<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-KSB/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO _________
COMMISSION FILE NUMBER 0-24352
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INTERIORS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3590047
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
320 WASHINGTON STREET
MT. VERNON, NEW YORK 10553
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (914) 665-5400
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE
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(TITLE OR CLASS)
SERIES A 10% CUMULATIVE CONVERTIBLE PREFERRED STOCK, PAR VALUE $.01 PER SHARE
-----------------------------------------------------------------------------
(TITLE OR CLASS)
CLASS WB REDEEMABLE COMMON STOCK PURCHASE WARRANTS
--------------------------------------------------
(TITLE OR CLASS)
CLASS WC REDEEMABLE COMMON STOCK PURCHASE WARRANTS
--------------------------------------------------
(TITLE OR CLASS)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [ ]
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INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-B IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THE FORM 10-KSB OR ANY
AMENDMENT TO THIS FORM 10-KSB/A.
REGISTRANT'S REVENUES FOR ITS MOST RECENT FISCAL YEAR WERE $13,447,243.
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT, COMPUTED BY REFERENCE TO THE CLOSING PRICE OF SUCH STOCK AS
OF OCTOBER 9, 1998, WAS APPROXIMATELY $29,322,743.
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S CLASS A COMMON
STOCK, $.001 PAR VALUE (THE "CLASS A SHARES") AS OF OCTOBER 9, 1998, WAS
27,404,433 SHARES AND THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S
CLASS B COMMON STOCK, $.001 PAR VALUE PER SHARE (THE "CLASS B SHARES") AS OF
OCTOBER 9, 1998, WAS 2,355,000 SHARES.
DOCUMENTS INCORPORATED BY REFERENCE:
DEFINITIVE PROXY STATEMENT TO BE FILED NO LATER THAN OCTOBER 28, 1998
PURSUANT TO REGULATION 13A WITH RESPECT TO REGISTRANT'S 1998 ANNUAL MEETING OF
STOCKHOLDERS (INCORPORATED BY REFERENCE IN PART III).
TRANSITIONAL SMALL BUSINESS FORMAT (CHECK ONE):
YES [ ] NO [X]
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INTERIORS, INC.
1998 FORM 10-KSB/A ANNUAL REPORT
TABLE OF CONTENTS
PART I
ITEM 1. DESCRIPTION OF BUSINESS..............................................4
ITEM 2. DESCRIPTION OF PROPERTIES...........................................12
ITEM 3. LEGAL PROCEEDINGS...................................................12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.................................................13
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...........14
ITEM 7. FINANCIAL STATEMENTS................................................16
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE................................................17
PART III
ITEMS 9, 10, 11, AND 12 - INCORPORATED BY REFERENCE..........................18
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.............18
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
Interiors, Inc., a Delaware corporation ("Interiors" or the
"Company"), is a leading designer, manufacturer and marketer of a broad range
of decorative accessories for the residential, commercial, institutional and
contract markets, including museum-quality traditional and contemporary picture
frames, framed wall mirrors, framed hand-painted oil paintings, framed prints
under glass, portable and installed lighting and lighting fixtures, sculptures
and decorative tabletop accessories. Interiors primarily markets its products
to retailers in the home furnishings industry, including furniture stores, home
furnishings centers, catalog retailers, home improvement centers, department
stores and lighting retailers. The Company believes that it has a unique
competitive advantage in serving a broad range of customers because of the
breadth and depth of its product lines as well as its ability to coordinate
design among several product lines.
Interiors' goal is to become the premier, national single-source
provider of decorative accessories to the home furnishings industry. To achieve
this goal, Interiors has taken a leading position in consolidating the highly
fragmented decorative accessories industry, rapidly establishing its national
presence through the acquisition, integration, and growth of established,
well-regarded manufacturers of decorative accessories. The Company's business
strategy was developed in response to changing demands of large retailers, who
seek to increase "single-sourcing" of inventory purchases in order to reduce
distribution and related expenses, including styling costs associated with
coordinating related products from multiple vendors. Interiors intends to
integrate and optimize the operations of acquired companies by consolidating
into regional operating units with centralized management, which management
believes will lead to better product design and greater efficiency in
manufacturing, shipping and inventory management, resulting in increased sales.
Interiors 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. Historically, Interiors
has had two primary operating divisions: the Custom Framing Division, which,
through its A.P.F. Master Framemakers Division, is engaged in the manufacture
of antique and contemporary picture and mirror frames for museums, art
galleries, designers, collectors and frame retailers; and the Wholesale
Division, which manufacturers and markets a line of high-end traditional and
contemporary mirrors sold through upscale retail furniture and department
stores. Since early 1998, the Company has been rapidly acquiring new operating
divisions and expanding its product lines such that today its business includes
the design, manufacture and distribution of a broad range of decorative
accessories.
INDUSTRY
According to the most recent Universe Study conducted by Home Accents
Today, domestic wholesale sales of home furnishings accessories totaled $19.7
billion in 1995. The two categories most relevant to the Company are wall decor
and portable lamps, which together accounted for 8.2% of total industry sales,
or $1.6 billion, in 1995. Wall decor consists of three segments: framed art,
framed mirrors and miscellaneous wall objects such as metal sculpture. The
Company has strong product lines in each of these categories. Within the wall
decor market, framed art is estimated to account for approximately 70% of sales
at wholesale, framed mirrors to account for approximately 20% of such sales,
and miscellaneous wall objects to account for approximately 10% of such sales.
The market for wall decor has been growing rapidly in recent years. Wholesale
sales of wall decor, which were $357 million in 1993, increased by 40% in 1994
and 40% again in 1995 to $700 million. Home Accents Today's Universe Study
estimated growth for 1996 and 1997 at 20% in each year, resulting in
anticipated total sales in excess of $1 billion in 1997. This represents a
compound annual growth rate of 23% since 1991.
The growth in the decorative accessory industry is being driven in
part by demographic changes. The "baby boomer" generation, which represents the
largest population group in the country, is entering their 40s and 50s, their
peak earnings years. The baby boomers have traded up from starter homes into
their dream homes, and are spending more on home improvements, additions, and
furnishings to make their homes more luxurious. Management believes that
Interiors' products appeal to the tastes and quality expectations of the baby
boomer generation.
The manufacturing sector of the decorative accessory industry is
highly fragmented and is composed predominately of small companies with limited
product lines. Over the last 20 years, the retail distribution channels for
their products has
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shifted from local independent retailers to large, national and regional
retailers in the mass and specialty markets that strive to attain superior
economics of scale and marketing leverage. The Company believes that the
manufacturing sector of the industry is under pressure to consolidate from
these large retailers. These retailers seek increased "single-sourcing" of
inventory purchases, particularly in product categories that do not account for
a significant percentage of their sales. Single-sourcing allows the retailers
to reduce distribution and related expenses, including styling costs associated
with coordinating related products from multiple vendors. Additionally, these
retailers are placing additional burdens on their suppliers by insisting that
suppliers communicate via electronic data interchange ("EDI"), hold inventory
to ensure quick delivery, and drop-ship inventory to each store in the
retailer's chain and, in many instances, directly to the retailer's customers.
The Company also believes that these retailers give preference to
vendors offering coordinated accessories. Coordinated accessories help satisfy
the consumer's preference for one-stop-shopping, whereby the consumer can
purchase furniture, floor coverings, window treatments and accessories from one
retailer in coordinated styles. Consumers find this approach preferable to
attempting to achieve consistent styling of accessories from several retailers.
Management believes that compliance with the demands of retailers and consumers
is very costly for many small manufacturers of decorative accessories. As a
result, the Company believes that many of these manufacturers are receptive to
being acquired by larger manufacturers such as the Company.
The Company, through the acquisition and consolidation of
manufacturers and distributors of decorative accessories, as well as internal
growth, intends to capitalize on both the fragmented nature of the
manufacturing sector of this industry and changing demands of retailers and
consumers. Management believes that increasing the breadth and depth of its
product offerings will enhance the Company's ability to expand its wholesale
operations as it develops the capability to market "whole room" packages of
decorative accessories to retailers in the mass and specialty markets. In
addition, management believes that the operations of acquired businesses can be
consolidated into regional operating units with centralized management,
eliminating operating and management redundancies which should help Interiors
improve its cash flow and operating margins. There can be no assurance,
however, that Interiors will be able to successfully integrate the operations,
facilities and management of acquired businesses or realize any benefits from
any such acquisitions.
ACQUISITION AND EXPANSION STRATEGY
The Company's strategic objective is to become the premier, national
single-source provider of decorative accessories to the home furnishings
industry. Key elements of the Company's strategy to accomplish this objective
are to (i) continue its role as the leading consolidator of independent
manufacturers of decorative accessories; (ii) integrate the operations of its
operating divisions and capture economies of scale; (iii) expand the Company's
product lines through acquisition and internal growth; and (iv) expand into new
markets.
Continue Consolidation Through Acquisitions. The Company has rapidly
established a national presence and critical customer mass by acquiring several
established, well-regarded companies which design, manufacture and distribute
decorative accessories in selected regions throughout the United States. The
Company intends to continue its consolidation strategy by acquiring additional
manufacturers of decorative accessories in order to deepen and broaden its
market presence and to expand its product offerings. Given the increasing
pressure from large retailers to consolidate, the Company believes that smaller
manufacturers of decorative accessories will continue to be attracted to, and
benefit from, the consolidation opportunity provided by the Company. As part of
its integration strategy, management intends to pursue companies with annual
revenues ranging from $3 million to $15 million, a moderate-to premium-priced
product line, a positive reputation in the marketplace and profitable
operations. The Company has identified several candidates for acquisition that
meet these parameters.
Integrate Operations and Capture Economies of Scale. To support the
growth of its business, the Company has implemented a continuing program
designed to maximize operating efficiencies by reducing manufacturing costs,
increasing inventory turnover and enhancing its management information systems.
As a result of this program, the Company seeks to integrate and optimize the
operations of the companies it acquires by (i) consolidating operations into
regional operating units with centralized management, (ii) providing the
acquired companies with material requirements planning software, which better
determines inventory requirements, (iii) linking ordering systems through EDI,
which permits the computerized receipt of customer orders, billing and exchange
of information with customers, and (iv) providing the acquired companies with
the Company's integrated support services. Management believes that the
centralization of these functions will lead to increased sales, better product
design, and greater efficiency in manufacturing, shipping and inventory
management. The Company also believes that there will be significant
opportunities for cross-marketing the products of its various operating units.
Expand Product Lines. Interiors continuously introduces new products
to complement new trends in interior design and decorating. As the Company
grows, management intends to centralize and coordinate product design
throughout the
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Company. Management believes that the Company's business consolidation and
integration activities will also enhance the Company's ability to design and
manufacture new products which are coordinated with products from the Company's
other product lines. Interiors also plans to pursue licensing arrangements with
one or more leading designer labels to bolster its product development efforts.
Expand Into New Markets. The Company intends to expand the
distribution of its products into new domestic and international markets.
Initially, the Company intends to focus on those markets in which it already
has achieved some market penetration or for which access is facilitated through
existing distribution channels and relationships. In addition, through its
recently-formed Habitat Solutions division, the Company intends to expand its
business to include merchandising and design for the hospitality, time-share
and model homes industries.
ACQUISITION HISTORY
Set forth below is a list of the Company's acquisitions since January
1, 1998 along with the date of acquisition, trade or brand names and product
categories related to each acquired company, and the approximate amount of
aggregate annual sales for the businesses acquired in the full year prior to
acquisition:
<TABLE>
<CAPTION>
Date Company Trade or Product Categories Approximate
- ---- ------- Brand Names ------------------ Annual Sales
----------- ------------
<S> <C> <C> <C> <C>
March 1998 Henlor, Inc. (1) Serengeti Framed mirrors, paintings $13 million
International; and prints; lighting
Vanguard Studios ;Lee products; sculptures and
Reynolds tabletop accessories
March 1998 Merchandise Renaissance; Framed mirrors, paintings $7.5 million
Sales, Inc. (1) Artmaster Studios and prints; lighting
products
August 1998 Windsor Art, Inc. Windsor; Dolbi Cashier Framed paintings and $14 million
prints; framed mirrors
August 1998 Troy Lighting, Troy-Lite Lighting products $13 million
Inc.
</TABLE>
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(1) On June 29, 1998, the Company combined Henlor, Inc. ("Henlor"),
Merchandise Sales, Inc. ("MSI") and Vanguard Studios, Inc. ("Vanguard"),
(a wholly-owned subsidiary of Henlor) into a single entity. The
surviving corporation is Vanguard Studios, Inc., a California corporation
and a wholly-owned subsidiary of the Company.
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PRODUCTS
The Company manufactures picture frames and framed mirrors, framed
paintings and prints, sculptures and tabletop accessories, and portable and
fixed lighting products. The Company's products, brand names and price
positioning are described below.
Picture Frames and Framed Mirrors. Interiors is a leader in producing
high-end, custom frames for paintings, prints and mirrors. The Company also
restores frames. The Company's frames are primarily reproductions of antique
frames made to look as distressed as genuine frames from that period would look
today. Customers select any combination of elements from the Company's library
of approximately 1,500 elements to generate the frame style best suited for the
picture or mirror and/or their decorating needs. These elements have been
collected over several decades, mostly through the Company's restoration
activities, and primarily represent features from antique frames, many of which
cannot be replicated. The Company's skilled craftspeople hand produce the frame
based on the elements selected by the customer. Frame prices range from $300 to
$52,000, but typically are between $800 and $4,000.
Picture frames and mirror frames are made with the same tools, dies
and molds. Mirror frames differ from picture frames in that mirror frames are
constructed in the traditional design, with a top that is different from the
sides and bottom. In comparison, picture frames have the same design throughout
the four sides of the frame. The Company's mirror prices range from $1,000 to
$8,000. The Company's picture frames and framed mirrors are sold primarily
under the trade name of A.P.F. Master Framemakers.
Framed Paintings and Prints. The Company produces framed hand-painted
oil paintings on artist canvas and framed paper prints. The Company's line of
framed hand-painted oil paintings is available in over 500 designs. These large
canvases come in a variety of subjects including floral, abstracts, landscapes,
seascapes, and figurative subjects. The Company also sells prints, both
proprietary and non-proprietary, that are framed and placed under glass. Frames
and mats for both products are carefully selected to complement current trends
in interior design. Retail prices for the Company's framed paintings and prints
range from $70 to $600. The Company's framed art is sold primarily under the
trade names of Vanguard Studios, Artmaster Studios, Lee Reynolds and Windsor.
Lighting Products. The Company manufactures lamps which are available
in over 350 styles. The Company's portable lamps are manufactured with bases
made of metal, crystal and hand-painted hydrocal, a plaster composition that
can be finished to resemble stone, ceramic or metal. Additionally, the Company
designs and manufactures formed and decorated metal lamps, both portable and
fixed. The Company's lighting products generally are "fashion-forward" and do
not compete with commodity or imported lighting. The Company's lighting
products are sold primarily under the trade names Vanguard Studios, Artmaster
Studios and Troy Lighting.
Sculptures and Tabletop Accessories. Interiors manufactures and
distributes hand-crafted hydrocal sculptures and tabletop accessories. The
Company's products in this category sell for $75 to $200 at retail. The
Company's sculptures and tabletop accessories are sold primarily under the
trade names of Vanguard Studios and Serengeti International.
RAW MATERIALS AND SUPPLIERS
The primary raw materials used by Interiors in manufacturing and
distributing its products are wood, hydrocal, composite resins, paint, glass,
plexiglass, corrugated packaging materials, matboards, gold leaf and metal. The
Company purchases its raw materials from a wide variety of domestic and foreign
suppliers. Interiors has at least two, and often more, suppliers for each item
used in its manufacturing process, and has chosen to limit the majority of its
purchases to those vendors with whom it has developed long-term relationships.
Interiors believes that there are a relatively large number of other suppliers
of raw materials available, which enable Interiors to obtain competitive prices
for its raw materials. Interiors does not anticipate, nor has it experienced,
any difficulty in obtaining any of its raw materials, and is not dependent upon
any one supplier. Interiors generally does not enter into long-term contracts
with its suppliers. Significant increases in the costs of raw materials could
have a negative effect on Interiors' gross margins for its products if
Interiors were unable to build these costs into the prices of its products or
to offset such raw material cost increases through cost reductions.
MANUFACTURING
All of the Company's products are either manufactured directly by the
Company or specifically on its behalf. The Company operates six manufacturing
and distribution facilities in California and New York. Approximately 90% of
the Company's products are manufactured at its production facilities. The
balance of the Company's products are manufactured
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primarily in Mexico, China, and Europe. The Company's manufacturing and
distribution systems are run by well-trained and experienced production
personnel.
The Company's manufacturing processes vary greatly among product
lines, and include metal fabrication and welding, wood cutting and joining,
finishing processes (including painting, polishing and etching), hydrocal
casting, electrification, silk screening and hand painting. Certain of the
Company's manufacturing processes utilize sophisticated computerized equipment,
including mat cutting, metal cutting and acetate generation, and advanced
primer and paint application systems. The Company emphasizes cost-efficiencies
in the manufacturing process and seeks to improve its manufacturing processes
through capital expenditures in facilities and equipment.
The Company's distribution facilities are located adjacent to its
manufacturing facilities. Interiors is currently investing in sophisticated
computer systems to code and track inventory and to coordinate and monitor
loading and shipment of products to retailers. The Company believes that
coordination of the manufacturing, packaging and distribution functions will
allow for greater quality control and production efficiencies.
SALES AND MARKETING
The Company's primary customers are domestic retailers in the home
furnishings industry, including furniture stores, home furnishings centers,
catalog retailers, home improvement centers, department stores and lighting
retailers. In addition, the Company's custom frame division markets its
products to museums, art galleries, designers, interior decorators and custom
frame retailers. In the fiscal year ended June 30, 1998, the Company sold
products to over 3,000 home furnishings and specialty accounts. The Company's
ten largest customers accounted for approximately 32% of the Company's net
sales for the fiscal year ended June 30, 1998.
Each of the Company's product lines is marketed and sold through a
network of independent manufacturers' representatives, who are often agencies
employing a number of sales personnel. These representatives are paid on a
commission-only basis, which the Company believes makes them highly motivated.
None of the Company's present manufacturers' representatives are exclusive to
the Company, and any representative could terminate its relationship with the
Company at any time for any reason. In addition, manufacturers' representatives
typically represent and distribute other non-competing decorative accessories.
Given the large number of accounts, the Company believes that the use of
independent representatives is an effective and cost-efficient means to
distribute its products. The Company's manufacturer's representatives are
supported by an in-house team of twelve sales and marketing personnel. Each of
the Company's product lines is managed by a National Sales Manager or Vice
President of Sales and Marketing who works exclusively with that product line.
In addition, the Company maintains an in-house support staff consisting of
order entry personnel as well as pre-sale and post-sale customer service
personnel.
To supplement its sales efforts to the home furnishings industry and
specialty account customers, the Company uses a variety of means to advertise
and promote its products, including product brochures, trade shows and
cooperative advertising with some of its accounts. Participation in trade
shows, particularly the semi-annual shows in High Point, North Carolina, is an
important element of Interiors' marketing efforts. In addition, the Company
operates eleven showrooms in five cities around the country.
The Company believes that one of the primary ways it distinguishes
itself from its competitors is through customer service. A critical element of
the Company's customer service is on-time delivery of products to its
customers. Retailers are pursuing a number of strategies to deliver the
highest-quality, lowest-cost products to their customers. A growing trend among
retailers is to purchase on a "just-in-time" basis in order to reduce inventory
costs and increase returns on investment. As retailers shorten their lead times
for orders, manufacturers need to more closely anticipate consumer buying
patterns. The Company supports its retail customers' "just-in-time" inventory
strategies through investments in supporting inventory, improved forecasting
systems, more responsive manufacturing and distribution capabilities and
electronic manufacturing, communications and distribution capabilities.
Customer service also involves customer contact with the Company's top-level
decision makers, which permits early recognition of market trends and timely
response to customer problems.
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COMPETITION
The decorative accessories industry is highly competitive, and
includes a large number of domestic and foreign manufacturers, none of which
dominate the market. A number of the companies which compete directly with the
Company are well established and may have financial and other resources equal
to, or greater than, those of the Company. Interiors believes that it is the
largest manufacturer of premium picture and mirror frames (as well as other
wall decor) in the United States. Interiors maintains a strong competitive
advantage in this market due to its extensive collection of tools, dies, and
molds developed over decades from restoration of genuine antique frames.
Interiors believes that it would be extremely difficult for a competitor to
build a comparable collection of these elements. In addition, Interiors has a
work force of skilled crafts people that would be difficult to replicate.
Interiors also believes that it dominates a niche market for mass production of
hand-painted oil paintings on artist canvasses.
The rapid growth of high-volume retailers, together with changes in
consumer shopping patterns, have contributed to a significant consolidation of
the domestic home furnishings retail industry and the formation of dominant
multi-category retailers. Other trends among retailers are to require
manufacturers to maintain or reduce product prices or deliver products with
shorter lead times, or for the retailers to import generic products directly
from foreign sources. The combination of these market influences creates a
highly competitive environment in which the Company's largest customers
continuously evaluate which product suppliers to use, resulting in pricing
pressures and the need for ongoing improvements in customer service. Management
believes that the competition in the decorative accessories industry is
generally a function of timeliness of delivery, price, quality, reliability,
product design, product availability and customer service. Interiors believes
that it competes favorably with other companies with respect to the foregoing
factors.
INTELLECTUAL PROPERTY RIGHTS
Many of the Company's products and their designs, as well as the
design of many of the tools, dies and molds used in manufacturing certain of
the Company's products, are proprietary to Interiors. In addition, the Company
has sought to establish certain proprietary rights with respect to the marks
under which its products and product categories are marketed, including the
registered trademarks "Interiors," "A.P.F. Master Framemakers," "Vanguard
Studios," "Lee Reynolds," and "Artmaster Studios" and the tradenames "Serengeti
International," "Windsor," "Troy-Lite," "Dolbi Cashier" and "Renaissance."
Consequently, the business of the Company is dependent, to a certain extent, on
the Company's ability to establish and protect its intellectual property rights
with respect to its products, designs, trademarks and tradenames under which it
does business.
The Company believes that it owns or has the right to use all designs
and proprietary technology necessary to manufacture and market its existing and
planned products. Designs with respect to its products are generally created by
employees and artists on a work-for-hire basis (i.e., the design automatically
becomes the property of the Company upon creation) or purchased or licensed
from independent designers on a consulting or royalty basis. The Company has no
knowledge that it is infringing on any existing copyright, trademark or patent
such that it would be liable for material damages or be prevented from
manufacturing or marketing its products. In the event the Company's right to
market any of its products were to be successfully challenged, the Company may
be required to discontinue certain products and the Company's business and
prospects may be adversely affected if acceptable alternative products were not
available.
REGULATORY MATTERS
Interiors is subject to a wide range of federal, state and local laws
and regulations relating to protection of the environment, worker health and
safety and the emission, discharge, storage, treatment and disposal of
hazardous materials. These laws include the Clean Air Act of 1970, as amended,
the Resource Conservation and Recovery Act, the Federal Water Pollution Control
Act and the Comprehensive Environmental, Response, Compensation and Liability
Act. Certain of the Company's operations use materials containing chemicals
that are considered hazardous under various environmental laws. Accordingly,
management closely monitors the Company's environmental performance at all of
its manufacturing facilities. Management believes that the Company is in
substantial compliance with all environmental laws. While the Company may be
required to make capital investments at some of its facilities to ensure
compliance, Interiors believes that it will continue to meet all applicable
requirements in a timely fashion and that any investment required to meet these
requirements will not materially affect its financial condition or results of
operations. However, legal and regulatory requirements in these areas have been
increasing, and there can be no assurance that significant costs and
liabilities will not be incurred in the future due to regulatory noncompliance.
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DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the directors and executive officers of
the Company and their respective ages and positions:
NAME AGE POSITION(S) HELD WITH THE COMPANY
---- --- ---------------------------------
Max Munn 54 President, Chief Executive Officer, Chief
Financial Officer and Director
Dennis D. D'Amore 49 Executive Vice President and President of
Decorative Accessories Division
Joan York 53 Secretary
Roger Lourie 53 Director
Richard Josephberg 51 Director
MANAGEMENT BIOGRAPHIES
Brief biographies of the directors, executive officers, and key
personnel of the Company are set forth below. All Directors hold office until
their resignation, retirement, removal, disqualification, death or until their
successors have been elected and qualified. Vacancies in the existing Board of
Directors are filled by majority vote of the remaining directors. Officers of
the Company serve at the will of the Board of Directors.
Max Munn has been a director of Interiors since March 1994 and
Chairman of the Board, President and intermittently as Chief Financial Officer
of Interiors since September 1995. Since June 1996, Mr. Munn has served as
Chairman of the Board of Decor Group. Mr. Munn previously held the positions of
Executive Vice President, Operations and Secretary of Interiors from 1993
through September 1995. From November 1990 to May 1993, Mr. Munn served as a
consultant to various companies in the home accessories industry, including
Interiors. From 1980 to February to 1990, Mr. Munn served as President and
Chief Executive Officer of Collectors' Guild International, Inc., a
manufacturer and marketer of decorative accessories. Mr. Munn received a
Bachelor of Architecture degree from the Massachusetts Institute of Technology
and attended graduate school at Columbia University.
Roger Lourie has served as a director of Interiors since May 1995.
Since 1980, Mr. Lourie has been a General Partner of Tremont Associates, a
private equity investment fund, and since 1980 has served as President of Misty
Ridge Associates, another private equity investment fund. Mr. Lourie is also
Chairman of the Board of two Connecticut-based manufacturing concerns. Mr.
Lourie received a B.S. degree in engineering from Rensselaer Polytechnic
Institute of Technology and M.B.A. and M.I.A. degrees from Columbia University
in New York.
Richard Josephberg has served as a director of Interiors since October
1995. Since 1986, Mr. Josephberg has served as the Chairman of Josephberg Grosz
& Co., Inc., a New York-based investment banking firm specializing in providing
private institutional capital to emerging growth companies. From 1969 through
1975, Mr. Josephberg served with Goldman Sachs & Co. Additionally, from 1985
through 1990, Mr. Josephberg served as a member of the New York Stock Exchange.
Mr. Josephberg received a B.B.A. degree from the University of Cincinnati, and
attended the M.B.A. program at Bernard Baruch Graduate School of Business in
New York.
Dennis D. D'Amore served as Executive Vice President of Interiors and
President of Interiors' Decorative Accessories Division since June 1998. Since
March 1997, Mr. D'Amore has served as President and Chief Financial Officer of
Decor Group, Inc. From 1991 through 1996, Mr. D'Amore was a consultant to
various private and public companies. From 1989 to 1991, Mr. D'Amore served as
Vice President of Sales and Marketing for Lasco Bathware, a division of Tomkins
Industries. From 1988 to 1989, Mr. D'Amore served as President of
Colford-D'Amore, a management consulting firm. From 1981 to 1988, Mr. D'Amore
served as Executive Vice President and General Manager of Water Jet
Corporation. Mr. D'Amore holds a Bachelor
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<PAGE>
of Engineering-Mechanical Degree from New York University and subsequently
received a Masters of Business Administration in finance from Fairleigh
Dickinson University.
Richard Belinsky, 43, was appointed Chief Financial Officer of
Interiors, effective October 19, 1998. Mr. Belinsky has over 20 years
experience in the management of retail, direct marketing and manufacturing
companies. Prior to joining Interiors, Mr. Belinsky was Vice President and
Chief Financial Officer of Petals, Inc., a major catalog retailer of decorative
accessories. Prior to that, he served as Vice President of Finance and Chief
Financial Officer for operating divisions of the J. Crew Group, Inc., an
international catalog and retail company with total revenues of $900 million.
Mr. Belinsky was also Director of Budgeting and Financial Analysis at Lincoln
for the Preforming Arts, Inc. and has held management positions with J.C. Penny
Company, Inc.
Todd R. Langner, 43, was appointed Executive Vice President of Sales
and Marketing of Interiors in August 1998. From 1990 to 1998, Mr. Langner was
President of Troy Lighting and Chief Operating Officer since March, 1994. From
1988 to 1990 Mr. Langner served as Vice President Sales and Marketing for
Hinkley Lighting and President of its subsidiary, LuminArt. From 1982 to 1988
Mr. Langner was Vice President Sales, Marketing and Product Development for
Forecast Lighting. From 1979 to 1982 Mr. Langner served as Marketing Manager of
Illuminating Experiences. Mr. Langner holds a Bachelor of Science Degree in
Journalism and Public Relations from the University of Florida.
James J. McCorry. Since 1996, Mr. McCorry has served as the Executive
Vice President, Chief Operating Officer and Chief Financial Officer of Plaid
Clothing Group, Inc. From 1994 through 1995, Mr. McCorry served as the Senior
Vice President, Chief Financial and Chief Operating Officer of Warnaco Group,
Inc., Warners/Intimates Division. From 1988 to 1994, Mr. McCorry served as the
Chief Financial Officer and Vice President of Operations and Administration of
Sara Lee Corp., Aris Isotoner Division. From 1979 to 1988, Mr. McCorry held
various senior managerial and operating positions with this company.
Joan York has served as Secretary of Interiors since 1994. From
1990 to 1994 Ms. York served in various administrative capacities at Premier
New York.
There are no material proceedings to which any director, officer or
affiliate of the Company, any owner of record or beneficially of more than five
percent of any class of voting securities of the Company, or any associate of
any such director, officer, affiliate of the Company or security holder is a
party adverse to the Company or any of its subsidiaries or has a material
interest adverse the Company or any of its subsidiaries.
EMPLOYEES
As of August 15, 1998, the Company employed approximately 626
full-time persons, approximately 115 of whom were subject to collective
bargaining agreements. The Company and its subsidiaries are party to two
collective bargaining agreements which expire in the years 2002 and 2003. None
of the Company's employees have been on strike, or threatened to strike, since
the Company's inception and the Company believes that its relations with its
employees are good.
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ITEM 2. DESCRIPTION OF PROPERTIES
Interiors' headquarters are located in Mount Vernon, New York, in
leased facilities consisting of 70,000 square feet of manufacturing and
warehouse space together with administrative offices and a showroom. The
facility is occupied under a five year lease expiring at the end of 2001 with a
five-year renewal option. The Company leases the manufacturing facilities
listed in the table below.
<TABLE>
<CAPTION>
Approximate Size
Location Primary Use (square feet)
- -------- ----------- -------------
<S> <C> <C>
Mount Vernon, New York Manufacturing; Offices; Executive Offices 70,000 (1)
Mount Vernon, New York Manufacturing 10,000 (2)
City of Industry, California Manufacturing; Administrative Offices 98,000 (3)
Pacoima, California Manufacturing; Administrative Offices 108,000 (4)
Pacoima, California Manufacturing 22,000 (5)
Pico Rivera, California Manufacturing; Administrative Offices 74,000 (6)
</TABLE>
- ------------
(1) Lease expires December 31, 2002.
(2) Lease expires August 31, 1999.
(3) Lease expires December 31, 2002.
(4) Lease expires December 31, 1999.
(5) Month-to-month lease.
(6) Lease expires November 30, 1998.
In addition, the Company leases showroom facilities in High Point,
North Carolina (three showrooms), San Francisco, California (three showrooms),
New York, New York (two showrooms), Dallas, Texas (two showrooms) and Atlanta,
Georgia, as well as a small retail outlet in Yonkers, New York. The showroom
sizes range from 300 square feet to approximately 9,800 square feet and rent
aggregates approximately $480,000 per annum.
Interiors believes that its facilities are well-maintained and
adequate for its current requirements, and that suitable additional space will
be available as needed to accommodate anticipated growth of its operations in
the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
Interiors is subject to claims and litigation and other claims arising
in the ordinary course of its business. In management's opinion, Interiors is
not presently a party to any such litigation or claims the outcome of which
would have a material adverse effect on its financial position or its results
of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
fiscal year.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Class A Shares are traded on the Nasdaq Small Cap Market
("NASDAQ") under the symbol INTXA. Prior to this offering, the Company's stock
had been traded on the NASDAQ since June 23, 1994, when the Company completed
its initial public offering. Prior to that date, there was no public market for
the Company's Class A Shares. The Class B Shares are not traded on any public
market. The following table sets forth, for the periods indicated, the high and
low bid prices of shares of the Company's Class A Shares on the NASDAQ:
FISCAL YEAR ENDING JUNE 30, 1999 HIGH LOW
---- ---
Second Quarter (through October 9, 1998)........... $1.25 $ .78
First Quarter ..................................... $2.16 $ .94
FISCAL YEAR ENDING JUNE 30, 1998 HIGH LOW
---- ---
Fourth Quarter .................................... $2.03 $1.69
Third Quarter...................................... $2.50 $ .97
Second Quarter..................................... $1.53 $ .97
First Quarter...................................... $1.63 $ .75
FISCAL YEAR ENDING JUNE 30, 1997 HIGH LOW
---- ---
Fourth Quarter..................................... $1.75 $ .75
Third Quarter ..................................... $2.19 $1.00
Second Quarter..................................... $3.50 $1.75
First Quarter...................................... $4.25 $2.00
As of October 9, 1998, there were 122 holders of record of the
Company's Class A Shares and 2 holders of record of the Company's Class B
Shares. On October 9, 1998, the last reported sale price on the NASDAQ for the
Company's Class A Shares was $1.08.
The Company has never declared or paid cash dividends on its Class A
Shares or Class B Shares. The Company intends to retain earnings for use in the
operation and expansion of its business and therefore does not anticipate
declaring or paying any cash dividends in the foreseeable future.
UNREGISTERED OFFERINGS
In February 1996, the Company's Board of Directors approved the
issuance of 150,000 Class A Shares in a private placement to Sol Munn, uncle of
the Max Munn, in consideration for past consulting services
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<PAGE>
provided. The subsequent issuance of the Class A Shares was exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"), as a transaction by the issuer not involving any public
offering.
Pursuant to a March 3, 1996 agreement, the Company issued an aggregate
of 200,000 Class A Shares and 200,000 shares of its Series A 10% Convertible
Preferred Stock ("Series A Preferred Shares") To Decor Group, Inc ("Decor") in
exchange for issuance by Decor to the Company of 250,000 shares of its Series A
Non-Voting Convertible Preferred Stock (sold by Interiors in February 1997) and
an option to purchase 10,000,000 shares of Decor's Series B Non-Convertible
Voting Preferred Stock. The issuance of the Class A Shares and the Series A
Preferred Shares was exempt from registration under Section 4(2) of the
Securities Act, as a transaction by the issuer not involving any public
offering.
On April 8, 1996, the Company issued an aggregate of 250,000 Class B
Shares in a private placement to Laurie Munn, wife of Max Munn, in consideration
for a down payment of $250, Ms. Munn's 6.6% note to the Company providing for
principal of $437,500 to be paid to the Company in five equal annual
installments of $105,561.90, and Ms. Munn's guarantee and pledge of her assets
for certain Company debt. The issuance of the Class B Shares was exempt from
registration under Section 4(2) of the Securities Act, as a transaction by the
issuer not involving any public offering.
In April 24,1996, the Company received $431,251, in a private
placement of 175,000 Class A Shares and 50,000 Series A Preferred Shares to
accredited investors, in a private placement. The issuance of the Class A
Shares and the Series A Preferred Shares was exempt from registration under
Section 4(2) of the Securities Act, as a transaction by the issuer not
involving any public offering.
On June 30, 1996, pursuant to a Consulting Agreement with Morris Munn,
father of Max Munn, the Company issued options to purchase up to 350,000 Series
A Preferred Shares, in consideration of certain future services. These options
were fully exercised during July to September 1996, generating net proceeds to
the Company totaling $787,500. The issuance of the Series A Preferred Shares
was exempt from registration under Section 4(2) of the Securities Act, as a
transaction by the issuer not involving any public offering.
In July 1996, the Company issued an aggregate of 50,000 Class A Shares
in a private placement to Ann Stevens, a former executive of the Company,
pursuant to the Company's June 30, 1996 settlement with Ms. Stevens (the
"Stevens Settlement"). Pursuant to the Stevens Settlement the Company placed
into escrow 1,250,000 Class B Shares (the "Escrow Shares") with Michael Levine,
Esq., attorney of Ms, Stevens, as escrow agent. Pursuant to the terms of the
Stevens Settlement, in November 1997, February 1998 and September 1998, the
Company added an aggregate of 12,500,000 Class A Shares to the Escrow Shares.
The Escrow Shares are being held as security for certain obligations of the
Company under the Stevens Settlement. Accordingly, no proceeds were received by
the Company upon the issuance of the Escrow Shares. Upon satisfaction of such
obligations, the Escrow Shares will be returned to the Company (subject to an
option to purchase the Class B Escrow Shares granted to Laurie Munn, as
described below). The issuance of the Class A Shares and Class B Shares was
exempt from registration under Section 4(2) of the Securities Act, as a
transaction by the issuer not involving any public offering.
In September 1996, the Company issued 10,000 Class A Shares to an
outside director of the Company, and 10,000 Class A Shares to various
individuals named by another outside director of the Company, in consideration
of services performed by such outside directors on behalf of the Company. The
issuances of the Class A Shares were exempt from registration under Section
4(2) of the Securities Act, as a transaction by the issuer not involving any
public offering.
On June 30, 1997, the Company issued an aggregate of 300,000 Class A
Shares in a private placement to Hide Tashiro, pursuant to the Company's June
30, 1997 settlement with Mr. Tashiro (The "Tashiro Settlement"). The issuance of
the Class A Shares was exempt from registration under Section 4(2) of the
Securities Act, as a transaction by the issuer not involving any public
offering.
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<PAGE>
On August 18, 1997, the Company issued an aggregate of 23,000 Class A
Shares in a private placement to an accredited investor, in consideration of
services rendered. The issuance of the Class A Shares was exempt from
registration under Section 4(2) of the Securities Act, as a transaction by the
issuer not involving any public offering.
On August 29, 1997, the Company issued an aggregate of 100,000 Class A
Shares and 100,000 Series A Preferred Shares in a private placement to BH
Funding, LLC in consideration of consulting and other services to the Company.
The issuance of the foregoing shares to BH Funding, LLC was exempt from
registration under Section 4(2) of the Securities Act, as a transaction by the
issuer not involving any public offering.
On December 2, 1997, the Company issued an aggregate of 2,000 Series A
Preferred Shares in a private placement to an accredited investor, in
consideration of services rendered. The issuance of the Series A Preferred
Shares was exempt from registration under Section 4(2) of the Securities Act,
as a transaction by the issuer not involving any public offering.
In January 1998, the Company granted an option to purchase the Escrow
Shares to Laurie Munn in consideration for the guarantee by Ms. Munn of certain
obligations of the Company to certain creditors of the Company. The option to
purchase the Escrow Shares must be exercised by January 9,2001. In the event
that Ms. Munn exercises the option, Ms. Munn must pay $500 in cash, and execute
and deliver a secured promissory note for $500,000 with interest on the unpaid
principal balance at the rate of 6.5% per annum, with interest and unpaid
principal amount to be paid in five equal annual installments commencing on the
first anniversary of the exercise of the option. The grant of the foregoing
option to purchase the Escrow Shares was exempt from registration under Section
4(2) of the Securities Act, as a transaction by the issuer not involving any
public offering.
On March 5, 1998, the Company issued an aggregate of 730,000 Class B
Shares in a private placement to Laurie Munn for an aggregate purchase price of
$511,000 and in consideration for the guarantee by Ms. Munn of certain
obligations of the Company to United Credit Corporation and other creditors of
the Company. The issuance of the Class B Shares was exempt from registration
under Section 4(2) of the Securities Act, as a transaction by the issuer not
involving any public offering.
On March 10, 1998, the Company consummated the transactions
contemplated by that certain Agreement and Plan of Merger among the Company,
Vanguard Acquisition Corp. ("Acquisition"), Henlor and the shareholders of
Henlor. Pursuant to the agreement, Acquisition merged with and into Henlor,
with Henlor continuing as the surviving corporation and as a wholly-owned
subsidiary of the Company. The merger consideration paid by the Company
consisted of (i) a cash payment of $705,621, (ii) a promissory 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, issued by Henlor to Michael H,
Greeley, as representative for each of the former shareholders of Henlor, and
(iii) the issuance of 299,581 Class A Shares (the "Vanguard Merger Shares") to
the former shareholders of Henlor. The Vanguard Merger Shares remain subject to
adjustment, based upon the fair market value of the Vanguard Merger Shares on
March 10, 1999. The issuance was exempt from registration under Section 4(2) of
the Securities Act, as a transaction by the issuer not involving any public
offering.
In March 1998 and April 1998, the Company issued convertible notes
(the "Notes") in the aggregate principal amount of $3,175,000, and 15,000 Class
B Warrants and 15,000 Class C Warrants in connection with the issuance of
certain Notes, in a private placement to accredited investors. The issuance was
exempt from registration under Section 4(2) of the Securities Act, as a
transaction by the issuer not involving any public offering, and met the
requirements of Rule 506 of Regulation D promulgated under the Securities Act.
On June 9, 1998, the Company filed a registration statement on Form S-3 with
the Securities and Exchange Commission in order to register the Class A Shares
underlying the Notes and the warrants issued in connection therewith.
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<PAGE>
The registration statement was subsequently declared effective by the
Securities and Exchange Commission. The proceeds received by the Company
Pursuant to this private placement were applied toward the working capital of
the Company and were used, in part, for the acquisitions of Henlor and MSI.
Of the Notes, notes in the principal amount of $1,700,000 (the
"6% Notes") accrue interest 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. $ 1,000,000 of the Notes are three-year convertible
subordinated notes secured by the stock of Vanguard, the successor 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 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.
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 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.
On July 31,1998, the Company issued 44,431 Class A Shares and options
to purchase 300,000 Class A Shares to James J. McCorry (collectively,
the'"McCorry Shares") in consideration of Mr. McCorry joining the Company as
President of the Habitat Solutions division of the Company and for the
performance of certain services on behalf of the Company. The exercise price of
the options is equal to the closing price of the Class A Shares on July 31,
1998. The issuance of the McCorry Shares was exempt from registration under
Section 4(2) of the Securities Act, as a transaction by the issuer not
involving any public offering. On September 10, 1998, the Company filed a
registration statement on Form S-3 with the Securities and Exchange Commission
in order to, among other things, register the McCorry Shares.
In July and August 1998, the Company issued convertible debentures
(the "Convertible Debentures") in the aggregate principal amount of $3,000,000,
and warrants to purchase an aggregate of 1,451,786 Class A Shares in a private
placement to three accredited investors. The issuance was exempt from
registration under Section 4(2) of the Securities Act, as a transaction by the
issuer not involving any public offering. All proceeds received by the Company
pursuant to this private placement were applied toward the working capital of
the Company. On September 10, 1998, the Company filed a registration statement
on Form S-3 with the Securities and Exchange Commission in order to, among
other things, register the Class A Shares underlying the Convertible Debentures
and related warrants.
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<PAGE>
The Convertible Debentures bear interest at the rate of 7% per annum,
payable quarterly beginning October 1, 1998, and mature in July and August,
2001, three years after their respective issuance dates. Any or all portion of
the Convertible Debentures may be converted to Class A Shares any time after
240 days from their respective dates of issuance. Upon conversion, the holders
of the Convertible Debentures will receive Class A Shares equal to the sum
found by dividing the principal amount being converted, plus any accrued and
unpaid interest on that amount, by the lesser of (i) 80% of the average closing
bid during the three day trading period immediately preceding the conversion or
(ii) $2.10. The Convertible Debentures must be converted at their respective
dates of maturity if: (i) the Class A Shares are listed on the OTC Bulletin
Board or NASDAQ, (ii) the bid price of the Class A Shares is greater than $1.00
for the ten trading days immediately preceding the maturity date, (iii)
there has not been any suspension in the trading of the Class A Shares on the
OTC Bulletin Board or NASDAQ during the thirty trading days immediately
preceding the maturity date, and (iv) the Company has been in full compliance
with the terms and conditions of the Convertible Debenture agreement. If these
conditions are not satisfied, the Company is required to pay the holders of the
Convertible Debentures a sum of cash equal to the market value of the Class A
Shares which such holders would have received if the Convertible Debentures had
been converted.
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<PAGE>
In conjunction with the issuance of the Convertible Debentures, the
Company issued Common Stock Purchase Warrants ("B Warrants") to a finder. The B
Warrants expire five years from their respective dates of issue and allow the
holder to purchase 112,500 Class A Shares in the aggregate at an exercise price
of $2.10 per Class A Share. If 50% or more of the voting power of the Company
is disposed of in an exchange other than an exchange solely for cash the B
Warrants may be used to purchase whatever assets or securities that the holder
of the B Warrants would have been able to acquire had the B Warrants been
previously used to purchase Class A Shares.
On August 14, 1998, the Company consummated the transactions
contemplated by that certain Agreement and Plan of Merger dated July 2, 1998 by
and among the Company, Troy Lighting, Inc. ("Troy") and others, pursuant to
which a wholly-owned subsidiary of the Company merged with and into Troy, with
Troy continuing as the surviving corporation and a wholly-owned subsidiary of
the Company. The merger consideration paid by the Company consisted of a cash
payment of $250,000 and the issuance of 650,000 Class A Shares (the "Troy
Merger Shares") to the former shareholders of Troy. The Troy Merger Shares
remain subject to adjustment, based upon the fair market value of the Troy
Merger Shares on July 2, 1999. In addition, the Company agreed to cause Troy to
repay S 1,700,000 in indebtedness to certain shareholders of Troy. The
issuance of the Troy Merger Shares was exempt from registration under Section
4(2) of the Securities Act, as a transaction by the issuer not involving any
public offering. On September 10, 1998, the Company filed a registration
statement on Form S-3 with the Securities and Exchange Commission in order to,
among other things, register the Troy Merger Shares.
No underwriters were engaged by the Company in connection with any of
the issuances described above and, accordingly, no underwriting discounts or
commissions were paid.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following is a discussion of the financial condition and results
of operations of the Company for the years ended June 30, 1997 and 1998.
It should be read in conjunction with the Selected Financial and Operating Data
and the Company's Financial Statements, the related notes thereto, and the
other financial and operating information included elsewhere in this Report.
Certain statements contained or incorporated by reference in this Report
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 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 forward-looking statements. The Company
undertakes no obligation to release publicly the results of any revisions to
these forward-looking statements to reflect events or circumstances arising
after the date hereof.
YEAR ENDED JUNE 30, 1998 COMPARED TO YEAR ENDED JUNE 30, 1997
Net Sales. The Company's net sales from operations for the fiscal year
ended June 30, 1998, increased by $8,795,000, or 189.1%, to $13,447,000 from
$4,652,000 for the fiscal year ended June 30, 1997. Sales increased by
$6,130,000 as a result of the Company's acquisitions of Henlor and MSI during
March 1998. Net sales for the A.P.F. Master Framemakers division increased
$2,665,000 for the year ended June 30, 1998, due to increased sales to a major
wholesale customer.
Cost of Goods Sold. The Company's cost of goods sold as a percentage of
net sales was 61% for the year ended June 30, 1998, and 66% for the year ended
June 30, 1997. The cost of sales for the A.P.F. Master Framemakers division
declined from approximately 66% as of June 30, 1997 to 59% as of June 30, 1998.
The cost of goods sold improved at the A.P.F. Master Framemakers division as a
result of increased sales to a major wholesale customer and increases in
factory productivity. The Company's cost of goods sold was further improved due
to the acquisitions of Henlor and MSI. As a result of the acquisitions, the
Company recorded rapid sales growth in the fourth Quarter of fiscal 1998.
During this period, the Company achieved savings in the cost of raw materials
and direct labor as a percentage of sales as a result of manufacturing
synergies resulting from the consolidation of manufacturing facilities of these
two subsidiaries.
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<PAGE>
Selling, General and Administrative Expenses. The Company's selling,
general and administrative expenses as a percentage of net sales totaled 30.4%
for the year ended June 30, 1998, versus 55.2% for the year ended June 30,
1997. The reduction in the ratio of selling, general, and administrative
expenses as a percentage of net sales for the year ended June 30, 1998 versus
the prior period resulted primarily the increase in sales, the containment of
the growth of administrative personnel which led to reduced salaries, benefits
and travel expenses as a percentage of sales. Futhermore, discretionary
spending for such items as stationery and supplies, advertising, and consulting
fees were curtailed. These cost containments were achieved during the same
periods that sales grew rapidly as a result of the above acquisition.
Interest Expense. Interest expense as a percentage of net sales
totaled approximately 4.1% for the year ended June 30, 1998, versus
approximately 8.7% for the year ended June 30, 1997. Interest expense was
approximately $152,000 higher in the year ended June 30, 1998 versus the year
ended June 30, 1997, due largely to new debt to finance acquisitions.
Other Income. Consulting and Management Fee income decreased $805,000
from fiscal 1997 to 1998. During 1997, the Company reflected $1,140,000 in
revenues as a result of its non-cash transactions (sale of certain assets and
other goods and services) with an affiliate. For the fiscal year ended June 30,
1998, the Company has recognized an aggregate of $335,000 in other income for
consulting and management services rendered to affiliates.
Net Income. For the year ended June 30, 1998, the Company realized net
income of approximately $634,000 ($0.04 per share), versus net income of
approximately $106,000 (($0.09) per share) for the year ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Management believes that future cash flow from operations will be
sufficient to support the Company's operations. However, Company management
continues to implement what it believes to be the changes deemed necessary to
further increase positive cash flow and profitability. The Company has also
undertaken efforts to obtain additional sources of financing to fund future
acquisitions. No assurances can be given that these measures will generate the
fiscal improvement sought by the Company.
As of June 30, 1998, the Company reflected cash balances of
approximately $4,036,000 as compared to cash balances of approximately $271,000
at June 30, 1997, representing an increase of $3,765,000. Net cash used in
operating activities was approximately $338,000 for the fiscal year ended June
30, 1998, as compared to net cash used in operating activities of approximately
$1,350,000 for the fiscal year ended June 30, 1997. The net cash used in
operating activities during the year ended June 30, 1998 was primarily a result
of net income of approximately $634,000 as well as the following approximate
changes from continuing operations: increase in inventories of $139,000, an
increase in accounts receivable of $417,000, an incease in other current assets
of $539,000 and an increase in other assets of $1,354,000. The increase in cash
provided by operating activities was largely due to increased sales at the
Company's A.P.F. Master Framemakers division and cash provided by Henlor and
MSI, companies which were acquired by the Company in March 1998.
Net cash used in investing activities during the fiscal year ended
June 30, 1998 totaled $2,065,000 versus approximately $620,000 for the
fiscal year ended June 30, 1997. During the fiscal year ended June 30, 1998,
the Company invested $237,000 to acquire equipment, versus approximately
$166,000 used to acquire equipment and other assets during the fiscal year ended
June 30, 1997. The Company completed the acquisitions of Henlor and MSI,
accounting for almost all of the Company's investing activities for the period.
Net cash provided by financing activities totaled approximately
$6,169,000 during the fiscal year ended June 30, 1998, verus approximately
$2,238,000 during the fiscal year ended June 30, 1997. The increase in 1998
results primarily from the issuance of debt of approximately $3,143,000
and exercise of common stock warrants of approximately $3,873,000 offset by
repayment of debt of approximately $847,000, versus issuance of debt of
approximately $1,214,000 and exercise of warrants and options aggregating
approximately $1,917,000, offset by repayment of debt approximating $894,000 in
fiscal 1997.
-19-
<PAGE>
As of June 30, 1998, the Company's financial position reflected a working
capital surplus of approximately $1,114,000, versus a working capital deficit
of approximately $99,000 at June 30, 1997. As of June 30, 1998 versus June 30,
1997, there were increases in trade receivables of approximately $417,000,
other assets of $1,354,000 and an increase in inventories of approximately
$139,000.
The Company declared a recorded date of December 10, 1997 for a dividend
on its Series A 10% Cumulative Convertible Preferred Stock for the six-month
period ending September 1996, March 1997 at September 1997. The dividend
($0.75 per perferred share) was paid on January 10, 1998 in the form of the
Class A Shares. Retained earnings was charged $530,000 in December 1997 in
conjunction with the issuance of these shares. The Company has not declared
a subsequent record date.
On March 10, 1998, the Company entered into, and consummated, an Agreement and
Plan of Merger among the Company, Vanguard Acquisition Corp., a wholly owned
subsidiary of the Company, Henlor Inc. ("Henlor") and the shareholders of
Henlor. The transaction was structured as a reverse triangular merger. As a
result of the merger, Henlor now is a wholly owned subsidiary of the Company.
Henlor, through its wholly owned subsidiary Vanguard Studios, Inc. ("Vanguard"),
designs, manufactures and wholesales decorative accessories furnishings for the
home, including framed hand-painted oil paintings, framed prints under glass,
wall mirrors, lamps, sculptures and decorative tabletop accessories. The
acquisition of Henlor provides the Company with an expanded breadth of product
offerings.
Pursuant to the merger agreement, the purchase price paid to the shareholders
of Henlor at closing consisted of a cash payment of $705,621 and the delivery
of a subordinated promissory note in the aggregate principal amount of $794,379.
In addition, the Company issued to the shareholders of Henlor an aggregate of
299,581 unregistered shares of its Class A Common Stock and the Company repaid
indebtedness of Vanguard owed to the principal shareholders of Henlor in the
amount of $294,379. All of the merger shares are being held in a one year
escrow as security for the obligations of Henlor's former shareholders pursuant
to the merger agreement, and the number of merger shares remains subject to
adjustment based on the value of the merger shares of the second anniversary of
the closing date (value of shares is fixed at $500,000).
The merger was financed by (i) a bridge loan in the principal amount of $500,000
from United Credit Corp., the Company's senior lender, and (ii) the private
placement of accredited investors of the Company's unregistered Subordinated
Convertible Promissory Notes in the aggregate principal amount of $500,000. The
aggregate purchase price was determined in arms-length negotiations between the
Company and the shareholders of Henlor.
The assets acquired pursuant to the merger agreement included, among other
things, (i) fixed assets owned, leased or used by Henlor and Vanguard, including
equipment, (ii) accounts receivable, (iii) inventory and (iv) contracts,
agreements, and leases of real and personal property. For the foreseeable
future, the Company intends to utilize such assets in connection with the
operation of the business of Henlor and Vanguard.
On March 23, 1998, the Company entered into, and consummated, an Agreement and
Plan of Merger among the Company, Artmaster Studios, Inc. ("Artmaster"), a
wholly-owned subsidiary of the Company, Merchandise Sales, Inc. ("MSI") and
certain shareholders of MSI. The transaction with and into Artmaster. Artmaster
designs, manufactures and wholesales wall decor and lighting products for the
home. The acquisition of MSI provides the Company with an expanded breadth of
product offerings.
Pursuant to the Merger Agreement, the purchase price paid to the shareholders
of MSI at closing consisted of the delivery of a subordinated promissory note
in the aggregate principal amount $537,248. In addition, the Company issued to
the shareholders of MSI an aggregate of 779,302 unregistered shares of its
Class A Common Stock and the Company repaid indebtedness of MSI owed to certain
creditors of MSI in the aggregate amount of $1,022,752 through an aggregate
cash payment of $750,000 and the issuance of a subordinated promissory note in
the aggregate principal amount of $272,752. All of the merger shares are being
held in a one year escrow as security for the obligations of MSI's former
shareholders pursuant to the merger agreement, and the number of merger shares
remains subject to adjustment based on the value of the merger shares on the
first anniversary of the closing date (value of shares is fixed at $1,200,000).
The merger was financed by the Company's available working capital which was
derived in part, from an earlier, unrelated private placement to accredited
investors of the Company's unregistered Subordinated Convertible Promissory
Notes. The aggregate purchase price was determined in arms-length negotiations
between the Company and the shareholders of MSI.
SUBSEQUENT EVENTS
On July 7, 1998, the Company entered into Stock Purchase Agreement (the
"Bentley Agreement"), with Bentley International, Inc. a Missouri corporation
("Bentley") and on July 30, 1998, the Company consummated the transactions
contemplated by the Agreement. Pursuant to the Agreement, the Company purchased
all the issued and outstanding shares (the "Shares") of Windsor Art, Inc., a
Missouri corporation and a wholly-owned subsidiary of Bentley ("Windsor"). As a
result of the purchase of the Shares, Windsor is now a wholly-owned subsidiary
of the Company. Windsor manufacturers and distributes decorative mirrors and
framed prints to furniture stores, mass merchants, hotels and designers
throughout the United States.
The assets acquired pursuant to the Bentley Agreement included, among other
things (i) fixed assets owned, leased or used by Windsor, including equipment
(ii) accounts receivable, (iii) inventory and (iv) contracts, agreements, and
leases of read and personal property. For the foreseeable future, the Company
intends to utilize such assets in connection with the operation of the business
of Windsor.
The purchase price paid to Bentley for the Shares consisted of a cash payment
of $1,706,992 (financed by $2,250,000 in convertible promissory notes issued by
the Company) and the delivery of two secured, subordinated promissory notes in
the aggregate principal amount of $5,300,000 (the "Notes"). As a condition
precedent to the Bentley Agreement, the Company and Bentley entered into and
consummated a pledge agreement on July 30, 1998 (the "Pledge Agreement").
Pursuant to the Pledge Agreement, the Company pledged the Shares as collateral
for the Notes and security for the obligations of the Company under the
Agreement. Until the debt is repaid by the Company, the former shareholder and
the President and CEO of the Company have agreed to vote the shares as a block.
Concurrently with the Closing, the Company entered into and consummated, a
securities Purchase and Registration Rights Agreement (the "Securities Purchase
Agreement") by and between the Company and Bentley. Pursuant to the Securities
Purchase Agreement, the Company purchased 150,000 shares of common stock of
Bentley and a warrant to purchase 300,000 shares of common stock of Bentley
(collectively, the "Bentley Shares"). The purchase price paid to Bentley for
the Bentley Shares consisted of 1,500,000 shares of the Company's Class A
Common Stock (the "Interiors Shares") issued by the Company. The Interior
shares will be held in escrow for one year from the Closing as security for the
obligations of Bentley to the Company.
The former owner of Bentley entered into a consulting agreement with the
Company aggregating $782,000 over a four-year period, and was granted a warrant
to purchase 50,000 Class A Shares.
On August 14, 1998, the Company consummated the transactions contemplated by
that certain Agreement and Plan of Merger (the "Troy Merger Agreement") dated
July 2, 1998 by and among the Company, Troy Acquisition Corp. ("Newco"), Troy
Lighting, Inc. ("Troy"), and certain shareholders of Troy. Pursuant to the Troy
Merger Agreement, Newco merger with and into Troy, with Troy continuing as the
surviving corporation and as a wholly-owned subsidiary of the Company. Troy
manufactures and distributes portable and installed lighting and light
fixtures.
The purchase price paid by the Company consisted of $250,000 in cash and Class
A Common Stock of the Company ("Class A Shares") with a fair market value of
$975,000 (the "Troy Merger Shares"). In addition, the Company agreed to repay
$1,700,000 to extinguish obligations of Newco to certain former shareholders of
Troy. The Troy Merger Shares are to be held in escrow as collateral for certain
obligations of the former shareholders of Troy. If the Troy merger Shares are
worth less than $1,053,000 as of July 2, 1999, less amount in the escrow
account and amounts paid for any resolved claims, the Company is required to
issue additional Class A Shares to the former Troy shareholders equal in value
to such deficiency. If the Troy Merger Shares are worth more than $1,053,000 as
of July 2, 1999, the former Troy shareholders are required to return Class A
Shares to be Company equal in value to such excess amount.
The cash portion of the purchase price paid pursuant to the Troy Merger
Agreement and the repayment of certain Troy indebtedness was financed by
unsecured borrowing of $1,500,000 from United Credit Corporation and cash on
hand.
The assets acquired pursuant to the Troy Merger Agreement included, among other
things, (i) fixed assets owned, leased or used by Troy, including equipment,
(ii) receivable, (iii) inventory and (iv) contracts agreements, and lease of
real and personal property. For the foreseeable future, the Company intends to
utilize such assets in connection with the operation of the business of Troy.
In conjunction with the issuance of the Convertible Debentures, the Company
issued Common Stock Purchase Warrants ("A Warrants") to the holders of the
Convertible Debentures. The A Warrants expire five years from their respective
dates of issue and allow the holders to purchase 1,339,286 Class A Shares
in the aggregate at an exercise price equal to the lessor of (i) 120% of the
closing bid price of the Class A Shares on the trading day immediately
preceding the respective issuance dates of the A Warrants, plus an amount equal
to the Exercise Premium (as defined below) or (ii) 120% of the closing bid
price of the Class A Shares on the Reset Date, which shall be a single date
during the period commencing on the 91st day after the respective issuance
dates of the A Warrants through and including the 210th day after the
respective issuance dates of the A Warrants, to be designated by the holder of
the A Warrant, plus an amount equal to the Exercise Premium. The "Exercise
Premium" will be equal to 1/2 of the closing bid price of the Class A Shares on
the trading day immediately preceding the exercise date of the A Warrant in
question, less $4.11 per Class A Share, unless such closing bid price is less
than $4.11 per share, in which case the Exercise Premium shall be $0.00.
-20-
<PAGE>
Except as otherwise set forth herein, the Company has no material
commitments for capital expenditures. In order to fund growth over the long
term, the Company anticipates possible future issuance of its securities
resulting in further dilution to its security holders.
The Company operates pursuant to a policy that generally precludes
acceptance of goods on a non-cash basis (sometimes known as barter
transactions).
YEAR 2000 COMPLIANCE
The Company is currently in the process of evaluating and implementing
changes to computer programs necessary to address the year 2000 issue. The
Company does not anticipate any material additional costs with regard to its
year 2000 compliance.
The year 2000 issue is expected to affect the systems of various
entities with which the Company interacts. However, there can be no assurance
that the systems of other companies on which the Company's systems rely will be
timely converted, or that a failure by another company's systems to be year
2000 compliant would not have a material adverse effect on the Company.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Page
Report of Independent Public Accountants .............................. F-1
Consolidated Financial Statements:
Consolidated Balance Sheet as of June 30, 1998 ........................ F-2
Consolidated Statements of Income for the
years ended June 30, 1998 and 1997 .................................... F-3
Consolidated Statements of Changes in Stockholders'
Equity for the years ended June 30, 1998 and 1997 ..................... F-4
Consolidated Statements of Cash Flows for
the years ended June 30, 1998 and 1997 ................................ F-5-6
Notes to Consolidated Financial Statements ............................ F-7-27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF
INTERIORS, INC.:
We have audited the accompanying consolidated balance sheet of Interiors, Inc.
(a Delaware corporation) as of June 30, 1998, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows of
Interiors, Inc. and its subsidiaries (subsidiary for 1997) for each of the two
years in the period ended June 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Interiors, Inc. as of June 30,
1998 and the results of its operations and its cash flows for each of the two
years in the period ended June 30, 1998, in conformity with generally accepted
accounting principles.
