
transferee, upon producing properly endorsed certificates evidencing such shares
or otherwise establishing that he owns such shares, demands not later than ten
(10) days before the meeting that his name be included to vote the transferred
shares at the meeting. In the absence of a list prepared as aforesaid in
respect of a meeting of shareholders, every person shall be entitled to vote at
the meeting who at the time is entered in the securities register as the holder
of one or more shares carrying the right to vote at such meeting.
7.12 REPRESENTATIVES - An executor, administrator, committee of a mentally
incompetent person, guardian or trustee and where a corporation is such
executor, administrator, committee of a mentally incompetent person, guardian or
trustee, any person duly appointed a proxy for such corporation, upon filing
with the secretary of the meeting sufficient proof of his appointment, shall
represent the shares in his or its hands at all meetings of the shareholders of
the Corporation and may vote accordingly as a shareholder in the same manner and
to the same extent as the shareholder of record.
7.13 PROXIES - Every shareholder entitled to vote at a meeting of shareholders
may appoint a proxyholder, or one or more alternate proxyholders, who need not
be shareholders, to attend and act at the meeting in the manner and to the
extent authorized and with the authority conferred by the proxy. A proxy shall
be in writing executed by the shareholder or his attorney and shall conform with
the requirements of the Act.
7.14 TIME FOR DEPOSIT OF PROXIES - The Board may specify in a notice calling a
meeting of shareholders a time, preceding the time of such meeting by not more
than forty-eight (48) hours exclusive of Saturdays and holidays, before which
time proxies to be used at such meeting must be deposited. A proxy shall be
acted upon only if, prior to the time so specified, it shall have been deposited
with the Corporation or an agent thereof specified in such notice or, if no such
time is specified in such notice, unless it has been received by the Secretary
of the Corporation or by the Chairman of the meeting or any adjournment thereof
prior to the time of voting.
7.15 JOINT SHAREHOLDERS - If two (2) or more persons hold shares jointly, any
one of them present in person or represented by proxy at a meeting of
shareholders may, in the absence of the other or others, vote the shares; but if
two (2) or more of those persons are present in person or represented by proxy
and vote, they shall vote as one on the shares jointly held by them.
7.16 VOTES TO GOVERN. At all meetings of shareholders every question shall be
determined by a majority of the votes cast on the question, unless otherwise
required by the Articles or by-laws or by the Act. In the case of an equality of
votes at any meeting of shareholders, either upon a show of hands or upon a
poll, the Chairman of the meeting shall not be entitled to a second or casting
vote in addition to the vote or votes to which he may be entitled as a
shareholder.
<PAGE>
7.17 SHOW OF HANDS - Subject to the provisions of the Act, any question at a
meeting of shareholders shall be decided by a show of hands unless a poll
thereon is required or demanded. Upon a show of hands, every shareholder present
in person or represented by proxy and entitled to vote shall have one vote.
Whenever the vote by show of hands shall have been taken upon a question, a
declaration by the Chairman of the meeting that the vote upon the question has
been carried or carried by a particular majority or not carried and an entry to
that effect in the minutes of the meeting shall be prima facie evidence of the
fact without proof of the number or proportion of the votes recorded in favour
of or against any resolution or other proceedings in respect of the question and
the result of the vote so taken shall be the decision of the shareholders upon
the said question.
7.18 POLLS - If a poll is required by the Chairman of the meeting, or is
demanded by any shareholder who is present in person or represented by proxy and
entitled to vote on the question (whether the poll is required or demanded
either before or after a vote has been taken upon the question by a show of
hands), and such requirement or demand is not withdrawn, a poll upon the
question shall be taken by ballot or in such other manner as the Chairman of the
meeting may direct. Upon a poll, each shareholder who is present or represented
by proxy shall (subject to the provisions, if any, of the Articles of the
Corporation) be entitled to one vote for each share in respect of which he is
entitled to vote on the question. A demand for a poll may be withdrawn.
7.19 ADJOURNMENT- The Chairman at a meeting of the shareholders may, with the
consent of the meeting and subject to such conditions as the meeting may decide,
adjourn the meeting from time to time to a fixed time and place. If a meeting of
shareholders is adjourned for less than thirty (30) days no notice of the
adjourned meeting need be given to the shareholders. If a meeting of
shareholders is adjourned by one or more adjournments for thirty (30) days or
more, notice of the adjourned meeting shall be given as for an original meeting.
7.20 RESOLUTION IN WRITING - Subject to the provisions of the Act, a resolution
in writing signed by all the shareholders entitled to vote on that resolution at
a meeting of shareholders is as valid and effective as if passed at a meeting of
the shareholders duly called, constituted and held for that purpose.
ARTICLE 8
SHARES AND TRANSFERS
8.1 ALLOTMENT AND ISSUE - Subject to the provisions of the Act, shares in
the capital of the Corporation may be allotted and issued by the Board at
such times and on such terms and conditions and to such persons or class of
persons as the Board determines.
8.2 PAYMENT OF COMMISSIONS - The Board may authorize the Corporation to pay a
commission to any persons in consideration of their purchasing or agreeing to
purchase shares of the Corporation, or procuring or agreeing to procure
purchasers for such shares.
8.3 REGISTRATION OF TRANSFER - Subject to the provisions of the Act, no
transfer of
<PAGE>
shares shall be registered in a securities register except upon presentation of
the certificate representing such shares with a transfer endorsed thereon or
delivered therewith duly executed by the registered holder or by his attorney or
successor duly appointed, together with such reasonable assurance or evidence of
signature, identification and authority to transfer as the Board may from time
to time prescribe, upon payment of all applicable taxes and any fees prescribed
by the Board, upon compliance with such restrictions on transfer as are
authorized by the Articles and upon satisfaction of any lien referred to in
section 8.7.
8.4 SHARE CERTIFICATES - Every holder of one or more shares of the Corporation
shall be entitled, at his option, to a share certificate, or to a non-
transferable written acknowledgment of his right to obtain a share certificate,
stating the number and class or series of shares held by him as shown on the
securities register. Share certificates and acknowledgments of a shareholder's
right to a share certificate, respectively, shall be in such form as the Board
shall from time to time approve. Any share certificate shall be signed in
accordance with section 14.2; provided that, unless the Board otherwise
determines, certificates representing shares in respect of which a transfer
agent and/or registrar has been appointed shall not be valid unless
countersigned by or on behalf of such transfer agent and/or registrar. A share
certificate shall be signed manually by at least one director or officer of the
Corporation or by or on behalf of the transfer agent and/or registrar. Any
additional signatures required may be printed or otherwise mechanically
reproduced. A share certificate executed as aforesaid shall be valid
notwithstanding that any of the directors or officers whose facsimile signature
appears thereon no longer holds office at the date of issue of the certificate.
8.5 TRANSFER AGENT AND REGISTRAR - The directors may from time to time by
resolution appoint or remove one or more transfer agents and/or branch transfer
agents and/or registrars and/or branch registrars (which may or may not be the
same individual or body corporate) for the securities issued by the Corporation
in registered form (or for such securities of any class or classes) and may
provide for the registration of transfers of such securities (or such securities
of any class or classes) in one or more places and such transfer agents and/or
branch transfer agents and/or registrars and/or branch registrars shall keep all
necessary books and registers of the Corporation for the registering of such
securities (or such securities of the class or classes in respect of which any
such appointment has been made). In the event of any such appointment in respect
of the shares (or the shares of any class or classes) of the Corporation, all
share certificates issued by the Corporation in respect of the shares (or the
shares of the class or classes in respect of which any such appointment has been
made) of the Corporation shall be countersigned by or on behalf of one of the
said transfer agents and/or branch transfer agents or by or on behalf of one of
the said registrars and/or branch registrars, if any.
8.6 LIEN FOR INDEBTEDNESS - The Corporation has a lien on a share registered in
the name of a shareholder or his legal representative for a debt of that
shareholder to the Corporation.
8.7 ENFORCEMENT OF LIEN - The lien referred to in the preceding section may be
enforced by any means permitted by law and:
(a) where the share or shares are redeemable pursuant to the Articles
of the Corporation by redeeming such share or shares and applying
the redemption price to the debt;
<PAGE>
(b) subject to the Act, by purchasing the share or shares for
cancellation for a price equal to the book value of such share or
shares and applying the proceeds to the debt;
(c) by selling the share or shares to any third party whether or not
such party is at arms length to the Corporation, and including,
without limitation, any officer or director of the Corporation for
the best price which the directors consider to be obtainable for
such share or shares; or
(d) by refusing to register a transfer of such share or shares until
the debt is paid.
8.8 NON-RECOGNITION OF TRUSTS - The Corporation shall be entitled to treat the
registered holder of any share as the absolute owner thereof and accordingly
shall not, except as ordered by a court of competent jurisdiction or as required
by statute, be bound to see to the execution of any trust, whether express,
implied or constructive, in respect of any share or to recognize any such claim
to or interest in such share on the part of any person other than the registered
holder thereof.
8.9 LOST CERTIFICATES - The Board or any officer or agent designated by the
Board may in its or his discretion direct the issue of a new share certificate
in lieu of and upon cancellation of a share certificate that has been mutilated
or in substitution for a share certificate that has been lost, apparently
destroyed or wrongfully taken on such terms as to indemnity, reimbursement of
expenses and evidence of loss and of title as the Board may from time to time
prescribe, whether generally or in any particular case.
8.10 JOINT SHAREHOLDERS - If two (2) or more persons are registered as joint
holders of any share, the Corporation shall not be bound to issue more than one
certificate in respect thereof, and delivery of such certificate to one of such
persons shall be sufficient delivery to all of them. Any one of such persons may
give effectual receipts for the certificate issued in respect thereof or for any
dividend, bonus, return of capital or other money payable or warrant issuable in
respect of such share.
