<PAGE>
As filed with the Securities and Exchange Commission on June 9, 1998
Registration No. 333-.................
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM S-3 /(1)/
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INTERIORS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
13-3590047
(I.R.S. Employer Identification No.)
320 WASHINGTON STREET
MT. VERNON, NEW YORK 10553
(914) 665-5400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
MAX MUNN COPY TO:
PRESIDENT ARTHUR L. ZWICKEL, ESQ.
320 WASHINGTON STREET PAUL, HASTINGS, JANOFSKY & WALKER LLP
MT. VERNON, NEW YORK 10553 555 S. FLOWER STREET, TWENTY-THIRD FLOOR
(914) 665-5400 LOS ANGELES, CALIFORNIA 90071
(213) 683-6000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Approximate date of commencement of proposed sale to public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Title of each Proposed Proposed
class of Maximum Maximum
securities to Amount to be Offering Price Aggregate Amount of
be registered Registered Per Share (2) Offering Price (2) Registration Fee
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, $.001 par value 3,868,930 Shares $1.59375 $6,166,107.18 $1,819.00
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Pursuant to Rule 429, this Registration Statement and Prospectus also serve
as an Amendment to Registration Statement. The Registrant previously
registered (i) an aggregate of 3,800,000 Class WA Redeemable Common Stock
Purchase Warrants ("Class A Warrants"), (ii) an aggregate of 4,081,250
Class WB Redeemable Common Stock Purchase Warrants ("Class B Warrants")
(including 3,800,000 Class B Warrants issuable upon exercise of Class A
Warrants), (iii) an aggregate of 2,290,000 Class WC Redeemable Preferred
Stock Warrants ("Class C Warrants") (Class A Warrants, Class B Warrants and
Class C Warrants are collectively referred to herein as "Redeemable
Warrants"), (iv) an aggregate of 2,290,000 shares of Series A 10%
Cumulative Convertible Preferred Stock, par value $.01 per share ("Series A
Preferred Shares"), issuable upon exercise of Class C Warrants and (v) an
aggregate of 17,291,250 shares of Class A Common Stock, par value $.001 per
share ("Class A Shares"), issuable upon exercise of Class A Warrants and
Class B Warrants and conversion of Series A Preferred Shares, and paid the
applicable filing fee on such securities. The amount of filing fees
previously paid in connection with the registration of such securities was
approximately $23,762.49.
<PAGE>
The Class A Warrants, Class B Warrants, Class C Warrants, Class A Shares
and Series A Preferred Shares referred to above were registered by the
Registrant as follows: (a) 800,000 Class A Warrants, 1,081,250 Class B
Warrants (including 800,000 issuable upon exercise of Class A Warrants) and
2,681,250 Class A Shares issuable upon exercise of Class A Warrants and
Class B Warrants were registered on Form SB-2, as amended by Form SB-2/A
filed on June 15, 1994 (Registration No. 33-77288-NY), (b) 3,000,000 Class
A Warrants, 3,000,000 Class B Warrants issuable upon exercise of Class A
Warrants and 6,000,000 Class A Shares issuable upon exercise of Class A
Warrants and Class B Warrants were registered on Form SB-2, as amended by
Form SB-2/A filed on January 30, 1995 (Registration No. 33-86296) and (c)
2,290,000 Class C Warrants, 2,290,000 Series A Preferred Shares issuable
upon exercise of Class C Warrants and 8,610,000 Class A Shares issuable
upon conversion of Series A Preferred Shares (including Series A Preferred
Shares issuable upon exercise of Class C Warrants) were registered on Form
SB-2, as amended by Form SB-2/A filed on September 18, 1995 (Registration
No. 33-94404).
As of June 1, 1998, there were 2,594,295 Class A Warrants outstanding,
1,306,443 Class B Warrants outstanding, 2,270,000 Class C Warrants
outstanding and 666,668 Series A Preferred Shares outstanding. In
addition, as of June 1, 1998 up to 2,270,000 Series A Preferred Shares were
issuable upon exercise of Class C Warrants and up to 15,304,947 Class A
Shares were issuable upon the exercise of outstanding Redeemable Warrants
and conversion of Series A Preferred Shares (including Series A Preferred
Shares issuable upon exercise of Class C Warrants). This Registration
Statement and Prospectus is being filed for the purpose of meeting the
requirements of Section 10(a)(3) of the Securities Act of 1933, as amended,
with respect to 2,594,295 Class B Warrants issuable upon exercise of Class
A Warrants, 2,270,000 Series A Preferred Shares issuable upon the exercise
of Class C Warrants and 15,304,947 Class A Shares issuable upon exercise of
Redeemable Warrants and conversion of Series A Preferred Shares.
___________________________________________________
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended. The
proposed maximum offering price was calculated based upon the average of
the high and low price of the Common Stock, as reported on the Nasdaq
SmallCap Market on June 8, 1998 pursuant to Rule 457(c) promulgated under
the Securities Act of 1933, as amended.
(3) This Registration Statement also covers such indeterminate number of
additional Class A Shares as may be issued by reason of any stock dividend,
stock split, recapitalization or other similar transaction effected without
receipt of consideration which results in an increase in the number of
outstanding Class A Shares.
___________________________________________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
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 LAW OF ANY SUCH STATE.
Subject to Completion, Dated June 9, 1998
PROSPECTUS
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INTERIORS, INC.
_______________
19,173,877 Shares of Class A Common Stock
2,594,295 Class WB Redeemable Common Stock Purchase Warrants
2,270,000 Shares of Series A 10% Cumulative Convertible Preferred Stock
______________
This Prospectus relates to (a) a total of up to 19,173,877 shares of Class
A Common Stock, $.001 par value ("Class A Shares"), of Interiors, Inc., a
Delaware corporation (the "Company"), issuable upon (i) exercise of 2,594,295
Class WA Redeemable Common Stock Purchase Warrants ("Class A Warrants")
outstanding on June 1, 1998, (ii) exercise of 1,306,443 Class WB Redeemable
Common Stock Purchase Warrants ("Class B Warrants") outstanding on June 1, 1998
and 2,594,295 Class B Warrants issuable upon exercise of Class A Warrants, (iii)
conversion of 666,668 shares of Series A 10% Cumulative Convertible Preferred
Stock, $.01 par value (the "Series A Preferred Shares") outstanding on June 1,
1998 and 2,270,000 Series A Preferred Shares issuable upon exercise of
outstanding Class WC Redeemable Preferred Stock Purchase Warrants ("Class C
Warrants"), (iv) conversion of 6% Convertible Notes in the aggregate principal
amount of $1,700,000 and exercise of 198,333 attached warrants to purchase Class
A Shares, (v) conversion of 15% Convertible Subordinated Notes in the aggregate
principal amount of $1,000,000 and exercise of 100,000 attached warrants to
purchase Class A Shares, (vi) conversion of 15% Convertible Subordinated
Debentures in the aggregate principal amount of $225,000 and exercise of 25,000
attached warrants to purchase Class A Shares, and (vii) conversion of a 15%
Senior Subordinated Convertible Redeemable Promissory Note in the principal
amount of $250,000, exercise of 15,000 Class B Warrants issued in connection
therewith and conversion of Series A Preferred Shares issuable upon exercise of
15,000 Class C Warrants issued in connection therewith, (b) a total of 2,594,295
Class B Warrants issuable upon exercise of Class A Warrants and (c) a total of
2,270,000 Series A Preferred Shares issuable upon exercise of Class C Warrants.
The notes described in (a)(iv), (v), (vi) and (vii) above are collectively
referred to herein as the "Notes," and the warrants attached to certain Notes
described in (a)(iv), (v) and (vi) above are collectively referred to herein as
the "Note Warrants." The Notes and the Note Warrants were issued in March 1998
and April 1998 in connection with various financings by the Company. The Class
A Shares and the Series A Preferred Shares are sometimes collectively referred
to herein as the "Shares."
Each Class A Warrant entitles the holder thereof to purchase one Class A
Share and one Class B Warrant, at an exercise price of $1.50 per Class A
Warrant, at any time through June 22, 1998 (the "Class A Warrant Expiration
Date"). Each Class B Warrant entitles the holder thereof to purchase one Class A
Share, at an exercise price of $2.00 per Class B Warrant, at any time through
June 22, 2000 (the "Class B Expiration Date"). Each Class C Warrant entitles
the holder thereof to purchase one Series A Preferred Share, at a price of $5.50
per Class C Warrant, at any time through September 18, 2000 (the "Class C
Expiration Date"). The Class A Warrants, Class B Warrants and Class C Warrants
are collectively referred to herein as the "Redeemable Warrants." Each Series A
Preferred Share is convertible at the election of the holder thereof into three
Class A Shares. The Registration Statement on Form S-3, of which this
Prospectus is a part, amends the prior registration statements covering the
Redeemable Warrants to reflect the Company's lowering of the exercise price of
the Class A Warrants in September 1995 to $1.50 per Class A Warrant, and of the
Class B Warrants in January 1996 to $2.00 per Class B Warrant, and the Company's
extension of the Class A Expiration Date to June 22, 1998 and of the Class B
Expiration Date to June 22, 2000. The Notes are convertible into Class A Shares
at the election of the holders thereof beginning 180 days after the date of
issuance of the Notes. The terms of the Notes, Note Warrants, Class A Shares,
Series A Preferred Shares and Redeemable Warrants, including the terms upon
which the Company may redeem each class of Redeemable Warrants, are more fully
described herein under "Description of Securities."