NEW YORK, NEW YORK
OCTOBER 9, 1998
F-1
<PAGE>
INTERIORS, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ 4,035,590
Accounts receivable, net 3,469,444
Inventories 3,170,938
Other current assets 1,696,891
------------
Total current assets 12,372,863
INVESTMENT IN AFFILIATES 4,276,679
PROPERTY AND EQUIPMENT, net 1,294,809
OTHER ASSETS 8,397,419
------------
Total assets $ 26,341,770
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current maturities of long-term debt 5,621,930
Accounts payable and accrued liabilities 5,637,012
------------
Total current liabilities 11,258,942
LONG TERM DEBT 2,826,430
COMMITMENTS AND CONTINGENCIES (NOTE 12)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,300,000 shares
authorized, 679,438 shares issued and outstanding 6,794
Class A common stock, $.001 par value, 60,000,000 shares
authorized, 19,614,857 shares issued and outstanding 19,615
Class B common stock, $.001 par value, 2,500,000 shares
authorized, 2,105,000 shares issued and outstanding 2,105
Additional paid-in-capital 21,751,749
Accumulated deficit (8,575,865)
Notes receivable (948,000)
------------
Total stockholders' equity 12,256,398
------------
Total liabilities and stockholders' equity $ 26,341,770
============
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-2
<PAGE>
INTERIORS, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
NET SALES $ 13,447,234 $ 4,796,131
EXPENSES:
Cost of goods sold 8,268,922 3,075,821
Selling, general, and administrative expenses 4,082,779 2,569,697
------------ ------------
Total expenses 12,351,701 5,645,518
Income (Loss) from operations 1,095,533 (849,387)
OTHER EXPENSE
Amortization of goodwill 42,042 --
Interest expense 557,341 405,048
Financing charges - noncash 305,716 --
Gain on sale of investment -- (201,013)
Consulting and management fees (335,000) (1,140,000)
------------ ------------
Total other expense (income) 570,099 (935,965)
Income from operations
before (benefit) provision for taxes 525,434 86,578
(BENEFIT) FOR INCOME TAXES (108,240) (19,346)
------------ ------------
NET INCOME $ 633,674 $ 105,924
------------ ------------
EARNINGS PER COMMON SHARE:
Basic $ 0.04 $ (0.09)
------------ ------------
Diluted $ 0.04 $ (0.09)
------------ ------------
WEIGHTED AVERAGE NUMBER OF SHARES USED IN COMPUTATION
Basic 7,251,193 4,527,160
------------ ------------
Diluted 8,154,083 4,527,160
------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-3
<PAGE>
INTERIORS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
Series A Class A Class B
Preferred Stock Common Stock Common Stock
------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1996 790,000 $7,900 3,470,247 $3,470 2,039,500 $2,040
Net proceeds from the exercise of common stock warrants 822,424 822
Net proceeds from the exercise of preferred stock options 350,000 3,500
Common stock issued to directors 20,000 20
Conversion of preferred stock to common stock (92,940) (929) 278,820 279
Increase in valuation of investment in Decor
Conversion of Class B Common shares into Class A Common shares 269,750 270 (269,750) ($270)
Common and preferred stock issued to BH Funding 100,000 1,000 100,000 100
Assumption of payroll tax liabilities - by officer in connection
with Italia dissolution
Common stock issued to liquidate debt 300,000 300
Net income through June 30, 1997
---------------------------------------------------------------
BALANCE, June 30, 1997 1,147,060 $11,471 5,261,241 $5,261 1,769,750 $1,770
Sale of Treasury Stock
Conversion of preferred stock to common stock (517,622) (5,177) 1,552,866 1,553
Class B Common Shares issued 730,000 730
Escrow shares 7,500,000 7,500
Class A Common Shares issued for services rendered 226,670 227
Common stock issued in connection with acquisitions 1,078,883 1,079
Exercise of Class WA Warrants, net of expenses 2,607,116 2,607
Warrants issued in connection with convertible debt
Stock dividends declared December, 1997 530,331 530
Conversion of Class B Common shares into Class A Common shares 394,750 395 (394,750) (395)
Issuance of Preferred Stock 50,000 500
Conversion of promissory notes to Class A common 463,000 463
Net income through June 30, 1998
---------------------------------------------------------------
BALANCE, June 30, 1998 679,438 $6,794 19,614,857 $19,615 2,105,000 $2,105
======= ====== ========== ======= ========= ======
</TABLE>
<TABLE>
<CAPTION>
Additional
Paid-In Accumulated Treasury Note
Capital (Deficit) Stock Receivable Total
------- --------- ----- ---------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, June 30, 1996 $8,564,741 ($8,785,132) ($600) ($437,500) ($645,081)
Net proceeds from the exercise of common stock warrants 1,178,820 1,179,642
Net proceeds from the exercise of preferred stock options 734,000 737,500
Common stock issued to directors 14,980 15,000
Conversion of preferred stock to common stock 650
Increase in valuation of investment in Decor 1,624,501 1,624,501
Conversion of Class B Common shares into Class A Common shares
Common and preferred stock issued to BH Funding 723,900 725,000
Assumption of payroll tax liabilities - by officer in connection
with Italia dissolution 75,344 75,344
Common stock issued to liquidate debt 299,700 300,000
Net income through June 30, 1997 105,924 105,924
----------------------------------------------------------------
BALANCE, June 30, 1997 $13,216,636 ($8,679,208) ($600) ($437,500) $4,117,830
Sale of Treasury Stock 479,400 600 480,000
Conversion of preferred stock to common stock 3,624
Class B Common Shares issued 510,270 (510,500) 500
Escrow shares (7,500)
Class A Common Shares issued for services rendered 350,993 351,220
Common stock issued in connection with acquisitions 1,748,921 1,750,000
Exercise of Class WA Warrants, net of expenses 3,775,567 3,778,174
Warrants issued in connection with convertible debt 200,000 200,000
Stock dividends declared December, 1997 529,801 (530,331)
Conversion of Class B Common shares into Class A Common shares
Issuance of Preferred Stock 249,500 250,000
Conversion of promissory notes to Class A common 694,537 695,000
Net income through June 30, 1998 633,674 633,674
----------------------------------------------------------------
BALANCE, June 30, 1998 $21,751,749 ($8,575,865) $0 ($948,000) $12,256,398
=========== =========== == ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
INTERIORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
YEARS ENDED
JUNE 30
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 633,674 $ 105,924
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH USED IN OPERATING ACTIVITIES:
Photo-2-Art transaction -- (1,140,000)
Depreciation and amortization 741,722 628,416
Provision for losses on accounts receivable 228,160 228,000
Non-cash write off of non-productive asets -- 534,049
Non-cash financing charge 305,716 50,000
Reduction of liabilities from dissolution of subsidiary -- (586,509)
Gain from sale of investment securities -- (201,013)
Provision for dissolution of Italia -- 56,000
Provision for issuance of stock -- 15,000
Royalty and commissions -- 144,000
CHANGES IN ASSETS AND LIABILITIES:
Decrease (increase) in accounts receivable, trade (416,843) (390,228)
Decrease (increase) in inventories (138,960) 200,475
Decrease (increase) in prepaid expenses and other current assets (539,347) (585,126)
Decrease (increase) in other assets (1,354,345) 287,887
Increase (decrease) in accounts payable and accrued expenses 202,456 (606,654)
Increase (decrease) in net liabilities and accrued expenses of discontinued operations -- (90,557)
Net cash used in operating activities (337,767) (1,350,336)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (237,255) (166,621)
Proceeds from sales of investments securities -- 372,500
Sale of investment in Decor Group, Inc. -- (826,000)
Business acquistions net of stock issued (1,828,000) --
----------- -----------
Net cash used in investing activities (2,065,255) (620,121)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Net proceeds from issuance of debt 3,142,796 1,214,369
Repayments of debt and capitalized lease obligations (846,602) (893,788)
Net proceeds from exercise of common stock warrants 3,873,174 1,179,642
Net proceeds from exercise of preferred stock options -- 737,500
----------- -----------
Net cash provided by financing activities 6,169,368 2,237,723
----------- -----------
Net increase (decrease) in cash 3,766,346 267,266
CASH, beginning of period 269,244 4,142
----------- -----------
CASH, end of period $ 4,035,590 $ 271,408
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for -
Interest $ 449,554 $ 241,959
Taxes 19,943 5,973
NON-CASH FINANCIAL ACTIVITIES:
Conversion of Series A Preferred Stock to Class A Common Stock -- 650
Stock issuance for financing charges -- 350,000
Stock issuance for consulting services in connection with Decor acquisition -- 350,000
Debt Financing Costs 351,220 --
Debt issued for services rendered 45,000 --
Debt and Guarantee Reduction Through Treasury Stock Issuance 480,000 --
Stock Issuance Financed by note or Short-Term Receivable 760,500 --
Debt Discount-Warrants Issued 200,000 --
Promissory Note Conversion 695,000 --
Common Stock issued for preferred dividends 530,531 --
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
INTERIORS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS - (Continued)
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
YEARS ENDED
JUNE 30
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Supplemental disclosure of cash flows related
to acquisitions:
Fair value of assets acquired,
excluding cash $ 4,670,570 $ --
Issuance of common stock (1,750,000) --
Issuance of notes payable (1,604,379) --
Payments in connection with acquisitions,
net of cash acquired (1,709,818) --
Liabilities assumed $ 6,051,947 $ --
Supplemental disclosure of non cash
items from investing activities:
Issuance of common stock in connection
with acquisitions $ 1,750,000 $ --
Issuance of debt in connection with
acquisitions $ 1,604,379 $ --
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND ORGANIZATION
- -------------------------------------------------------------------------------
ORGANIZATION
Interiors, Inc., a Delaware corporation ("Interiors" or the "Company"), is a
designer, manufacturer and marketer of a broad range of decorative accessories
for the residential, commercial, institutional and contract markets, including
museum-quality traditional and contemporary picture frames, framed wall
mirrors, framed hand-painted oil paintings, framed prints under glass, portable
and installed lighting and lighting fixtures, sculptures and decorative
tabletop accessories. Interiors primarily markets its products to retailers in
the home furnishings industry, including furniture stores, home furnishings
centers, catalog retailers, home improvement centers, department stores and
lighting retailers. The Company believes that it has a unique competitive
advantage in serving a broad range of customers because of the breadth and
depth of its product lines as well as its ability to coordinate design among
several product lines.
The majority of the Company's sales are domestic. Sales to the largest
customers totaled $4,274,521 and $1,786,000, or 32% and 38% of net sales
respectively, for the years ended June 30, 1998 and June 30, 1997. Accounts
Receivable due from the largest customers totaled approximately $451,000 and
$373,000 as of June 30, 1998 and 1997 respectively.
The Company from time to time entered into transactions with related parties
(See Note 13). To the extent that the Company is unable to attract and retain
qualified independent persons to serve on its board of directors, conflicts of
interest may arise due to these relationships.
- -------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
BASIS OF PRESENTATION
The consolidated statements of income, stockholders' equity and cash flows
include the accounts of Interiors, Inc. and its wholly-owned subsidiaries
Henlor, Inc. and Artmaster Studios, Inc., which are included from their
respective dates of acquisition (refer to Note 4). Accordingly, significant
intercompany accounts and transactions have been eliminated in the
consolidation. Henlor and Artmaster were subsequently merged with the
surviving entity, Henlor, changing its name to Vanguard Studios, Inc.
REVENUE RECOGNITION
Revenue is recognized at the time finished goods, whether standard product or
custom work is shipped or acceptance is acknowledged by the customer. Payments
received for merchandise not yet shipped or accepted are reflected within
prepaid sales and customer deposits, a current liability. Historically, sales
returns have not been significant.
CASH
The Company classifies as cash and cash equivalents amounts on deposit in banks
and cash invested temporarily in various instruments with maturities of three
months or less at time of purchase.
INVENTORIES
Inventory is valued at the lower of cost or market, with cost determined using
the first-in, first-out method. Finished goods consists of those items
available for shipping.
F-7
<PAGE>
INVESTMENT IN AFFILIATES
The Company accounts for its investment in affiliates under the cost method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. The cost of additions and
improvements and the costs incurred in the construction of castings and the
related master molds are capitalized and expenditures for repairs and
maintenance are expensed in the period incurred. Depreciation and amortization
of property and equipment is provided utilizing straight-line and accelerated
methods over the estimated useful lives of the respective assets as follows:
YEARS
-----
MACHINERY AND EQUIPMENT 3 - 10
FURNITURE AND FIXTURES 7 - 10
Leasehold improvements are amortized over the shorter of the remaining term of
the lease or the useful life of the improvement utilizing the straight-line
method.
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under
this method, deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates to differences
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities. Deferred income taxes have been provided for the
temporary differences between the financial reporting basis and the tax basis
of the Company's assets and liabilities (See Note 15).
GOODWILL
In connection with the acquisitions of Henlor, Inc. and Artmaster Studios, Inc.
amounts were paid in excess of the fair market value of the assets acquired.
These amounts have been recorded as goodwill and are being amortized over 40
years. It is the Company's policy to evaluate the life and amount of goodwill
on a continuous basis. Such evaluations are based on current market conditions
and expected future cash flows.
USE OF ESTIMATES IN PREPARATION OF THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires of management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from changes in these estimates.
EARNINGS PER COMMON SHARE
For the year ended June 30, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share." In accordance with
SFAS No. 128, net earnings per common share amounts ("basic EPS") were computed
by dividing net earnings by the weighted average number of common shares
outstanding, and excluding any potential dilution. For purposes of this
calculation, common shares include both Class A and B shares of common stock.
Net earnings per common share amounts assuming "diluted EPS" were computed by
reflecting potential dilution from the exercise of stock options and warrants.
SFAS No. 128 requires the presentation of both basic EPS and diluted EPS on the
income statement. Earnings per share amounts for the same prior-year periods
have been restated to conform with the provision of SFAS No. 128.
A reconciliation between the numerators and denominators of the basic and
diluted EPS computations for net earnings is as
F-8
<PAGE>
follows:
<TABLE>
<CAPTION>
Year Ended June 30, 1997 Year Ended June 30, 1998
-------------------------------------------------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amounts (Numerator) (Denominator) Amounts
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET EARNINGS $ 105,924 $ 633,674
LESS: DIVIDENDS
ON PREFERRED STOCK: (523,530) (339,719)
BASIC EPS
Net earnings attributable
to common stock (417,606) 4,527,160 $(0.09) 293,955 7,538,882 $ 0.04
EFFECT OF DILUTIVE
SECURITIES
Stock warrants 902,890
DILUTED EPS
Net earnings attributable
to common stock and
assumed warrant
exercises $(417,606) 4,527,160 $(0.09) $293,955 8,154,083 $ 0.04
------- --------- ------ -------- --------- ------
</TABLE>
Conversion of Series A 10% Cumulative Preferred Stock not assumed for
computation purposes since effect would be antidilutive.
FOURTH QUARTER ADJUSTMENTS/TRANSACTION
The Company recorded approximately $550,000 of adjustments during the fourth
quarter of fiscal 1998. The adjustments relate to write-offs of certain other
assets, along with related amortization expense, interest expense and certain
other selling, general, and administrative expenses.
The Company recorded approximately $1,140,000 in expense reimbursements during
the fourth quarter of fiscal 1997. The income was primarily comprised of the
sale of assets, including inventory, other goods and services to
Photo-To-Art(TM).
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES WERE GENERATED FROM OPERATIONS AS
SCHEDULED BELOW:
1998 1997
CUSTOM AND WHOLESALE DIVISION $ 2,251,444 $ 2,569,697
DECORATIVE ACCESSORIES 1,831,335
----------- -------------
TOTAL $ 4,082,779 $ 2,569,697
----------- -------------
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 131 (SFAS No. 131) " Disclosures About
Segments of an Enterprise and Related Information," which is effective for
fiscal years beginning after December 15, 1997. This Statement requires that a
public business enterprise report certain financial and descriptive information
about its operating segments. At June 30, 1998, adoption of SFAS No. 131 would
not have a material effect on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No.
F-9
<PAGE>
133 (SFAS No. 133) "Accounting for Derivative Instruments and Hedging
Activities," which is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Statement requires that an entity recognize
all derivatives as either assets or liabilities on the statement of financial
position and measure those instruments at fair value. At June 30, 1998,
adoption of SFAS No. 133 would not have a material effect on the Company's
financial statements.
- -------------------------------------------------------------------------------
3. INVESTMENT IN AFFILIATES
- -------------------------------------------------------------------------------
INVESTMENT IN AFFILIATES CONSISTS OF THE FOLLOWING:
INVESTMENT IN DECOR GROUP, INC. ("DECOR")(a) $ 3,136,679
INVESTMENT IN PHOTO-TO-ART(TM)("P-2-A")(b) 1,140,000
-----------
TOTAL $ 4,276,679
(a) In the formation of Decor, the Company's intention was to create an
affiliate with a corporate identity clearly separate and distinct from
that of the Company and accordingly, pursuant to a March 3, 1996
agreement, Decor issued to the Company 250,000 shares of its Series A
Non-Voting Convertible Preferred Stock (sold by Interiors in February
1997) and an option to purchase 6,666,667 shares of its Series B
Non-Convertible Voting Preferred Stock (the "Option Shares") in exchange
for issuance to Decor by the Company of 200,000 shares of its Class A
Common Stock, and 200,000 shares of its Series A Convertible Preferred
Stock (both of which have subsequently been sold by Decor) and a
guarantee with respect to certain indebtedness should such indebtedness
become necessary. All Decor related disclosures have been adjusted to
reflect the following: (1) a one for two reverse stock split by Decor in
October, 1996; and (2) Decor declared and issued a dividend on Decor
common stock payable in the form of two shares of common stock for each
one share of common stock held as of December 16, 1996; and, (3) a
reverse stock split of one new share of common stock for each 3 shares
held on October 7, 1997. Effective with the Interiors' exercise of the
Option Shares in September 1996, for total cash consideration of $2,000,
the Company executed a Voting Agreement (the "Voting Agreement") to vest
the power to vote the Option Shares in a Voting Trust (the "Voting
Trust".) The Voting Agreement terminated in July 1998. In addition,
during the months of August and September 1996, the Company purchased
54,934 shares of Decor's Series C Non-Voting Convertible Preferred
Stock convertible into three shares of Decor's common stock, at a cost
of $824,000.
On November 12, 1996, Decor completed an initial public offering of
certain of its securities. The proceeds of such offering were used to
acquire the net assets of Artisan House, Inc., a designer and
manufacturer of wall hangings. Subsequent to Decor's initial public
offering and currently, the Company owns approximately 79% of the total
voting stock of Decor.
As of June 30, 1998, the Company's holding in Decor was recorded on the
Company's financial statements under the cost method of accounting which
was determined by the market value on November 12, 1996, of the
Company's trading securities previously transferred to Decor during
March 1996, plus acquisition costs, less the proportionate value of the
securities sold during February 1997. The cost method has been used by
Interiors as it presently has no residual equity interest (stock
ownership is mostly through Series B Preferred shares).
On April 21, 1998 the Company and Decor entered into an agreement and
plan of merger approved by the respective Board of Directors upon the
terms and subject to the conditions set forth in the agreement whereby
each issued and outstanding share of common stock, par value $.0001 per
share, of Decor ("Decor Common Stock"), other than shares owned by
Interiors or Decor, will be converted into the right to receive .50
shares of Interiors Class A Common Stock.
F-10
<PAGE>
(b) The Company entered into an agreement effective June 1, 1997, with
"P-2-A" a company which converts photographs into large-scale canvas oil
paintings, whereby the Company agreed to sell certain canvas related
assets as well as other goods and services to P-2-A in exchange for
$600,000 in equity securities of P-2-A and $50,000 in cash. This
agreement was amended as of June 30, 1997 to reflect an increase in value
to $1,140,000. Such amounts are reflected as a cost basis investment on
the Company's balance sheet as of June 30, 1998. The Company owns 270,000
shares of P-2-A stock and 120,000 warrants to purchase additional stock
at $4.50 per share (less than 5% ownership of P-2-A.). The valuation
ascribed to this transaction by the Company is comparable to the values
received by unrelated investors in private placement transactions between
those investors and P-2-A.
For transactions with Decor and P-2-A during the years ended June 30,
1998 and 1997, refer to Note 13.
- -------------------------------------------------------------------------------
4. ACQUISITIONS AND DISPOSITIONS
- -------------------------------------------------------------------------------
On March 10, 1998, the Company entered into, and consummated, an
Agreement and Plan of Merger among the Company, Vanguard Acquisition
Corp., a wholly owned subsidiary of the Company, Henlor Inc. ("Henlor")
and the shareholders of Henlor. The transaction was structured as a
reverse triangular merger. As a result of the merger, Henlor now is a
wholly owned subsidiary of the Company. Henlor, through its wholly owned
subsidiary Vanguard Studios, Inc. ("Vanguard"), designs, manufactures and
wholesales decorative accessories furnishings for the home, including
framed hand-painted oil paintings, framed prints under glass, wall
mirrors, lamps, sculptures and decorative tabletop accessories. The
acquisition of Henlor provides the Company with an expanded breadth of
product offerings.
Pursuant to the merger agreement, the purchase price paid to the
shareholders of Henlor at closing consisted of a cash payment of
$705,621 and the delivery of a subordinated promissory note in the
aggregate principal amount of $794,379. In addition, the Company issued
to the shareholders of Henlor an aggregate of 299,581 unregistered
shares of its Class A Common Stock and the Company repaid indebtedness
of Vanguard owed to the principal shareholders of Henlor in the amount
of $294,379. All of the merger shares are being held in a one year
escrow as security for the obligations of Henlor's former shareholders
pursuant to the merger agreement, and the number of merger shares
remains subject to adjustment based on the value of the merger shares of
the second anniversary of the closing date (value of shares is fixed at
$500,000).
The merger was financed by (i) a bridge loan in the principal amount of
$500,000 from United Credit Corp., the Company's senior lender, and (ii)
the private placement of accredited investors of the Company's
unregistered Subordinated Convertible Promissory Notes in the aggregate
principal amount of $500,000. The aggregate purchase price was determined
in arms-length negotiations between the Company and the shareholders of
Henlor.
The assets acquired pursuant to the merger agreement included, among
other things, (i) fixed assets owned, leased or used by Henlor and
Vanguard, including equipment, (ii) accounts receivable, (iii) inventory
and (iv) contracts, agreements, and leases of real and personal property.
For the foreseeable future, the Company intends to utilize such assets in
connection with the operation of the business of Henlor and Vanguard.
On March 23, 1998, the Company entered into, and consummated, an
Agreement and Plan of Merger among the Company, Artmaster Studios, Inc.
("Artmaster"), a wholly-owned subsidiary of the Company, Merchandise
Sales, Inc. ("MSI") and certain shareholders of MSI. The transaction with
and into Artmaster. Artmaster designs, manufactures and wholesales wall
decor and lighting products for the home. The acquisition of MSI provides
the Company with an expanded breadth of product offerings.
Pursuant to the Merger Agreement, the purchase price paid to the
shareholders of MSI at closing consisted of the delivery of a
subordinated promissory note in the aggregate principal amount $537,248.
In addition, the Company issued to the shareholders of MSI an aggregate
of 779,302 unregistered shares of its Class A Common Stock and the
Company repaid indebtedness of MSI owed to certain creditors of MSI in
the aggregate amount of $1,022,752 through an aggregate cash payment of
$750,000 and the issuance of a subordinated promissory note in the
aggregate principal amount of $272,752. All of the merger shares are
being held in a one year escrow as security for the obligations of MSI's
former shareholders pursuant to the merger agreement, and the number of
merger shares remains subject to adjustment based on the value of the
merger shares on the first anniversary of the closing date (value of
shares is fixed at $1,200,000).
F-11
<PAGE>
The merger was financed by the Company's available working capital which
was derived in part, from an earlier, unrelated private placement to
accredited investors of the Company's unregistered Subordinated
Convertible Promissory Notes. The aggregate purchase price was determined
in arms-length negotiations between the Company and the shareholders of
MSI.
The assets acquired pursuant to the merger agreement included, among
other things, (i) fixed assets owned, leased or used by MSI, including
equipment, (ii) accounts receivable, (iii) inventory and (iv) contracts,
agreements, and leases of real and personal and property. For the
foreseeable future, the Company intends to utilize such assets in
connection with the operation of the business of MSI and Vanguard
Studios, Inc., another subsidiary of the Company.
Following are pro forma statements of income information which reflects
theses transactions as if they occured at the beginning of each year
ended June 30, 1998 and 1997.
F-12
<PAGE>
INTERIORS, INC.
PRO FORMA INTERIM FINANCIAL INFORMATION FOR INTERIORS AND COMBINED COMPANIES
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Interiors Vanguard Artmaster
12 mths to 12 mths to 12 mths to
6/30/98 6/30/98 6/30/98 Adjustments Total
SALES AND OTHER REVENUES :
<S> <C> <C> <C> <C> <C>
Net Sales 7,317 13,480 6,829 - 27,626
-
-------------------------------------------- ----------
Total Sales and Other Revenues 7,317 13,480 6,829 - 27,626
-------------------------------------------- ----------
EXPENSES :
Cost of goods sold 4,343 8,964 4,398 17,705
Selling, general, and administrative 2,251 4,416 2,157 - 8,824
--------------------------------------------- ----------
Total Expenses : 6,594 13,380 6,555 26,529
--------------------------------------------- ----------
Income (loss) from operations : 723 100 274 1,097
- - -
Amortization of intangibles 41 124 165
Consulting and management fees (335) 67 (668) - (936)
INTEREST EXPENSE 747 (330) (130) 449 736
Income (loss) from operations before
(benefit) provision for taxes 270 363 1,072 1,132
PROVISION FOR TAXES (55) - - (45) (100)
Income(loss) from operations 325 363 1,072 1,232
Basic EPS 0.04 0.04
Diluted EPS 0.04 0.04
Shares (000) 7,251 7,251
Shares (000) 8,154 8,154
</TABLE>
PRO FORMA FINANCIAL INFORMATION REFLECTS ADJUSTMENTS FOR INCREASED INTEREST
EXPENSES AND GOODWILL.
F-13
<PAGE>
INTERIORS, INC.
PRO FORMA INTERIM FINANCIAL INFORMATION FOR INTERIORS AND COMBINED COMPANIES
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Interiors Vanguard Artmaster Adjustments Combined
yr. end 9mo. end yr. end
6/30/97 7/31/97 3/28/97
SALES AND OTHER REVENUES :
<S> <C> <C> <C> <C> <C>
Net Sales $ 4,652 $ 9,700 $ 8,292 $22,644
Royalty & commission revenues 144 144
Proceeds from sales to Photo-To-Art 1,140 1,140
------------------------------------------ ---------
Total Sales and Other Revenues 5,936 9,700 8,292 23,928
------------------------------------------ ---------
EXPENSES :
Cost of goods sold 3,076 6,099 5,955 15,130
Selling, general, and administrative 2,570 3,380 2,477 8,427
Amortization of intangibles 441 441
------------------------------------------ ---------
Total Expenses 5,646 9,479 8,432 23,998
------------------------------------------ ---------
Income (loss) from operations 291 222 (140) (70)
GAIN ON SALE OF INVESTMENT 201 201
OTHER INCOME (EXPENSE), Net 0 163 8 171
INTEREST EXPENSE (405) (321) (125) (297) (1,148)
Income (loss) from operations before
(benefit) provision for taxes 87 64 (257) (846)
(BENEFEIT) PROVISION FOR TAXES (19) 4 1 (14)
Income(loss) from continuing operations $ 106 $ 60 $ (258) $ (832)
Basic EPS $(0.09) $ (0.24)
Diluted EPS $(0.09) $ (0.24)
Shares (000) 4,527 5,606
Shares (000) 4,527 300 779 5,606
</TABLE>
PRO FORMA FINANCIAL INFORMATION REFLECTS ADJUSTMENTS FOR INCREASED INTEREST
EXPENSES AND GOODWILL.
F-14
<PAGE>
DISSOLUTION OF ITALIA COLLECTION, INC. ("ITALIA")
Because of the declining revenues and high operating costs, on December
16, 1996, the Board of Directors decided to discontinue and dissolve
Italia. On December 27, 1996, a Notice of Public Auction was distributed
by Italia, advising all interested parties that a public auction of all
the assets of Italia consisting of molds, equipment, models and inventory
listed in a Security Agreement entered into between Italia, as debtor and
United Credit Corporation, as secured party, was to occur. The auction
took place on January 10, 1997 and the Company was the successful bidder,
thereby acquiring all of the assets of Italia in consideration for a
payment of $2,000 and the assumption by the Company of the liabilities of
Italia to United Credit Corp., which as of June 30, 1997 totaled
approximately $806,000. Since the financial statements of Italia are
consolidated into those of the Company, Italia's liabilities have already
been reflected on the Company's historical consolidated financial
statements. At June 30, 1997, the Company made the adjustments necessary
to properly restate recorded assets and liabilities, together with a
general reserve of approximately $56,000. These adjustments included
approximately $586,000 write-off of debt recorded based on the advice of
the Company's legal counsel (as the Company is not legally liable for
such liabilities). Further the Company wrote-off approximately $534,000
in assets related to its Italia subsidiary, which were not considered to
benefit the Company's future operations.
- -------------------------------------------------------------------------------
5. INVENTORIES
- -------------------------------------------------------------------------------
The components of inventory are as follows:
JUNE 30,1998
RAW MATERIALS $ 1,591,564
WORK IN PROCESS 414,192
FINISHED GOODS 1,165,182
------------
TOTAL $ 3,170,938
------------
- -------------------------------------------------------------------------------
6. OTHER CURRENT ASSETS
- -------------------------------------------------------------------------------
The components of other current assets are as follows:
JUNE 30,1998
PREPAID EXPENSES $ 598,871
DUE FROM AFFILIATES 527,379
DUE FROM INVESTORS 250,000
OTHER 320,641
------------
TOTAL $ 1,696,891
------------
F-15
<PAGE>
- -------------------------------------------------------------------------------
7. PROPERTY AND EQUIPMENT, AT COST
- -------------------------------------------------------------------------------
The components of property and equipment are as follows:
JUNE 30, 1998
Machinery and equipment $ 3,399,404
Furniture and fixtures 531,007
Leasehold improvements 1,153,797
-------------
5,084,208
Accumulated depreciation
and amortization (3,789,399)
-------------
TOTAL $ 1,294,809
-------------
Depreciation expense was approximately $485,000 and $200,000 for the years
ended June 30, 1998 and 1997, respectively.
- -------------------------------------------------------------------------------
8. OTHER ASSETS
- -------------------------------------------------------------------------------
The components of others assets are as follows:
JUNE 30,1998
GOODWILL $ 6,677,228
OTHER 1,720,191
------------
TOTAL $ 8,397,419
------------
The Company has not completed its evaluation of its allocation of the
purchase price of both Henlor and MSI's net assets. The Company has,
however, determined that approximately $163,000 of such amount has been
allocated to the opening inventories acquired in order to reflect their
fair value. Upon completion of the evaluation, the remaining unallocated
portion of the purchase price will be amortized over a period not to exceed
40 years.
- -------------------------------------------------------------------------------
9. ACCRUED LIABILITIES
- -------------------------------------------------------------------------------
JUNE 30, 1998
SALARIES AND EMPLOYEE BENEFITS $ 599,008
PAYROLL TAXES (a) 165,949
EMPLOYEE SETTLEMENTS (b) 291,156
RENT 244,988
DEFERRED RENT 82,657
UNION DUES AND BENEFITS (c) 226,291
PROFESSIONAL FEES 251,351
INSURANCE 10,970
INTEREST 198,900
ROYALTIES & COMMISSIONS 185,500
INCOME TAXES 37,731
OTHER 130,511
-------------
TOTAL $ 2,425,012
-------------
F-16
<PAGE>
(a) As of June 30, 1998, the Company has aggregate unpaid New York State
payroll taxes of approximately $122,500.
In March 1998, the Company entered into a payout arrangement with New
York State to satisfy $99,000 of back payroll withholding taxes through
twenty-eight monthly installments of $3,500 and one final installment of
$1,270. The balance of the payout arrangement was approximately $75,000
as of June 30, 1998. In June 1998, the Company entered into an additional
payout arrangement with New York State to satisfy approximately $47,500
of back taxes through nine payments of $5,275 starting in July 1998.
(b) Pursuant to the Company's June 30, 1996 settlement with Ann Stevens (the
"Settlement") a former executive of the Company and sister of the
President and Chief Executive Officer, the Company issued to Michael
Levine as escrow agent (the "Escrow Agent") 1,250,000 unregistered shares
of the Company's Class B Common shares (the "Escrow Shares".) The Company
issued additional Class A common stock aggregating 12,500,000 through
September 1998 in accordance with the anti-dilution terms of the
agreement. The Escrow Agent shall not vote the Escrow Shares unless the
Company defaults on its obligations under the Agreement. Upon
satisfaction of such obligations, the Escrow Agent shall return the
Escrow Shares to the Company. To date the Company has not defaulted on
this agreement and has accrued $291,156 as of June 30, 1998, in
connection with the settlement.
(c) Union Agreement - Effective April 1, 1998, the Company signed a five-year
(with an additional two-year automatic renewal) union contract for its
members under the terms of a collective bargaining agreement. None of the
Company's employees have been on strike, or threatened to since the
Company's inception and the Company believes its relationship with all of
its personnel is satisfactory. The Company owes the Union approximately
$235,000 as of this filing and has agreed to retire this amount through
monthly payments of $11,000.
- -------------------------------------------------------------------------------
10. NOTES PAYABLE
- -------------------------------------------------------------------------------
NOTES PAYABLE JUNE 30, 1998
------------- -------------
BANK LINE OF CREDIT (a) $ 285,000
NOTES PAYABLE, DUE APRIL 28, 1999 TO BH FUNDING,
BEARING INTEREST AT 15% PAYABLE QUARTERLY (d) 375,000
NOTES PAYABLE DUE DECEMBER 31, 1998 TO
EKISTICS CORP., BEARING INTEREST AT 12%, PAYABLE MONTHLY (b) 250,000
FINANCING AGREEMENT WITH A SECURED LENDER (c) 892,213
NOTES PAYABLE, DUE MARCH 31, 1999 TO AN INDIVIDUAL
BEARING INTEREST AT 10% (e) 810,000
NOTE PAYABLE, DUE DECEMBER 1, 2000, TO AN INDIVIDUAL
BEARING INTEREST AT 8% PAYABLE QUARTERLY (f) 794,379
FINANCING AGREEMENT WITH A SECURED LENDER (g) 2,560,338
NOTE PAYABLE, DUE APRIL 16, 2001, TO MORGAN STEEL 250,000
LTD. BEARING INTEREST AT 15% PAYABLE MONTHLY (h)
NOTES PAYABLE DUE MARCH 19, 2000 BEARING INTEREST
BEARING INTEREST AT 6% PAYABLE QUARTERLY (i) 1,700,000
PROMISSORY NOTES (j) 555,000
Discount (180,000)
F-17
<PAGE>
OTHER NOTES PAYABLE 156,430
------------
TOTAL 8,448,360
------------
LESS CURRENT PORTION 5,621,930
------------
LONG-TERM PORTION $ 2,826,430
------------
(a) This line of credit bears interest at a rate of prime plus 1% (9.50%
as of the date of this filing). The Company is paying the remaining
balance off at $12,000 per month.
(b) During November, 1997 the company borrowed $250,000 from Ekistics
Corp. This loan is due December 31, 1998 and bears interest of 12% per
annum.
(c) During February 1996 Interiors entered into an agreement with United
Credit Corporation ("UCC") a New York based lender whereby it borrowed
pursuant to an asset-related formula. The agreement remains in effect,
and may be terminated by either party upon notice to the other and
payment of the commitment fee for the unexpired term of this
agreement. The lender advanced the Company 80% of eligible
receivables. Upon collection of the receivable, the lender remits the
balance of 20%. Interest is calculated on the daily cash balance at
the rate of prime plus 9% per annum (17% as of the date of this
filing) or a minimum of 18% per annum against a minimum monthly
defined compensation of $3,000. In addition, the secured lender
received personal guarantees from Max Munn, President and Chief
Executive Officer of the Company, and his spouse.
The Company had outstanding secured financing with Infinity Investors,
Ltd., totaling approximately $188,000 at September 30, 1997. This loan
was secured by 600,000 shares of the Company's Class A common stock
(the "Infinity Collateral") that had been held in Treasury Stock. UCC
paid approximately $188,000 to Infinity, on December 17, 1997, which
consisted of all of the Company's then outstanding debt to Infinity
and received title to the Ininity Collateral. The Company consented to
UCC's peaceful possession of the Infinity Collateral in exchange for a
reduction of the Company's debt in the amount of $480,000. This debt
reduction shall occur simultaneously with UCC's disposal of the
Infinity Collateral. This debt reduction totaled $180,000 as of
December 31, 1997 and has been reflected in shareholders' equity as a
sale of Treasury Stock. The balance of $300,000 was used to satisfy
debt previously guaranteed on Interiors and indemnified by Decor
(dating back to March 1996). The payment of the guarantee was intially
recorded as expenses during the year ended June 30, 1998, with a
corresponding receivable of $300,000 from Decor recorded and was also
reflected in equity as a sale of Treasury Stock.
(d) In February 1997, the Company received a loan from BH Funding, LLC
("BH") in the aggregate principal amount of $600,000 to be utilized to
repay certain indebtedness of the Company and for continued operating
expenses. The Company in order to collateralize the loan to BH pledged
and assigned to BH and granted to BH a continuing security interest
in the Company's 6,666,667 shares of Series B Non-Convertible
preferred Stock of Decor, and the Company's 54,934 shares of Series C
Convertible Preferred Stock holdings in Decor Group, Inc to BH. In
connection with this agreement, the Company transferred to BH 100,000
shares of Series A Preferred Stock and 100,000 shares of Class A
Common Stock. The fair market value of these shares on the date of
issuance was allocated as follows: $350,000 as acquisition consulting
on the Decor transaction; $350,000 as interest on the loan (to be
amortized over the life of the loan using the effective interest
method); and $25,000 as additional expense of the Company's sale of
its 250,000 Series A Convertible Preferred Stock holdings in Decor
Group, Inc. During the year ended June 30, 1998 the company repaid
$225,000 leaving a balance of $375,000 as of June 30, 1998. In July
1998, the Company entered into an agreement with BH Funding whereby
all unpaid accrued interest was waived upon the Company's full
repayment of the principal balance of the debt. The related
unamortized debt issuance costs will be written off during the first
quarter of fiscal 1999 against the gain on forgiveness of the debt
(accrued interest) resulting in an immaterial amount.
(e) In connection with Interiors recent acquisition of Merchandise Sales,
Inc. (MSI), the Company issued a total of
F-18
<PAGE>
$810,000 in 10% subordinated promissory notes to the former
shareholders due March 31, 1999.
(f) In connection with Interiors recent acquisition of Henlor, Inc.
(Henlor), the Company caused its subsidiary to issue $794,379 in 8%
subordinated promissory notes to the former shareholders. On December
1, 1998 Henlor will make a principal payment of $100,000. On March 1,
1999, and every three months thereafter, Henlor will make a principal
repayment of $86,797.
(g) On April 19, 1995 Vanguard Studios entered into an agreement with
Capital Factors, Inc., a Florida based lender, whereby it borrowed
pursuant to an asset-related formula. The agreement, including various
revisions, remains in effect as of June 30, 1998. According
to the agreement, the lender, upon confirmation of shipments, will
advance the company 85% of the receivable. Interest is calculated on
the daily cash balance at the rate of 6.75% above the Prime Rate
(15.25% as of the date of this filing). The maximum loan amount is set
at $3,000,000, which includes a borrowing limit of $1,200,000 on
inventory, based on 50% of the total inventory reported. On October
17, 1997, the Company arranged for additional financing from this
lender in the form of a term loan for $152,000. Interest will be
calculated at 1.75% above the Prime Rate. This loan will be payable in
monthly installments concluding on September 1, 2000.
(h) During April 1998, the Company issued a convertible note in the amount
of $250,000. This note is due April 16, 2001, and bear interest at
15% per annum payable monthly. This debenture is convertible at the
holders' election into Class A Shares at the rate of $1.75 per share.
Class B Warrants to purchase 15,000 shares of Class A Common Stock and
Class C Warrants to purchase 15,000 shares of Series A Preferred Stock
were issued in connection with this note. These options were valued
using the Black Scholes model and the discount was determined to be
immaterial to the consolidated financial statements.
(i) During March 1998, the Company issued convertible notes in the amount
of $1,700,000. These notes are due March 19, 2000 and bear interest at
6% per annum payable quarterly. Any default in payment of interest
triggers a default interest rate of 16% per annum. The holders have
the right, from and after 180 days after the issuance of the notes to
convert up to one-half of the outstanding and unpaid principal portion
of the notes into Class A shares based upon a formula involving the
five previous trading days of the shares. The terms of these notes
required issuance of 175,000 two-year warrants to purchase Class A
Common Stock at $1.75 per share. Warrants to purchase 198,333 shares
of Class A common stock were issued in connection with these notes.
These options were valued using the Black Scholes model and discount
was recorded accordingly.
(j) During March, 1998 the Company issued convertible subordinated notes
in the aggregate principle amount of $1,270,000. These notes are due
March 17, 2001 and bear interest at 15% per annum payable quarterly.
These notes are secured by stock of Henlor and are convertible at the
election of the holders into Class A Shares at the range of
$1.50-$1.75 per share. The associated capitalized deferred issuance
expenses were charged to operations. The terms on this note required
issuance of 100,000 two-year warrants with an exercise price of $1.75
per warrant for each Class A Common Share. As of June 30,1998,
$695,000 of these notes were converted into Class A Shares and
Warrants to purchase 286,000 shares of Series A Preferred Stock and
27,000 shares of Class A common stock were issued in connection with
these notes. The warrants were valued using the Black Scholes formula
and discount was recorded accordingly.
Aggregate Maturities of Notes Payable over the next five years
(inclusive of aggregate amounts due under Financing Agreements which
are classified as current) are as follows:
1999 $5,621,930
2000 1,991,586
2001 791,586
2002 43,258
2003 --
----------
TOTAL $8,448,360
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11. SHAREHOLDERS EQUITY
- -------------------------------------------------------------------------------
DESCRIPTION OF SECURITIES
COMMON STOCK
Class A Shares. The Certificate of Incorporation of the Company
authorizes the issuance of up to 60,000,000 Class A Shares. 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.
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<PAGE>
Class B Shares. The Certificate of Incorporation of the Company
authorizes the issuance of up to 2,500,000 Class B Shares. Each Class
B Share is entitled to five non-cumulative votes per share on all
matters on which stockholders may vote at meetings of stockholders.
The Class B Shares are convertible on a one-for-one basis at any time
after issuance at the option of the holder into Class A Shares.
The holders of Class A Shares and Class B Shares (collectively,
"Common Stock"): (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. All shares of Common Stock issued and
outstanding are duly authorized, fully paid and nonassessable. Except
as otherwise required by law, the holders of Common Stock shall vote
together as a single class on all matters.
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. Of this amount 2,870,000 shares have been designated as
Series A, 10% Cumulative Convertible Preferred Stock (the "Series A
Preferred Shares"). 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.
SERIES A 10% CUMULATIVE CONVERTIBLE PREFERRED STOCK
The Series A Preferred Stock consists of 2,870,000 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, 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 Common Stock.
In December 1997, the Company's Board of Directors declared a stock
dividend equivalent to $0.75 per share to its series A 10% Cumulative
Convertible Preferred Stockholders of record as of the close business
on December 10, 1997 (The "Record Date"). Accordingly, 530,331 shares
of the Company's Class A Common Stock was issued for this purpose
retained earnings was charged $530,331 in January 1998 in conjunction
with the issuance of these shares.
As of June 30, 1998, the Company has not declared or established a
record date for a dividend for its Series A 10% Cumulative Convertible
Preferred Stock for the period October 1997 through June 30, 1998.
Cumulative but unpaid dividends on Series A 10% Cumulative Preferred
Stock as of June 30, 1998 total approximately $510,000.
EQUITY TRANSACTIONS
During September 1996, the Company issued: 10,000 shares of its Class
A Common shares to an outside director of the Company, and 10,000
shares of its Class A Common share to various individuals named by
another outside director of the Company. These shares bear a
restrictive legend. Pursuant to the issuance of these shares, $15,000
was charged against earnings for the year ended June 30, 1997.
<PAGE>
In April 1996, the Company's investment banking firm arranged for the
private placement of 175,000 shares of the Company's Common a Stock
and 50,000 shares of the Company's Series A Preferred Stock. These
shares, all of
F-20
<PAGE>
which carried a restrictive legend and were issued on April 24, 1996
to various independent investors (the "investors") generating gross
proceeds of $431,251. The Company realized net proceeds of $310,609
which was used to pay certain outstanding liabilities. The Company
registered the above shares on August 13, 1997.
The Company has not paid and does not anticipate paying any cash
dividends on it Class A Shares, Class B Shares, or Series A Preferred
Shares in the foreseeable future, but instead intends to retain all
working capital and earnings, if any, for use in the Company's
business operations, and in the expansion of its business.
Pursuant to a March 3, 1996 agreement relating to the capitalization
of Decor Group, Inc, ("Decor"). Decor issued to the Company 250,000
shares of its Series A Non-Voting Convertible Preferred Stock and an
option to purchase 10,000,000 share of its Series B Non-Convertible
Voting Preferred Stock (the "Option Shares") in exchange for issuance
to Decor by the Company of 200,000 share of its Class A Common Stock,
(which has been sold) and a guarantee with respect to 200,000 shares
of its Series A Convertible Preferred Stock ( which has been sold) and
a guarantee with respect to certain indebtedness should such
indebtedness become necessary.
On June 30, 1997, the Company issued 300,000 Shares of Class A Stock
to Mr. Hide Tashiro in settlement of certain amounts owned to Mr.
Tashiro and claims by the Company of amount due from Mr. Tashiro and
his affiliates. (See "Commitments ad Contingency").
Pursuant to the Company's June 30, 1996 settlement with Ann Stevens
(the "Settlement") a former executive of the Company and sister
of the President and Chief Executive Officer, the Company issued to
Michael Levine as escrow agent (the "Escrow Agent") 1,250,000
unregistered shares of the Company's Class B Common shares (the "Escrow
Shares".) The Escrow Agent shall not vote the Escrow Shares unless the
Company defaults on its obligations under the agreement. Upon
satisfaction of such obligations, the Escrow Agent shall return the
Escrow Shares to the Company. To date the Company has not defaulted on
this agreement, and has accrued $291,156 as of June 30, 1998 in
connection with the settlement.
WARRANTS AND OTHER
Except as otherwise set forth herein, the Company has not material
commitments for capital expenditures. In order to fund growth over the
long term, the Company anticipates possible future issuance of its
securities resulting in further dilution to its security holders.
STOCK OPTION PLANS
The 1994 Plan. On June 20, 1994, the Company adopted the Interiors,
Inc. 1994 Stock Option and Appreciation Rights Plan (the "1994 Plan"),
which provides for the granting of options to officers, employees and
consultants to purchase not more than an aggregate of 250,000 Class A
shares. Directors of the Company are not eligible to participate in
the 1994 Plan. The 1994 Plan provides for the grant of options
intended to qualify as "incentive
F-21
<PAGE>
stock options" under the Internal Revenue Code of 1986, as amended
(the "Code") as well as options which do not so qualify.
Pursuant to the 1994 Plan, the Board of Directors or a stock option
committee established by the Board to administer the 1994 Plan
determines that persons to whom options are granted, the number of
Class A shares subject to option, the period during which the options
may be exercised and the option exercise price. With respect to
incentive stock options, no option may be granted more than ten years
after the effective date of the 1994 Plan or exercised more than ten
years after the date of grant (five years if the optionee owns more
than ten percent of the Class A Shares of the Company at the time of
grant). Additionally, with respect to incentive stock options, the
option price may not be less than 100% of the fair market value of the
Class A Shares on the date of the grant (110% if the optionee owns
more than ten percent of the Class A Share of the Company at the time
of grant). The fair market value of the Class A Shares will be
determined by the Board or the Committee in accordance with the 1994
Plan as follows: If the Class A Shares are not listed and traded upon
a recognized securities exchange, on the basis of recent purchases and
sales of Class A Shares in arms-length transactions or based on the
last reported sale or transaction price for such stock on the date
grant or, if the shares are traded on a recognized securities exchange
or quoted on the NASDAQ National Market System upon the basis of the
last reported sale or transaction price on the date of grant or, if
the shares were not traded on such date, on the date nearest preceding
that date. Subject to certain limited exceptions, options may not be
exercised unless, at the time of exercise, the optionee is in the
service of the Company.
The Board of Directors or the Committee may, in its discretion, at any
time prior to the exercise of any option, grant in connection with
such option the right to surrender part or all of such option to the
extent the option is exercisable, and receive an amount (payable in
cash, Class A Shares or combination thereof as determined by the Board
or the Committee) equal to the difference between the then fair market
value of the shares issuable upon the exercise of the option (or
portions thereof surrendered) and the exercise price of the option or
portion thereof surrendered.
The Director Plan. On June 20, 1994 the Board of Directors approved
the 1994 Director Stock Option and Appreciation Rights Plan (the
"Director Plan"). The Director Plan was adopted to provide an
incentive to Directors through automatic and discretionary grants of
stock options. The Director Plan provides for the grant of options
intended to qualify as "incentive stock options" under the Code as
well as options which do not so qualify.
The Director Plan may be administered by a committee appointed by the
Board of Directors of the Company (the " Committee"). Options under
the Director Plan may be granted to each person who is a Director of
the Company on the date of grant. All Directors of the Company are
eligible to receive options of the Director Plan.
The Director Plan provides for the granting of options to Directors in
such amount and, subject to the terms of the Director Plan, upon such
terms as the Board or Committee determines in its discretion in order
to reward the recipient director for extraordinary service to the
Company. In addition, on the second Monday of May of each year each
person who is then a director of the Company shall be automatically
granted an option to purchase 10,000 of the Company's Class A Shares,
subject to adjustment as provided for by the Director Plan. The
aggregate number of shares for which options may be issued pursuant to
the Director Plan is 250,000 shares. The exercise price for options
granted under the Director Plan must be equal to the fair market value
per Class A Share on the date of grant. The fair market value of the
Class A Shares will be determined by the Board or the Committee in
accordance with the Director Plan as follows: If the Class A share are
not listed and traded upon a recognized securities exchange, on the
basis of recent purchase and sales of Class A Share in arms-length
transactions or based on the last reported sale or transaction price
for such stock on the date of grant or, if the share are traded on a
recognized securities exchange or quoted on the NASDAQ National Market
System up the last reported sales or transaction price on the date of
grant or, if the shares were not trade on such date, on the date
nearest preceding that date. Each option granted under the Director
Plan expire ten years after the date of grant, unless a less period is
specified by the Committee.
In the event an optionee ceases to be an option, he may exercise only
such options as are exercisable at the time he ceases to be a
Director, within the original term of the option. Options which are
not exercisable at the time an optionee ceases to be a Director shall
terminate. In event an optionee dies, the Director Plan provides for
the exercise of an option on behalf of the deceased Director.
F-22
<PAGE>
As of June 30, 1998, an aggregate of 1,032,500 options are exercisable
at prices ranging from $1.00 to $3.50.
The Company accounts for its plan under APB Opinion No. 25, under
which no compensation cost has been recognized as all options granted
during 1996 and 1997 have been granted at the fair value of Company's
common stock. Had compensation cost for these plans been determined in
accordance with SFAS 123, the Company's net income and EPS would have
been reduced as follows:
YEAR ENDED JUNE 30 YEAR ENDED JUNE 30
------------------ ------------------
1998 1997
NET INCOME AS REPORTED.... $633,674 $105,924
PRO FORMA...... (88,232) 105,924
BASIC EPS AS REPORTED.... $.04 $(.09)
PRO FORMA...... $(.06) $(.09)
DILUTED EPS AS REPORTED.... $.04 $(.09)
PRO FORMA...... $(.06) $(.09)
Under SFAS No. 123, the fair value of each option is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 1998: (1) expected life of option is 2-5
years; (2) dividend yield of 0%; (3) expected volatility of 93%; and (4) risk
- -free interest rate of 6.0%.
Because SFAS No. 123 method of accounting has not been applied to options
granted prior to July 1, 1995 resulting pro forma compensation cost may not be
representative of the to be expect in future years.
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12. COMMITMENTS AND CONTINGENCIES
- -------------------------------------------------------------------------------
OPERATING LEASES
On January 1, 1997, the Company entered into a lease agreement that provides
for the leasing of a 70,000 square foot site which serves as the Company's
principal office and manufacturing facility. The term of the lease expire
December 31, 2001, with an option by the Company for a five-year extension.
This lease requires minimum annual lease payments of approximately $168,000
(net of $63,000 sublease to P-2-A).
P-2-A has agreed to sublease approximately 21,000 square feet of office and
manufacturing space from the Company at an annual rental rate of $63,000 per
year lease rent escalations. The term of the sublease is from June 1, 1997 to
December 31, 2001. Minimum annual lease payments approximate $442,800.
The Company leases its facilities in California under operating leases
expiring in December 1999. Minimum annual lease payments approximate $442,800.
In addition, the Company leases showroom facilities in High Point, North
Carolina (three showrooms), San Francisco, California (three showrooms), New
York, New York (two showrooms), Dallas, Texas (two showrooms) and Atlanta,
Georgia, as well as a small retail outlet in Yonkers, New York. The showroom
sizes range from 300 square feet to approximately 9,800 square feet and rent
aggregates approximately $480,000 per annum.
The approximate future minimum lease on payments per fiscal year under
operating leases exclusive of sublease income are as follows:
1999 1,141,503
2000 785,223
2001 338,883
2002 219,580
F-23
<PAGE>
2003 54,798
Rent expense charged to operation, which includes escalation charges, for the
years ended June 30, 1998 and 1997, amounted to $560,224 and $307,941
respectively, excluding sublease income.
UNION AGREEMENT
Effective April 1, 1998, the Company signed a five-year (with an additional
two-year automatic renewal) union contract for it members under the terms of a
collective bargaining agreement. None of the Company's employees have been on
strike, or threatened to since the Company's inception and the Company believes
its relationship with all of its personnel is satisfactory. The Company owes
the Union approximately $235,000 as of this filing and has agreed to retire
this amount through monthly payments of $11,000.
CONSULTING ARRANGEMENTS
Refer to Note 13 for discussion of these arrangements.
LEGAL PROCEEDINGS
Interiors is subject to claims and litigation and other claims arising in the
ordinary course of its business. In management's opinion, Interiors is not
presently a party to any such litigation or claims the outcome of which would
have a material adverse effect on its financial position or its results of
operations.
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13. RELATED PARTY TRANSACTIONS
- -------------------------------------------------------------------------------
During the year ended June 30, 1998, the Company advanced the President and CEO
amounts aggregating $77,000. These amounts were repaid subsequent to year end.
In May 1996, the Company entered into a two year Management Services Agreement
with Decor whereby the Company will advise Decor on the manufacturing, sale,
marketing and distribution of Decor's products as well as providing Decor with
accounting and administrative services and advice on strategic planning joint
ventures, acquisitions, and other long term initiatives. Pursuant to this
agreement (as amended), the Company will be paid on an annual basis the greater
of (1) $135,000 as a Management Fee, (2) 1.5% of excess cashflow as defined in
the agreement. Additional transfers of funds from Decor to the Company will be
subject to the attainment by Decor of excess cash flow totaling $4,000,000 per
year through December 31, 1999. During the fourth quarter of 1998, the Company
charged Decor $125,000 for various services considered to be outside the scope
of the Management Fee, including engineering and marketing studies. At June 30
1998, the Company has accrued approximately $260,000 of fees pursuant to the
agreement and the fiscal 1998 additional fee.
P-2-A has agreed to sublease approximately 21,000 square feet of office and
manufacturing space from the Company at an annual rental rate of $63,000 per
year plus rent escalations. The term of the sublease is from June 1, 1997 to
December 31, 2001. In addition, the current supply contract between the Company
and P-2-A has been amended to continue for a term of seven (7) years. Sales to
P-2-A for the years ended June 30, 1998 and 1997 were approximately $360,000
and $365,000 respectively. During the year ended June 30, 1998, the Company
provided consulting services to P-2-A in the amount of $75,000. As of June 30,
1998, P-2-A owed the Company $150,676.
Pursuant to an April 21, 1998 resolution of the Company's Board of Directors
relating to the guarantee of the Company's obligations to the former
shareholders of Henlor, Inc. and other continuing guarantees by Laurie Munn,
wife of the Company's President and Chief Executive Officer, the Company agreed
to defer certain payments on notes receivable from Laurie Munn. As restructured
interest accrued on the combined balance of $948,000 at 6.6%, interest will be
due April 21, 1999, and annually thereafter no interest has been accrued as of
June 30, 1998. The principal is due on April 21, 2003.
On April 4, 1996, the Company's Board of Directors resolved to issue 250,000
shares of the Company's Class B Common Stock to Laurie Munn, wife of the
Company's President and Chief Executive Officer. This issuance is in
consideration for a down payment $250, Ms. Munn's 6.6% note to the Company
providing for principal of $437,500 to be paid to the Company in five equal
annual installments of $105,561.90 and Ms. Munn's guaranty and pledge of her
assets for certain Company debt. The company obtained an appraisal at that time
to determine the fair market values of this transaction. The shares were issued
to Ms. Munn on April 8, 1996. A Promissory Note and Security Agreement, whereby
the shares will collateralize the Promissory Note, was executed by the Company
and Ms. Munn pursuant to these terms. The Promissory Note remains outstanding.
On January 9,1998, Laurie Munn, wife of the Company's President and CEO,
obtained an option to purchase the above 1,250,000 Escrow Shares at fair value
at the date of the grant. Due to the substance of this grant, the wife of the
CEO, Laurie Munn's options are accounted for as if she is an employee of the
Company. This option was issued to Laurie Munn in consideration, amongst other
things, for her continuing personal guarantees of Company obligations to
several lenders, including BH Funding. In addition, Laurie Munn purchased
730,000 shares of Class B common stock at $.70 per share, the approximate
F-24
<PAGE>
fair value of such shares at the time of the purchase. The purchase price is
due in annual installments through January 2005 at an interest rate of 6.6%.
The purchased stock is the collateral for this obligation.
In March, 1997 the Company borrowed $100,000 at 6 1.2% per annum interest from
Laurie Munn, wife of Max Munn, the Company's CEO. The loan is evidence by
demand promissory note. This note was repaid in October 1997.
Effective June 30, 1996, the Company entered into a consulting agreement with
Morris Munn, father of the Company's President and Chief Executive Officer,
under which he will provide the Company with the following: design and
fabrication of new molds for sculpture, recommend and implement improvements in
antiquing, woodworking, gliding and carving processes, and attend trade shows.
As part of this agreement, over the subsequent five-years, the Company will
payment Mr. Munn $54,000 per annum in equal bi-weekly installments, and issue
to Mr. Munn options to purchase up to 350,000 shares of the Company's Series A
Preferred Stock. These options were fully exercised during July to September
1996, generating net proceeds to the Company totaling $787,500.
The Company currently has employment agreements with five key executives. Under
these agreements the Company has committed to total aggregate base compensation
per year of approximately $815,000 plus other normal customary fringe benefits,
stock options, bonuses and annual increase in compensation. The employment
agreements generally have terms of three to five years.
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14. PROFIT SHARING AND DEFERRED COMPENSATION PLANS
- -------------------------------------------------------------------------------
In July 1991, the Company started a qualified Profit Sharing Plan for all
nonunion employees and a nonqualifed Deferred Compensation Plan for certain key
employees. The Company has not made any contributions to the Qualified Profit
Sharing Plan or the Deferred Compensation Plan since its initial contribution
during the fiscal year ended June 30, 1992.
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15. PROVISION (BENEFIT) FOR INCOME TAXES
- -------------------------------------------------------------------------------
The income tax (benefit) provision consists of:
YEAR ENDED JUNE 30
------------------
1998 1997
CURRENT INCOME TAXES:
FEDERAL $_______ $______
STATE AND LOCAL 52,543 10,654
DEFERRED INCOME TAX (160,783) (30,000)
--------- --------
TOTAL 108,240 $19,346
The benefit from the Company's net operating loss ("NOL") carry forward for
Federal income tax purposes is approximately $4,500,000 (which expire through
2011). The deferred tax asset of approximately $1,500,000 is comprised
primarily of net operating losses. The utilization of such NOL's maybe limited
in the future due to changes in ownership.
Through June 30, 1996, all deferred tax assets were fully reserved. For the
years ending June 30, 1998 and 1997, the Company has determined it is "more
likely than not" that at least a portion of its deferred tax assets with be
utilized. Accordingly, the previously recorded valuation allowance has been
reduced by $30,000 for the year ended June 30, 1997 and by approximately
$161,000 in 1998.
F-25
<PAGE>
The reduction of the valuation allowance in both 1998 and 1997 was calculated
at the statutory federal income tax rate. State income taxes have been recorded
based upon the applicable state requirements.
- -------------------------------------------------------------------------------
16. SUBSEQUENT EVENTS
- -------------------------------------------------------------------------------
On July 7, 1998, the Company entered into Stock Purchase Agreement (the
"Bentley Agreement"), with Bentley International, Inc. a Missouri corporation
("Bentley") and on July 30, 1998, the Company consummated the transactions
contemplated by the Agreement. Pursuant to the Agreement, the Company purchased
all the issued and outstanding shares (the "Shares") of Windsor Art, Inc., a
Missouri corporation and a wholly-owned subsidiary of Bentley ("Windsor"). As a
result of the purchase of the Shares, Windsor is now a wholly-owned subsidiary
of the Company. Windsor manufacturers and distributes decorative mirrors and
framed prints to furniture stores, mass merchants, hotels and designers
throughout the United States.
The assets acquired pursuant to the Bentley Agreement included, among other
things (i) fixed assets owned, leased or used by Windsor, including equipment
(ii) accounts receivable, (iii) inventory and (iv) contracts, agreements, and
leases of read and personal property. For the foreseeable future, the Company
intends to utilize such assets in connection with the operation of the business
of Windsor.
The purchase price paid to Bentley for the Shares consisted of a cash payment
of $1,706,992 (financed by $2,250,000 in convertible promissory notes issued by
the Company) and the delivery of two secured, subordinated promissory notes in
the aggregate principal amount of $5,300,000 (the "Notes"). As a condition
precedent to the Bentley Agreement, the Company and Bentley entered into and
consummated a pledge agreement on July 30, 1998 (the "Pledge Agreement").
Pursuant to the Pledge Agreement, the Company pledged the Shares as collateral
for the Notes and security for the obligations of the Company under the
Agreement. Until the debt is repaid by the Company, the former shareholder and
the President and CEO of the Company have agreed to vote the shares as a block.
Concurrently with the Closing, the Company entered into and consummated, a
securities Purchase and Registration Rights Agreement (the "Securities Purchase
Agreement") by and between the Company and Bentley. Pursuant to the Securities
Purchase Agreement, the Company purchased 150,000 shares of common stock of
Bentley and a warrant to purchase 300,000 shares of common stock of Bentley
(collectively, the "Bentley Shares"). The purchase price paid to Bentley for
the Bentley Shares consisted of 1,500,000 shares of the Company's Class A
Common Stock (the "Interiors Shares") issued by the Company. The Interior
shares will be held in escrow for one year from the Closing as security for the
obligations of Bentley to the Company.
The former owner of Bentley entered into a consulting agreement with the
Company aggregating $782,000 over a four-year period, and was granted a warrant
to purchase 50,000 Class A Shares.
On August 14, 1998, the Company consummated the transactions contemplated by
that certain Agreement and Plan of Merger (the "Troy Merger Agreement") dated
July 2, 1998 by and among the Company, Troy Acquisition Corp. ("Newco"), Troy
Lighting, Inc. ("Troy"), and certain shareholders of Troy. Pursuant to the Troy
Merger Agreement, Newco merger with and into Troy, with Troy continuing as the
surviving corporation and as a wholly-owned subsidiary of the Company. Troy
manufactures and distributes portable and installed lighting and light
fixtures.
The purchase price paid by the Company consisted of $250,000 in cash and Class
A Common Stock of the Company ("Class A Shares") with a fair market value of
$975,000 (the "Troy Merger Shares"). In addition, the Company agreed to repay
$1,700,000 to extinguish obligations of Newco to certain former shareholders of
Troy. The Troy Merger Shares are to be held in escrow as collateral for certain
obligations of the former shareholders of Troy. If the Troy merger Shares are
worth less than $1,053,000 as of July 2, 1999, less amount in the escrow
account and amounts paid for any resolved claims,
F-26
<PAGE>
the Company is required to issue additional Class A Shares to the former Troy
shareholders equal in value to such deficiency. If the Troy Merger Shares are
worth more than $1,053,000 as of July 2, 1999, the former Troy shareholders are
required to return Class A Shares to be Company equal in value to such excess
amount.
The cash portion of the purchase price paid pursuant to the Troy Merger
Agreement and the repayment of certain Troy indebtedness was financed by
unsecured borrowing of $1,500,000 from United Credit Corporation and cash on
hand.
The assets acquired pursuant to the Troy Merger Agreement included, among other
things, (i) fixed assets owned, leased or used by Troy, including equipment,
(ii) receivable, (iii) inventory and (iv) contracts agreements, and lease of
real and personal property. For the foreseeable future, the Company intends to
utilize such assets in connection with the operation of the business of Troy.
In conjunction with the issuance of the Convertible Debentures, the Company
issued Common Stock Purchase Warrants ("A Warrants") to the holders of the
Convertible Debentures. The A Warrants expire five years from their respective
dates of issue and allow the holders to purchase 1,339,286 Class A Shares
in the aggregate at an exercise price equal to the lessor of (i) 120% of the
closing bid price of the Class A Shares on the trading day immediately
preceding the respective issuance dates of the A Warrants, plus an amount equal
to the Exercise Premium (as defined below) or (ii) 120% of the closing bid
price of the Class A Shares on the Reset Date, which shall be a single date
during the period commencing on the 91st day after the respective issuance
dates of the A Warrants through and including the 210th day after the
respective issuance dates of the A Warrants, to be designated by the holder of
the A Warrant, plus an amount equal to the Exercise Premium. The "Exercise
Premium" will be equal to 1/2 of the closing bid price of the Class A Shares on
the trading day immediately preceding the exercise date of the A Warrant in
question, less $4.11 per Class A Share, unless such closing bid price is less
than $4.11 per share, in which case the Exercise Premium shall be $0.00.
F-27
<PAGE>
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Items 9, 10, 11, and 12 are incorporated by reference from the Company's
definitive Proxy Statement to be filed by the Company with the Securities and
Exchange Commission no later than October 28, 1998.
Item 13. Exhibits, Financial Statements and Reports on Form 8-K
(a) 1. Financial Statements:
The Financial Statements are incorporated herein as part
of Item 7 of this Report.
2. Exhibits:
See Index on Page E-1 of this Report.
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed during the last quarter
of fiscal year ended June 30, 1998:
(a) 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 Securities and
Exchange Commission on May 26, 1998;
(b) 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 Securities and
Exchange Commission on May 29, 1998;
(c) Company's Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on August 10, 1998 and as
amended by the Company's Current Report on Form 8-K/A as filed
with the Securities and Exchange Commission on October 9, 1998;
and
(d) Company's Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on August 28, 1998 and as
amended by the Company's Current Report on Form 8-K/A as filed
with the Securities and Exchange Comission on October 9, 1998.
The Company's Current Report on Form 8-K, as filed with the Securities and
Exchange Commission on March 25, 1998 and as amended by the Company's Current
Report on Form 8-K/A as filed with the Securities and Exchange Commission on
May 26, 1998 includes the description of the acquisition of Henlor and the
financial statements of Henlor which have been audited by Thomashow, Brown &
Paialii, independent public accountants, as indicated in their report with
respect thereto. The Company's Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on April 6, 1998 and as amended by the
Company's Current Report on Form 8-K/A as filed with the Securities and
Exchange Commission on May 29, 1998 includes the description of the acquisition
of MSI and the financial statements of MSI which have been audited by Kellogg &
Andelson, independent public accountants, as indicated in their report with
respect thereto. The Company's Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on August 10, 1998 and as amended by the
Company's Current Report on Form 8-K/A as filed with the Securities and
Exchange Commission on October 9, 1998 includes the description of the
acquisition of Windsor and financial statements of Windsor which have been
audited by Rubin, Brown, Gornstein & Co., independent public accountants, as
indicated in their report with respect thereto. The Company's Current Report on
Form 8-K, as filed with the Securities and Exchange Commission on August 28,
1998 and as amended by the Company's Current Report on Form 8-K/A as filed with
the Securities and Exchange Commission on October 9, 1998 includes the
description of the acquisition of Troy and financial statements of Troy which
have been audited by Deloitte & Touche LLP, independent public acountants, as
indicated in their report with respect thereto.
<PAGE>
EXHIBIT INDEX
Exhibit Description of Exhibit
No. ----------------------
---
2.1 Agreement and Plan of Merger, dated March 10, 1998, by and among
Interiors, Vanguard Acquisition Corp., a wholly-owned subsidiary
of Interiors, Henlor and the shareholders of Henlor.7/
2.2 Agreement and Plan of Merger, dated March 23, 1998, by and among
Interiors, Artmaster, MSI and certain shareholders of MSI.8/
2.3 Agreement and Plan of Merger, dated April 21, 1998, by and
between Interiors and Decor.