8.11 DECEASED SHAREHOLDERS - In the event of the death of a holder of any share,
the Corporation shall not be required to make any entry in the register of
shareholders in respect thereof or to make payment of any dividends thereon
except upon production of all such documents as may be required by law and upon
compliance with the reasonable requirements of the Corporation and its transfer
agent. Where shares are issued to joint holders, upon satisfactory proof of the
death of one joint holder, the Corporation may treat the surviving joint/holder
or holders as the issuer of the shares.
ARTICLE 9
VOTING SHARES IN OTHER COMPANIES
9.1 All of the shares or other securities carrying voting rights of any other
body corporate held from time to time by the Corporation may be voted at any and
all meetings of shareholders,
<PAGE>
bondholders, debenture holders or holders of other securities (as the case may
be) of such other body corporate and in such manner and by such person or
persons as the Board shall from time to time determine. The proper signing
officers of the Corporation may also from time to time execute and deliver for
and on behalf of the Corporation proxies and/or arrange for the issuance of
voting certificates and/or other evidence of the right to vote in such names as
they may determine without the necessity of a resolution or other action by the
Board.
ARTICLE 10
INFORMATION AVAILABLE TO SHAREHOLDERS
10.1 DISCOVERY OF INFORMATION - Except as provided by the Act, no shareholder
shall be entitled to discovery of any information respecting any details of
conduct of the Corporation's business which in the opinion of the directors it
would be inexpedient in the interests of the Corporation to communicate to the
public.
10.2 INSPECTION OF RECORDS - The directors may from time to time, subject to
rights conferred by the Act, determine whether and to what extent and at what
time and place and under what conditions or regulations the documents, books and
registers and accounting records of the Corporation or any of them shall be open
to the inspection of shareholders and no shareholder shall have any right to
inspect any document or book or register or accounting record of the Corporation
except as conferred by statute or authorized by the Board or by a resolution of
the shareholders.
ARTICLE 11
DIVIDENDS
11.1 DECLARATION - Subject to the provisions of the Act, the Board may from time
to time declare dividends payable to the shareholders according to their
respective rights and interests in the Corporation. Dividends may be paid in
money or property or by issuing fully paid shares of the Corporation.
11.2 PAYMENT - A dividend payable in cash shall be paid by cheque drawn on the
Corporation's bankers or one of them to the order of each registered holder of
shares of the class in respect of which it has been declared, and delivered or
mailed by ordinary mail postage prepaid to such registered holder at his last
address appearing on the records of the Corporation. In the case of joint
holders the cheque shall, unless such joint holders otherwise direct, be made
payable to the order of all of such joint holders and if more than one address
appears on the books of the Corporation in respect of such joint holding the
cheque shall be mailed to the first address so appearing. The mailing of such
cheque as aforesaid shall satisfy and discharge all liability for the dividend
to the extent of the sum represented thereby, unless such cheque is not paid on
presentation.
11.3 NON-RECEIPT OF CHEQUES - In the event of non-receipt of any dividend cheque
by the person to whom it is sent as aforesaid, the Corporation shall issue to
such person a replacement cheque for a like amount on such terms as to
indemnity, reimbursement of expenses and evidence
<PAGE>
of non-receipt and of title as the Board may from time to time prescribe,
whether generally or in any particular case.
ARTICLE 12
NOTICES
12.1 SERVICE - Any notice (which term includes any communication or document) to
be given (which term includes sent, delivered or served) pursuant to the Act,
the regulations thereunder, the Articles, the by-laws or otherwise to a
shareholder, director, officer, auditor or member of a committee of the Board
shall be sufficiently given if delivered personally to the person to whom it is
to be given or if delivered to his recorded address or if mailed to him at his
recorded address by prepaid ordinary or air mail or if sent to him at his
recorded address by any means of prepaid transmitted or recorded communications.
A notice so delivered shall be deemed to have been given when it is delivered
personally or to the recorded address as aforesaid; a notice so mailed shall be
deemed to have been given when deposited in a post office or public letter box
and shall be deemed to have been received on the fifth day after mailing, and a
notice so sent by any means of transmitted or recorded communication shall be
deemed to have been given when dispatched or delivered to the appropriate
communication company or agency or its representative for dispatch. The
Secretary may change or cause to be changed the recorded address of any
shareholder, director, officer, auditor or member of a committee of the Board in
accordance with any information believed by him to be reliable. The recorded
address of a director shall be his latest address as shown in the records of the
Corporation or in the most recent notice filed under the Corporations
Information Act, whichever is the more current.
12.2 SHARES REGISTERED IN SEVERAL NAMES - All notices or other documents with
respect to any shares registered in more than one name shall be given to
whichever of such persons is named first in the records of the Corporation and
any notice or other document so given shall be sufficient notice to all the
holders of such shares.
12.3 ENTITLEMENT BY OPERATION OF LAW - Subject to the provisions of the Act,
every person who by operation of law, transfer or by any other means whatsoever
shall become entitled to any share or shares shall be bound by every notice or
other document in respect of such share or shares which previous to his name and
address being entered on the books of the Corporation shall be duly given to the
person or persons from whom he derives his title to such share or shares.
12.4 NOTICE DECEASED SHAREHOLDERS - Any notice or other document delivered or
sent by post or left at the address of any shareholder as the same appears in
the records of the Corporation shall, notwithstanding that such shareholder be
then deceased, and whether or not the Corporation has notice of his decease, be
deemed to have been duly served in respect of the shares held by such
shareholder (whether held solely or with any other person or persons) until some
other person be entered in his stead in the records of the Corporation as the
holder or one of the holders thereof and such service shall for all purposes be
deemed a sufficient service of such notice or document on his heirs, executors
or administrators and on all persons, if any, interested through him or with him
in such shares.
<PAGE>
12.5 SIGNATURE TO NOTICES - The signature of any director or officer of the
Corporation to any notice or document to be given by the Corporation may be
written, stamped, typewritten or printed or partly written, stamped, typewritten
or printed.
12.6 COMPUTATION OF TIME - In computing the date when notice must be given under
any provision requiring a specified number of days notice of any meeting or
other event, the date of giving the notice shall be included and the date of the
meeting or other event shall not be included.
12.7 OMISSIONS AND ERRORS - The accidental omission to give any notice to any
shareholder, director, officer, auditor or member of a committee of the Board or
the non-receipt of any notice by any such person or any error in any notice not
affecting the substance thereof shall not invalidate any action taken at any
meeting held pursuant to such notice or otherwise founded thereon.
12.8 PROOF OF SERVICE- With respect to every notice or other document sent by
post it shall be sufficient to prove that the envelope or wrapper containing the
notice or other document was properly addressed as provided in this by-law and
put into a Post Office or into a public letter box. A certificate of an officer
of the Corporation in office at the time of the making of the certificate or an
officer of any transfer agent or branch transfer agent of shares of any class of
the Corporation as to the facts in relation to the mailing or delivery of any
notice or other document to any shareholder, director, officer or auditor or
publication of any notice or other document shall be conclusive evidence thereof
and shall be binding on every shareholder, director, officer or auditor of the
Corporation as the case may be.
12.9 WAIVER OF NOTICE - Any shareholder (or his duly appointed proxyholder),
director, officer, auditor or member of a committee of the Board may at any time
waive any notice, or waive or abridge the time for any notice, required to be
given to him under any provisions of the Act, the regulations thereunder, the
Articles, the by-laws or otherwise and such waiver or abridgement shall cure any
default in the giving or in the time of such notice, as the case may be. Any
such waiver or abridgement shall be in writing except a waiver of notice of a
meeting of shareholders or of the Board which may be given in any manner.
ARTICLE 13
CUSTODY OF SECURITIES
13.1 SAFEKFFPING - All shares and securities owned by the Corporation shall be
lodged (in the name of the Corporation) with a chartered bank or a trust company
or in a safety deposit box or, if so authorized by the Board, with such other
depositories or in such other manner as may be determined from time to time by
the Board.
13.2 NOMINEES - All share certificates, bonds, debentures, notes or other
obligations or securities belonging to the Corporation may be issued or held in
the name of a nominee or nominees of the Corporation (and if issued or held in
the names of more than one nominee shall be held in the names of the nominees
jointly with the right of survivorship) and may be endorsed in blank with
<PAGE>
endorsement guaranteed in order to enable transfer to be completed and
registration to be effected.
ARTICLE 14
EXECUTION OF INSTRUMENTS
14.1 CHEQUES, DRAFTS AND NOTES - All cheques, drafts or orders for the payment
of money and all notes and acceptances and bills of exchange shall be signed by
such officer or officers or person or persons, whether or not officers of the
Corporation, and in such manner as the Board may from time to time designate.
14.2 CONTRACTS, DOCUMENTS OR OTHER INSTRUMENTS - Contracts, documents or
instruments in writing requiring the signature of the Corporation may be signed
by the President and Chairman of the Board or any office created by by-law or
resolution of the Board. All contracts, documents and instruments in writing so
signed shall be binding upon the Corporation without any further authorization
or formality. The Board shall have power from time to time by resolution to
appoint any officer or officers or any person or persons on behalf of the
Corporation either to sign contracts, documents and instruments in writing
generally or to sign specific contracts, documents or instruments in writing.
In particular, without limiting the generality of the foregoing, the
officer or officers or the person or persons hereinbefore set out shall have
authority to sell, assign, transfer, exchange, convert or convey any and all
shares, stocks, bonds, debentures, rights, warrants or other securities owned by
or registered in the name of the Corporation and to sign and execute (under the
seal of the Corporation or otherwise) all assignments, transfers, conveyances,
powers of attorney and other instruments that may be necessary for the purpose
of selling, assigning, transferring, exchanging, converting or conveying any
such shares, stocks, bonds, debentures, rights, warrants or other securities.
The term "contracts, documents or instruments in writings" as used in this
by-law shall include deeds, mortgages, hypothecs, charges, conveyances,
transfers and assignments of property, real or personal, immovable or movable,
agreements, releases, receipts and discharges for the payment of money or other
obligations, conveyances, transfers and assignments of shares, share warrants,
stocks, bonds, debentures or other securities and all paper writings.