<PAGE>
Based on the number of Class A Warrants, Class B Warrants and Class C
Warrants issued and outstanding as of June 1, 1998, and on the number of Class B
Warrants for which outstanding Class A Warrants were exercisable as of such
date, in the event that all such Redeemable Warrants are exercised prior to the
applicable Warrant Expiration Dates and prior to their redemption by the Company
pursuant to the terms thereof, the Company will receive (i) up to $3,891,442.50
upon the issuance of the Class B Warrants and Class A Shares underlying the
Class A Warrants at an exercise price of $1.50 per Class A Warrant, (ii) up to
$7,831,476.00 upon the issuance of the Class A Shares underlying the Class B
Warrants (including the Class B Warrants issuable upon the exercise of the Class
A Warrants) at an exercise price of $2.00 per Class B Warrant, and (iii) up to
$12,567,500.00 upon the issuance of the Series A Preferred Shares underlying the
Class C Warrants at an exercise price of $5.50 per Class C Warrant. In the
event that all the Note Warrants are exercised prior to their applicable
expiration dates, the Company will receive up to $347,082.75 upon the issuance
of the Class A Shares underlying the Note Warrants. The Company will not receive
any proceeds upon conversion of the Notes or Series A Preferred Shares into
Class A Shares. The foregoing possible proceeds are before deduction of
expenses, including legal, accounting and miscellaneous expenses payable by the
Company, which are estimated to be $66,819.00. See "Use of Proceeds" and "Plan
of Distribution."
The Class A Shares are currently listed for quotation on the Nasdaq Small
Cap Market ("NASDAQ") under the symbol "INTXA." On June 8, 1998, the last
reported sales price for the Class A Shares as reported by NASDAQ was $1.5625.
The Series A Preferred Shares are currently listed for quotation on NASDAQ under
the symbol "INTXP." On June 8, 1998, the last reported sales price for the
Series A Preferred Shares as reported by NASDAQ was $4.75. The Redeemable
Warrants are traded on NASDAQ under the symbols "INTXL" for the Class A
Warrants, "INTXW" for the Class B Warrants and "INTXZ" for the Class C Warrants.
On June 8, 1998, the last reported sales prices for the Class A Warrants, the
Class B Warrants and the Class C Warrants as reported by NASDAQ were $1.00 for
the Class A Warrants, $0.375 for the Class B Warrants, and $0.3125 for the Class
C Warrants.
THE OFFERING INVOLVES A HIGH DEGREE OF RISK. FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
SHARES, SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
_______________
The date of this Prospectus is June __, 1998
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Copies of such reports, proxy and information
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at the Commission's regional offices at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of such materials can be
obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a Web site at (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
The Company's Class A Shares, Series A Preferred Shares, Class A Warrants,
Class B Warrants and Class C Warrants are listed on NASDAQ and reports, proxy
and information statements and other information concerning the Company may be
inspected at the offices of the National Association of Securities Dealers,
Inc., 9513 Key West Avenue, Rockville, Maryland 20850.
The Company has filed with the Commission (i) a Registration Statement
under the Securities Act on Form SB-2, as amended by Form SB-2/A filed on June
15, 1994, (ii) a Registration Statement under the Securities Act on Form SB-2,
as amended by Form SB-2/A filed on January 30, 1995, (iii) a Registration
Statement under the Securities Act on Form SB-2 as amended by Form SB-2/A filed
on September 14, 1995, (iv) a Registration Statement under the Securities Act on
Form SB-2, as amended by Form SB-2/A filed on August 14, 1997, and (v) a
Registration Statement on Form S-3 (together with any amendments and exhibits
thereto, (i) through (v), collectively, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Class A Shares offered hereby. This Prospectus is part of the Registration
Statement and does not contain all of the information set forth in the
Registration Statement, certain portions of which have been omitted pursuant to
the rules and regulations of the Commission. For further information with
respect to the Company and the offering pursuant to this Prospectus, reference
is made to such Registration Statement, which may be inspected without charge at
the Commission's office in Washington, D.C., and copies of all or any part
thereof may be obtained from such office after payment of fees prescribed by the
Commission.
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information....................... 3
Incorporation by Reference.................. 4
Forward-Looking Statements.................. 4
The Company................................. 5
Risk Factors................................ 6
Material Changes............................ 13
Description of Securities................... 14
Plan of Distribution........................ 16
Use of Proceeds............................. 17
Experts..................................... 17
Indemnification of Directors and Officers... 18
</TABLE>
NO DEALER, SALESMAN OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
-3-
<PAGE>
INCORPORATION BY REFERENCE
This Prospectus incorporates by reference certain documents which are not
presented herein or delivered herewith. These documents are available upon
request from Al San Filippo, Interiors, Inc., 320 Washington Street, Mt. Vernon,
New York 10553, Telephone (914) 665-5400.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, upon the written or oral request of any such person, a copy of any
and all of the information that has been incorporated herein by reference, other
than exhibits to such information, unless such exhibits are specifically
incorporated herein by reference into the information that this Prospectus
incorporates. Requests for such documents should be directed to the person
indicated in the immediately preceding paragraph.
The following documents, which have been filed with the Commission
pursuant to the Exchange Act, are hereby incorporated by reference herein:
(a) Company's Annual Report on Form 10-KSB for the year ended June 30,
1997;
(b) Company's Quarterly Reports on Form 10-QSB for the quarters ended
September 30, 1997, December 31, 1997 and March 31, 1998;
(c) Company's Current Report on Form 8-K, as filed with the Commission
on March 25, 1998 and as amended by the Company's Current Report on Form 8-K/A
as filed with the Commission on May 26, 1998;
(d) Company's Current Report on Form 8-K, as filed with the Commission
on April 6, 1998 and as amended by the Company's Current Report on Form 8-K/A as
filed with the Commission on May 29, 1998; and
(e) The description of the Class A Shares, the Series A Preferred Shares
and the Redeemable Warrants contained in the Company's Registration Statement
under the Securities Act on Form SB-2, as amended by Form SB-2/A filed on June
15, 1994, in the Company's Registration Statement under the Securities Act on
form SB-2, as amended by Form SB-2/A filed on January 30, 1995, in the Company's
Registration Statement under the Securities Act on Form SB-2, as amended by Form
SB-2/A filed on September 14, 1995, and the Company's Registration Statement
under the Securities Act on Form SB-2, as amended by Form SB-2/A filed on August
14, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date hereof and prior to the termination
of this offering shall be deemed to be incorporated herein by reference and to
be a part hereof from the date of filing of such documents. All information
appearing in this Prospectus or in any document incorporated herein by reference
is not necessarily complete and is qualified in its entirety by the information
and financial statements (including notes thereto) appearing in the documents
incorporated by reference herein and should be read together with such
information and documents. Any statement contained in a document incorporated
or deemed to be incorporated herein by reference shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document that is deemed to
be incorporated herein by reference modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this
Prospectus constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company,
or industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, those set forth in this
Prospectus, including under the caption "Risk Factors." Given these
uncertainties, prospective investors are cautioned
-4-
<PAGE>
not to place undue reliance on such forward-looking statements. The Company
disclaims any obligation to update any such statements or to publicly announce
any updates or revisions to any of the forward-looking statements contained
herein to reflect any change in the Company's expectation with regard thereto or
any change in events, conditions, circumstances or assumptions underlying such
statements.
THE COMPANY
Since 1990, Interiors, Inc., a Delaware corporation (the "Company"), has
been engaged in the manufacturing and marketing of museum quality traditional
and contemporary picture frames and framed mirrors to museums, art galleries,
interior decorators, collectors and frame retailers. The Company has
historically had two primary operating divisions: the Custom Framing Division,
which, through its A.P.F. Master Framemakers and Conservators Division ("APF"),
is engaged in the manufacture of antique and contemporary picture frames for
museums, art galleries, designers, collectors and frame retailers; and the
Wholesale Division, which manufactures and markets high-end traditional and
contemporary mirrors which are sold through upscale retail furniture and
department stores.
In March 1998, the Company completed two acquisitions which provide the
Company with an expanded breadth of product offerings in the home decorative
accessories industry and are expected to result in a significant increase over
the Company's revenues of $5,792,131 in fiscal year 1997. On March 10, 1998,
the Company entered into, and consummated, an Agreement and Plan of Merger
whereby Henlor, Inc. ("Henlor"), a Los Angeles, California-based company, has
become a wholly-owned subsidiary of the Company. Henlor, through its wholly-
owned subsidiary Vanguard Studios, Inc. ("Vanguard"), designs, manufactures and
wholesales decorative accessories for the home, including framed hand-painted
oil paintings, framed prints under glass, wall mirrors, lamps, sculptures and
decorative tabletop accessories. On March 23, 1998, the Company entered into,
and consummated, an Agreement and Plan of Merger whereby Merchandise Sales, Inc.
("MSI"), another company based in Los Angeles, California, has become a wholly-
owned subsidiary of the Company through a merger with and into the Company's
wholly-owned subsidiary, Artmaster Studios, Inc. ("Artmaster"). MSI (and, after
the merger, Artmaster) designs, manufactures and wholesales wall decor and
lighting products for the home to slightly lower-priced market segments than
Vanguard.