2.4 Agreement and Plan of Merger, dated July 2, 1998, by and among
Troy Acquisition Corp., Interiors, Troy, Barry R. Jackson, and
Todd R. Langner ("Langner").10/
2.5 Stock Purchase Agreement, dated July 30, 1998, by and between
Interiors and Bentley International, Inc.9/
3.1 Certificate of Incorporation of Interiors.1/
3.2 Certificate of Ownership and Merger between Interiors, Inc.
and A.P.F. Holdings, Inc.1/
3.3 Certificate of Amendment of Certificate of Incorporation of
Interiors.2/
3.4 Certificate of Designations, Rights and Preferences of
Interiors.2/
3.5 Certificate for Restoration, Renewal and Revival of the
Certificate of Incorporation.
3.6 Certificate of Merger of Interiors, Inc. into Interiors Holdings,
Inc.
3.7 By-Laws of Interiors.1/
4.1 Forms of Representative's Warrants to Purchase Class A Shares,
Class WA Warrants and Class WB Warrants.2/
4.2 Form of Warrant Exercise Fee Agreement by and between Interiors,
VTR Capital, Inc., and the Transfer Agent.2/
4.3 Form of Warrant Agreement by and between Interiors, J. Gregory &
Company, Inc., and Transfer Agent.3/
4.4 Specimen Class A Preferred Stock Certificate.2/
4.5 Specimen Class WC Warrant Certificate.2/
4.6 Specimen Class A Common Stock Certificate.2/
4.7 Specimen Class B Common Stock Certificate.2/
4.8 Specimen Class WB Warrant Certificate.2/
<PAGE>
4.9 First Amendment to Warrant Agreement. 3/
4.10 Convertible Note, dated April 7, 1998, in favor of Beeston
Investment, Ltd. ("Beeston"), in the amount of $200,000.
4.11 Common Stock Purchase Warrant, dated April 7, 1998, issued by
Interiors to Beeston.
4.12 Convertible Note, dated March 19, 1998, in favor of Austost
Anstalt Schaan ("Austost"), in the amount of $750,000.
4.13 Convertible Note, dated March 19, 1998, in favor of Balmore Funds
S.A. ("Balmore"), in the amount of $375,000.
4.14 Convertible Note, dated March 19, 1998, in favor of Tusk
Investment Inc. ("Tusk"), in the amount of $375,000.
4.15 Common Stock Purchase Warrant, dated March 19, 1998, issued by
Interiors to Austost.
4.16 Common Stock Purchase Warrant, dated March 19, 1998, issued by
Interiors to Balmore.
4.17 Common Stock Purchase Warrant, dated March 19, 1998, issued by
Interiors to Tusk.
4.18 7% Convertible Debenture due July 26, 2001, dated July 27, 1998,
in the amount of $500,000, issued by Interiors to Dominion
Capital Fund, Ltd. ("Dominion").
4.19 7% Convertible Debenture due July 26, 2001, dated July 27, 1998,
in the amount of $500,000, issued by Interiors to Sovereign
Partners, L.P. ("Sovereign").
4.20 7% Convertible Debenture due July 29, 2001, dated July 30, 1998,
in the amount of $1,250,000, issued by Interiors to RBB Bank AG
("RBB").
4.21 Common Stock Purchase Warrant A to Purchase 214,286 Shares of
Common Stock of Interiors, dated July 27, 1998, issued by
Interiors to Dominion.
4.22 Common Stock Purchase Warrant A to Purchase 214,286 Shares of
Common Stock of Interiors, dated July 27, 1998, issued by
Interiors to Sovereign.
4.23 Common Stock Purchase Warrant A to Purchase 535,714 Shares of
Common Stock of Interiors, dated July 30, 1998, issued by
Interiors to RBB.
4.24 Common Stock Purchase Warrant B to Purchase 50,000 Shares of
Common Stock of Interiors, dated July 27, 1998, issued by
Interiors to Cardinal Capital Management Inc. ("Cardinal").
4.25 Common Stock Purchase Warrant B to Purchase 62,500 Shares of
Common Stock of Interiors, dated July 30, 1998, issued by
Interiors to Cardinal.
4.26 Registration Rights Agreement, dated July 27, 1998, by the
Holders listed therein and Interiors.
4.27 Common Stock Purchase Warrant A to Purchase 187,500 Shares of
Common Stock of Interiors, dated August 25, 1998, issued by
Interiors to Sovereign.
4.28 Common Stock Purchase Warrant A to Purchase 187,500 Shares of
Common Stock of Interiors, dated August 25, 1998, issued by
Interiors to Dominion.
<PAGE>
4.29 7% Convertible Debenture due August 24, 2001, in the amount of
$375,000, issued by Interiors to Sovereign.
4.30 7% Convertible Debenture due August 24, 2001, in the amount of
$375,000, issued by Interiors to Dominion.
4.31 Registration Rights Agreement, dated August 25, 1998, by the
Holders listed therein and Interiors.
10.1 Security Agreement, dated November 13, 1990, between Interiors
and United Credit Corporation and amendments thereto dated
November 13, 1990, January 7, 1992 , October 11, 1991, December
15, 1992 and June 23, 1993.1/
10.2 Agreement, dated April 1, 1991, between Production, Merchandising
& Distribution Employees Union, Local 210, affiliated with The
International Brotherhood of Teamsters, Chauffeurs, Warehouseman
and Helpers of America, AFL-CIO and Interiors.1/
10.3 Form of Security Agreement between Interiors and certain bridge
lenders.1/
10.4 Form of Non-Negotiable 6% Convertible Promissory Note.1/
10.5 Form of Non-Negotiable 10% Promissory Note.1/
10.6 1994 Stock Option and Appreciation Rights Plan.5/
10.7 1994 Director Stock Option and Appreciation Rights Plan.4/
10.8 Revised form of Warrant Exercise Fee Agreement.5/
10.9 General Loan and Security Agreement, dated July 7, 1994, between
Interiors and The Bank of New York ("BNY").5/
10.10 Promissory Note, dated July 7, 1994, in favor of BNY, in the
principal amount of $950,000.5/
10.11 General Guarantees, dated July 7, 1994, of Ann Stevens, Theodore
Stevens and Max Munn to BNY.5/
10.12 Consulting Agreement, dated October 1, 1993, between Morris Munn
and Interiors.5/
10.13 Demand Note, dated February 8, 1996, issued by Interiors to Max
Munn. 6/
10.14 Employment Agreement, dated January 1, 1998, between Interiors
and Max Munn.
10.15 Promissory Note, dated March 10, 1998, made by Interiors in favor
of Michael H. Greeley ("Greeley"), in the principal sum of
$794,379.
10.16 Non-Negotiable Promissory Note, dated July 30, 1998, made by
Interiors in favor of Bentley, in the principal sum of
$3,300,300.9/
10.17 Non-Negotiable Promissory Note, dated July 30, 1998, made by
Interiors in favor of Bentley, in the principal sum of
$2,000,000.9/
10.18 Consulting Agreement, dated July 30, 1998, by and among Windsor
Art, Inc., Lloyd R. Abrams, and Interiors. 9/
<PAGE>
10.19 Securities Purchase and Registration Rights Agreement,
dated July 30, 1998, by and among Max Munn, Bentley, and
Interiors. 9/
10.20 Employment Agreement, dated March 10, 1998, by and between
Greeley and Henlor. 7/
10.21 Employment Agreement, dated August 14, 1998, by and between
Interiors and Langner.10/
10.22 Subordinated Promissory Note, dated March 23, 1998, in favor of
Robert M. Perkowitz ("Perkowitz"), in the principal sum of
$272,752.
10.23 Subordinated Promissory Note, dated March 23, 1998, in favor of
Perkowitz, in the principal sum of $537,248.
10.24 Agreement, dated July 29, 1998, between Local 210 and Interiors.
11.1 Statement re: computation of per share earnings.
21.1 Subsidiaries of the Registrant.
99.1 U.S. Patent and Trademark Office Trademark Reg- No. 1,736,623.1/
99.2 U.S. Patent and Trademark Office Service Mark Reg. No.
1,783,694.1/
1/ Previously filed as an exhibit to the Registration Statement
on Form SB-2 (Registration No. 33-77288-NY) (the "Registration
Statement"), which exhibit is incorporated herein by
reference.
2/ Previously filed as an exhibit to Amendment No. 1 to the
Registration Statement, which exhibit is incorporated herein
by reference.
3/ Previously filed as an exhibit to Amendment No. 2 to the
Registration Statement, which exhibit is incorporated herein
by reference.
4/ Previously filed as an exhibit to Amendment No. 3 to the
Registration Statement, which exhibit is incorporated by
reference.
5/ Previously filed as an exhibit to Interiors' Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1994 (File No.
0-24352), which exhibit is incorporated herein by this reference.
6/ Previously filed as an exhibit to Interiors' Quarterly Report on
Form 10-QSB for the quarter ended December 31, 1995 (File No.
00-24352), which exhibit is incorporated herein by this
reference.
7/ Previously filed as an exhibit to Interiors' Current Report on
Form 8-K filed March 10, 1998 (File No. 00-24352), which exhibit
is incorporated herein by reference.
8/ Previously filed as an exhibit to Interiors' Current Report on
Form 8-K filed March 23, 1998 (File No. 00-24352), which exhibit
is incorporated herein by this reference.
9/ Previously filed as an exhibit to Interiors' Current Report on
Form 8-K filed July 30, 1998 (File No. 00-24352), which exhibit
is incorporated herein by this reference.
10/ Previously filed as an exhibit to Interiors' Current Report on
Form 8-K filed August 14, 1998 (File No. 00-24352), which exhibit
is incorporated herein by this reference.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
INTERIORS, INC.
By: /s/ MAX MUNN
------------------------------
Name: Max Munn
Title: President, Chief
Executive Officer and
Chief Financial Officer
In accordance with the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ MAX MUNN President, Chief Executive October 16, 1998
- ----------------------- Officer, Chief Financial Officer
Max Munn and Director
/s/ ROGER LOURIE Director October 16, 1998
- -----------------------
Roger Lourie
/s/ RICHARD JOSEPHBERG Director October 16, 1998
- -----------------------
Richard Josephberg
S-1
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ---------------------
2.1 Agreement and Plan of Merger, dated March 10, 1998, by and among
Interiors, Vanguard Acquisition Corp., a wholly-owned subsidiary
of Interiors, Henlor and the shareholders of Henlor.7/
2.2 Agreement and Plan of Merger, dated March 23, 1998, by and among
Interiors, Artmaster, MSI and certain shareholders of MSI.8/
2.3 Agreement and Plan of Merger, dated April 21, 1998, by and
between Interiors and Decor.
2.4 Agreement and Plan of Merger, dated July 2, 1998, by and among
Troy Acquisition Corp., Interiors, Troy, Barry R. Jackson, and
Todd R. Langner ("Langner").10/
2.5 Stock Purchase Agreement, dated July 30, 1998, by and between
Interiors and Bentley International, Inc.9/
3.1 Certificate of Incorporation of Interiors.1/
3.2 Certificate of Ownership and Merger between Interiors, Inc.
and A.P.F. Holdings, Inc.1/
3.3 Certificate of Amendment of Certificate of Incorporation of
Interiors.2/
3.4 Certificate of Designations, Rights and Preferences of
Interiors.2/
3.5 Certificate for Restoration, Renewal and Revival of the
Certificate of Incorporation.
3.6 Certificate of Merger of Interiors, Inc. into Interiors Holdings,
Inc.
3.7 By-Laws of Interiors.1/
4.1 Forms of Representative's Warrants to Purchase Class A Shares,
Class WA Warrants and Class WB Warrants.2/
4.2 Form of Warrant Exercise Fee Agreement by and between Interiors,
VTR Capital, Inc., and the Transfer Agent.2/
4.3 Form of Warrant Agreement by and between Interiors, J. Gregory &
Company, Inc., and Transfer Agent.3/
4.4 Specimen Class A Preferred Stock Certificate.2/
4.5 Specimen Class WC Warrant Certificate.2/
4.6 Specimen Class A Common Stock Certificate.2/
4.7 Specimen Class B Common Stock Certificate.2/
4.8 Specimen Class WB Warrant Certificate.2/
E-1
<PAGE>
4.9 First Amendment to Warrant Agreement. 3/
4.10 Convertible Note, dated April 7, 1998, in favor of Beeston
Investment, Ltd. ("Beeston"), in the amount of $200,000.
4.11 Common Stock Purchase Warrant, dated April 7, 1998, issued by
Interiors to Beeston.
4.12 Convertible Note, dated March 19, 1998, in favor of Austost
Anstalt Schaan ("Austost"), in the amount of $750,000.
4.13 Convertible Note, dated March 19, 1998, in favor of Balmore Funds
S.A. ("Balmore"), in the amount of $375,000.
4.14 Convertible Note, dated March 19, 1998, in favor of Tusk
Investment Inc. ("Tusk"), in the amount of $375,000.
4.15 Common Stock Purchase Warrant, dated March 19, 1998, issued by
Interiors to Austost.
4.16 Common Stock Purchase Warrant, dated March 19, 1998, issued by
Interiors to Balmore.
4.17 Common Stock Purchase Warrant, dated March 19, 1998, issued by
Interiors to Tusk.
4.18 7% Convertible Debenture due July 26, 2001, dated July 27, 1998,
in the amount of $500,000, issued by Interiors to Dominion
Capital Fund, Ltd. ("Dominion").
4.19 7% Convertible Debenture due July 26, 2001, dated July 27, 1998,
in the amount of $500,000, issued by Interiors to Sovereign
Partners, L.P. ("Sovereign").
4.20 7% Convertible Debenture due July 29, 2001, dated July 30, 1998,
in the amount of $1,250,000, issued by Interiors to RBB Bank AG
("RBB").
4.21 Common Stock Purchase Warrant A to Purchase 214,286 Shares of
Common Stock of Interiors, dated July 27, 1998, issued by
Interiors to Dominion.
4.22 Common Stock Purchase Warrant A to Purchase 214,286 Shares of
Common Stock of Interiors, dated July 27, 1998, issued by
Interiors to Sovereign.
4.23 Common Stock Purchase Warrant A to Purchase 535,714 Shares of
Common Stock of Interiors, dated July 30, 1998, issued by
Interiors to RBB.
4.24 Common Stock Purchase Warrant B to Purchase 50,000 Shares of
Common Stock of Interiors, dated July 27, 1998, issued by
Interiors to Cardinal Capital Management Inc. ("Cardinal").
4.25 Common Stock Purchase Warrant B to Purchase 62,500 Shares of
Common Stock of Interiors, dated July 30, 1998, issued by
Interiors to Cardinal.
4.26 Registration Rights Agreement, dated July 27, 1998, by the
Holders listed therein and Interiors.
4.27 Common Stock Purchase Warrant A to Purchase 187,500 Shares of
Common Stock of Interiors, dated August 25, 1998, issued by
Interiors to Sovereign.
4.28 Common Stock Purchase Warrant A to Purchase 187,500 Shares of
Common Stock of Interiors, dated August 25, 1998, issued by
Interiors to Dominion.
E-2
<PAGE>
4.29 7% Convertible Debenture due August 24, 2001, in the amount of
$375,000, issued by Interiors to Sovereign.
4.30 7% Convertible Debenture due August 24, 2001, in the amount of
$375,000, issued by Interiors to Dominion.
4.31 Registration Rights Agreement, dated August 25, 1998, by the
Holders listed therein and Interiors.
10.1 Security Agreement, dated November 13, 1990, between Interiors
and United Credit Corporation and amendments thereto dated
November 13, 1990, January 7, 1992 , October 11, 1991, December
15, 1992 and June 23, 1993.1/
10.2 Agreement, dated April 1, 1991, between Production, Merchandising
& Distribution Employees Union, Local 210, affiliated with The
International Brotherhood of Teamsters, Chauffeurs, Warehouseman
and Helpers of America, AFL-CIO and Interiors.1/
10.3 Form of Security Agreement between Interiors and certain bridge
lenders.1/
10.4 Form of Non-Negotiable 6% Convertible Promissory Note.1/
10.5 Form of Non-Negotiable 10% Promissory Note.1/
10.6 1994 Stock Option and Appreciation Rights Plan.5/
10.7 1994 Director Stock Option and Appreciation Rights Plan.4/
10.8 Revised form of Warrant Exercise Fee Agreement.5/
10.9 General Loan and Security Agreement, dated July 7, 1994, between
Interiors and The Bank of New York ("BNY").5/
10.10 Promissory Note, dated July 7, 1994, in favor of BNY, in the
principal amount of $950,000.5/
10.11 General Guarantees, dated July 7, 1994, of Ann Stevens, Theodore
Stevens and Max Munn to BNY.5/
10.12 Consulting Agreement, dated October 1, 1993, between Morris Munn
and Interiors.5/
10.13 Demand Note, dated February 8, 1996, issued by Interiors to Max
Munn. 6/
10.14 Employment Agreement, dated January 1, 1998, between Interiors
and Max Munn.
10.15 Promissory Note, dated March 10, 1998, made by Interiors in favor
of Michael H. Greeley ("Greeley"), in the principal sum of
$794,379.
10.16 Non-Negotiable Promissory Note, dated July 30, 1998, made by
Interiors in favor of Bentley, in the principal sum of
$3,300,300.9/
10.17 Non-Negotiable Promissory Note, dated July 30, 1998, made by
Interiors in favor of Bentley, in the principal sum of
$2,000,000.9/
10.18 Consulting Agreement, dated July 30, 1998, by and among Windsor
Art, Inc., Lloyd R. Abrams, and Interiors. 9/
E-3
<PAGE>
10.19 Securities Purchase and Registration Rights Agreement,
dated July 30, 1998, by and among Max Munn, Bentley, and
Interiors. 9/
10.20 Employment Agreement, dated March 10, 1998, by and between
Greeley and Henlor. 7/
10.21 Employment Agreement, dated August 14, 1998, by and between
Interiors and Langner.10/
10.22 Subordinated Promissory Note, dated March 23, 1998, in favor of
Robert M. Perkowitz ("Perkowitz"), in the principal sum of
$272,752.
10.23 Subordinated Promissory Note, dated March 23, 1998, in favor of
Perkowitz, in the principal sum of $537,248.
10.24 Agreement, dated July 29, 1998, between Local 210 and Interiors.
11.1 Statement re: computation of per share earnings.
21.1 Subsidiaries of the Registrant.
99.1 U.S. Patent and Trademark Office Trademark Reg- No. 1,736,623.1/
99.2 U.S. Patent and Trademark Office Service Mark Reg. No.
1,783,694.1/
1/ Previously filed as an exhibit to the Registration Statement
on Form SB-2 (Registration No. 33-77288-NY) (the "Registration
Statement"), which exhibit is incorporated herein by
reference.
2/ Previously filed as an exhibit to Amendment No. 1 to the
Registration Statement, which exhibit is incorporated herein
by reference.
3/ Previously filed as an exhibit to Amendment No. 2 to the
Registration Statement, which exhibit is incorporated herein
by reference.
4/ Previously filed as an exhibit to Amendment No. 3 to the
Registration Statement, which exhibit is incorporated by
reference.
5/ Previously filed as an exhibit to Interiors' Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1994 (File No.
0-24352), which exhibit is incorporated herein by this reference.
6/ Previously filed as an exhibit to Interiors' Quarterly Report on
Form 10-QSB for the quarter ended December 31, 1995 (File No.
00-24352), which exhibit is incorporated herein by this
reference.
7/ Previously filed as an exhibit to Interiors' Current Report on
Form 8-K filed March 10, 1998 (File No. 00-24352), which exhibit
is incorporated herein by reference.
8/ Previously filed as an exhibit to Interiors' Current Report on
Form 8-K filed March 23, 1998 (File No. 00-24352), which exhibit
is incorporated herein by this reference.
9/ Previously filed as an exhibit to Interiors' Current Report on
Form 8-K filed July 30, 1998 (File No. 00-24352), which exhibit
is incorporated herein by this reference.
10/ Previously filed as an exhibit to Interiors' Current Report on
Form 8-K filed August 14, 1998 (File No. 00-24352), which exhibit
is incorporated herein by this reference.
E-4
<PAGE>
AGREEMENT AND PLAN OF MERGER
BETWEEN
INTERIORS, INC.
AND
DECOR GROUP, INC.
DATED AS OF APRIL 21, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I - THE MERGER
SECTION 1.1. The Merger.............................................................................. 1
SECTION 1.2. Closing................................................................................. 2
SECTION 1.3. Effective Time.......................................................................... 2
SECTION 1.4. Effects of the Merger................................................................... 2
SECTION 1.5. Certificate of Incorporation and Bylaws................................................. 2
SECTION 1.6. Boards, Committees and Officers......................................................... 2
SECTION 1.7. Name of the Surviving Corporation....................................................... 3
SECTION 1.8. Reservation of Right to Revise Transaction.............................................. 3
ARTICLE II - EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.1. Effect on Capital Stock................................................................. 3
SECTION 2.2. Exchange of Certificates................................................................ 4
SECTION 2.3. Certain Adjustments..................................................................... 7
ARTICLE III - REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of Decor................................................. 7
(a) Organization, Standing and Corporate Power.......................................... 7
(b) Subsidiaries........................................................................ 8
(c) Capital Structure................................................................... 8
(d) Authority; Noncontravention......................................................... 9
(e) SEC Documents; Undisclosed Liabilities..............................................10
(f) Information Supplied................................................................11
(g) Absence of Certain Changes or Events................................................11
(h) Compliance with Applicable Laws; Litigation.........................................12
(i) Absence of Changes in Benefit Plans.................................................13
(j) ERISA Compliance....................................................................13
(k) Taxes...............................................................................15
(l) Voting Requirements.................................................................15
(m) State Takeover Statutes.............................................................15
(n) Accounting Matters..................................................................16
(o) Brokers.............................................................................16
(p) Opinion of Financial Advisor........................................................16
(q) Ownership of Interiors Common Stock.................................................16
(r) Intellectual Property...............................................................16
(s) Certain Contracts...................................................................17
i
<PAGE>
PAGE
SECTION 3.2. Representations and Warranties of Interiors..........................................17
(a) Organization, Standing and Corporate Power.......................................17
(b) Subsidiaries.....................................................................18
(c) Capital Structure................................................................18
(d) Authority; Noncontravention......................................................19
(e) SEC Documents; Undisclosed Liabilities...........................................20
(f) Information Supplied.............................................................21
(g) Absence of Certain Changes or Events.............................................21
(h) Compliance with Applicable Laws; Litigation..................................... 22
(i) Absence of Changes in Benefit Plans..............................................22
(j) ERISA Compliance.................................................................23
(k) Taxes............................................................................24
(l) Voting Requirements..............................................................24
(m) State Takeover Statutes..........................................................25
(n) Accounting Matters...............................................................25
(o) Brokers..........................................................................25
(p) Opinion of Financial Advisor.....................................................25
(q) Ownership of Decor Common Stock..................................................26
(r) Intellectual Property............................................................26
(s) Certain Contracts................................................................26
ARTICLE IV - COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1. Conduct of Business..................................................................27
SECTION 4.2. No Solicitation by Decor.............................................................30
SECTION 4.3. No Solicitation by Interiors.........................................................32
ARTICLE V - ADDITIONAL AGREEMENTS
SECTION 5.1. Preparation of the Form S-4 and the Joint Proxy Statement;
Stockholders Meetings.............................................................34
SECTION 5.2. Letters of Decor's Accountants.......................................................35
SECTION 5.3. Letters of Interiors's Accountants...................................................35
SECTION 5.4. Access to Information; Confidentiality...............................................36
SECTION 5.5. Best Efforts.........................................................................36
SECTION 5.6. Stock Options........................................................................37
SECTION 5.7. Decor Stock Plans and Certain Employee Matters.......................................38
SECTION 5.8. Indemnification, Exculpation and Insurance...........................................38
SECTION 5.9. Fees and Expenses....................................................................39
SECTION 5.10. Public Announcements.................................................................40
SECTION 5.11. Affiliates...........................................................................40
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PAGE
SECTION 5.12. Nasdaq Listing..........................................................................40
SECTION 5.13. Stockholder Litigation..................................................................41
SECTION 5.14. Tax Treatment...........................................................................41
SECTION 5.15. Purchase Method of Accounting...........................................................41
SECTION 5.16. Standstill Agreements; Confidentiality Agreement........................................41
SECTION 5.17. Company Officers; Employment Contracts; Equity Awards...................................41
SECTION 5.18. Post-Merger Operations..................................................................42
SECTION 5.19. Conveyance Taxes........................................................................42
SECTION 5.20. Transition Planning.....................................................................42
ARTICLE VI - CONDITIONS PRECEDENT
SECTION 6.1. Conditions to Each Party's Obligation to Effect the Merger .............................43
SECTION 6.2. Conditions to Obligations of Interiors..................................................44
SECTION 6.3. Conditions to Obligations of Decor......................................................45
SECTION 6.4. Frustration of Closing Conditions.......................................................46
ARTICLE VII - TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. Termination.............................................................................46
SECTION 7.2. Effect of Termination...................................................................47
SECTION 7.3. Amendment...............................................................................47
SECTION 7.4. Extension; Waiver.......................................................................47
SECTION 7.5. Procedure for Termination, Amendment, Extension or Waiver ..............................48
ARTICLE VIII - GENERAL PROVISIONS
SECTION 8.1. Nonsurvival of Representations and Warranties...........................................48
SECTION 8.2. Notices.................................................................................48
SECTION 8.3. Definitions.............................................................................49
SECTION 8.4. Interpretation..........................................................................50
SECTION 8.5. Counterparts............................................................................50
SECTION 8.6. Entire Agreement; No Third-Party Beneficiaries..........................................50
SECTION 8.7. Governing Law...........................................................................50
SECTION 8.8. Assignment..............................................................................50
SECTION 8.9. Consent to Jurisdiction.................................................................50
SECTION 8.10. Headings................................................................................51
SECTION 8.11. Severability............................................................................51
EXHIBITS
Exhibit A- Form of Corporate Resolutions
</TABLE>
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AGREEMENT AND PLAN OF MERGER dated as of April 21, 1998, between
INTERIORS, INC., a Delaware corporation ("Interiors"), and DECOR GROUP, INC., a
Delaware corporation ("Decor").
WHEREAS, the respective Boards of Directors of Interiors and Decor
have each approved the merger of Decor with and into Interiors (the "Merger"),
upon the terms and subject to the conditions set forth in this Agreement,
whereby each issued and outstanding share of common stock, par value $.0001 per
share, of Decor ("Decor Common Stock"), other than shares owned by Interiors or
Decor, will be converted into the right to receive the Merger Consideration (as
defined in Section 1.8); and
WHEREAS, the respective Boards of Directors of Interiors and Decor
have each determined that the Merger and the other transactions contemplated
hereby are consistent with, and in furtherance of, their respective business
strategies and goals and are in the best interests of their respective
stockholders; and
WHEREAS, Interiors and Decor desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger; and
WHEREAS, for federal income tax purposes, it is intended that the
Merger will qualify as a reorganization under the provisions of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.1. THE MERGER. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with the Delaware General Corporation Law
(the "DGCL"), Decor shall be merged with and into Interiors at the Effective
Time (as defined in Section 1.3). Following the Effective Time, Interiors shall
be the surviving corporation (the "Surviving Corporation") and shall succeed to
and assume all the rights and obligations of Decor in accordance with the DGCL.
SECTION 1.2. CLOSING. The closing of the Merger (the "Closing") will take place
at 10:00 a.m. on a date to be specified by the parties (the "Closing Date"),
which shall be no later than the second business day after satisfaction or
waiver of the conditions set forth in Article VI, unless
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another time or date is agreed to by the parties hereto. The Closing will be
held at such location in the City of New York as is agreed to by the parties
hereto.
SECTION 1.3. EFFECTIVE TIME. Subject to the provisions of this Agreement, as
soon as practicable on the Closing Date, the parties shall cause the Merger to
be consummated by filing a certificate of merger or other appropriate documents
(in any such case, the "Certificate of Merger") executed in accordance with the
relevant provisions of the DGCL and shall make all other filings or recordings
required under the DGCL. The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the Secretary of State of Delaware, or
at such subsequent date or time as Interiors and Decor shall agree and specify
in the Certificate of Merger (the time the Merger becomes effective being
hereinafter referred to as the "Effective Time").
SECTION 1.4. EFFECTS OF THE MERGER. The Merger shall have the effects set forth
in Section 259 of the DGCL.
SECTION 1.5. CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING
CORPORATION. The Certificate of Incorporation of Interiors, as amended in
accordance with the terms of the Merger and the transactions contemplated
thereby which shall be in effect immediately prior to the Effective Time, shall
be the Certificate of Incorporation of the Surviving Corporation (the
"Surviving Certificate of Incorporation" or the "Certificate of Amendment").
The bylaws of Interiors, as in effect immediately prior to the Effective Time,
shall be the bylaws of the Surviving Corporation (the "Surviving Bylaws").
SECTION 1.6. BOARDS, COMMITTEES AND OFFICERS. Prior to the Effective Time,
Interiors shall adopt resolutions in the form attached hereto as part of
Exhibit A, establishing the Board of Interiors and committees thereof from and
after the Effective Time. From and after the Effective Time, the members of the
Board of Directors, the committees of the Board of Directors, the composition
of such committees (including chairmen thereof) and the officers of the
Surviving Corporation shall be as set forth on or designated in accordance with
the Surviving Certificate of Incorporation, the Surviving Bylaws and Exhibit A
hereto until the earlier of the resignation or removal of any individual set
forth on or designated in accordance with the Surviving Certificate of
Incorporation, the Surviving Bylaws and Exhibit A or until their respective
successors are duly elected and qualified, as the case may be, or until as
otherwise provided in the Surviving Certificate of Incorporation, the Surviving
Bylaws and Exhibit A. If any officer set forth on or designated in accordance
with Exhibit A ceases to be a full-time employee of either Decor or Interiors
at or before the Effective Time, Interiors, in the case of any such employee of
Interiors on the date hereof or any such employee to be designated by
Interiors, or Decor, in the case of any such employee of Decor on the date
hereof or any such employee to be designated by Decor, shall designate another
person to serve in such person's stead.
SECTION 1.7. NAME OF THE SURVIVING CORPORATION. The name of the Surviving
Corporation shall be Interiors, Inc.
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SECTION 1.8. RESERVATION OF RIGHT TO REVISE TRANSACTION. If each of Decor and
Interiors agree, the parties hereto may change the method of effecting the
business combination between Interiors and Decor, and each party shall
cooperate in such efforts, including to provide for (a) a merger of a wholly
owned subsidiary of Interiors with and into Decor, or (b) a merger of Decor
with and into a wholly owned subsidiary of Interiors; provided, however, that
no such change shall (i) alter or change the amount or kind of consideration to
be issued to holders of Decor Common Stock as provided for in this Agreement
(the "Merger Consideration").
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.1. EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
Decor Common Stock:
(a) CANCELLATION OF STOCK. Each share of capital stock of
Interiors that is owned by Decor, and each share of capital stock of Decor
owned by Interiors, shall automatically be canceled and retired and shall
cease to exist, and no consideration shall be delivered in exchange therefor.
(b) CONVERSION OF DECOR COMMON STOCK. Subject to Section
2.2(e), each issued and outstanding share of Decor Common Stock (other than
shares to be canceled in accordance with Section 2.1(a)) shall be converted
into the right to receive $1.50 (the "Exchange Ratio") validly issued, fully
paid and nonassessable shares of Class A common stock, par value $.001 per
share ("Interiors Class A Common Stock"), of Interiors. As of the Effective
Time, all such shares of Decor Common Stock shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares of Decor Common Stock
shall cease to have any rights with respect thereto, except the right to
receive the Merger Consideration and any cash in lieu of fractional shares of
Interiors Class A Common Stock to be issued or paid in consideration therefor
upon surrender of such certificate in accordance with Section 2.2, without
interest.
(c) DECOR WARRANTS. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof, each
outstanding warrant to purchase shares of Decor Common Stock (a "Warrant")
shall remain outstanding, unchanged by reason of the Merger, except that, in
accordance with the adjustment provisions thereof, each such Warrant shall no
longer be exercisable for Decor Common Stock but shall thereafter be
exercisable for that whole number of Interiors Class A Common Stock and cash in
lieu of fractional share interests as the
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holder thereof would have been entitled to receive pursuant to the Merger had
such holder exercised such Warrant in full immediately prior to the Effective
Time, at a price per share of Interiors Class A Common Stock equal to (i) the
aggregate exercise price for the Decor Common Stock purchasable pursuant to
such Warrant immediately prior to the Effective Time divided by (ii) the number
of shares of Interiors Class A Common Stock deemed purchasable pursuant to such
Warrant (the aggregate number of shares of Interiors Class A Common Stock
issuable upon exercise of all such outstanding Warrants). Interiors shall
comply with the terms and provisions of all such Warrants.
SECTION 2.2. EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. As of the Effective Time, Interiors shall
enter into an agreement with such bank or trust company or transfer agent as
may be designated by Interiors and reasonably satisfactory to Decor (the
"Exchange Agent"), which shall provide that Interiors shall deposit with the
Exchange Agent as of the Effective Time, for the benefit of the holders of
shares of Decor Common Stock, for exchange in accordance with this Article II,
through the Exchange Agent, certificates representing the shares of Interiors
Class A Common Stock issuable pursuant to Section 2.1 in exchange for
outstanding shares of Decor Common Stock.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable
after the Effective Time, but no more than ten (10) days after the Effective
Time, the Exchange Agent shall mail to each holder of record of a certificate
or certificates which immediately prior to the Effective Time represented
outstanding shares of Decor Common Stock (the "Certificates") whose shares were
converted into the right to receive the Merger Consideration pursuant to
Section 2.1, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Interiors and Decor may reasonably
specify) and (ii) instructions for use in surrendering the Certificates in
exchange for the Merger Consideration. Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with such letter of transmittal,
duly executed, and such other documents as may reasonably be required by the
Exchange Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of whole shares of
Interiors Class A Common Stock which such holder has the right to receive
pursuant to the provisions of this Article II, and cash in lieu of any
fractional share of Interiors Class A Common Stock in accordance with Section
2.2(e), and the Certificate so surrendered shall forthwith be canceled (such
cash and Interiors Class A Common Stock deposited with the Exchange Agent for
the purpose of the Merger, collectively, the "Exchange Fund"). In the event of
a surrender of a Certificate representing shares of Decor Common Stock which
are not registered in the transfer records of Decor under the name of the
person surrendering such Certificate, a certificate representing the proper
number of shares of Interiors Class A Common Stock may be issued to a person
other than the person in whose name the Certificate so surrendered is
registered if such Certificate shall be properly endorsed or otherwise be in
proper form for transfer and the person requesting such issuance shall pay any
transfer or other taxes required by reason of the issuance
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of shares of Interiors Class A Common Stock to a person other than the
registered holder of such Certificate or establish to the satisfaction of
Interiors that such tax has been paid or is not applicable. Until surrendered
as contemplated by this Section 2.2, each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender the Merger Consideration which the holder thereof has the right to
receive in respect of such Certificate pursuant to the provisions of this
Article II, and cash in lieu of any fractional share of Interiors Class A
Common Stock in accordance with Section 2.2(e). No interest shall be paid or
will accrue on any cash payable to holders of Certificates pursuant to the
provisions of this Article II.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions with respect to Interiors Class A Common Stock
with a record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Interiors Class A
Common Stock represented thereby, and, in the case of Certificates representing
Decor Common Stock, no cash payment in lieu of fractional shares shall be paid
to any such holder pursuant to Section 2.2(e), and all such dividends, other
distributions and cash in lieu of fractional shares of Interiors Class A Common
Stock shall be paid by Interiors to the Exchange Agent for payment to holders
of Decor Common Stock, in each case until the surrender of such Certificate in
accordance with this Article II. Subject to the effect of applicable escheat or
similar laws, following surrender of any such Certificate there shall be paid
to the holder of the certificate representing whole shares of Interiors Class A
Common Stock issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of dividends or other distributions with a record
date after the Effective Time theretofore paid with respect to such whole
shares of Interiors Class A Common Stock and, in the case of Certificates
representing Decor Common Stock, the amount of any cash payable in lieu of a
fractional share of Interiors Class A Common Stock to which such holder is
entitled pursuant to Section 2.2(e) and (ii) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the
Effective Time and with a payment date subsequent to such surrender payable
with respect to such whole shares of Interiors Class A Common Stock.
(d) NO FURTHER OWNERSHIP RIGHTS IN DECOR COMMON STOCK. All
shares of Interiors Class A Common Stock issued upon the surrender for exchange
of Certificates in accordance with the terms of this Article II (including any
cash paid pursuant to this Article II) shall be deemed to have been issued (and
paid) in full satisfaction of all rights pertaining to the shares of Decor
Common Stock, theretofore represented by such Certificates, subject, however,
to the Surviving Corporation's obligation to pay any dividends or make any
other distributions with a record date prior to the Effective Time which may
have been declared or made by Decor on such shares of Decor Common Stock which
remain unpaid at the Effective Time, and there shall be no further registration
of transfers on the stock transfer books of the Surviving Corporation of the
shares of Decor Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation or the Exchange Agent for any reason, they shall be
canceled and exchanged as provided in this Article II, except as otherwise
provided by law.
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(e) NO FRACTIONAL SHARES. (i) No certificates or scrip
representing fractional shares of Interiors Class A Common Stock shall be
issued upon the surrender for exchange of Certificates, no dividend or
distribution of Interiors shall relate to such fractional share interests and
such fractional share interests will not entitle the owner thereof to vote or
to any rights of a stockholder of Interiors.
(ii) The Surviving Corporation shall pay each former holder of Decor
Common Stock an amount in cash equal to the product obtained by multiplying (A)
the fractional share interest to which such former holder (after taking into
account all shares of Decor Common Stock held at the Effective Time by such
holder) would otherwise be entitled by (B) the Exchange Ratio.
(iii) As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Certificates formerly representing Decor
Common Stock with respect to any fractional share interests, the Exchange Agent
shall make available such amounts to such holders of Certificates formerly
representing Decor Common Stock subject to and in accordance with the terms of
Section 2.2(c).
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange
Fund which remains undistributed to the holders of the Certificates for six
months after the Effective Time shall be delivered to Interiors, upon demand,
and any holders of the Certificates who have not theretofore complied with this
Article II shall thereafter look only to Interiors for payment of their claim
for Merger Consideration, any dividends or distributions with respect to
Interiors Class A Common Stock and any cash in lieu of fractional shares of
Interiors Class A Common Stock.
(g) NO LIABILITY. None of Interiors, Decor, the Surviving
Corporation or the Exchange Agent shall be liable to any person in respect of
any shares of Interiors Class A Common Stock, any dividends or distributions
with respect thereto, any cash in lieu of fractional shares of Interiors Class
A Common Stock or any cash from the Exchange Fund, in each case delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(h) INVESTMENT OF EXCHANGE FUND. The Exchange Agent shall
invest any cash included in the Exchange Fund, as directed by Interiors, on a
daily basis. Any interest and other income resulting from such investments
shall be paid to Interiors.
(i) LOST CERTIFICATES. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such person of a bond in
such reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent shall issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration and, if
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applicable, any unpaid dividends and distributions on shares of Interiors Class
A Common Stock deliverable in respect thereof and any cash in lieu of
fractional shares, in each case pursuant to this Agreement.
SECTION 2.3. CERTAIN ADJUSTMENTS. If between the date hereof and the Effective
Time, the outstanding shares of Decor Common Stock or of Interiors Class A
Common Stock shall be changed into a different number of shares by reason of
any reclassification, recapitalization, split-up, combination or exchange of
shares, or any dividend payable in stock or other securities shall be declared
thereon with a record date within such period, the Exchange Ratio shall be
adjusted accordingly to provide to the holders of Decor Common Stock the same
economic effect as contemplated by this Agreement prior to such
reclassification, recapitalization, split-up, combination, exchange or
dividend.
SECTION 2.4. PREFERRED SHARES OF DECOR. Prior to the Effective Date the Decor
Series A Preferred will be converted into Decor Common Stock and treated in the
same manner as set forth in Section 2.1 hereof. At the Effective Date the Decor
Series B Preferred will be canceled.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF DECOR. Except as disclosed in
the Decor Filed SEC Documents (as defined in Section 3.1(g)) or as set forth on
the Disclosure Schedule delivered by Decor to Interiors prior to the execution
of this Agreement (the "Decor Disclosure Schedule") and making reference to the
particular subsection of this Agreement to which exception is being taken,
Decor represents and warrants to Interiors as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER. (i) Each of
Decor and its subsidiaries (as defined in Section 8.3) is a corporation or
other legal entity duly organized, validly existing and in good standing (with
respect to jurisdictions which recognize such concept) under the laws of the
jurisdiction in which it is organized and has the requisite corporate or other
power, as the case may be, and authority to carry on its business as now being
conducted, except, as to subsidiaries, for those jurisdictions where the
failure to be so organized, existing or in good standing individually or in the
aggregate would not have a material adverse effect (as defined in Section 8.3)
on Decor. Each of Decor and its subsidiaries is duly qualified or licensed to
do business and is in good standing (with respect to jurisdictions which
recognize such concept) in each jurisdiction in which the nature of its
business or the ownership, leasing or operation of its properties makes such
qualification or licensing necessary, except for those jurisdictions where the
failure to be so qualified or licensed or to be in good standing individually
or in the aggregate would not have a material adverse effect on Decor.
(ii) Decor has delivered to Interiors prior to the execution of this
Agreement complete
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and correct copies of its Certificate of Incorporation and Bylaws, as amended
to date.
(iii) In all material respects, the minute books of Decor contain
accurate records of all meetings and accurately reflect all other actions taken
by the stockholders, the Board of Directors and all committees of the Board of
Directors of Decor since inception.
(b) SUBSIDIARIES. All the outstanding shares of capital stock
of, or other equity interests in, each such subsidiary have been validly issued
and are fully paid and nonassessable and are owned directly or indirectly by
Decor, free and clear of all pledges, claims, liens, charges, encumbrances and
security interests of any kind or nature whatsoever (collectively, "Liens") and
free of any other restriction (including any restriction on the right to vote,
sell or otherwise dispose of such capital stock or other ownership interests).
(c) CAPITAL STRUCTURE. The authorized capital stock of Decor
consists of 20,000,000 shares of Decor Common Stock and 35,000,000 shares of
preferred stock, par value $.0001 per share ("Decor Preferred Stock"),
5,000,000 shares of which have been designated as "Series A Convertible
Preferred Stock"; 20,000,000 shares of which have been designated as "Series B
Non-Convertible Preferred Stock"; and 1,000,000 shares of which have been
designated as "Series C Convertible Preferred Stock" (together with the Series
A Convertible Preferred Stock, the "Decor Convertible Securities") At the close
of business on December 31, 1997 (i) 1,709,176 shares of Decor Common Stock
were issued and outstanding; (ii) no shares of Decor Common Stock were held by
Decor in its treasury; (iii) 250,000 shares of Series A Convertible Preferred
Stock were issued and outstanding; (iv) 20,000,000 shares of Series B
Non-Convertible Preferred Stock were issued and outstanding; (v) 54,934 shares
of Series C Convertible Preferred Stock were issued and outstanding; (vi)
83,333 shares of Decor Common Stock were reserved for issuance pursuant to the
Decor 1996 Stock Plan, complete and correct copies of which have been delivered
to Interiors (such plans, collectively, the "Decor Stock Plans"); (vii)
1,500,000 shares of Decor Common Stock were reserved for issuance upon the
exercise of 1,500,000 Class A Warrants ; (viii) 250,000 shares of Decor Common
Stock were reserved for issuance upon the conversion of 250,000 shares of
Series A Convertible Preferred Stock ; (ix) 54,934 shares of Decor Common Stock
were reserved for issuance upon the conversion of 54,934 shares of Series C
Convertible Preferred Stock. Section 3.1(c) of the Decor Disclosure Schedule
sets forth a complete and correct list, as of March 31, 1998, of the number of
shares of Decor Common Stock subject to employee stock options or other rights
to purchase or receive Decor Common Stock granted under the Decor Stock Plans
(collectively, "Decor Employee Stock Options"), the dates of grant and exercise
prices thereof. All outstanding shares of capital stock of Decor are, and all
shares which may be issued will be, when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
Except as set forth in this Section 3.1(c), Section 3.1(c) of the Decor
Disclosure Schedule and except for changes since March 31, 1998 resulting from
the issuance of shares of Decor Common Stock pursuant to the Decor Employee
Stock Options, the Decor Convertible Securities or as permitted by Section
4.1(a)(i)(y) and 4.1(a)(ii), (x) there are not issued, reserved for issuance or
outstanding (A) any shares of capital stock or other voting securities of
Decor, (B) any securities
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of Decor or any Decor subsidiary convertible into or exchangeable or
exercisable for shares of capital stock or voting securities of Decor, (C) any
warrants, calls, options or other rights to acquire from Decor or any Decor
subsidiary, and any obligation of Decor or any Decor subsidiary to issue, any
capital stock, voting securities or securities convertible into or exchangeable
or exercisable for capital stock or voting securities of Decor, and (y) there
are no outstanding obligations of Decor or any Decor subsidiary to repurchase,
redeem or otherwise acquire any such securities or to issue, deliver or sell,
or cause to be issued, delivered or sold, any such securities. There are no
outstanding (A) securities of Decor or any Decor subsidiary convertible into or
exchangeable or exercisable for shares of capital stock or other voting
securities or ownership interests in any Decor subsidiary, (B) warrants, calls,
options or other rights to acquire from Decor or any Decor subsidiary, and any
obligation of Decor or any Decor subsidiary to issue, any capital stock, voting
securities or other ownership interests in, or any securities convertible into
or exchangeable or exercisable for any capital stock, voting securities or
ownership interests in, any Decor subsidiary or (C) obligations of Decor or any
Decor subsidiary to repurchase, redeem or otherwise acquire any such
outstanding securities of Decor subsidiaries or to issue, deliver or sell, or
cause to be issued, delivered or sold, any such securities. Neither Decor nor
any Decor subsidiary is a party to any agreement restricting the transfer of,
relating to the voting of, requiring registration of, or granting any
preemptive or, except as provided by the terms of the Decor Employee Stock
Options and the Decor Convertible Securities, antidilutive rights with respect
to, any securities of the type referred to in the two preceding sentences.
Other than the Decor subsidiaries and the shares of capital stock of Interiors
held by Decor, Decor does not directly or indirectly beneficially own any
securities or other beneficial ownership interests in any other entity except
for non-controlling investments made in the ordinary course of business in
entities which are not individually or in the aggregate material to Decor and
its subsidiaries as a whole.
(d) AUTHORITY; NONCONTRAVENTION. Decor has all requisite
corporate power and authority to enter into this Agreement and, subject, in the
case of the Merger, to the Decor Stockholder Approval (as defined in Section
3.1(l)) to consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement by Decor and the consummation by Decor
of the transactions contemplated by this Agreement have been duly authorized by
all necessary corporate action on the part of Decor, subject, in the case of
the Merger, to the Decor Stockholder Approval. This Agreement has been duly
executed and delivered by Decor and, assuming the due authorization, execution
and delivery by Interiors, constitutes the legal, valid and binding obligation
of Decor, enforceable against Decor in accordance with its terms. The execution
and delivery of this Agreement do not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions of this
Agreement will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or loss of
a benefit under, or result in the creation of any Lien upon any of the
properties or assets of Decor or any of its subsidiaries under, (i) the
certificate of incorporation or bylaws of Decor or the comparable
organizational documents of any of its subsidiaries, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or
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other agreement, instrument, permit, concession, franchise, license or similar
authorization applicable to Decor or any of its subsidiaries or their
respective properties or assets or (iii) subject to the governmental filings
and other matters referred to in the following sentence, any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Decor or any
of its subsidiaries or their respective properties or assets, other than, in
the case of clauses (ii) and (iii), any such conflicts, violations, defaults,
rights, losses or Liens that individually or in the aggregate would not (x)
have a material adverse effect on Decor or (y) reasonably be expected to impair
the ability of Decor to perform its obligations under this Agreement. No
consent, approval, order or authorization of, action by or in respect of, or
registration, declaration or filing with, any federal, state, local or foreign
government, any court, administrative, regulatory or other governmental agency,
commission or authority or any nongovernmental self-regulatory agency,
commission or authority (a "Governmental Entity") is required by or with
respect to Decor or any of its subsidiaries in connection with the execution
and delivery of this Agreement by Decor or the consummation by Decor of the
transactions contemplated by this Agreement, except for (1) the filing with the
SEC of (A) a proxy statement relating to the Decor Stockholders Meeting (as
defined in Section 5.1(b)) (such proxy statement, together with the proxy
statement relating to the Interiors Stockholders Meeting (as defined in Section
5.1(c)), in each case as amended or supplemented from time to time, the "Joint
Proxy Statement"), and (B) such reports under Section 13(a), 13(d), 15(d) or
16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
as may be required in connection with this Agreement and the transactions
contemplated by this Agreement; (2) the filing of the Certificate of Merger
with the Secretary of State of Delaware and appropriate documents with the
relevant authorities of other states in which Decor is qualified to do business
and such filings with Governmental Entities to satisfy the applicable
requirements of state securities or "blue sky" laws; and (3) such consents,
approvals, orders or authorizations the failure of which to be made or obtained
individually or in the aggregate would not (x) have a material adverse effect
on Decor or (y) reasonably be expected to impair the ability of Decor to
perform its obligations under this Agreement.
(e) SEC DOCUMENTS; UNDISCLOSED LIABILITIES. Decor has filed
all required registration statements, prospectuses, reports, schedules, forms,
statements and other documents (including exhibits and all other information
incorporated therein) with the SEC since November 12, 1996 (the "Decor SEC
Documents"). As of their respective dates, the Decor SEC Documents complied in
all material respects with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), or the Exchange Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder applicable to such
Decor SEC Documents, and none of the Decor SEC Documents when filed contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of Decor included in the Decor SEC
Documents comply as to form, as of their respective dates of filing with the
SEC, in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP (except, in the case of unaudited statements,
as permitted by Form 10-QSB of the SEC) applied on a consistent basis during
the periods involved (except as
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may be indicated in the notes thereto) and fairly present the consolidated
financial position of Decor and its consolidated subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended. Except (i) as reflected in such financial statements or in
the notes thereto or (ii) for liabilities incurred in connection with this
Agreement or the transactions contemplated hereby, neither Decor nor any of its
subsidiaries has any liabilities or obligations of any nature which,
individually or in the aggregate, would have a material adverse effect on
Decor.
(f) INFORMATION SUPPLIED. None of the information supplied or
to be supplied by Decor specifically for inclusion or incorporation by
reference in (i) the registration statement on Form S-4 to be filed with the
SEC by Interiors in connection with the issuance of Interiors Class A Common
Stock in the Merger (the "Form S-4") will, at the time the Form S-4 becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) the Joint Proxy
Statement will, at the date it is first mailed to Decor's stockholders or at
the time of the Decor Stockholders Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Joint Proxy
Statement will comply as to form in all material respects with the requirements
of the Exchange Act and the rules and regulations thereunder, except that no
representation or warranty is made by Decor with respect to statements made or
incorporated by reference therein based on information supplied by Interiors
specifically for inclusion or incorporation by reference in the Joint Proxy
Statement.
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except for
liabilities incurred in connection with this Agreement or the transactions
contemplated hereby and except as permitted by Section 4.1(a) or set forth in
Section 3.1(g) of the Decor Disclosure Schedule, since September 30, 1997,
Decor and its subsidiaries have conducted their business only in the ordinary
course or as disclosed in any Decor SEC Document filed since such date and
prior to the date hereof, and there has not been (i) any material adverse
change (as defined in Section 8.3) in Decor, (ii) any declaration, setting
aside or payment of any dividend or other distribution (whether in cash, stock
or property) with respect to any of Decor's capital stock, (iii) any split,
combination or reclassification of any of Decor's capital stock or any issuance
or the authorization of any issuance of any other securities in respect of, in
lieu of or substitution for shares of Decor's capital stock, except for
issuances of Decor Common Stock upon conversion of Decor Convertible Securities
or upon the exercise of Decor Employee Stock Options, in each case awarded
prior to the date hereof in accordance with their present terms or issued
pursuant to Section 4.1(a), (iv)(A) any granting by Decor or any of its
subsidiaries to any current or former director, executive officer or other key
employee of Decor or its subsidiaries of any increase in compensation, bonus or
other benefits, except for normal increases as a result of promotions, normal
increases of base pay in the ordinary course of business or as was required
under any employment agreements in effect as of September 30, 1997, (B) any
granting by Decor or any of
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its subsidiaries to any such current or former director, executive officer or
key employee of any increase in severance or termination pay, or (C) any entry
by Decor or any of its subsidiaries into, or any amendment of, any employment,
deferred compensation, consulting, severance, termination or indemnification
agreement with any such current or former director, executive officer or key
employee, (v) except insofar as may have been disclosed in Decor SEC Documents
filed and publicly available prior to the date of this Agreement (as amended to
the date hereof, the "Decor Filed SEC Documents") or required by a change in
GAAP, any change in accounting methods, principles or practices by Decor
materially affecting its assets, liabilities or business, (vi) except insofar
as may have been disclosed in the Decor Filed SEC Documents, any tax election
that individually or in the aggregate would have a material adverse effect on
Decor or any of its tax attributes or any settlement or compromise of any
material income tax liability, or (vii) any action taken by Decor or any of the
Decor subsidiaries during the period from September 30, 1997 through the date
of this Agreement that, if taken during the period from the date of this
Agreement through the Effective Time would constitute a breach of Section
4.1(a).
(h) COMPLIANCE WITH APPLICABLE LAWS; LITIGATION. (i) Decor,
its subsidiaries and employees hold all permits, licenses, variances,
exemptions, orders, registrations and approvals of all Governmental Entities
which are required for the operation of the businesses of Decor and its
subsidiaries (the "Decor Permits"), except where the failure to have any such
Decor Permits individually or in the aggregate would not have a material
adverse effect on Decor. Decor and its subsidiaries are in compliance with the
terms of the Decor Permits and all applicable statutes, laws, ordinances, rules
and regulations, except where the failure so to comply individually or in the
aggregate would not have a material adverse effect on Decor. As of the date of
this Agreement, except as disclosed in the Decor Filed SEC Documents, no
action, demand, requirement or investigation by any Governmental Entity and no
suit, action or proceeding by any person, in each case with respect to Decor or
any of its subsidiaries or any of their respective properties is pending or, to
the knowledge (as defined in Section 8.3) of Decor, threatened, other than, in
each case, those the outcome of which individually or in the aggregate would
not (A) have a material adverse effect on Decor or (B) reasonably be expected
to impair the ability of Decor to perform its obligations under this Agreement
or prevent or materially delay the consummation of any of the transactions
contemplated by this Agreement.
(ii) Neither Decor nor any Decor subsidiary is subject to any
outstanding order, injunction or decree which has had or, insofar as can be
reasonably foreseen, individually or in the aggregate will have a material
adverse effect on Decor.
(i) ABSENCE OF CHANGES IN BENEFIT PLANS. Decor has delivered
to Interiors true and complete copies of (i) all severance and employment
agreements of Decor with directors, executive officers or key employees, (ii)
all severance programs and policies of each of Decor and each Decor subsidiary,
and (iii) all plans or arrangements of Decor and each Decor subsidiary relating
to its employees which contain change in control provisions. Since September
30, 1997, there has not been any adoption or amendment in any material respect
by Decor or any of its subsidiaries of any collective bargaining agreement,
employment agreement, consulting
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agreement, severance agreement or any material bonus, pension, profit sharing,
deferred compensation, incentive compensation, stock ownership, stock purchase,
stock option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other plan, arrangement or understanding
providing benefits to any current or former employee, officer or director of
Decor or any of its wholly owned subsidiaries (collectively, the "Decor Benefit
Plans"), or any material change in any actuarial or other assumption used to
calculate funding obligations with respect to any Decor pension plans, or any
material change in the manner in which contributions to any Decor pension plans
are made or the basis an which such contributions are determined.
(j) ERISA COMPLIANCE. (i) With respect to the Decor Benefit
Plans, no event has occurred and, to the knowledge of Decor, there exists no
condition or set of circumstances, in connection with which Decor or any of its
subsidiaries could be subject to any liability that individually or in the
aggregate would have a material adverse effect on Decor under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the Code or any
other applicable law.
(ii) Each Decor Benefit Plan has been administered in accordance with
its terms, except for any failures so to administer any Decor Benefit Plan that
individually or in the aggregate would not have a material adverse effect on
Decor. Decor, its subsidiaries and all the Decor Benefit Plans have been
operated, and are, in compliance with the applicable provisions of ERISA, the
Code and all other applicable laws and the terms of all applicable collective
bargaining agreements, except for any failures to be in such compliance that
individually or in the aggregate would not have a material adverse effect on
Decor. Each Decor Benefit Plan that is intended to be qualified under Section
401(a) or 401(k) of the Code has received a favorable determination letter from
the IRS that it is so qualified and each trust established in connection with
any Decor Benefit Plan that is intended to be exempt from federal income
taxation under Section 501(a) of the Code has received a determination letter
from the IRS that such trust is so exempt. To the knowledge of Decor, no fact
or event has occurred since the date of any determination letter from the IRS
which is reasonably likely to affect adversely the qualified status of any such
Decor Benefit Plan or the exempt status of any such trust.
(iii) Neither Decor nor any of its subsidiaries has incurred any
unsatisfied liability under Title IV of ERISA (other than liability for
premiums to the Pension Benefit Guaranty Corporation arising in the ordinary
course). No Decor Benefit Plan has incurred an "accumulated funding deficiency"
(within the meaning of Section 302 of ERISA or Section 412 of the Code) whether
or not waived. To the knowledge of Decor, there are not any facts or
circumstances that would materially change the funded status of any Decor
Benefit Plan that is a "defined benefit" plan (as defined in Section 3(35) of
ERISA) since the date of the most recent actuarial report for such plan. No
Decor Benefit Plan is a "multiemployer plan" within the meaning of Section
3(37) of ERISA.
(iv) With respect to each of the Decor Benefit Plans (other than any
multiemployer plan)
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that is subject to Title IV of ERISA, the present value of accrued benefits
under each such plan, based upon the actuarial assumptions used for funding
purposes in the most recent actuarial report prepared by such plan's actuary
with respect to such plan, did not, as of its latest valuation date, exceed the
then current value of the aggregate assets of such plans allocable to such
accrued benefits in any material respect. With respect to any Decor Benefit
Plan that is a multiemployer plan, (A) none of Decor nor any of its
subsidiaries has any contingent liability under Section 4204 of ERISA, and no
circumstances exist that present a material risk that any such plan will go
into reorganization, and (B) the aggregate withdrawal liability of Decor and
its subsidiaries, computed as if a complete withdrawal by Decor and any of its
subsidiaries had occurred under each such Decor Benefit Plan on the date
hereof, would not be material.
(v) No Decor Benefit Plan provides medical benefits (whether or not
insured), with respect to current or former employees after retirement or other
termination of service (other than coverage mandated by applicable law or
benefits, the full cost of which is borne by the current or former employee)
other than individual arrangements the amounts of which are not material.
(vi) As of the date of this Agreement, neither Decor nor any of its
subsidiaries is a party to any collective bargaining or other labor union
contract applicable to persons employed by Decor or any of its subsidiaries and
no collective bargaining agreement is being negotiated by Decor or any of its
subsidiaries. As of the date of this Agreement, there is no labor dispute,
strike or work stoppage against Decor or any of its subsidiaries pending or, to
the knowledge of Decor, threatened which may interfere with the respective
business activities of Decor or any of its subsidiaries, except where such
dispute, strike or work stoppage individually or in the aggregate would not
have a material adverse effect on Decor. As of the date of this Agreement, to
the knowledge of Decor, none of Decor, any of its subsidiaries or any of their
respective representatives or employees has committed any material unfair labor
practice in connection with the operation of the respective businesses of Decor
or any of its subsidiaries, and there is no material charge or complaint
against Decor or any of its subsidiaries by the National Labor Relations Board
or any comparable governmental agency pending or threatened in writing.
(vii) No employee of Decor will be entitled to any material payment,
additional benefits or any acceleration of the time of payment or vesting of
any benefits under any Decor Benefit Plan as a result of the transactions
contemplated by this Agreement (either alone or in conjunction with any other
event such as a termination of employment), except that all Decor Employee
Stock Options will vest as of the Effective Time as a result of the Merger.
(k) TAXES. (i) Each of Decor and its subsidiaries has filed all
material tax returns and reports required to be filed by it and all such
returns and reports are complete and correct in all material respects, or
requests for extensions to file such returns or reports have been timely filed,
granted and have not expired, except to the extent that such failures to file,
to be complete or correct or to have extensions granted that remain in effect
individually or in the aggregate would not have a material adverse effect on
Decor. Decor and each of its subsidiaries has paid (or Decor has paid on its
behalf) all taxes (as defined herein) shown as due on such returns, and the
most
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recent financial statements contained in the Decor Filed SEC Documents reflect
an adequate reserve in accordance with GAAP for all taxes payable by Decor and
its subsidiaries for all taxable periods and portions thereof accrued through
the date of such financial statements.
(ii) No deficiencies for any taxes have been proposed, asserted or
assessed against Decor or any of its subsidiaries that are not adequately
reserved for, except for deficiencies that individually or in the aggregate
would not have a material adverse effect on Decor. No federal income tax
returns of Decor and each of its subsidiaries consolidated in such returns have
closed by virtue of the applicable statute of limitations.
(iii) Neither Decor nor any of its subsidiaries has taken any action
or knows of any fact, agreement, plan or other circumstance that is reasonably
likely to prevent the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code.
(iv) As used in this Agreement, "taxes" shall include all (x) federal,
state, local or foreign income, property, sales, excise and other taxes or
similar governmental charges, including any interest, penalties or additions
with respect thereto, (y) liability for the payment of any amounts of the type
described in (x) as a result of being a member of an affiliated, consolidated,
combined or unitary group, and (z) liability for the payment of any amounts as
a result of being party to any tax sharing agreement or as a result of any
express or implied obligation to indemnify any other person with respect to the
payment of any amounts of the type described in clause (x) or (y).
(l) VOTING REQUIREMENTS. The affirmative vote at the Decor
Stockholders Meeting (the "Decor Stockholder Approval") of the holders of a
majority of the total votes represented by all outstanding shares of Decor
Common Stock and Series B Non-Convertible Preferred Stock to adopt this
Agreement is the only vote of the holders of any class or series of Decor's
capital stock necessary to approve and adopt this Agreement and the
transactions contemplated hereby, including the Merger.
(m) STATE TAKEOVER STATUTES. The Board of Directors of Decor
has approved this Agreement and the transactions contemplated hereby and,
assuming the accuracy of Interiors' representation and warranty contained in
Section 3.2(q), such approval constitutes approval of the Merger and the other
transactions contemplated hereby by the Decor Board of Directors under the
provisions of Section 203 of the DGCL such that Section 203 of the DGCL does
not apply to this Agreement and the transactions contemplated hereby. To the
knowledge of Decor, no other state takeover statute is applicable to the Merger
or the other transactions contemplated hereby.
(n) INTENTIONALLY OMITTED
(o) BROKERS. No broker, investment banker, financial advisor
or other person, is entitled to any finder's or other similar fee or commission
in connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Decor. Decor
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has furnished to Interiors true and complete copies of all agreements under
which any such fees or expenses are payable and all indemnification and other
agreements related to the engagement of the persons to whom such fees are
payable.
(p) INTENTIONALLY OMITTED.
(q) OWNERSHIP OF INTERIORS CAPITAL STOCK. As of the date
hereof, neither Decor nor, to its knowledge without independent investigation,
any of its affiliates, (i) beneficially owns (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, or (ii) is party to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of, in each case, shares of capital stock of Interiors (except for
certain shares of Interiors Class A Common Stock owned by Max Munn, a member of
the Board of Directors of Decor; and certain shares of Interiors Class B Common
Stock owned by Laurie Munn, the wife of Max Munn, the beneficial ownership of
which Mr. Munn disclaims).
(r) INTELLECTUAL PROPERTY. Decor and its subsidiaries own or
have a valid license to use all trademarks, service marks, trade names, patents
and copyrights (including any registrations or applications for registration of
any of the foregoing) (collectively, the "Decor Intellectual Property")
necessary to carry on its business substantially as currently conducted except
for such Decor Intellectual Property the failure of which to own or validly
license individually or in the aggregate would not have a material adverse
effect on Decor. Neither Decor nor any such subsidiary has received any notice
of infringement of or conflict with, and, to Decor's knowledge, there are no
infringements of or conflicts (i) with the rights of others with respect to the
use of, or (ii) by others with respect to, any Decor Intellectual Property that
individually or in the aggregate, in either such case, would have a material
adverse effect on Decor.
(s) CERTAIN CONTRACTS. Except as set forth in the Decor Filed
SEC Documents, neither Decor nor any of its subsidiaries is a party to or bound
by (i) any "material contract" (as such term is defined in Item 601(b)(10) of
Regulation S-K of the SEC), (ii) any non-competition agreement or any other
agreement or obligation which purports to limit in any material respect the
manner in which, or the localities in which, all or any material portion of the
business of Decor and its subsidiaries (including, for purposes of this Section
3.1(s), Interiors and its subsidiaries, assuming the Merger has taken place),
taken as a whole, is or would be conducted, or (iii) any contract or other
agreement which would prohibit or materially delay the consummation of the
Merger or any of the transactions contemplated by this Agreement (all contracts
of the type described in clauses (i) and (ii) being referred to herein as
"Decor Material Contracts"). Each Decor Material Contract is valid and binding
on Decor (or, to the extent an Decor subsidiary is a party, such subsidiary)
and is in full force and effect, and Decor and each Decor subsidiary have in
all material respects performed all obligations required to be performed by
them to date under each Decor Material Contract, except where such
noncompliance, individually or in the aggregate, would not have a material
adverse effect on Decor. Neither Decor nor any Decor subsidiary knows of, or
has received notice of, any violation or default
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under (nor, to the knowledge of Decor, does there exist any condition which
with the passage of time or the giving of notice or both would result in such a
violation or default under) any Decor Material Contract.