14.3 SEALING OF CONTRACTS - The seal (if any) of the Corporation may when
required be affixed to contracts, documents and instruments in writing signed as
aforesaid or by any officer or officers, person or persons, appointed as
aforesaid by resolution by the Board.
ENACTED October 1st, 1997.
______________________________ _________________________________
Chairman - Alan Fine President - Sidney Ackerman
<PAGE>
EXHIBIT 4.1
Option to Purchase
62,500 Units (each Unit consisting of two Shares of Common Stock and
two Class A Redeemable Common Stock Purchase Warrants)
ROSEDALE DECORATIVE PRODUCTS INC.
PURCHASE OPTION
Dated: _____ __, 1998
THIS CERTIFIES that Fin-Atlantic Securities, Inc., 33 N.E. 2nd Street, Ft.
Lauderdale, Florida (hereinafter sometimes referred to as the "Holder"), is
entitled to purchase from ROSEDALE DECORATIVE PRODUCTS INC. (hereinafter
referred to as the "Company"), at the prices and during the periods as
hereinafter specified, up to 62,500 Units ("Units"), each unit consisting of two
(2) shares of Common Stock ("Common Stock"), and two (2) Class A Redeemable
Common Stock Purchase Warrants ("Warrants"). Each Warrant entitles the
registered holder thereof to purchase one (1) share of Common Stock at an
exercise price of $4.50 per share. The Warrants are exercisable for a three
year period, commencing ______ __, 1999 (one (1) year from the Effective Date).
Hereinafter, shares of Common Stock and Warrants shall be referred to as an
"Option Securities" or "Securities."
The Securities have been registered under a Registration Statement on
Form SB-2 (File No. 333-_____) declared effective by the Securities and Exchange
Commission on _____ __, 1998 (the "Registration Statement"). This Option (the
"Option") to purchase the Securities was originally issued pursuant to an
Underwriting Agreement between the Company and Fin-Atlantic Securities, Inc. as
underwriter (the "Underwriter"), in connection with a public offering of 625,000
Units, each Unit consisting of two (2) shares of Common Stock and two Warrants
(collectively, the "Public Securities") through the Underwriter, in
consideration of $10 received for the Option.
Except as specifically otherwise provided herein, the Units, Common Stock
and the Warrants issued pursuant to this Option shall bear the same terms and
conditions as described under the caption "Description of Securities" in the
Registration Statement, and the Warrants shall be governed by the terms of the
Warrant Agreement dated as of _______, 1998, executed in connection with such
public offering (the "Warrant Agreement"), except that the holder shall have
registration rights under the Securities Act of 1933, as amended (the "Act"),
for the Option, the Common Stock and the Warrants included in the Option, and
the shares of Common Stock underlying the Warrants, as more fully described in
paragraph 6 of this Option. In the event of any reduction of the exercise price
of the Warrants included in the Public Securities, the same changes to the
Warrants included in the Option and the components thereof shall be
simultaneously effected.
<PAGE>
1. The rights represented by this Option shall be exercised at the
prices, subject to adjustment in accordance with paragraph 8 of this Option, and
during the periods as follows:
(a) Between ______ __, 1999 (one (1) year from the Effective Date)
and ____ __, 2003, inclusive, the Holder shall have the option to purchase Units
at a price of $9.60 Unit, subject to adjustment pursuant to paragraph 8 hereof
(the "Exercise Price").
(b) After _____ __, 2003, the Holder shall have no right to purchase
any Units hereunder.
2. The rights represented by this Option may be exercised at any time
within the period above specified, in whole or in part, by (i) the surrender of
this Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company); (ii) payment to the Company
of the Exercise Price then in effect for the number of Option Securities
specified in the above-mentioned purchase form together with applicable stock
transfer taxes, if any; and (iii) delivery to the Company of a duly executed
agreement signed by the person(s) designated in the purchase form to the effect
that such person(s) agree(s) to be bound by the provisions of paragraph 6 and
subparagraphs (b), (c) and (d) of paragraph 7 hereof. This Option shall be
deemed to have been exercised, in whole or in part to the extent specified,
immediately prior to the close of business on the date this Option is
surrendered and payment is made in accordance with the foregoing provisions of
this paragraph 2, and the person or persons in whose name or names the
certificates for Units shall be issuable upon such exercise shall become the
holder or holders of record of such Units at that time and date. The Units and
the certificates for the Units so purchased shall be delivered to the Holder
within a reasonable time, not exceeding ten (10) days, after the rights
represented by this Option shall have been so exercised.
3. This Option shall not be transferred, sold, assigned, or hypothecated
for a period of one (1) year from the Effective Date, except that it may be
transferred to successors of the Holder, and may be assigned in whole or in part
to any person who is an officer of the Holder or selling group member of the
offering during such period. Any transfer after one (1) year must be
accompanied with an immediate exercise of the Option and, if not exercised
immediately upon such transfer, the Option shall lapse. Any such assignment
shall be effected by the Holder (i) executing the form of assignment at the end
hereof and (ii) surrendering this Option for cancellation at the office or
agency of the Company referred to in paragraph 2 hereof, accompanied by a
certificate (signed by an officer of the Holder if the Holder is a corporation),
stating that each transferee is a permitted transferee under this paragraph 3
hereof; whereupon the Company shall issue, in the name or names specified by the
Holder (including the Holder) a new Option or Options of like tenor and
representing in the aggregate rights to purchase the same number of Option
Securities as are purchasable hereunder.
4. The Company covenants and agrees that all shares of Common Stock which
may be issued as part of the Option Securities purchased hereunder and the
Common Stock which may be
2
<PAGE>
issued upon exercise of the Warrants will, upon issuance, be duly and validly
issued, fully paid and nonassessable. The Company further covenants and agrees
that during the periods within which this Option may be exercised, the Company
will at all times have authorized and reserved a sufficient number of shares of
its Common Stock to provide for the exercise of this Option and that it will
have authorized and reserved a sufficient number of shares of Common Stock for
issuance upon exercise of the Warrants included in the Option Securities.
5. This Option shall not entitle the Holder to any voting, dividend, or
other rights as a stockholder of the Company.
6. (a) During the period set forth in paragraph l(a) hereof, the Company
shall advise the Holder or its transferee, whether the Holder holds the Option
or has exercised the Option and holds Option Securities or any of the securities
underlying the Option Securities, by written notice at least 20 days prior to
the filing of any post-effective amendment to the Registration Statement or of
any new registration statement or post-effective amendment thereto under the Act
covering any securities of the Company, for its own account or for the account
of others (other than a registration statement on Form S-4 or S-8 or any
successor forms thereto), and will for a period of five years from the effective
date of the Registration Statement, upon the request of the Holder within 10
days of the receipt of the Company's notice, include in any such post-effective
amendment or registration statement, such information as may be required to
permit a public offering of the Option, all or any of the Common Stock or
Warrants, or the Common Stock issuable upon the exercise of the Warrants (the
"Registrable Securities"). The Company shall supply prospectuses and such other
documents as the Holder may request in order to facilitate the public sale or
other disposition of the Registrable Securities, use its best efforts to
register and qualify any of the Registrable Securities for sale in such states
as such Holder designates provided that the Company shall not be required to
qualify as a foreign corporation or a dealer in securities or execute a general
consent to service of process in any jurisdiction in any action and do any and
all other acts and things which may be reasonably necessary or desirable to
enable such Holders to consummate the public sale or other disposition of the
Registrable Securities, and furnish indemnification in the manner provided in
paragraph 7 hereof. The Holder shall furnish information and indemnification as
set forth in paragraph 7 except that the maximum amount which may be recovered
from the Holder shall be limited to the amount of proceeds received by the
Holder from the sale of the Registrable Securities. The Company shall use its
best efforts to cause the managing underwriter or underwriters of a proposed
underwritten offering to permit the holders of Registrable Securities requested
to be included in the registration to include such securities in such
underwritten offering on the same terms and conditions as any similar securities
of the Company included therein. Notwithstanding the foregoing, if the managing
underwriter or underwriters of such offering advises the holders of Registrable
Securities that the total amount of securities which they intend to include in
such offering is such as to materially and adversely affect the success of such
offering, then the amount of securities to be offered for the accounts of
holders of Registrable Securities shall be eliminated, reduced, or limited to
the extent necessary to reduce the total amount of securities to be included in
such offering to the amount, if any, recommended by such managing underwriter or
underwriters (any such reduction or limitation in the total amount of
Registrable Securities to be included in such offering to be borne by the
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<PAGE>
holders of Registrable Securities proposed to be included therein pro rata).
The Holder will pay its own legal fees and expenses and any underwriting
discounts and commissions on the securities sold by such Holder and shall not be
responsible for any other expenses of such registration.
(b) If any 50% holder (as defined below) shall give notice to the
Company at any time during the period set forth in paragraph l(a) hereof to the
effect that such holder desires to register under the Act this Option or any of
the underlying securities contained in the Option Securities underlying the
Option under such circumstances that a public distribution (within the meaning
of the Act) of any such securities will be involved then the Company will
promptly, but no later than 60 days after receipt of such notice, file a post-
effective amendment to the current Registration Statement or a new registration
statement pursuant to the Act, to the end that the Option and/or any of the
Securities underlying the Option Securities may be publicly sold under the Act
as promptly as practicable thereafter and the Company will use its best efforts
to cause such registration to become and remain effective for a period of 120
days (including the taking of such steps as are reasonably necessary to obtain
the removal of any stop order); provided that such holder shall furnish the
Company with appropriate information in connection therewith as the Company may
reasonably request in writing. The 50% holder (which for purposes hereof shall
mean any direct or indirect transferee of such holder) may, at its option,
request the filing of a post-effective amendment to the current Registration
Statement or a new registration statement under the Act with respect to the
Registrable Securities on only one occasion during the term of this Option. The
Holder may at its option request the registration of the Option and/or any of
the securities underlying the Option in a registration statement made by the
Company as contemplated by Section 6(a) or in connection with a request made
pursuant to this Section 6(b) prior to acquisition of the Securities issuable
upon exercise of the Option and even though the Holder has not given notice of
exercise of the Option. The 50% holder may, at its option, request such
post-effective amendment or new registration statement during the described
period with respect to the Option or separately as to the Common Stock and/or
Warrants included in the Option and/or the Common Stock issuable upon the
exercise of the Warrants, and such registration rights may be exercised by the
50% holder prior to or subsequent to the exercise of the Option. Within ten
business days after receiving any such notice pursuant to this subsection (b) of
paragraph 6, the Company shall give notice to the other holders of the Options,
advising that the Company is proceeding with such post-effective amendment or
registration statement and offering to include therein the securities underlying
the Options of the other holders. Each holder electing to include its
Registrable Securities in any such offering shall provide written notice to the
Company within twenty (20) days after receipt of notice from the Company. The
failure to provide such notice to the Company shall be deemed conclusive
evidence of such holder's election not to include its Registrable Securities in
such offering. Each holder electing to include its Registrable Securities shall
furnish the Company with such appropriate information (relating to the
intentions of such holders) in connection therewith as the Company shall
reasonably request in writing. All costs and expenses of only one such
post-effective amendment or new registration statement shall be borne by the
Company, except that the holders shall bear the fees of their own counsel and
any underwriting discounts or commissions applicable to any of the securities
sold by them.