On April 21, 1998, the Company and Decor Group, Inc., a Delaware
corporation ("Decor"), entered into an Agreement and Plan of Merger approved by
their respective Boards of Directors, whereby each issued and outstanding share
of common stock, par value $.0001 per share, of Decor (other than those owned by
the Company), will be converted into the right to receive 0.50 of the Company's
Class A Shares. Upon and in the event of the consummation of the merger of
Decor with and into the Company, the Company will engage in the design,
manufacturing and marketing of metal wall, table and freestanding sculptures.
The Company has been an affiliate of Decor since the inception of Decor in 1996,
and as of the date of the announcement of the merger owned approximately 86% of
the voting securities of Decor.
On June 2, 1998, the Company announced that it had reached an oral
agreement to purchase all of the issued and outstanding common stock of Windsor
Art, Inc., a Missouri corporation ("Windsor"). Consummation of this transaction
remains subject to the negotiation and execution of a definitive purchase
agreement. Windsor engages in the manufacture and distribution of decorative
mirrors and framed prints to furniture stores, designers, hotels and department
stores throughout the United States.
The Company has historically operated two showrooms, one in New York City
and one at the Company's executive offices located in Mt. Vernon, New York.
With the acquisitions of Henlor and MSI, the Company has added two large
showrooms in High Point, North Carolina, and two showrooms in San Francisco.
The Company was originally incorporated in New York in October 1990 under
the name A.P.F. Holdings, Inc., which subsequently merged with and into
Interiors, Inc., a Delaware corporation, in March 1994. The Company's principal
executive offices are located at 320 Washington Street, Mt. Vernon, New York
10553; its telephone number is (914) 665-5400.
-5-
<PAGE>
RISK FACTORS
An investment in the Shares offered hereby involves a high degree of
risk. The following risk factors should be considered carefully in evaluating
an investment in the Shares offered hereby.
RISKS ASSOCIATED WITH COMPANY ACQUISITION GROWTH STRATEGY; NO ASSURANCE OF
ABILITY TO MANAGE GROWTH; DEPENDENCE ON OUTSIDE FINANCING SOURCES
A significant component of the Company's strategy is to grow in size and
breadth of product offerings through acquisitions, such as the acquisitions of
Henlor and MSI and the agreement to acquire Decor. See "The Company." Certain
risks are inherent in an acquisition strategy, such as increasing leverage and
debt service requirements and combining disparate company cultures and
facilities. The process of integrating the recently acquired businesses of
Henlor, MSI and Decor may involve unforeseen difficulties and may require a
disproportionate amount of management's attention and the Company's financial
and other resources. Failure by the Company to successfully integrate the
businesses of Henlor, MSI and Decor could have a material adverse effect on the
Company's results of operations and financial condition. The loss of, or
changes in buying patterns of, any significant customers of Henlor, MSI or Decor
would likely have an adverse effect on the Company's business, financial
condition and results of operations. The full impact of these acquisitions on
the Company cannot be forecasted at this time. There can be no assurance that
the Company will be able to integrate successfully the operations, facilities
and management of Henlor, MSI and Decor or realize any benefits from these
acquisitions.
Although additional acquisitions may enhance the Company's ability to
increase net income over time, such acquisitions will present greater
administrative burdens, increased exposure to uncertainties inherent in
acquisitions and marketing new products and services, the financial risks of
additional operating costs and potential additional interest costs. There can be
no assurances that management can manage the specific expansion described
herein, nor can there be any assurance that the Company will be able to recruit
the necessary managers and employees required for such growth. The Company will
also most likely need to obtain additional equity or debt financing in order to
complete such acquisitions and realize on its business strategy. There can be
no assurance that the Company will be able to conclude any acquisitions in the
future on terms favorable to it, or at all, or that, once consummated, such
acquisitions will be advantageous to the Company.
The size, timing and integration of possible future acquisitions may
cause substantial fluctuations in operating results from quarter to quarter. As
a result, operating results for any quarter may not be indicative of the results
that may be achieved for any subsequent fiscal quarter or a full fiscal year.
FINANCIAL CONDITION
The Company's independent auditors have modified their report on the
Company's financial statements for the year ended June 30, 1997. The Company's
ability to continue as a going concern is dependent upon the achievement of
certain initiatives currently in progress. Sales from operations for the
Company's custom frame division for the nine months ended March 31, 1998
increased by approximately $3,267,000 to approximately $6,225,000, or 110% over
the approximately $2,958,000 for the nine-month period ended March 31, 1997.
The Company expects to continue to grow its custom frame division. With the
consummation of the acquisitions of Henlor and MSI, management believes that the
Company has further improved its financial condition. However, the Company's
ability to continue as a going concern is dependent upon its ability to
integrate the operations of Henlor and MSI into the Company, and to consummate
other potential acquisitions, including the merger with Decor. There is no
assurance that the Company will be able to successfully achieve these
initiatives.
The Company is currently undertaking additional initiatives to improve
its results of operations, including (i) seeking to improve efficiency and
reduce expenses by consolidating the packaging, warehousing and shipping
functions of Henlor and MSI in approximately 30% less space than that currently
utilized, and to consolidate administrative activities for all divisions, such
as purchasing and accounting, into the Company's corporate headquarters in Mount
Vernon, New York, (ii) seeking to grow APF's market share (currently only 10%)
of the high-end frame retailers market through an aggressive advertising and
marketing campaign, including creating direct mail brochures, advertising in
trade journals, participating in
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leading trade shows and telemarketing and (iii) contracting with Artisan House,
Inc. ("Artisan"), a subsidiary of Decor, for the distribution of framed mirrors
to the home furnishings industry. The Company has also participated with Artisan
in the production of a catalog for the purpose of increasing revenues from
wholesale sales. In the event of the consummation of the Company's acquisition
of Decor, the Company will acquire the business of Artisan. No assurances can be
given that these actions, or any subsequent actions, will materially improve the
Company's financial condition..
SIGNIFICANT FINANCING COSTS
Currently, the Company incurs significant costs in the financing of its
business operations, and currently has notes payable in the aggregate principal
amount of approximately $10,362,000. Two principal sources of financing are
currently available to the Company. On February 15, 1995, the Company entered
into an asset based financing agreement with United Credit Corporation
("United"). As of March 31, 1998, the amount due to United was approximately
$1,443,000. Interest is determined at an annual rate of 16% plus related fees.
The Company currently maintains a line of credit with Bank of New York based on
certain inventories, bearing interest at a rate of prime plus 1% (9.50% as of
the date of this Prospectus). As of March 31, 1998, the balance of the line of
credit was approximately $315,000. The Company and Bank of New York have agreed
that commencing December 1, 1997 the line of credit will be reduced by $10,000
per month. There can be no assurance that cash flow from operations will be
sufficient for the foreseeable future to meet debt service requirements and to
make possible acquisitions and capital expenditures. The Company is currently
pursuing alternative financing arrangements, but at of the date of this
Prospectus, no such arrangements have been made and there can be no assurance
that any will be made in the future.
During November 1997 the Company borrowed $250,000 from Ekistics Corp.
This loan is due December 31, 1998 and bears interest at 12% per annum. In
addition, the Company has outstanding $500,000 under a loan facility with BH
Funding as of March 31, 1998. The maturity date of the loan is April 28, 1999,
and the loan bears interest at an annual rate of 15%. The Company's subsidiary,
Henlor, had $2,448,000 in outstanding revolving bank debt as of March 31, 1998
owing to Capital Business Credit. The debt bears interest at an annual rate of
prime plus 4%. The Company's recent issuance of convertible notes in the
aggregate principal amount of $3,175,000 places further financial constraints on
the Company. For a more complete discussion of the terms of such notes, see
"Material Changes."
In connection with the Company's two recent acquisitions of Henlor and
MSI, the Company and its wholly owned subsidiaries have issued three promissory
notes in the aggregate principal amount of $1,604,379. Two subordinated
promissory notes (the "MSI Notes") in the aggregate principal amount of
$810,000, each with a maturity date of March 31, 1999, were issued to Robert M.
Perkowitz, as trustee of the former shareholders of MSI, and a promissory note
(the "Henlor Note") at an interest rate of 8% per annum, in the aggregate
principal amount of $794,379, with a maturity date of December 1, 2000, was
issued by Henlor, Inc. to Michael H. Greeley, as representative for each of the
former shareholders of Henlor.
No assurances can be given that the Company will be able to enter into
alternative financing arrangements, nor can assurances be given that such
alternative arrangements will be on terms more favorable to the Company than, or
comparable to, the Company's current financing arrangements.
CUSTOMER CONCENTRATION
APF has historically conducted significant business activities with
certain major customers, resulting in a concentration of revenues in that
division from these customers. Revenues from shipments to three national
fashion retailers, Victoria's Secret, Abercrombie & Fitch, and The Limited,
traditionally have represented, in the aggregate, approximately one-third of
APF's total revenues. Artmaster and Vanguard target moderate-price markets and
share many of the same customers, which are primarily furniture specialty
chains, furniture departments in department stores and catalogs. Among their
leading customers are J.C. Penney, Sears HomeLife, Levitz Furniture and Wickes
Furniture. There can be no assurance that the Company will continue to receive
orders from existing major customers. Should the Company's principal customers
discontinue the placement of orders, the Company would be materially adversely
affected.