SECTION 3.2. REPRESENTATIONS AND WARRANTIES OF INTERIORS. Except as disclosed
in the Interiors Filed SEC Documents (as defined in Section 3.2(g)) or as set
forth on the Disclosure Schedule delivered by Interiors to Decor prior to the
execution of this Agreement (the "Interiors Disclosure Schedule") and making
reference to the particular subsection of this Agreement to which exception is
being taken, Interiors represents and warrants to Decor as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER. (i) Each of
Interiors and its subsidiaries is a corporation or other legal entity duly
organized, validly existing and in good standing (with respect to jurisdictions
which recognize such concept) under the laws of the jurisdiction in which it is
organized and has the requisite corporate or other power, as the case may be,
and authority to carry on its business as now being conducted, except, as to
subsidiaries, for those jurisdictions where the failure to be so organized,
existing or in good standing individually or in the aggregate would not have a
material adverse effect on Interiors. Each of Interiors and its subsidiaries is
duly qualified or licensed to do business and is in good standing (with respect
to jurisdictions which recognize such concept) in each jurisdiction in which
the nature of its business or the ownership, leasing or operation of its
properties makes such qualification or licensing necessary, except for those
jurisdictions where the failure to be so qualified or licensed or to be in good
standing individually or in the aggregate would not have a material adverse
effect on Interiors.
(ii) Interiors has delivered to Decor prior to the execution of this
Agreement complete and correct copies of its Certificate of Incorporation and
Bylaws, as amended to date.
(iii) In all material respects, the minute books of Interiors contain
accurate records of all meetings and accurately reflect all other actions taken
by the stockholders, the Board of Directors and all committees of the Board of
Directors of Interiors since January 1, 1997.
(b) SUBSIDIARIES. An exhibit to Interiors' Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1997 includes all the
subsidiaries of Interiors. All the outstanding shares of capital stock of, or
other equity interests in, each such subsidiary have been validly issued and
are fully paid and nonassessable and are owned directly or indirectly by
Interiors, free and clear of all Liens and free of any other restriction
(including any restriction on the right to vote, sell or otherwise dispose of
such capital stock or other ownership interests).
(c) CAPITAL STRUCTURE. The authorized capital stock of
Interiors consists of 60,000,000 shares of Interiors Class A Common Stock;
2,500,000 shares of Class B common stock, par value $.001 per share, of
Interiors ("Interiors Class B Common Stock"); and 5,300,000 shares of preferred
stock, par value $.01 per share, of Interiors ("Interiors Preferred Stock")
2,870,000 shares of which are designated as Series A 10% Cumulative Convertible
Preferred
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Stock. At the close of business on April 8, 1998 14,333,971 shares of Interiors
Class A Common Stock were issued and outstanding (including shares of
restricted Interiors Class A Common Stock) of which 6,833,971 shares of Class A
Common Stock are issued and outstanding and 7,500,000 are held by the Stevens
Escrow Agent pursuant to the terms of the Stevens Settlement;
(ii) 1,719,750 shares of Interiors Class B Common Stock were issued and
outstanding (including shares of restricted Interiors Class B Common Stock) and
1,250,000 shares of Class B Common Stock are held by the Stevens Escrow Agent
pursuant to the terms of the Stevens Settlement; (iii) no shares of Interiors
Class A Common Stock were held by Interiors in its treasury; (iv) no shares of
Interiors Class B Common Stock were held by Interiors in its treasury; (v)
846,197 shares of Series A Preferred Stock were issued and outstanding; (vi)
250,000 shares of Interiors Class A Common Stock were reserved for issuance
pursuant to the Interiors 1994 Stock Plan, complete and correct copies of which
have been delivered to Decor (the "Interiors 1994 Stock Plan"); (vii) 250,000
shares of Interiors Class A Common Stock were reserved for issuance pursuant to
the Interiors Director Stock Plan, complete and correct copies of which have
been delivered to Decor (the "Director Stock Plan" and together with the 1994
Stock Plan, the "Interiors Stock Plan"); (viii) 2,994,782 shares of Class A
Common Stock are issuable upon the exercise of 2,994,782 Class W A Warrants and
2,984,782 shares of Class A Common Stock are issuable upon the conversion of
2,984,782 Class A Warrants to be received upon the conversion of 2,984,782
Class B Warrants; (ix) 905,956 shares of Class A Common Stock are issuable upon
the exercise of 905,956 Class W B Warrants; (x) 2,270,000 shares of Interiors
Series A Preferred Stock are issuable upon the exercise of 2,270,000 Class W C
Warrants; (xi) 2,538,591 shares of Class A Common Stock are issuable upon the
conversion of 846,197 shares of Series A Preferred Stock; (xii) 6,810,000
shares of Class A Common Stock are issuable upon the conversion of the
2,270,000 shares of Interiors Series A Preferred Stock are issuable upon the
exercise of 2,270,000 Class W C Warrants and (xiii) a maximum of 6,000,000
shares of Class A Common Stock are issuable upon the conversion of a series of
15% Convertible Subordinated Promissory Notes issued in a series of private
placements; and (xiv) 750,000 shares of Class A Common Stock are issuable upon
the conversion of Warrants issued in connection with a series of private
placements and for services. Section 3.2(c) of the Interiors Disclosure
Schedule sets forth a complete and correct list, as of June 30, 1998, of the
number of shares of Interiors Class A Common Stock subject to employee stock
options or other rights to purchase or receive Interiors Class A Common Stock
granted under the Interiors Stock Plans (collectively, "Interiors Employee
Stock Options"), the dates of grant and exercise prices thereof. All
outstanding shares of capital stock of Interiors are, and all shares which may
be issued pursuant to this Agreement or otherwise will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Except as set forth in this Section 3.2(c), Section 3.2 (c)
of the Interiors Disclosure Schedule there are not issued, reserved for
issuance or outstanding (A) any shares of capital stock or other voting
securities of Interiors, (B) any securities of Interiors or any Interiors
subsidiary convertible into or exchangeable or exercisable for shares of
capital stock or voting securities of Interiors, (C) any warrants, calls,
options or other rights to acquire from Interiors or any Interiors subsidiary,
and any obligation of Interiors or any Interiors subsidiary to issue, any
capital stock, voting securities or securities convertible into or exchangeable
or exercisable for capital stock or voting securities of Interiors, and (D)
there are no outstanding
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obligations of Interiors or any Interiors subsidiary to repurchase, redeem or
otherwise acquire any such securities or to issue, deliver or sell, or cause to
be issued, delivered or sold, any such securities. There are no outstanding (A)
securities of Interiors or any Interiors subsidiary convertible into or
exchangeable or exercisable for shares of capital stock or other voting
securities or ownership interests in any Interiors subsidiary, (B) warrants,
calls, options or other rights to acquire from Interiors or any Interiors
subsidiary, and any obligation of Interiors or any Interiors subsidiary to
issue, any capital stock, voting securities or other ownership interests in, or
any securities convertible into or exchangeable or exercisable for any capital
stock, voting securities or ownership interests in, any Interiors subsidiary or
(C) obligations of Interiors or any Interiors subsidiary to repurchase, redeem
or otherwise acquire any such outstanding securities of Interiors subsidiaries
or to issue, deliver or sell, or cause to be issued, delivered or sold, any
such securities. Neither Interiors nor any Interiors subsidiary is a party to
any agreement restricting the transfer of, relating to the voting of, requiring
registration of, or granting any preemptive or, except as provided by the terms
of the Interiors Employee Stock Options and the Interiors Convertible
Securities, antidilutive rights with respect to, any securities of the type
referred to in the two preceding sentences. Other than the Interiors
subsidiaries, Interiors does not directly or indirectly beneficially own any
securities or other beneficial ownership interests in any other entity except
for non-controlling investments made in the ordinary course of business in
entities which are not individually or in the aggregate material to Interiors
and its subsidiaries as a whole.
(d) AUTHORITY; NONCONTRAVENTION. Interiors has all requisite
corporate power and authority to enter into this Agreement and, subject to the
Interiors Stockholder Approval (as defined in Section 3.2(l)), to consummate
the transactions contemplated by this Agreement. The execution and delivery of
this Agreement by Interiors and the consummation by Interiors of the
transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of Interiors, subject, in the case of
the Merger and the issuance of Interiors Class A Common Stock in connection
with the Merger, to the Interiors Stockholder Approval. This Agreement has been
duly executed and delivered by Interiors and, assuming the due authorization,
execution and delivery by Decor, constitutes the legal, valid and binding
obligations of Interiors, enforceable against Interiors in accordance with its
terms. The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of a benefit under, or result in the creation of any
Lien upon any of the properties or assets of Interiors or any of its
subsidiaries under, (i) the certificate of incorporation or bylaws of
Interiors or the comparable organizational documents of any of its
subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise,
license or similar authorization applicable to Interiors or any of its
subsidiaries or their respective properties or assets or (iii) subject to the
governmental filings and other matters referred to in the following sentence,
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Interiors or any of its subsidiaries or their respective
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properties or assets, other than, in the case of clauses (ii) and (iii), any
such conflicts, violations, defaults, rights, losses or Liens that individually
or in the aggregate would not (x) have a material adverse effect on Interiors
or (y) reasonably be expected to impair the ability of Interiors to perform its
obligations under this Agreement. No consent, approval, order or authorization
of, action by, or in respect of, or registration, declaration or filing with,
any Governmental Entity is required by or with respect to Interiors or any of
its subsidiaries in connection with the execution and delivery of this
Agreement by Interiors or the consummation by Interiors of the transactions
contemplated by this Agreement, except for (1) the filing with the SEC of (A)
the Joint Proxy Statement relating to the Interiors Stockholders Meeting, (B)
the Form S-4 and (C) such reports under Section 13(a), 13(d), 15(d) or 16(a) of
the Exchange Act as may be required in connection with this Agreement and the
transactions contemplated by this Agreement; (2) the filing of the Certificate
of Merger with the Secretary of State of Delaware and appropriate documents
with the relevant authorities of other states in which Interiors is qualified
to do business and such filings with Governmental Entities to satisfy the
applicable requirements of state securities or "blue sky" laws; (3) such
filings with and approvals of NASDAQ to permit the shares of Interiors Class A
Common Stock that are to be issued in the Merger to be listed on The Nasdaq
SmallCap Market; and (4) such consents, approvals, orders or authorizations the
failure of which to be made or obtained individually or in the aggregate would
not (x) have a material adverse effect on Interiors or (y) reasonably be
expected to impair the ability of Interiors to perform its obligations under
this Agreement.
(e) SEC DOCUMENTS; UNDISCLOSED LIABILITIES. Interiors has
filed all required registration statements, prospectuses, reports, schedules,
forms, statements and other documents (including exhibits and all other
information incorporated therein) with the SEC since June 30, 1994 (the
"Interiors SEC Documents"). As of their respective dates, the Interiors SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Interiors SEC
Documents, and none of the Interiors SEC Documents when filed contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of Interiors included in the Interiors SEC
Documents comply as to form, as of their respective dates of filing with the
SEC, in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of Interiors and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments. Except (i) as
reflected in such financial statements or in the notes thereto, (ii) for
liabilities incurred in connection with this Agreement or the transactions
contemplated hereby, or (iii) liabilities incurred in the ordinary course of
business, neither Interiors nor any of its subsidiaries has any liabilities or
obligations of any nature which, individually or in the aggregate, would have a
material adverse effect on Interiors.
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(f) INFORMATION SUPPLIED. None of the information supplied or
to be supplied by Interiors specifically for inclusion or incorporation by
reference in (i) the Form S-4 will, at the time the Form S-4 becomes effective
under the Securities Act, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading or (ii) the Joint Proxy Statement
will, at the date it is first mailed to Interiors's stockholders or at the time
of the Interiors Stockholders Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Form S-4 and the
Joint Proxy Statement will comply as to form in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations thereunder, except that no representation or warranty is made by
Interiors with respect to statements made or incorporated by reference therein
based on information supplied by Decor specifically for inclusion or
incorporation by reference in the Form S-4 or the Joint Proxy Statement.
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except for
liabilities incurred in connection with this Agreement or the transactions
contemplated hereby, and except as permitted by Section 4.1(b), since September
30, 1997, Interiors and its subsidiaries have conducted their business only in
the ordinary course or as disclosed in any Interiors SEC Document filed since
such date and prior to the date hereof, and there has not been (i) any material
adverse change in Interiors, (ii) any declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock or property) with
respect to any of Interiors's capital stock, (iii) any split, combination or
reclassification of any of Interiors's capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for shares of Interiors's capital stock, except for
issuances of Interiors Class A Common Stock, Interiors Class B Common Stock, or
Interiors Preferred Stock upon conversion or redemption of Interiors
Convertible Securities or the exercise of Interiors Employee Stock Options, in
each case, awarded prior to the date hereof in accordance with their present
terms or issued pursuant to Section 4.1(b), (iv)(A) any granting by Interiors
or any of its subsidiaries to any current or former director, executive officer
or other key employee of Interiors or its subsidiaries of any increase in
compensation, bonus or other benefits, except for normal increases as a result
of promotions, normal increases of base pay in the ordinary course of business
or as was required under any employment agreements in effect as of September
30, 1997, (B) any granting by Interiors or any of its subsidiaries to any such
current or former director, executive officer or key employee of any increase
in severance or termination pay, or (C) any entry by Interiors or any of its
subsidiaries into, or any amendment of, any employment, deferred compensation
consulting, severance, termination or indemnification agreement with any such
current or former director, executive officer or key employee, (v) except
insofar as may have been disclosed in Interiors SEC Documents filed and
publicly available prior to the date of this Agreement (as amended to the date
hereof, the "Interiors Filed SEC Documents") or required by a change in GAAP,
any change in accounting methods, principles or practices by Interiors
materially affecting its assets, liabilities or business, (vi) except insofar
as may have been disclosed in the Interiors Filed SEC Documents, any tax
election that individually or in the aggregate would have a material adverse
effect on Interiors or any of its tax attributes or any settlement or
compromise of any material
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income tax liability or (vii) any action taken by Interiors or any of the
Interiors subsidiaries during the period from September 30, 1997 through the
date of this Agreement that, if taken during the period from the date of this
Agreement through the Effective Time would constitute a breach of Section
4.1(b).
(h) COMPLIANCE WITH APPLICABLE LAWS; LITIGATION. (i)
Interiors, its subsidiaries and employees hold all permits, licenses,
variances, exemptions, orders, registrations and approvals of all Governmental
Entities which are required for the operation of the businesses of Interiors
and its subsidiaries (the "Interiors Permits") except where the failure to have
any such Interiors Permits individually or in the aggregate would not have a
material adverse effect on Interiors. Interiors and its subsidiaries are in
compliance with the terms of the Interiors Permits and all applicable statutes,
laws, ordinances, rules and regulations, except where the failure so to comply
individually or in the aggregate would not have a material adverse effect on
Interiors. As of the date of this Agreement, except as disclosed in the
Interiors Filed SEC Documents, no action, demand, requirement or investigation
by any Governmental Entity and no suit, action or proceeding by any person, in
each case with respect to Interiors or any of its subsidiaries or any of their
respective properties, is pending or, to the knowledge of Interiors,
threatened, other than, in each case, those the outcome of which individually
or in the aggregate would not (A) have a material adverse effect on Interiors
or (B) reasonably be expected to impair the ability of Interiors to perform its
obligations under this Agreement or prevent or materially delay the
consummation of any of the transactions contemplated by this Agreement.
(ii) Neither Interiors nor any Interiors subsidiary is subject to any
outstanding order, injunction or decree which has had or, insofar as can be
reasonably foreseen, individually or in the aggregate will have a material
adverse effect on Interiors.
(i) ABSENCE OF CHANGES IN BENEFIT PLANS. Interiors has
delivered to Decor true and complete copies of (i) all severance and employment
agreements of Interiors with directors, executive officers or key employees,
(ii) all severance programs and policies of each of Interiors and each
Interiors subsidiary, and (iii) all plans or arrangements of Interiors and each
Interiors subsidiary relating to its employees which contain change in control
provisions. Since September 30, 1997, there has not been any adoption or
amendment in any material respect by Interiors or any of its subsidiaries of
any collective bargaining agreement or any material bonus, pension, profit
sharing, deferred compensation, incentive compensation, stock ownership, stock
purchase, stock option, phantom stock, retirement, vacation, severance,
disability, death benefit, hospitalization, medical or other plan, arrangement
or understanding providing benefits to any current or former employee, officer
or director of Interiors or any of its wholly owned subsidiaries (collectively,
the "Interiors Benefit Plans"), or any material change in any actuarial or
other assumption used to calculate funding obligations with respect to any
Interiors pension plans, or any material change in the manner in which
contributions to any Interiors pension plans are made or the basis on which
such contributions are determined.
(j) ERISA COMPLIANCE. (i) With respect to the Interiors
Benefit Plans, no event has occurred and, to the knowledge of Interiors, there
exists no condition or set of circumstances, in connection with which Interiors
or any of its subsidiaries could be subject to any liability that
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individually or in the aggregate would have a material adverse affect on
Interiors under ERISA, the Code or any other applicable law.
(ii) Each Interiors Benefit Plan has been administered in accordance
with its terms, except for any failures so to administer any Interiors Benefit
Plan that individually or in the aggregate would not have a material adverse
effect on Interiors. Interiors, its subsidiaries and all the Interiors Benefit
Plans have been operated, and are, in compliance with the applicable provisions
of ERISA, the Code and all other applicable laws and the terms of all
applicable collective bargaining agreements, except for any failures to be in
such compliance that individually or in the aggregate would not have a material
adverse effect on Interiors. Each Interiors Benefit Plan that is intended to be
qualified under Section 401(a) or 401(k) of the Code has received a favorable
determination letter from the IRS that it is so qualified and each trust
established in connection with any Interiors Benefit Plan that is intended to
be exempt from federal income taxation under Section 501(a) of the Code has
received a determination letter from the IRS that such trust is so exempt. To
the knowledge of Interiors, no fact or event has occurred since the date of any
determination letter from the IRS which is reasonably likely to affect
adversely the qualified status of any such Interiors Benefit Plan or the exempt
status of any such trust.
(iii) Neither Interiors nor any of its subsidiaries has incurred any
unsatisfied liability under Title IV of ERISA (other than liability for
premiums to the Pension Benefit Guaranty Corporation arising in the ordinary
course). No Interiors Benefit Plan has incurred an "accumulated funding
deficiency" (within the meaning of Section 302 of ERISA or Section 412 of the
Code) whether or not waived. To the knowledge of Interiors, there are not any
facts or circumstances that would materially change the funded status of any
Interiors Benefit Plan that is a "defined benefit" plan (as defined in Section
3(35) of ERISA) since the date of the most recent actuarial report for such
plan. No Interiors Benefit Plan is a "multi-employer plan" within the meaning
of Section 3(37) of ERISA.
(iv) No Interiors Benefit Plan is subject to Title IV of ERISA.
(v) No Interiors Benefit Plan provides medical benefits (whether or
not insured), with respect to current or former employees after retirement or
other termination of service (other than coverage mandated by applicable law or
benefits, the full cost of which is borne by the current or former employee)
other than individual arrangements the amounts of which are not material.
(vi) As of the date of this Agreement, except as disclosed in the
Interiors SEC Documents neither Interiors nor any of its subsidiaries is a
party to any collective bargaining or other labor union contract applicable to
persons employed by Interiors or any of its subsidiaries and no collective
bargaining agreement is being negotiated by Interiors or any of its
subsidiaries. As of the date of this Agreement, there is no labor dispute,
strike or work stoppage against Interiors or any of its subsidiaries pending
or, to the knowledge of Interiors, threatened which may interfere with the
respective business activities of Interiors or any of its subsidiaries, except
where such dispute, strike or work stoppage individually or in the aggregate
would not have a material adverse effect on Interiors. As of the date of this
Agreement, to the knowledge of Interiors, none of Interiors, any of its
subsidiaries or any of their respective representatives or employees has
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committed any material unfair labor practice in connection with the operation
of the respective businesses of Interiors or any of its subsidiaries, and there
is no material charge or complaint against Interiors or any of its subsidiaries
by the National Labor Relations Board or any comparable governmental agency
pending or threatened in writing.
(vii) No employee of Interiors will be entitled to any material
payment, additional benefits or any acceleration of the time of payment or
vesting of any benefits under any Interiors Benefit Plan as a result of the
transactions contemplated by this Agreement (either alone or in conjunction
with any other event such as a termination of employment).
(k) TAXES. (i) Each of Interiors and its subsidiaries has
filed all material tax returns and reports required to be filed by it and all
such returns and reports are complete and correct in all material respects, or
requests for extensions to file such returns or reports have been timely filed,
granted and have not expired, except to the extent that such failures to file,
to be complete or correct or to have extensions granted that remain in effect
individually or in the aggregate would not have a material adverse effect on
Interiors. Except as disclosed in the Interiors Filed SEC Documents Interiors
and each of its subsidiaries has paid (or Interiors has paid on its behalf) all
taxes shown as due on such returns, and the most recent financial statements
contained in the Interiors Filed SEC Documents reflect an adequate reserve in
accordance with GAAP for all taxes payable by Interiors and its subsidiaries
for all taxable periods and portions thereof accrued through the date of such
financial statements.
(ii) No deficiencies for any taxes have been proposed, asserted or
assessed against Interiors or any of its subsidiaries that are not adequately
reserved for, except for deficiencies that individually or in the aggregate
would not have a material adverse effect on Interiors. The federal income tax
returns of Interiors and each of its subsidiaries consolidated in such returns
for tax years through 1993 have closed by virtue of the applicable statute of
limitations.
(iii) Neither Interiors nor any of its subsidiaries has taken any
action or knows of any fact, agreement, plan or other circumstance that is
reasonably likely to prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code.
(l) VOTING REQUIREMENTS. The affirmative vote at the
Interiors Stockholders Meeting (the "Interiors Stockholder Approval") of (i)
the holders of a majority of all outstanding voting shares of Interiors Class A
Common Stock and Interiors Class B Common Stock is the only vote of the holders
of any class or series of Interiors' capital stock necessary to approve and
adopt this Agreement and the transactions contemplated hereby, including the
Merger, the issuance of the Interiors Class A Common Stock pursuant to the
Merger and the Certificate of Amendment to the Certificate of Incorporation,
and (ii) the holders of a majority of all shares of Interiors Class A Common
Stock casting votes is the only vote of the holders of any class or series of
Interiors's capital stock necessary to approve (A) in accordance with the
applicable rules of NASDAQ, the issuance of Interiors Class A Common Stock
pursuant to the Merger, and (B) the New Interiors Stock Plan.
(m) STATE TAKEOVER STATUTES; CERTIFICATE OF INCORPORATION.
The Board of
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Directors of Interiors (including the disinterested Directors thereof) has
unanimously approved this Agreement and the transactions contemplated hereby,
and, assuming the accuracy of Decor's representation and warranty contained in
Section 3.1(q), such approval constitutes approval of the Merger and the other
transactions contemplated hereby by the Interiors Board of Directors under the
provisions of Section 203 of the DGCL and constitutes approval of the Merger
and the other transactions contemplated hereby, the assumption of the Adjusted
Options, the issuance of the options to purchase shares of Interiors Class A
Common Stock granted pursuant to Section 5.17 and the issuance of the shares of
Interiors Class A Common Stock upon exercise of the Adjusted Options and other
options under the provisions of Interiors' Certificate of Incorporation such
that Section 203 and the applicable provision of Interiors' Certificate of
Incorporation do not apply to this Agreement, the transactions contemplated
hereby, the assumption of the Adjusted Options, the issuance of the options to
purchase shares of Interiors Class A Common Stock granted pursuant to Section
5.17 and the issuance of the shares of Interiors Class A Common Stock upon
exercise of the Adjusted Options and other options. To the knowledge of
Interiors, no state takeover statute other than Section 203 of the DGCL (which
has been rendered inapplicable) is applicable to the Merger or the other
transactions contemplated hereby.
(n) INTENTIONALLY OMITTED.
(o) BROKERS. No broker, investment banker, financial advisor
or other person is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Interiors. Interiors has furnished to Decor true and complete copies of all
agreements under which any such fees or expenses are payable and all
indemnification and other agreements related to the engagement of the persons
to whom such fees are payable.
(p) OPINION OF FINANCIAL ADVISOR. Interiors has received the
opinion of Hugenot Associates, Inc., dated the date of this Agreement, to the
effect that, as of such date, the Exchange Ratio for the conversion of Decor
Common Stock into Interiors Class A Common Stock is fair to Interiors, a signed
copy of which opinion has been delivered to Decor, it being understood and
agreed by Decor that such opinion is for the benefit of the Board of Directors
of Interiors and may not be relied upon by Decor, its affiliates or any of
their respective stockholders.
(q) OWNERSHIP OF DECOR COMMON STOCK. As of the date hereof,
neither Interiors nor, to its knowledge without independent investigation, any
of its affiliates, (i) beneficially owns (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, or (ii) is party to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of, in each case, shares of capital stock of Decor (other than
20,000,000 shares of Decor Series B Preferred Stock owned by Interiors, which
is subject to a voting trust, the sole trustee of which is Max Munn, a member
of the Board of Directors of Decor and an executive officer and member of the
Board of Directors of Interiors).
(r) INTELLECTUAL PROPERTY. Interiors and its subsidiaries
own or have a valid license to use all trademarks, service marks, trade names,
patents and copyrights (including any
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registrations or applications for registration of any of the foregoing)
(collectively, the "Interiors Intellectual Property") necessary to carry on its
business substantially as currently conducted, except for such Interiors
Intellectual Property the failure of which to own or validly license
individually or in the aggregate would not have a material adverse effect on
Interiors. Neither Interiors nor any such subsidiary has received any notice of
infringement of or conflict with, and, to Interiors's knowledge, there are no
infringements of or conflicts (i) with the rights of others with respect to the
use of, or (ii) by others with respect to, any Interiors Intellectual Property
that individually or in the aggregate, in either such case, would have a
material adverse effect on Interiors.
(s) CERTAIN CONTRACTS. Except as set forth in the Interiors
Filed SEC Documents, neither Interiors nor any of its subsidiaries is a party
to or bound by (i) any "material contract" (as such term is defined in item
601(b)(10) of Regulation S-K of the SEC), (ii) any non-competition agreement or
any other agreement or obligation which purports to limit in any material
respect the manner in which, or the localities in which, all or any material
portion of the business of Interiors and its subsidiaries (including Decor and
its subsidiaries, assuming the Merger had taken place), taken as a whole, is or
would be conducted, or (iii) any contract or other agreement which would
prohibit or materially delay the consummation of the Merger or any of the
transactions contemplated by this Agreement (all contracts of the type
described in clauses (i) and (ii) being referred to herein as "Interiors
Material Contracts"). Each Interiors Material Contract is valid and binding on
Interiors (or, to the extent a Interiors subsidiary is a party, such
subsidiary) and is in full force and effect, and Interiors and each Interiors
subsidiary have in all material respects performed all obligations required to
be performed by them to date under each Interiors Material Contract, except
where such noncompliance, individually or in the aggregate, would not have a
material adverse effect on Interiors. Neither Interiors nor any Interiors
subsidiary knows of, or has received notice of, any violation or default under
(nor, to the knowledge of Interiors, does there exist any condition which with
the passage of time or the giving of notice or both would result in such a
violation or default under) any Interiors Material Contract.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1. CONDUCT OF BUSINESS.
(a) CONDUCT OF BUSINESS BY DECOR. Except as set forth in
Section 4.1(a) of the Decor Disclosure Schedule, as otherwise expressly
contemplated by this Agreement or as consented to by Interiors in writing, such
consent not to be unreasonably withheld or delayed, during the period from the
date of this Agreement to the Effective Time, Decor shall, and shall cause its
subsidiaries to, carry on their respective businesses in the ordinary course
consistent with past practice and in compliance in all material respects with
all applicable laws and regulations and, to the extent consistent therewith,
use all reasonable efforts to preserve intact their current business
organizations, use reasonable efforts to keep available the services of their
current officers and other key employees and preserve their relationships with
those persons
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having business dealings with them to the end that their goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Without limiting the
generality of the foregoing (but subject to the above exceptions), during the
period from the date of this Agreement to the Effective Time, Decor shall not,
and shall not permit any of its subsidiaries to:
(i) other than dividends and distributions by a direct or indirect
wholly owned subsidiary of Decor to its parent, or by a subsidiary that is
partially owned by Decor or any of its subsidiaries, provided that Decor or any
such subsidiary receives or is to receive its proportionate share thereof, (x)
declare, set aside or pay any dividends on, make any other distributions in
respect of, or enter into any agreement with respect to the voting of, any of
its capital stock, (y) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock, except for issuances of
Decor Common Stock upon conversion of Decor Convertible Securities or upon the
exercise of Decor Employee Stock Options, in each case, outstanding as of the
date hereof in accordance with their present terms, including cashless
exercise, or issued pursuant to Section 4.1(a)(ii) or (z) purchase, redeem or
otherwise acquire any shares of capital stock of Decor or any of its
subsidiaries or any other securities thereof or any rights, warrants or options
to acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber or subject to
any Lien any shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities (other than the
issuance of Decor Common Stock upon the exercise of Decor Employee Stock
Options, in each case, outstanding as of the date hereof in accordance with
their present terms or the issuance of Decor Employee Stock Options (and shares
of Decor Common Stock upon the exercise thereof) granted after the date hereof
in the ordinary course of business consistent with past practice (1) for new
employees (so long as such additional amount of Decor Common Stock subject to
Decor Employee Stock Options issued to new employees does not exceed 100,000
shares of Decor Common Stock in the aggregate) or (2) in connection with
employee promotions;
(iii) amend its certificate of incorporation, bylaws or other
comparable organizational documents;
(iv) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other manner,
any business or any person;
(v) subject to compliance with Section 5.15, sell, lease, license,
mortgage or otherwise encumber or subject to any Lien or otherwise dispose of
any of its properties or assets (including securitization), other than (A) in
the ordinary course of business consistent with past practice or (B) up to
$1,000,000 of such assets, in the aggregate;
(vi) take any action that would cause the representations and
warranties set forth in Section 3.1(g) (with each reference therein to
"ordinary course of business" being deemed for purposes of this Section
4.1(a)(vi) to be immediately followed by "consistent with past practice")
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to no longer be true and correct;
(vii) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an accommodation
become responsible for the obligations of any person for borrowed money; or
(viii) authorize, or commit or agree to take, any of the foregoing
actions; provided that the limitations set forth in this Section 4.1(a) (other
than clause (iii)) shall not apply to any transaction between Decor and any
wholly owned subsidiary or between any wholly owned subsidiaries of Decor.
(b) CONDUCT OF BUSINESS BY INTERIORS. Except as set forth in
Section 4.1(b) of the Interiors Disclosure Schedule, as otherwise expressly
contemplated by this Agreement or as consented to by Decor in writing, such
consent not to be unreasonably withheld or delayed, during the period from the
date of this Agreement to the Effective Time, Interiors shall, and shall cause
its subsidiaries to, carry on their respective businesses in the ordinary
course consistent with past practice and in compliance in all material respects
with all applicable laws and regulations and, to the extent consistent
therewith, use all reasonable efforts to preserve intact their current business
organizations, use reasonable efforts to keep available the services of their
current officers and other key employees and preserve their relationships with
those persons having business dealings with them to the end that their goodwill
and ongoing businesses shall be unimpaired at the Effective Time. Without
limiting the generality of the foregoing (but subject to the above exceptions),
during the period from the date of this Agreement to the Effective Time,
Interiors shall not, and shall not permit any of its subsidiaries to:
(i) other than dividends and distributions by a direct or indirect
wholly owned subsidiary of Interiors to its parent, or by a subsidiary that is
partially owned by Interiors or any of its subsidiaries, provided that
Interiors or any such subsidiary receives or is to receive its proportionate
share thereof, (x) declare, set aside or pay any dividends on, make any other
distributions in respect of, or enter into any agreement with respect to the
voting of, any of its capital stock, (y) split, combine or reclassify any of
its capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock,
except for issuances of Interiors Class A Common Stock upon conversion or
redemption of Interiors Convertible Securities or upon the exercise of
Interiors Employee Stock Options, in each case, outstanding as of the date
hereof in accordance with their present terms, including cashless exercise, or
issued pursuant to Section 4.1(b)(ii);
(ii) issue, deliver, sell, pledge or otherwise encumber or subject to
any Lien any shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities (other than (x) the
issuance of Interiors capital stock or warrants to acquire Interiors capital
stock in connection with any acquisition permitted by Section 4.1(b)(iv) and in
compliance with Section 5.15, (y) the issuance of Interiors Class A Common
Stock upon conversion or redemption of Interiors Convertible Securities in
accordance with their present terms at the option of the holders thereof, and
(z) the issuance of Interiors Class A Common Stock upon the exercise of
Interiors
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Employee Stock Options, in each case, outstanding as of the date hereof in
accordance with their present terms or the issuance of Interiors Employee Stock
Options (and shares of Interiors Class A Common Stock upon the exercise
thereof) granted after the date hereof in the ordinary course of business
consistent with past practice (1) for new employees (so long as such additional
amount of Interiors Class A Common Stock subject to Interiors Employee Stock
Options issued to new employees does not exceed 500,000 shares of Interiors
Class A Common Stock in the aggregate) or (2) in connection with employee
promotions;
(iii) except as contemplated hereby, amend its certificate of
incorporation, bylaws or other comparable organizational documents;
(iv) subject to compliance with Section 5.15, sell, lease, license,
mortgage or otherwise encumber or subject to any Lien or otherwise dispose of
any of its properties or assets (including securitization), other than (A) in
the ordinary course of business consistent with past practice (B) up to
$2,000,000 of such assets, in the aggregate;
(v) take any action that would cause the representations and
warranties set forth in Section 3.2(g) (with each reference therein to ordinary
course of business, being deemed for purposes of this Section 4.1(b)(vi) to be
immediately followed by "consistent with past practice") to no longer be true
and correct;
(vi) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an accommodation
become responsible for the obligations of any person for borrowed money; or
(vii) authorize, or commit or agree to take, any of the foregoing
actions; provided that the limitations set forth in this Section 4.1(b) (other
than clause (iii)) shall not apply to any transaction between Interiors and any
wholly owned subsidiary or between any wholly owned subsidiaries of Interiors.
(c) OTHER ACTIONS. Except as required by law, Decor and
Interiors shall not, and shall not permit any of their respective subsidiaries
to, voluntarily take any action that would, or that could reasonably be
expected to, result in (i) any of the representations and warranties of such
party set forth in this Agreement that are qualified as to materiality becoming
untrue at the Effective Time, except as provided in the proviso in Section
6.2(a) or Section 6.3(a), (ii) any of such representations and warranties that
are not so qualified becoming untrue in any material respect at the Effective
Time, except as provided in the proviso in Section 6.2(a) or Section 6.3(a), or
(iii) any of the conditions to the Merger set forth in Article VI not being
satisfied.
(d) ADVICE OF CHANGES. Decor and Interiors shall promptly
advise the other party orally and in writing to the extent it has knowledge of
(i) any representation or warranty made by it contained in this Agreement that
is qualified as to materiality becoming untrue or inaccurate in any respect or
any such representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect, (ii) the failure by it to comply in any
material respect with or satisfy in any material respect any covenant,
condition or agreement to be complied with or
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satisfied by it under this Agreement and (iii) any change or event having, or
which, insofar as can reasonably be foreseen, could reasonably be expected to
have a material adverse effect on such party or on the truth of their
respective representations and warranties or the ability of the conditions set
forth in Article VI to be satisfied; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties (or remedies with respect thereto) or the conditions
to the obligations of the parties under this Agreement.
SECTION 4.2. NO SOLICITATION BY DECOR. (a) Decor shall not, nor shall it permit
any of its subsidiaries to, nor shall it authorize or permit any of its
directors, officers or employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by it or any of its
subsidiaries to, directly or indirectly through another person, (i) solicit,
initiate or encourage (including by way of furnishing information), or take any
other action designed to facilitate, any inquiries or the making of any
proposal which constitutes any Decor Takeover Proposal (as defined below) or
(ii) participate in any discussions or negotiations regarding any Decor
Takeover Proposal; provided, however, that if the Board of Directors of Decor
determines in good faith, based on the advice of outside counsel, that it is
necessary to do so in order to act in a manner consistent with its fiduciary
duties to Decor's stockholders under applicable law, Decor may, in response to
an Decor Superior Proposal (as defined in Section 4.2(b)) which was not
solicited by it, which did not otherwise result from a breach of this Section
4.2(a) and which is made or received prior to the obtaining of the Decor
Stockholder Approval, and subject to providing prior written notice of its
decision to take such action to Interiors and compliance with Section 4.2(c),
(x) furnish information with respect to Decor and its subsidiaries to any
person making an Decor Superior Proposal pursuant to a customary
confidentiality agreement (as determined by Decor based on the advice of its
outside counsel, the terms of which are no more favorable to such person than
the Confidentiality Agreement (as defined herein)) and (y) participate in
discussions or negotiations regarding such Decor Superior Proposal. For
purposes of this Agreement, "Decor Takeover Proposal" means any inquiry,
proposal or offer from any person relating to any direct or indirect
acquisition or purchase of a business that constitutes 50% or more of the net
revenues, net income or the assets of Decor and its subsidiaries, taken as a
whole, or 25% or more of any class of equity securities of Decor, any tender
offer or exchange offer that if consummated would result in any person
beneficially owning 25% or more of any class of equity securities of Decor, or
any merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving Decor or the Decor Common Stock
(or any Decor subsidiary whose business constitutes 50% or more of the net
revenues, net income or the assets of Decor and its subsidiaries, taken as
whole), other than the transactions contemplated by this Agreement.
(b) Except as expressly permitted by this Section 4.2,
neither the Board of Directors of Decor nor any committee thereof shall (i)
withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to Interiors, the approval or recommendation by such Board of Directors
or such committee of the Merger or this Agreement, (ii) approve or recommend,
or propose publicly to approve or recommend, any Decor Takeover Proposal, or
(iii) cause Decor to enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement (each, an "Decor Acquisition
Agreement") related to any Decor Takeover Proposal. Notwithstanding the
foregoing, at any time prior to the obtaining of the
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Decor Stockholder Approval, the Board of Directors of Decor, to the extent that
it determines in good faith, based upon the advice of outside counsel, that it
is necessary to do so in order to act in a manner consistent with its fiduciary
duties to Decor's stockholders under applicable law, may (subject to this and
the following sentences) terminate this Agreement solely in order to
concurrently enter into an Decor Acquisition Agreement with respect to any
Decor Superior Proposal, but only at a time that is after the fifth business
day following Interiors's receipt of written notice advising Interiors that the
Board of Directors of Decor is prepared to accept an Decor Superior Proposal,
specifying the material terms and conditions of such Decor Superior Proposal
and identifying the person making such Decor Superior Proposal. For purposes of
this Agreement, an "Decor Superior Proposal" means any proposal made by a third
party to acquire, directly or indirectly, including pursuant to a tender offer,
exchange offer, merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction, for consideration consisting
of cash and/or securities, more than 50% of the combined voting power of the
shares of Decor Common Stock then outstanding or all or substantially all the
assets of Decor and otherwise on terms which the Board of Directors of Decor
determines in its good faith judgment (based on the advice of a financial
advisor of nationally recognized reputation) to be more favorable to Decor's
stockholders than the Merger and for which financing, to the extent required,
is then committed or which, in the good faith judgment of the Board of
Directors of Decor based on the advice of its financial advisor, is reasonably
capable of being obtained by such third party.
(c) In addition to the obligations of Decor set forth in
paragraphs (a) and (b) of this Section 4.2, Decor shall immediately advise
Interiors orally and in writing of any request for information or of any Decor
Takeover Proposal, the material terms and conditions of such request or Decor
Takeover Proposal and the identity of the person making such request or Decor
Takeover Proposal. Decor will keep Interiors reasonably informed of the status
and details (including amendments or proposed amendments) of any such request
or Decor Takeover Proposal. Interiors shall treat any information it receives
from Decor pursuant to this section as confidential information and shall be
subject to the Confidentiality Agreement dated November 25, 1997, between
Interiors and Decor.
(d) Nothing contained in this Section 4.2 shall prohibit
Decor from taking and disclosing to its stockholders a position contemplated by
Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure
to Decor's stockholders if, in the good faith judgment of the Board of
Directors of Decor, after consultation with outside counsel, failure so to
disclose would be inconsistent with its obligations under applicable law;
provided, however, that neither Decor nor its Board of Directors nor any
committee thereof shall withdraw or modify, or propose publicly to withdraw or
modify, its position with respect to this Agreement or the Merger or approve or
recommend, or propose publicly to approve or recommend, an Decor Takeover
Proposal.
SECTION 4.3. NO SOLICITATION BY INTERIORS. (a) Interiors shall not, nor shall
it permit any of its subsidiaries to, nor shall it authorize or permit any of
its directors, officers or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by it or any of
its subsidiaries to, directly or indirectly through another person, (i)
solicit, initiate or
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encourage (including by way of furnishing information), or take any other
action designed to facilitate, any inquiries or the making of any proposal
which constitutes any Interiors Takeover Proposal (as defined below) or (ii)
participate in any discussions or negotiations regarding any Interiors Takeover
Proposal; provided, however, that if the Board of Directors of Interiors
determines in good faith, based on the advice of outside counsel, that it is
necessary to do so in order to act in a manner consistent with its fiduciary
duties to Interiors's stockholders under applicable law, Interiors may, in
response to a Interiors Superior Proposal (as defined in Section 4.3(b)) which
was not solicited by it, which did not otherwise result from a breach of this
Section 4.3(a) and which is made or received prior to the obtaining of the
Interiors Stockholder Approval, and subject to providing prior written notice
of its decision to take such action to Decor and compliance with Section 4.3(c)
(x) furnish information with respect to Interiors and its subsidiaries to any
person making a Interiors Superior Proposal pursuant to a customary
confidentiality agreement (as determined by Interiors based on the advice of
its outside counsel, the terms of which are no more favorable to such person
than the Confidentiality Agreement) and (y) participate in discussions or
negotiations regarding such Interiors Superior Proposal. For purposes of this
Agreement, "Interiors Takeover Proposal" means any inquiry, proposal or offer
from any person relating to any direct or indirect acquisition or purchase of a
business that constitutes 50% or more of the net revenues, net income or the
assets of Interiors and its subsidiaries, taken as a whole, or 25% or more of
any class of equity securities of Interiors, any tender offer or exchange offer
that if consummated would result in any person beneficially owning 25% or more
of any class of equity securities of Interiors, or any merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving Interiors or the Interiors Class A Common Stock (or any
Interiors subsidiary whose business constitutes 50% or more of the net
revenues, net income or the assets of Interiors and its subsidiaries, taken as
a whole), other than the transactions contemplated by this Agreement.
(b) Except as expressly permitted by this Section 4.3,
neither the Board of Directors of Interiors nor any committee thereof shall (i)
withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to Decor, the approval or recommendation by such Board of Directors or
such committee of the Merger, this Agreement or the issuance of Interiors Class
A Common Stock in connection with the Merger, (ii) approve or recommend, or
propose publicly to approve or recommend, any Interiors Takeover Proposal, or
(iii) cause Interiors to enter into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement (each, a "Interiors
Acquisition Agreement") related to any Interiors Takeover Proposal.
Notwithstanding the foregoing, at any time prior to the obtaining of the
Interiors Stockholder Approval, the Board of Directors of Interiors, to the
extent that it determines in good faith, based upon the advice of outside
counsel, that it is necessary to do so in order to act in a manner consistent
with its fiduciary duties to Interiors's stockholders under applicable law, may
(subject to this and the following sentences) terminate this Agreement solely
in order to concurrently enter into any Interiors Acquisition Agreement with
respect to any Interiors Superior Proposal, but only at a time that is after
the fifth business day following Decor's receipt of written notice advising
Decor that the Board of Directors of Interiors is prepared to accept a
Interiors Superior Proposal, specifying the material terms and conditions of
such Interiors Superior Proposal and identifying the person making such
Interiors Superior Proposal. For purposes of this Agreement, a "Interiors
Superior Proposal" means any proposal made by a third
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party to acquire, directly or indirectly, including pursuant to a tender offer,
exchange offer, merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction, for consideration consisting
of cash and/or securities, more than 50% of the combined voting power of the
shares of Interiors Class A Common Stock then outstanding or all or
substantially all the assets of Interiors and otherwise on terms which the
Board of Directors of Interiors determines in its good faith judgment (based on
the advice of a financial advisor of nationally recognized reputation) to be
more favorable to Interiors's stockholders than the Merger and for which
financing, to the extent required, is then committed or which, in the good
faith judgment of the Board of Directors of Interiors based on the advice of
its financial advisor, is reasonably capable of being obtained by such third
party.
(c) In addition to the obligations of Interiors set forth in
paragraphs (a) and (b) of this Section 4.3, Interiors shall immediately advise
Decor orally and in writing of any request for information or of any Interiors
Takeover Proposal, the material terms and conditions of such request or
Interiors Takeover Proposal and the identity of the person making such request
or Interiors Takeover Proposal. Interiors will keep Decor reasonably informed
of the status and details (including amendments or proposed amendments) of any
such request or Interiors Takeover Proposal. Decor shall treat any information
it receives from Interiors pursuant to this section as confidential information
and shall be subject to the Confidentiality Agreement dated November 25, 1997,
between Interiors and Decor.
(d) Nothing contained in this Section 4.3 shall prohibit
Interiors from taking and disclosing to its stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from making
any disclosure to Interiors's stockholders if, in the good faith judgment of
the Board of Directors of Interiors, after consultation with outside counsel,
failure so to disclose would be inconsistent with its obligations under
applicable law; provided, however, that neither Interiors nor its Board of
Directors nor any committee thereof shall withdraw or modify, or propose
publicly to withdraw or modify, its position with respect to this Agreement,
the Merger, the issuance of Interiors Class A Common Stock in connection with
the Merger, or approve or recommend, or propose publicly to approve or
recommend, a Interiors Takeover Proposal.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1. PREPARATION OF THE FORM S-4 AND THE JOINT PROXY STATEMENT;
STOCKHOLDERS MEETINGS. (a) As soon as practicable following the date of this
Agreement, Decor and Interiors shall prepare and file with the SEC the Joint
Proxy Statement and Interiors shall prepare and file with the SEC the Form S-4,
in which the Joint Proxy Statement will be included as a prospectus. Each of
Decor and Interiors shall use best efforts to have the Form S-4 declared
effective under the Securities Act as promptly as practicable after such
filing. Decor will use all best efforts to cause the Joint Proxy Statement to
be mailed to Decor's stockholders, and Interiors will use all best efforts to
cause the Joint Proxy Statement to be mailed to Interiors's stockholders, in
each case as promptly as practicable after the Form S-4 is declared effective
under the Securities Act.
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Interiors shall also take any action (other than qualifying to do business in
any jurisdiction in which it is not now so qualified or to file a general
consent to service of process) required to be taken under any applicable state
securities laws in connection with the issuance of Interiors Class A Common
Stock in the Merger and the approval of the Certificate of Amendment and Decor
shall furnish all information concerning Decor and the holders of Decor Common
Stock as may be reasonably requested in connection with any such action. No
filing of, or amendment or supplement to, the Form S-4 or the Joint Proxy
Statement will be made by Interiors without providing Decor the opportunity to
review and comment thereon. Interiors will advise Decor, promptly after it
receives notice thereof, of the time when the Form S-4 has become effective or
any supplement or amendment has been filed, the issuance of any stop order, the
suspension of the qualification of the Interiors Class A Common Stock issuable
in connection with the Merger for offering or sale in any jurisdiction, or any
request by the SEC for amendment of the Joint Proxy Statement or the Form S-4
or comments thereon and responses thereto or requests by the SEC for additional
information. If at any time prior to the Effective Time any information
relating to Decor or Interiors, or any of their respective affiliates, officers
or directors, should be discovered by Decor or Interiors which should be set
forth in an amendment or supplement to any of the Form S-4 or the Joint Proxy
Statement, so that any of such documents would not include any misstatement of
a material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, the party which discovers such information shall promptly
notify the other parties hereto and an appropriate amendment or supplement
describing such information shall be promptly filed with the SEC and, to the
extent required by law, disseminated to the stockholders of Decor and
Interiors.
(b) Decor shall, as promptly as practicable after the Form
S-4 is declared effective under the Securities Act, duly call, give notice of,
convene and hold a meeting of its stockholders (the "Decor Stockholders
Meeting") in accordance with the DGCL for the purpose of obtaining the Decor
Stockholder Approval and, subject to its rights to terminate this Agreement
pursuant to Section 4.2(b), shall, through its Board of Directors, recommend to
its stockholders the approval and adoption of this Agreement, the Merger, and
the other transactions contemplated hereby. Without limiting the generality of
the foregoing but subject to its rights to terminate this Agreement pursuant to
Section 4.2(b), Decor agrees that its obligations pursuant to the first
sentence of this Section 5.1(b) shall not be affected by the commencement,
public proposal, public disclosure or communication to Decor of any Decor
Takeover Proposal.
(c) Interiors shall, as promptly as practicable after the
Form S-4 is declared effective under the Securities Act, duly call, give notice
of, convene and hold a meeting of its stockholders (the "Interiors Stockholders
Meeting") in accordance with the DGCL for the purpose of obtaining the
Interiors Stockholder Approval and, subject to its rights to terminate this
Agreement pursuant to Section 4.3(b), shall, through its Board of Directors,
recommend to its stockholders the approval and adoption of this Agreement, the
Merger, the Certificate of Amendment, the New Interiors Stock Plan and the
other transactions contemplated hereby. Without limiting the generality of the
foregoing but subject to its rights to terminate this Agreement pursuant to
Section 4.3(b), Interiors agrees that its obligations pursuant to the first
sentence of this Section 5.1(c) shall not be affected by the commencement,
public proposal,
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public disclosure or communication to Interiors of any Interiors Takeover
Proposal.
(d) Interiors and Decor will use best efforts to hold the
Decor Stockholders Meeting and the Interiors Stockholders Meeting on the same
date and as soon as reasonably practicable after the date hereof.
SECTION 5.2. LETTERS OF DECOR'S ACCOUNTANTS. (a) Decor shall use best efforts
to cause to be delivered to Interiors two letters from Decor's independent
accountants, one dated a date within two business days before the date on which
the Form S-4 shall become effective and one dated a date within two business
days before the Closing Date, each addressed to Interiors, in form and
substance reasonably satisfactory to Interiors and customary in scope and
substance or comfort letters delivered by independent public accountants in
connection with registration statements similar to the Form S-4.
(b) Decor shall use best efforts to cause to be delivered to
Interiors and Interiors' accountants a letter from Decor's independent
accountants addressed to Interiors and Decor, dated as of the date the Form S-4
is declared effective and as of the Closing Date, stating that accounting for
the Merger as a purchase under the rules of the Accounting Principles Board and
applicable SEC rules and regulations is appropriate if the Merger is closed and
consummated as contemplated by this Agreement.
SECTION 5.3. LETTERS OF INTERIORS' ACCOUNTANTS. (a) Interiors shall use best
efforts to cause to be delivered to Decor two letters from Interiors'
independent accountants, one dated a date within two business days before the
date on which the Form S-4 shall become effective and one dated a date within
two business days before the Closing Date, each addressed to Decor, in form and
substance reasonably satisfactory to Decor and customary in scope and substance
for comfort letters delivered by independent public accountants in connection
with registration statements similar to the Form S-4.
(b) Interiors shall use best efforts to cause to be delivered
to Decor and Decor's accountants a letter from Interiors' independent
accountants, addressed to Decor and Interiors, dated as of the date the Form
S-4 is declared effective and as of the Closing Date, stating that accounting
for the Merger as a purchase under the rules of the Accounting Principles Board
and applicable SEC rules and regulations is appropriate if the Merger is closed
and consummated as contemplated by this Agreement.
SECTION 5.4. ACCESS TO INFORMATION; CONFIDENTIALITY. Subject to the
Confidentiality Agreement dated November 25, 1997, between Interiors and Decor
(the "Confidentiality Agreement"), and subject to restrictions contained in
confidentiality agreements to which such party is subject (which such party
will use its best efforts to have waived) and applicable law, each of Decor and
Interiors shall, and shall cause each of its respective subsidiaries to, afford
to the other party and to the officers, employees, accountants, counsel,
financial advisors and other representatives of such other party, reasonable
access during normal business hours during the period prior to the Effective
Time to all their respective properties, books, contracts, commitments,
personnel and records and, during such period, each of Decor and Interiors
shall,
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and shall cause each of its respective subsidiaries to, furnish promptly to the
other party (a) a copy of each report, schedule, registration statement and
other document filed by it during such period pursuant to the requirements of
federal or state securities laws and (b) all other information concerning its
business, properties and personnel as such other party may reasonably request.
No review pursuant to this Section 5.4 shall affect any representation or
warranty given by the other party hereto. Each of Decor and Interiors will
hold, and will cause its respective officers, employees, accountants, counsel,
financial advisors and other representatives and affiliates to hold, any
nonpublic information in accordance with the terms of the Confidentiality
Agreement.
SECTION 5.5. BEST EFFORTS. (a) Upon the terms and subject to the conditions set
forth in this Agreement, each of the parties agrees to use best efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by this
Agreement, including (i) the obtaining of all necessary actions or nonactions,
waivers, consents and approvals from Governmental Entities and the making of
all necessary registrations and filings and the taking of all steps as may be
necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity, (ii) the obtaining of all necessary
consents, approvals or waivers from third parties, (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
by this Agreement, including seeking to have any stay or temporary restraining
order entered by any court or other Governmental Entity vacated or reversed,
and (iv) the execution and delivery of any additional instruments necessary to
consummate the transactions contemplated by, and to fully carry out the
purposes of, this Agreement. Nothing set forth in this Section 5.5(a) will
limit or affect actions permitted to be taken pursuant to Sections 4.2 and 4.3.
(b) In connection with and without limiting the foregoing,
Decor and Interiors shall (i) take all action necessary to ensure that no state
takeover statute or similar statute or regulation is or becomes applicable to
the Merger, this Agreement, or any of the other transactions contemplated by
this Agreement and (ii) if any state takeover statute or similar statute or
regulation becomes applicable to the Merger, this Agreement, or any other
transaction contemplated by this Agreement, take all action necessary to ensure
that the Merger and the other transactions contemplated by this Agreement may
be consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Merger and the other transactions contemplated by this Agreement.
SECTION 5.6. STOCK OPTIONS. (a) As soon as practicable following the date of
this Agreement, the Board of Directors of Decor (or, if appropriate, any
committee administering the Decor Stock Plans) shall adopt such resolutions or
take such other actions as may be required to effect the following:
(i) adjust the terms of all outstanding Decor Employee Stock Options
granted under
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Decor Stock Plans, whether vested or unvested, as necessary to provide that, at
the Effective Time, each Decor Employee Stock Option outstanding immediately
prior to the Effective Time shall be adjusted and thereafter represent an
option to acquire, on the same terms and conditions as were applicable under
such Decor Employee Stock Option, including vesting as such may be accelerated
at the Effective Time pursuant to the terms of such Decor Employee Stock
Options in effect as of the date hereof (which include cashless exercise), the
same number of shares of Interiors Class A Common Stock as the holder of such
Decor Employee Stock Option would have been entitled to receive pursuant to the
Merger had such holder exercised such Decor Employee Stock Option in full
immediately prior to the Effective Time, with any fractional shares of
Interiors Class A Common Stock resulting from such calculation being rounded to
the nearest whole share, at a price per share of Interiors Class A Common Stock
equal to (A) the aggregate exercise price for the shares of Decor Common Stock
otherwise purchasable pursuant to such Decor Employee Stock Option divided by
(B) the aggregate number of shares of Interiors Class A Common Stock deemed
purchasable pursuant to such Decor Employee Stock Option, rounding the exercise
price thus determined down to the nearest whole cent (each, as so adjusted, an
"Adjusted Option"); and
(ii) take such other actions relating to the Decor Stock Plans as
Decor and Interiors may agree are appropriate to give effect to the Merger,
including as provided in Section 5.7.
(b) As soon as practicable after the Effective Time,
Interiors shall deliver to the holders of Decor Employee Stock Options
appropriate notices setting forth such holders' rights pursuant to the
respective Decor Stock Plans and the agreements evidencing the grants of such
Decor Employee Stock Options and that such Decor Employee Stock Options and
agreements shall be assumed by Interiors and shall continue in effect on the
same terms and conditions (subject to the adjustments required by this Section
5.6 after giving effect to the Merger).
(c) A holder of an Adjusted Option may exercise such Adjusted
Option in whole or in part in accordance with its terms by delivering a
properly executed notice of exercise to Interiors, together with the
consideration therefor and the federal withholding tax information, if any,
required in accordance with the related Decor Stock Plan.
(d) Except as otherwise contemplated by this Section 5.6 and
except to the extent required under the respective terms of the Decor Employee
Stock Options in effect as of the date hereof, all restrictions or limitations
on transfer and vesting with respect to Decor Employee Stock Options awarded
under the Decor Stock Plans or any other plan, program or arrangement of Decor
or any of its subsidiaries, to the extent that such restrictions or limitations
shall not have already lapsed, shall remain in full force and effect with
respect to such options after giving effect to the Merger and the assumption by
Interiors as set forth above.
SECTION 5.7. DECOR STOCK PLANS AND CERTAIN EMPLOYEE MATTERS. (a) At the
Effective Time, by virtue of the Merger, the Decor Stock Plans shall be assumed
by Interiors, with the result that all obligations of Decor under the Decor
Stock Plans, including with respect to awards outstanding at the Effective Time
under each Decor Stock Plan, shall be obligations of Interiors following the
Effective Time. Prior to the Effective Time, Interiors shall take all necessary
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actions (including, if required to comply with Section 162(m) or 422 of the
Code (and the regulations thereunder) or applicable law or rule of NASDAQ,
obtaining the approval of its stockholders at the Interiors Stockholders
Meeting) for the assumption of the Decor Stock Plans, including the
reservation, issuance and listing of Interiors Class A Common Stock in a number
at least equal to (x) the number of shares of Interiors Class A Common Stock
that will be subject to Adjusted Options and (y) the product of the Exchange
Ratio and the number of shares of Decor Common Stock available for future
awards under the Decor Stock Plans immediately prior to the Effective Time. No
later than the Effective Time, Interiors shall prepare and file with the SEC a
registration statement on Form S-8 (or another appropriate form) registering a
number of shares of Interiors Class A Common Stock determined in accordance
with the preceding sentence and the unrestricted re-offer and resale of such
shares. Such registration statement shall be kept effective (and the current
status of the prospectus or prospectuses required thereby shall be maintained)
at least for so long as Adjusted Options remain outstanding and until such time
as the shares of Interiors Class A Common Stock subject to such Adjusted
Options are no longer subject to resale restrictions under the Securities Act.
(b) Following the Effective Time, Interiors, as the Surviving
Corporation in the Merger, will honor all obligations of Decor or its
subsidiaries under employment agreements of Decor or its subsidiaries as
amended and/or restated as contemplated in this Agreement.
SECTION 5.8. INDEMNIFICATION, EXCULPATION AND INSURANCE. (a) Interiors agrees
to maintain in effect in accordance with their terms all rights to
indemnification and exculpation from liabilities for acts or omissions
occurring at or prior to the Effective Time now existing in favor of the
current or former directors or officers of Decor and its subsidiaries as
provided in their respective certificates of incorporation or bylaws (or
comparable organizational documents) and any indemnification agreements of
Decor. In addition, from and after the Effective Time, directors and officers
of Decor who become directors or officers of Interiors will be entitled to the
same indemnity rights and protections as are afforded to other directors and
officers of Interiors.
(b) In the event that Interiors or any of its successors or
assigns (i) consolidates with or merges into any other person and is not the
continuing or surviving corporation or entity of such consolidation or merger
or (ii) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, proper provision will be
made so that the successors and assigns of Interiors assume the obligations set
forth in this Section 5.8.
(c) For one year after the Effective Time, Interiors shall
provide to Decor's current directors and officers liability insurance covering
acts or omissions occurring prior to the Effective Time with respect to those
persons who are currently Decor's directors and officers.
(d) The provisions of this Section 5.8 (i) are intended to be
for the benefit of, and will be enforceable by, each indemnified party, his or
her heirs and his or her representatives and (ii) are in addition to, and not
in substitution for, any other rights to indemnification or contribution that
any such person may have by contract or otherwise.
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SECTION 5.9. FEES AND EXPENSES. (a) Except as provided in this Section 5.9, all
fees and expenses incurred in connection with the Merger, this Agreement, and
the transactions contemplated by this Agreement shall be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated,
except that each of Interiors and Decor shall bear and pay one-half of the
costs and expenses incurred in connection with the filing, printing and mailing
of the Form S-4 and the Joint Proxy Statement (including SEC filing fees).
(b) In the event that (i) an Decor Takeover Proposal shall
have been made known to Decor or any of its subsidiaries or has been made
directly to its stockholders generally or any person shall have publicly
announced an intention (whether or not conditional) to make an Decor Takeover
Proposal and thereafter this Agreement is terminated by either Interiors or
Decor pursuant to Section 7.1(b)(i) or (ii), or (ii) this Agreement is
terminated by Decor pursuant to Section 7.1(f), then Decor shall promptly, but
in no event later than two days after the date of such termination, pay
Interiors a fee equal to $250,000 (the "Termination Fee"), payable by wire
transfer of same day funds; provided, however, that no Termination Fee shall be
payable to Interiors pursuant to clause (i) of this paragraph (b) unless and
until within 18 months of such termination Decor or any of its subsidiaries
enters into any Decor Acquisition Agreement or any transaction which would be
an Decor Takeover Proposal is consummated, in which event the Termination Fee
shall be payable upon the first to occur of such events. Decor acknowledges
that the agreements contained in this Section 5.9(b) are an integral part of
the transactions contemplated by this Agreement, and that, without these
agreements, Interiors would not enter into this Agreement; accordingly, if
Decor fails promptly to pay the amount due pursuant to this Section 5.9(b),
and, in order to obtain such payment, Interiors commences a suit which results
in a judgment against Decor for the fee set forth in this Section 5.9(b), Decor
shall pay to Interiors its costs and expenses (including attorneys' fees and
expenses) in connection with such suit, together with interest on the amount of
the fee at the prime rate of Citibank N.A. in effect on the date such payment
was required to be made.
(c) In the event that (i) a Interiors Takeover Proposal shall
have been made known to Interiors or any of its subsidiaries or has been made
directly to its stockholders generally or any person shall have publicly
announced an intention (whether or not conditional) to make a Interiors
Takeover Proposal and thereafter this Agreement is terminated by either
Interiors or Decor pursuant to Section 7.1(b)(i) or (iii), or (ii) this
Agreement is terminated by Interiors pursuant to Section 7.1(d), then Interiors
shall promptly, but in no event later than two days after the date of such
termination, pay Decor the Termination Fee, payable by wire transfer of same
day funds; provided, however, that no Termination Fee shall be payable to Decor
pursuant to clause (i) of this paragraph (c) unless and until within 18 months
of such termination Interiors or any of its subsidiaries enters into any
Interiors Acquisition Agreement or any transaction which would be a Interiors
Takeover Proposal is consummated, in which event the Termination Fee shall be
payable upon the first to occur of such events. Interiors acknowledges that the
agreements contained in this Section 5.9(c) are an integral part of the
transactions contemplated by this Agreement, and that, without these
agreements, Decor would not enter into this Agreement; accordingly, if
Interiors fails promptly to pay the amount due pursuant to this Section 5.9(c),
and, in order to obtain such payment, Decor commences a suit which results in a
judgment against Interiors for the fee set forth in this Section 5.9(c),
Interiors shall pay to Decor
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its costs and expenses (including attorneys' fees and expenses) in connection
with such suit, together with interest on the amount of the fee at the prime
rate of Citibank N.A. in effect on the date such payment was required to be
made.
SECTION 5.10. PUBLIC ANNOUNCEMENTS. Interiors and Decor will consult with each
other before issuing, and provide each other the opportunity to review, comment
upon and concur with and use reasonable efforts to agree on, any press release
or other public statements with respect to the transactions contemplated by
this Agreement, including the Merger, and shall not issue any such press
release or make any such public statement prior to such consultation, except as
either party may determine is required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange. The parties agree that the initial press release to be issued with
respect to the transactions contemplated by this Agreement shall be in the form
heretofore agreed to by the parties.
SECTION 5.11. AFFILIATES. (a) As soon as practicable after the date hereof,
Decor shall deliver to Interiors a letter identifying all persons who are, at
the time this Agreement is submitted for adoption by the stockholders of Decor,
"affiliates" of Decor for purposes of Rule 145 under the Securities Act and
such list shall be updated as necessary to reflect changes from the date
hereof.
(b) Interiors shall publish no later than 45 days after the
end of the first month after the Effective Time in which there are at least 30
days of post Merger combined operations (which month may be the month in which
the Effective Time occurs), combined sales and net income figures as
contemplated by and in accordance with the terms of SEC Accounting Series
Release No. 135.
SECTION 5.12. NASDAQ LISTING. Interiors shall use best efforts to cause the
Interiors Class A Common Stock issuable under Article II, upon exercise of the
outstanding Decor Class A Warrants, upon exercise of Adjusted Options pursuant
to Section 5.6 and upon exercise of the options to purchase shares of Interiors
Class A Common Stock granted pursuant to Section 5.17 and the shares of
restricted Interiors Class A Common Stock issued pursuant to Section 5.17 to be
approved for listing on The Nasdaq SmallCap Market, subject to official notice
of issuance, as promptly as practicable after the date hereof, and in any event
prior to the Closing Date.