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The Company shall be entitled to postpone the filing of any
registration statement pursuant to this Section 6(b) otherwise required to be
prepared and filed by it if (i) the Company is engaged in a material
acquisition, reorganization, or divestiture, (ii) the Company is currently
engaged in a self-tender or exchange offer and the filing of a registration
statement would cause a violation of Regulation M under the Securities Exchange
Act of 1934, (iii) the Company is engaged in an underwritten offering and the
managing underwriter has advised the Company in writing that such a registration
statement would have a material adverse effect on the consummation of such
offering or (iv) the Company is subject to an underwriter's lock-up as a result
of an underwritten public offering and such underwriter has refused in writing,
the Company's request to waive such lock-up. In the event of such postponement,
the Company shall be required to file the registration statement pursuant to
this Section 6(b), within 60 days of the consummation of the event requiring
such postponement.
The Company will use its best efforts to maintain such
registration statement or post-effective amendment current under the Act for a
period of at least six months (and for up to an additional three months if
requested by the Holder) from the effective date thereof. The Company shall
supply prospectuses, and such other documents as the Holder may reasonably
request in order to facilitate the public sale or other disposition of the
Registrable Securities, use its best efforts to register and qualify any of the
Registrable Securities for sale in such states as such holder designates,
provided that the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or execute a general consent to service of
process in any jurisdiction in any action and furnish indemnification in the
manner provided in paragraph 7 hereof.
(c) The term "50% holder" as used in this paragraph 6 shall mean the
holder of at least 50% of the Common Stock and the Warrants underlying the
Option (considered in the aggregate) and shall include any owner or combination
of owners of such securities, which ownership shall be calculated by determining
the number of shares of Common Stock held by such owner or owners as well as the
number of shares then issuable upon exercise of the Warrants.
7. (a) Whenever pursuant to paragraph 6 a registration statement
relating to the Option or any shares or warrants issued or issuable upon the
exercise of any Options, is filed under the Act, amended or supplemented, the
Company will indemnify and hold harmless each holder of the securities covered
by such registration statement, amendment, or supplement (such holder being
hereinafter called the "Distributing Holder"), and each person, if any, who
controls (within the meaning of the Act) the Distributing Holder, and each
underwriter (within the meaning of the Act) of such securities and each person,
if any, who controls (within the meaning of the Act) any such underwriter,
against any losses, claims, damages, or liabilities, joint or several, to which
the Distributing Holder, any such controlling person or any such underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement or any preliminary prospectus or
final prospectus constituting a part thereof or any amendment or supplement
thereto, or arise out of or are based upon the omission to state therein a
material fact required to be stated therein or necessary to
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<PAGE>
make the statements therein not misleading; and will reimburse the Distributing
Holder and each such controlling person and underwriter for any legal or other
expenses reasonably incurred by the Distributing Holder or such controlling
person or underwriter in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however, that the Company
will not be liable in any such case to the extent that any such loss, claim,
damage, or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in said
registration statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder or any other Distributing
Holder, for use in the preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, each person,
if any, who controls the Company (within the meaning of the Act) against any
losses, claims, damages, or liabilities, joint and several, to which the Company
or any such director, officer, or controlling person may become subject, under
the Act or otherwise, insofar as such losses, claims, damages, or liabilities
arise out of or are based upon any untrue or alleged untrue statement of any
material fact contained in said registration statement, said preliminary
prospectus, said final prospectus, or said amendment or supplement, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in said registration statement, said preliminary prospectus,
said final prospectus, or said amendment or supplement in reliance upon and in
conformity with written information furnished by such Distributing Holder for
use in the preparation thereof; and will reimburse the Company or any such
director, officer, or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Paragraph 7.
(d) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof.
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8. The Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of this Option shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Exercise
Price by a fraction, the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such action, and the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such action. Notwithstanding anything to the contrary contained in the
Warrant Agreement, in the event an adjustment to the Exercise Price is effected
pursuant to this Subsection (a) (and a corresponding adjustment to the number of
Option Securities is made pursuant to Subsection (d) below), the exercise price
of the Warrants shall be adjusted so that it shall equal the price determined by
multiplying the exercise price of the Warrants by a fraction, the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after giving effect to such action and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action.
In such event, there shall be no adjustment to the number of shares of Common
Stock or other securities issuable upon exercise of the Warrants. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(b) In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (the "Subscription Price") (or having a conversion
price per share) less than the current market price of the Common Stock (as
defined in Subsection (e) below) on the record date mentioned below, the
Exercise Price shall be adjusted so that the same shall equal the price
determined by multiplying the number of shares then comprising an Option
Securities by the product of the Exercise Price in effect immediately prior to
the date of such issuance multiplied by a fraction, the numerator of which shall
be the sum of the number of shares of Common Stock outstanding on the record
date mentioned below and the number of additional shares of Common Stock which
the aggregate offering price of the total number of shares of Common Stock so
offered (or the aggregate conversion price of the convertible securities so
offered) would purchase at such current market price per share of the Common
Stock, and the denominator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date and the number of additional shares
of Common Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible). Such adjustment shall be
made successively whenever such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants the
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<PAGE>
Exercise Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
(c) In case the Company shall hereafter distribute to the holders of
its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and-dividends or distributions referred to in
Subsection (a) above) or subscription rights or warrants (excluding those
referred to in Subsection (b) above), then in each such case the Exercise Price
in effect thereafter shall be determined by multiplying the number of shares
then comprising an Option Securities by the product of the Exercise Price in
effect immediately prior thereto multiplied by a fraction, the numerator of
which shall be the total number of shares of Common Stock outstanding multiplied
by the current market price per share of Common Stock (as defined in Subsection
(e) below), less the fair market value (as determined by the Company's Board of
Directors) of said assets or evidences of indebtedness so distributed or of such
rights or warrants, and the denominator of which shall be the total number of
shares of Common Stock outstanding multiplied by such current market price per
share of Common Stock. Such adjustment shall be made successively whenever such
a record date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive such
distribution.
(d) Whenever the Exercise Price payable upon exercise of this Option
is adjusted pursuant to Subsections (a), (b) or (c) above, the number of Option
Securities purchasable upon exercise of this Option shall simultaneously be
adjusted by multiplying the number of Option Securities initially issuable upon
exercise of this Option by the Exercise Price in effect on the date hereof and
dividing the product so obtained by the Exercise Price, as adjusted.
(e) For the purpose of any computation under Subsections (b) or (c)
above, the current market price per share of Common Stock at any date shall be
deemed to be the average of the daily closing prices for 10 consecutive business
days before such date. The closing price for each day shall be the last sale
price regular way or, in case no such reported sale takes place on such day, the
average of the last reported bid and asked prices regular way, in either case on
the principal national securities exchange on which the Common Stock is admitted
to trading or listed, or if not listed or admitted to trading on such exchange,
the average of the highest reported bid and lowest reported asked prices as
reported by Nasdaq, or other similar organization if Nasdaq is no longer
reporting such information, or if not so available, the fair market price as
determined by the Board of Directors.
(f) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least fifteen cents
($0.15) in such price; provided, however, that any adjustments which by reason
of this Subsection (i) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment required to be made hereunder.
All calculations under this Section 8 shall be made to the nearest cent or to
the nearest
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one-hundredth of a share, as the case may be. Anything in this Section 8 to the
contrary notwithstanding, the Company shall be entitled, but shall not be
required, to make such changes in the Exercise Price, in addition to those
required by this Section 8, as it shall determine, in its sole discretion, to be
advisable in order that any dividend or distribution in shares of Common Stock,
or any subdivision, reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal Income tax liability to the
holders of Common Stock or securities convertible into Common Stock (including
Warrants issuable upon exercise of this Option).
(g) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly, but no later than 10 days after any request for such an
adjustment by the Holder, cause a notice setting forth the adjusted Exercise
Price and adjusted number of Option Securities issuable upon exercise of this
Option and, if requested, information describing the transactions giving rise to
such adjustments, to be mailed to the Holder, at the address set forth herein,
and shall cause a certified copy thereof to be mailed to its transfer agent, if
any. The Company may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular accountants employed
by the Company) to make any computation required by this Section 8, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment.
(h) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (a) above, the Holder thereafter shall become entitled to
receive any shares of the Company, other than Common Stock, thereafter the
number of such other shares so receivable upon exercise of this Option shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common Stock
contained in Subsections (a) to (g), inclusive above.
(i) No adjustments shall be made in connection with future public
offerings.
9. This Agreement shall be governed by and in accordance with the laws of
the State of New York.
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IN WITNESS WHEREOF, Rosedale Decorative Products Inc. has caused this
Option to be signed by its duly authorized officers under its corporate seal,
and this Option to be dated as of the date first above written.
ROSEDALE DECORATIVE PRODUCTS INC.