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RELIANCE ON OUTSIDE SUPPLIERS
The Company purchases a wide variety of raw materials for use in its
manufacturing operations, including wood, gold leaf, plexiglass, matboards and
composite resins. These materials are purchased from a wide variety of sources,
and the Company has at least two, and often more, suppliers for each item used
in its manufacturing process, and is therefore not dependent upon any sole
supplier. Nevertheless, due to the specialized nature of the Company's business
operations and materials requirements, should the present mix of suppliers
change, a potential disruption to the Company's ability to manufacture, and a
corresponding effect on revenues, could occur. Prices of certain commodities,
including lumber, used in the Company's manufacturing operations fluctuate over
time depending on factors such as weather and demand, which impact its
availability and cause a corresponding increase in prices. Upward trends in
prices could have a short-term negative impact on the Company's margins.
RELIANCE ON TRADE NAME REPUTATION
The Company's custom frame operation is conducted under the tradename
"A.P.F. Master Framemakers," which tradename has been used in the custom frame
business since 1955 and which the Company acquired in 1990. The Company
believes that its ability to market its high-end custom picture and mirror
frames has been based largely upon its reputation as a reliable source of high-
quality frames suitable for use by nationally known museums, art galleries,
decorators, fine frame retailers and collectors. As a result of this reliance
on its reputation, if the Company's custom frame products or service were to
become considered unreliable, or otherwise receive negative recognition, these
operations could experience a significant adverse impact. Similarly, many of
Vanguard's products carry the trademark "Lee Reynolds(R)," which is a recognized
name in the decorative accessories industry. If this trademark were to receive
negative recognition, sales of Vanguard products would likely decrease, having a
significant adverse impact on the Company's revenues.
COMPETITION
Management believes that the sale of decorative accessories in the
wholesale market is highly fragmented, with thousands of small, specialized
manufacturers and distributors. Management is not currently aware of a
manufacturer of upscale decorative accessories attempting to acquire or merge
with several additional manufacturers of decorative accessories similar to the
Company's acquisition strategy. However, there is no assurance that one or more
other manufacturers may engage in such an acquisition strategy, and in that case
such manufacturer or manufacturers may have greater financial resources than the
Company to complete such acquisitions, resulting in the Company's loss of market
share, which could materially adversely affect the Company's business and
financial condition. Furthermore, there can be no assurance that the Company's
acquisition strategy will be successful.
RELIANCE ON KEY PERSONNEL, SKILLED CRAFTSMEN AND SALESPERSONS; LACK OF "KEY
PERSON" LIFE INSURANCE FOR KEY PERSONNEL
The Company is highly dependent on the services of several key personnel.
Max Munn, President and Chief Executive Officer of the Company, has held both
positions since 1995. Mr. Munn is based in New York and maintains
responsibility for corporate strategy and acquisitions. Effective January 1,
1998, the Company entered into a five-year employment agreement with Mr. Munn.
Dennis D. D'Amore is currently Chief Operating Officer of Vanguard and
Artmaster. Mr. D'Amore is based in Los Angeles and is responsible for the day-
to-day operations of the Company's decorative accessories operations, including
manufacturing, marketing, sales and product development. John D. Mazzuto,
Executive Vice President and Chief Financial Officer of the Company, has
recently joined the Company and is responsible for obtaining acquisition
financing and overseeing the integration of operations of the Company and its
divisions and subsidiaries. The loss of the services of any of these executive
could have a material adverse effect upon the business and prospects of the
Company. The Company does not currently maintain "key person" life insurance on
any of its key personnel.
The Company intends in the near future to create a number of senior
management positions to help oversee the Company's growth and operations. The
Company believes that its ability to manage its planned growth successfully will
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depend in large part on its ability to attract and retain highly skilled and
qualified personnel. The inability to attract or retain such personnel could
have a material adverse effect on the Company's business, financial condition
and results of operations.
APF relies on its skilled craftsmen and creative designers with
specialized skills in the design and crafting of its frames and the manufacture
of other of its products. Although the Company attempts to hire and train
skilled craftsmen, the inability of the Company to retain skilled craftsmen and
creative designers may adversely affect the division's operations. Furthermore,
the Company is dependent on the showroom salespersons who have relationships
with museum curators, art collectors, architects and other purchasers of
"museum" quality picture frames. The loss of such persons could have a material
adverse impact on the Company.
ENVIRONMENTAL REGULATIONS
The Company is subject to federal, state and local governmental
environmental protection laws, rules and regulations relating to its
manufacturing operations. Any of these regulations could require the Company to
acquire equipment or to incur substantial other expenses to comply with
environmental regulations. If substantial additional expenses were incurred by
the Company, product costs could increase significantly, thus materially
adversely affecting the Company's business, financial condition and results of
operations. The Company believes that its facilities are in material compliance
with all applicable laws, rules and regulations, and that it has obtained all
material permits necessary to conduct its business. Any failure by the Company
to comply with present or future environmental laws, rules and regulations could
result in fines imposed on the Company, suspension of production or cessation of
operations, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations.
POSSIBILITY OF LITIGATION INVOLVING WORKS OF ART
Although the Company endeavors to buy products which it believes the
supplier has the right to distribute, in the event an artist of the distributed
work claims that his or her copyright has been violated, the Company may be
joined in any action against the supplier for infringement. Each of the
Company's vendors is required to execute and return to the Company a certificate
stating that the merchandise conforms to all federal and state laws as to
labeling, brands, etc., and agreeing to indemnify the Company against claims
arising from violation of trademark, patent or similar laws; however, there can
be no assurance that the Company would be successful in enforcing any such
agreement. The Company knows of no such claims which have been asserted nor
lawsuits which have been threatened other than as disclosed herein. There can
be no assurance that claims or lawsuits will not arise in the future or that the
cost of defending such actions will not be material. There can be no assurance
that the Company has obtained sufficient insurance coverage, or that the Company
will have sufficient resources, to satisfy any such claims or lawsuits.
VOTING CONTROL BY A RELATED PARTY AND AN ESCROW AGENT
Laurie Munn, wife of the Company's President and Chief Executive Officer,
owns approximately 49%, and Michael Levine, Esq., as escrow agent, holds
approximately 51% (the "Escrow Shares"), of the Company's issued and outstanding
shares of Class B Common Stock, $.001 par value per share (the "Class B
Shares"). Each Class B Share (except for the Escrow Shares) entitles the holder
thereof to five non-cumulative votes per share, or in the aggregate
approximately 42% of the votes, on all matters on which stockholders may vote at
meetings of stockholders (assuming that none of the outstanding Redeemable
Warrants are exercised or outstanding Series A Preferred Shares are converted).
Accordingly, these two individuals may be in a position to influence the
election of the Company's directors and the course of the Company's business
affairs. The Escrow Shares are entitled to vote only in the event of the
Company's default under its settlement agreement with Ann Stevens, a former
Company executive. See "Possible Change of Control" below. The Company is not
currently in default on its obligation under the settlement agreement. On
January 8, 1998, Laurie Munn obtained an option to acquire the Escrow Shares in
consideration, among other things, for her continuing personal guarantees of
Company obligations to several lenders.
POSSIBLE CHANGE OF CONTROL
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In fiscal year 1996 and 1997, the Company experienced various legal
proceedings among the Company's President and Chief Executive Officer, his wife,
other members of the Company's Board of Directors, a former member of the
Company's Board of Directors, and such former member's wife who was also a
Company executive. The parties to these various actions have entered into
various agreements in settlement of all differences. Under the terms of
settlement, the Company must, among other things, provide over seven years
beginning June 1996 bi-weekly payments in the amount of $3,654 to Ann Stevens in
settlement of her employment agreement with the Company. Ms. Stevens' attorney,
Michael Levine, Esq., has been appointed escrow agent and was issued the Escrow
Shares (see "--Voting Control by Related Party and Escrow Agent") together with
7,500,000 Class A Shares. Mr. Levine is empowered to vote these shares, which
represent in the aggregate approximately 48% of the votes on which stockholders
may vote at meetings of stockholders, to replace the Company's Board of
Directors in the event of the Company's default of its obligations under the
settlement agreements. After the Company fully performs under the settlement
agreements, the shares held in escrow will be returned to the Company.
In addition to the foregoing, as part of the terms of the Agreement and
Plan of Merger (the "MSI Merger Agreement") among the Company, its wholly-owned
subsidiary Artmaster Studios, Inc. ("Artmaster"), and MSI, and certain former
shareholders of MSI, Laurie Munn, the holder of 49% of the Class B Shares,
executed an irrevocable proxy appointing Robert M. Perkowitz, as trustee for the
former shareholders of MSI (the "Proxyholder"), as her attorney-in-fact, if an
event of default occurs under either of the MSI Notes. The proxy appoints the
Proxyholder to attend any meeting of shareholders of the Company in Ms. Munn's
stead, and to vote the Class B Shares held by Ms. Munn in the Proxyholder's
complete and absolute discretion. One of the MSI Notes further provides that
an event of default triggers the issuance to the Proxyholder of Class A Shares
having a fair market value of $5 million. Accordingly, if an Event of Default
occurs under the MSI Notes, the Proxyholder may be in a position to influence
the election of the Company's directors and the course of the Company's business
affairs.
POTENTIAL DILUTION OF CLASS A SHARES
The issued and outstanding Class A Shares are subject to dilution. The
Class B Shares (other than the Escrow Shares) are convertible into Class A
Shares at the option of the holder on a one-for-one basis at any time after
issuance, thereby increasing the number of Class A Shares outstanding. In
addition, the issuance of additional Class B Shares could, under certain
circumstances, have the effect of delaying or preventing a change in control of
the Company and may adversely affect the voting and other rights of holders of
Class A Shares.