SECTION 5.13. STOCKHOLDER LITIGATION. Each of Decor and Interiors shall give
the other the reasonable opportunity to participate in the defense of any
stockholder litigation against Decor or Interiors, as applicable, and its
directors relating to the transactions contemplated by this Agreement. In case
any such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense thereof,
subject to the provisions herein stated, with counsel reasonably satisfactory
to such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have
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the right to employ separate counsel in any such action and to participate in
the defense thereof, but the fees and expenses of such counsel shall not be at
the expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the indemnified
party; provided that the reasonable fees and expenses of such counsel shall be
at the expense of the indemnifying party if (i) the employment of such counsel
has been specifically authorized in writing by the indemnifying party or (ii)
the named parties to any such action (including any impleaded parties) include
both the indemnified party and the indemnifying party and in the reasonable
judgment of the counsel to the indemnified party, it is advisable for the
indemnified party to be represented by separate counsel (in which case the
indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party, it being understood, however, that
the indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for
the indemnified party, which firm shall be designated in writing by the
indemnified party). No settlement of any action against an indemnified party
shall be made without the consent of the indemnified party, which shall not be
unreasonably withheld in light of all factors of importance to such indemnified
party. If it is ultimately determined that indemnification is not permitted,
then an indemnified party will return all monies advanced to the indemnifying
party.
SECTION 5.14. TAX TREATMENT. Each of Interiors and Decor shall use best efforts
to cause the Merger to qualify as a reorganization under the provisions of
Section 368 of the Code and to obtain the opinions of counsel referred to in
Sections 6.2(c) and 6.3(c).
SECTION 5.15. INTENTIONALLY OMITTED
SECTION 5.16. STANDSTILL AGREEMENTS; CONFIDENTIALITY AGREEMENTS. During the
period from the date of this Agreement through the Effective Time, neither
Decor nor Interiors shall terminate, amend, modify or waive any provision of
any confidentiality or standstill agreement to which it or any of its
respective subsidiaries is a party. During such period, Decor or Interiors, as
the case may be, shall enforce, to the fullest extent permitted under
applicable law, the provisions of any such agreement, including by obtaining
injunctions to prevent any breaches of such agreements and to enforce
specifically the terms and provisions thereof in any court of the United States
of America or of any state having jurisdiction.
SECTION 5.17. COMPANY OFFICERS; EMPLOYMENT CONTRACTS; EQUITY AWARDS. (a)
Pursuant to and in accordance with the terms hereof and of the amended and/or
restated employment agreements referred to in Section 5.17(b) (i) at the
Effective Time and until January 1, 2000, Mr. Dennis D'Amore shall serve as
President of Artisan House, Inc.
(b) At or prior to the Effective Time, Interiors agrees to
enter into the amended and restated employment agreements substantially in the
forms set forth in Exhibit 5.17 attached hereto with the Interiors officers
identified in Exhibit 5.17, and Decor agrees to enter into amendments to and/or
restatements of the employment agreements substantially in the forms set
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forth in Exhibit 5.17 attached hereto with the Decor officers identified in
Exhibit 5.17.
(c) Prior to the Effective Time, each of Interiors and Decor
agree to adopt a stock option and restricted stock plan (the "New Interiors
Stock Plan"), the terms of which shall be mutually agreed upon by Interiors and
Decor, pursuant to which the option and restricted share grants described in
this Section 5.17 and in the amended and/or restated employment agreements
referred to in this 5.17 will be made.
SECTION 5.18. POST-MERGER OPERATIONS. Following the Effective Time, the
combined company shall maintain its principal corporate office in Mt. Vernon,
New York.
SECTION 5.19. CONVEYANCE TAXES. Interiors and Decor shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees or any similar taxes which become payable in
connection with the transactions contemplated by this Agreement that are
required or permitted to be filed on or before the Effective Time. Interiors
shall pay, and Decor shall pay, without deduction or withholding from any
amount payable to the holders of Decor Common Stock, any such taxes or fees
imposed by any Governmental Entity (and any penalties and interest with respect
to such taxes and fees), which become payable in connection with the
transactions contemplated by this Agreement, on behalf of their respective
stockholders.
SECTION 5.20. TRANSITION PLANNING. Mr. Dennis D'Amore and Mr. Max Munn, as
Presidents of Decor and Interiors, respectively, jointly shall be responsible
for coordinating all aspects of transition planning and implementation relating
to the Merger and the other transactions contemplated hereby. If either such
person ceases to be President of his respective company for any reason, such
person's successor as President shall assume his predecessor's responsibilities
under this Section 5.20.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) STOCKHOLDER APPROVALS. Each of the Decor Stockholder
Approval and the Interiors Stockholder Approval shall have been obtained.
(b) GOVERNMENTAL AND REGULATORY APPROVALS. Other than the
filing provided for under Section 1.3, all consents, approvals and actions of,
filings with and notices to any Governmental Entity required of Decor,
Interiors or any of their subsidiaries to consummate the Merger and the other
transactions contemplated hereby, the failure of which to be obtained or taken
(i) is reasonably expected to have a material adverse effect on the Surviving
Corporation
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and its prospective subsidiaries, taken as a whole, or (ii) will result in a
violation of any laws, shall have been obtained, all in form and substance
reasonably satisfactory to Decor and Interiors.
(c) NO INJUNCTIONS OR RESTRAINTS. No judgment, order, decree,
statute, law, ordinance, rule or regulation, entered, enacted, promulgated,
enforced or issued by any court or other Governmental Entity of competent
jurisdiction or other legal restraint or prohibition (collectively,
"Restraints") shall be in effect (i) preventing the consummation of the Merger,
or (ii) which otherwise is reasonably likely to have a material adverse effect
on Decor or Interiors, as applicable; provided, however, that each of the
parties shall have used its best efforts to prevent the entry of any such
Restraints and to appeal as promptly as possible any such Restraints that may
be entered.
(d) FORM S-4. The Form S-4 shall have become effective under
the Securities Act prior to the mailing of the Joint Proxy Statement by each of
Decor and Interiors to their respective stockholders and no stop order or
proceedings seeking a stop order shall be threatened by the SEC or shall have
been initiated by the SEC.
(e) NASDAQ LISTING. The shares of Interiors Class A Common
Stock issuable to Decor's stockholders as contemplated by Article II, the
shares of Interiors Class A Common Stock issuable upon exercise of Adjusted
Options pursuant to Section 5.6 and upon exercise of the options to purchase
shares of Interiors Class A Common Stock granted pursuant to Section 5.17 shall
have been approved for listing on The Nasdaq SmallCap Market, subject to
official notice of issuance.
(f) ACCOUNTING LETTERS. Interiors and Decor shall have
received letters from each of Decor's independent accountants and Interiors's
independent accountants, dated as of the date the Form S-4 is declared
effective and as of the Closing Date, in each case addressed to Interiors and
Decor, stating that accounting for the Merger as a purchase under the rules of
the Accounting Principles Board and applicable SEC rules and regulations is
appropriate if the Merger is consummated and closed as contemplated by this
Agreement.
(g) CORPORATE GOVERNANCE. Interiors shall have taken all such
actions as shall be necessary so that (i) the Certificate of Amendment shall
become effective not later than the Effective Time; (ii) the resolutions set
forth as part of Exhibit A shall have been adopted, to be effective upon the
Effective Time; (iii) the New Interiors Stock Plan shall become effective not
later than the Effective Time; and (iv) at the Effective Time, the composition
of the Interiors Board of Directors and the committees of such Board shall
comply with the Restated Certificate and Exhibit A hereof (assuming Decor has
designated the Decor Directors and Interiors has designated the Interiors
Directors, in each case as contemplated by Exhibit A).
SECTION 6.2. CONDITIONS TO OBLIGATIONS OF INTERIORS. The obligation of
Interiors to effect the Merger is further subject to satisfaction or waiver of
the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Decor set forth herein shall be true and correct both when made
and at and as of the Closing
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Date, as if made at and as of such time (except to the extent expressly made as
of an earlier date, in which case as of such date), except where the failure of
such representations and warranties to be so true and correct (without giving
effect to any limitation as to "materiality" or "material adverse effect" set
forth therein) does not have, and is not likely to have, individually or in the
aggregate, a material adverse effect on Decor; provided, that the
representations and warranties of Decor set forth in Sections 3.1(i), (j)(iii),
(j)(iv) and (j)(v) and (s) shall nonetheless be deemed true and correct at and
as of the Closing Date regardless of changes therein caused by an acquisition
permitted by 4.1(a)(iv) or by the incurrence of indebtedness permitted by
4.1(a)(vii), except to the extent that such changes have, or could reasonably
be expected to have, a material adverse effect on Decor.
(b) PERFORMANCE OF OBLIGATIONS OF DECOR. Decor shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date.
(c) TAX OPINIONS. Interiors shall have received reasonable
comfort in its sole discretion, on a date immediately prior to the mailing of
the Joint Proxy Statement and on the Closing Date, to the effect that: (i) the
Merger will constitute a "reorganization" within the meaning of Section 368(a)
of the Code, and Interiors and Decor will each be a party to such
reorganization within the meaning of Section 368(b) of the Code; (ii) no gain
or loss will be recognized by Interiors or Decor as a result of the Merger;
(iii) no gain or loss will be recognized by the stockholders of Decor upon the
exchange of their shares of Decor Common Stock solely for shares of Interiors
Class A Common Stock pursuant to the Merger, except with respect to cash, if
any, received in lieu of fractional shares of Interiors Class A Common Stock;
(iv) the aggregate tax basis of the shares of Interiors Class A Common Stock
received solely in exchange for shares of Decor Common Stock pursuant to the
Merger (including fractional shares of Interiors Class A Common Stock for which
cash is received) will be the same as the aggregate tax basis of the shares of
Decor Common Stock exchanged therefor; and (v) the holding period for shares of
Interiors Class A Common Stock received in exchange for shares of Decor Common
Stock pursuant to the Merger will include the holding period of the shares of
Decor Common Stock exchanged therefor, provided such shares of Decor Common
Stock were held as capital assets by the stockholder at the Effective Time. In
rendering such opinions, counsel for Interiors shall be entitled to rely upon
representations of officers of Interiors, Decor and stockholders of Decor
substantially in the form of Exhibits D and E hereto.
(d) NO MATERIAL ADVERSE CHANGE. At any time after the date of
this Agreement there shall not have occurred any material adverse change
relating to Decor.
SECTION 6.3. CONDITIONS TO OBLIGATIONS OF DECOR. The obligation of Decor to
effect the Merger is further subject to satisfaction or waiver of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Interiors set forth herein shall be true and correct both when
made and at and as of the Closing Date, as if made at and as of such time
(except to the extent expressly made as of an earlier date, in which case as of
such date), except where the failure of such representations and warranties to
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be so true and correct (without giving effect to any limitation as to
"materiality," or "material adverse effect" set forth therein) does not have,
and is not likely to have, individually or in the aggregate, a material adverse
effect on Interiors; provided, that the representations and warranties of
Interiors set forth in Sections 3.2(i), (j)(iii), (j)(iv) and (j)(v) and (s)
shall nonetheless be deemed true and correct at and as of the Closing Date
regardless of changes therein caused by an acquisition permitted by 4.1(b)(iv)
or by the incurrence of indebtedness permitted by 4.1(b)(vii), except to the
extent that such changes have, or could reasonably be expected to have, a
material adverse effect on Interiors.
(b) PERFORMANCE OF OBLIGATIONS OF INTERIORS. Interiors shall
have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date.
(c) TAX OPINIONS. Decor shall have received from reasonable
comfort in its sole discretion on a date immediately prior to the mailing of
the Joint Proxy Statement and on the Closing Date to the effect that: (i) the
Merger will constitute a "reorganization" within the meaning of Section 368(a)
of the Code, and Interiors and Decor will each be a party to such
reorganization within the meaning of Section 368(b) of the Code; (ii) no gain
or loss will be recognized by Interiors or Decor as a result of the Merger;
(iii) no gain or loss will be recognized by the stockholders of Decor upon the
exchange of their shares of Decor Common Stock solely for shares of Interiors
Class A Common Stock pursuant to the Merger, except with respect to cash, if
any, received in lieu of fractional shares of Interiors Class A Common Stock;
(iv) the aggregate tax basis of the shares of Interiors Class A Common Stock
received solely in exchange for shares of Decor Common Stock pursuant to the
Merger (including fractional shares or Interiors Class A Common Stock for which
cash is received) will be the same as the aggregate tax basis of the shares of
Decor Common Stock exchanged therefor; and (v) the holding period for shares of
Interiors Class A Common Stock received in exchange for shares of Decor Common
Stock pursuant to the Merger will include the holding period of the shares of
Decor Common Stock exchanged therefor, provided such shares of Decor Common
Stock were held as capital assets by the stockholder at the Effective Time. In
rendering such opinions, counsel for Decor shall be entitled to rely upon
representations of officers of Interiors, Decor and stockholders of Decor
substantially in the form of Exhibits D and E hereto.
(d) NO MATERIAL ADVERSE CHANGE. At any time after the date of
this Agreement there shall not have occurred any material adverse change
relating to Interiors.
(e) OPINION OF FINANCIAL ADVISOR. Decor will have received
the fairness opinion of a qualified investment banking firm, to the effect
that, as of the date of this Agreement, the Exchange Ratio for the conversion
of Decor Common Stock into Interiors Class A Common Stock is fair from a
financial point of view to holders of shares of Decor Common Stock (other than
Interiors and its affiliates), a signed copy of which opinion has been
delivered to Interiors, it being understood and agreed by Interiors that such
opinion is for the benefit of the Board of Directors of Decor and may not be
relied upon by Interiors, its affiliates or any of their respective
stockholders.
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SECTION 6.4. FRUSTRATION OF CLOSING CONDITIONS. Neither Interiors nor Decor may
rely on the failure of any condition set forth in Section 6.1, 6.2 or 6.3, as
the case may be, to be satisfied if such failure was caused by such party's
failure to use best efforts to consummate the Merger and the other transactions
contemplated by this Agreement, as required by and subject to Section 5.5.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, and (except in the case of 7.1(d) or 7.1(f)) whether before
or after the Decor Stockholder Approval or the Interiors Stockholder Approval:
(a) by mutual written consent of Interiors and Decor;
(b) by either Interiors or Decor:
(i) if the Merger shall not have been consummated by December 31,
1998, provided, however, that the right to terminate this Agreement pursuant to
this Section 7.1(b)(i) shall not be available to any party whose failure to
perform any of its obligations under this Agreement results in the failure of
the Merger to be consummated by such time; provided, however, that this
Agreement may be extended not more than 30 days by either party by written
notice to the other party if the Merger shall not have been consummated as a
direct result of Interiors or Decor having failed to receive all regulatory
approvals required to be obtained with respect to the Merger.
(ii) if the Decor Stockholder Approval shall not have been obtained at
an Decor Stockholders Meeting duly convened therefor or at any adjournment or
postponement thereof;
(iii) if the Interiors Stockholder Approval shall not have been
obtained at a Interiors Stockholders Meeting duly convened therefor or at any
adjournment or postponement thereof; or
(iv) if any Restraint having any of the effects set forth in Section
6.1(d) shall be in effect and shall have become final and nonappealable;
provided, that the party seeking to terminate this Agreement pursuant to this
Section 7.1(b)(iv) shall have used best efforts to prevent the entry of and to
remove such Restraint;
(c) by Interiors, if Decor shall have breached or failed to
perform in any material respect any of its representations, warranties,
covenants or other agreements contained in this Agreement, which breach or
failure to perform (A) would give rise to the failure of a condition set forth
in Section 6.2(a) or (b), and (B) is incapable of being cured by Decor or is
not cured within 45 days of written notice thereof;
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(d) prior to receipt of the Interiors Stockholder Approval,
by Interiors in accordance with Section 4.3(b); provided that, in order for the
termination of this Agreement pursuant to this paragraph (d) to be deemed
effective, Interiors shall have complied with all provisions contained in
Section 4.3, including the notice provisions therein, and with applicable
requirements, including the payment of the Termination Fee, of Section 5.9;
(e) by Decor, if Interiors shall have breached or failed to
perform in any material respect any of its representations, warranties,
covenants or other agreements contained in this Agreement, which breach or
failure to perform (A) would give rise to the failure of a condition set forth
in Section 6.3(a) or (b), and (B) is incapable of being cured by Interiors or
is not cured within 45 days of written notice thereof; or
(f) prior to receipt of the Decor Stockholder Approval, by
Decor in accordance with Section 4.2(b); provided that, in order for the
termination of this Agreement pursuant to this paragraph (f) to be deemed
effective, Decor shall have complied with all provisions of Section 4.2,
including the notice provisions therein, and with applicable requirements,
including the payment of the Termination Fee, of Section 5.9.
SECTION 7.2. EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Decor or Interiors as provided in Section 7.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Interiors or Decor, other than the provisions of
Section 3.1(o), Section 3.2(o), the last sentence of Section 5.4, Section 5.9,
this Section 7.2 and Article VIII, which provisions survive such termination,
and except to the extent that such termination results from the willful and
material breach by a party of any of its representations, warranties, covenants
or agreements set forth in this Agreement.
SECTION 7.3. AMENDMENT. This Agreement may be amended by the parties at any
time before or after the Decor Stockholder Approval or the Interiors
Stockholder Approval; provided, however, that after any such approval, there
shall not be made any amendment that by law requires further approval by the
stockholders of Decor or Interiors without the further approval of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
SECTION 7.4. EXTENSION; WAIVER. At any time prior to the Effective Time, a
party may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or in any document delivered pursuant to this Agreement or (c) subject to the
proviso of Section 7.3, waive compliance by the other party with any of the
agreements or conditions contained in this Agreement. Any agreement on the part
of a party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
SECTION 7.5. PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER. A
termination of this Agreement pursuant to Section 7.1, an amendment of this
Agreement
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pursuant to Section 7.3 or an extension or waiver pursuant to Section 7.4
shall, in order to be effective, require, in the case of Interiors or Decor,
action by its Board of Directors or, with respect to any amendment to this
Agreement, the duly authorized committee of its Board of Directors to the
extent permitted by law.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 8.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
SECTION 8.2. NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Interiors, to
Interiors, Inc.
320 Washington Street
Mt. Vernon, New York 10553
Attention: Max Munn
with a copy to:
Sol V. Slotnik, P.C.
295 Madison Avenue
39th Floor
New York, New York 10017
Attention: Sol V. Slotnik
(b) if to Decor, to
Decor Group, Inc.
Attention: Dennis D'Amore
with a copy to:
[TO BE PROVIDED TO OUTSIDE COUNSEL OF DECOR]
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<PAGE>
SECTION 8.3. DEFINITIONS. For purposes of this Agreement:
(a) except for purposes of Section 5.11, an "affiliate" of
any person means another person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, such first person, where "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of voting securities, by
contract, as trustee or executor, or otherwise;
(b) "material adverse change" or "material adverse effect"
means, when used in connection with Decor or Interiors, any change, effect,
event, occurrence or state of facts that is, or would reasonably be expected to
be, materially adverse to the business, financial condition or results of
operations of such party and its subsidiaries taken as a whole; and the terms
"material" and "materially" have correlative meanings;
(c) "person" means an individual, corporation, partnership,
limited liability company, joint venture, association, trust, unincorporated
organization or other entity;
(d) a "subsidiary" of any person means another person, an
amount of the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board of
Directors or other governing body (or, if there are no such voting interests,
50% or more of the equity interests of which) is owned directly or indirectly
by such first person; provided however, that with respect to Interiors, such
term shall not include Decor; and
(e) "knowledge" of any person which is not an individual means the
knowledge of such person's executive officers or senior management of such
person's operating divisions and segments, in each case after reasonable
inquiry.
SECTION 8.4. INTERPRETATION. When a reference is made in this Agreement to an
Article, Section or Exhibit, such reference shall be to an Article or Section
of, or an Exhibit to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. All terms defined in this
Agreement shall have the defined meanings when used in any certificate or other
document made or delivered pursuant hereto unless otherwise defined therein.
The definitions contained in this Agreement are applicable to the singular as
well as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such term. Any agreement, instrument or statute
defined or referred to herein or in any agreement or instrument that is
referred to herein means such agreement, instrument or statute as from time to
time amended, modified or supplemented, including (in the case of agreements or
instruments)
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by waiver or consent and (in the case of statutes) by succession of comparable
successor statutes and references to all attachments thereto and instruments
incorporated therein. References to a person are also to its permitted
successors and assigns.
SECTION 8.5. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
SECTION 8.6. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement
(including the documents and instruments referred to herein) and the
Confidentiality Agreement (a) constitute the entire agreement, and supersede
all prior agreements and understandings, both written and oral, between the
parties with respect to the subject matter of this Agreement and (b) except for
the provisions of Article II, Section 5.6 and Section 5.8, are not intended to
confer upon any person other than the parties any rights or remedies.
SECTION 8.7. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflict of laws
thereof.
SECTION 8.8. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by either of the parties hereto without
the prior written consent of the other party. Any assignment in violation of
the preceding sentence shall be void. Subject to the preceding two sentences,
this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
SECTION 8.9. CONSENT TO JURISDICTION. Each of the parties hereto (a) consents
to submit itself to the personal jurisdiction of any federal court located in
the State of New York or any New York state court in the event any dispute
arises out of this Agreement or any of the transactions contemplated by this
Agreement, (b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and (c)
agrees that it will not bring any action relating to this Agreement or any of
the transactions contemplated by this Agreement in any court other than a
federal court sitting in the State of New York or a New York state court.
SECTION 8.10. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.11. SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible to the fullest
extent permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
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IN WITNESS WHEREOF, Interiors and Decor have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
INTERIORS, INC.
By: /s/ John D. Mazzuto
-----------------------------------------
Name: John D. Mazzuto
Title: Executive Vice President
DECOR GROUP, INC.
By: /s/ Dennis D'Amore
-----------------------------------------
Name: Dennis D'Amore
Title: President
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EXHIBIT 3.5
CERTIFICATE FOR
RESTORATION, RENEWAL, AND REVIVAL
OF THE CERTIFICATE OF INCORPORATION
Interiors Holdings, Inc., formerly Interiors, Inc., a corporation
organized under the General Corporation Law of the State of Delaware (the
"Corporation"), the certificate of incorporation of which (the "Certificate
of Incorporation") has become inoperative and void by law for nonpayment of
taxes, desires to procure a restoration, renewal, and revival of the
Certificate of Incorporation, and accordingly, pursuant to Section 312 of the
General Corporation Law of the State of Delaware, hereby certifies as
follows:
1. The name of the Corporation is Interiors Holdings, Inc., formerly
Interiors, Inc. The date of filing of the Corporation's original certificate
of incorporation with the Secretary of State of the State of Delaware was
February 18, 1994.
2. The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, Wilmington, New Castle County, Delaware 19805.
The name of the Corporation's registered agent at such address is The
Prentice-Hall Corporation System, Inc.
3. The restoration, renewal, and revival of the Certificate of
Incorporation procured by the execution, acknowledgment, filing, and
recording hereof in accordance with Section 103 of the General Corporation
Law of the State of Delaware is to be perpetual.
4. The Corporation was organized under the laws of the State of Delaware.
5. On March 1, 1997, pursuant to Chapter Five of Title Eight of the
Delaware Code, a Del. C. Section 501 et seq., the Certificate of Incorporation
became void and inoperative as a result of the Corporation's failure for
one (1) year to pay the State of Delaware franchise tax or taxes that were
assessed against the Corporation or that were required to be paid by the
Corporation under said Chapter.
6. This Certificate for Restoration, Renewal, and Revival of the
Certificate of Incorporation is filed by authority of those persons who were
directors of the Corporation at the time the Certificate of Incorporation
became void and inoperative.
<PAGE>
EXHIBIT 3.6
CERTIFICATE OF MERGER
OF
INTERIORS, INC.
INTO
INTERIORS HOLDINGS, INC.
The undersigned corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the constituent
corporations of the merger is as follows:
NAME STATE OF INCORPORATION
---- --------------------------
Interiors, Inc. Delaware
Interiors Holdings, Inc. Delaware
SECOND: That a plan and agreement of merger between the parties to the
merger has been approved, adopted, certified, executed and acknowledged by
each of the constituent corporations in accordance with the requirements of
Section 251 of the General Corporation Law of the State of Delaware.
THIRD: That the name of the surviving corporation of the merger is
Interiors Holdings, Inc.
FOURTH: That the certificate of incorporation of Interiors Holdings, Inc.,
a Delaware corporation, the surviving corporation, shall be the certificate
of incorporation of the surviving corporation, except that the certificate of
incorporation of Interiors Holdings shall be amended as follows:
1. Article First shall be amended to read as follows:
"FIRST: Name. The name of the Corporation is: Interiors, Inc."
2. Article Fourth shall be amended by changing the first two sentences
thereof to read as follows:
"FOURTH: Capitalization. The total number of shares of stock of all
classes which the corporation shall have authority to issue is
sixty-seven million eight hundred thousand (67,800,000).
Of such shares, the total number of shares of common stock
<PAGE>
which the Corporation is authorized to issue is sixty-two million five
hundred thousand (62,500,000) of which sixty million (60,000,000)
shall be designated as 'Class A Common Stock,' $.001 par value per
share, and of which two million five hundred thousand (2,500,000)
shall be designated as 'Class B Common Stock," $.001 par value per
share."
FIFTH: That the executed plan and agreement of merger is on file at the
principal place of business of the surviving corporation. The address of the
principal place of business of the surviving corporation is Interiors, Inc.,
320 Washington Street, Mt. Vernon, New York 10553.
SIXTH: That a copy of the plan and agreement of merger will be furnished
by the surviving corporation, on request and without cost to any stockholder
of any constituent corporation.
IN WITNESS WHEREOF, Interiors Holdings, Inc. has caused the Certificate
to be signed by Max Munn, its authorized officer, this 26th day of February,
1998.
INTERIORS HOLDINGS, INC.
By: /s/ Max Munn
------------------
Max Munn
President
<PAGE>
CONVERTIBLE NOTES
-----------------
FOR VALUE RECEIVED, INTERIORS, INC., a Delaware corporation
(hereinafter called "Borrower"), hereby promises to pay to BEESTON INVESTMENT,
LTD., 119 Rothschild Boulevard, Tel Aviv, Israel, Fax No.: 011-972-25600201
(the "Holder") or order, without demand, the sum of $200,000.00, with simple
interest accruing at the annual rate of 6%, on March 19, 2000 (the "Maturity
Date"), as such date may be extended by agreement of the parties hereto.
The following terms shall apply to this Note:
ARTICLE I
DEFAULT RELATED PROVISIONS
1.1 Payment Grace Period. The Borrower shall have a ten (10) day
grace period to pay any monetary amounts due under this Note, after which grace
period a default interest rate of 16% per annum shall apply to the amounts owed
hereunder.
1.2 Conversion Privileges. The Conversion Privileges set forth in
Article II shall remain in full force and effect immediately from the date
hereof and until the Note principal and interest are paid in full.
1.3 Interest Rate. At the earliest of each Conversion Date (as
hereinafter defined), quarterly in arrears, commencing July 1, 1998, or the
Maturity Date, accelerated or otherwise, the Borrower shall pay interest to the
Holder at the annual rate of 6% per annum.
ARTICLE II
CONVERSIOM RIGHTS
The Holder shall have the right to convert the principal amount and
interest due under this Note into Shares of the Borrower's Common Stock as set
forth below.
2.1. Conversion into the Borrower's Common Stock.
--------------------------------------------
(a) The Holder shall have the right from and after September 16, 1998
and then at any time on or prior to the Maturity Date, as it may be extended by
agreement of the parties hereto, and until this Note is fully paid, to convert
up to one-half of the outstanding and unpaid principal portion of this Note of
$25,000 or greater amount, or any lesser amount representing the full remaining
outstanding and unpaid principal portion and at the Holder's election, the
accrued interest on the Note (the date of giving of such notice of conversion
being a "Conversion Date") into fully paid and nonassessable shares of Common
Stock of Borrower as
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such stock exists on the date of issuance of this Note, or any shares of
capital stock of Borrower into which such stock shall hereafter be changed or
reclassified (the "Common Stock") at the conversion price as defined in Section
2.1(b) hereof (the "Conversion Price"), determined as provided herein. The
entire principal amount of this Note and interest accrued thereon may be
converted commencing December 15, 1998. Upon the delivery of this Note to the
Borrower according to the procedure described in the subscription agreement
entered into between the Company and Holder (the "Subscription Agreement"),
accompanied, preceded or followed by notice from the Holder to the Company of
the Holder's written request for conversion, Borrower shall issue and deliver
to the Holder within seven days of the Conversion Date that number of shares of
Common Stock for the portion of the Note and/or interest converted in
accordance with the foregoing and a new Note in the form hereof for the
balance of the principal amount hereof, and/or interest if any. The number of
shares of Common Stock to be issued upon each conversion of this Note shall be
determined by dividing that portion of the principal and/or interest on the
Note to be converted, by the Conversion Price.
(b) Subject to adjustment as provided in Section 2.1(c) hereof, the
Conversion Price per share shall be the lowest of: (i) the closing bid price
for the Common Stock on the NASDAQ SmallCap Market, or on any securities
exchange or other securities market on which the Common Stock is then being
traded, for the five trading days prior to the issue date of this Note; (ii)
eighty (80%) of the average closing bid price for the Common Stock on the
NASDAQ SmallCap Market, or on any securities exchange or other securities
market on which the Common Stock is then being traded, for the five trading
days immediately preceding (but not including) the Conversion Date with respect
to the Note principal and interest accrued thereon if the Conversion Date is
sooner than December 15, 1998; or (iii) seventy-five percent (75%) of the
average closing bid price for the Common Stock on the NASDAQ SmallCap Market,
or on any securities exchange or other securities market on which the Common
Stock is then being traded, for the five (5) trading days immediately preceding
(but not including) the Conversion Date with respect to the Note principal and
interest accrued thereon if the Conversion Date is on or later than December
15, 1998.
(c) The Conversion Price and number and kind of shares or other
securities to be issued upon conversion determined pursuant to Section 2.1(a)
and 2.1(b), shall be subject to adjustment from time to time upon the
happening of certain events while this conversion right remains outstanding, as
follows:
A. Merger, Sale of Assets, etc. If the Borrower at any time
shall consolidate with or merge into or sell or convey all or substantially all
its assets to any other corporation, this Note, as to the unpaid principal
portion thereof and accrued interest thereon, shall thereafter be deemed to
evidence the right
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<PAGE>
to purchase such number and kind of shares or other securities and property as
would have been issuable or distributable on account of such consolidation,
merger, sale or conveyance, upon or with respect to the securities subject to
the conversion or purchase right immediately prior to such consolidation,
merger, sale or conveyance. The foregoing provision shall similarly apply to
successive transactions of a similar nature by any such successor or purchaser.
Without limiting the generality of the foregoing, the anti-dilution provisions
of this Section shall apply to such securities of such successor or purchaser
after any such consolidation, merger, sale or conveyance.
B. Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase such number and kind of securities
as would have been issuable as the result of such change with respect to the
Common Stock immediately prior to such reclassification or other change.
C. Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, or if a dividend is paid on the Common Stock in shares
of Common Stock, the Conversion Price shall be proportionately reduced in case
of subdivision of shares or stock dividend or proportionately increased in the
case of combination of shares, in each such case by the ratio which the total
number of shares of Common Stock outstanding immediately after such event
bears to the total number of shares of Common Stock outstanding immediately
prior to such event.
D. Share Issuance. Subject to the provisions of this Section,
if the Borrower at any time shall issue any shares of Common Stock prior to the
conversion of the entire principal amount of the Note (otherwise than as: (i)
provided in Sections 2.l(c)A, 2.l(c)B or 2.l(c)C or this subparagraph D; (ii)
pursuant to options, warrants, or other obligations to issue shares,
outstanding on the date hereof as described in the Reports and Other Written
Information, as such terms are defined in the Subscription Agreement (which
agreement is incorporated herein by this reference); [(i) and (ii) above, are
hereinafter referred to as the "Existing Option Obligations" for a
consideration less than the Conversion Price that would be in effect at the
time of such issue, then, and thereafter successively upon each such issue,
the Conversion Price shall be reduced as follows: (i) the number of shares of
Common Stock outstanding immediately prior to such issue shall be multiplied by
the Conversion Price in effect at the time of such issue and the product shall
be added to the aggregate consideration, if any, received by the Borrower upon
such issue of
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<PAGE>
additional shares of Common Stock; and (ii) the sum so obtained shall be
divided by the number of shares of Common Stock outstanding immediately after
such issue. The resulting quotient shall be the adjusted conversion price.
Except for the Existing Option Obligations and options that may be issued under
any employee incentive stock option and/or any nonqualified stock option plan
adopted by the Company, for purposes of this adjustment, the issuance of any
security of the Borrower carrying the right to convert such security into shares
of Common Stock or of any warrant, right or option to purchase Common Stock
shall result in an adjustment to the Conversion Price upon the issuance of
shares of Common Stock upon exercise of such conversion or purchase rights.
(d) Note principal not previously converted into shares of Common
Stock may be converted by the Borrower into shares of Common Stock without
further action of the Holder on the date that is two years from the date of
issuance thereof, at the Conversion Price then in effect ("Mandatory
Conversion"). Notice of such conversion by the Borrower shall be given not less
than thirty (30) days prior to the applicable date of such Mandatory Conversion
(the "Mandatory Conversion Date"). As applicable, the notice shall specify Note
principal to be converted, the date fixed for conversion, and the conversion
price per share. In no event shall a Mandatory Conversion occur at any time
unless the Common Stock to be delivered upon conversion will be immediately upon
delivery and thereafter unlegended, freely tradable, and freely transferable on
the transfer books of the Borrower. A Mandatory Conversion may not be effected
by the Borrower if an Event of Default described in Article III hereinafter has
occurred or is continuing.
(e) During the period the conversion right exists, Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the full conversion of
this Note. Borrower represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable. Borrower agrees that its
issuance of this Note shall constitute full authority to its officers, agents,
and transfer agents who are charged with the duty of executing and issuing
stock certificates to execute and issue the necessary certificates for shares
of Common Stock upon the conversion of this Note.
2.2 Method of Conversion. This Note may be converted by the Holder
in whole or in part as described in Section 2.1(a) hereof and the Subscription
Agreement. Upon partial conversion of this Note, a new Note containing the same
date and provisions of this Note shall be issued by the Borrower to the Holder
for the principal balance of this Note and interest which shall not have been
converted.
ARTICLE III
4
<PAGE>
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, all without demand, presentment or
notice, or grace period, all of which hereby are expressly waived, except as
set forth below:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay
any installment of principal or interest hereon when due and such failure
continues for a period of ten (10) days after written notice to the Borrower
from the Holder.
3.2 Breach of Covenant. The Borrower breaches any covenant or other
term or condition of this Note and such breach continues for a period of seven
(7) days after written notice to the Borrower from the Holder.
3.3 Breach of Representations and Warranties. Any representation or
warranty of the Borrower made herein, in the Subscription Agreement entered
into by the Holder and Borrower in connection with this Note, or in any
agreement, statement or certificate given in writing pursuant hereto or in
connection herewith or in connection with the Subscription Agreement shall be
false or misleading.
3.4 Receiver or Trustee. The Borrower shall make an assignment for
the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.
3.5 Judgments. Any money judgment, writ or similar process shall be
entered or filed against Borrower or any of its property or other assets for
more than $50,000, and shall remain unvacated, unbonded or unstayed for a
period of forty-five (45) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower.
3.7 Delisting. Delisting of the Common Stock from the NASDAQ
SmallCap Market or such other principal exchange on which the Common Stock is
listed for trading.
3.8 Concession. A concession by the Company of a default under any
one or more obligations in an aggregate monetary amount in excess of $50,000.
5
<PAGE>
3.9 Stop Trade. An SEC stop trade order or NASDAQ trading suspension,
if either applies for a period of ten days or longer.
3.10 Failure to Deliver Common Stock. Borrower's failure to timely
deliver Common Stock to the Holder or a replacement Note representing any
unconverted portion of this Note pursuant to this Note or Section 9 of the
Subscription Agreement.
3.11 Registration Default. The occurrence of a Registration Default
as described in Section 10.2(j) of the Subscription Agreement.
ARTICLE IV
MISCELLANEOUS
4.1 Failure or Indulgency Not Waiver. No failure or delay on the part
of Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof
or of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
4.2 Notices. Any notice herein required or permitted to be given
shall be in writing and may be personally served or sent by fax transmission
(with copy sent by regular, certified or registered mail or by overnight
courier). For the purposes hereof, the address and fax number of the Holder is
as set forth on the first page hereof. The address and fax number of the
Borrower shall be Interiors, Inc., 320 Washington Street, Mt. Vernon, New York
10553, telecopier number: (914) 665-5469. Both Holder and Borrower may change
the address and fax number for service by service of notice to the other as
herein provided.
4.3 Amendment Provision. The term "Note" and all reference thereto,
as used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
4.4 Assignability. This Note shall be binding upon the Borrower and
its successors and assigns, and shall inure to the benefit of the Holder and
its successors and assigns, and may be assigned by the Holder.
4.5 Cost of Collection. If default is made in the payment of this
Note, Borrower shall pay the Holder hereof costs of collection, including
reasonable attorneys' fees.
6
<PAGE>
4.6 Governing Law. This Note shall be deemed to have been executed in
and shall be governed by the internal laws of the State of New York, without
regard to the principles of conflict of Laws.
4.7 Prepayment. This Note may not be prepaid by the Borrower without
the consent of the Holder.
4.8 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate
of interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its Chief Executive Officer on this 7th day of April, 1998.
INTERIORS, INC.
By: /s/ John D. Mazzuto
-----------------------------
7
<PAGE>
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
WARRANT UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO INTERIORS, INC. THAT SUCH REGISTRATION IS
NOT REQUIRED.
Right to Purchase 23,333 Shares of Common Stock of
Interiors, Inc. (subject to adjustment as provided
herein)
COMMON STOCK PURCHASE WARRANT
No. 4 April 7, 1998
Interiors, Inc., a corporation organized under the laws of the State of
Delaware (the "Company"), hereby certifies that, for value received, BEESTON
INVESTMENT, LTD., or assigns, is entitled, subject to the terms set forth
below, to purchase from the Company after April 7, 1998 at any time or from
time to time before 5:00 p.m., New York time, on March 19, 2000 (the
"Expiration Date"), up to 23,333 fully paid and nonassessable shares of Class A
Common Stock (as hereinafter defined), $.OO1 par value per share, of the
Company, at a purchase price of $1.75 per share (such purchase price per share
as adjusted from time to time as herein provided is referred to herein as the
"Purchase Price"). The number and character of such shares of Common Stock
and the Purchase Price are subject to adjustment as provided herein.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term Company shall include Interiors, Inc. and any corporation
which shall succeed or assume the obligations of Interiors, Inc. hereunder.
(b) The term "Common Stock" includes (a) the Company's Class A Common
Stock, $.OO1 par value per share, as authorized on the date of the Agreement,
(b) any other capital stock of any class or classes (however designated) of
the Company, authorized on or after such date, the holders of which shall have
the right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and the
holders of which shall ordinarily, in the absence of contingencies, be entitled
to vote for the election of a majority of directors of the Company (even if the
right so to vote has been suspended by the happening of such a contingency)
and (c) any other securities into which
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or for which any of the securities described in (a) or (b) may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 5 or otherwise.
1. Exercise of Warrant.
--------------------
1.1. Number of Shares Issuable upon Exercise. From and after the
date hereof through and including the Expiration Date, the holder hereof shall
be entitled to receive, upon exercise of this Warrant in whole in accordance
with the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2. Full Exercise. This Warrant may be exercised in full by the
holder hereof by surrender of this Warrant, with the form of subscription
attached as Exhibit A hereto (the Subscription Form") duly executed by such
holder, to the Company at its principal office or at the office of its Warrant
agent (as provided in Section 11), accompanied by payment, in cash or by
certified or official bank check payable to the order of the Company, in the
amount obtained by multiplying the number of shares of Common Stock for which
this Warrant is then exercisable by the Purchase Price (as hereinafter
defined) then in effect.
1.3. Partial Exercise. This Warrant may be exercised in part (but
not for a fractional share) by surrender of this Warrant in the manner and at
the place provided in subsection 1.2 except that the amount payable by the
holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of shares of Common Stock designated by the holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such
partial exercise, the Company, at its expense, will forthwith issue and deliver
to or upon the order of the holder hereof a new Warrant of like tenor, in the
name of the holder hereof or as such holder (upon payment by such holder of any
applicable transfer taxes), may request, the number of shares of Common Stock
for which such Warrant may still be exercised.
1.4. Fair Market Value. Fair Market Value of a share of Common Stock
as of a particular date (the "Determination Date") shall mean the Fair Market
Value of a share of the Company's Common Stock. Fair Market Value of a share
of Common Stock as of a Determination Date shall mean:
(a) If the Company's Common Stock is traded on an exchange or
is quoted on the National Association of Securities Dealers, Inc. Automated
Quotation
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("NASDAQ") National Market System or the NASDAQ SmallCap Market, then the
closing or last sale price, respectively, reported for the last business day
immediately preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an exchange
or on the NASDAQ National Market System or the NASDAQ SmallCap Market but is
traded in the over-the-counter market, then the mean of the closing bid and
asked prices reported for the last business day immediately preceding the
Determination Date.
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company agree
or in the absence of agreement by arbitration in accordance with the rules
then standing of the American Arbitration Association, before a single
arbitrator to be chosen from a panel of persons qualified by education and
training to pass on the matter to be decided.
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event
of such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof acknowledge
in writing its continuing obligation to afford to such holder any rights to
which such holder shall continue to be entitled after such exercise in
accordance with the provisions of this Warrant. If the holder shall fail to
make any such request, such failure shall not affect the continuing
obligation of the Company to afford to such holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the holders of the Warrants
pursuant to Subsection 3.1, such bank or trust company shall have all the
powers and duties of a warrant agent appointed pursuant to Section 10 and shall
accept, in its own name for the account of the Company or such successor person
as may be entitled thereto, all amounts otherwise payable to the Company or
such successor, as the case may be, on exercise of this Warrant pursuant to
this Section 1.
2. Delivery of Stock Certificates etc. on Exercise. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall
be deemed to be issued to the holder hereof as the record owner of such shares
as of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 10 days thereafter, the Company at its expense (including the
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payment by it of any applicable issue taxes) will cause to be issued in the
name of and delivered to the holder hereof, or as such holder (upon payment by
such holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of duly and validly issued, fully paid and
nonassessable shares of Common Stock (or Other Securities) to which such
holder shall be entitled on such exercise, plus, in lieu of any fractional
share to which such holder would otherwise be entitled, cash equal to such
fraction multiplied by the then Fair Market Value of one full share, together
with any other stock or other securities and property (including cash, where
applicable) to which such holder is entitled upon such exercise pursuant to
Section 1 or otherwise.
3. Adjustment for Reorganization, Consolidation, Merger, etc.
----------------------------------------------------------
3.1. Reorganization, Consolidation, Merger, etc. In case at any time
or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any
plan or arrangement contemplating the dissolution of the Company, then, in each
such case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if
such holder had so exercised this Warrant, immediately prior thereto, all
subject to further adjustment thereafter as provided in Section 5.
3.2. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause
to be delivered the stock and other securities and property (including cash,
where applicable) receivable by the holders of the Warrants after the effective
date of such dissolution pursuant to this Section 3 to a bank or trust
company having its principal office in New York, NY, as trustee for the holder
or holders of the Warrants.
3.3. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 4, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities
and property receivable on the exercise of this Warrant after the consummation
of such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including,
in the case of any such transfer, the person acquiring all or substantially all
of the properties or assets of the Company, whether or not such person shall
have expressly assumed the terms of this Warrant as provided in Section 5.
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4. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such event, and
the product so obtained shall thereafter be the Purchase Price then in effect.
The Purchase Price, as so adjusted, shall be readjusted in the same manner upon
the happening of any successive event or events described herein in this
Section 4. The number of shares of Common Stock that the holder of this Warrant
shall thereafter, on the exercise hereof as provided in Section 1, be entitled
to receive shall be increased to a number determined by multiplying the number
of shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the
numerator is the Purchase Price that would otherwise (but for the provisions of
this Section 4) be in effect, and (b) the denominator is the Purchase Price in
effect on the date of such exercise.
5. Chief Financial Officer's Certificate as to Adjustments. In each case
of any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable on the exercise of the Warrants, the Company at its
expense will promptly cause its Chief Financial Officer to compute such
adjustment or readjustment in accordance with the terms of the Warrant and
prepare a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based,
including a statement of (a) the consideration received or receivable by the
Company for any additional shares of Common Stock (or Other Securities) issued
or sold or deemed to have been issued or sold, (b) the number of shares of
Common Stock (or Other Securities) outstanding or deemed to be outstanding, and
(c) the Purchase Price and the number of shares of Common Stock to be received
upon exercise of this Warrant, in effect immediately prior to such adjustment
or readjustment and as adjusted or readjusted as provided in this Warrant. The
Company will forthwith mail a copy of each such certificate to the holder of
the Warrant and any Warrant agent of the Company (appointed pursuant to Section
10 hereof).
6. Reservation of Stock etc. Issuable on Exercise of Warrant Financial
Statements. The Company will at all times reserve and keep available, solely
for issuance and delivery on the exercise of the Warrants, all shares of Common
Stock (or Other Securities) from time to time issuable on the exercise of the
Warrant. This Warrant entitles the holder hereof to receive copies of all
financial and other information distributed or required to be distributed to
the holders of the Company's Common Stock.
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7. Assignment; Exchange of Warrant. Subject to compliance with applicable
Securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a "Transferor") with respect to
any or all of the Shares. On the surrender for exchange of this Warrant, with
the Transferor's endorsement in the form of Exhibit B attached hereto (the
Transferor Endorsement Form"), to the Company, the Company at its expense but
with payment by the Transferor of any applicable transfer taxes) will issue and
deliver to or on the order of the Transferor thereof a new Warrant or Warrants
of like tenor, in the name of the Transferor and/or the transferee(s) specified
in such Transferor Endorsement Form (each a "Transferee"), calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock
called for on the face or faces of the Warrant so surrendered by the
Transferor.
8. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on
surrender and cancellation of this Warrant, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Registration Rights. The holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in a Subscription Agreement entered into by the Company and the initial
issuee of this Warrant at or prior to the issue date of this Warrant. The terms
of the Subscription Agreement are incorporated herein by this reference.
10. Warrant Agent. The Company may, by written notice to the each holder
of the Warrant, appoint an agent having an office in New York, NY for the
purpose of issuing Common Stock (or Other Securities) on the exercise of this
Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7,
and replacing this Warrant pursuant to Section 8, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be,
shall be made at such office by such agent.
11. Transfer on the Company's Books. Until this Warrant is transferred on
the books of the Company, the Company may treat the registered holder hereof
as the absolute owner hereof for all purposes, notwithstanding any notice to
the contrary.
12. Notices etc. All notices and other communications from the Company to
the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to
the Company an address, then to, and at the address of, the last holder of
this Warrant who has so furnished an address to the Company.
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13. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or
termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the laws of New York. Any dispute relating to
this Warrant shall be adjudicated in New York State. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as
of the date first written above.
INTERIORS, INC.
By: /s/ John D. Mazzuto
---------------------------------
Title: Executive Vice President
------------------------------
Witness: /s/ Alan F. San Filippo
-----------------------------
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Exhibit A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO:Interiors, Inc.
The undersigned, the holder of the within Warrant, hereby irrevocably elects to
exercise this Warrant for, and to purchase thereunder, _____________ shares of
Common Stock of Interiors, Inc. and herewith makes payment of $___________
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to ______________ whose address is ____________________.
Dated:____________________
--------------------------------------------
(Signature must conform to name of holder as
specified on the face of the Warrant)
--------------------------------------------
(Address)
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Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number
of shares of Common Stock of Interiors, Inc. to which the within Warrant
relates specified under the headings "Percentage Transferred" and "Number
Transferred," respectively, opposite the name(s) of such person(s) and appoints
each such person Attorney to transfer its respective right on the books of
Interiors, Inc. with full power of substitution in the premises.
===============================================================================
Transferees Percentage Number
Transferred Transferred
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
===============================================================================
Dated: _________, 19__ ______________________________________
(Signature must conform to name of
holder as specified on the face of the
warrant)
Signed in the presence of:
- ------------------------------ ---------------------------------------
(Name) (address)
---------------------------------------
ACCEPTED AND AGREED: (address)
[TRANSFEREE]
- ------------------------------
(Name)
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CONVERTIBLE NOTE
FOR VALUE RECEIVED, INTERIORS, INC., a Delaware corporation
(hereinafter called "Borrower"), hereby promises to pay to AUSTOST ANSTALT
SCHAAN, 7440 Fuerstentum, Lichenstein Landstrasse 163, Fax No.:
011-431-534532895 (the "Holder") or order, without demand, the sum of
$750,000.00, with simple interest accruing at the annual rate of 6%, on March
19, 2000 (the "Maturity Date"), as such date may be extended by agreement of
the parties hereto.
The following terms shall apply to this Note:
ARTICLE I
DEFAULT RELATED PROVISIONS
1.1 Payment Grace Period. The Borrower shall have a ten (10) day
grace period to pay any monetary amounts due under this Note, after which grace
period a default interest rate of 16% per annum shall apply to the amounts owed
hereunder.
1.2 Conversion Privileges. The Conversion Privileges set forth in
Article II shall remain in full force and effect immediately from the date
hereof and until the Note principal and interest are paid in full.
1.3 Interest Rate. At the earliest of each Conversion Date (as
hereinafter defined), quarterly in arrears, commencing July 1, 1998, or the
Maturity Date, accelerated or otherwise, the Borrower shall pay interest to the
Holder at the annual rate of 6% per annum.
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal amount and
interest due under this Note into Shares of the Borrower's Common Stock as set
forth below.
2.1. Conversion into the Borrower's Common Stock.
--------------------------------------------
(a) The Holder shall have the right from and after 180 days after
the issuance of this Note and then at any time on or prior to the Maturity
Date, as it may be extended by agreement of the parties hereto, and until this
Note is fully paid, to convert up to one-half of the outstanding and unpaid
principal portion of this Note of $25,000 or greater amount, or any lesser
amount representing the full remaining outstanding and unpaid principal portion
and at the Holder's election, the accrued interest on the Note (the date of
giving of such notice of conversion being a
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"Conversion Date") into fully paid and nonassessable shares of Common Stock of
Borrower as such stock exists on the date of issuance of this Note, or any
shares of capital stock of Borrower into which such stock shall hereafter be
changed or reclassified (the "Common Stock") at the conversion price as defined
in Section 2.1(b) hereof (the "Conversion Price"), determined as provided
herein. The entire principal amount of this Note and interest accrued thereon
may be converted commencing 270 days from the issue date of this Note. Upon the
delivery of this Note to the Borrower according to the procedure described in
the subscription agreement entered into between the Company and Holder (the
"Subscription Agreement"), accompanied, preceded or followed by notice from the
Holder to the Company of the Holder's written request for conversion, Borrower
shall issue and deliver to the Holder within seven days of the Conversion Date
that number of shares of Common Stock for the portion of the Note and/or
interest converted in accordance with the foregoing and a new Note in the form
hereof for the balance of the principal amount hereof, and/or interest if any.
The number of shares of Common Stock to be issued upon each conversion of this
Note shall be determined by dividing that portion of the principal and/or
interest on the Note to be converted, by the Conversion Price.
(b) Subject to adjustment as provided in Section 2.1(c) hereof, the
Conversion Price per share shall be the lowest of: (i) the closing bid price
for the Common Stock on the NASDAQ SmallCap Market, or on any securities
exchange or other securities market on which the Common Stock is then being
traded, for the five trading days prior to the issue date of this Note; (ii)
eighty (80%) of the average closing bid price for the Common Stock on the
NASDAQ SmallCap Market, or on any securities exchange or other securities
market on which the Common Stock is then being traded, for the five trading
days immediately preceding (but not including) the Conversion Date with respect
to the Note principal and interest accrued thereon if the Conversion Date is
sooner than 270 days from the original issue date of this Note; or (iii)
seventy-five percent (75%) of the average closing bid price for the Common
Stock on the NASDAQ SmallCap Market, or on any securities exchange or other
securities market on which the Common Stock is then being traded, for the five
(5) trading days immediately preceding (but not including) the Conversion Date
with respect to the Note principal and interest accrued thereon if the
Conversion Date is on or later than 270 days after the original issue date of
this Note.
(c) The Conversion Price and number and kind of shares or other
securities to be issued upon conversion determined pursuant to Section 2.1(a)
and 2.1(b), shall be subject to adjustment from time to time upon the happening
of certain events while this conversion right remains outstanding, as follows:
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A. Merger, Sale of Assets, etc. If the Borrower at any time shall
consolidate with or merge into or sell or convey all or substantially all its
assets to any other corporation, this Note, as to the unpaid principal portion
thereof and accrued interest thereon, shall thereafter be deemed to evidence
the right to purchase such number and kind of shares or other securities and
property as would have been issuable or distributable on account of such
consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately prior to
such consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or
conveyance.
B. Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase such number and kind of securities
as would have been issuable as the result of such change with respect to the
Common Stock immediately prior to such reclassification or other change.
C. Stock Splits, Combinations and Dividends. If the shares of Common
Stock are subdivided or combined into a greater or smaller number of shares of
Common Stock, or if a dividend is paid on the Common Stock in shares of Common
Stock, the Conversion Price shall be proportionately reduced in case of
subdivision of shares or stock dividend or proportionately increased in the
case of combination of shares, in each such case by the ratio which the total
number of shares of Common Stock outstanding immediately after such event bears
to the total number of shares of Common Stock outstanding immediately prior to
such event.
D. Share Issuance. Subject to the provisions of this Section, if the
Borrower at any time shall issue any shares of Common Stock prior to the
conversion of the entire principal amount of the Note (otherwise than as: (i)
provided in Sections 2.1(c)A, 2.1(c)B or 2.1(c)C or this subparagraph D; (ii)
pursuant to options, warrants, or other obligations to issue shares,
outstanding on the date hereof as described in the Reports and Other Written
Information, as such terms are defined in the Subscription Agreement (which
agreement is incorporated herein by this reference); [(i) and (ii) above, are
hereinafter referred to as the "Existing Option Obligations"] for a
consideration less than the Conversion Price that would be in effect at the
time of such issue, then, and thereafter successively upon each such issue,
the
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Conversion Price shall be reduced as follows: (i) the number of shares of
Common Stock outstanding immediately prior to such issue shall be multiplied by
the Conversion Price in effect at the time of such issue and the product shall
be added to the aggregate consideration, if any, received by the Borrower upon
such issue of additional shares of Common Stock; and (ii) the sum so obtained
shall be divided by the number of shares of Common Stock outstanding
immediately after such issue. The resulting quotient shall be the adjusted
conversion price. Except for the Existing Option Obligations and options that
may be issued under any employee incentive stock option and/or any nonqualified
stock option plan adopted by the Company, for purposes of this adjustment, the
issuance of any security of the Borrower carrying the right to convert such
security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in an adjustment to the Conversion Price
upon the issuance of shares of Common Stock upon exercise of such conversion or
purchase rights.
(d) Note principal not previously converted into shares of Common
Stock may be converted by the Borrower into shares of Common Stock without
further action of the Holder on the date that is two years from the date of
issuance thereof, at the Conversion Price then in effect ("Mandatory
Conversion"). Notice of such conversion by the Borrower shall be given not less
than thirty (30) days prior to the applicable date of such Mandatory Conversion
(the "Mandatory Conversion Date"). As applicable, the notice shall specify Note
principal to be converted, the date fixed for conversion, and the conversion
price per share. In no event shall a Mandatory Conversion occur at any time
unless the Common Stock to be delivered upon conversion will be immediately
upon delivery and thereafter unlegended, freely tradable, and freely
transferable on the transfer books of the Borrower. A Mandatory Conversion may
not be effected by the Borrower if an Event of Default described in Article III
hereinafter has occurred or is continuing.
(e) During the period the conversion right exists, Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the full conversion of
this Note. Borrower represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable. Borrower agrees that its
issuance of this Note shall constitute full authority to its officers, agents,
and transfer agents who are charged with the duty of executing and issuing
stock certificates to execute and issue the necessary certificates for shares
of Common Stock upon the conversion of this Note.
2.2 Method of Conversion. This Note may be converted by the Holder
in whole or in part as described in Section 2.1(a) hereof and the Subscription
Agreement. Upon partial conversion of this Note, a new Note containing the same
date and provisions of
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this Note shall be issued by the Borrower to the Holder for the principal
balance of this Note and interest which shall not have been converted.
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, all without demand, presentment or
notice, or grace period, all of which hereby are expressly waived, except as
set forth below:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay
any installment of principal or interest hereon when due and such failure
continues for a period of ten (10) days after written notice to the Borrower
from the Holder.
3.2 Breach of Covenant. The Borrower breaches any covenant or other
term or condition of this Note and such breach continues for a period of seven
(7) days after written notice to the Borrower from the Holder.
3.3 Breach of Representations and Warranties. Any representation or
warranty of the Borrower made herein, in the Subscription Agreement entered
into by the Holder and Borrower in connection with this Note, or in any
agreement, statement or certificate given in writing pursuant hereto or in
connection herewith or in connection with the Subscription Agreement shall be
false or misleading.
3.4 Receiver or Trustee. The Borrower shall make an assignment for
the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.
3.5 Judgments. Any money judgment, writ or similar process shall be
entered or filed against Borrower or any of its property or other assets for
more than $50,000, and shall remain unvacated, unbonded or unstayed for a
period of forty-five (45) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Borrower.
5
<PAGE>
3.7 Delisting. Delisting of the Common Stock from the NASDAQ
SmallCap Market or such other principal exchange on which the Common Stock is
listed for trading.
3.8 Concession. A concession by the Company of a default under any
one or more obligations in an aggregate monetary amount in excess of $50,000.
3.9 Stop Trade. An SEC stop trade order or NASDAQ trading
suspension, if either applies for a period of ten days or longer.
3.10 Failure to Deliver Common Stock. Borrower's failure to timely
deliver Common Stock to the Holder or a replacement Note representing any
unconverted portion of this Note pursuant to this Note or Section 9 of the
Subscription Agreement.
3.11 Registration Default. The occurrence of a Registration Default
as described in Section 10.2(j) of the Subscription Agreement.
ARTICLE IV
MISCELLANEOUS
4.1 Failure or Indulgency Not Waiver. No failure or delay on the
part of Holder hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.
4.2 Notices. Any notice herein required or permitted to be given
shall be in writing and may be personally served or sent by fax transmission
(with copy sent by regular, certified or registered mail or by overnight
courier). For the purposes hereof, the address and fax number of the Holder is
as set forth on the first page hereof. The address and fax number of the
Borrower shall be Interiors, Inc., 320 Washington Street, Mt. Vernon, New York
10553, telecopier number: (914) 665-5469. Both Holder and Borrower may change
the address and fax number for service by service of notice to the other as
herein provided.
4.3 Amendment Provision. The term "Note" and all reference thereto,
as used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented
6
<PAGE>
4.4 Assignability. This Note shall be binding upon the Borrower and
its successors and assigns, and shall inure to the benefit of the Holder and
its successors and assigns, and may be assigned by the Holder.
4.5 Cost of Collection. If default is made in the payment of this
Note, Borrower shall pay the Holder hereof costs of collection, including
reasonable attorney's fees.
4.6 Governing Law. This Note shall be deemed to have been executed
in and shall be governed by the internal laws of the State of New York,
without regard to the principles of conflict of laws.
4.7 Prepayment. This Note may not be prepaid by the Borrower without
the consent of the Holder.
4.8 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate
of interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in
its name by its Chief Executive Officer on this 19 day of March, 1998.
INTERIORS, INC.
By: /s/ Max Munn
---------------------------------
President
<PAGE>
CONVERTIBLE NOTE
FOR VALUE RECEIVED, INTERIORS, INC., a Delaware corporation
(hereinafter called "Borrower"), hereby promises to pay to BALMORE FUNDS S.A.,
Francois Morax, P.O. Box 4603, Zurich, Switzerland, Fax No.: 011-411-201-6262
(the "Holder") or order, without demand, the sum of $375,000.00, with simple
interest accruing at the annual rate of 6%, on March 19, 2000 (the "Maturity
Date"), as such date may be extended by agreement of the parties hereto.
The following terms shall apply to this Note:
ARTICLE I
DEFAULT RELATED PROVISIONS
1.1 Payment Grace Period. The Borrower shall have a ten (10) day
grace period to pay any monetary amounts due under this Note, after which grace
period a default interest rate of 16% per annum shall apply to the amounts owed
hereunder.
1.2 Conversion Privileges. The Conversion Privileges set forth in
Article II shall remain in full force and effect immediately from the date
hereof and until the Note principal and interest are paid in full.
1.3 Interest Rate. At the earliest of each Conversion Date (as
hereinafter defined), quarterly in arrears, commencing July 1, 1998, or the
Maturity Date, accelerated or otherwise, the Borrower shall pay interest to the
Holder at the annual rate of 6% per annum.
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal amount and
interest due under this Note into Shares of the Borrower's Common Stock as set
forth below.
2.1. Conversion into the Borrower's Common Stock.
(a) The Holder shall have the right from and after 180 days after
the issuance of this Note and then at any time on or prior to the Maturity
Date, as it may be extended by agreement of the parties hereto, and until this
Note is fully paid, to convert up to one-half of the outstanding and unpaid
principal portion of this Note of $25,000 or greater amount, or any lesser
amount representing the full remaining outstanding and unpaid principal portion
and at the Holder's election, the accrued interest on the Note (the date of
giving of such notice of conversion being a
1
<PAGE>
"Conversion Date") into fully paid and nonassessable shares of Common Stock of
Borrower as such stock exists on the date of issuance of this Note, or any
shares of capital stock of Borrower into which such stock shall hereafter be
changed or reclassified (the "Common Stock") at the conversion price as defined
in Section 2.1(b) hereof (the "Conversion Price"), determined as provided
herein. The entire principal amount of this Note and interest accrued thereon
may be converted commencing 270 days from the issue date of this Note. Upon the
delivery of this Note to the Borrower according to the procedure described in
the subscription agreement entered into between the Company and Holder (the
"Subscription Agreement"), accompanied, preceded or followed by notice from the
Holder to the Company of the Holder's written request for conversion, Borrower
shall issue and deliver to the Holder within seven days of the Conversion Date
that number of shares of Common Stock for the portion of the Note and/or
interest converted in accordance with the foregoing and a new Note in the form
hereof for the balance of the principal amount hereof, and/or interest if any.
The number of shares of Common Stock to be issued upon each conversion of this
Note shall be determined by dividing that portion of the principal and/or
interest on the Note to be converted, by the Conversion Price.
(b) Subject to adjustment as provided in Section 2.1(c) hereof, the
Conversion Price per share shall be the lowest of: (i) the closing bid price
for the Common Stock on the NASDAQ SmallCap Market, or on any securities
exchange or other securities market on which the Common Stock is then being
traded, for the five trading days prior to the issue date of this Note; (ii)
eighty (80%) of the average closing bid price for the Common Stock on the
NASDAQ SmallCap Market, or on any securities exchange or other securities
market on which the Common Stock is then being traded, for the five trading
days immediately preceding (but not including) the Conversion Date with respect
to the Note principal and interest accrued thereon if the Conversion Date is
sooner than 270 days from the original issue date of this Note; or (iii)
seventy-five percent (75%) of the average closing bid price for the Common
Stock on the NASDAQ SmallCap Market, or on any securities exchange or other
securities market on which the Common Stock is then being traded, for the five
(5) trading days immediately preceding (but not including) the Conversion Date
with respect to the Note principal and interest accrued thereon if the
Conversion Date is on or later than 270 days after the original issue date of
this Note.
(c) The Conversion Price and number and kind of shares or other
securities to be issued upon conversion determined pursuant to Section 2.1(a)
and 2.1(b), shall be subject to adjustment from time to time upon the happening
of certain events while this conversion right remains outstanding, as follows:
2
<PAGE>
A. Merger, Sale of Assets, etc. If the Borrower at any time shall
consolidate with or merge into or sell or convey all or substantially all its
assets to any other corporation, this Note, as to the unpaid principal portion
thereof and accrued interest thereon, shall thereafter be deemed to evidence
the right to purchase such number and kind of shares or other securities and
property as would have been issuable or distributable on account of such
consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately prior to
such consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or
conveyance.
B. Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase such number and kind of securities
as would have been issuable as the result of such change with respect to the
Common Stock immediately prior to such reclassification or other change.
C. Stock Splits, Combinations and Dividends. If the shares of Common
Stock are subdivided or combined into a greater or smaller number of shares of
Common Stock, or if a dividend is paid on the Common Stock in shares of Common
Stock, the Conversion Price shall be proportionately reduced in case of
subdivision of shares or stock dividend or proportionately increased in the
case of combination of shares, in each such case by the ratio which the total
number of shares of Common Stock outstanding immediately after such event bears
to the total number of shares of Common Stock outstanding immediately prior to
such event.
D. Share Issuance. Subject to the provisions of this Section, if the
Borrower at any time shall issue any shares of Common Stock prior to the
conversion of the entire principal amount of the Note (otherwise than as: (i)
provided in Sections 2.1(c)A, 2.1(c)B or 2.1(c)C or this subparagraph D; (ii)
pursuant to options, warrants, or other obligations to issue shares,
outstanding on the date hereof as described in the Reports and Other Written
Information, as such terms are defined in the Subscription Agreement (which
agreement is incorporated herein by this reference); [(i) and (ii) above, are
hereinafter referred to as the "Existing Option Obligations"] for a
consideration less than the Conversion Price that would be in effect at the
time of such issue, then, and thereafter successively upon each such issue,
the
3
<PAGE>
Conversion Price shall be reduced as follows: (i) the number of shares of
Common Stock outstanding immediately prior to such issue shall be multiplied by
the Conversion Price in effect at the time of such issue and the product shall
be added to the aggregate consideration, if any, received by the Borrower upon
such issue of additional shares of Common Stock; and (ii) the sum so obtained
shall be divided by the number of shares of Common Stock outstanding
immediately after such issue. The resulting quotient shall be the adjusted
conversion price. Except for the Existing Option Obligations and options that
may be issued under any employee incentive stock option and/or any nonqualified
stock option plan adopted by the Company, for purposes of this adjustment, the
issuance of any security of the Borrower carrying the right to convert such
security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in an adjustment to the Conversion Price
upon the issuance of shares of Common Stock upon exercise of such conversion or
purchase rights.