By: ____________________________
Sidney Ackerman
President
(Corporate Seal)
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PURCHASE FORM
(To be signed only upon exercise of option)
THE UNDERSIGNED, the holder of the foregoing Option, hereby irrevocably
elects to exercise the purchase rights represented by such Option for, and to
purchase thereunder,
________ Units of Rosedale Decorative Products Inc. and herewith makes payment
of $______________ therefor, and requests that the Units and certificates for
Units, Warrants and shares of Common Stock be issued in the name(s) of, and
delivered to _______________________________________________________whose
address(es) is (are)
_____________________________________________________________________________
_____________________________________________.
Dated:
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and transfers
unto _________________________________ the right to purchase in the numbers set
forth below represented by the foregoing Option to the extent of _____ Units,
and appoints _________________________________ attorney to transfer such rights
on the books of Rosedale Decorative Products Inc., with full power of
substitution in the premises.
Dated:
By: ______________________________
Address:
______________________________
______________________________
______________________________
In the presence of:
<PAGE>
EXHIBIT 4.2
WARRANT AGREEMENT
AGREEMENT, dated as of this __th day of _____, 1998, by and between
ROSEDALE DECORATIVE PRODUCTS INC., a corporation organized under the laws of the
Province of Ontario, Canada (the "Company"), and CONTINENTAL STOCK TRANSFER &
TRUST COMPANY, as Warrant Agent (the "Warrant Agent").
WITNESSETH:
WHEREAS, in connection with a public offering of up to 718,750 Units
("Units"), each consisting of two (2) shares of Common Stock (the "Common
Stock"), and two (2) Class A Redeemable Common Stock Purchase Warrants (the
"Warrants") pursuant to an underwriting agreement (the "Underwriting Agreement")
dated _______, 1998 between the Company and Fin-Atlantic Securities, Inc. ("Fin-
Atlantic"), and the issuance to Fin-Atlantic or its designees of an option to
purchase an additional 62,500 Units (the "Purchase Option"), the Company will
issue up to 1,500,000 Warrants;
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean the common stock of the Company of
which at the date hereof consists of ___________ authorized shares, and shall
also include any capital stock of any class of the Company thereafter authorized
which shall not be limited to a fixed sum or percentage in respect to the rights
of the holders thereof to participate in dividends and in the distribution of
assets upon the voluntary liquidation, dissolution, or winding up of the
Company; provided, however, that the shares issuable upon exercise of the
Warrants shall include (i) only shares of such class designated in the Company's
Certificate of Incorporation as Common Stock on the date of the original issue
of the Warrants or (ii), in the case of any reclassification, change,
consolidation, merger, sale, or conveyance of the character referred to in
Section 9(c) hereof, the stock, securities, or property provided for in such
section or (iii), in the case of any reclassification or change in the
outstanding shares of Common Stock issuable upon exercise of the Warrants as a
result of a subdivision, such shares of Common Stock as so reclassified or
changed.
<PAGE>
(b) "Corporate Office" shall mean the office of the Warrant Agent (or
its successor) at which at any particular time its principal business shall be
administered, which office is located at the date hereof at 2 Broadway, New
York, New York 10004.
(c) "Exercise Date" shall mean, as to any Warrant, the date on which
the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, and (b)
payment in cash, or by official bank or certified check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the applicable Purchase Price.
(d) "Initial Warrant Exercise Date" shall mean _____ __, 1999 (one
(1) year from the Effective Date).
(e) "Purchase Price" shall mean the purchase price per share to be
paid upon exercise of each Warrant in accordance with the terms hereof, which
price shall be $4.50 per share, subject to adjustment from time to time pursuant
to the provisions of Section 9 hereof, and subject to the Company's right, in
its sole discretion, to reduce the Purchase Price upon notice to all
warrantholders.
(f) "Redemption Price" shall mean the price at which the Company may,
at its option, redeem the Warrants, in accordance with the terms hereof, which
price shall be $0.10 per Warrant.
(g) "Registered Holder" shall mean as to any Warrant and as of any
particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean Continental Stock Transfer & Trust
Company, as the Company's transfer agent, or its authorized successor, as such.
(i) "Warrant Expiration Date" shall mean 5:00 P.M. (New York time) on
_____ __, 2003 or the Redemption Date as defined in Section 8, whichever is
earlier; provided that if such date shall in the State of New York be a holiday
or a day on which banks are authorized or required to close, then 5:00 P.M. (New
York time) on the next following day which in the State of New York is not a
holiday or a day on which banks are authorized or required to close. Upon
notice to all Warrantholders the Company shall have the right to extend the
warrant expiration date.
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<PAGE>
2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.
(a) A Warrant initially shall entitle the Registered Holder of the
Warrant representing such Warrant to purchase one share of Common Stock upon the
exercise thereof, in accordance with the terms hereof, subject to modification
and adjustment as provided in Section 9.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting Agreement
shall be executed by the Company and delivered to the Warrant Agent. Upon
written order of the Company signed by its President or Chairman or a Vice
President and by its Secretary or an Assistant Secretary, the Warrant
Certificates shall be countersigned, issued, and delivered by the Warrant Agent.
(c) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to an aggregate of 1,787,500 shares
of Common Stock, subject to adjustment as described herein, upon the exercise of
Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date, the Warrant
Agent shall countersign and deliver Warrant Certificates in required whole
number denominations to the persons entitled thereto in connection with any
transfer or exchange permitted under this Agreement; provided that no Warrant
Certificates shall be issued except (i) those initially issued hereunder, (ii)
those issued on or after the Initial Warrant Exercise Date, upon the exercise of
fewer than all Warrants represented by any Warrant Certificate, to evidence any
unexercised warrants held by the exercising Registered Holder, (iii) those
issued upon any transfer or exchange pursuant to Section 6; (iv) those issued in
replacement of lost, stolen, destroyed, or mutilated Warrant Certificates
pursuant to Section 7; (v) those issued pursuant to the Purchase Option; and
(vi) those issued at the option of the Company, in such form as may be approved
by the its Board of Directors, to reflect any adjustment or change in the
Purchase Price, the number of shares of Common Stock purchasable upon exercise
of the Warrants or the Redemption Price therefor made pursuant to Section 9
hereof.
(e) Pursuant to the terms of the Purchase Option, Fin-Atlantic may
purchase up to 71,500 additional Units. The Purchase Option shall not be
transferred, sold, assigned or hypothecated for a period of one (1) year from
the Effective Date, except that it may be transferred to persons who are
officers and partners of Fin-Atlantic or selling group members in the offering.
3. FORM AND EXECUTION OF WARRANT CERTIFICATES.
(a) The Warrant Certificates shall be substantially in the form
annexed hereto as Exhibit A (the provisions of which are hereby incorporated
herein) and may have such letters, numbers, or other marks of identification or
designation and such legends, summaries, or endorsements printed, lithographed,
or engraved thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or with any rule or regulation made pursuant thereto or with
any rule or regulation of any
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stock exchange on which the Warrants may be listed, or to conform to usage or to
the requirements of Section 2(b). The Warrant Certificates shall be dated the
date of issuance thereof (whether upon initial issuance, transfer, exchange, or
in lieu of mutilated, lost, stolen, or destroyed Warrant Certificates) and
issued in registered form. Warrant Certificates shall be numbered serially with
the letter W.
(b) Warrant Certificates shall be executed on behalf of the Company
by its Chairman of the Board, President, or any Vice President and by its
Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned.
In case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be an officer of the Company or to hold the
particular office referenced in the Warrant Certificate before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates may nevertheless
be countersigned by the Warrant Agent, issued and delivered with the same force
and effect as though the person who signed such Warrant Certificates had not
ceased to be an officer of the Company or to hold such office. After
countersignature by the Warrant Agent, Warrant Certificates shall be delivered
by the Warrant Agent to the Registered Holder without further action by the
Company, except as otherwise provided by Section 4 hereof.
4. EXERCISE. Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Exercise Date, but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set forth
herein and in the applicable Warrant Certificate. A Warrant shall be deemed to
have been exercised immediately prior to the close of business on the Exercise
Date and the person entitled to receive the securities deliverable upon such
exercise shall be treated for all purposes as the holder of those securities
upon the exercise of the Warrant as of the close of business on the Exercise
Date. As soon as practicable on or after the Exercise Date the Warrant Agent
shall deposit the proceeds received from the exercise of a Warrant and shall
notify the Company in writing of the exercise of the Warrants. Promptly
following, and in any event within five days after the date of such notice from
the Warrant Agent, the Warrant Agent, on behalf of the Company, shall cause to
be issued and delivered by the Transfer Agent, to the person or persons entitled
to receive the same, a certificate or certificates for the securities
deliverable upon such exercise (plus a certificate for any remaining unexercised
Warrants of the Registered Holder), unless prior to the date of issuance of such
certificates the Company shall instruct the Warrant Agent to refrain from
causing such issuance of certificates pending clearance of checks received in
payment of the Purchase Price pursuant to such Warrants. Upon the exercise of
any Warrant and clearance of the funds received, the Warrant Agent shall
promptly remit the payment received for the Warrant (the "Warrant Proceeds") to
the Company or as the Company may direct in writing.
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5. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES, ETC.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Common Stock which shall be issuable upon exercise
of the Warrants shall, at the time of delivery, be duly and validly issued,
fully paid, nonassessable, and free from all taxes, liens, and charges with
respect to the issue thereof, (other than those which the Company shall promptly
pay or discharge) and that upon issuance such shares shall be listed on each
national securities exchange or eligible for inclusion in each automated
quotation system, if any, on which the other shares of outstanding Common Stock
of the Company are then listed or eligible for inclusion.