Each Series A Preferred Share is convertible commencing one year from the
date of issuance, subject to adjustment, into three Class A Shares. The
issuance of Class A Shares upon conversion of the Series A Preferred Shares
would increase the number of Class A Shares outstanding. In addition, the
Company has paid and may pay in the future dividends on the Series A Preferred
Shares in the form of Class A Shares. Most recently, in January 1998 the
Company issued Class A Shares having a market value of approximately $530,000 to
the record holders of its Series A Preferred Shares in payment for accrued
dividends that were payable in September 1996 and March 1997.
In March 1998 and April 1998, the Company issued the Notes (including the
attached Note Warrants), in the aggregate principal amount of $3,175,000. For a
more complete discussion of the terms of the Notes and the Note Warrants, see
"Material Changes" below.
The anticipated financing requirements of the Company, as well as the
proposed merger with Decor, will likely cause it to issue substantial amounts of
its securities in the future by way of private or public offerings or exchange
offerings of the Company's securities or other financing arrangements. It can
be expected that such additional issuances will substantially dilute the public
ownership as well as reduce the voting power and ownership percentage of Class A
Shares issued in this offering or otherwise underlying the Class A Warrants,
Class B Warrants, Class C Warrants, Series A Preferred Shares, the Notes and the
Note Warrants. Inasmuch as the Company may, in the future, issue authorized
shares of Common Stock or Preferred Stock without prior stockholder approval,
there may be substantial dilution to the interests of the Company's
stockholders. In addition, a stockholder's pro rata ownership interest in the
Company may be reduced to the extent of the issuance or exercise of any options
or warrants relating to the Class A Shares.
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The terms of the Agreement and Plan of Merger (the "Vanguard Merger
Agreement") among the Company, its wholly-owned subsidiary Vanguard Acquisition
Corp., Henlor and the former shareholders of Henlor provide for potential
issuance of additional Class A Shares to the former shareholders of Henlor. If,
on the second anniversary of the closing date of the Vanguard Merger Agreement,
the Class A Shares issued to the shareholders of Henlor (which had a fair market
value of $500,000 on the date of the Vanguard Merger Agreement) have a fair
market value of less than $250,000, then the Company will either (i) issue
additional Class A Shares until the former Henlor shareholders have Class A
Shares with fair market value equal to $250,000 or (ii) pay the shortfall amount
in cash to the former Henlor shareholders. Any consideration given under (i) or
(ii) must be given within 20 days of the second anniversary of the closing date.
Provisions similar to those in the Vanguard Merger Agreement are
contained in the MSI Merger Agreement. If, on the first anniversary of the
closing date of the MSI Merger Agreement, the Class A Shares issued to the
former shareholders of Henlor have a fair market value of less than $1.25
million, then the Company shall issue to such former shareholders additional
Class A Shares until the former shareholders have Class A Shares equal to $1.25
million. Any additional issuance of Class A Shares must be made within 10
business days of the first anniversary of the closing date.
The terms of one of the MSI Notes contains further provisions which, if
invoked, would cause the issuance of a substantial number of Class A Shares. If
an event of default occurs under such note, the Company is required to issue to
Robert M. Perkowitz, as trustee for the former shareholders of MSI, additional
Class A Shares with a fair market value of $5 million. An "Event of Default"
under such MSI Note means a failure of the Company to make any interest or
principal payment under the note within five days after the due date, unless
cured within 10 days after receipt of written notice of the failure to pay.
VOLATILITY OF SHARE PRICE
The trading prices of the Class A Shares may be subject to wide
fluctuations. Factors such as variations in operating results, adverse results
in litigation, governmental regulation or general economic and market conditions
may adversely affect the market price of the Class A Shares.
NO DIVIDENDS ON CLASS A SHARES
To date, the Company has never declared nor paid cash dividends on the
Class A Shares. For the foreseeable future, the Company does not anticipate
declaring or paying any cash dividends on the Class A Shares.
POTENTIAL RESCISSION RIGHTS
From the date of the Company's Initial Public Offering on June 15, 1994
through June 1, 1998, the Company has issued approximately 1,959,579 Class A
Shares upon the exercise of Redeemable Warrants and the conversion of Series A
Preferred Shares. Certain of these Class A Shares may have been issued by the
Company in violation of the requirement under the Securities Act of 1933, as
amended, in that the Company may have failed to deliver to the purchasers of
such Class A Shares a prospectus meeting the requirements of Section 10(a)(3) of
the Securities Act of 1933, as amended. Accordingly, certain holders of such
Class A Shares may have the right to recover from the Company the consideration
paid for such Class A Shares or damages as prescribed by applicable securities
laws.
CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AND BYLAWS; CERTAIN
PROVISIONS OF VTR WARRANTS; POTENTIAL ANTI-TAKEOVER EFFECT
The Company's bylaws contain provisions which may discourage certain
transactions which involve an actual or threatened change in control of the
Company. The bylaws provide that certain vacancies on the Board of Directors
shall be filled by a majority of the remaining directors then in office, limit
the ability to call a special meeting of shareholders, and require that no
proposal by a shareholder be presented for vote at a special or annual meeting
of shareholders unless the
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shareholder provides the Board of Directors or the secretary of the Company with
written notice of intention to present a proposal for action at the meeting in
accordance with the bylaws.
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation provides that a director of the Company will not be
personally liable to the Company or its stockholders for monetary damages for
breach of the fiduciary duty of care as a director, except under certain
circumstances including breach of the director's duty of loyalty to the Company
or its stockholders or entering into any transaction from which the director
derived an improper personal benefit. See "Indemnification of Directors and
Officers" below.
The Company has expressly not opted out of, and is therefore subject to,
Section 203 of the Delaware General Corporation Law regulating "business
combinations" between Delaware corporations and "interested stockholders."
Under this provision, a corporation subject to Section 203 may not engage in any
business combination with any interested stockholder for a period of three years
from the date of such person became an interested stockholder unless certain
conditions are satisfied. This provision may also have the effect of delaying or
preventing a change in control of the Company.
The terms of the issuance to VTR Capital, Inc. of warrants to purchase
Series A Preferred Shares and Class C Warrants include an agreement by the
Company that, while such warrants are outstanding, the Company will not enter
into any merger or reorganize or take any other action which would terminate
such warrants without the consent of the holder thereof.
NO ASSURANCE OF CONTINUED PUBLIC TRADING MARKET OR CONTINUED NASDAQ INCLUSION
Prior to the Company's Initial Public Offering, which took place on June
23, 1994, there was no established trading market for any of the Company's
securities. In connection with the Initial Public Offering, the Company applied
for, and was granted, inclusion of the Class A Shares, the Class A Warrants and
the Class B Warrants on the Nasdaq SmallCap Market ("NASDAQ"). The Class A
Shares and Class A Warrants commenced quotation on NASDAQ on June 23, 1994 under
the symbols "INTXA" and "INTXW," respectively, the Class B Warrants commenced
quotation on NASDAQ on June 24, 1994 under the symbol "INTXZ," and the Series A
Preferred Shares and the Class C Warrants commenced quotation on NASDAQ on
September 18, 1995 under the symbols "INTXP" and "INTXL," respectively.
However, there can be no assurance given that the Company will be able to
satisfy the requirements for continued quotation, that such quotation will
otherwise continue or that any market for the Company's securities that has
developed since completion of the Initial Public Offering will continue or be
sustained. If for any reason, however, any of the Company's securities are not
eligible for continued listing or a public trading market does not develop,
purchasers of the Class A Shares, Series A Preferred Shares, Class A Warrants,
Class B Warrants or Class C Warrants may have difficulty selling their
securities should they desire to do so.
POSSIBLE NASDAQ DELISTING; POTENTIAL REGULATION AS A PENNY STOCK
The continued trading of the Class A Shares on NASDAQ is conditioned upon
the Company's meeting certain quantitative and qualitative requirements
regarding assets, capital, earnings surplus, stock price and corporate
governance features. The National Association of Securities Dealers, Inc.
revised the standards for continued listing effective February 23, 1998, which
standards include: (i) maintenance of any of (x) $2,000,000 of net tangible
assets, (y) $35,000,000 of market capitalization, or (z) $500,000 of net income
for two of the last three years; (ii) at least 500,000 shares in public float
valued at $1,000,000 or more; (iii) a minimum bid price for Class A Shares of
$1.00; (iv) at least two market makers; and (v) at least 300 holders of Class A
Shares.
As of March 31, 1998, the Company had net tangible assets of
approximately $5,442,000. The Company has not received any notice from NASDAQ
that the Company is not currently in compliance with the new requirements for
continued listing. There can be no assurance that the Company will be successful
in maintaining these criteria. To the extent the Company is unable to satisfy
the new maintenance criteria, the Class A Shares will be subject to being
delisted, and trading in the Class A Shares thereafter, if any, will likely be
conducted in the over-the-counter markets in the so-called "pink sheets" or the
National Association of Securities Dealers' Electronic Bulletin Board. As a
consequence of any such delisting, it is
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expected that the stockholders of the Company would find it more difficult to
dispose of, or to obtain accurate quotations as to the market value of, the
Class A Shares. In addition, any such delisting will make the Class A Shares
substantially less attractive as collateral for margin and purpose loans, for
investment by financial institutions under their internal policies or state
legal investment laws, as consideration in future capital raising transactions.