(d) Note principal not previously converted into shares of Common
Stock may be converted by the Borrower into shares of Common Stock without
further action of the Holder on the date that is two years from the date of
issuance thereof, at the Conversion Price then in effect ("Mandatory
Conversion"). Notice of such conversion by the Borrower shall be given not less
than thirty (30) days prior to the applicable date of such Mandatory Conversion
(the "Mandatory Conversion Date"). As applicable, the notice shall specify Note
principal to be converted, the date fixed for conversion, and the conversion
price per share. In no event shall a Mandatory Conversion occur at any time
unless the Common Stock to be delivered upon conversion will be immediately
upon delivery and thereafter unlegended, freely tradable, and freely
transferable on the transfer books of the Borrower. A Mandatory Conversion may
not be effected by the Borrower if an Event of Default described in Article III
hereinafter has occurred or is continuing.
(e) During the period the conversion right exists, Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the full conversion of
this Note. Borrower represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable. Borrower agrees that its
issuance of this Note shall constitute full authority to its officers, agents,
and transfer agents who are charged with the duty of executing and issuing
stock certificates to execute and issue the necessary certificates for shares
of Common Stock upon the conversion of this Note.
2.2 Method of Conversion. This Note may be converted by the Holder
in whole or in part as described in Section 2.1(a) hereof and the Subscription
Agreement. Upon partial conversion of this Note, a new Note containing the same
date and provisions of
4
<PAGE>
this Note shall be issued by the Borrower to the Holder for the principal
balance of this Note and interest which shall not have been converted.
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, all without demand, presentment or
notice, or grace period, all of which hereby are expressly waived, except as
set forth below:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay
any installment of principal or interest hereon when due and such failure
continues for a period of ten (10) days after written notice to the Borrower
from the Holder.
3.2 Breach of Covenant. The Borrower breaches any covenant or other
term or condition of this Note and such breach continues for a period of seven
(7) days after written notice to the Borrower from the Holder.
3.3 Breach of Representations and Warranties. Any representation or
warranty of the Borrower made herein, in the Subscription Agreement entered
into by the Holder and Borrower in connection with this Note, or in any
agreement, statement or certificate given in writing pursuant hereto or in
connection herewith or in connection with the Subscription Agreement shall be
false or misleading.
3.4 Receiver or Trustee. The Borrower shall make an assignment for
the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.
3.5 Judgments. Any money judgment, writ or similar process shall be
entered or filed against Borrower or any of its property or other assets for
more than $50,000, and shall remain unvacated, unbonded or unstayed for a
period of forty-five (45) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Borrower.
5
<PAGE>
3.7 Delisting. Delisting of the Common Stock from the NASDAQ
SmallCap Market or such other principal exchange on which the Common Stock is
listed for trading.
3.8 Concession. A concession by the Company of a default under any
one or more obligations in an aggregate monetary amount in excess of $50,000.
3.9 Stop Trade. An SEC stop trade order or NASDAQ trading
suspension, if either applies for a period of ten days or longer.
3.10 Failure to Deliver Common Stock. Borrower's failure to timely
deliver Common Stock to the Holder or a replacement Note representing any
unconverted portion of this Note pursuant to this Note or Section 9 of the
Subscription Agreement.
3.11 Registration Default. The occurrence of a Registration Default
as described in Section 10.2(j) of the Subscription Agreement.
ARTICLE IV
MISCELLANEOUS
4.1 Failure or Indulgency Not Waiver. No failure or delay on the
part of Holder hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.
4.2 Notices. Any notice herein required or permitted to be given
shall be in writing and may be personally served or sent by fax transmission
(with copy sent by regular, certified or registered mail or by overnight
courier). For the purposes hereof, the address and fax number of the Holder is
as set forth on the first page hereof. The address and fax number of the
Borrower shall be Interiors, Inc., 320 Washington Street, Mt. Vernon, New York
10553, telecopier number: (914) 665-5469. Both Holder and Borrower may change
the address and fax number for service by service of notice to the other as
herein provided.
4.3 Amendment Provision. The term "Note" and all reference thereto,
as used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
6
<PAGE>
4.4 Assignability. This Notes shall be binding upon the Borrower and
its successors and assigns, and shall inure to the benefit of the Holder and
its successors and assigns, and may be assigned by the Holder.
4.5 Cost of Collection. If default is made in the payment of this
Notes, Borrower shall pay the Holder hereof costs of collection, including
reasonable attorneys' fees.
4.6 Governing Law. This Notes shall be deemed to have been executed
in and shall be governed by the internal laws of the State of New York,
without regard to the principles of conflict of laws.
4.7 Prepayment. This Note may not be prepaid by the Borrower without
the consent of the Holder.
4.8 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate
of interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holders and thus refunded to the
Borrower.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in
its name by its Chief Executive Officer on this 19 day of March, 1998.
INTERIORS, INC.
By: /s/ Max Munn
---------------------------------
President
<PAGE>
CONVERTIBLE NOTE
FOR VALUE RECEIVED, INTERIORS, INC., a Delaware corporation
(hereinafter called "Borrower"), hereby promises to pay to TUSK INVESTMENT
INC., Francois Morax, P.O. Box 4603, Zurich, Switzerland, Fax No.:
011-411-201-6262 (the "Holder") or order, without demand, the sum of
$375,000.00, with simple interest accruing at the annual rate of 6%, on March
19, 2000 (the "Maturity Date"), as such date may be extended by agreement of
the parties hereto.
The following terms shall apply to this Note:
ARTICLE I
DEFAULT RELATED PROVISIONS
1.1 Payment Grace Period. The Borrower shall have a ten (10) day
grace period to pay any monetary amounts due under this Note, after which grace
period a default interest rate of 16% per annum shall apply to the amounts owed
hereunder.
1.2 Conversion Privileges. The Conversion Privileges set forth in
Article II shall remain in full force and effect immediately from the date
hereof and until the Note principal and interest are paid in full.
1.3 Interest Rate. At the earliest of each Conversion Date (as
hereinafter defined), quarterly in arrears, commencing July 1, 1998, or the
Maturity Date, accelerated or otherwise, the Borrower shall pay interest to the
Holder at the annual rate of 6% per annum.
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal amount and
interest due under this Note into Shares of the Borrower's Common Stock as set
forth below.
2.1. Conversion into the Borrower's Common Stock.
--------------------------------------------
(a) The Holder shall have the right from and after 180 days after
the issuance of this Note and then at any time on or prior to the Maturity
Date, as it may be extended by agreement of the parties hereto, and until this
Note is fully paid, to convert up to one-half of the outstanding and unpaid
principal portion of this Note of $25,000 or greater amount, or any lesser
amount representing the full remaining outstanding and unpaid principal portion
and at the Holder's election, the accrued interest on the Note (the date of
giving of such notice of conversion being a
1
<PAGE>
"Conversion Date") into fully paid and nonassessable shares of Common Stock of
Borrower as such stock exists on the date of issuance of this Note, or any
shares of capital stock of Borrower into which such stock shall hereafter be
changed or reclassified (the "Common Stock") at the conversion price as defined
in Section 2.1(b) hereof (the "Conversion Price"), determined as provided
herein. The entire principal amount of this Note and interest accrued thereon
may be converted commencing 270 days from the issue date of this Note. Upon the
delivery of this Note to the Borrower according to the procedure described in
the subscription agreement entered into between the Company and Holder (the
"Subscription Agreement"), accompanied, preceded or followed by notice from the
Holder to the Company of the Holder's written request for conversion, Borrower
shall issue and deliver to the Holder within seven days of the Conversion Date
that number of shares of Common Stock for the portion of the Note and/or
interest converted in accordance with the foregoing and a new Note in the form
hereof for the balance of the principal amount hereof, and/or interest if any.
The number of shares of Common Stock to be issued upon each conversion of this
Note shall be determined by dividing that portion of the principal and/or
interest on the Note to be converted, by the Conversion Price.
(b) Subject to adjustment as provided in Section 2.1(c) hereof, the
Conversion Price per share shall be the lowest of: (i) the closing bid price
for the Common Stock on the NASDAQ SmallCap Market, or on any securities
exchange or other securities market on which the Common Stock is then being
traded, for the five trading days prior to the issue date of this Note; (ii)
eighty (80%) of the average closing bid price for the Common Stock on the
NASDAQ SmallCap Market, or on any securities exchange or other securities
market on which the Common Stock is then being traded, for the five trading
days immediately preceding (but not including) the Conversion Date with respect
to the Note principal and interest accrued thereon if the Conversion Date is
sooner than 270 days from the original issue date of this Note; or (iii)
seventy-five percent (75%) of the average closing bid price for the Common
Stock on the NASDAQ SmallCap Market, or on any securities exchange or other
securities market on which the Common Stock is then being traded, for the five
(5) trading days immediately preceding (but not including) the Conversion Date
with respect to the Note principal and interest accrued thereon if the
Conversion Date is on or later than 270 days after the original issue date of
this Note.
(c) The Conversion Price and number and kind of shares or other
securities to be issued upon conversion determined pursuant to Section 2.1(a)
and 2.1(b), shall be subject to adjustment from time to time upon the happening
of certain events while this conversion right remains outstanding, as follows:
2
<PAGE>
A. Merger, Sale of Assets, etc. If the Borrower at any time shall
consolidate with or merge into or sell or convey all or substantially all its
assets to any other corporation, this Note, as to the unpaid principal portion
thereof and accrued interest thereon, shall thereafter be deemed to evidence
the right to purchase such number and kind of shares or other securities and
property as would have been issuable or distributable on account of such
consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately prior to
such consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or
conveyance.
B. Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase such number and kind of securities
as would have been issuable as the result of such change with respect to the
Common Stock immediately prior to such reclassification or other change.
C. Stock Splits, Combinations and Dividends. If the shares of Common
Stock are subdivided or combined into a greater or smaller number of shares of
Common Stock, or if a dividend is paid on the Common Stock in shares of Common
Stock, the Conversion Price shall be proportionately reduced in case of
subdivision of shares or stock dividend or proportionately increased in the
case of combination of shares, in each such case by the ratio which the total
number of shares of Common Stock outstanding immediately after such event bears
to the total number of shares of Common Stock outstanding immediately prior to
such event.
D. Share Issuance. Subject to the provisions of this Section, if the
Borrower at any time shall issue any shares of Common Stock prior to the
conversion of the entire principal amount of the Note (otherwise than as: (i)
provided in Sections 2.1(c)A, 2.1(c)B or 2.1(c)C or this subparagraph D; (ii)
pursuant to options, warrants, or other obligations to issue shares,
outstanding on the date hereof as described in the Reports and Other Written
Information, as such terms are defined in the Subscription Agreement (which
agreement is incorporated herein by this reference); [(i) and (ii) above, are
hereinafter referred to as the "Existing Option Obligations"] for a
consideration less than the Conversion Price that would be in effect at the
time of such issue, then, and thereafter successively upon each such issue,
the
3
<PAGE>
Conversion Price shall be reduced as follows: (i) the number of shares of
Common Stock outstanding immediately prior to such issue shall be multiplied by
the Conversion Price in effect at the time of such issue and the product shall
be added to the aggregate consideration, if any, received by the Borrower upon
such issue of additional shares of Common Stock; and (ii) the sum so obtained
shall be divided by the number of shares of Common Stock outstanding
immediately after such issue. The resulting quotient shall be the adjusted
conversion price. Except for the Existing Option Obligations and options that
may be issued under any employee incentive stock option and/or any nonqualified
stock option plan adopted by the Company, for purposes of this adjustment, the
issuance of any security of the Borrower carrying the right to convert such
security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in an adjustment to the Conversion Price
upon the issuance of shares of Common Stock upon exercise of such conversion or
purchase rights.
(d) Note principal not previously converted into shares of Common
Stock may be converted by the Borrower into shares of Common Stock without
further action of the Holder on the date that is two years from the date of
issuance thereof, at the Conversion Price then in effect ("Mandatory
Conversion"). Notice of such conversion by the Borrower shall be given not less
than thirty (30) days prior to the applicable date of such Mandatory Conversion
(the "Mandatory Conversion Date"). As applicable, the notice shall specify Note
principal to be converted, the date fixed for conversion, and the conversion
price per share. In no event shall a Mandatory Conversion occur at any time
unless the Common Stock to be delivered upon conversion will be immediately
upon delivery and thereafter unlegended, freely tradable, and freely
transferable on the transfer books of the Borrower. A Mandatory Conversion may
not be effected by the Borrower if an Event of Default described in Article III
hereinafter has occurred or is continuing.
(e) During the period the conversion right exists, Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the full conversion of
this Note. Borrower represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable. Borrower agrees that its
issuance of this Note shall constitute full authority to its officers, agents,
and transfer agents who are charged with the duty of executing and issuing
stock certificates to execute and issue the necessary certificates for shares
of Common Stock upon the conversion of this Note.
2.2 Method of Conversion. This Note may be converted by the Holder
in whole or in part as described in Section 2.1(a) hereof and the Subscription
Agreement. Upon partial conversion of this Note, a new Note containing the same
date and provisions of
4
<PAGE>
this Note shall be issued by the Borrower to the Holder for the principal
balance of this Note and interest which shall not have been converted.
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, all without demand, presentment or
notice, or grace period, all of which hereby are expressly waived, except as
set forth below:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay
any installment of principal or interest hereon when due and such failure
continues for a period of ten (10) days after written notice to the Borrower
from the Holder.
3.2 Breach of Covenant. The Borrower breaches any covenant or other
term or condition of this Note and such breach continues for a period of seven
(7) days after written notice to the Borrower from the Holder.
3.3 Breach of Representations and Warranties. Any representation or
warranty of the Borrower made herein, in the Subscription Agreement entered
into by the Holder and Borrower in connection with this Note, or in any
agreement, statement or certificate given in writing pursuant hereto or in
connection herewith or in connection with the Subscription Agreement shall be
false or misleading.
3.4 Receiver or Trustee. The Borrower shall make an assignment for
the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.
3.5 Judgments. Any money judgment, writ or similar process shall be
entered or filed against Borrower or any of its property or other assets for
more than $50,000, and shall remain unvacated, unbonded or unstayed for a
period of forty-five (45) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Borrower.
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<PAGE>
3.7 Delisting. Delisting of the Common Stock from the NASDAQ
SmallCap Market or such other principal exchange on which the Common Stock is
listed for trading.
3.8 Concession. A concession by the Company of a default under any
one or more obligations in an aggregate monetary amount in excess of $50,000.
3.9 Stock Trade. An SEC stop trade order or NASDAQ trading
suspension, if either applies for a period of ten days or longer.
3.10 Failure to Deliver Common Stock. Borrower's failure to timely
deliver Common Stock to the Holder or a replacement Note representing any
unconverted portion of this Note pursuant to this Note or Section 9 of the
Subscription Agreement.
3.11 Registration Default. The occurrence of a Registration Default
as described in Section 10.2(j) of the Subscription Agreement.
ARTICLE IV
MISCELLANEOUS
4.1 Failure or Indulgency Not Waiver. No failure or delay on the
part of Holder hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.
4.2 Notices. Any notice herein required or permitted to be given
shall be in writing and may be personally served or sent by fax transmission
(with copy sent by regular, certified or registered mail or by overnight
courier). For the purposes hereof, the address and fax number of the Holder is
as set forth on the first page hereof. The address and fax number of the
Borrower shall be Interiors, Inc., 320 Washington Street, Mt. Vernon, New York
10553, telecopier number: (914) 665-5469. Both Holder and Borrower may change
the address and fax number for service by service of notice to the other as
herein provided.
4.3 Amendment Provision. The term "Note" and all reference thereto,
as used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
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<PAGE>
4.4 Assignability. This Note shall be binding upon the Borrower and
its successors and assigns, and shall inure to the benefit of the Holder and
its successors and assigns, and may be assigned by the Holder.
4.5 Cost of Collection. If default is made in the payment of this
Note, Borrower shall pay the Holder hereof costs of collection, including
reasonable attorneys' fees.
4.6 Governing Law. This Note shall be deemed to have been executed
in and shall be governed by the internal laws of the State of New York,
without regard to the principles of conflict of laws.
4.7 Prepayment. This Note may not be prepaid by the Borrower without
the consent of the Holder.
4.8 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate
of interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holders and thus refunded to the
Borrower.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in
its name by its Chief Executive Officer on this 19 day of March, 1998.
INTERIORS, INC.
By: /s/ Max Munn
---------------------------------
President
<PAGE>
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE
UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
WARRANT UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO INTERIORS, INC. THAT SUCH REGISTRATION IS
NOT REQUIRED.
Right to Purchase 87,500 Shares of
Common Stock of Interiors, Inc.
(subject to adjustment as provided
herein)
COMMON STOCK PURCHASE WARRANT
No. 1 March 19, 1998
Interiors, Inc., a corporation organized under the laws of the State of
Delaware (the "Company"), hereby certifies that, for value received, AUSTOST
ANSTALT SCHAAN, or assigns, is entitled, subject to the terms set forth
below, to purchase from the Company after March 19, 1998 at any time or from
time to time before 5:00 p.m., New York time, on March 19, 2000 (the
"Expiration Date"), up to 87,500 fully paid and nonassessable shares of Class
A Common Stock (as hereinafter defined), $.001 par value per share, of the
Company, at a purchase price of $1.75 per share (such purchase price per
share as adjusted from time to time as herein provided is referred to herein
as the "Purchase Price"). The number and character of such shares of Common
Stock and the Purchase Price are subject to adjustment as provided herein.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term Company shall include Interiors, Inc. and any corporation
which shall succeed or assume the obligations of Interiors, Inc. hereunder.
(b) The term "Common Stock" includes (a) the Company's Class A Common
Stock, $.001 par value per share, as authorized on the date of the Agreement,
(b) any other capital stock of any class or classes (however designated) of
the Company, authorized on or after such date, the holders of which shall
have the right, without limitation as to amount, either to all or to a share
of the balance of current dividends and liquidating dividends after the
payment of dividends and distributions on any shares entitled to preference,
and the holders of which shall ordinarily, in the absence of contingencies,
be entitled to vote for the election of a majority of directors of the
Company (even if the right so to vote has been suspended by the happening of
such a contingency) and (c) any other securities into which
1
<PAGE>
or for which any of the securities described in (a) or (b) may be converted
or exchanged pursuant to a plan of recapitalization, reorganization, merger,
sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of
or in addition to Common Stock, or which at any time shall be issuable or
shall have been issued in exchange for or in replacement of Common Stock or
Other Securities pursuant to Section 5 or otherwise.
1. Exercise of Warrant.
--------------------
1.1 Number of Shares Issuable upon Exercise. From and after the date
hereof through and including the Expiration Date, the holder hereof shall be
entitled to receive, upon exercise of this Warrant in whole in accordance
with the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company,
subject to adjustment pursuant to Section 4.
1.2 Full Exercise. This Warrant may be exercised in full by the holder
hereof by surrender of this Warrant, with the form of subscription attached
as Exhibit A hereto (the "Subscription Form") duly executed by such holder,
to the Company at its principal office or at the office of its Warrant agent
(as provided in Section 11), accompanied by payment, in cash or by certified
or official bank check payable to the order of the Company, in the amount
obtained by multiplying the number of shares of Common Stock for which this
Warrant is then exercisable by the Purchase Price (as hereinafter defined)
then in effect.
1.3 Partial Exercise. This Warrant may be exercised in part (but not for
a fractional share) by surrender of this Warrant in the manner and at the
place provided in subsection 1.2 except that the amount payable by the holder
on such partial exercise shall be the amount obtained by multiplying (a) the
number of shares of Common Stock designated by the holder in the Subscription
Form by (b) the Purchase Price then in effect. On any such partial exercise,
the Company, at its expense, will forthwith issue and deliver to or upon the
order of the holder hereof a new Warrant of like tenor, in the name of the
holder hereof or as such holder (upon payment by such holder of any
applicable transfer taxes), may request, the number of shares of Common Stock
for which such Warrant may still be exercised.
1.4 Fair Market Value. Fair Market Value of a share of Common Stock as
of a particular date (the "Determination Date") shall mean the Fair Market
Value of a share of the Company's Common Stock. Fair Market Value of a share
of Common Stock as of a Determination Date shall mean:
(a) If the Company's Common Stock is traded on an exchange or is quoted
on the National Association of Securities Dealers, Inc. Automated Quotation
2
<PAGE>
("NASDAQ") National Market System or the NASDAQ SmallCap Market, then the
closing or last sale price, respectively, reported for the last business day
immediately preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an exchange or on
the NASDAQ National Market System or the NASDAQ SmallCap Market but is traded
in the over-the-counter market, then the mean of the closing bid and asked
prices reported for the last business day immediately preceding the
Determination Date.
(c) Except as provided in clause (d) below, if the Company's Common Stock
is not publicly traded, then as the Holder and the Company agree or in the
absence of agreement by arbitration in accordance with the rules then standing
of the American Arbitration Association, before a single arbitrator to be
chosen from a panel of persons qualified by education and training to pass on
the matter to be decided.
(d) If the Determination Date is the date of a liquidation, dissolution
or winding up, or any event deemed to be a liquidation, dissolution or winding
up pursuant to the Company's charter, then all amounts to be payable per share
to holders of the Common Stock pursuant to the charter in the event of such
liquidation, dissolution or winding up, plus all other amounts to be payable
per share in respect of the Common Stock in liquidation under the charter,
assuming for the purposes of this clause (d) that all of the shares of Common
Stock then issuable upon exercise of all of the Warrants are outstanding at the
Determination Date.
1.5 Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to
which such holder shall continue to be entitled after such exercise in
accordance with the provisions of this Warrant. If the holder shall fail to
make any such request, such failure shall not affect the continuing
obligation of the Company to afford to such holder any such rights.
1.6 Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the holders of the Warrants
pursuant to Subsection 3.1, such bank or trust company shall have all the
powers and duties of a warrant agent appointed pursuant to Section 10 and
shall accept, in its own name for the account of the Company or such
successor person as may be entitled thereto, all amounts otherwise payable to
the Company or such successor, as the case may be, on exercise of this
Warrant pursuant to this Section 1.
2. Delivery of Stock Certificates, etc. on Exercise. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall
be deemed to be issued to the holder hereof as the record owner of such
shares as of the close of business on the date on which this Warrant shall
have been surrendered and payment made for such shares as aforesaid. As soon
as practicable after the exercise of this Warrant in full or in part, and in
any event within 10 days thereafter, the Company at its expense (including
the
3
<PAGE>
payment by it of any applicable issue taxes) will cause to be issued in the
name of and delivered to the holder hereof, or as such holder (upon payment
by such holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of duly and validly issued, fully paid and
nonassessable shares of Common Stock (or Other Securities) to which such
holder shall be entitled on such exercise, plus, in lieu of any fractional
share to which such holder would otherwise be entitled, cash equal to such
fraction multiplied by the then Fair Market Value of one full share, together
with any other stock or other securities and property (including cash, where
applicable) to which such holder is entitled upon such exercise pursuant to
Section 1 or otherwise.
3. Adjustment for Reorganization, Consolidation, Merger, etc.
----------------------------------------------------------
3.1 Reorganization, Consolidation, Merger, etc. In case at any time or
from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any
plan or arrangement contemplating the dissolution of the Company, then, in
each such case, as a condition to the consummation of such a transaction,
proper and adequate provision shall be made by the Company whereby the holder
of this Warrant, on the exercise hereof as provided in Section 1 at any time
after the consummation of such reorganization, consolidation or merger or the
effective date of such dissolution, as the case may be, shall receive, in
lieu of the Common Stock (or Other Securities) issuable on such exercise
prior to such consummation or such effective date, the stock and other
securities and property (including cash) to which such holder would have been
entitled upon such consummation or in connection with such dissolution, as
the case may be, if such holder had so exercised this Warrant, immediately
prior thereto, all subject to further adjustment thereafter as provided in
Section 5.
3.2 Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or
assets, the Company, prior to such dissolution, shall at its expense deliver
or cause to be delivered the stock and other securities and property
(including cash, where applicable) receivable by the holders of the Warrants
after the effective date of such dissolution pursuant to this Section 3 to a
bank or trust company having its principal office in New York, NY, as trustee
for the holder or holders of the Warrants.
3.3 Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to
in this Section 4, this Warrant shall continue in full force and effect and
the terms hereof shall be applicable to the shares of stock and other
securities and property receivable on the exercise of this Warrant after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and
shall be binding upon the issuer or any such stock or other securities,
including, in the case of any such transfer, the person acquiring all or
substantially all of the properties or assets of the Company, whether or not
such person shall have expressly assumed the terms of this Warrant as
provided in Section 5.
4
<PAGE>
4. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend
or other distribution on outstanding Common Stock, (b) subdivide its
outstanding shares of Common Stock, or (c) combine its outstanding shares of
the Common Stock into a smaller number of shares of the Common Stock, then,
in each such event, the Purchase Price shall, simultaneously with the
happening of such event, be adjusted by multiplying the then Purchase Price
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such event and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after such event, and the product so obtained shall thereafter be the
Purchase Price then in effect. The Purchase Price, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive event or
events described herein in this Section 4. The number of shares of Common
Stock that the holder of this Warrant shall thereafter, on the exercise
hereof as provided in Section 1, be entitled to receive shall be increased to
a number determined by multiplying the number of shares of Common Stock that
would otherwise (but for the provisions of this Section 4) be issuable on
such exercise by a fraction of which (a) the numerator is the Purchase Price
that would otherwise (but for the provisions of this Section 4) be in effect,
and (b) the denominator is the Purchase Price in effect on the date of such
exercise.
5. Chief Financial Officer's Certificate as to Adjustments. In each case
of any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable on the exercise of the Warrants, the Company at its
expense will promptly cause its Chief Financial Officer to compute such
adjustment or readjustment in accordance with the terms of the Warrant and
prepare a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is
based, including a statement of (a) the consideration received or receivable
by the Company for any additional shares of Common Stock (or Other
Securities) issued or sold or deemed to have been issued or sold, (b) the
number of shares of Common Stock (or other Securities) outstanding or deemed
to be outstanding, and (c) the Purchase Price and the number of shares of
Common Stock to be received upon exercise of this Warrant, in effect
immediately prior to such adjustment or readjustment and as adjusted or
readjusted as provided in this Warrant. The Company will forthwith mail a
copy of each such certificate to the holder of the Warrant and any Warrant
agent of the Company (appointed pursuant to Section 10 hereof).
6. Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial
Statements. The Company will at all times reserve and keep available, solely
for issuance and delivery on the exercise of the Warrants, all shares of
Common Stock (or Other Securities) from time to time issuable on the exercise
of the Warrant. This Warrant entitles the holder hereof to receive copies of
all financial and other information distributed or required to be distributed
to the holders of the Company's Common Stock.
5
<PAGE>
7. Assignment; Exchange of Warrant. Subject to compliance with applicable
Securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a "Transferor") with respect to
any or all of the Shares. On the surrender for exchange of this Warrant, with
the Transferor's endorsement in the form of Exhibit B attached hereto (the
"Transferor Endorsement Form"), to the Company, the Company at its expense but
with payment by the Transferor of any applicable transfer taxes, will issue
and deliver to or on the order of the Transferor thereof a new Warrant or
Warrants of like tenor, in the name of the Transferor and/or the
transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the
Warrant so surrendered by the Transferor.
8. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of any indemnity agreement or security reasonably satisfactory in
form and amount to the Company or, in the case of any such mutilation, on
surrender and cancellation of this Warrant, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Registration rights. The holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in a Subscription Agreement entered into by the Company and the initial
issuee of this Warrant at or prior to the issue date of this Warrant. The
terms of the Subscription Agreement are incorporated herein by this
reference.
10. Warrant Agent. The Company may, by written notice to the each holder
of the Warrant, appoint an agent having an office in New York, NY for the
purpose of issuing Common Stock (or Other Securities) on the exercise of this
Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7,
and replacing this Warrant pursuant to Section 8, or any of the foregoing,
and thereafter any such issuance, exchange or replacement, as the case may
be, shall be made at such office by such agent.
11. Transfer on the Company's Books. Until this Warrant is transferred on
the books of the Company, the Company may treat the registered holder hereof
as the absolute owner hereof for all purposes, notwithstanding any notice to
the contrary.
12. Notices, etc. All notices and other communications from the Company to
the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished
to the Company in writing by such holder or, until any such holder furnishes
to the Company an address, then to, and at the address of, the last holder of
this Warrant who has so furnished an address to the Company.
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<PAGE>
13. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by
the party against which enforcement of such change, waiver, discharge or
termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the laws of New York. Any dispute relating to
this Warrant shall be adjudicated in New York State. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as of
the date first written above.
INTERIORS, INC.
By: /s/ Max Munn
--------------------------------
Title: President
-----------------------------
Witness:
- ---------------------------
7
<PAGE>
EXHIBIT A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: Interiors, Inc.
The undersigned, the holder of the within Warrant, hereby irrevocably elects
to exercise this Warrant for, and to purchase thereunder, ______ shares of
Common Stock of Interiors, Inc. and herewith makes payment of $______
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to __________ whose address is______________________
____________________________________________________________.
Dated: _____________________
-----------------------------------
(Signature must conform to name of
holder as specified on the face of
the Warrant)
-----------------------------------
(Address)
8
<PAGE>
EXHIBIT B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto the person(s) named below under the heading "Transferees" the right
represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of Interiors, Inc. to which the within Warrant relates
specified under the headings "Percentage Transferred" and "Number
Transferred," respectively, opposite the name(s) of such person(s) and
appoints each such person Attorney to transfer its respective right on the
books of Interiors, Inc. with full power of substitution in the premises.
<TABLE>
<CAPTION>
PERCENTAGE NUMBER
TRANSFEREES TRANSFERRED TRANSFERRED
- --------------- --------------- ---------------
<S> <C> <C>
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
</TABLE>
Dated: _______________, 19__ __________________________________________
(Signature must conform to name of holder
as specified on the face of the warrant)
Signed in the presence of:
_______________________________ __________________________________________
(Name) (address)
ACCEPTED AND AGREED:
[TRANSFEREE]
_______________________________ __________________________________________
(Name) (address)
9
<PAGE>
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
WARRANT UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO INTERIORS, INC. THAT SUCH REGISTRATION IS
NOT REQUIRED.
Right to Purchase 43,750 Share of
Common Stock of Interiors, Inc.
(subject to adjustment as provided
herein)
COMMON STOCK PURCHASE WARRANT
NO. 2
March 19, 1998
Interiors, Inc., a corporation organized under the laws of the State of
Delaware (the "Company"), hereby certifies that, for value received, BALMORE
FUNDS S.A., or assigns, is entitled, subject to the terms set forth below, to
purchase from the Company after March 19, 1998 at any time or from time to time
before 5:00 p.m., New York time, on March 19, 2000 (the "Expiration Date"), up
to 43,750 fully paid and nonassessable shares of Class A Common Stock (as
hereinafter defined), $.001 par value per share, of the Company, at a purchase
price of $1.75 per share (such purchase price per share as adjusted from time
to time as herein provided is referred to herein as the "Purchase Price"). The
number and character of such shares of Common Stock and the Purchase Price are
subject to adjustment as provided herein.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term Company shall include Interiors, Inc. and any corporation
which shall succeed or assume the obligations of Interiors, Inc. hereunder.
(b) The term "Common Stock" includes (a) the Company's Class A Common
Stock, $.001 par value per share, as authorized on the date of the Agreement,
(b) any other capital stock of any class or classes (however designated) of the
Company, authorized on or after such date, the holders of which shall have the
right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and the
holders of which shall ordinarily, in the absence of contingencies, be entitled
to vote for the election of a majority of directors of the Company (even if the
right so to vote has been suspended by the happening of such a contingency) and
(c) any other securities into which
1
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or for which any of the securities described in (a) or (b) may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 5 or otherwise.
1. Exercise of Warrant.
--------------------
1.1. Number of Shares Issuable upon Exercise. From and after the date
hereof through and including the Expiration Date, the holder hereof shall be
entitled to receive, upon exercise of this Warrant in whole in accordance with
the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2. Full Exercise. This Warrant may be exercised in full by the holder
hereof by surrender of this Warrant, with the form of subscription attached as
Exhibit A hereto (the Subscription Form") duly executed by such holder, to the
Company at its principal office or at the office of its Warrant agent (as
provided in Section 11), accompanied by payment, in cash or by certified or
official bank check payable to the order of the Company, in the amount obtained
by multiplying the number of shares of Common Stock for which this Warrant is
then exercisable by the Purchase Price (as hereinafter defined) then in effect.
1.3. Partial Exercise. This Warrant may be exercised in part (but not
for a fractional share) by surrender of this Warrant in the manner and at the
place provided in subsection 1.2 except that the amount payable by the holder
on such partial exercise shall be the amount obtained by multiplying (a) the
number of shares of Common Stock designated by the holder in the Subscription
Form by (b) the Purchase Price then in effect. On any such partial exercise,
the Company, at its expense, will forthwith issue and deliver to or upon the
order of the holder hereof a new Warrant of like tenor, in the name of the
holder hereof or as such holder (upon payment by such holder of any applicable
transfer taxes), may request, the number of shares of Common Stock for which
such Warrant may still be exercised.
1.4. Fair Market Value. Fair Market Value of a share of Common Stock as
of a particular date (the "Determination Date") shall mean the Fair Market
Value of a share of the Company's Common Stock. Fair Market Value of a share of
Common Stock as of a Determination Date shall mean:
(a) If the Company's Common Stock is traded on an exchange or is
quoted on the National Association of Securities Dealers, Inc. Automated
Quotation
2
<PAGE>
("NASDAQ") National Market System or the NASDAQ SmallCap Market, then the
closing or last sale price, respectively, reported for the last business day
immediately preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an exchange
or on the NASDAQ National Market System or the NASDAQ SmallCap Market but is
traded in the over-the-counter market, then the mean of the closing bid and
asked prices reported for the last business day immediately preceding the
Determination Date.
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company agree
or in the absence of agreement by arbitration in accordance with the rules then
standing of the American Arbitration Association, before a single arbitrator to
be chosen from a panel of persons qualified by education and training to pass
on the matter to be decided.
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event
of such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5 Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance
with the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the holders of the Warrants
pursuant to Subsection 3.1, such bank or trust company shall have all the
powers and duties of a warrant agent appointed pursuant to Section 10 and shall
accept, in its own name for the account of the Company or such successor person
as may be entitled thereto, all amounts otherwise payable to the Company or
such successor, as the case may be, on exercise of this Warrant pursuant to
this Section 1.
2. Delivery of Stock Certificates, etc. on Exercise. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall
be deemed to be issued to the holder hereof as the record owner of such shares
as of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 10 days thereafter, the Company at its expense (including the
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<PAGE>
payment by it of any applicable issue taxes) will cause to be issued in the
name of and delivered to the holder hereof, or as such holder (upon payment by
such holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of duly and validly issued, fully paid and
nonassessable shares of Common Stock (or Other Securities) to which such holder
shall be entitled on such exercise, plus, in lieu of any fractional share to
which such holder would otherwise be entitled, cash equal to such fraction
multiplied by the then Fair Market Value of one full share, together with any
other stock or other securities and property (including cash, where applicable)
to which such holder is entitled upon such exercise pursuant to Section 1 or
otherwise.
3. Adjustment for Reorganization, Consolidation, Merger, etc.
----------------------------------------------------------
3.1. Reorganization, Consolidation, Merger, etc. In case at any time or
from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any
plan or arrangement contemplating the dissolution of the Company, then, in each
such case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and
property (including cash) to which such holder would have been entitled upon
such consummation or in connection with such dissolution, as the case may be,
if such holder had so exercised this Warrant, immediately prior thereto, all
subject to further adjustment thereafter as provided in Section 5.
3.2. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause
to be delivered the stock and other securities and property (including cash,
where applicable) receivable by the holders of the Warrants after the effective
date of such dissolution pursuant to this Section 3 to a bank or trust company
having its principal office in New York, NY, as trustee for the holder or
holders of the Warrants.
3.3 Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 4, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities
and property receivable on the exercise of this Warrant after the consummation
of such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 5.
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<PAGE>
4. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such event, and
the product so obtained shall thereafter be the Purchase Price then in effect.
The Purchase Price, as so adjusted, shall be readjusted in the same manner upon
the happening of any successive event or events described herein in this
Section 4. The number of shares of Common Stock that the holder of this Warrant
shall thereafter, on the exercise hereof as provided in Section 1, be entitled
to receive shall be increased to a number determined by multiplying the number
of shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the
numerator is the Purchase Price that would otherwise (but for the provisions of
this Section 4) be in effect, and (b) the denominator is the Purchase Price in
effect on the date of such exercise.
5. Chief Financial Officer's Certificate as to Adjustments. In each case
of any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable on the exercise of the Warrants, the Company at its
expense will promptly cause its Chief Financial Officer to compute such
adjustment or readjustment in accordance with the terms of the Warrant and
prepare a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based,
including a statement of (a) the consideration received or receivable by the
Company for any additional shares of Common Stock (or Other Securities) issued
or sold or deemed to have been issued or sold, (b) the number of shares of
Common Stock (or other Securities) outstanding or deemed to be outstanding, and
(c) the Purchase Price and the number of shares of Common Stock to be received
upon exercise of this Warrant, in effect immediately prior to such adjustment
or readjustment and as adjusted or readjusted as provided in this Warrant. The
Company will forthwith mail a copy of each such certificate to the holder of
the Warrant and any Warrant agent of the Company (appointed pursuant to Section
10 hereof).
6. Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial
Statements. The Company will at all times reserve and keep available, solely
for issuance and delivery on the exercise of the Warrants, all shares of Common
Stock (or Other Securities) from time to time issuable on the exercise of the
Warrant. This Warrant entitles the holder hereof to receive copies of all
financial and other information distributed or required to be distributed to
the holders of the Company's Common Stock.
5
<PAGE>
7. Assignment; Exchange of Warrant. Subject to compliance with applicable
Securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a "Transferor") with respect to
any or all of the Shares. On the surrender for exchange of this Warrant, with
the Transferor's endorsement in the form of Exhibit B attached hereto (the
Transferor Endorsement Form"), to the Company, the Company at its expense but
with payment by the Transferor of any applicable transfer taxes will issue and
deliver to or on the order of the Transferor thereof a new Warrant or Warrants
of like tenor, in the name of the Transferor and/or the transferee(s) specified
in such Transferor Endorsement Form (each a "Transferee"), calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock
called for on the face or faces of the Warrant so surrendered by the
Transferor.
8. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of any indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
9. Registration Rights. The holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in a Subscription Agreement entered into by the Company and the initial
issuee of this Warrant at or prior to the issue date of this Warrant. The terms
of the Subscription Agreement are incorporated herein by this reference.
10. Warrant Agent. The Company may, by written notice to the each holder
of the Warrant, appoint an agent having an office in New York, NY for the
purpose of issuing Common Stock (or Other Securities) on the exercise of this
Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7,
and replacing this Warrant pursuant to Section 8, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be,
shall be made at such office by such agent.
11. Transfer on the Company's Books. Until this Warrant is transferred on
the books of the Company, the Company may treat the registered holder hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
12. Notices, etc. All notices and other communications from the Company to
the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to
the Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
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<PAGE>
13. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or
termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the laws of New York. Any dispute relating to
this Warrant shall be adjudicated in New York State. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as of
the date first written above.
INTERIORS, INC.
By: /s/ Max Munn
-------------------------------------
Title: President
----------------------------------
Witness:
- ---------------------------------
7
<PAGE>
EXHIBIT A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: Interiors, Inc.
The undersigned, the holder of the within Warrant, hereby irrevocably elects to
exercise this Warrant for, and to purchase thereunder, ___________ shares of
Common Stock of Interiors, Inc. and herewith makes payment of $_________
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to _____________ whose address is ____________________.
Dated:
------------------------------
---------------------------------------
(Signature must conform to name of
holder as specified on the face of the
Warrant)
---------------------------------------
(Address)
8
<PAGE>
EXHIBIT B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto the person(s) named below under the heading "Transferees" the right
represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of Interiors, Inc. to which the within Warrant relates
specified under the headings "Percentage Transferred" and "Number Transferred,"
respectively, opposite the name(s) of such person(s) and appoints each such
person Attorney to transfer its respective right on the books of Interiors,
Inc. with full power of substitution in the premises.
<TABLE>
<CAPTION>
PERCENTAGE NUMBER
TRANSFEREES TRANSFERRED TRANSFERRED
- ------------- ------------- ------------
<S> <C> <C>
</TABLE>
Dates: , 19
------------ -- --------------------------------
(Signature must conform to name
of holder as specified on the
face of the warrant)
Signed in the presence of:
- --------------------------------- ---------------------------------
(Name) (address)
ACCEPTED AND AGREED:
[TRANSFEREE]
- --------------------------------- ---------------------------------
(Name) (address)
9
<PAGE>
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE
OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER
SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO INTERIORS, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.
RIGHT TO PURCHASE 43,750 SHARES OF COMMON STOCK OF
INTERIORS, INC. (subject to adjustment as provided
herein)
COMMON STOCK PURCHASE WARRANT
No. 3 March 19, 1998
Interiors, Inc., a corporation organized under the laws of the State of
Delaware (the "Company"), hereby certifies that, for value received, TUSK
INVESTMENT INC., or assigns, is entitled, subject to the terms set forth
below, to purchase from the Company after March 19, 1998 at any time or from
time to time before 5:00 p.m., New York time, on March 19, 2000 (the
"Expiration Date"), up to 43,750 fully paid and nonassessable shares of Class A
Common Stock (as hereinafter defined), $.001 par value per share, of the
Company, at a purchase price of $1.75 per share (such purchase price per share
as adjusted from time to time as herein provided is referred to herein as the
"Purchase Price"). The number and character of such shares of Common Stock and
the Purchase Price are subject to adjustment as provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term Company shall include Interiors, Inc. and any corporation
which shall succeed or assume the obligations of Interiors, Inc. hereunder.
(b) The term "Common Stock" includes (a) the Company's Class A Common
Stock, $.001 par value per share, as authorized on the date of the Agreement,
(b) any other capital stock of any class or classes (however designated) of the
Company, authorized on or after such date, the holders of which shall have the
right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and the
holders of which shall ordinarily, in the absence of contingencies, be entitled
to vote for the election of a majority of directors of the Company (even if the
right so to vote has been suspended by the happening of such a contingency)
and (c) any other securities into which
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<PAGE>
or for which any of the securities described in (a) or (b) may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 5 or otherwise.
1. Exercise of Warrant.
--------------------
1.1. Number of Shares Issuable upon Exercise. From and after the date
hereof through and including the Expiration Date, the holder hereof shall be
entitled to receive, upon exercise of this Warrant in whole in accordance with
the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2 Full Exercise. This Warrant may be exercised in full by the holder
hereof by surrender of this Warrant, with the form of subscription attached as
Exhibit A hereto (the "Subscription Form") duly executed by such holder, to the
Company at its principal office or at the office of its Warrant agent (as
provided in Section 11), accompanied by payment, in cash or by certified or
official bank check payable to the order of the Company, in the amount obtained
by multiplying the number of shares of Common Stock for which this Warrant is
then exercisable by the Purchase Price (as hereinafter defined) then in effect.
1.3. Partial Exercise. This Warrant may be exercised in part (but not
for a fractional share) by surrender of this Warrant in the manner and at the
place provided in subsection 1.2 except that the amount payable by the holder
on such partial exercise shall be the amount obtained by multiplying (a) the
number of shares of Common Stock designated by the holder in the Subscription
Form by (b) the Purchase Price then in effect. On any such partial exercise,
the Company, at its expense, will forthwith issue and deliver to or upon the
order of the holder hereof a new Warrant of like tenor, in the name of the
holder hereof or as such holder (upon payment by such holder of any applicable
transfer taxes), may request, the number of shares of Common Stock for which
such Warrant may still be exercised.
1.4. Fair Market Value. Fair Market Value of a share of Common Stock as
of a particular date (the "Determination Date") shall mean the Fair Market
Value of a share of the Company's Common Stock. Fair Market Value of a share of
Common Stock as of a Determination Date shall mean:
(a)If the Company's Common Stock is traded on an exchange or is quoted
on the National Association of Securities Dealers, Inc. Automated Quotation
2
<PAGE>
("NASDAQ") National Market System or the NASDAQ SmallCap Market, then the
closing or last sale price, respectively, reported for the last business day
immediately preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an exchange or on
the NASDAQ National Market System or the NASDAQ SmallCap Market but is traded
in the over-the-counter market, then the mean of the closing bid and asked
prices reported for the last business day immediately preceding the
Determination Date.
(c) Except as provided in clause (d) below, if the Company's Common
Stock is not publicly traded, then as the Holder and the Company agree or in
the absence of agreement by arbitration in accordance with the rules then
standing of the American Arbitration Association, before a single arbitrator to
be chosen from a panel of persons qualified by education and training to pass
on to the matter to be decided.
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event
of such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares
of Common Stock then issuable upon exercise of all of the Warrants are
outstanding at the Determination Date.
1.5. Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance
with the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the holders of the Warrants
pursuant to Subsection 3.1, such bank or trust company shall have all the
powers and duties of a warrant agent appointed pursuant to Section 10 and shall
accept, in its own name for the account of the Company or such successor person
as may be entitled thereto, all amounts otherwise payable to the Company or
such successor, as the case may be, on exercise of this Warrant pursuant to
this Section 1.
2. Delivery of Stock Certificates, etc. on Exercise. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall
be deemed to be issued to the holder hereof as the record owner of such
shares as of the close of business on the date on which this Warrant shall
have been surrendered and payment made for such shares as aforesaid. As soon
as practicable after the exercise of this Warrant in full or in part, and in
any event within 10 days thereafter, the Company at its expense (including the
3
<PAGE>
payment by it of any applicable issue taxes) will cause to be issued in the
name of and delivered to the holder hereof, or as such holder (upon payment by
such holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of duly and validly issued, fully paid and
nonassessable shares of Common Stock (or Other Securities) to which such holder
shall be entitled on such exercise, plus, in lieu of any fractional share to
which such holder would otherwise be entitled, cash equal to such fraction
multiplied by the then Fair Market Value of one full share, together with any
other stock or other securities and property (including cash, where applicable)
to which such holder is entitled upon such exercise pursuant to Section 1 or
otherwise.
3. Adjustment for Reorganization, Consolidation, Merger, etc.
----------------------------------------------------------
3.1 Reorganization, Consolidation, Merger, etc. In case at any time or
from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any
plan or arrangement contemplating the dissolution of the Company, then, in each
such case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and
property (including cash) to which such holder would have been entitled upon
such consummation or in connection with such dissolution, as the case may be, if
such holder had so exercised this Warrant, immediately prior thereto, all
subject to further adjustment thereafter as provided in Section 5.
3.2. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause
to be delivered the stock and other securities and property (including cash,
where applicable) receivable by the holders of the Warrants after the effective
date of such dissolution pursuant to this Section 3 to a bank or trust company
having its principal office in New York, NY, as trustee for the holder or
holders of the Warrants.
3.3. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 4, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities
and property receivable on the exercise of this Warrant after the consummation
of such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrants as provided in Section 5.
4
<PAGE>
4. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such event, and
the product so obtained shall thereafter be the Purchase Price then in effect.
The Purchase Price, as so adjusted, shall be readjusted in the same manner upon
the happening of any successive event or events described herein in this
Section 4. The number of shares of Common Stock that the holder of this Warrant
shall thereafter, on the exercise hereof as provided in Section 1, be entitled
to receive shall be increased to a number determined by multiplying the number
of shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the
numerator is the Purchase Price that would otherwise (but for the provisions
of this Section 4) be in effect, and (b) the denominator is the Purchase Price
in effect on the date of such exercise.
5. Chief Financial Officer's Certificate as to Adjustments. In each case
of any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable on the exercise of the Warrants, the Company at its
expense will promptly cause its Chief Financial Officer to compute such
adjustment or readjustment in accordance with the terms of the Warrant and
prepare a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based,
including a statement of (a) the consideration received or receivable by the
Company for any additional shares of Common Stock (or Other Securities) issued
or sold or deemed to have been issued or sold, (b) the number of shares of
Common Stock (or Other Securities) outstanding or deemed to be outstanding, and
(c) the Purchase Price and the number of shares of Common Stock to be received
upon exercise of this Warrant, in effect immediately prior to such adjustment
or readjustment and as adjusted or readjusted as provided in this Warrant. The
Company will forthwith mail a copy of each such certificate to the holder of
the Warrant and any Warrant agent of the Company (appointed pursuant to Section
10 hereof).
6. Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial
Statements. The Company will at all times reserve and keep available, solely
for issuance and delivery on the exercise of the Warrants, all shares of Common
Stock (or Other Securities) from time to time issuable on the exercise of the
Warrant. This Warrant entitles the holder hereof to receive copies of all
financial and other information distributed or required to be distributed to
the holders of the Company's Common Stock.
5
<PAGE>
7. Assignment; Exchange of Warrant. Subject to compliance with applicable
Securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a "Transferor") with respect to
any or all of the Shares. On the surrender for exchange of this Warrant, with
the Transferor's endorsement in the form of Exhibit B attached hereto (the
"Transferor Endorsement Form"), to the Company, the Company at its expense but
with payment by the Transferor of any applicable transfer taxes will issue and
deliver to or on the order of the Transferor thereof a new Warrant or Warrants
of like tenor, in the name of the Transferor and/or the transferee(s) specified
in such Transferor Endorsement Form (each a "Transferee"), calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock
called for on the face or faces of the Warrant so surrendered by the
Transferor.
8. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on
surrender and cancellation of this Warrant, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Registration Rights. The holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in a Subscription Agreement entered into by the Company and the initial
issuee of this Warrant at or prior to the issue date of this Warrant. The
terms of the Subscription Agreement are incorporated herein by this reference.
10. Warrant Agent. The Company may, by written notice to the each holder
of the Warrant, appoint an agent having an office in New York, NY for the
purpose of issuing Common Stock (or Other Securities) on the exercise of this
Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7,
and replacing this Warrant pursuant to Section 8, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be,
shall be made at such office by such agent.
11. Transfer on the Company's Books. Until this Warrant is transferred on
the books of the Company, the Company may treat the registered holder hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
12. Notices, etc. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to
the Company an address, then to, and at the address of, the last holder of
this Warrant who has so furnished an address to the Company.
6
<PAGE>
13. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or
termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the laws of New York. Any dispute relating to
this Warrant shall be adjudicated in New York State. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as of
the date first written above.
INTERIORS, INC.
By: /s/ Max Munn
------------------------------------
Title: President
---------------------------------
Witness:
- -------------------------------------
7
<PAGE>
Exhibit A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: Interiors, Inc.
The undersigned, the holder of the within Warrant, hereby irrevocably elects to
exercise this Warrant for, and to purchase thereunder,________ shares of Common
Stock of Interiors, Inc. and herewith makes payment of $_____ therefor, and
requests that the certificates for such shares be issued in the name of, and
delivered to _________ whose address is ______________________________________.
Dated:_____________
----------------------------------------
(Signature must conform to name of
holder as specified on the face of the
Warrant)
----------------------------------------
(Address)
8
<PAGE>
EXHIBIT B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto the person(s) named below under the heading "Transferees" the right
represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of Interiors, Inc. to which the within Warrant relates
specified under the headings "Percentage Transferred" and "Number
Transferred," respectively, opposite the name(s) of such person(s) and appoints
each such person Attorney to transfer its respective right on the books of
Interiors, Inc. with full power of substitution in the premises.
<TABLE>
<CAPTION>
PERCENTAGE NUMBER
TRANSFEREES TRANSFERRED TRANSFERRED
- ------------- ------------- ------------
<S> <C> <C>
</TABLE>
Dated: , 19
------ ------ ----------------------------------------
(Signature must confirm to name of
holder as specified on the face of the
warrant)
Signed in the presence of:
- -------------------------------------
(Name)
----------------------------------------
(address)
----------------------------------------
(address)
ACCEPTED AND AGREED:
[TRANSFEREE]
- -------------------------------------
(Name)
9
<PAGE>
EXHIBIT
NO.1 $500,000 USD
INTERIORS INC.
7% Convertible Debenture due July 26, 2001
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE STATE SECURITIES LAWS
AND HAS BEEN ISSUED IN RELIANCE UPON REGULATION D PROMULGATED UNDER THE
SECURITIES ACT. THIS DEBENTURE SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A
SOLICITATION OF AN OFFER TO BUY THE DEBENTURE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL.
THIS DEBENTURE MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
UNDER APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT
FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS; AND IN THE CASE OF AN
EXEMPTION, ONLY IF THE COMPANY HAS RECEIVED AN OPINION FROM THEIR COUNSEL THAT
SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION OF THE SECURITIES.
THIS DEBENTURE is one of a duly authorized issue of Debentures of
INTERIORS INC., a corporation duly organized and existing under the laws of
the State of Delaware (the "ISSUER"), issued on July 27, 1998 (the "Issuance
Date"), and designated as its 7% Convertible Debentures due July 26, 2001, in
an aggregate face amount not exceeding Two Million Two Hundred Fifty Thousand
(USD$2,250,000) Dollars.
THIS DEBENTURE HAS BEEN ISSUED UNDER THE TERMS AND PROVISIONS OF THE 7%
CONVERTIBLE DEBENTURES SUBSCRIPTION AGREEMENT DATED AS OF JULY 27, 1998 BETWEEN
THE ISSUER AND HOLDER (THE "AGREEMENT") AND SHALL BE SUBJECT TO ALL OF THE
TERMS AND CONDITIONS AND ENTITLED TO ALL OF THE BENEFITS THEREOF.
FOR VALUE RECEIVED, the ISSUER promises to pay to
DOMINION CAPITAL FUND, LTD.
the registered holder hereof or its registered assigns, if any (the "HOLDER"),
the principal sum of:
FIVE HUNDRED THOUSAND
United States Dollars,
<PAGE>
on July 26, 2001 (the "Maturity Date"), and to pay interest, as outlined below,
at the rate of seven (7%) percent per annum on the principal sum outstanding
for the term of this Debenture. Accrual of interest shall commence on the date
hereof. Interest shall be payable by the ISSUER in cash, quarterly, commencing
on the first business day of the Company's next fiscal quarter immediately
following the Issuance Date, on that portion of the principal amount of this
Debenture which is then outstanding. The interest so payable will be paid to
the person in whose name this Debenture (or one or more predecessor Debentures)
is registered on the records of the ISSUER regarding registration and transfers
of the Debenture (the "Debenture Register"), provided, however, that the
ISSUER'S obligation to a transferee of this Debenture arises only if such
transfer, sale or other disposition is made in accordance with the terms and
conditions contained in the Agreement. The principal of this Debenture is
payable as provided below in shares of Common Stock at any time prior to the
Maturity Date upon the HOLDER exercising its conversion rights set forth below.
In the event this Debenture is outstanding on the Maturity Date it shall
automatically be converted into freely tradable shares of Common Stock as if
the HOLDER voluntarily elected such conversion in accordance with the
procedures, terms and conditions set forth in this Debenture provided, that (i)
the Common Stock is listed on the OTC Bulletin Board or Nasdaq Small Cap Stock
Market, (ii) the Bid Price is greater the One ($1.00) Dollar for the ten (10)
Trading Days immediately preceding the Maturity Date, (iii) there has not been
any suspension in the trading of the Common Stock on the OTC Bulletin Board or
Nasdaq Small Cap Stock Market during the thirty (30) Trading Days immediately
preceding the Maturity Date, and the (iv) the ISSUER has been in full
compliance with the terms and conditions of this Debenture and the Agreement.
In the event all of the aforementioned conditions are not satisfied, or the
ISSUER is not able to issue freely tradable shares of Common Stock as described
above, the ISSUER agrees to pay to the HOLDER, in cash, within three (3)
Trading Days of the Maturity Date, the dollar value of the number of shares of
Common Stock issuable to the HOLDER as if the HOLDER had exercised its
conversion rights on the Maturity Date, multiplied by the closing bid price of
the Common Stock on the Maturity Date. Principal and interest are payable at
the address last appearing on the Debenture Register as designated in writing
by the HOLDER hereof from time to time.
The Debenture is subject to the following additional provisions:
1. Subject to the restrictions on transferability set forth herein and in
the Agreement, the Debenture is exchangeable for like Debentures in equal
aggregate principal amount of authorized denominations, as requested by the
HOLDER surrendering the same. No service charge will be made for such
registration or transfer or exchange, although the HOLDER shall be responsible
for their own expenses associated with complying with the restrictions on
transfer of the Debenture in the Agreement.
2. The ISSUER shall be entitled to withhold from all payments of principal
of this Debenture any amounts required to be withheld under the applicable
provisions of the U.S. Internal Revenue Code of 1986, as amended, or other
applicable laws at the time of such payments.
2
<PAGE>
3. This Debenture has been issued subject to investment representations of
the original HOLDER hereof and may be transferred or exchanged in the United
States only in compliance with the 1933 Act and applicable state securities
laws and in compliance with the restrictions on transfer provided in the
Agreement. Prior to the due presentment for such transfer of this Debenture,
the ISSUER and any agent of the ISSUER may treat the person in whose name this
Debenture is duly registered on the Debenture Register as the owner hereof for
the purpose of receiving payment as herein provided and all other purposes,
whether or not this Debenture is overdue, and neither the ISSUER nor any such
agent shall be affected by notice to the contrary. The transferee shall be
bound, as the original HOLDER by the same representations and terms described
herein and under the Agreement.
4. At any time after the two hundred fortieth (240th) day from the
Issuance Date, the HOLDER is entitled, at its option, to convert this
Debenture, in whole or in part, in accordance with the following terms and
conditions:
(a) The HOLDER may exercise its right to convert the Debenture by
telecopying an executed and completed notice of conversion (the "Notice of
Conversion") to the ISSUER and delivering the original Notice of
Conversion and the original Debenture to the ISSUER by express courier.
Each business date on which a Notice of Conversion is telecopied to and
received by the ISSUER in accordance with the provisions hereof shall be
deemed a "Conversion Date". The ISSUER will transmit the certificates
representing shares of Common Stock issuable upon conversion of the
Debenture (together with the certificates representing the Debenture not
so converted) to the HOLDER via express courier, by electronic transfer or
otherwise within six business days after the Conversion Date if the ISSUER
has received the original Notice of Conversion and Debenture being so
converted by such date. In addition to any other remedies which may be
available to the HOLDER, in the event that the ISSUER fails to effect
delivery of such shares of Common Stock within such six business day
period, the HOLDER will be entitled to revoke the Notice of Conversion by
delivering a notice to such effect to the ISSUER whereupon the ISSUER and
the HOLDER shall each be restored to their respective positions
immediately prior to delivery of the Notice of Conversion. The Notice of
Conversion and Debenture representing the portion of the Debenture
converted shall be delivered as follows:
To the ISSUER:
INTERIORS INC.
320 Washington Street
Mount Vernon, New York 10553
Attn: Max Munn, President
Facsimile: (914) 665-5469
Telephone: (914) 665-5400
In the event that the Common Stock issuable upon conversion of the
Debenture is not delivered, within six (6) business days of receipt by the
ISSUER of a valid Notice of Conversion and the Debenture to be converted, the
ISSUER shall pay to the HOLDER, in
3
<PAGE>
immediately available funds, upon demand, as liquidated damages for such
failure and not as a penalty, for each $100,000 principal amount of Debenture
sought to be converted, $500 for each of the first ten (10) days and $1,000 per
day thereafter that the shares of Common Stock are not delivered, which
liquidated damages shall run from the seventh business day after the Conversion
Date up until the time that either the Conversion Notice is revoked or the
Common Stock is delivered, at which time such liquidated damages shall cease.
Any and all payments required pursuant to this paragraph shall be payable only
in cash immediately and shall not be in addition to the liquidated damages set
forth in Section 4(ii) of the Agreement.
(b) Each Debenture shall be convertible, at the sole option of the HOLDER,
into that number of shares of fully paid and nonassessable shares of Common
Stock which is to be derived from dividing the Conversion Amount by the
Conversion Price. For purposes of this Debenture, the Conversion Amount shall
mean the principal dollar amount of the Debenture being converted plus all
accrued and unpaid interest attributable to the Debenture being converted as of
the Conversion Date. The Conversion Price shall be equal to the lesser of: (i)
eighty (80%) percent of the average closing bid price of the Common Stock
during the three day trading period immediately preceding the Conversion Date,
or (ii) US$2.10. The closing bid price shall be deemed to be the reported last
bid price regular way as reported by Bloomberg LP or if unavailable, on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading, or if the Common Stock is not listed or admitted to
trading on any national securities exchange, the closing bid price as reported
by NASDAQ or such other system then in use, or, if the Common Stock is not
quoted by any such organization, the closing bid price in the over-the-counter
market as furnished by the principal national securities exchange on which the
Common Stock is traded. Notwithstanding anything in this Debenture to the
contrary, the ability of Holder to convert this Debenture shall be restricted
as set forth in Sections 9.1 and 9.2 of the Agreement provided the Company
complies with these sections and pays the Economic Benefit.
(c) The number of shares of Common Stock issuable upon the conversion of
the Debenture and the Conversion Price shall be subject to adjustment as
follows:
(i) In case the ISSUER shall (A) pay a dividend on Common Stock in
Common Stock or securities convertible into, exchangeable for or otherwise
entitling a holder thereof to receive Common Stock, (B) declare a dividend
payable in cash on its Common Stock and at substantially the same time
offer its shareholder a right to purchase new Common Stock (or securities
convertible into, exchangeable for or otherwise entitling a holder thereof
to receive Common Stock) from proceeds of such dividend (all Common Stock
so issued shall be deemed to have been issued as a stock dividend), (C)
subdivide its outstanding shares of Common Stock into a greater number of
shares of Common Stock, (D) combined its outstanding shares of Common
Stock into a smaller number of shares of Common Stock, or (E) issue by
reclassification of its Common Stock any shares of Common Stock of the
ISSUER, the number of shares of Common Stock issuable upon conversion of
the Debenture immediately prior thereto shall be adjusted so that the
holders of the Debenture shall be entitled to receive after the happening
of any of the events described above that number and kind of shares as the
holders would have received had such Debenture been converted immediately
prior to the happening of
4
<PAGE>
such event or any record date with respect thereto. Any adjustment made
pursuant to this subdivision shall become effective immediately after the
close of business on the record date in the case of a stock dividend and
shall become effective immediately after the close of business on the
record date in the case of a stock split, subdivision, combination or
reclassification.
(ii) Any adjustment in the numbers of shares of Common Stock issuable
hereunder otherwise required to be made by this paragraph 4(c) will not
have to be made if such adjustment would not require an increase or
decrease in one (1%) percent or more in the number of shares of Common
Stock issuable upon conversion of the Debenture.
(iii) Whenever the number of shares of Common Stock issuable upon the
conversion of the Debenture is adjusted, as herein provided, the
Conversion Price shall be adjusted (to the nearest cent) by multiplying
such Conversion Price immediately prior to such adjustment by a fraction
of which the numerator shall be the number of shares of Common Stock
issuable upon the exercise of each share of Debenture immediately prior to
such adjustment, and of which the denominator shall be the number of
shares of Common Stock issuable immediately thereafter.
(d) In the case of any (i) consolidation or merger of the ISSUER into any
entity (other than a consolidation or merger that does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock of the ISSUER), (ii) sale, transfer, lease or conveyance of all or
substantially all of the assets of the ISSUER as an entirety or substantially
as an entirety, or (iii) reclassification, capital reorganization or change of
the Common Stock (other than solely a change in par value, or from par value to
no par value), in each case as a result of which shares of Common Stock shall
be converted into the right to receive stock, securities or other property
(including cash or any combination thereof), each holder of a Debenture then
outstanding shall have the right thereafter to convert such Debenture only into
the kind and amount of securities, cash and other property receivable upon such
consolidation, merger, sale, transfer, capital reorganization or
reclassification by a holder of the number of shares of Common Stock of the
ISSUER into which such Debenture would have been converted immediately prior to
such consolidation, merger, sale, transfer, capital reorganization or
reclassification, assuming such holder of Common Stock of the ISSUER (A) is not
an entity with which the ISSUER consolidated or into which such sale or
transfer was made, as the case may be ("constituent entity"), or an affiliate
of the constituent entity, and (B) failed to exercise his or her rights of
election, if any, as to the kind or amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer (provided
that if the kind or amount of securities, cash or other property receivable
upon such consolidation, merger, sale or transfer is not the same for each
share of Common stock of the ISSUER held immediately prior to such
consolidation, merger, sale or transfer by other than a constituent entity or
an affiliate thereof and in respect of which the ISSUER merged into the ISSUER
or to which such rights or election shall not have been exercised
("non-electing share"), then for the purpose of this Section (4)(d) the kind
and amount of securities, cash or other property receivable upon such
consolidation, merger, sale or transfer by each non-electing share shall be
deemed to be the kind and amount so receivable per share by a majority of the
non-electing shares). If necessary, appropriate adjustment shall be made in the
application of the provision set forth herein with respect to the
5
<PAGE>
rights and interest thereafter of the HOLDER, to the end that the provisions
set forth herein shall thereafter correspondingly be made applicable, as nearly
as may reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the conversion of the Debenture. The above
provisions shall similarly apply to successive consolidations, mergers, sales,
transfers, capital reorganizations and reclassifications. The ISSUER shall not
effect any such consolidation, merger, sale or transfer unless prior to or
simultaneously with the consummation thereof the successor ISSUER or entity (if
other than the ISSUER) resulting from such consolidation, merger, sale or
transfer shall assume, by written instrument, the obligation to deliver to the
HOLDER such shares of Common Stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to receive under this
paragraph.