(b) The Company covenants that if any securities to be reserved for
the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will, to the extent the Purchase Price is less than the Market Price (as
hereinafter defined), in good faith and as expeditiously as reasonably possible,
endeavor to secure such registration or approval and will use its reasonable
efforts to obtain appropriate approvals or registrations under state "Blue-Sky"
securities laws. With respect to any such securities, however, Warrants may not
be exercised by, or shares of Common Stock issued to, any Registered Holder in
any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp, or similar taxes
and other governmental charges that may be imposed with respect to the issuance
of Warrants, or the issuance, or delivery of any shares upon exercise of the
Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Warrant
Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to requisition
the Company's Transfer Agent from time to time for certificates representing
shares of Common Stock issuable upon exercise of the Warrants, and the Company
will authorize the Transfer Agent to comply with all such proper requisitions.
The Company will file with the Warrant Agent a statement setting forth the name
and address of the Transfer Agent of the Company for shares of Common Stock
issuable upon exercise of the Warrants.
6. EXCHANGE AND REGISTRATION OF TRANSFER.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its
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Corporate Office, and upon satisfaction of the terms and provisions hereof, the
Company shall execute and the Warrant Agent shall countersign, issue, and
deliver in exchange therefor the Warrant Certificate or Certificates which the
Registered Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration or transfer of any Warrant
Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any
exchange or registration or transfer of Warrant Certificates. In addition, the
Company may require payment by such holder of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange
in case of mutilated Warrant Certificates shall be promptly canceled by the
Warrant Agent and thereafter retained by the Warrant Agent until termination of
this Agreement or resignation as Warrant Agent, or disposed of or destroyed, at
the direction of the Company.
(f) Prior to due presentment for registration or transfer thereof,
the Company and the Warrant Agent may deem and treat the Registered Holder of
any Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary. The Warrants which are being publicly offered with shares of
Common Stock pursuant to the Underwriting Agreement will be immediately
detachable from the Common Stock and transferable separately therefrom.
7. LOSS OR MUTILATION. Upon receipt by the Company and the Warrant Agent
of evidence satisfactory to them of the ownership of and loss, theft,
destruction, or mutilation of any Warrant Certificate and (in case of loss,
theft, or destruction) of indemnity satisfactory to them, and (in the case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall (in the absence of notice to the Company and/or
Warrant Agent that the Warrant Certificate has been acquired by a bona fide
purchaser) countersign and deliver to the Registered
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Holder in lieu thereof a new Warrant Certificate of like tenor representing an
equal aggregate number of Warrants. Applicants for a substitute Warrant
Certificate shall comply with such other reasonable regulations and pay such
other reasonable charges as the Warrant Agent may prescribe.
8. REDEMPTION.
(a) Subject to the provisions of paragraph 2(e) hereof, on not less
than thirty (30) days notice given at any time after six (6) months after the
Initial Warrant Exercise Date, or earlier with the consent of Fin-Atlantic, the
Warrants may be redeemed, at the option of the Company, at a redemption price of
$0.10 per Warrant, provided the Market Price of the Common Stock receivable upon
exercise of the Warrant shall equal or exceed 250% of the then exercise price of
the Warrants per share (the "Target Price"), subject to adjustment as set forth
in Section 8(f) below. Market Price for the purpose of this Section 8 shall
mean the closing sale price for all ten (10) consecutive trading days, ending on
the third day prior to the date of the notice of redemption, which notice shall
be mailed no later than five days thereafter. The closing price for each day
shall be the last sale price regular way or, in case no such reported sale takes
place on such day, the average of the last reported bid and asked prices regular
way, in either case on the principal national securities exchange on which the
Common Stock is admitted to trading or listed, or if not listed or admitted to
trading on such exchange, the average of the highest reported bid and lowest
reported asked prices as reported by NASDAQ, or other similar organization if
NASDAQ is no longer reporting such information, or if not so available, the fair
market price as determined by the Board of Directors.
(b) If the conditions set forth in Section 8(a) are met, and the
Company desires to exercise its right to redeem the Warrants, it shall mail a
notice of redemption to each of the Registered Holders of the Warrants to be
redeemed, first class, postage prepaid, not later than the thirtieth day before
the date fixed for redemption, at their last address as shall appear on the
records maintained pursuant to Section 6(b). Any notice mailed in the manner
provided herein shall be conclusively presumed to have been duly given whether
or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the redemption price,
(ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price paid, and (iv) that the
right to exercise the Warrant shall terminate at 5:00 P.M. (New York time) on
the business day immediately preceding the date fixed for redemption. The date
fixed for the redemption of the Warrant shall be the Redemption Date. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceedings for such redemption except as to a
Registered Holder (a) to whom notice was not mailed or (b) whose notice was
defective. An affidavit of the Warrant Agent or of the Secretary or an
Assistant Secretary of the Company that notice of redemption has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M. (New
York time) on the business day immediately preceding the Redemption Date. On
and after the Redemption
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Date, Holders of the Warrants shall have no further rights except to receive,
upon surrender of the Warrant, the Redemption Price.
(e) From and after the Redemption Date specified for, the Company
shall, at the place specified in the notice of redemption, upon presentation and
surrender to the Company by or on behalf of the Registered Holder thereof of one
or more Warrant Certificates evidencing Warrants to be redeemed, deliver or
cause to be delivered to or upon the written order of such Holder a sum in cash
equal to the redemption price of each such Warrant. From and after the
Redemption Date and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants shall
expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the redemption price, shall
cease.
(f) If the shares of the Company's Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, the Target
Price shall be proportionally adjusted by the ratio which the total number of
shares of Common Stock outstanding immediately prior to such event bears to the
total number of shares of Common Stock to be outstanding immediately after such
event.
9. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES OF COMMON STOCK OR
WARRANTS.
(a) Subject to the exceptions referred to in Section 9(g) below, in
the event the Company shall, at any time or from time to time after the date
hereof, sell any shares of Common Stock for a consideration per share less than
the Market Price of the Common Stock (as defined in Section 8) on the date of
the sale or issue any shares of Common Stock as a stock dividend to the holders
of Common Stock, or subdivide or combine the outstanding shares of Common Stock
into a greater or lesser number of shares (any such sale, issuance, subdivision,
or combination being herein called a "Change of Shares"), then, and thereafter
upon each further Change of Shares, the Purchase Price in effect immediately
prior to such Change of Shares shall be changed to a price (including any
applicable fraction of a cent) determined by multiplying the Purchase Price in
effect immediately prior thereto by a fraction, the numerator of which shall be
the sum of the number of shares of Common Stock outstanding immediately prior to
the issuance of such additional shares and the number of shares of Common Stock
which the aggregate consideration received (determined as provided in subsection
9(f)(G) below) for the issuance of such additional shares would purchase at such
current market price per share of Common Stock, and the denominator of which
shall be the sum of the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made.
Upon each adjustment of the Purchase Price pursuant to this
Section 9, the total number of shares of Common Stock purchasable upon the
exercise of each Warrant shall (subject to the provisions contained in Section
9(b) hereof) be such number of shares (calculated to the nearest tenth)
purchasable at the Purchase Price in effect immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the Purchase Price in
effect immediately
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<PAGE>
prior to such adjustment and the denominator of which shall be the Purchase
Price in effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record prior to such adjustment of the number of Warrants
shall become that number of Warrants (calculated to the nearest tenth)
determined by multiplying the number one by a fraction, the numerator of which
shall be the Purchase Price in effect immediately prior to such adjustment and
the denominator of which shall be the Purchase Price in effect immediately after
such adjustment. Upon each adjustment of the number of Warrants pursuant to
this Section 9, the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on the date of
such adjustment Warrant Certificates evidencing, subject to Section 10 hereof,
the number of additional Warrants to which such Holder shall be entitled as a
result of such adjustment or, at the option of the Company, cause to be
distributed to such Holder in substitution and replacement for the Warrant
Certificates held by him prior to the date of adjustment (and upon surrender
thereof, if required by the Company) new Warrant Certificates evidencing the
number of Warrants to which such Holder shall be entitled after such adjustment.
(c) In case of any reclassification, capital reorganization, or other
change of outstanding shares of Common Stock, or in case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification, capital reorganization, or other
change of outstanding shares of Common Stock), or in case of any sale or
conveyance to another corporation of the property of the Company as, or
substantially as, an entirety (other than a sale/leaseback, mortgage, or other
financing transaction), the Company shall cause effective provision to be made
so that each holder of a warrant then outstanding shall have the right
thereafter, by exercising such Warrant, to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable upon
such reclassification, capital reorganization, or other change, consolidation,
merger, sale, or conveyance by a holder of the number of shares of Common Stock
that might have been purchased upon exercise of such Warrant immediately prior
to such reclassification, capital reorganization, or other change,
consolidation, merger, sale, or conveyance. Any such provision shall include
provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 9. The Company shall
not effect any such consolidation, merger, or sale unless prior to or
simultaneously with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Warrant Agent, the obligation
to deliver to the holder of each Warrant such shares of stock, securities, or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Agreement. The
foregoing provisions shall similarly apply to successive reclassification,
capital reorganizations,
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<PAGE>
and other changes of outstanding shares of Common Stock and to successive
consolidations, mergers, sales, or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase Price
or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(d) hereof, continue to express the Purchase Price per
share, the number of shares purchasable thereunder, and the Redemption Price
therefor as the Purchase Price per share, and the number of shares purchasable
and the Redemption Price therefor were expressed in the Warrant Certificates
when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to this
Section 9, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment, and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the registered holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a brief
statement of the facts accounting for such adjustment. The Company will promptly
file such certificate with the Warrant Agent and cause a brief summary thereof
to be sent by ordinary first class mail to Fin-Atlantic and to each registered
holder of Warrants at his last address as it shall appear on the registry books
of the Warrant Agent. No failure to mail such notice nor any defect therein or
in the mailing thereof shall affect the validity thereof except as to the holder
to whom the Company failed to mail such notice, or except as to the holder whose
notice was defective. The affidavit of an officer of the Warrant Agent or the
Secretary or an Assistant Secretary of the Company that such notice has been
mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the following
provisions (i) to (vii) shall also be applicable:
(i) The number of shares of Common Stock outstanding at any
given time shall include shares of Common Stock owned or held by or for the
account of the Company and the sale or issuance of such treasury shares or the
distribution of any such treasury shares shall not be considered a Change of
Shares for purposes of said sections.