In the event that the Class A Shares are no longer approved for quotation
on NASDAQ the Class A Shares may become subject to regulation as a "penny
stock." The Commission has adopted regulations which generally define "penny
stock" to be any equity security that has a market price or exercise price less
than $5.00 per share, subject to certain exceptions, including listing on the
NASDAQ. If the Class A Shares are removed from listing by NASDAQ and no other
exception applies, the Class A Shares may become subject to the Commission's
Penny Stock Rules, Rule l5g-1 through Rule l5g-9 under the Exchange Act. For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of such securities and have received
the purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a risk disclosure
document mandated by the Commission relating to the penny stock market. The
broker-dealer must also disclose the commission payable to both the broker-
dealer and the registered representative, current quotations for the securities
and, if the broker-dealer is the sole market maker, the broker-dealer must
disclose this fact and the broker-dealer's presumed control over the market.
Finally, monthly statements must be sent disclosing recent price information for
the penny stock held in the account and information on the limited market in
penny stocks. Consequently, the penny stock rules may restrict the ability of
broker-dealers to sell the Company's securities and may affect the ability of
holders to sell the Company's securities in the secondary market and the price
at which such holders can sell any such securities. Rule l5g-9 under the
Exchange Act imposes additional sales practice requirements on broker-dealers
who sell such securities except in transactions exempted from such rule,
including transactions meeting the requirements of Rule 505 or 506 of Regulation
D promulgated under the Securities Act and transactions in which the purchaser
is an institutional accredited investor or an established customer of the
broker-dealer.
MATERIAL CHANGES
In March 1998 and April 1998, the Company issued convertible notes (the
"Notes") in the aggregate principal amount of $3,175,000. Of the Notes, notes
in the principal amount of $1,700,000 (the "6% Notes") accrue at a rate of 6%
per annum, with interest payable quarterly beginning July 1, 1998; any default
in payment of interest triggers a default interest rate of 16% per annum. The
maturity date of the 6% Notes is March 19, 2000. Events of default under these
notes include: failure to make timely payment; breach of a covenant; breach of a
representation or warranty; bankruptcy; judgments in excess of $50,000 which
remain outstanding for 45 days; bankruptcy; delisting of the Class A Shares from
NASDAQ; Commission stop trade order or NASDAQ trading suspension with respect to
the Class A Shares for 10 days or more; or a failure to register the Class A
Shares in accordance with the subscription agreements between the Company and
the noteholders. $1,000,000 of the Notes are three year convertible
subordinated notes secured by the stock of Henlor with an interest rate of 15%.
These notes are convertible at the election of the holders into Class A Shares
at a rate of $1.50 per share. The remaining $475,000 of the Notes are three
year unsecured subordinated debentures with an interest rate of 15%. These
debentures are convertible at the holders' election into Class A Shares at a
rate of $1.75 per share. Attached to certain of the Notes are warrants (the
"Note Warrants") to purchase an aggregate of 320,833 Class A Shares with
expiration dates identical to the maturity dates of the Notes to which they are
attached. These exercise prices range from $1.75 to $2.00 per Note Warrant. In
addition, 15,000 Class B Warrants and 15,000 Class C Warrants were issued in
connection with the issuance of certain Notes.
The 6% Notes are convertible into Class A Shares according to the
following terms: one-half of the principal amount of the 6% Notes are
convertible at the election of the noteholders from and after 180 days after the
date of issuance and at any time prior to full repayment of the principal amount
of the 6% Notes; the entire principal amount of the 6% Notes is convertible at
the election of the noteholders from and after 270 days after the date of
issuance and at any time prior to full repayment of the principal amount of the
6% Notes. The conversion price for the 6% Notes (the "Conversion Price") is the
lower of (i) the closing bid price for the Class A Shares on NASDAQ; (ii) if the
conversion date is less than 270 days after the date of issuance, 80% of the
average closing bid price for Class A Shares on NASDAQ for the 5 trading days
immediately
-13-
<PAGE>
preceding (but not including) the conversion date; or (iii) if the conversion
date is more than 270 days after the date of issuance, 75% of the average
closing bid price for Class A Shares on NASDAQ for the 5 trading days
immediately preceding (but not including) the conversion date. The Conversion
Price is adjustable in the event of a merger, sale of assets, reclassification
of the Class A Shares, stock splits, and additional share issuances at less than
the Conversion Price.
On April 21, 1998, the Company and Decor Group, Inc., a Delaware
corporation ("Decor"), entered into an Agreement and Plan of Merger approved by
their respective Boards of Directors, whereby each issued and outstanding share
of common stock, par value $.0001 per share, of Decor (other than those owned by
the Company), will be converted into the right to receive 0.50 of the Company's
Class A Shares. Upon and in the event of the consummation of the merger of
Decor with and into the Company, the Company will engage in the design,
manufacturing and marketing of metal wall, table and freestanding sculptures.
The Company has been an affiliate of Decor since the inception of Decor in 1996,
and as of the date of the announcement of the merger owned approximately 86% of
the voting securities of Decor.
On June 2, 1998, the Company announced that it had reached an oral
agreement to purchase all of the issued and outstanding common stock of Windsor
Art, Inc., a Missouri corporation ("Windsor"). Consummation of this transaction
remains subject to the negotiation and execution of a definitive purchase
agreement. Windsor engages in the manufacture and distribution of decorative
mirrors and framed prints to furniture stores, designers, hotels and department
stores throughout the United States.
DESCRIPTION OF SECURITIES
COMMON STOCK
The Certificate of Incorporation of the Company authorizes the issuance
of up to 60,000,000 shares of Class A Common Stock, par value $.001 per share
("Class A Shares"), of which 16,624,684 Class A Shares were issued and
outstanding as of June 1, 1998. The holders of Class A Shares: (i) have equal
ratable rights to dividends from funds legally available therefor, when, as and
if declared by the Board of Directors of the Company; (ii) are entitled to share
ratably in all of the assets of the Company available for distribution to
holders of common stock, upon liquidation, dissolution or winding up of the
affairs of the Company; and (iii) do not have preemptive or subscription rights
and there are no redemption or sinking fund provisions applicable thereto. Each
Class A Share is entitled to one non-cumulative vote per share on all matters on
which stockholders may vote at meetings of stockholders. The Class A Shares are
not convertible into any other securities of the Company. All issued and
outstanding Class A Shares are duly authorized, fully paid and nonassessable.
PREFERRED STOCK
The Certificate of Incorporation of the Company authorizes the issuance
of up to 5,300,000 shares of Preferred Stock, $.01 par value per share. Prior
to September 14, 1995, none of such Preferred Stock had been designated or
issued. The Company's Registration Statement on Form SB-2 as amended by Form
SB-2/A as filed on September 14, 1995 with respect to 460,000 shares of Series A
10% Cumulative Convertible Preferred Stock (the "Series A Preferred Shares") and
230,000 Redeemable Class WC Warrants to purchase Series A Preferred Shares at
the exercise price of $5.50 per share was declared effective by the Commission.
The Board of Directors is authorized to issue shares of Preferred Stock from
time to time in one or more series and, subject to the limitations contained in
the Certificate of Incorporation and any limitations prescribed by law, to
establish and designate any such series and to fix the number of shares and the
relative conversion rights, voting rights and terms of redemption (including
sinking fund provisions) and liquidation preferences. If shares of Preferred
Stock are issued with voting rights, such issuance could affect the voting
rights of the holders of the Company's Class A Shares by increasing the number
of outstanding shares having voting rights, and by the creation of class or
series voting rights. Shares of Preferred Stock with conversion rights could
potentially increase the number of Class A Shares outstanding. Issuance of
Preferred Stock could, under certain circumstances, have the effect of delaying
or preventing a change in control of the Company and may adversely affect the
rights of holders of Class A Shares. Also, Preferred Stock could have
preferences over the Class A Shares (and other series of stock) with respect to
dividends and liquidation rights.
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<PAGE>
SERIES A 10% CUMULATIVE CONVERTIBLE PREFERRED STOCK
The Series A Preferred Stock consists of 2,870,000 shares, of which
666,638 shares were issued and outstanding on June 1, 1998. Each Series A
Preferred Share is convertible at the election of the holder thereof into three
Class A Shares. After September 17, 2000, each Series A Preferred Share is
redeemable by the Company in whole or in part at $5.50 per share upon 30 days
prior written notice. Each Series A Preferred Share is convertible commencing
one year from the date of issue, subject to adjustment, into three shares of
Class A Common Stock of the Company. The Series A Preferred Stock is entitled
to a dividend, prior to any payment of dividends on the Class A or Class B
Common Stock, of $0.50 per share per annum payable in semi-annual installments
of $0.25 per share. If the Series A Preferred Stock dividend is not paid, it
accumulates until paid in full to date. The Company may elect to pay the Series
A Preferred Stock dividend either in cash or in shares of Class A Common Stock,
which Class A Common Stock shall be issued for such purposes on the basis of the
average closing prices of the Class A Common Stock for the ten business days
prior to the date of declaration of the Series A Preferred Stock dividend. The
Series A Preferred Stock shall not have any right to vote except to the extent,
if any, required by Delaware law. Upon liquidation of the Company, each Series
A Preferred Share is entitled to receive $5.00 plus accrued and unpaid dividends
before any payment is made to the holders of Class A and Class B Common Stock.