(e) The ISSUER will not, by amendment of its Certificate of Incorporation
or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the ISSUER, but will at
all times in good faith assist in the carrying out of all the provisions of
this paragraph and in taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the HOLDERS against
impairment.
5. First Redemption Prior to 240 Days Following Issuance Date. At any time
prior to the two hundred fortieth (240th) day following the Issuance Date the
Issuer shall be entitled to Redeem all or any portion of the outstanding
Debenture in cash pursuant to the following procedures and at the First
Redemption Price hereinafter provided by providing seven (7) business days
prior written notice (the "First Redemption Notice") to the HOLDER:
(a) The First Redemption Notice shall set forth (i) the First Redemption
Date which shall be ten (10) trading days after the First Redemption Notice
Date, (ii) the First Redemption Price which shall equal the Purchase Price of
that portion of the Debenture being redeemed plus all accrued interest
attributable to that portion of the Debenture being redeemed, (iii) a statement
that interest on that portion of the Debenture being redeemed will cease to
accrue on such First Redemption Date, and (iv) a statement of or reference to
the conversion right set forth in this Debenture (including that the right to
give a notice of conversion in respect of any shares to be redeemed shall
terminate on the First Redemption Date). The First Redemption Notice shall be
irrevocable, and it shall be mailed, postage prepaid, at least ten (10)
business days prior to the First Redemption Date to the HOLDER at their address
as the same shall appear on the books of the Company. If fewer than all of the
principal amount of the Debentures owned by the HOLDER are then to be redeemed,
the notice shall specify the amount thereof that is to be redeemed and, if
practicable, the numbers of the certificates representing such Debenture.
(b) Immediately following the First Redemption Date, the HOLDER shall
surrender their original Debenture at the office of the ISSUER, and the ISSUER
shall issue to the HOLDER a new Debenture Certificate for the principal amount
that remains outstanding, if any.
(c) The ISSUER shall not be entitled to send any First Redemption Notice
and begin the First redemption procedure hereunder unless it has:
6
<PAGE>
(i) the full amount of the First Redemption Price in cash, available in a
demand or other immediately available account in a bank or similar
financial institution;
(ii) immediately available credit facilities, in the full amount of the
First Redemption Price with a bank or similar financial institution; or
(iii) a combination of the items set forth in (i) and (ii) above,
aggregating the full amount of the First Redemption Price.
(d) In the event the ISSUER fails to make payment pursuant to the First
Redemption Notice on the First Redemption Date or otherwise fails to comply
with the Redemption provisions set forth herein, the First Redemption and First
Redemption Notice shall be deemed null and void and the ISSUER shall lose any
and all further redemption privileges and rights.
6. Second Redemption Subsequent to 240 Days Following Issuance Date. At
any time after the two hundred fortieth (240th) day following the Issuance Date
the Issuer shall be entitled to redeem all or any portion of the outstanding
Debenture in cash pursuant to the following procedures and at the Second
Redemption Price hereinafter provided by providing and the Holder receiving,
twenty (20) calendar days prior written notice (the "Second Redemption
Notice").
(a) The Second Redemption Notice shall set forth (i) the Second Redemption
Date which shall be twenty (20) calendar days after the Second Redemption
Notice Date, (ii) the Second Redemption Price which shall equal that portion of
the Purchase Price of the Debenture being redeemed, plus all accrued interest
attributable to that portion of the Debenture being Redeemed, plus a premium
calculated on a daily pro rata basis equal to ten percent (10%) of the
principal amount of that portion of the Debenture being redeemed for the first
thirty (30) day period following the two hundred fortieth (240th) day after the
Issuance Date plus an additional two percent (2%) of the principal amount of
the Debenture being redeemed for each thirty (30) day period following the two
hundred seventieth (270th) day after the Issuance Date and ending on the Second
Redemption Notice Date, (iii) a statement that interest on that portion of the
Debenture being redeemed will cease to accrue on such Second Redemption Date.
The Second Redemption Notice shall be irrevocable, and it shall be mailed,
postage prepaid, at least twenty (20) calendar days prior to the Second
Redemption Date to the HOLDER at their address as the same shall appear on the
books of the Company (the date of such mailing being the "Second Redemption
Notice Date"). If fewer than all of the principal amount of the Debentures
owned by the HOLDER are then to be Redeemed, the notice shall specify the
amount thereof that is to be redeemed and, if practicable, the numbers of the
certificates representing such Debenture.
(b) Immediately following the Second Redemption Date, the HOLDER shall
surrender their original Debenture at the office of the ISSUER, and the ISSUER
shall issue to the HOLDER a new Debenture Certificate for the principal amount
that remains outstanding, if any.
7
<PAGE>
(c) The ISSUER shall not be entitled to send any Second Redemption Notice
and begin the redemption procedure hereunder unless it has:
(i) the full amount of the Second Redemption Price in cash, available in
a demand or other immediately available account in a bank or similar
financial institution;
(ii) immediately available credit facilities, in the full amount of the
Second Redemption Price with a bank or similar financial institution; or
(iii) a combination of the items set forth in (i) and (ii) above,
aggregating the full amount of the Second Redemption Price.
(d) In the event the ISSUER fails to make payment pursuant to the Second
Redemption Notice on the Second Redemption Date or otherwise fails to comply
with the Redemption provisions set forth herein, the Second Redemption and
Second Redemption notice shall be deemed null and void and the ISSUER shall
lose any and all further redemption privileges and rights.
(e) Notwithstanding the above, at any time prior to the Second Redemption
Date the HOLDER is entitled, at its option, to convert the Debentures being
noticed for redemption, in whole or in part in accordance with the terms and
conditions set forth above in Section 4.
7. No provisions of this Debenture shall alter or impair the obligation of
the ISSUER, which is absolute and unconditional, upon an Event of Default (as
defined below), to pay the principal of, and interest on this Debenture at the
place, time, and rate, and in the coin or currency herein prescribed.
8. The ISSUER hereby expressly waives demand and presentment for payment,
notice on nonpayment, protest, notice of protest, notice of dishonor, notice of
acceleration or intent to accelerate, and diligence in taking any action to
collect amounts called for hereunder and shall be directly and primarily liable
for the payment of all sums owing and to be owing hereon, regardless of and
without any notice, diligence, act or omission as or with respect to the
collection of any amount called for hereunder.
9. If one or more of the following described "Events of Default" shall
occur,
(a) Any of the representations or warranties made by the ISSUER herein, or
in the Agreement shall have been incorrect when made in any material respect;
or
(b) The ISSUER shall fail to perform or observe in any material respect
any covenant, term, provision, condition, agreement or obligation of the ISSUER
under this
(8)
<PAGE>
Debenture, the Registration Rights Agreement and the Agreement, between the
parties of even date herewith, which shall remain uncured for five business
days after notice hereof; or
(c) A trustee, liquidator or receiver shall be appointed for the ISSUER or
for a substantial part of its property or business without its consent and
shall not be discharged within thirty (30) days after such appointment; or
(d) Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control of the
whole or any substantial portion of the properties or assets of the ISSUER and
shall not be dismissed within thirty (30) calendar days thereafter; or
(e) Bankruptcy reorganization, Insolvency or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for the relief
of debtors shall be instituted by or against the ISSUER and, if instituted
against the ISSUER, ISSUER shall by any action or answer approve of, consent to
or acquiesce in any such proceedings or admit the material allegations of, or
default in answering a petition filed in any such proceeding or such
proceedings shall not be dismissed within thirty (30) days thereafter; or
(f) The Common Stock is delisted from trading on the NASDAQ Small Cap
Stock Market (except pursuant to section 9.2 of the Agreement), or the Company
has received notice concerning delisting from the NASDAQ Small Cap Stock
Market; or
(g) The effectiveness of the Registration Statement has been suspended for
a period of ten (10) Trading Days.
Then, or at any time thereafter, and in each and every such case, unless
such Event of Default shall have been waived in writing by the HOLDER (which
waiver shall not be deemed to be a waiver of any subsequent default) at the
option of the HOLDER and in the HOLDER'S sole discretion, the HOLDER may
consider this Debenture immediately due and payable in cash, (at the equivalent
dollar value of the number of shares of Common Stock issuable upon conversion
(assuming a Conversion Date as of the date of such notice from the HOLDER)
times the Bid Price on the Trading Day immediately preceding such notice from
the HOLDER, without presentment, demand protest or notice of any kind, all of
which are hereby expressly waived, anything herein or in any note or other
instruments contained to the contrary notwithstanding, and HOLDER may
immediately, and without expiration of any period of grace, enforce any and all
of the HOLDER'S rights and remedies provided herein or any other rights or
remedies afforded by law. It is agreed that in the event of such action, such
HOLDER shall be entitled to receive all reasonable fees, costs and expenses
incurred, including without limitation such reasonable fees and expenses of
attorneys (if litigation is commenced).
10. In case any provision of this Debenture is held by a court of
competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if
possible, so that it is enforceable to the maximum extent
9
<PAGE>
possible, and the validity and enforceability of the remaining provisions of
this Debenture will not in any way be affected or impaired thereby.
11. In addition to the terms of the Registration Rights Agreement of even
date herewith, the HOLDER shall have the right to include all of the shares of
Common Stock underlying this Debenture (the "Registrable Securities") as part
of any registration of securities filed by the ISSUER (other than in connection
with a transaction contemplated by Rule 145(a) promulgated under the Act or
pursuant to Form S-8, or the financing arrangement presently under review with
Cruttenden Roth Incorporated or any substitute entity for a transaction
therefor and having substantially the same terms) and must be notified in
writing of such filing; provided, however, that the HOLDER agrees it shall not
have any piggy-back registration rights pursuant to this Debenture if the
shares of Common Stock underlying this Debenture may be sold in the United
States pursuant to the provisions of Rule 144. HOLDER shall have five (5)
business days to notify the ISSUER in writing as to whether the ISSUER is to
include HOLDER or not include HOLDER as part of the registration; provided,
however, that if any registration pursuant to this Section shall be
underwritten, in whole or in part, the Company may require that the Registrable
Securities requested for inclusion pursuant to this Section be included in the
underwriting on the same terms and conditions as the securities otherwise being
sold through the underwriters. If in the good faith judgment of the underwriter
evidenced in writing of such offering only a limited number of Registrable
Securities should be included in such offering, or no such shares should be
included, the HOLDER, and all other selling stockholders, shall be limited to
registering such proportion of their respective shares as shall equal the
proportion that the number of shares of selling stockholders permitted to be
registered by the underwriter in such offering bears to the total number of all
shares then held by all selling stockholders desiring to participate in such
offering. Those Registrable Securities which are excluded from an underwritten
offering pursuant to the foregoing provisions of this Section (and all other
Registrable Securities held by the selling stockholders) shall be withheld from
the market by the HOLDERS thereof for a period, not to exceed one hundred
eighty (180) days, which the underwriter may reasonably determine is necessary
in order to effect such underwritten offering. The ISSUER shall have the right
to terminate or withdraw any registration initiated by it under this Agreement
prior to the effectiveness of such registration whether or not any Debenture
holder elected to include securities in such registration. All registration
expenses incurred by the ISSUER in complying with this Agreement shall be paid
by the ISSUER, exclusive of underwriting discounts, commissions and legal fees
and expenses for counsel to the HOLDERS of this Debenture.
12. This Debenture and the Agreement (along with all exhibits attached
thereto) constitute the full and entire understanding and agreement between the
ISSUER and HOLDER with respect hereto. Neither this Debenture nor any terms
hereof may be amended, waived, discharged or terminated other than by a written
instrument signed by the ISSUER and the HOLDER. Any capitalized terms shall
have the same meaning as given in the Agreement. In the event of any
inconsistencies between this Debenture and the Agreement, the Agreement shall
control.
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13. This Debenture shall be governed by and construed in accordance with
the laws of the State of New York.
14. This Debenture, together with all documents referenced herein, embody
the entire agreement and understanding between the parties hereto with respect
to the subject matter hereof and supersedes all prior oral or written
agreements and understandings relating to the subject matter hereof. No
statement, representation, warranty, covenant or agreement of any kind not
expressly set forth in this Debenture or the Agreement shall affect, or be used
to interpret, change or restrict, the express terms and provisions of this
Debenture.
[Remainder of page intentionally left blank]
[Signature Page Follows]
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IN WITNESS WHEREOF, the ISSUER has caused this Debenture to be duly
executed by an officer thereunto duly authorized.
INTERIORS INC.
By: /s/ Max Munn
---------------------
Name: Max Munn
Title: President
Date: July 27, 1998
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NO.2 $500,000 USD
INTERIORS INC.
7% Convertible Debenture due July 26, 2001
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE STATE SECURITIES LAWS
AND HAS BEEN ISSUED IN RELIANCE UPON REGULATION D PROMULGATED UNDER THE
SECURITIES ACT. THIS DEBENTURE SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A
SOLICITATION OF AN OFFER TO BUY THE DEBENTURE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL.
THIS DEBENTURE MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
UNDER APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT
FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS; AND IN THE CASE OF AN
EXEMPTION, ONLY IF THE COMPANY HAS RECEIVED AN OPINION FROM THEIR COUNSEL THAT
SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION OF THE SECURITIES.
THIS DEBENTURE is one of a duly authorized issue of Debentures of
INTERIORS INC., a corporation duly organized and existing under the laws of
the State of Delaware (the "ISSUER"), issued on July 27, 1998 (the "Issuance
Date"), and designated as its 7% Convertible Debentures due July 26, 2001, in
an aggregate face amount not exceeding Two Million Two Hundred Fifty Thousand
(USD$2,250,000) Dollars.
THIS DEBENTURE HAS BEEN ISSUED UNDER THE TERMS AND PROVISIONS OF THE 7%
CONVERTIBLE DEBENTURES SUBSCRIPTION AGREEMENT DATED AS OF JULY 27, 1998 BETWEEN
THE ISSUER AND HOLDER (THE "AGREEMENT") AND SHALL BE SUBJECT TO ALL OF THE
TERMS AND CONDITIONS AND ENTITLED TO ALL OF THE BENEFITS THEREOF.
FOR VALUE RECEIVED, the ISSUER promises to pay to
SOVEREIGN PARTNERS, L.P.
the registered holder hereof or its registered assigns, if any (the "HOLDER"),
the principal sum of:
FIVE HUNDRED THOUSAND
United States Dollars
<PAGE>
on July 26, 2001 (the "Maturity Date"), and to pay interest, as outlined below,
at the rate of seven (7%) percent per annum on the principal sum outstanding
for the term of this Debenture. Accrual of interest shall commence on the date
hereof. Interest shall be payable by the ISSUER in cash, quarterly, commencing
on the first business day of the Company's next fiscal quarter immediately
following the Issuance Date, on that portion of the principal amount of this
Debenture which is then outstanding. The interest so payable will be paid to
the person in whose name this Debenture (or one or more predecessor Debentures)
is registered on the records of the ISSUER regarding registration and transfers
of the Debenture (the "Debenture Register"), provided, however, that the
ISSUER'S obligation to a transferee of this Debenture arises only if such
transfer, sale or other disposition is made in accordance with the terms and
conditions contained in the Agreement. The principal of this Debenture is
payable as provided below in shares of Common Stock at any time prior to the
Maturity Date upon the HOLDER exercising its conversion rights set forth below.
In the event this Debenture is outstanding on the Maturity Date it shall
automatically be converted into freely tradable shares of Common Stock as if
the HOLDER voluntarily elected such conversion in accordance with the
procedures, terms and conditions set forth in this Debenture provided, that (i)
the Common Stock is listed on the OTC Bulletin Board or Nasdaq Small Cap Stock
Market, (ii) the Bid Price is greater the One ($1.00) Dollar for the ten (10)
Trading Days immediately preceding the Maturity Date, (iii) there has not been
any suspension in the trading of the Common Stock on the OTC Bulletin Board or
Nasdaq Small Cap Stock Market during the thirty (30) Trading Days immediately
preceding the Maturity Date, and the (iv) the ISSUER has been in full
compliance with the terms and conditions of this Debenture and the Agreement.
In the event all of the aforementioned conditions are not satisfied, or the
ISSUER is not able to issue freely tradable shares of Common Stock as described
above, the ISSUER agrees to pay to the HOLDER, in cash, within three (3)
Trading Days of the Maturity Date, the dollar value of the number of shares of
Common Stock issuable to the HOLDER as if the HOLDER had exercised its
conversion rights on the Maturity Date, multiplied by the closing bid price of
the Common Stock on the Maturity Date. Principal and interest are payable at
the address last appearing on the Debenture Register as designated in writing
by the HOLDER hereof from time to time.
The Debenture is subject to the following additional provisions:
1. Subject to the restrictions on transferability set forth herein and in
the Agreement, the Debenture is exchangeable for like Debentures in equal
aggregate principal amount of authorized denominations, as requested by the
HOLDER surrendering the same. No service charge will be made for such
registration or transfer or exchange, although the HOLDER shall be responsible
for their own expenses associated with complying with the restrictions on
transfer of the Debenture in the Agreement.
2. The ISSUER shall be entitled to withhold from all payments of principal
of this Debenture any amounts required to be withheld under the applicable
provisions of the U.S. Internal Revenue Code of 1986, as amended, or other
applicable laws at the time of such payments.
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<PAGE>
3. This Debenture has been issued subject to investment representations of
the original HOLDER hereof and may be transferred or exchanged in the United
States only in compliance with the 1933 Act and applicable state securities
laws and in compliance with the restrictions on transfer provided in the
Agreement. Prior to the due presentment for such transfer of this Debenture,
the ISSUER and any agent of the ISSUER may treat the person in whose name this
Debenture is duly registered on the Debenture Register as the owner hereof for
the purpose of receiving payment as herein provided and all other purposes,
whether or not this Debenture is overdue, and neither the ISSUER nor any such
agent shall be affected by notice to the contrary. The transferee shall be
bound, as the original HOLDER by the same representations and terms described
herein and under the Agreement.
4. At any time after the two hundred fortieth (240th) day from the
Issuance Date, the HOLDER is entitled, at its option, to convert this
Debenture, in whole or in part, in accordance with the following terms and
conditions:
(a) The HOLDER may exercise its right to convert the Debenture by
telecopying an executed and completed notice of conversion (the "Notice of
Conversion") to the ISSUER and delivering the original Notice of Conversion and
the original Debenture to the ISSUER by express courier. Each business date on
which a Notice of Conversion is telecopied to and received by the ISSUER in
accordance with the provisions hereof shall be deemed a "Conversion Date". The
ISSUER will transmit the certificates representing shares of Common Stock
issuable upon conversion of the Debenture (together with the certificates
representing the Debenture not so converted) to the HOLDER via express courier,
by electronic transfer or otherwise within six (6) business days after the
Conversion Date if the ISSUER has received the original Notice of Conversion
and Debenture being so converted by such date. In addition to any other
remedies which may be available to the HOLDER, in the event that the ISSUER
fails to effect delivery of such shares of Common Stock within such six
business day period, the HOLDER will be entitled to revoke the Notice of
Conversion by delivering a notice to such effect to the ISSUER whereupon the
ISSUER and the HOLDER shall each be restored to their respective positions
immediately prior to delivery of the Notice of Conversion. The Notice of
Conversion and Debenture representing the portion of the Debenture converted
shall be delivered as follows:
To the ISSUER:
INTERIORS INC.
320 Washington Street
Mount Vernon, New York 10553
Attn: Max Munn, President
Facsimile: (914) 665-5469
Telephone: (914) 665-5400
In the event that the Common Stock issuable upon conversion of the
Debenture is not delivered, within six (6) business days of receipt by the
ISSUER of a valid Notice of Conversion and the Debenture to be converted, the
ISSUER shall pay to the HOLDER, in
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<PAGE>
immediately available funds, upon demand, as liquidated damages for such
failure and not as a penalty, for each $100,000 principal amount of Debenture
sought to be converted, $500 for each of the first ten (10) days and $1,000 per
day thereafter that the shares of Common Stock are not delivered, which
liquidated damages shall run from the seventh business day after the Conversion
Date up until the time that either the Conversion Notice is revoked or the
Common Stock is delivered, at which time such liquidated damages shall cease.
Any and all payments required pursuant to this paragraph shall be payable only
in cash immediately and shall not be in addition to the liquidated damages set
forth in Section 4(ii) of the Agreement.
(b) Each Debenture shall be convertible, at the sole option of the HOLDER,
into that number of shares of fully paid and nonassessable shares of Common
Stock which is to be derived from dividing the Conversion Amount by the
Conversion Price. For purposes of this Debenture, the Conversion Amount shall
mean the principal dollar amount of the Debenture being converted plus all
accrued and unpaid interest attributable to the Debenture being converted as of
the Conversion Date. The Conversion Price shall be equal to the lesser of: (i)
eighty (80%) percent of the average closing bid price of the Common Stock
during the three day trading period immediately preceding the Conversion Date,
or (ii) US$2.10. The closing bid price shall be deemed to be the reported last
bid price regular way as reported by Bloomberg LP or if unavailable, on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading, or if the Common Stock is not listed or admitted to
trading on any national securities exchange, the closing bid price as reported
by NASDAQ or such other system then in use, or, if the Common Stock is not
quoted by any such organization, the closing bid price in the over-the-counter
market as furnished by the principal national securities exchange on which the
Common Stock is traded. Notwithstanding anything in this Debenture to the
contrary, the ability of Holder to convert this Debenture shall be restricted
as set forth in Sections 9.1 and 9.2 of the Agreement provided the Company
complies with these sections and pays the Economic Benefit.
(c) The number of shares of Common Stock issuable upon the conversion of
the Debenture and the Conversion Price shall be subject to adjustment as
follows:
(i) In case the ISSUER shall (A) pay a dividend on Common Stock in
Common Stock or securities convertible into, exchangeable for or otherwise
entitling a holder thereof to receive Common Stock, (B) declare a dividend
payable in cash on its Common Stock and at substantially the same time
offer its shareholder a right to purchase new Common Stock (or securities
convertible into, exchangeable for or otherwise entitling a holder thereof
to receive Common Stock) from proceeds of such dividend (all Common Stock
so issued shall be deemed to have been issued as a stock dividend), (C)
subdivide its outstanding shares of Common Stock into a greater number of
shares of Common Stock, (D) combined its outstanding shares of Common
Stock into a smaller number of shares of Common Stock, or (E) issue by
reclassification of its Common Stock any shares of Common Stock of the
ISSUER, the number of shares of Common Stock issuable upon conversion of
the Debenture immediately prior thereto shall be adjusted so that the
holders of the Debenture shall be entitled to receive after the happening
of any of the events described above that number and kind of shares as the
holders would have received had such Debenture been converted immediately
prior to the happening of
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<PAGE>
such event or any record date with respect thereto. Any adjustment made
pursuant to this subdivision shall become effective immediately after the
close of business on the record date in the case of a stock dividend and
shall become effective immediately after the close of business on the
record date in the case of a stock split, subdivision, combination or
reclassification.
(ii) Any adjustment in the numbers of shares of Common Stock issuable
hereunder otherwise required to be made by this paragraph 4(c) will not
have to be made if such adjustment would not require an increase or
decrease in one (1%) percent or more in the number of shares of Common
Stock issuable upon conversion of the Debenture.
(iii) Whenever the number of shares of Common Stock issuable upon the
conversion of the Debenture is adjusted, as herein provided, the
Conversion Price shall be adjusted (to the nearest cent) by multiplying
such Conversion Price immediately prior to such adjustment by a fraction
of which the numerator shall be the number of shares of Common Stock
issuable upon the exercise of each share of Debenture immediately prior to
such adjustment, and of which the denominator shall be the number of
shares of Common Stock issuable immediately thereafter.
(d) In the case of any (i) consolidation or merger of the ISSUER into any
entity (other than a consolidation or merger that does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock of the ISSUER), (ii) sale, transfer, lease or conveyance of all or
substantially all of the assets of the ISSUER as an entirety or substantially
as an entirety, or (iii) reclassification, capital reorganization or change of
the Common Stock (other than solely a change in par value, or from par value to
no par value), in each case as a result of which shares of Common Stock shall
be converted into the right to receive stock, securities or other property
(including cash or any combination thereof), each holder of a Debenture then
outstanding shall have the right thereafter to convert such Debenture only into
the kind and amount of securities, cash and other property receivable upon such
consolidation, merger, sale, transfer, capital reorganization or
reclassification by a holder of the number of shares of Common Stock of the
ISSUER into which such Debenture would have been converted immediately prior to
such consolidation, merger, sale, transfer, capital reorganization or
reclassification, assuming such holder of Common Stock of the ISSUER (A) is not
an entity with which the ISSUER consolidated or into which such sale or
transfer was made, as the case may be ("constituent entity"), or an affiliate
of the constituent entity, and (B) failed to exercise his or her rights of
election, if any, as to the kind or amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer (provided
that if the kind or amount of securities, cash or other property receivable
upon such consolidation, merger, sale or transfer is not the same for each
share of Common Stock of the ISSUER held immediately prior to such
consolidation, merger, sale or transfer by other than a constituent entity or
an affiliate thereof and in respect of which the ISSUER merged into the ISSUER
or to which such rights or election shall not have been exercised
("non-electing share"), then for the purpose of this Section (4)(d) the kind
and amount of securities, cash or other property receivable upon such
consolidation, merger, sale or transfer by each non-electing share shall be
deemed to be the kind and amount so receivable per share by a majority of the
non-electing shares). If necessary, appropriate adjustment shall be made in the
application of the provision set forth herein with respect to the
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<PAGE>
rights and interest thereafter of the HOLDER, to the end that the provisions
set forth herein shall thereafter correspondingly be made applicable, as nearly
as may reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the conversion of the Debenture. The above
provisions shall similarly apply to successive consolidations, mergers, sales,
transfers, capital reorganizations and reclassifications. The ISSUER shall not
effect any such consolidation, merger, sale or transfer unless prior to or
simultaneously with the consummation thereof the successor ISSUER or entity (if
other than the ISSUER) resulting from such consolidation, merger, sale or
transfer shall assume, by written instrument, the obligation to deliver to the
HOLDER such shares of Common Stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to receive under this
paragraph.
(e) The ISSUER will not, by amendment of its Certificate of Incorporation
or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the ISSUER, but will at
all times in good faith assist in the carrying out of all the provisions of
this paragraph and in taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the HOLDERS against
impairment.
5. First Redemption Prior to 240 Days Following Issuance Date. At any time
prior to the two hundred fortieth (240th) day following the Issuance Date the
Issuer shall be entitled to Redeem all or any portion of the outstanding
Debenture in cash pursuant to the following procedures and at the First
Redemption Price hereinafter provided by providing seven (7) business days
prior written notice (the "First Redemption Notice") to the HOLDER:
(a) The First Redemption Notice shall set forth (i) the First Redemption
Date which shall be ten (10) trading days after the First Redemption Notice
Date, (ii) the First Redemption Price which shall equal the Purchase Price of
that portion of the Debenture being redeemed plus all accrued interest
attributable to that portion of the Debenture being redeemed, (iii) a statement
that interest on that portion of the Debenture being redeemed will cease to
accrue on such First Redemption Date, and (iv) a statement of or reference to
the conversion right set forth in this Debenture (including that the right to
give a notice of conversion in respect of any shares to be redeemed shall
terminate on the First Redemption Date). The First Redemption Notice shall be
irrevocable, and it shall be mailed, postage prepaid, at least ten (10)
business days prior to the First Redemption Date to the HOLDER at their address
as the same shall appear on the books of the Company. If fewer than all of the
principal amount of the Debentures owned by the HOLDER are then to be redeemed,
the notice shall specify the amount thereof that is to be redeemed and, if
practicable, the numbers of the certificates representing such Debenture.
(b) Immediately following the First Redemption Date, the HOLDER shall
surrender their original Debenture at the office of the ISSUER, and the ISSUER
shall issue to the HOLDER a new Debenture Certificate for the principal amount
that remains outstanding, if any.
(c) The ISSUER shall not be entitled to send any First Redemption Notice
and begin the First redemption procedure hereunder unless it has:
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<PAGE>
(i) the full amount of the First Redemption Price in cash, available
in a demand or other immediately available account in a bank or similar
financial institution;
(ii) immediately available credit facilities, in the full amount of
the First Redemption Price with a bank or similar financial institution;
or
(iii) a combination of the items set forth in (i) and (ii) above,
aggregating the full amount of the First Redemption Price.
(d) In the event the ISSUER fails to make payment pursuant to the First
Redemption Notice on the First Redemption Date or otherwise fails to comply
with the Redemption provisions set forth herein, the First Redemption and First
Redemption Notice shall be deemed null and void and the ISSUER shall lose any
and all further redemption privileges and rights.
6. Second Redemption Subsequent to 240 Days Following Issuance Date. At
any time after the two hundred fortieth (240th) day following the Issuance Date
the Issuer shall be entitled to redeem all or any portion of the outstanding
Debenture in cash pursuant to the following procedures and at the Second
Redemption Price hereinafter provided by providing and the Holder receiving,
twenty (20) calendar days prior written notice (the "Second Redemption
Notice").
(a) The Second Redemption Notice shall set forth (i) the Second Redemption
Date which shall be twenty (20) calendar days after the Second Redemption
Notice Date, (ii) the Second Redemption Price which shall equal that portion of
the Purchase Price of the Debenture being redeemed, plus all accrued interest
attributable to that portion of the Debenture being Redeemed, plus a premium
calculated on a daily pro rata basis equal to ten percent (10%) of the
principal amount of that portion of the Debenture being redeemed for the first
thirty (30) day period following the two hundred fortieth (240th) day after the
Issuance Date plus an additional two percent (2%) of the principal amount of
the Debenture being redeemed for each thirty (30) day period following the two
hundred seventieth (270th) day after the Issuance Date and ending on the Second
Redemption Notice Date, (iii) a statement that interest on that portion of the
Debenture being redeemed will cease to accrue on such Second Redemption Date.
The Second Redemption Notice shall be irrevocable, and it shall be mailed,
postage prepaid, at least twenty (20) calendar days prior to the Second
Redemption Date to the HOLDER at their address as the same shall appear on the
books of the Company (the date of such mailing being the "Second Redemption
Notice Date"). If fewer than all of the principal amount of the Debentures
owned by the HOLDER are then to be Redeemed, the notice shall specify the
amount thereof that is to be redeemed and, if practicable, the numbers of the
certificates representing such Debenture.
(b) Immediately following the Second Redemption Date, the HOLDER shall
surrender their original Debenture at the office of the ISSUER, and the ISSUER
shall issue to the HOLDER a new Debenture Certificate for the principal amount
that remains outstanding, if any.
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(c) The ISSUER shall not be entitled to send any Second Redemption Notice
and begin the redemption procedure hereunder unless it has:
(i) the full amount of the Second Redemption Price in cash, available
in a demand or other immediately available account in a bank or similar
financial institution:
(ii) immediately available credit facilities, in the full amount of
the Second Redemption Price with a bank or similar financial institution;
or
(iii) a combination of the items set forth in (i) and (ii) above,
aggregating the full amount of the Second Redemption Price.
(d) In the event the ISSUER fails to make payment pursuant to the Second
Redemption Notice on the Second Redemption Date or otherwise fails to comply
with the Redemption provisions set forth herein, the Second Redemption and
Second Redemption notice shall be deemed null and void and the ISSUER shall
lose any and all further redemption privileges and rights.
(e) Notwithstanding the above, at any time prior to the Second Redemption
Date the HOLDER is entitled, at its option, to convert the Debentures being
noticed for redemption, in whole or in part in accordance with the terms and
conditions set forth above in Section 4.
7. No provisions of this Debenture shall alter or impair the obligation of
the ISSUER, which is absolute and unconditional, upon an Event of Default (as
defined below), to pay the principal of, and interest on this Debenture at the
place, time, and rate, and in the coin or currency herein prescribed.
8. The ISSUER hereby expressly waives demand and presentment for payment,
notice on nonpayment, protest, notice of protest, notice of dishonor, notice of
acceleration or intent to accelerate, and diligence in taking any action to
collect amounts called for hereunder and shall be directly and primarily liable
for the payment of all sums owing and to be owing hereon, regardless of and
without any notice, diligence, act or omission as or with respect to the
collection of any amount called for hereunder.
9. If one or more of the following described "Events of Default" shall
occur.
(a) Any of the representations or warranties made by the ISSUER herein, or
in the Agreement shall have been incorrect when made in any material respect;
or
(b) The ISSUER shall fail to perform or observe in any material respect
any covenant, term, provision, condition, agreement or obligation of the ISSUER
under this
(8)
<PAGE>
Debenture, the Registration Rights Agreement and the Agreement, between the
parties of even date herewith, which shall remain uncured for five business
days after notice hereof; or
(c) A trustee, liquidator or receiver shall be appointed for the ISSUER or
for a substantial part of its property or business without its consent and
shall not be discharged within thirty (30) days after such appointment; or
(d) Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control of the
whole or any substantial portion of the properties or assets of the ISSUER and
shall not be dismissed within thirty (30) calendar days thereafter; or
(e) Bankruptcy reorganization, Insolvency or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for the relief
of debtors shall be instituted by or against the ISSUER and, if instituted
against the ISSUER, ISSUER shall by any action or answer approve of, consent to
or acquiesce in any such proceedings or admit the material allegations of, or
default in answering a petition filed in any such proceeding or such
proceedings shall not be dismissed within thirty (30) days thereafter; or
(f) The Common Stock is delisted from trading on the NASDAQ Small Cap
Stock Market (except pursuant to section 9.2 of the Agreement), or the Company
has received notice concerning delisting from the NASDAQ Small Cap Stock
Market; or
(g) The effectiveness of the Registration Statement has been suspended for
a period of ten (10) Trading Days.
Then, or at any time thereafter, and in each and every such case, unless
such Event of Default shall have been waived in writing by the HOLDER (which
waiver shall not be deemed to be a waiver of any subsequent default) at the
option of the HOLDER and in the HOLDER'S sole discretion, the HOLDER may
consider this Debenture immediately due and payable in cash, (at the equivalent
dollar value of the number of shares of Common Stock issuable upon conversion
(assuming a Conversion Date as of the date of such notice from the HOLDER)
times the Bid Price on the Trading Day immediately preceding such notice from
the HOLDER, without presentment, demand protest or notice of any kind, all of
which are hereby expressly waived, anything herein or in any note or other
instruments contained to the contrary notwithstanding, and HOLDER may
immediately, and without expiration of any period of grace, enforce any and all
of the HOLDER'S rights and remedies provided herein or any other rights or
remedies afforded by law. It is agreed that in the event of such action, such
HOLDER shall be entitled to receive all reasonable fees, costs and expenses
incurred, including without limitation such reasonable fees and expenses of
attorneys (if litigation is commenced).
10. In case any provision of this Debenture is held by a court of
competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if
possible, so that it is enforceable to the maximum extent
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<PAGE>
possible, and the validity and enforceability of the remaining provisions of
this Debenture will not in any way be affected or impaired thereby.
11. In addition to the terms of the Registration Rights Agreement of even
date herewith, the HOLDER shall have the right to include all of the shares of
Common Stock underlying this Debenture (the "Registrable Securities") as part
of any registration of securities filed by the ISSUER (other than in connection
with a transaction contemplated by Rule 145(a) promulgated under the Act or
pursuant to Form S-8, or the financing arrangement presently under review with
Cruttenden Roth Incorporated or any substitute entity for a transaction
therefor and having substantially the same terms) and must be notified in
writing of such filing; provided, however, that the HOLDER agrees it shall not
have any piggy-back registration rights pursuant to this Debenture if the
shares of Common Stock underlying this Debenture may be sold in the United
States pursuant to the provisions of Rule 144. HOLDER shall have five (5)
business days to notify the ISSUER in writing as to whether the ISSUER is to
include HOLDER or not include HOLDER as part of the registration; provided,
however, that if any registration pursuant to this Section shall be
underwritten, in whole or in part, the Company may require that the Registrable
Securities requested for inclusion pursuant to this Section be included in the
underwriting on the same terms and conditions as the securities otherwise being
sold through the underwriters. If in the good faith judgment of the underwriter
evidenced in writing of such offering only a limited number of Registrable
Securities should be included in such offering, or no such shares should be
included, the HOLDER, and all other selling stockholders, shall be limited to
registering such proportion of their respective shares as shall equal the
proportion that the number of shares of selling stockholders permitted to be
registered by the underwriter in such offering bears to the total number of all
shares then held by all selling stockholders desiring to participate in such
offering. Those Registrable Securities which are excluded from an underwritten
offering pursuant to the foregoing provisions of this Section (and all other
Registrable Securities held by the selling stockholders) shall be withheld from
the market by the HOLDERS thereof for a period, not to exceed one hundred
eighty (180) days, which the underwriter may reasonably determine is necessary
in order to effect such underwritten offering. The ISSUER shall have the right
to terminate or withdraw any registration initiated by it under this Agreement
prior to the effectiveness of such registration whether or not any Debenture
holder elected to include securities in such registration. All registration
expenses incurred by the ISSUER in complying with this Agreement shall be paid
by the ISSUER, exclusive of underwriting discounts, commissions and legal fees
and expenses for counsel to the HOLDERS of this Debenture.
12. This Debenture and the Agreement (along with all exhibits attached
thereto) constitute the full and entire understanding and agreement between the
ISSUER and HOLDER with respect hereto. Neither this Debenture nor any terms
hereof may be amended, waived, discharged or terminated other than by a written
instrument signed by the ISSUER and the HOLDER. Any capitalized terms shall
have the same meaning as given in the Agreement. In the event of any
inconsistencies between this Debenture and the Agreement, the Agreement shall
control.
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13. This Debenture shall be governed by and construed in accordance with
the laws of the State of New York.
14. This Debenture, together with all documents referenced herein, embody
the entire agreement and understanding between the parties hereto with respect
to the subject matter hereof and supersedes all prior oral or written
agreements and understandings relating to the subject matter hereof. No
statement, representation, warranty, covenant or agreement of any kind not
expressly set forth in this Debenture or the Agreement shall affect, or be used
to interpret, change or restrict, the express terms and provisions of this
Debenture.
[Remainder of page intentionally left blank]
[Signature Page Follows]
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IN WITNESS WHEREOF, the ISSUER has caused this Debenture to be duly
executed by an officer thereunto duly authorized.
INTERIORS INC.
By: /s/ Max Munn
---------------------
Name: Max Munn
Title: President
Date: July 27, 1998
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NO.3 $1,250,000 USD
INTERIORS INC.
7% Convertible Debenture due July 29, 2001
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE STATE SECURITIES LAWS
AND HAS BEEN ISSUED IN RELIANCE UPON REGULATION D PROMULGATED UNDER THE
SECURITIES ACT. THIS DEBENTURE SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A
SOLICITATION OF AN OFFER TO BUY THE DEBENTURE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL.
THIS DEBENTURE MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
UNDER APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT
FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS; AND IN THE CASE OF AN
EXEMPTION, ONLY IF THE COMPANY HAS RECEIVED AN OPINION FROM THEIR COUNSEL THAT
SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION OF THE SECURITIES.
THIS DEBENTURE is one of a duly authorized issue of Debentures of
INTERIORS INC., a corporation duly organized and existing under the laws of
the State of Delaware (the "ISSUER"), issued on July 30, 1998 (the "Issuance
Date"), and designated as its 7% Convertible Debentures due July 29, 2001, in
an aggregate face amount not exceeding Two Million Two Hundred Fifty Thousand
(USD$2,250,000) Dollars.
THIS DEBENTURE HAS BEEN ISSUED UNDER THE TERMS AND PROVISIONS OF THE 7%
CONVERTIBLE DEBENTURES SUBSCRIPTION AGREEMENT DATED AS OF JULY 27, 1998 BETWEEN
THE ISSUER AND HOLDER (THE "AGREEMENT") AND SHALL BE SUBJECT TO ALL OF THE
TERMS AND CONDITIONS AND ENTITLED TO ALL OF THE BENEFITS THEREOF.
FOR VALUE RECEIVED, the ISSUER promises to pay to
RBB BANK AG
the registered holder hereof or its registered assigns, if any (the "HOLDER"),
the principal sum of:
ONE MILLION TWO HUNDRED FIFTY THOUSAND
United States Dollars,
<PAGE>
on July 29, 2001 (the "Maturity Date"), and to pay interest, as outlined below,
at the rate of seven (7%) percent per annum on the principal sum outstanding
for the term of this Debenture. Accrual of interest shall commence on the date
hereof. Interest shall be payable by the ISSUER in cash, quarterly, commencing
on the first business day of the Company's next fiscal quarter immediately
following the Issuance Date, on that portion of the principal amount of this
Debenture which is then outstanding. The interest so payable will be paid to
the person in whose name this Debenture (or one or more predecessor Debentures)
is registered on the records of the ISSUER regarding registration and transfers
of the Debenture (the "Debenture Register"), provided, however, that the
ISSUER'S obligation to a transferee of this Debenture arises only if such
transfer, sale or other disposition is made in accordance with the terms and
conditions contained in the Agreement. The principal of this Debenture is
payable as provided below in shares of Common Stock at any time prior to the
Maturity Date upon the HOLDER exercising its conversion rights set forth below.
In the event this Debenture is outstanding on the Maturity Date it shall
automatically be converted into freely tradable shares of Common Stock as if
the HOLDER voluntarily elected such conversion in accordance with the
procedures, terms and conditions set forth in this Debenture provided, that (i)
the Common Stock is listed on the OTC Bulletin Board or Nasdaq Small Cap Stock
Market, (ii) the Bid Price is greater the One ($1.00) Dollar for the ten (10)
Trading Days immediately preceding the Maturity Date, (iii) there has not been
any suspension in the trading of the Common Stock on the OTC Bulletin Board or
Nasdaq Small Cap Stock Market during the thirty (30) Trading Days immediately
preceding the Maturity Date, and the (iv) the ISSUER has been in full
compliance with the terms and conditions of this Debenture and the Agreement.
In the event all of the aforementioned conditions are not satisfied, or the
ISSUER is not able to issue freely tradable shares of Common Stock as described
above, the ISSUER agrees to pay to the HOLDER, in cash, within three (3)
Trading Days of the Maturity Date, the dollar value of the number of shares of
Common Stock issuable to the HOLDER as if the HOLDER had exercised its
conversion rights on the Maturity Date, multiplied by the closing bid price of
the Common Stock on the Maturity Date. Principal and interest are payable at
the address last appearing on the Debenture Register as designated in writing
by the HOLDER hereof from time to time.
The Debenture is subject to the following additional provisions:
1. Subject to the restrictions on transferability set forth herein and in
the Agreement, the Debenture is exchangeable for like Debentures in equal
aggregate principal amount of authorized denominations, as requested by the
HOLDER surrendering the same. No service charge will be made for such
registration or transfer or exchange, although the HOLDER shall be responsible
for their own expenses associated with complying with the restrictions on
transfer of the Debenture in the Agreement.
2. The ISSUER shall be entitled to withhold from all payments of principal
of this Debenture any amounts required to be withheld under the applicable
provisions of the U.S. Internal Revenue Code of 1986, as amended, or other
applicable laws at the time of such payments.
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<PAGE>
3. This Debenture has been issued subject to investment representations of
the original HOLDER hereof and may be transferred or exchanged in the United
States only in compliance with the 1933 Act and applicable state securities
laws and in compliance with the restrictions on transfer provided in the
Agreement. Prior to the due presentment for such transfer of this Debenture,
the ISSUER and any agent of the ISSUER may treat the person in whose name this
Debenture is duly registered on the Debenture Register as the owner hereof for
the purpose of receiving payment as herein provided and all other purposes,
whether or not this Debenture is overdue, and neither the ISSUER nor any such
agent shall be affected by notice to the contrary. The transferee shall be
bound, as the original HOLDER by the same representations and terms described
herein and under the Agreement.
4. At any time after the two hundred fortieth (240th) day from the
Issuance Date, the HOLDER is entitled, at its option, to convert this
Debenture, in whole or in part, in accordance with the following terms and
conditions:
(a) The HOLDER may exercise its right to convert the Debenture by
telecopying an executed and completed notice of conversion (the "Notice of
Conversion") to the ISSUER and delivering the original Notice of Conversion and
the original Debenture to the ISSUER by express courier. Each business date on
which a Notice of Conversion is telecopied to and received by the ISSUER in
accordance with the provisions hereof shall be deemed a "Conversion Date". The
ISSUER will transmit the certificates representing shares of Common Stock
issuable upon conversion of the Debenture (together with the certificates
representing the Debenture not so converted) to the HOLDER via express courier,
by electronic transfer or otherwise within six business days after the
Conversion Date if the ISSUER has received the original Notice of Conversion
and Debenture being so converted by such date. In addition to any other
remedies which may be available to the HOLDER, in the event that the ISSUER
fails to effect delivery of such shares of Common Stock within such six
business day period, the HOLDER will be entitled to revoke the Notice of
Conversion by delivering a notice to such effect to the ISSUER whereupon the
ISSUER and the HOLDER shall each be restored to their respective positions
immediately prior to delivery of the Notice of Conversion. The Notice of
Conversion and Debenture representing the portion of the Debenture converted
shall be delivered as follows:
To the ISSUER:
INTERIORS INC.
320 Washington Street
Mount Vernon, New York 10553
Attn: Max Munn, President
Facsimile: (914) 665-5469
Telephone: (914) 665-5400
In the event that the Common Stock issuable upon conversion of the
Debenture is not delivered, within six (6) business days of receipt by the
ISSUER of a valid Notice of Conversion and the Debenture to be converted, the
ISSUER shall pay to the HOLDER, in
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<PAGE>
immediately available funds, upon demand, as liquidated damages for such
failure and not as a penalty, for each $100,000 principal amount of Debenture
sought to be converted, $500 for each of the first ten (10) days and $1,000 per
day thereafter that the shares of Common Stock are not delivered, which
liquidated damages shall run from the seventh business day after the Conversion
Date up until the time that either the Conversion Notice is revoked or the
Common Stock is delivered, at which time such liquidated damages shall cease.
Any and all payments required pursuant to this paragraph shall be payable only
in cash immediately and shall not be in addition to the liquidated damages set
forth in Section 4(ii) of the Agreement.
(b) Each Debenture shall be convertible, at the sole option of the HOLDER,
into that number of shares of fully paid and nonassessable shares of Common
Stock which is to be derived from dividing the Conversion Amount by the
Conversion Price. For purposes of this Debenture, the Conversion Amount shall
mean the principal dollar amount of the Debenture being converted plus all
accrued and unpaid interest attributable to the Debenture being converted as of
the Conversion Date. The Conversion Price shall be equal to the lesser of: (i)
eighty (80%) percent of the average closing bid price of the Common Stock
during the three day trading period immediately preceding the Conversion Date,
or (ii) US$2.10. The closing bid price shall be deemed to be the reported last
bid price regular way as reported by Bloomberg LP or if unavailable, on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading, or if the Common Stock is not listed or admitted to
trading on any national securities exchange, the closing bid price as reported
by NASDAQ or such other system then in use, or, if the Common Stock is not
quoted by any such organization, the closing bid price in the over-the-counter
market as furnished by the principal national securities exchange on which the
Common Stock is traded. Notwithstanding anything in this Debenture to the
contrary, the ability of Holder to convert this Debenture shall be restricted
as set forth in Sections 9.1 and 9.2 of the Agreement provided the Company
complies with these sections and pays the Economic Benefit.
(c) The number of shares of Common Stock issuable upon the conversion of
the Debenture and the Conversion Price shall be subject to adjustment as
follows:
(i) In case the ISSUER shall (A) pay a dividend on Common Stock in Common
Stock or securities convertible into, exchangeable for or otherwise
entitling a holder thereof to receive Common Stock, (B) declare a dividend
payable in cash on its Common Stock and at substantially the same time
offer its shareholder a right to purchase new Common Stock (or securities
convertible into, exchangeable for or otherwise entitling a holder thereof
to receive Common Stock) from proceeds of such dividend (all Common Stock
so issued shall be deemed to have been issued as a stock dividend), (C)
subdivide its outstanding shares of Common Stock into a greater number of
shares of Common Stock, (D) combined its outstanding shares of Common Stock
into a smaller number of shares of Common Stock, or (E) issue by
reclassification of its Common Stock any shares of Common Stock of the
ISSUER, the number of shares of Common Stock issuable upon conversion of
the Debenture immediately prior thereto shall be adjusted so that the
holders of the Debenture shall be entitled to receive after the happening
of any of the events described above that number and kind of shares as the
holders would have received had such Debenture been converted immediately
prior to the happening of
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<PAGE>
such event or any record date with respect thereto. Any adjustment made
pursuant to this subdivision shall become effective immediately after the
close of business on the record date in the case of a stock dividend and
shall become effective immediately after the close of business on the
record date in the case of a stock split, subdivision, combination or
reclassification.
(ii) Any adjustment in the numbers of shares of Common Stock issuable
hereunder otherwise required to be made by this paragraph 4(c) will not
have to be made if such adjustment would not require an increase or
decrease in one (1%) percent or more in the number of shares of Common
Stock issuable upon conversion of the Debenture.
(iii) Whenever the number of shares of Common Stock issuable upon the
conversion of the Debenture is adjusted, as herein provided, the Conversion
Price shall be adjusted (to the nearest cent) by multiplying such
Conversion Price immediately prior to such adjustment by a fraction of
which the numerator shall be the number of shares of Common Stock issuable
upon the exercise of each share of Debenture immediately prior to such
adjustment, and of which the denominator shall be the number of shares of
Common Stock issuable immediately thereafter.
(d) In the case of any (i) consolidation or merger of the ISSUER into any
entity (other than a consolidation or merger that does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock of the ISSUER), (ii) sale, transfer, lease or conveyance of all or
substantially all of the assets of the ISSUER as an entirety or substantially
as an entirety, or (iii) reclassification, capital reorganization or change of
the Common Stock (other than solely a change in par value, or from par value to
no par value), in each case as a result of which shares of Common Stock shall
be converted into the right to receive stock, securities or other property
(including cash or any combination thereof), each holder of a Debenture then
outstanding shall have the right thereafter to convert such Debenture only into
the kind and amount of securities, cash and other property receivable upon such
consolidation, merger, sale, transfer, capital reorganization or
reclassification by a holder of the number of shares of Common Stock of the
ISSUER into which such Debenture would have been converted immediately prior to
such consolidation, merger, sale, transfer, capital reorganization or
reclassification, assuming such holder of Common Stock of the ISSUER (A) is not
an entity with which the ISSUER consolidated or into which such sale or
transfer was made, as the case may be ("constituent entity"), or an affiliate
of the constituent entity, and (B) failed to exercise his or her rights of
election, if any, as to the kind or amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer (provided
that if the kind or amount of securities, cash or other property receivable
upon such consolidation, merger, sale or transfer is not the same for each
share of Common stock of the ISSUER held immediately prior to such
consolidation, merger, sale or transfer by other than a constituent entity or
an affiliate thereof and in respect of which the ISSUER merged into the ISSUER
or to which such rights or election shall not have been exercised
("non-electing share"), then for the purpose of this Section (4)(d) the kind
and amount of securities, cash or other property receivable upon such
consolidation, merger, sale or transfer by each non-electing share shall be
deemed to be the kind and amount so receivable per share by a majority of the
non-electing shares). If necessary, appropriate adjustment shall be made in the
application of the provision set forth herein with respect to the
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<PAGE>
rights and interest thereafter of the HOLDER, to the end that the provisions
set forth herein shall thereafter correspondingly be made applicable, as nearly
as may reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the conversion of the Debenture. The above
provisions shall similarly apply to successive consolidations, mergers, sales,
transfers, capital reorganizations and reclassifications. The ISSUER shall not
effect any such consolidation, merger, sale or transfer unless prior to or
simultaneously with the consummation thereof the successor ISSUER or entity (if
other than the ISSUER) resulting from such consolidation, merger, sale or
transfer shall assume, by written instrument, the obligation to deliver to the
HOLDER such shares of Common Stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to receive under this
paragraph.
(e) The ISSUER will not, by amendment of its Certificate of Incorporation
or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the ISSUER, but will at
all times in good faith assist in the carrying out of all the provisions of
this paragraph and in taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the HOLDERS against
impairment.
5. First Redemption Prior to 240 Days Following Issuance Date. At any time
prior to the two hundred fortieth (240th) day following the Issuance Date the
Issuer shall be entitled to Redeem all or any portion of the outstanding
Debenture in cash pursuant to the following procedures and at the First
Redemption Price hereinafter provided by providing seven (7) business days
prior written notice (the "First Redemption Notice") to the HOLDER:
(a) The First Redemption Notice shall set forth (i) the First Redemption
Date which shall be ten (10) trading days after the First Redemption Notice
Date, (ii) the First Redemption Price which shall equal the Purchase Price of
that portion of the Debenture being redeemed plus all accrued interest
attributable to that portion of the Debenture being redeemed, (iii) a statement
that interest on that portion of the Debenture being redeemed will cease to
accrue on such First Redemption Date, and (iv) a statement of or reference to
the conversion right set forth in this Debenture (including that the right to
give a notice of conversion in respect of any shares to be redeemed shall
terminate on the First Redemption Date). The First Redemption Notice shall be
irrevocable, and it shall be mailed, postage prepaid, at least ten (10)
business days prior to the First Redemption Date to the HOLDER at their address
as the same shall appear on the books of the Company. If fewer than all of the
principal amount of the Debentures owned by the HOLDER are then to be redeemed,
the notice shall specify the amount thereof that is to be redeemed and, if
practicable, the numbers of the certificates representing such Debenture.
(b) Immediately following the First Redemption Date, the HOLDER shall
surrender their original Debenture at the office of the ISSUER, and the ISSUER
shall issue to the HOLDER a new Debenture Certificate for the principal amount
that remains outstanding, if any.
(c) The ISSUER shall not be entitled to send any First Redemption Notice
and begin the First redemption procedure hereunder unless it has:
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<PAGE>
(i) the full amount of the First Redemption Price in cash, available
in a demand or other immediately available account in a bank or similar
financial institution;
(ii) immediately available credit facilities, in the full amount of
the First Redemption Price with a bank or similar financial institution;
or
(iii) a combination of the items set forth in (i) and (ii) above,
aggregating the full amount of the First Redemption Price.
(d) In the event the ISSUER fails to make payment pursuant to the First
Redemption Notice on the First Redemption Date or otherwise fails to comply
with the Redemption provisions set forth herein, the First Redemption and First
Redemption Notice shall be deemed null and void and the ISSUER shall lose any
and all further redemption privileges and rights.
6. Second Redemption Subsequent to 240 Days Following Issuance Date. At
any time after the two hundred fortieth (240th) day following the Issuance Date
the Issuer shall be entitled to redeem all or any portion of the outstanding
Debenture in cash pursuant to the following procedures and at the Second
Redemption Price hereinafter provided by providing and the Holder receiving,
twenty (20) calendar days prior written notice (the "Second Redemption
Notice").
(a) The Second Redemption Notice shall set forth (i) the Second Redemption
Date which shall be twenty (20) calendar days after the Second Redemption
Notice Date, (ii) the Second Redemption Price which shall equal that portion of
the Purchase Price of the Debenture being redeemed, plus all accrued interest
attributable to that portion of the Debenture being Redeemed, plus a premium
calculated on a daily pro rata basis equal to ten percent (10%) of the
principal amount of that portion of the Debenture being redeemed for the first
thirty (30) day period following the two hundred fortieth (240th) day after the
Issuance Date plus an additional two percent (2%) of the principal amount of
the Debenture being redeemed for each thirty (30) day period following the two
hundred seventieth (270th) day after the Issuance Date and ending on the Second
Redemption Notice Date, (iii) a statement that interest on that portion of the
Debenture being redeemed will cease to accrue on such Second Redemption Date.
The Second Redemption Notice shall be irrevocable, and it shall be mailed,
postage prepaid, at least twenty (20) calendar days prior to the Second
Redemption Date to the HOLDER at their address as the same shall appear on the
books of the Company (the date of such mailing being the "Second Redemption
Notice Date"). If fewer than all of the principal amount of the Debentures
owned by the HOLDER are then to be Redeemed, the notice shall specify the
amount thereof that is to be redeemed and, if practicable, the numbers of the
certificates representing such Debenture.
(b) Immediately following the Second Redemption Date, the HOLDER shall
surrender their original Debenture at the office of the ISSUER, and the ISSUER
shall issue to the HOLDER a new Debenture Certificate for the principal amount
that remains outstanding, if any.
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(c) The ISSUER shall not be entitled to send any Second Redemption Notice
and begin the redemption procedure hereunder unless it has:
(i) the full amount of the Second Redemption Price in cash, available in
a demand or other immediately available account in a bank or similar
financial institution:
(ii) immediately available credit facilities, in the full amount of the
Second Redemption Price with a bank or similar financial institution; or
(iii) a combination of the items set forth in (i) and (ii) above,
aggregating the full amount of the Second Redemption Price.
(d) In the event the ISSUER fails to make payment pursuant to the Second
Redemption Notice on the Second Redemption Date or otherwise fails to comply
with the Redemption provisions set forth herein, the Second Redemption and
Second Redemption notice shall be deemed null and void and the ISSUER shall
lose any and all further redemption privileges and rights.
(e) Notwithstanding the above, at any time prior to the Second Redemption
Date the HOLDER is entitled, at its option, to convert the Debentures being
noticed for redemption, in whole or in part in accordance with the terms and
conditions set forth above in Section 4.
7. No provision of this Debenture shall alter or impair the obligation of
the ISSUER, which is absolute and unconditional, upon an Event of Default (as
defined below), to pay the principal of, and interest on this Debenture at the
place, time, and rate, and in the coin or currency herein prescribed.
8. The ISSUER hereby expressly waives demand and presentment for payment,
notice on nonpayment, protest, notice of protest, notice of dishonor, notice of
acceleration or intent to accelerate, and diligence in taking any action to
collect amounts called for hereunder and shall be directly and primarily liable
for the payment of all sums owing and to be owing hereon, regardless of and
without any notice, diligence, act or omission as or with respect to the
collection of any amount called for hereunder.
9. If one or more of the following described "Events of Default" shall
occur:
(a) Any of the representations or warranties made by the ISSUER herein, or
in the Agreement shall have been incorrect when made in any material respect;
or
(b) The ISSUER shall fail to perform or observe in any material respect
any covenant, term, provision, condition, agreement or obligation of the ISSUER
under this
(8)
<PAGE>
Debenture, the Registration Rights Agreement and the Agreement, between the
parties of even date herewith, which shall remain uncured for five business
days after notice hereof; or
(c) A trustee, liquidator or receiver shall be appointed for the ISSUER or
for a substantial part of its property or business without its consent and
shall not be discharged within thirty (30) days after such appointment; or
(d) Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control of the
whole or any substantial portion of the properties or assets of the ISSUER and
shall not be dismissed within thirty (30) calendar days thereafter; or
(e) Bankruptcy reorganization, Insolvency or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for the relief
of debtors shall be instituted by or against the ISSUER and, if instituted
against the ISSUER, ISSUER shall by any action or answer approve of, consent to
or acquiesce in any such proceedings or admit the material allegations of, or
default in answering a petition filed in any such proceeding or such
proceedings shall not be dismissed within thirty (30) days thereafter; or
(f) The Common Stock is delisted from trading on the NASDAQ Small Cap
Stock Market (except pursuant to section 9.2 of the Agreement), or the Company
has received notice concerning delisting from the NASDAQ Small Cap Stock
Market; or
(g) The effectiveness of the Registration Statement has been suspended for
a period of ten (10) Trading Days.
Then, or at any time thereafter, and in each and every such case, unless
such Event of Default shall have been waived in writing by the HOLDER (which
waiver shall not be deemed to be a waiver of any subsequent default) at the
option of the HOLDER and in the HOLDER'S sole discretion, the HOLDER may
consider this Debenture immediately due and payable in cash, (at the equivalent
dollar value of the number of shares of Common Stock issuable upon conversion
(assuming a Conversion Date as of the date of such notice from the HOLDER)
times the Bid Price on the Trading Day immediately preceding such notice from
the HOLDER, without presentment, demand protest or notice of any kind, all of
which are hereby expressly waived, anything herein or in any note or other
instruments contained to the contrary notwithstanding, and HOLDER may
immediately, and without expiration of any period of grace, enforce any and all
of the HOLDER'S rights and remedies provided herein or any other rights or
remedies afforded by law. It is agreed that in the event of such action, such
HOLDER shall be entitled to receive all reasonable fees, costs and expenses
incurred, including without limitation such reasonable fees and expenses of
attorneys (if litigation is commenced).
10. In case any provision of this Debenture is held by a court of
competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if
possible, so that it is enforceable to the maximum extent
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<PAGE>
possible, and the validity and enforceability of the remaining provisions of
this Debenture will not in any way be affected or impaired thereby.
11. In addition to the terms of the Registration Rights Agreement of even
date herewith, the HOLDER shall have the right to include all of the shares of
Common Stock underlying this Debenture (the "Registrable Securities") as part
of any registration of securities filed by the ISSUER (other than in connection
with a transaction contemplated by Rule 145(a) promulgated under the Act or
pursuant to Form S-8, or the financing arrangement presently under review with
Cruttenden Roth Incorporated or any substitute entity for a transaction
therefor and having substantially the same terms) and must be notified in
writing of such filing; provided, however, that the HOLDER agrees it shall not
have any piggy-back registration rights pursuant to this Debenture if the
shares of Common Stock underlying this Debenture may be sold in the United
States pursuant to the provisions of Rule 144. HOLDER shall have five (5)
business days to notify the ISSUER in writing as to whether the ISSUER is to
include HOLDER or not include HOLDER as part of the registration; provided,
however, that if any registration pursuant to this Section shall be
underwritten, in whole or in part, the Company may require that the Registrable
Securities requested for inclusion pursuant to this Section be included in the
underwriting on the same terms and conditions as the securities otherwise being
sold through the underwriters. If in the good faith judgment of the underwriter
evidenced in writing of such offering only a limited number of Registrable
Securities should be included in such offering, or no such shares should be
included, the HOLDER, and all other selling stockholders, shall be limited to
registering such proportion of their respective shares as shall equal the
proportion that the number of shares of selling stockholders permitted to be
registered by the underwriter in such offering bears to the total number of all
shares then held by all selling stockholders desiring to participate in such
offering. Those Registrable Securities which are excluded from an underwritten
offering pursuant to the foregoing provisions of this Section (and all other
Registrable Securities held by the selling stockholders) shall be withheld from
the market by the HOLDERS thereof for a period, not to exceed one hundred
eighty (180) days, which the underwriter may reasonably determine is necessary
in order to effect such underwritten offering. The ISSUER shall have the right
to terminate or withdraw any registration initiated by it under this Agreement
prior to the effectiveness of such registration whether or not any Debenture
holder elected to include securities in such registration. All registration
expenses incurred by the ISSUER in complying with this Agreement shall be paid
by the ISSUER, exclusive of underwriting discounts, commissions and legal fees
and expenses for counsel to the HOLDERS of this Debenture.
12. This Debenture and the Agreement (along with all exhibits attached
thereto) constitute the full and entire understanding and agreement between the
ISSUER and HOLDER with respect hereto. Neither this Debenture nor any terms
hereof may be amended, waived, discharged or terminated other than by a written
instrument signed by the ISSUER and the HOLDER. Any capitalized terms shall
have the same meaning as given in the Agreement. In the event of any
inconsistencies between this Debenture and the Agreement, the Agreement shall
control.
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<PAGE>
13. This Debenture shall be governed by and construed in accordance with
the laws of the State of New York.
14. This Debenture, together with all documents referenced herein, embody
the entire agreement and understanding between the parties hereto with respect
to the subject matter hereof and supersedes all prior oral or written
agreements and understandings relating to the subject matter hereof. No
statement, representation, warranty, covenant or agreement of any kind not
expressly set forth in this Debenture or the Agreement shall affect, or be used
to interpret, change or restrict, the express terms and provisions of this
Debenture.
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[Signature Page Follows]
11
<PAGE>
IN WITNESS WHEREOF, the ISSUER has caused this Debenture to be duly
executed by an officer thereunto duly authorized.
INTERIORS INC.
By: /s/ Max Munn
---------------------
Name: Max Munn
Title: President
Date: July 30, 1998
12
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE STATE SECURITIES LAWS
AND HAS BEEN ISSUED IN RELIANCE UPON REGULATION D PROMULGATED UNDER THE
SECURITIES ACT. THIS WARRANT SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A
SOLICITATION OF AN OFFER TO BUY THE WARRANT IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL.
THIS WARRANT MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
UNDER APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT
FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS; AND IN THE CASE OF AN
EXEMPTION, ONLY IF THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL THAT SUCH
TRANSACTION DOES NOT REQUIRE REGISTRATION OF THE WARRANT, WHICH OPINION AND
WHICH COUNSEL SHALL BE SATISFACTORY TO THE COMPANY IN ITS SOLE DISCRETION.
NO. 1
COMMON STOCK PURCHASE WARRANT A
To Purchase 214,286 Shares of Common Stock of
INTERIORS INC.
THIS CERTIFIES that, for value received, DOMINION CAPITAL FUND, LTD. (the
"Investor"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, from July 27, 1998 (the "Issuance Date"), on or prior
to July 26, 2003 (the "Termination Date") but not thereafter, to subscribe
for and purchase from INTERIORS INC., a corporation incorporated in the State
of Delaware (the "Company"), up to Two Hundred Fourteen Thousand Two Hundred
Eighty-Six (214,286) shares (the "Warrant Shares") of Class A Common Stock,
par value US $0.001 per share of the Company (the "Common Stock"). The
purchase price of one share of Common Stock (the "Exercise Price") under this
Warrant shall be equal to the lower of either: (i) one hundred twenty percent
(120%) of the closing bid price of the Common Stock on the Trading Day
immediately preceding the Issuance Date, or (ii) one hundred twenty percent
(120%) of the closing bid price of the Common Stock on the reset date (the
"Reset Date") which shall be a single date during the period commencing on
the ninety-first (91st) day after the Issuance Date through and including the
two hundred tenth (210th) day after the Issuance date and which Reset Date
shall be designated by the holder of the Warrant; plus a premium (the
"Exercise Premium").