(ii) No adjustment of the Purchase Price shall be made unless
such adjustment would require an increase or decrease of at least $.05 in such
price; provided that any adjustments which by reason of this subsection (ii) are
not required to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment which, together with any
adjustment(s) so carried forward, shall require an increase or decrease of at
least $.05 in the Purchase Price then in effect hereunder.
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(iii) In case of (1) the sale by the Company for cash of any
rights or warrants to subscribe for or purchase, or any options for the purchase
of, Common Stock or any securities convertible into or exchangeable for Common
Stock without the payment of any further consideration other than cash, if any
(such convertible or exchangeable securities being herein called "Convertible
Securities"), or (2) the issuance by the Company, without the receipt by the
Company of any consideration therefor, of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, in each case, if (and only if) the consideration payable to the
Company upon the exercise of such rights, warrants, or options shall consist of
cash, whether or not such rights, warrants, or options, or the right to convert
or exchange such Convertible Securities, are immediately exercisable, and the
price per share for which Common Stock is issuable upon the exercise of such
rights, warrants, or options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the minimum aggregate
consideration payable to the Company upon the exercise of such rights, warrants,
or options, plus the consideration received by the Company for the issuance or
sale of such rights, warrants, or options, plus, in the case of such Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
other than such Convertible Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Common Stock issuable upon
the exercise of such rights, warrants, or options or upon the conversion or
exchange of such Convertible Securities issuable upon the exercise of such
rights, warrants, or options) is less than the fair market value of the Common
Stock on the date of the issuance or sale of such rights, warrants, or options,
then the total maximum number of shares of Common Stock issuable upon the
exercise of such rights, warrants, or options or upon the conversion or exchange
of such Convertible Securities (as of the date of the issuance or sale of such
rights, warrants, or options) shall be deemed to be outstanding shares of Common
Stock for purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have
been sold for cash in an amount equal to such price per share.
(iv) In case of the sale by the Company for cash of any
Convertible Securities, whether or not the right of conversion or exchange
thereunder is immediately exercisable, and the price per share for which Common
Stock is issuable upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the total amount of consideration received by the
Company for the sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (y) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities) is less than the fair market value or
the Common Stock on the date of the sale of such Convertible Securities, then
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities (as of the date of the sale of such
Convertible Securities) shall be deemed to be outstanding shares of Common Stock
for purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have been
sold for cash in an amount equal to such price per share.
(v) In case the Company shall modify the rights of
conversion, exchange, or exercise of any of the securities referred to in
subsection (iii) above or any other securities of the Company convertible,
exchangeable, or exercisable for shares of Common Stock, for any reason
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other than an event that would require adjustment to prevent dilution, so that
the consideration per share received by the Company after such modification is
less than the market price on the date prior to such modification, the Purchase
Price to be in effect after such modification shall be determined by multiplying
the Purchase Price in effect immediately prior to such event by a fraction, of
which the numerator shall be the number of shares of Common Stock outstanding
multiplied by the market price on the date prior to the modification plus the
number of shares of Common Stock which the aggregate consideration receivable by
the Company for the securities affected by the modification would purchase at
the market price and of which the denominator shall be the number of shares of
Common Stock outstanding on such date plus the number of shares of Common Stock
to be issued upon conversion, exchange, or exercise of the modified securities
at the modified rate. Such adjustment shall become effective as of the date
upon which such modification shall take effect.
(vi) On the expiration of any such right, warrant, or option
or the termination of any such right to convert or exchange any such Convertible
Securities, the Purchase Price then in effect hereunder shall forthwith be
readjusted to such Purchase Price as would have obtained (a) had the adjustments
made upon the issuance or sale of such rights, warrants, options, or Convertible
Securities been made upon the basis of the issuance of only the number of shares
of Common Stock theretofore actually delivered (and the total consideration
received therefor) upon the exercise of such rights, warrants, or options or
upon the conversion or exchange of such Convertible Securities and (b) had
adjustments been made on the basis of the Purchase Price as adjusted under
clause (a) for all transactions (which would have affected such adjusted
Purchase Price) made after the issuance or sale of such rights, warrants,
options, or Convertible Securities.
(vii) In case of the sale for cash of any shares of Common
Stock, any Convertible Securities, any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, the consideration received by the Company therefor shall be deemed
to be the gross sales price therefor without deducting therefrom any expense
paid or incurred by the Company or any underwriting discounts or commissions or
concessions paid or allowed by the Company in connection therewith.
(g) No adjustment to the Purchase Price of the Warrants or to the
number of shares of Common Stock purchasable upon the exercise of each Warrant
will be made, however,
(i) upon the sale or exercise of the Warrants, including
without limitation the sale or exercise of any of the Warrants comprising the
Purchase Option; or
(ii) upon the sale of any shares of Common Stock in the
Company's initial public offering, including, without limitation, shares sold
upon the exercise of any over-allotment option granted to the Underwriters in
connection with such offering; or
(iii) upon the issuance or sale of Common Stock or Convertible
Securities upon the exercise of any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, whether or not such rights, warrants, or
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options were outstanding on the date of the original sale of the Warrants or
were thereafter issued or sold other than issuances of preferred stock in
connection with acquisitions by the Company; or
(iv) upon the issuance or sale of Common Stock upon conversion
or exchange of any Convertible Securities, whether or not any adjustment in the
Purchase Price was made or required to be made upon the issuance or sale of such
Convertible Securities and whether or not such Convertible Securities were
outstanding on the date of the original sale of the Warrants or were thereafter
issued or sold; or
(h) Intentionally Omitted.
(i) Any determination as to whether an adjustment in the Purchase
Price in effect hereunder is required pursuant to Section 9, or as to the amount
of any such adjustment, if required, shall be binding upon the holders of the
Warrants and the Company if made in good faith by the Board of Directors of the
Company.
(j) If and whenever the Company shall grant to the holders of Common
Stock, as such, rights or warrants to subscribe for or to purchase, or any
options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant, or option to purchase Common
Stock, the Company shall concurrently therewith grant to each Registered Holder
as of the record date for such transaction of the Warrants then outstanding, the
rights, warrants, or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants, or options being granted by the Company, the Registered
Holder were the holder of record of the number of whole shares of Common Stock
then issuable upon exercise (assuming, for purposes of this section 9(j), that
exercise of warrants is permissible during periods prior to the Initial Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of any adjustment which otherwise might be called for
pursuant to this Section 9.
10. FRACTIONAL WARRANTS AND FRACTIONAL SHARES.
(a) If the number of shares of Common Stock purchasable upon the
exercise of each Warrant is adjusted pursuant to Section 9 hereof, the Company
nevertheless shall not be required to issue fractions of shares, upon exercise
of the Warrants or otherwise, or to distribute certificates that evidence
fractional shares. With respect to any fraction of a share called for upon any
exercise hereof, the Company shall pay to the Holder an amount in cash equal to
such fraction multiplied by the current market value of such fractional share,
determined as follows:
(i) If the Common Stock is listed on a National Securities
Exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the NASDAQ Quotation System, the current value shall be the last
reported sale price of the Common Stock on such exchange on the last business
day prior to the date of exercise of this Warrant or if no such sale
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is made on such day, the average of the closing bid and asked prices for such
day on such exchange; or
(ii) If the Common Stock is not listed or admitted to unlisted
trading privileges, the current value shall be the mean of the last reported bid
and asked prices reported by the National Quotation Bureau, Inc. on the last
business day prior to the date of the exercise of this Warrant; or
(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current value shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
11. WARRANT HOLDERS NOT DEEMED STOCKHOLDERS. No holder of Warrants shall,
as such, be entitled to vote or to receive dividends or be deemed the holder of
Common Stock that may at any time be issuable upon exercise of such Warrants for
any purpose whatsoever, nor shall anything contained herein be construed to
confer upon the holder of Warrants, as such, any of the rights of a stockholder
of the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issue or
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger, or conveyance or otherwise), or to receive notice
of meetings, or to receive dividends or subscription rights, until such Holder
shall have exercised such Warrants and been issued shares of Common Stock in
accordance with the provisions hereof.
12. RIGHTS OF ACTION. All rights of action with respect to this Agreement
are vested in the respective Registered Holders of the Warrants, and any
Registered Holder of a Warrant, without consent of the Warrant Agent or of the
holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provided in the Warrant Certificate and
this Agreement.
13. AGREEMENT OF WARRANT HOLDERS. Every holder of a Warrant, by his
acceptance thereof, consents and agrees with the Company, the Warrant Agent and
every other holder of a warrant that:
(a) The warrants are transferable only on the registry books of the
Warrant Agent by the Registered Holder thereof in person or by his attorney duly
authorized in writing and only if the Warrant Certificates representing such
Warrants are surrendered at the office of the Warrant Agent, duly endorsed or
accompanied by a proper instrument of transfer satisfactory to the Warrant Agent
and the Company in their sole discretion, together with payment of any
applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the person
in whose name the Warrant Certificate is registered as the holder and as the
absolute, true, and lawful owner
14
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of the Warrants represented thereby for all purposes, and neither the Company
nor the Warrant Agent shall be affected by any notice or knowledge to the
contrary, except as otherwise expressly provided in Section 7 hereof.
14. CANCELLATION OF WARRANT CERTIFICATES. If the Company shall purchase
or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and canceled by it and retired. The Warrant Agent shall also cancel
Common Stock following exercise of any or all of the Warrants represented
thereby or delivered to it for transfer, split up, combination, or exchange.
15. CONCERNING THE WARRANT AGENT. The Warrant Agent acts hereunder as
agent and in a ministerial capacity for the Company, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder be
deemed to make any representations as to the validity, value, or authorization
of the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered, or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order, or
demand of the Company shall be sufficiently evidenced by an instrument signed by
the Chairman of the Board, President, any Vice President, its Secretary, or
Assistant Secretary, (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order, or demand believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse it for its reasonable expenses
hereunder; it further agrees to
15
<PAGE>
indemnify the Warrant Agent and save it harmless against any and all losses,
expenses, and liabilities, including judgments, costs, and counsel fees, for
anything done or omitted by the Warrant Agent in the execution of its duties and
powers hereunder except losses, expenses, and liabilities arising as a result of
the Warrant Agent's negligence or wilful misconduct.