REDEEMABLE WARRANTS
Class A Warrants. Each Class A Warrant entitles the registered holder
thereof to purchase one Class A Share and one Class B Warrant at a combined
exercise price of $1.50 until June 22, 1998. The combined exercise price of the
Class A Warrants as originally issued was $6.00 per Class A Warrant. On March
29, 1995 the Company announced that, because of certain sales of Class A Shares
by the Company, the combined exercise price of each Class A Warrant had been
reduced to $5.17 and each Class A Warrant now entitled the holder to purchase
1.1 Class A Shares and 1.1 B Warrants. On April 13, 1995 the Board of
Directors, as permitted by the terms of the Warrant Agreements, reduced the
combined exercise price of each of the Class A Warrants to $1.50 for one Class A
Share and for one Class B Warrant in order to facilitate the sale of 300,000
shares of Class A Shares by the Company. The exercise price of the Class A
Warrants is subject to adjustment under certain circumstances. Fractional
shares will not be issued upon exercise of the Class A Warrants and, in lieu
thereof, a cash adjustment based on the market value of the shares of Class A
Common Stock immediately prior to the date of exercise will be made.
The Class A Warrants are redeemable by the Company at any time after June
22, 1995, and prior to their exercise upon notice of redemption in writing to
the Class A Warrant holders of record, by giving a 30-day notice of such
redemption. The redemption price of the Class A Warrants is $0.01 per Warrant if
the closing bid price per Class A Share has equaled or exceeded 120% of the
exercise price of the Class A Warrants for 20 consecutive trading days prior to
any such call for redemption. Any Class A Warrants so redeemed, and not
exercised by the end of the date specified in the notice of redemption, will
expire on the books of the Company and cannot be exercised. On May 7, 1997, the
Company announced that it has extended the exercise period of the Class A
Warrants to June 22, 1998.
Class B Warrants. Each Class B Warrant entitles the registered holder
thereof to purchase one Class A Share at a purchase price of $2.00. The
original exercise price of the Class B Warrants was $7.00, but was reduced on
March 29, 1995 to $6.03. In January 1996, the Company announced that the
exercise price of the Class B Warrants would be reduced to $2.00 per Class A
Share. The exercise price of the Class B Warrants is subject to adjustment
under certain circumstances. Fractional shares will not be issued upon exercise
of the Class B Warrants and, in lieu thereof, a cash adjustment based on the
market value of the shares of Class A Common Stock immediately prior to the date
of exercise will be made.
The Class B Warrants are redeemable by the Company at any time prior to
their exercise after June 22, 1995, and upon notice of redemption in writing to
the warrantholders of record, giving a 30-day notice of such redemption. The
redemption price of the Class B Warrants is $0.01 per warrant if the closing bid
price per Class A Share has equaled or exceeded 120% of the then exercise price
of the Class B Warrants for 20 consecutive trading days prior to any such call
for redemption. Any Class B Warrants so deemed, and not exercised by the end of
the date specified in the notice of redemption, will expire on the books of the
Company and cannot be exercised. The exercise period of the Class B Warrants is
through June 22, 2000.
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<PAGE>
Class C Warrants. Each Class C Warrant entitles the holder to purchase
one share of Series A Preferred Stock during the five-year period commencing
September 18, 1995 at a purchase price of $5.50, subject to the maintenance by
the Company of a current registration statement filed with the Commission.
Commencing one year from the date of issuance, each Class C Warrant shall be
redeemable by the Company at a redemption price of $.05 per warrant upon thirty
days prior written notice to holders; provided, however, that the closing
average bid price of the Series A Preferred Stock in the over-the-counter
market, for a period of twenty consecutive trading days prior to such call for
redemption, shall have been 110% or more of the then effective exercise price of
the Class C Warrants.
The Class C Warrants pursuant to their terms are subject to adjustment
upon the occurrence of certain events including subdivisions or combinations of
the Class A Shares or Preferred Stock, as the case may be. The Company may at
any time, and from time to time, extend the exercise period of the warrants,
provided that written notice of such extension is given to the warrantholders
prior to the expiration date then in effect. Also, the Company may reduce the
exercise price of the warrants for limited periods or through the end of the
exercise period if deemed appropriate by the Board of Directors of the Company.
Notice of any reduction of the exercise price will be given to the
warrantholders. Prior to any such extension or modification of the exercise
price of such warrants, the Company may be required to amend the registration
statement covering such securities or to file a new registration statement.
CONVERTIBLE NOTES AND NOTE WARRANTS
6% Notes. The 6% Notes are convertible into Class A Shares according to
the following terms: one-half of the principal amount of the 6%Notes are
convertible at the election of the noteholders from and after 180 days after the
date of issuance and at any time prior to full repayment of the principal amount
of the 6%Notes; the entire principal amount of the 6% Notes is convertible at
the election of the noteholders from and after 270 days after the date of
issuance and at any time prior to full repayment of the principal amount of the
Notes. The conversion price for the 6% Notes (the "Conversion Price") is the
lower of (i) the closing bid price for the Class A Shares on NASDAQ; (ii) if the
conversion date is less than 270 days after the date of issuance, 80% of the
average closing bid price for Class A Shares on NASDAQ for the 5 trading days
immediately preceding (but not including) the conversion date; or (iii) if the
conversion date is more than 270 days after the date of issuance, 75% of the
average closing bid price for Class A Shares on NASDAQ for the 5 trading days
immediately preceding (but not including) the conversion date. The Conversion
Price is adjustable in the event of a merger, sale of assets, reclassification
of the Class A Shares, stock splits, and additional share issuances at less than
the Conversion Price. Attached to the 6% Notes are warrants to purchase 198,333
Class A Shares at a price of $1.75 per Class A Share. The expiration date of
these warrants is March 19, 2000, the maturity date of the 6% Notes.
Other Notes. $1,000,000 of the Notes are three year convertible
subordinated notes secured by the stock of Henlor with an interest rate of 15%.
These Notes are convertible at the election of the holders into Class A Shares
at a rate of $1.50 per share. The remaining $475,000 of the Notes are three
year unsecured subordinated debentures with an interest rate of 15%. These
debentures are convertible at the holders' election into Class A Shares at a
rate of $1.75 per share. Attached to the notes secured by the Henlor stock are
warrants to purchase 100,000 Class A Shares at a price of $1.75 per Class A
Share. The expiration date of these warrants is identical to the maturity date
of the Notes to which they are attached. Attached to the notes in the aggregate
principal amount of $475,000 are warrants to purchase 22,500 Class A Shares at a
price of $2.00 per Class A Share. The expiration date of these warrants is
identical to the maturity date of the Notes to which they are attached. In
addition, 15,000 Class B Warrants and 15,000 Class C Warrants were issued in
connection with the notes in the aggregate principal amount of $475,000.
PLAN OF DISTRIBUTION
The Class B Warrants covered by this Prospectus are issuable upon the
exercise of outstanding Class A Warrants. The Class A Shares covered by this
Prospectus are issuable upon (i) exercise of Class A Warrants and Class B
Warrants (including Class B Warrants issuable upon exercise of Class A
Warrants), (ii) exercise of the Note Warrants, (iii) conversion of Series A
Preferred Shares (including Series A Preferred Shares issuable upon exercise of
Class C Warrants) and (iv)
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<PAGE>
conversion of the Notes. The Series A Preferred Shares covered by this
Prospectus are issuable upon exercise of outstanding Class C Warrants.
The Redeemable Warrants are exercisable by tendering to American Stock
Transfer & Trust Company, New York (the "Warrant Agent") the appropriate
exercise price along with the warrant certificate (with the election to purchase
section on the reverse side of the certificate properly filled out). The
Company shall then issue and sell such fully paid and nonassessable Class A
Shares, Class B Warrants, and Series A Preferred Shares, as applicable, to the
warrant holder as specified on the certificate so tendered. Payment of the
exercise price shall be made in cash or by certified check or bank draft made
payable to the order of the Company. Each Note Warrant is exercisable in full
or in part by surrendering the warrant, together with the form of a subscription
attached to the warrant certificate, to the Company at its principal office or
at the office of its warrant agent accompanied by payment in an amount equal to
the number of Class A Shares for which the warrant is being exercised multiplied
by the exercise price.
Commencing one year from the date of issue, each Series A Preferred
Share is convertible at the option of the holder thereof, into three Class A
Shares. The 6% Notes are convertible into Class A Shares according to the
following terms: one-half of the principal amount of the 6%Notes are convertible
at the election of the noteholders from and after 180 days after the date of
issuance and at any time prior to full repayment of the principal amount of the
6%Notes; the entire principal amount of the 6% Notes is convertible at the
election of the noteholders from and after 270 days after the date of issuance
and at any time prior to full repayment of the principal amount of the Notes.
The conversion price for the 6% Notes is determined pursuant to a formula based,
in part, on the closing bid price for the Class A Shares. The remaining Notes
are convertible into Class A Shares at any time at the election of the holder at
conversion prices ranging from $1.50 to $1.75 per share. See "Description of
Securities."