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or wilful misconduct), after giving 60
days' prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability
of the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 30 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties, and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act, or deed; but if for any reason
it shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act, or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the resigning warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant agent
may be converted or merged or any corporation resulting from any consolidation
to which the Warrant Agent or any new warrant agent shall be a party or any
corporation succeeding to the trust business of the Warrant Agent shall be a
successor warrant agent under this Agreement without any further act, provided
that such corporation is eligible for appointment as successor to the Warrant
Agent under the provisions of the preceding paragraph. Any such successor
warrant agent shall promptly cause notice of its succession as warrant agent to
be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
16
<PAGE>
16. MODIFICATION OF AGREEMENT. The Warrant Agent and the Company may by
supplemental agreement make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates; PROVIDED,
HOWEVER, that this Agreement shall not otherwise be modified, supplemented, or
altered in any respect except with the consent in writing of the Registered
Holders of Warrant Certificates representing not less than 50% of the Warrants
then outstanding; and PROVIDED, FURTHER, that no change in the number or nature
of the securities purchasable upon the exercise of any Warrant, or the Purchase
Price therefor, or the acceleration of the Warrant Expiration Date, shall be
made without the consent in writing of the Registered Holder of the Warrant
Certificate representing such Warrant, other than such changes as are
specifically prescribed by this Agreement as originally executed or are made in
compliance with applicable law.
17. NOTICES. All notices, requests, consents, and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first class registered or certified mail, postage prepaid as
follows: if to the Registered Holder of a Warrant Certificate, at the address of
such holder as shown on the registry books maintained by the Warrant Agent; if
to the Company, 731 Millway Avenue, Concord, Ontario, Canada, L4K 358,
Attention: Sid Ackerman, President, with a copy sent to Singer Zamansky, 40
Exchange Place, 20th Floor, New York, NY 1005, Attention: Gregory Sichenzia,
Esq. or at such other address as may have been furnished to the Warrant Agent in
writing by the Company; and if to the Warrant Agent, at its Corporate office.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without reference to
principles of conflict of laws.
19. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the Company and, the Warrant Agent and their respective successors
and assigns, and the holders from time to time of Warrant Certificates. Nothing
in this Agreement is intended or shall be construed to confer upon any other
person any right, remedy, or claim, in equity or at law, or to impose upon any
other person any duty, liability, or obligation.
20. TERMINATION. This Agreement shall terminate at the close of business
on the Warrant Expiration Date of all the Warrants or such earlier date upon
which all Warrants have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 15
hereof shall survive such termination.
21. COUNTERPARTS. This Agreement may be executed in several counterparts,
which taken together shall constitute a single document.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
ROSEDALE DECORATIVE PRODUCTS INC.
By: _____________________________
Sid Ackerman
Its: President
CONTINENTAL STOCK TRANSFER & TRUST
COMPANY
By: ______________________________
Its: Authorized Officer
18
<PAGE>
EXHIBIT A
[Form of Face of Warrant Certificate]
No. W Warrants
VOID AFTER _____ __, 2003
REDEEMABLE CLASS A COMMON STOCK PURCHASE WARRANT
ROSEDALE DECORATIVE PRODUCTS INC.
THIS CERTIFIES THAT FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Class A Common Stock Purchase Warrants ("Warrants") specified above.
Each Warrant initially entitles the Registered Holder to purchase, subject to
the terms and conditions set forth in this Certificate and the Warrant Agreement
(as hereinafter defined), one fully paid and nonassessable share of Common Stock
("Common Stock"), of LiftKing Industries Inc., a corporation organized under the
laws of the Provice of Ontario, Canada (the "Company"), at any time between the
Initial Warrant Exercise Date and the Expiration Date (as hereinafter defined),
upon the presentation and surrender of this Warrant Certificate with the
Subscription Form on the reverse hereof duly executed, at the corporate office
of Continental Stock Transfer & Trust Company as Warrant Agent, or its successor
(the "Warrant Agent"), accompanied by payment of $4.50 (the "Purchase Price") in
lawful money of the United States of America in cash or by official bank or
certified check made payable to Rosedale Decorative Products Inc.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement") dated _____ __, 1998,
by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modifications or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Initial Warrant Exercise Date" shall mean ____ __, 1999.
<PAGE>
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on _____
__, 2003, or such earlier date as the Warrants shall be redeemed. If such date
shall in the State of New York be a holiday or a day on which the banks are
authorized to close, then the Expiration Date shall mean 5:00 p.m. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. This Warrant shall not be exercisable by a Registered Holder in any
state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any transfer fee in addition
to any tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
This Warrant may be redeemed at the option of the Company, at a redemption
price of $.10 per Warrant at any time after _____ __, 1999 or earlier with the
consent of Fin-Atlantic, provided the Market Price (as defined in the Warrant
Agreement) for the securities issuable upon exercise of such Warrant shall
exceed 250% of the then exercise price of the Warrants on all ten (10) of the
trading days ending on the third day prior to the day on which notice is given.
Notice of redemption shall be given not later than the thirtieth day before the
date fixed for redemption, all as provided in the Warrant Agreement. On and
after the date fixed for redemption, the Registered Holder shall have no rights
with respect to this Warrant except to receive the $.10 per Warrant upon
surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
ROSEDALE DECORATIVE PRODUCTS INC.
By: _____________________________________
Sidney Ackerman
Its: President
Date: ______________________________
[Seal]
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By: ______________________________
Its: Authorized Officer
3
<PAGE>
[Form of Reverse of Warrant Certificate]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to exercise
_____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
____________________________________________
(please insert social security or other identifying number)
and be delivered to
____________________________________________
____________________________________________
____________________________________________
____________________________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below:
____________________________________________
____________________________________________
____________________________________________
(Address)
_________________________________
(Date)
_________________________________
(Taxpayer Identification Number)
<PAGE>
If this Warrant has been solicited by a member of the National Association of
Securities Dealers, Inc., the name of such firm is:__________:
SIGNATURE GUARANTEED
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, hereby sells, assigns, and transfers unto
____________________________________________
(please insert social security or other identifying number)
____________________________________________
____________________________________________
____________________________________________
____________________________________________
(please print or type name and address)
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints _________________________________ Attorney to transfer
this Warrant Certificate on the books of the Company, with full power of
substitution in the premises.
_________________________________
(Date)
SIGNATURE GUARANTEED
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY AN ELIGIBLE INSTITUTION (AS DEFINED IN RULE 17Ad-15 UNDER THE
SECURITIES AND EXCHANGE ACT OF 1934) WHICH MAY INCLUDE A COMMERCIAL BANK OR
TRUST COMPANY, SAVINGS ASSOCIATION, CREDIT UNION OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
2
<PAGE>
EXHIBIT 10.1
FINANCIAL CONSULTING AGREEMENT
Agreement made this ____ day of _______, 1998 by and between Fin-
Atlantic Securities, Inc. ("Consultant") and Rosedale Decorative Products Inc.
(the "Company").
WHEREAS, the Company desires to obtain Consultant's consulting
services in connection with the Company's business and financial affairs, and
Consultant is willing to render such services as hereinafter more fully set
forth.
NOW, THEREFORE, the parties hereby agree as follows:
1. The Company hereby engages and retains Consultant and Consultant
hereby agrees to use its best efforts, to render to the Company the consulting
services hereinafter described for a period of twelve months commencing as of,
and conditioned upon, the closing of the underwriting contemplated in the
Registration Statement on Form SB-2, File No. 333-_____, declared effective by
the Securities and Exchange Commission on __________, 1998.
2. Consultant's services hereunder shall consist of consultations
with the Company concerning investment banking and other financial matters to be
determined by the Company.
3. The Company agrees that Consultant shall not be precluded during
the term of this Agreement from providing other consulting services or engaging
in any other business activities whether or not such consulting services or
business activities are pursued for gain, profit or other pecuniary advantage
and whether or not such consulting activities are in direct or indirect
competition with the business activities of the Company.
4. The Company agrees to pay to Consultant for its services
hereunder the sum of $50,000. The Company agrees that the entire sum due to
Consultant hereunder shall be paid in full on the date hereof.
5. Consultant shall be entitled to reimbursement by the Company of
such reasonable out-of-pocket expenses as Consultant may incur in performing
services under this Agreement.
6. All final decisions with respect to consultations or services
rendered by Consultant pursuant to this Agreement shall be those of the Company,
and there shall be no liability on the part of the Consultant in respect
thereof. This Agreement and the Underwriting Agreement dated __________, 1998
contain the entire agreement of the parties hereto with respect to the subject
matter hereof, and there are no representations or warranties other than as
shall be herein or therein set forth. No waiver or modification hereof shall be
valid unless in writing. No waiver of any term, provision or condition of this
Agreement, in any one or more instance, shall constitute a waiver of
<PAGE>
any other provision thereof, whether or not similar, nor shall such waiver
constitute a continuing waiver.
7. This Agreement shall be governed, construed and enforced in
accordance with the laws of the State of New York, without regard to the
principals of conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have caused the agreement to be
signed as of the day and year first above written.
ROSEDALE DECORATIVE PRODUCTS INC.
By:_______________________________________
Name: Sidney Ackerman
Title: President
FIN-ATLANTIC SECURITIES, INC.
By:________________________________________
Name:
Title:
2
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated April 4, 1997, April 15, 1997 and November 28, 1997
in the Registration Statement on Form SB-2 and related prospectus of Rosedale
Decorative Products Ltd. for the registration of 625,000 of its units, each unit
consisting of two shares of common stock and two warrants.
Schwartz Levitsky Feldman
Chartered Accountants
Toronto, Ontario, Canada
January 20, 1998