USE OF PROCEEDS
Based on the number of Class A Warrants, Class B Warrants and Class C
Warrants issued and outstanding as of June 1, 1998, and on the number of Class B
Warrants for which outstanding Class A Warrants were exercisable as of such
date, in the event that all such Redeemable Warrants are exercised prior to the
applicable Warrant Expiration Dates and prior to their redemption by the Company
pursuant to the terms thereof, the Company will receive (i) up to $3,891,442.50
upon the issuance of the Class B Warrants and Class A Shares underlying the
Class A Warrants at an exercise price of $1.50 per Class A Warrant, (ii) up to
$7,831,476.00 upon the issuance of the Class A Shares underlying the Class B
Warrants (including the Class B Warrants issuable upon the exercise of the Class
A Warrants) at an exercise price of $2.00 per Class B Warrant, and (iii) up to
$12,567,500.00 upon the issuance of the Series A Preferred Shares underlying the
Class C Warrants at an exercise price of $5.50 per Class C Warrant. All such
proceeds shall be applied towards the working capital of the Company.
EXPERTS
The Form 10-KSB for the year ended June 30, 1997 incorporated by
reference in this Registration Statement has been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and is included herein in reliance upon the authority of said firm as
experts in giving said report. Reference is made to said report which includes
an explanatory fourth paragraph with respect to the Company's ability to
continue as a going concern. The Company's Current Report on Form 8-K, as filed
with the Commission on March 25, 1998 and as amended by the Company's Current
Report on Form 8-K/A as filed with the Commission on May 26, 1998 incorporated
by reference in this Registration Statement includes financial statements of
Henlor which have been audited by Thomashow, Brown & Paialii LLP, independent
public accountants, as indicated in their report with respect thereto, and is
included herein in reliance upon the authority of said firm as experts in giving
said report. Company's Current Report on Form 8-K, as filed with the Commission
on April 6, 1998 and as amended by the Company's Current Report on Form 8-K/A as
filed with the Commission on May 29, 1998 incorporated by reference in this
Registration Statement includes financial statements of MSI which have been
audited by Kellogg &
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<PAGE>
Andelson, independent public accountants, as indicated in their report with
respect thereto, and is included herein in reliance upon the authority of said
firm as experts in giving said report.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law empowers a
corporation to indemnify its directors and officers and to purchase insurance
with respect to liability arising out of the performance of their duties as
directors and officers provided that this provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) arising under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, vote of shareholders or otherwise.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The above discussion of the Company's Bylaws, Certificate of
Incorporation and indemnification agreements and of Section 145 of the Delaware
General Corporation Law is not intended to be exhaustive and is qualified in its
entirety by such Bylaws, Certificate of Incorporation, indemnification
agreements and statute.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company 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.
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<PAGE>
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
- --------
The fees and expenses payable by the Company in connection with the sale
of the shares of Common Stock being registered are estimated as follows:
<TABLE>
<CAPTION>
Amount
------
<S> <C>
SEC Filing Fee............ $ 1,819
Legal Fees and Expenses... 15,000*
Accounting Fees........... 20,000*
Consulting Fees........... 0
Printing Expenses......... 25,000*
Miscellaneous............. 5,000*
Total....... $66,819
-------
_________
* Estimated
</TABLE>
Item 15. Indemnification of Directors and Officers.
- --------
Section 145 of the Delaware General Corporation Law empowers a corporation to
indemnify its directors and officers and to purchase insurance with respect to
liability arising out of the performance of their duties as directors and
officers provided that this provision shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
arising under Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived an improper personal benefit.
The Delaware General Corporation Law provides further that the indemnification
permitted thereunder shall not be deemed exclusive of any other rights to which
the directors and officers may be entitled under the corporation's bylaws, any
agreement, vote of shareholders or otherwise.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The above discussion of the Company's Bylaws, Certificate of Incorporation and
indemnification agreements and of Section 145 of the Delaware General
Corporation Law is not intended to be exhaustive and is qualified in its
entirety by such Bylaws, Certificate of Incorporation, indemnification
agreements and statute.
II-1
<PAGE>
<TABLE>
<CAPTION>
Item 16. Exhibits.
- --------
<S> <C>
5 Opinion of counsel as to legality of securities being registered.
23.1 Consent of Arthur Andersen LLP, independent auditors.
23.2 Consent of Kellogg & Andelson, independent auditors.
23.3 Consent of Thomashow, Brown & Paialii LLP, independent auditors
24.1 Power of Attorney (included herein on the signature page).
</TABLE>
Item 17. Undertakings.
- --------
The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the Prospectus any facts or events arising after the
effective date of this 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 this Registration
Statement;
(iii) Include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in this Registration Statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
-------- -------
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Company pursuant to
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
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; and
(3) To remove from registration by means of post-effective amendment any of
the securities which remain unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
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 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 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.
II-2
<PAGE>
The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, 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 Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Mt. Vernon, State of New York, on June 4, 1998.
INTERIORS, INC.
a Delaware corporation
By: /s/ MAX MUNN
--------------------------------------------------------
Max Munn, President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-3 was signed by the following persons in
the capacities and on the dates stated.
Signature Title Date
- --------- ----- ----
/s/ MAX MUNN President, Chief Executive June 4, 1998
- ------------------------------
Max Munn Officer, Director
/s/ JOHN D. MAZZUTO Executive Vice President, Chief June 4, 1998
- ------------------------------
John D. Mazzuto Financial Officer, Director
/s/ ROGER LOURIE Director June 4, 1998
- ------------------------------
Roger Lourie
/s/ RICHARD A. JOSEPHBERG Director June 4, 1998
- ------------------------------
Richard A. Josephberg
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
5 Opinion of counsel as to legality of securities being registered.
23.1 Consent of Arthur Andersen LLP, independent auditors.
23.2 Consent of Kellogg & Andelson, independent auditors.
23.3 Consent of Thomashow, Brown & Paialii LLP, independent auditors.
24.1 Power of Attorney (included herein on
the signature page).
</TABLE>
II-5
<PAGE>
Exhibit 5
[LETTERHEAD OF PAUL, HASTINGS, JANOFSKY & WALKER LLP]
June 8, 1998
28178.87804
Interiors, Inc.
320 Washington Street
Mt. Vernon, New York 10553
Ladies and Gentlemen:
We are furnishing this opinion of counsel to Interiors, Inc., a
Delaware corporation (the "Company"), for filing as Exhibit 5 to the
-------
Registration Statement on Form S-3 (the "Registration Statement") to be filed by
----------------------
the Company with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, relating to the issuance of up to 3,868,930 shares of
the Company's Class A Common Stock, $.001 par value (the "Shares").
------
We have examined the Certificate of Incorporation and Bylaws, each as
amended to date, of the Company, and the originals, or copies certified or
otherwise identified, of records of corporate action of the Company as furnished
to us by the Company, certificates of public officials and of representatives of
the Company, and such other instruments and documents as we deemed necessary, as
a basis for the opinions hereinafter expressed. In such examination we have
assumed the genuineness of all signatures, the authenticity of all corporate
records and other documents submitted to us and the conformity to original
documents submitted to us as certified or photostatic copies.
Based upon our examination as aforesaid, and in reliance upon our
examination of such questions of law as we deem relevant under the
circumstances, we are of the opinion that the Shares, when issued and paid for
as described in the Registration Statement, will be validly issued, fully paid
and nonassessable.
We express no opinion with respect to the applicability or effect of
the laws of any jurisdiction other than the Delaware General Corporation Law as
in effect on the date hereof.
<PAGE>
Interiors, Inc.
June 8, 1998
Page 2
We hereby consent to the filing of this opinion of counsel as Exhibit
5 to the Registration Statement.
Very truly yours,
/s/ PAUL, HASTINGS, JANOFSKY & WALKER LLP
<PAGE>
EXHIBIT 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated October 3, 1997,
included in Interiors, Inc.'s Form 10-KSB for the year ended June 30, 1997 and
to all references to our Firm included in this registration statement on Form S-
3 registering 3,868,930 shares of Class A Common Stock.
New York, New York ARTHUR ANDERSEN LLP
June 3, 1998
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[LETTERHEAD OF KELLOGG & ANDELSON ACCOUNTANCY CORPORATION]
EXHIBIT 23.2
Mr. Arthur L. Zwickel
PAUL, HASTINGS, JANOFSKY & WALKER LLP
555 South Flower Street
Twenty-Third Floor
Los Angeles, California 90071-2371
[LOGO OF KELLOGG & ANDELSON]
RE: MERCHANDISE SALES, INC. DBA ARTMASTER STUDIOS AND
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INTERIORS, INC.
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Dear Mr. Zwickel:
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement of our
report dated May 22, 1998, included in Interiors, Inc.'s Form 8-K, as
filed with the Commission on April 6, 1998, and as amended by
Interiors, Inc's Current Report on Form 8-K/A on May 29, 1998, and to
all references to our Firm included in this registration statement on
Form S-3 registering 3,868,930 shares of Class A Common Stock.
/s/ Kellogg & Andelson
Sherman Oaks, California
June 8, 1998
<PAGE>
EXHIBIT 23.3
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated October 1, 1997,
included in Interiors, Inc.'s Form 8-K, as filed with the Commission on March
25, 1998 and as amended by Interiors, Inc.'s Current Report on Form 8-K/A on May
26, 1998, and to all references to our Firm included in this registration
statement on Form S-3 registering 3,868,930 shares of Class A Common Stock.
/s/ Thomashow, Brown & Paialli LLP
THOMASHOW, BROWN & PAIALII LLP
Los Angeles, California
June 9, 1998