<PAGE>
The Exercise Premium shall equal one half (1/2) of the Premium Price as
defined herein less the Trigger Price as defined herein provided the Premium
Price is greater than the Trigger Price. In the event the Premium Price is
equal to or less than the Trigger Price then the Exercise Premium shall equal
zero. The "Premium Price" shall be the closing bid price of the Common Stock
on the Trading Day immediately preceding the date that the notice of exercise
(the "Exercise Date") was sent to the Issuer, and the "Trigger Price" shall
be Four Dollars and Eleven Cents (US$4.11) per share. The Exercise Price and
the number of shares for which the Warrant is exercisable shall be subject to
adjustment as provided herein. This Warrant is being issued in connection
with the 7% Convertible Debenture as defined in the 7% Convertible Debenture
Subscription Agreement (the "Agreement") dated as of the Issuance Date
between the Company and Investor and is subject to its terms. In the event of
any conflict between the terms of this Warrant and the Agreement, the
Agreement shall control.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws and the restrictions on transfer described
herein, this Warrant and all rights hereunder are transferable, in whole or
in part, at the office or agency of the Company by the holder hereof in
person or by duly authorized attorney, upon surrender of this Warrant
together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by
this Warrant will, upon exercise of the rights represented by this Warrant
and payment for the Warrant Shares as provided herein, be duly authorized,
validly issued, fully paid and nonassessable and free from all taxes, liens
and charges in respect of the issue thereof (other than those created by the
Investor and other than taxes in respect of any transfer occurring
contemporaneously with such issue).
3. Exercise of Warrant. Exercise of the purchase rights represented by
this Warrant may be made in accordance with the following terms and
conditions:
(a) At any time after the ninetieth (90th) day from the Issuance Date and
prior to the close of business on the Termination Date, or such earlier date
on which this Warrant may terminate as provided in paragraph 11 below, the
Holder may exercise its right to purchase up to 35,714 Warrant Shares [equal
to one-sixth (1/6th) of the aggregate number of the Warrant Shares originally
issuable on the Issuance Date];
(b) At any time after the one hundred twentieth (120th) day from the
Issuance Date and before the close of business on the Termination Date, or
such earlier date on which this Warrant may terminate as provided in
paragraph 11 below, the Holder may exercise its right to purchase an additional
35,714 Warrant Shares [equal to one-sixth (1/6th) of the aggregate number of
the Warrant Shares originally issuable hereto];
(c) At any time after the one hundred fiftieth (150th) day from the Issuance
Date and before the close of business on the Termination Date, or such earlier
date on which this Warrant may terminate as provided in paragraph 11 below, the
Holder may exercise its right to
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<PAGE>
purchase an additional 35,714 Warrant Shares [equal to one-sixth (1/6th) of the
aggregate number of the Warrant Shares originally issuable hereto];
(d) At any time after the one hundred eightieth (180th) day from the
Issuance Date and before the close of business on the Termination Date, or
such earlier date on which this Warrant may terminate as provided in
paragraph 11 below, the Holder may exercise its right to purchase an
additional 35,714 Warrant Shares [equal to one-sixth (1/6th) of the aggregate
number of the Warrant Shares originally issuable hereto];
(e) At any time after the two hundred tenth (210th) day from the Issuance
Date and before the close of business on the Termination Date, or such
earlier date on which this Warrant may terminate as provided in paragraph 11
below, the Holder may exercise its right to purchase an additional 35,715
Warrant Shares [equal to one-sixth (1/6th) of the aggregate number of the
Warrant Shares originally issuable hereto];
(f) At any time after the two hundred fortieth (240th) day from the
Issuance Date and before the close of business on the Termination Date, or
such earlier date on which this Warrant may terminate as provided in
paragraph 11 below, the Holder may exercise its right to purchase all
remaining and outstanding Warrant Shares originally issuable hereto;
(g) The exercise of the purchase rights represented by this Warrant may be
made as set forth in (a)-(f) above by the surrender of this Warrant and the
Notice of Exercise Form annexed hereto duly executed, at the principal office
of the Company, 320 Washington Street, Mount Vernon, New York (or such other
office or agency of the Company as it may designate by notice in writing to
the registered holder hereof at the address of such holder appearing on the
books of the Company) and upon payment of the Exercise Price of the shares
thereby purchased; whereupon the holder of this Warrant shall be entitled to
receive a certificate for the number of shares of Common Stock so purchased.
Certificates for shares purchased hereunder shall be delivered to the holder
hereof within six (6) business days after the date on which this Warrant
shall have been exercised as aforesaid. Payment of the Exercise Price of the
shares may be by certified check or cashier's check or by wire transfer to an
account designated by the Company in an amount equal to the Exercise Price
multiplied by the number of shares being purchased.
4. No Fractional Shares or Scrip/Restrictions on Exercise. No fractional
shares or scrip representing fractional shares shall be issued upon the
exercise of this Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without charge
to the holder hereof for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificate, all of which taxes
and expenses shall be paid by the Company, and such certificates shall be
issued in the name of the holder of this Warrant or in such name or names as
may be directed by the holder of this Warrant; provided, however, that in the
event certificates for shares of Common Stock are to be issued in a name
other than the name of the holder of this Warrant, this Warrant when
surrendered for exercise shall be accompanied by the Assignment Form attached
hereto duly executed by the holder hereof; and provided further, that upon
any transfer
3
<PAGE>
involved in the issuance or delivery of any certificates for shares of Common
Stock, the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.
6. Closing of Books. The Company will at no time close its shareholder
books or records in any manner which interferes with the timely exercise of
this Warrant.
7. No Rights as Shareholder until Exercise. This Warrant does not entitle
the holder hereof to any voting rights or other rights as a shareholder of
the Company prior to the exercise thereof. Upon the surrender of this Warrant
and the payment of the aggregate Exercise Price, the Warrant Shares so
purchased shall be and be deemed to be issued to such holder as the record
owner of such shares as of the close of business on the later of the date of
such surrender or payment.
8. Assignment and Transfer of Warrant. Subject to the restriction on
transfer described herein, this Warrant may be assigned by the surrender of
this Warrant and the Assignment Form annexed hereto duly executed at the
office of the Company (or such other office or agency of the Company as it
may designate by notice in writing to the registered holder hereof at the
address of such holder appearing on the books of the Company).
9. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant certificate or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
surrender and cancellation of such Warrant or stock certificate, if
mutilated, the Company will make and deliver a new Warrant or stock
certificate of like tenor and dated as of such cancellation, in lieu of such
Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may
be taken or such right may be exercised on the next succeeding day not a
legal holiday.
11. Effect of Certain Events.
-------------------------
(a) If at any time the Company proposes (i) to sell or otherwise convey
all or substantially all of its assets or (ii) to effect a transaction (by
merger or otherwise) in which more than 50% of the voting power of the
Company is disposed of (collectively, a "Sale or Merger Transaction"), in
which the consideration to be received by the Company or its shareholders
consists solely of cash, the Company shall give the holder of this Warrant
thirty (30) days' notice of the proposed effective date of the transaction
specifying that the Warrant shall terminate if the Warrant has not been
exercised by the effective date of the transaction.
(b) In case the Company shall at any time effect a Sale or Merger
Transaction in which the consideration to be received by the Company or its
shareholders consists in part of
4
<PAGE>
consideration other than cash, the holder of this Warrant shall have the
right thereafter to purchase, by exercise of this Warrant and payment of the
aggregate Exercise Price in effect immediately prior to such action, the kind
and amount of shares and other securities and property which it would have
owned or have been entitled to receive after the happening of such
transaction had this Warrant been exercised immediately prior thereto.
(c) The Company agrees that the Warrant Shares shall be included in the
Registration Statement to be filed by the Company pursuant to the Agreement.
12. Adjustments of Exercise Price and Number of Warrant Shares. The number
and kind of securities purchasable upon the exercise of this Warrant and the
Exercise Price (inclusive of the Premium Price and Trigger Price used in
calculating the Exercise Price) shall be subject to adjustment from time to
time upon the happening of any of the following.
In case the Company shall (i) declare or pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock to holders of
its outstanding Common Stock, (ii) subdivide its outstanding shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital
stock in a reclassification of the Common Stock, then the number of Warrant
Shares purchasable upon exercise of this Warrant immediately prior thereto
shall be adjusted so that the holder of this Warrant shall be entitled to
receive the kind and number of Warrant Shares or other securities of the
Company which he would have owned or have been entitled to receive had such
Warrant been exercised in advance thereof. Upon each such adjustment of the
kind and number of Warrant Shares or other securities of the Company which
are purchasable hereunder, the holder of this Warrant shall thereafter be
entitled to purchase the number of Warrant Shares or other securities
resulting from such adjustment at an Exercise Price per such Warrant Share or
other security obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares
purchasable pursuant hereto immediately prior to such adjustment and dividing
by the number of Warrant Shares or other securities of the Company resulting
from such adjustment. An adjustment made pursuant to this paragraph shall
become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
13. Voluntary Adjustment by the Company. The Company may at any time
during the term of this Warrant, reduce the then current Exercise Price to
any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
14. Notice of Adjustment. Whenever the number of Warrant Shares or number
or kind of securities or other property purchasable upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt
requested, to the holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities
or property) purchasable upon the exercise of this Warrant and the Exercise
Price of such Warrant Shares (and other securities or property) after such
adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was
5
<PAGE>
made. Such notice, in absence of manifest error, shall be conclusive evidence
of the correctness of such adjustment.
15. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this Warrant.
The Company further covenants that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates
for the Warrant Shares upon the exercise of the purchase rights under this
Warrant. The Company will take all such reasonable action as may be necessary
to assure that such Warrant Shares may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of the
OTC Bulletin Board or NASDAQ Small Cap Stock Market or any domestic
securities exchange upon which the Common Stock may be listed.
16. "Piggy-Back" Registration. In addition to the terms of the
Registration Rights Agreement, the Holders of this Warrant shall have the
right to include all Warrant Shares as part of any registration of securities
filed by the Company (other than in connection with a transaction
contemplated by Rule 145(a) promulgated under the Act or pursuant to Form
S-8, or the financing arrangement presently under review with Cruttenden Roth
Incorporated or any substitute entity therefor and having substantially the
same terms) and must be notified in writing of such filing; provided,
however, that the holder of this Warrant agrees it shall not have any
piggy-back registration rights pursuant to this Warrant if the Warrant Shares
may be sold in the United States pursuant to the provisions of Rule 144. The
Holder shall have five (5) business days to notify the Company in writing as
to whether the Company is to include Holder or not include Holder as part of
the registration; provided, however, that if any registration pursuant to
this Section shall be underwritten, in whole or in part, the Company may
require that the Registrable Securities requested for inclusion pursuant to
this Section be included in the underwriting on the same terms and conditions
as the securities otherwise being sold through the underwriters. If in the
good faith judgment of the underwriter evidenced in writing of such offering
only a limited number of Registrable Securities should be included in such
offering, or no such shares should be included, the Holder, and all other
selling stockholders, shall be limited to registering such proportion of
their respective shares as shall equal the proportion that the number of
shares of selling stockholders permitted to be registered by the underwriter
in such offering bears to the total number of all shares then held by all
selling stockholders desiring to participate in such offering. Those
Registrable Securities which are excluded from an underwritten offering
pursuant to the foregoing provisions of this Section (and all other
Registrable Securities held by the selling stockholders) shall be withheld
from the market by the Holders thereof for a period, not to exceed one
hundred eighty (180) days, which the underwriter may reasonably determine is
necessary in order to effect such underwritten offering. The Company shall
have the right to terminate or withdraw any registration initiated by it
under this Agreement prior to the effectiveness of such registration whether
or not any Warrant holder elected to include securities in such registration.
All registration expenses incurred by the Company in complying with this
Warrant shall be paid by the Company, exclusive of
6
<PAGE>
underwriting discounts, commissions and legal fees and expenses for counsel
to the holders of the Warrants.
17. Miscellaneous.
--------------
(a) Issue Date; Jurisdiction. The provisions of this Warrant shall be
construed and shall be given effect in all respects as if it had been issued
and delivered by the Company on the date hereof. This Warrant shall be
binding upon any successors or assigns of the Company. This Warrant shall
constitute a contract under the laws of New York without regard to its
conflict of law, principles or rules, and be subject to arbitration pursuant
to the terms set forth in the Agreement.
(b) Restrictions. The holder hereof acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered, or if no
exemption from registration exists, will have restrictions upon resale
imposed by state and federal securities laws. Each certificate representing
the Warrant Shares (if not registered, or if no exemption from registration
exists) issued to the Holder upon exercise will bear substantially the
following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION
THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION".
(c) Modification and Waiver. This Warrant and any provisions hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or permitted
to be given or delivered to the holders hereof by the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid,
to each such holder at its address as shown on the books of the Company or to
the Company at the address set forth in the Agreement.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officer thereunto duly authorized.
Dated: July 27, 1998
INTERIORS INC.
By /s/ Max Munn
------------------------
Name: Max Munn
Title: President
8
<PAGE>
NOTICE OF EXERCISE
To: INTERIORS INC.
(1) The undersigned hereby elects to purchase _________ shares of Class A
Common Stock, par value US$0.001 per shares (the "Common Stock") of INTERIORS
INC., pursuant to the terms of the attached Warrant, and tenders herewith
payment of the exercise price in full, together with all applicable transfer
taxes, if any.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
--------------------------------------
(Name)
--------------------------------------
(Address)
--------------------------------------
Dated:
-------------------------------
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
whose address is
- ------------------------------------------------------------
- ---------------------------------------------------------------------------- .
- ----------------------------------------------------------------------------
Dated: ,
-----------------
Holder's Signature:
----------------------------------------
Holder's Address:
--------------------------------------------
--------------------------------------------
Signature Guaranteed:
-----------------------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as
it appears on the face of the Warrant, without alteration or enlargement or
any change whatsoever, and must be guaranteed by a bank or trust company.
Officers of corporations and those acting in a fiduciary or other
representative capacity should file proper evidence of authority to assign
the foregoing Warrant.
2
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE STATE SECURITIES LAWS
AND HAS BEEN ISSUED IN RELIANCE UPON REGULATION D PROMULGATED UNDER THE
SECURITIES ACT. THIS WARRANT SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A
SOLICITATION OF AN OFFER TO BUY THE WARRANT IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL.
THIS WARRANT MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
UNDER APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT
FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS; AND IN THE CASE OF AN
EXEMPTION, ONLY IF THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL THAT SUCH
TRANSACTION DOES NOT REQUIRE REGISTRATION OF THE WARRANT, WHICH OPINION AND
WHICH COUNSEL SHALL BE SATISFACTORY TO THE COMPANY IN ITS SOLE DISCRETION.
NO. 2
COMMON STOCK PURCHASE WARRANT A
To Purchase 214,286 Shares of Common Stock of
INTERIORS INC.
THIS CERTIFIES that, for value received, SOVEREIGN PARTNERS, L.P. (the
"Investor"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, from July 27, 1998 (the "Issuance Date"), on or prior
to July 26, 2003 (the "Termination Date") but not thereafter, to subscribe
for and purchase from INTERIORS INC., a corporation incorporated in the State
of Delaware (the "Company"), up to Two Hundred Fourteen Thousand Two Hundred
Eighty-Six (214,286) shares (the "Warrant Shares") of Class A Common Stock,
par value US $0.001 per share of the Company (the "Common Stock"). The
purchase price of one share of Common Stock (the "Exercise Price") under this
Warrant shall be equal to the lower of either: (i) one hundred twenty percent
(120%) of the closing bid price of the Common Stock on the Trading Day
immediately preceding the Issuance Date, or (ii) one hundred twenty percent
(120%) of the closing bid price of the Common Stock on the reset date (the
"Reset Date") which shall be a single date during the period commencing on
the ninety-first (91st) day after the Issuance Date through and including the
two hundred tenth (210th) day after the Issuance date and which Reset Date
shall be designated by the holder of the Warrant; plus a premium (the
"Exercise Premium").
<PAGE>
The Exercise Premium shall equal one half (1/2) of the Premium Price as
defined herein less the Trigger Price as defined herein provided the Premium
Price is greater than the Trigger Price. In the event the Premium Price is
equal to or less than the Trigger Price then the Exercise Premium shall equal
zero. The "Premium Price" shall be the closing bid price of the Common Stock
on the Trading Day immediately preceding the date that the notice of exercise
(the "Exercise Date") was sent to the Issuer, and the "Trigger Price" shall
be Four Dollars and Eleven Cents (US$4.11) per share. The Exercise Price and
the number of shares for which the Warrant is exercisable shall be subject to
adjustment as provided herein. This Warrant is being issued in connection
with the 7% Convertible Debenture as defined in the 7% Convertible Debenture
Subscription Agreement (the "Agreement") dated as of the Issuance Date
between the Company and Investor and is subject to its terms. In the event of
any conflict between the terms of this Warrant and the Agreement, the
Agreement shall control.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws and the restrictions on transfer described
herein, this Warrant and all rights hereunder are transferable, in whole or
in part, at the office or agency of the Company by the holder hereof in
person or by duly authorized attorney, upon surrender of this Warrant
together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by
this Warrant will, upon exercise of the rights represented by this Warrant
and payment for the Warrant Shares as provided herein, be duly authorized,
validly issued, fully paid and nonassessable and free from all taxes, liens
and charges in respect of the issue thereof (other than those created by the
Investor and other than taxes in respect of any transfer occurring
contemporaneously with such issue).
3. Exercise of Warrant. Exercise of the purchase rights represented by
this Warrant may be made in accordance with the following terms and
conditions:
(a) At any time after the ninetieth (90th) day from the Issuance Date and
prior to the close of business on the Termination Date, or such earlier date
on which this Warrant may terminate as provided in paragraph 11 below, the
Holder may exercise its right to purchase up to 35,714 Warrant Shares [equal
to one-sixth (1/6th) of the aggregate number of the Warrant Shares originally
issuable on the Issuance Date];
(b) At any time after the one hundred twentieth (120th) day from the
Issuance Date and before the close of business on the Termination Date, or
such earlier date on which this Warrant may terminate as provided in
paragraph 11 below, the Holder may exercise its right to purchase an additional
35,714 Warrant Shares [equal to one-sixth (1/6th) of the aggregate number of
the Warrant Shares originally issuable hereto];
(c) At any time after the one hundred fiftieth (150th) day from the Issuance
Date and before the close of business on the Termination Date, or such earlier
date on which this Warrant may terminate as provided in paragraph 11 below, the
Holder may exercise its right to
2
<PAGE>
purchase an additional 35,714 Warrant Shares [equal to one-sixth (1/6th) of the
aggregate number of the Warrant Shares originally issuable hereto];
(d) At any time after the one hundred eightieth (180th) day from the
Issuance Date and before the close of business on the Termination Date, or
such earlier date on which this Warrant may terminate as provided in
paragraph 11 below, the Holder may exercise its right to purchase an
additional 35,714 Warrant Shares [equal to one-sixth (1/6th) of the aggregate
number of the Warrant Shares originally issuable hereto];
(e) At any time after the two hundred tenth (210th) day from the Issuance
Date and before the close of business on the Termination Date, or such
earlier date on which this Warrant may terminate as provided in paragraph 11
below, the Holder may exercise its right to purchase an additional 35,715
Warrant Shares [equal to one-sixth (1/6th) of the aggregate number of the
Warrant Shares originally issuable hereto];
(f) At any time after the two hundred fortieth (240th) day from the
Issuance Date and before the close of business on the Termination Date, or
such earlier date on which this Warrant may terminate as provided in
paragraph 11 below, the Holder may exercise its right to purchase all
remaining and outstanding Warrant Shares originally issuable hereto;
(g) The exercise of the purchase rights represented by this Warrant may be
made as set forth in (a)-(f) above by the surrender of this Warrant and the
Notice of Exercise Form annexed hereto duly executed, at the principal office
of the Company, 320 Washington Street, Mount Vernon, New York (or such other
office or agency of the Company as it may designate by notice in writing to
the registered holder hereof at the address of such holder appearing on the
books of the Company) and upon payment of the Exercise Price of the shares
thereby purchased; whereupon the holder of this Warrant shall be entitled to
receive a certificate for the number of shares of Common Stock so purchased.
Certificates for shares purchased hereunder shall be delivered to the holder
hereof within six (6) business days after the date on which this Warrant
shall have been exercised as aforesaid. Payment of the Exercise Price of the
shares may be by certified check or cashier's check or by wire transfer to an
account designated by the Company in an amount equal to the Exercise Price
multiplied by the number of shares being purchased.
4. No Fractional Shares or Scrip/Restrictions on Exercise. No fractional
shares or scrip representing fractional shares shall be issued upon the
exercise of this Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without charge
to the holder hereof for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificate, all of which taxes
and expenses shall be paid by the Company, and such certificates shall be
issued in the name of the holder of this Warrant or in such name or names as
may be directed by the holder of this Warrant; provided, however, that in the
event certificates for shares of Common Stock are to be issued in a name
other than the name of the holder of this Warrant, this Warrant when
surrendered for exercise shall be accompanied by the Assignment Form attached
hereto duly executed by the holder hereof; and provided further, that upon
any transfer
3
<PAGE>
involved in the issuance or delivery of any certificates for shares of Common
Stock, the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.
6. Closing of Books. The Company will at no time close its shareholder
books or records in any manner which interferes with the timely exercise of
this Warrant.
7. No Rights as Shareholder until Exercise. This Warrant does not entitle
the holder hereof to any voting rights or other rights as a shareholder of
the Company prior to the exercise thereof. Upon the surrender of this Warrant
and the payment of the aggregate Exercise Price, the Warrant Shares so
purchased shall be and be deemed to be issued to such holder as the record
owner of such shares as of the close of business on the later of the date of
such surrender or payment.
8. Assignment and Transfer of Warrant. Subject to the restriction on
transfer described herein, this Warrant may be assigned by the surrender of
this Warrant and the Assignment Form annexed hereto duly executed at the
office of the Company (or such other office or agency of the Company as it
may designate by notice in writing to the registered holder hereof at the
address of such holder appearing on the books of the Company).
9. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant certificate or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
surrender and cancellation of such Warrant or stock certificate, if
mutilated, the Company will make and deliver a new Warrant or stock
certificate of like tenor and dated as of such cancellation, in lieu of such
Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may
be taken or such right may be exercised on the next succeeding day not a
legal holiday.
11. Effect of Certain Events.
-------------------------
(a) If at any time the Company proposes (i) to sell or otherwise convey
all or substantially all of its assets or (ii) to effect a transaction (by
merger or otherwise) in which more than 50% of the voting power of the
Company is disposed of (collectively, a "Sale or Merger Transaction"), in
which the consideration to be received by the Company or its shareholders
consists solely of cash, the Company shall give the holder of this Warrant
thirty (30) days' notice of the proposed effective date of the transaction
specifying that the Warrant shall terminate if the Warrant has not been
exercised by the effective date of the transaction.
(b) In case the Company shall at any time effect a Sale or Merger
Transaction in which the consideration to be received by the Company or its
shareholders consists in part of
4
<PAGE>
consideration other than cash, the holder of this Warrant shall have the
right thereafter to purchase, by exercise of this Warrant and payment of the
aggregate Exercise Price in effect immediately prior to such action, the kind
and amount of shares and other securities and property which it would have
owned or have been entitled to receive after the happening of such
transaction had this Warrant been exercised immediately prior thereto.
(c) The Company agrees that the Warrant Shares shall be included in the
Registration Statement to be filed by the Company pursuant to the Agreement.
12. Adjustments of Exercise Price and Number of Warrant Shares. The number
and kind of securities purchasable upon the exercise of this Warrant and the
Exercise Price (inclusive of the Premium Price and Trigger Price used in
calculating the Exercise Price) shall be subject to adjustment from time to
time upon the happening of any of the following.
In case the Company shall (i) declare or pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock to holders of
its outstanding Common Stock, (ii) subdivide its outstanding shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital
stock in a reclassification of the Common Stock, then the number of Warrant
Shares purchasable upon exercise of this Warrant immediately prior thereto
shall be adjusted so that the holder of this Warrant shall be entitled to
receive the kind and number of Warrant Shares or other securities of the
Company which he would have owned or have been entitled to receive had such
Warrant been exercised in advance thereof. Upon each such adjustment of the
kind and number of Warrant Shares or other securities of the Company which
are purchasable hereunder, the holder of this Warrant shall thereafter be
entitled to purchase the number of Warrant Shares or other securities
resulting from such adjustment at an Exercise Price per such Warrant Share or
other security obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares
purchasable pursuant hereto immediately prior to such adjustment and dividing
by the number of Warrant Shares or other securities of the Company resulting
from such adjustment. An adjustment made pursuant to this paragraph shall
become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
13. Voluntary Adjustment by the Company. The Company may at any time
during the term of this Warrant, reduce the then current Exercise Price to
any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
14. Notice of Adjustment. Whenever the number of Warrant Shares or number
or kind of securities or other property purchasable upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt
requested, to the holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities
or property) purchasable upon the exercise of this Warrant and the Exercise
Price of such Warrant Shares (and other securities or property) after such
adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was
5
<PAGE>
made. Such notice, in absence of manifest error, shall be conclusive evidence
of the correctness of such adjustment.
15. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this Warrant.
The Company further covenants that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates
for the Warrant Shares upon the exercise of the purchase rights under this
Warrant. The Company will take all such reasonable action as may be necessary
to assure that such Warrant Shares may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of the
OTC Bulletin Board or NASDAQ Small Cap Stock Market or any domestic
securities exchange upon which the Common Stock may be listed.
16. "Piggy-Back" Registration. In addition to the terms of the
Registration Rights Agreement, the Holders of this Warrant shall have the
right to include all Warrant Shares as part of any registration of securities
filed by the Company (other than in connection with a transaction
contemplated by Rule 145(a) promulgated under the Act or pursuant to Form
S-8, or the financing arrangement presently under review with Cruttenden Roth
Incorporated or any substitute entity therefor and having substantially the
same terms) and must be notified in writing of such filing; provided,
however, that the holder of this Warrant agrees it shall not have any
piggy-back registration rights pursuant to this Warrant if the Warrant Shares
may be sold in the United States pursuant to the provisions of Rule 144. The
Holder shall have five (5) business days to notify the Company in writing as
to whether the Company is to include Holder or not include Holder as part of
the registration; provided, however, that if any registration pursuant to
this Section shall be underwritten, in whole or in part, the Company may
require that the Registrable Securities requested for inclusion pursuant to
this Section be included in the underwriting on the same terms and conditions
as the securities otherwise being sold through the underwriters. If in the
good faith judgment of the underwriter evidenced in writing of such offering
only a limited number of Registrable Securities should be included in such
offering, or no such shares should be included, the Holder, and all other
selling stockholders, shall be limited to registering such proportion of
their respective shares as shall equal the proportion that the number of
shares of selling stockholders permitted to be registered by the underwriter
in such offering bears to the total number of all shares then held by all
selling stockholders desiring to participate in such offering. Those
Registrable Securities which are excluded from an underwritten offering
pursuant to the foregoing provisions of this Section (and all other
Registrable Securities held by the selling stockholders) shall be withheld
from the market by the Holders thereof for a period, not to exceed one
hundred eighty (180) days, which the underwriter may reasonably determine is
necessary in order to effect such underwritten offering. The Company shall
have the right to terminate or withdraw any registration initiated by it
under this Agreement prior to the effectiveness of such registration whether
or not any Warrant holder elected to include securities in such registration.
All registration expenses incurred by the Company in complying with this
Warrant shall be paid by the Company, exclusive of
6
<PAGE>
underwriting discounts, commissions and legal fees and expenses for counsel
to the holders of the Warrants.
17. Miscellaneous.
--------------
(a) Issue Date; Jurisdiction. The provisions of this Warrant shall be
construed and shall be given effect in all respects as if it had been issued
and delivered by the Company on the date hereof. This Warrant shall be
binding upon any successors or assigns of the Company. This Warrant shall
constitute a contract under the laws of New York without regard to its
conflict of law, principles or rules, and be subject to arbitration pursuant
to the terms set forth in the Agreement.
(b) Restrictions. The holder hereof acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered, or if no
exemption from registration exists, will have restrictions upon resale
imposed by state and federal securities laws. Each certificate representing
the Warrant Shares (if not registered, or if no exemption from registration
exists) issued to the Holder upon exercise will bear substantially the
following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION
THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION".
(c) Modification and Waiver. This Warrant and any provisions hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or permitted
to be given or delivered to the holders hereof by the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid,
to each such holder at its address as shown on the books of the Company or to
the Company at the address set forth in the Agreement.
[Remainder of Page Intentionally Left Blank]
[Signature Page Follows]
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officer thereunto duly authorized.
Dated: July 27, 1998
INTERIORS INC.
By /s/ Max Munn
------------------------
Name: Max Munn
Title: President
8
<PAGE>
NOTICE OF EXERCISE
To: INTERIORS INC.
(1) The undersigned hereby elects to purchase _________ shares of Class A
Common Stock, par value US$0.001 per shares (the "Common Stock") of INTERIORS
INC., pursuant to the terms of the attached Warrant, and tenders herewith
payment of the exercise price in full, together with all applicable transfer
taxes, if any.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
--------------------------------------
(Name)
--------------------------------------
(Address)
--------------------------------------
Dated:
-------------------------------
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
whose address is
- ------------------------------------------------------------
- ---------------------------------------------------------------------------- .
- ----------------------------------------------------------------------------
Dated: ,
-----------------
Holder's Signature:
----------------------------------------
Holder's Address:
--------------------------------------------
--------------------------------------------
Signature Guaranteed:
-----------------------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as
it appears on the face of the Warrant, without alteration or enlargement or
any change whatsoever, and must be guaranteed by a bank or trust company.
Officers of corporations and those acting in a fiduciary or other
representative capacity should file proper evidence of authority to assign
the foregoing Warrant.
2
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE STATE SECURITIES LAWS
AND HAS BEEN ISSUED IN RELIANCE UPON REGULATION D PROMULGATED UNDER THE
SECURITIES ACT. THIS WARRANT SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A
SOLICITATION OF AN OFFER TO BUY THE WARRANT IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL.
THIS WARRANT MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
UNDER APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT
FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS; AND IN THE CASE OF AN
EXEMPTION, ONLY IF THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL THAT SUCH
TRANSACTION DOES NOT REQUIRE REGISTRATION OF THE WARRANT, WHICH OPINION AND
WHICH COUNSEL SHALL BE SATISFACTORY TO THE COMPANY IN ITS SOLE DISCRETION.
NO. 3
COMMON STOCK PURCHASE WARRANT A
To Purchase 535,714 Shares of Common Stock of
INTERIORS INC.
THIS CERTIFIES that, for value received, RBB BANK AG (the "Investor"),
is entitled, upon the terms and subject to the conditions hereinafter set
forth, from July 30, 1998 (the "Issuance Date"), on or prior to July 29, 2003
(the "Termination Date") but not thereafter, to subscribe for and purchase from
INTERIORS INC., a corporation incorporated in the State of Delaware (the
"Company"), up to Five Hundred Thirty-Five Thousand, Seven Hundred Fourteen
(535,714) shares (the "Warrant Shares") of Class A Common Stock, par value US
$0.001 per share of the Company (the "Common Stock"). The purchase price of one
share of Common Stock (the "Exercise Price") under this Warrant shall be equal
to the lower of either: (i) one hundred twenty percent (120%) of the closing
bid price of the Common Stock on the Trading Day immediately preceding the
Issuance Date, or (ii) one hundred twenty percent (120%) of the closing bid
price of the Common Stock on the reset date (the "Reset Date") which shall be a
single date during the period commencing on the ninety-first (91st) day after
the Issuance Date through and including the two hundred tenth (210th) day after
the Issuance date and which Reset Date shall be designated by the holder of the
Warrant; plus a premium (the "Exercise Premium").
<PAGE>
The Exercise Premium shall equal one half (1/2) of the Premium Price as
defined herein less the Trigger Price as defined herein provided the Premium
Price is greater than the Trigger Price. In the event the Premium Price is
equal to or less than the Trigger Price then the Exercise Premium shall equal
zero. The "Premium Price" shall be the closing bid price of the Common Stock
on the Trading Day immediately preceding the date that the notice of exercise
(the "Exercise Date") was sent to the Issuer, and the "Trigger Price" shall
be Four Dollars and Eleven Cents (US$4.11) per share. The Exercise Price and
the number of shares for which the Warrant is exercisable shall be subject to
adjustment as provided herein. This Warrant is being issued in connection
with the 7% Convertible Debenture as defined in the 7% Convertible Debenture
Subscription Agreement (the "Agreement") dated as of the Issuance Date
between the Company and Investor and is subject to its terms. In the event of
any conflict between the terms of this Warrant and the Agreement, the
Agreement shall control.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws and the restrictions on transfer described
herein, this Warrant and all rights hereunder are transferable, in whole or
in part, at the office or agency of the Company by the holder hereof in
person or by duly authorized attorney, upon surrender of this Warrant
together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by
this Warrant will, upon exercise of the rights represented by this Warrant
and payment for the Warrant Shares as provided herein, be duly authorized,
validly issued, fully paid and nonassessable and free from all taxes, liens
and charges in respect of the issue thereof (other than those created by the
Investor and other than taxes in respect of any transfer occurring
contemporaneously with such issue).
3. Exercise of Warrant. Exercise of the purchase rights represented by
this Warrant may be made in accordance with the following terms and
conditions:
(a) At any time after the ninetieth (90th) day from the Issuance Date and
prior to the close of business on the Termination Date, or such earlier date
on which this Warrant may terminate as provided in paragraph 11 below, the
Holder may exercise its right to purchase up to 89,285 Warrant Shares [equal
to one-sixth (1/6th) of the aggregate number of the Warrant Shares originally
issuable on the Issuance Date];
(b) At any time after the one hundred twentieth (120th) day from the
Issuance Date and before the close of business on the Termination Date, or
such earlier date on which this Warrant may terminate as provided in
paragraph 11 below, the Holder may exercise its right to purchase an additional
89,285 Warrant Shares [equal to one-sixth (1/6th) of the aggregate number of
the Warrant Shares originally issuable hereto];
(c) At any time after the one hundred fiftieth (150th) day from the Issuance
Date and before the close of business on the Termination Date, or such earlier
date on which this Warrant may terminate as provided in paragraph 11 below, the
Holder may exercise its right to
2
<PAGE>
purchase an additional 89,285 Warrant Shares [equal to one-sixth (1/6th) of the
aggregate number of the Warrant Shares originally issuable hereto];
(d) At any time after the one hundred eightieth (180th) day from the
Issuance Date and before the close of business on the Termination Date, or
such earlier date on which this Warrant may terminate as provided in
paragraph 11 below, the Holder may exercise its right to purchase an
additional 89,285 Warrant Shares [equal to one-sixth (1/6th) of the aggregate
number of the Warrant Shares originally issuable hereto];
(e) At any time after the two hundred tenth (210th) day from the Issuance
Date and before the close of business on the Termination Date, or such
earlier date on which this Warrant may terminate as provided in paragraph 11
below, the Holder may exercise its right to purchase an additional 89,285
Warrant Shares [equal to one-sixth (1/6th) of the aggregate number of the
Warrant Shares originally issuable hereto];
(f) At any time after the two hundred fortieth (240th) day from the
Issuance Date and before the close of business on the Termination Date, or
such earlier date on which this Warrant may terminate as provided in
paragraph 11 below, the Holder may exercise its right to purchase all
remaining and outstanding Warrant Shares originally issuable hereto;
(g) The exercise of the purchase rights represented by this Warrant may be
made as set forth in (a)-(f) above by the surrender of this Warrant and the
Notice of Exercise Form annexed hereto duly executed, at the principal office
of the Company, 320 Washington Street, Mount Vernon, New York (or such other
office or agency of the Company as it may designate by notice in writing to
the registered holder hereof at the address of such holder appearing on the
books of the Company) and upon payment of the Exercise Price of the shares
thereby purchased; whereupon the holder of this Warrant shall be entitled to
receive a certificate for the number of shares of Common Stock so purchased.
Certificates for shares purchased hereunder shall be delivered to the holder
hereof within six (6) business days after the date on which this Warrant
shall have been exercised as aforesaid. Payment of the Exercise Price of the
shares may be by certified check or cashier's check or by wire transfer to an
account designated by the Company in an amount equal to the Exercise Price
multiplied by the number of shares being purchased.
4. No Fractional Shares or Scrip/Restrictions on Exercise. No fractional
shares or scrip representing fractional shares shall be issued upon the
exercise of this Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without charge
to the holder hereof for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificate, all of which taxes
and expenses shall be paid by the Company, and such certificates shall be
issued in the name of the holder of this Warrant or in such name or names as
may be directed by the holder of this Warrant; provided, however, that in the
event certificates for shares of Common Stock are to be issued in a name
other than the name of the holder of this Warrant, this Warrant when
surrendered for exercise shall be accompanied by the Assignment Form attached
hereto duly executed by the holder hereof; and provided further, that upon
any transfer
3
<PAGE>
involved in the issuance or delivery of any certificates for shares of Common
Stock, the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.
6. Closing of Books. The Company will at no time close its shareholder
books or records in any manner which interferes with the timely exercise of
this Warrant.
7. No Rights as Shareholder until Exercise. This Warrant does not entitle
the holder hereof to any voting rights or other rights as a shareholder of
the Company prior to the exercise thereof. Upon the surrender of this Warrant
and the payment of the aggregate Exercise Price, the Warrant Shares so
purchased shall be and be deemed to be issued to such holder as the record
owner of such shares as of the close of business on the later of the date of
such surrender or payment.
8. Assignment and Transfer of Warrant. Subject to the restriction on
transfer described herein, this Warrant may be assigned by the surrender of
this Warrant and the Assignment Form annexed hereto duly executed at the
office of the Company (or such other office or agency of the Company as it
may designate by notice in writing to the registered holder hereof at the
address of such holder appearing on the books of the Company).
9. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant certificate or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
surrender and cancellation of such Warrant or stock certificate, if
mutilated, the Company will make and deliver a new Warrant or stock
certificate of like tenor and dated as of such cancellation, in lieu of such
Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may
be taken or such right may be exercised on the next succeeding day not a
legal holiday.
11. Effect of Certain Events.
-------------------------
(a) If at any time the Company proposes (i) to sell or otherwise convey
all or substantially all of its assets or (ii) to effect a transaction (by
merger or otherwise) in which more than 50% of the voting power of the
Company is disposed of (collectively, a "Sale or Merger Transaction"), in
which the consideration to be received by the Company or its shareholders
consists solely of cash, the Company shall give the holder of this Warrant
thirty (30) days' notice of the proposed effective date of the transaction
specifying that the Warrant shall terminate if the Warrant has not been
exercised by the effective date of the transaction.
(b) In case the Company shall at any time effect a Sale or Merger
Transaction in which the consideration to be received by the Company or its
shareholders consists in part of
4
<PAGE>
consideration other than cash, the holder of this Warrant shall have the
right thereafter to purchase, by exercise of this Warrant and payment of the
aggregate Exercise Price in effect immediately prior to such action, the kind
and amount of shares and other securities and property which it would have
owned or have been entitled to receive after the happening of such
transaction had this Warrant been exercised immediately prior thereto.
(c) The Company agrees that the Warrant Shares shall be included in the
Registration Statement to be filed by the Company pursuant to the Agreement.
12. Adjustments of Exercise Price and Number of Warrant Shares. The number
and kind of securities purchasable upon the exercise of this Warrant and the
Exercise Price (inclusive of the Premium Price and Trigger Price used in
calculating the Exercise Price) shall be subject to adjustment from time to
time upon the happening of any of the following.
In case the Company shall (i) declare or pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock to holders of
its outstanding Common Stock, (ii) subdivide its outstanding shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital
stock in a reclassification of the Common Stock, then the number of Warrant
Shares purchasable upon exercise of this Warrant immediately prior thereto
shall be adjusted so that the holder of this Warrant shall be entitled to
receive the kind and number of Warrant Shares or other securities of the
Company which he would have owned or have been entitled to receive had such
Warrant been exercised in advance thereof. Upon each such adjustment of the
kind and number of Warrant Shares or other securities of the Company which
are purchasable hereunder, the holder of this Warrant shall thereafter be
entitled to purchase the number of Warrant Shares or other securities
resulting from such adjustment at an Exercise Price per such Warrant Share or
other security obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares
purchasable pursuant hereto immediately prior to such adjustment and dividing
by the number of Warrant Shares or other securities of the Company resulting
from such adjustment. An adjustment made pursuant to this paragraph shall
become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
13. Voluntary Adjustment by the Company. The Company may at any time
during the term of this Warrant, reduce the then current Exercise Price to
any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
14. Notice of Adjustment. Whenever the number of Warrant Shares or number
or kind of securities or other property purchasable upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt
requested, to the holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities
or property) purchasable upon the exercise of this Warrant and the Exercise
Price of such Warrant Shares (and other securities or property) after such
adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was
5
<PAGE>
made. Such notice, in absence of manifest error, shall be conclusive evidence
of the correctness of such adjustment.
15. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this Warrant.
The Company further covenants that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates
for the Warrant Shares upon the exercise of the purchase rights under this
Warrant. The Company will take all such reasonable action as may be necessary
to assure that such Warrant Shares may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of the
OTC Bulletin Board or NASDAQ Small Cap Stock Market or any domestic
securities exchange upon which the Common Stock may be listed.
16. "Piggy-Back" Registration. In addition to the terms of the
Registration Rights Agreement, the Holders of this Warrant shall have the
right to include all Warrant Shares as part of any registration of securities
filed by the Company (other than in connection with a transaction
contemplated by Rule 145(a) promulgated under the Act or pursuant to Form
S-8, or the financing arrangement presently under review with Cruttenden Roth
Incorporated or any substitute entity therefor and having substantially the
same terms) and must be notified in writing of such filing; provided,
however, that the holder of this Warrant agrees it shall not have any
piggy-back registration rights pursuant to this Warrant if the Warrant Shares
may be sold in the United States pursuant to the provisions of Rule 144. The
Holder shall have five (5) business days to notify the Company in writing as
to whether the Company is to include Holder or not include Holder as part of
the registration; provided, however, that if any registration pursuant to
this Section shall be underwritten, in whole or in part, the Company may
require that the Registrable Securities requested for inclusion pursuant to
this Section be included in the underwriting on the same terms and conditions
as the securities otherwise being sold through the underwriters. If in the
good faith judgment of the underwriter evidenced in writing of such offering
only a limited number of Registrable Securities should be included in such
offering, or no such shares should be included, the Holder, and all other
selling stockholders, shall be limited to registering such proportion of
their respective shares as shall equal the proportion that the number of
shares of selling stockholders permitted to be registered by the underwriter
in such offering bears to the total number of all shares then held by all
selling stockholders desiring to participate in such offering. Those
Registrable Securities which are excluded from an underwritten offering
pursuant to the foregoing provisions of this Section (and all other
Registrable Securities held by the selling stockholders) shall be withheld
from the market by the Holders thereof for a period, not to exceed one
hundred eighty (180) days, which the underwriter may reasonably determine is
necessary in order to effect such underwritten offering. The Company shall
have the right to terminate or withdraw any registration initiated by it
under this Agreement prior to the effectiveness of such registration whether
or not any Warrant holder elected to include securities in such registration.
All registration expenses incurred by the Company in complying with this
Warrant shall be paid by the Company, exclusive of
6
<PAGE>
underwriting discounts, commissions and legal fees and expenses for counsel
to the holders of the Warrants.
17. Miscellaneous.
--------------
(a) Issue Date; Jurisdiction. The provisions of this Warrant shall be
construed and shall be given effect in all respects as if it had been issued
and delivered by the Company on the date hereof. This Warrant shall be
binding upon any successors or assigns of the Company. This Warrant shall
constitute a contract under the laws of New York without regard to its
conflict of law, principles or rules, and be subject to arbitration pursuant
to the terms set forth in the Agreement.
(b) Restrictions. The holder hereof acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered, or if no
exemption from registration exists, will have restrictions upon resale
imposed by state and federal securities laws. Each certificate representing
the Warrant Shares (if not registered, or if no exemption from registration
exists) issued to the Holder upon exercise will bear substantially the
following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION
THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION".
(c) Modification and Waiver. This Warrant and any provisions hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or permitted
to be given or delivered to the holders hereof by the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid,
to each such holder at its address as shown on the books of the Company or to
the Company at the address set forth in the Agreement.
[Remainder of Page Intentionally Left Blank]
[Signature Page Follows]
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officer thereunto duly authorized.
Dated: July 30, 1998
INTERIORS INC.
By /s/ Max Munn
------------------------
Name: Max Munn
Title: President
8
<PAGE>
NOTICE OF EXERCISE
To: INTERIORS INC.
(1) The undersigned hereby elects to purchase ____________ shares of Class A
Common Stock, par value US$0.001 per share (the "Common Stock") of INTERIORS
INC., pursuant to the terms of the attached Warrant, and tenders herewith
payment of the exercise price in full, together with all applicable transfer
taxes, if any.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
--------------------------------------
(Name)
--------------------------------------
(Address)
--------------------------------------
Dated:
-------------------------------
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
whose address is
- ------------------------------------------------------------
- ---------------------------------------------------------------------------- .
- ----------------------------------------------------------------------------
Dated:
--------------------- ,
Holder's Signature:
----------------------------------------
Holder's Address:
--------------------------------------------
--------------------------------------------
Signature Guaranteed:
-----------------------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as
it appears on the face of the Warrant, without alteration or enlargement or
any change whatsoever, and must be guaranteed by a bank or trust company.
Officers of corporations and those acting in a fiduciary or other
representative capacity should file proper evidence of authority to assign
the foregoing Warrant.
2
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE STATE SECURITIES LAWS
AND HAS BEEN ISSUED IN RELIANCE UPON REGULATION D PROMULGATED UNDER THE
SECURITIES ACT. THIS WARRANT SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A
SOLICITATION OF AN OFFER TO BUY THE WARRANT IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL.
THIS WARRANT MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT FROM
REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS; AND IN THE CASE OF AN EXEMPTION, ONLY IF THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL THAT SUCH TRANSACTION DOES NOT
REQUIRE REGISTRATION OF THE WARRANT, WHICH OPINION AND WHICH COUNSEL SHALL BE
SATISFACTORY TO THE COMPANY IN ITS SOLE DISCRETION.
NO. 1
COMMON STOCK PURCHASE WARRANT B
To Purchase 50,000 Shares of Common Stock of
INTERIORS INC.
THIS CERTIFIES that, for value received, CARDINAL CAPITAL
MANAGEMENT INC. (the "Investor"), is entitled, upon the terms and subject to
the conditions hereinafter set forth, from July 27, 1998 (the "Issuance Date"),
on or prior to July 26, 2003 (the "Termination Date") but not thereafter, to
subscribe for and purchase from INTERIORS INC., a corporation incorporated in
the State of Delaware (the "Company"), up to Fifty Thousand (50,000) shares
(the "Warrant Shares") of Class A Common Stock, par value US $0.001 per share
of the Company (the "Common Stock"). The purchase price of one share of Common
Stock (the "Exercise Price") under this Warrant shall be equal to Two and
10/100 (US$2.10) Dollars. The Exercise Price and the number of shares for which
the Warrant is exercisable shall be subject to adjustment as provided herein.
This Warrant is being issued in connection with the 7% Convertible Debenture
Subscription Agreement dated on or about July 27, 1998 (the "Agreement"), and
is subject to its terms and conditions. In the event of any conflict between
the terms of this Warrant and the Agreement, the Agreement shall control.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws and the restrictions on transfer described
herein, this Warrant and all rights hereunder are transferable, in whole or in
part, at the office or agency of the Company by the
<PAGE>
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares
of Common Stock which nay be issued upon the exercise of rights represented by
this Warrant will, upon exercise of the rights represented by this Warrant and
payment for the Warrant Shares as provided herein, be duly authorized, validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
in respect of the issue thereof (other than those created by the Investor and
other than taxes in respect of any transfer occurring contemporaneously with
such issue).
3. Exercise of Warrant. Exercise of the purchase rights represented
by this Warrant may be made at any time or times, in whole or in part, before
the close of business on the Termination Date, or such earlier date on which
this Warrant may terminate as provided in paragraph 11 below, by the surrender
of this Warrant and the Notice of Exercise Form annexed hereto duly executed,
at the principal office of the Company, 320 Washington Street, Mount Vernon,
New York, (or such other office or agency of the Company as it may designate by
notice in writing to the registered holder hereof at the address of such holder
appearing on the books of the Company) and upon payment of the Exercise Price
of the shares thereby purchased; whereupon the holder of this Warrant shall be
entitled to receive a certificate for the number of shares of Common Stock so
purchased. Certificates for shares purchased hereunder shall be delivered to
the holder hereof within six (6) business days after the date on which this
Warrant shall have been exercised as aforesaid. Payment of the Exercise Price
of the shares may be by certified check or cashier's check or by wire transfer
to an account designated by the Company in an amount equal to the Exercise
Price multiplied by the number of shares being purchased.
4. No Fractional Shares or Scrip/Restrictions on Exercise. No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant.
5. Charges. Taxes and Expenses. Issuance of certificates for shares
of Common Stock upon the exercise of this Warrant shall be made without charge
to the holder hereof for any issue or transfer tax or other incidental expense
in respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by
the holder of this Warrant; provided, however, that in the event certificates
for shares of Common Stock are to be issued in a name other than the name of
the holder of this Warrant, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof; and provided further, that upon any transfer involved in the issuance
or delivery of any certificates for shares of Common Stock, the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse
it for any transfer tax incidental thereto.
6. Closing of Books. The Company will at no time close its
shareholder books or records in any manner which interferes with the timely
exercise of this Warrant.
<PAGE>
7. No Rights as Shareholder until Exercise. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company prior to the exercise thereof. Upon the surrender of this
Warrant and the payment of the aggregate Exercise Price, the Warrant Shares so
purchased shall be and be deemed to be issued to such holder as the record
owner of such shares as of the close of business on the later of the date of
such surrender or payment.
8. Assignment and Transfer of Warrant. Subject to the restriction
on transfer described herein, this Warrant may be assigned by the surrender of
this Warrant and the Assignment Form annexed hereto duly executed at the office
of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the registered holder hereof at the address
of such holder appearing on the books of the Company).
9. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant certificate or any stock certificate
relating to the Warrant Shares, and in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it, and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor and
dated as of such cancellation, in lieu of such Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a legal
holiday.
11. Effect of Certain Events.
-------------------------
(a) If at any time the Company proposes (i) to sell or otherwise
convey all or substantially all of its assets or (ii) to effect a transaction
(by merger or otherwise) in which more than 50% of the voting power of the
Company is disposed of (collectively, a "Sale or Merger Transaction"), in which
the consideration to be received by the Company or its shareholders consists
solely of cash, the Company shall give the holder of this Warrant thirty (30)
days' notice of the proposed effective date of the transaction specifying that
the Warrant shall terminate if the Warrant has not been exercised by the
effective date of the transaction.
(b) In case the Company shall at any time effect a Sale or Merger
Transaction in which the consideration to be received by the Company or its
shareholders consists in part of consideration other than cash, the holder of
this Warrant shall have the right thereafter to purchase, by exercise of this
Warrant and payment of the aggregate Exercise Price in effect immediately prior
to such action, the kind and amount of shares and other securities and property
which it would have owned or have been entitled to receive after the happening
of such transaction had this Warrant been exercised immediately prior thereto.
<PAGE>
(c) The Company agrees that the Warrant Shares shall be included in
the Registration Statement to be filed by the Company pursuant to the
Agreement.
12. Adjustments of Exercise Price and Number of Warrant Shares. The
number and kind of securities purchasable upon the exercise of this Warrant
and the Exercise Price shall be subject to adjustment from time to time upon
the happening of any of the following.
In case the Company shall (i) declare or pay a dividend in shares
of Common Stock or make a distribution in shares of Common Stock to holders of
its outstanding Common Stock, (ii) subdivide its outstanding shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital stock
in a reclassification of the Common Stock, then the number of Warrant Shares
purchasable upon exercise of this Warrant immediately prior thereto shall be
adjusted so that the holder of this Warrant shall be entitled to receive the
kind and number of Warrant Shares or other securities of the Company which he
would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. Upon each such adjustment of the kind and number
of Warrant Shares or other securities of the Company which are purchasable
hereunder, the holder of this Warrant shall thereafter be entitled to purchase
the number of Warrant Shares or other securities resulting from such adjustment
at an Exercise Price per such Warrant Share or other security obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment
by the number of Warrant Shares purchasable pursuant hereto immediately prior
to such adjustment and dividing by the number of Warrant Shares or other
securities of the Company resulting from such adjustment. An adjustment made
pursuant to this paragraph shall become effective immediately after the
effective date of such event retroactive to the record date, if any, for such
event.
13. Voluntary Adjustment by the Company. The Company may at any
time during the term of this Warrant, reduce the then current Exercise Price to
any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
14. Notice of Adjustment. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt requested,
to the holder of this Warrant notice of such adjustment or adjustments setting
forth the number of Warrant Shares (and other securities or property)
purchasable upon the exercise of this Warrant and the Exercise Price of such
Warrant Shares (and other securities or property) after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which such adjustment was made, Such notice,
in absence of manifest error, shall be conclusive evidence of the correctness
of such adjustment.
15. Authorized Shares. The Company covenants that during the period
the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise
<PAGE>
of any purchase rights under this Warrant. The Company further covenants that
its issuance of this Warrant shall constitute full authority to its officers
who are charged with the duty of executing stock certificates to execute and
issue the necessary certificates for the Warrant Shares upon the exercise of
the purchase rights under this Warrant. The Company will take all such
reasonable action as may be necessary to assure that such Warrant Shares may be
issued as provided herein without violation of any applicable law or
regulation, or of any requirements of the OTC Bulletin Board or NASDAQ Small
Cap Stock Market or any domestic securities exchange upon which the Common
Stock may be listed.
16. "Piggy-Back" Registration. In addition to the terms of the
Registration Rights Agreement, the Holders of this Warrant shall have the right
to include all Warrant Shares as part of any registration of securities filed
by the Company (other than in connection with a transaction contemplated by
Rule 145(a) promulgated under the Act or pursuant to Form S-8, or the financing
arrangement presently under review with Cruttenden Roth Incorporated or any
substitute entity therefor and having substantially the same terms) and must be
notified in writing of such filing; provided, however, that the holder of this
Warrant agrees it shall not have any piggy-back registration rights pursuant to
this Warrant if the Warrant Shares may be sold in the United States pursuant to
the provisions of Rule 144. The Holder shall have five (5) business days to
notify the Company in writing as to whether the Company is to include Holder or
not include Holder as part of the registration; provided, however, that if any
registration pursuant to this Section shall be underwritten, in whole or in
part, the Company may require that the Registrable Securities requested for
inclusion pursuant to this Section be included in the underwriting on the same
terms and conditions as the securities otherwise being sold through the
underwriters. If in the good faith judgment of the underwriter evidenced in
writing of such offering only a limited number of Registrable Securities should
be included in such offering, or no such shares should be included, the Holder,
and all other selling stockholders, shall be limited to registering such
proportion of their respective shares as shall equal the proportion that the
number of shares of selling stockholders permitted to be registered by the
underwriter in such offering bears to the total number of all shares then held
by all selling stockholders desiring to participate in such offering. Those
Registrable Securities which are excluded from an underwritten offering
pursuant to the foregoing provisions of this Section (and all other Registrable
Securities held by the selling stockholders) shall be withheld from the market
by the Holders thereof for a period, not to exceed one hundred eighty (180)
days, which the underwriter may reasonably determine is necessary in order to
effect such underwritten offering. The Company shall have the right to
terminate or withdraw any registration initiated by it under this Agreement
prior to the effectiveness of such registration whether or not any Warrant
holder elected to include securities in such registration. All registration
expenses incurred by the Company in complying with this Warrant shall be paid
by the Company, exclusive of underwriting discounts, commissions and legal fees
and expenses for counsel to the holders of the Warrants.
17. Miscellaneous.
--------------
(a) Issue Date; Jurisdiction. The provisions of this Warrant
shall be construed and shall be given effect in all respects as if it had been
issued and delivered by the Company on
<PAGE>
the date hereof. This Warrant shall be binding upon any successors or assigns
of the Company. This Warrant shall constitute a contract under the laws of New
York without regard to its conflict of law, principles or rules, and be subject
to arbitration pursuant to the terms set forth in the Agreement.
(b) Restrictions. The holder hereof acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, or if no
exemption from registration exists, will have restrictions upon resale imposed
by state and federal securities laws. Each certificate representing the Warrant
Shares (if not registered, or if no exemption from registration exists) issued
to the Holder upon exercise will bear substantially the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN
ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE
DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM, OR
NOT SUBJECT TO, SUCH REGISTRATION".
(c) Modification and Waiver. This Warrant and any provisions hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof by the Company shall
be delivered or shall be sent by certified or registered mail, postage prepaid,
to each such holder at its address as shown on the books of the Company or to
the Company at the address set forth in the Agreement.
[Remainder of Page Intentionally Left Blank]
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: July 27, 1998 INTERIORS INC.
By /s/ Max Munn
----------------------------------
Name: Max Munn
Title: President
<PAGE>
NOTICE OF EXERCISE
To: INTERIORS INC.
(1) The undersigned hereby elects to purchase _________ shares of
Class A Common Stock, par value US$0.001 per share (the "Common Stock") of
INTERIORS INC., pursuant to the terms of the attached Warrant, and tenders
herewith payment of the exercise price in full, together with all applicable
transfer taxes, if any.
(2) Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other name as
is specified below:
--------------------------------
(Name)
--------------------------------
(Address)
--------------------------------
Dated:
------------------------------------------
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
______________________________________________________ whose address is
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Dated: _______________
Holder's Signature: ________________________________
Holder's Address: __________________________________
__________________________________
Signature Guaranteed: _____________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE STATE SECURITIES LAWS
AND HAS BEEN ISSUED IN RELIANCE UPON REGULATION D PROMULGATED UNDER THE
SECURITIES ACT. THIS WARRANT SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A
SOLICITATION OF AN OFFER TO BUY THE WARRANT IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL.
THIS WARRANT MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT FROM
REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS; AND IN THE CASE OF AN EXEMPTION, ONLY IF THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL THAT SUCH TRANSACTION DOES NOT
REQUIRE REGISTRATION OF THE WARRANT, WHICH OPINION AND WHICH COUNSEL SHALL BE
SATISFACTORY TO THE COMPANY IN ITS SOLE DISCRETION.
NO. 2
COMMON STOCK PURCHASE WARRANT B
To Purchase 62,500 Shares of Common Stock of
INTERIORS INC.
THIS CERTIFIES that, for value received, CARDINAL CAPITAL
MANAGEMENT INC. (the "Investor"), is entitled, upon the terms and subject to
the conditions hereinafter set forth, from July 30, 1998 (the "Issuance Date"),
on or prior to July 29, 2003 (the "Termination Date") but not thereafter, to
subscribe for and purchase from INTERIORS INC., a corporation incorporated in
the State of Delaware (the "Company"), up to Sixty-Two Thousand Five Hundred
(62,500) shares (the "Warrant Shares") of Class A Common Stock, par value US
$0.001 per share of the Company (the "Common Stock"). The purchase price of one
share of Common Stock (the "Exercise Price") under this Warrant shall be equal
to Two and 10/100 (US$2.10) Dollars. The Exercise Price and the number of
shares for which the Warrant is exercisable shall be subject to adjustment as
provided herein. This Warrant is being issued in connection with the 7%
Convertible Debenture Subscription Agreement dated on or about July 27, 1998
(the "Agreement"), and is subject to its terms and conditions. In the event of
any conflict between the terms of this Warrant and the Agreement, the Agreement
shall control.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws and the restrictions on transfer described
herein, this Warrant and all rights hereunder are transferable, in whole or in
part, at the office or agency of the Company by the
<PAGE>
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares
of Common Stock which may be issued upon the exercise of rights represented by
this Warrant will, upon exercise of the rights represented by this Warrant and
payment for the Warrant Shares as provided herein, be duly authorized, validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
in respect of the issue thereof (other than those created by the Investor and
other than taxes in respect of any transfer occurring contemporaneously with
such issue).
3. Exercise of Warrant. Exercise of the purchase rights represented
by this Warrant may be made at any time or times, in whole or in part, before
the close of business on the Termination Date, or such earlier date on which
this Warrant may terminate as provided in paragraph 11 below, by the surrender
of this Warrant and the Notice of Exercise Form annexed hereto duly executed,
at the principal office of the Company, 320 Washington Street, Mount Vernon,
New York, (or such other office or agency of the Company as it may designate by
notice in writing to the registered holder hereof at the address of such holder
appearing on the books of the Company) and upon payment of the Exercise Price
of the shares thereby purchased; whereupon the holder of this Warrant shall be
entitled to receive a certificate for the number of shares of Common Stock so
purchased. Certificates for shares purchased hereunder shall be delivered to
the holder hereof within six (6) business days after the date on which this
Warrant shall have been exercised as aforesaid. Payment of the Exercise Price
of the shares may be by certified check or cashier's check or by wire transfer
to an account designated by the Company in an amount equal to the Exercise
Price multiplied by the number of shares being purchased.
4. No Fractional Shares or Scrip/Restrictions on Exercise. No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for shares
of Common Stock upon the exercise of this Warrant shall be made without charge
to the holder hereof for any issue or transfer tax or other incidental expense
in respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by
the holder of this Warrant; provided, however, that in the event certificates
for shares of Common Stock are to be issued in a name other than the name of
the holder of this Warrant, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof; and provided further, that upon any transfer involved in the issuance
or delivery of any certificates for shares of Common Stock, the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse
it for any transfer tax incidental thereto.
6. Closing of Books. The Company will at no time close its
shareholder books or records in any manner which interferes with the timely
exercise of this Warrant.
<PAGE>
7. No Rights as Shareholder until Exercise. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company prior to the exercise thereof. Upon the surrender of this
Warrant and the payment of the aggregate Exercise Price, the Warrant Shares so
purchased shall be and be deemed to be issued to such holder as the record
owner of such shares as of the close of business on the later of the date of
such surrender or payment.
8. Assignment and Transfer of Warrant. Subject to the restriction
on transfer described herein, this Warrant may be assigned by the surrender of
this Warrant and the Assignment Form annexed hereto duly executed at the office
of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the registered holder hereof at the address
of such holder appearing on the books of the Company).
9. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant certificate or any stock certificate
relating to the Warrant Shares, and in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it, and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor and
dated as of such cancellation, in lieu of such Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a legal
holiday.
11. Effect of Certain Events.
-------------------------
(a) If at any time the Company proposes (i) to sell or otherwise
convey all or substantially all of its assets or (ii) to effect a transaction
(by merger or otherwise) in which more than 50% of the voting power of the
Company is disposed of (collectively, a "Sale or Merger Transaction"), in which
the consideration to be received by the Company or its shareholders consists
solely of cash, the Company shall give the holder of this Warrant thirty (30)
days' notice of the proposed effective date of the transaction specifying that
the Warrant shall terminate if the Warrant has not been exercised by the
effective date of the transaction.
(b) In case the Company shall at any time effect a Sale or Merger
Transaction in which the consideration to be received by the Company or its
shareholders consists in part of consideration other than cash, the holder of
this Warrant shall have the right thereafter to purchase, by exercise of this
Warrant and payment of the aggregate Exercise Price in effect immediately prior
to such action, the kind and amount of shares and other securities and property
which it would have owned or have been entitled to receive after the happening
of such transaction had this Warrant been exercised immediately prior thereto.
<PAGE>
(c) The Company agrees that the Warrant Shares shall be included in
the Registration Statement to be filed by the Company pursuant to the
Agreement.
12. Adjustments of Exercise Price and Number of Warrant Shares. The
number and kind of securities purchasable upon the exercise of this Warrant
and the Exercise Price shall be subject to adjustment from time to time upon
the happening of any of the following.
In case the Company shall (i) declare or pay a dividend in shares
of Common Stock or make a distribution in shares of Common Stock to holders of
its outstanding Common Stock, (ii) subdivide its outstanding shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital stock
in a reclassification of the Common Stock, then the number of Warrant Shares
purchasable upon exercise of this Warrant immediately prior thereto shall be
adjusted so that the holder of this Warrant shall be entitled to receive the
kind and number of Warrant Shares or other securities of the Company which he
would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. Upon each such adjustment of the kind and number
of Warrant Shares or other securities of the Company which are purchasable
hereunder, the holder of this Warrant shall thereafter be entitled to purchase
the number of Warrant Shares or other securities resulting from such adjustment
at an Exercise Price per such Warrant Share or other security obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment
by the number of Warrant Shares purchasable pursuant hereto immediately prior
to such adjustment and dividing by the number of Warrant Shares or other
securities of the Company resulting from such adjustment. An adjustment made
pursuant to this paragraph shall become effective immediately after the
effective date of such event retroactive to the record date, if any, for such
event.
13. Voluntary Adjustment by the Company. The Company may at any
time during the term of this Warrant, reduce the then current Exercise Price to
any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
14. Notice of Adjustment. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt requested,
to the holder of this Warrant notice of such adjustment or adjustments setting
forth the number of Warrant Shares (and other securities or property)
purchasable upon the exercise of this Warrant and the Exercise Price of such
Warrant Shares (and other securities or property) after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which such adjustment was made. Such notice,
in absence of manifest error, shall be conclusive evidence of the correctness
of such adjustment.
15. Authorized Shares. The Company covenants that during the period
the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise
<PAGE>
of any purchase rights under this Warrant. The Company further covenants that
its issuance of this Warrant shall constitute full authority to its officers
who are charged with the duty of executing stock certificates to execute and
issue the necessary certificates for the Warrant Shares upon the exercise of
the purchase rights under this Warrant. The Company will take all such
reasonable action as may be necessary to assure that such Warrant Shares may be
issued as provided herein without violation of any applicable law or
regulation, or of any requirements of the OTC Bulletin Board or NASDAQ Small
Cap Stock Market or any domestic securities exchange upon which the Common
Stock may be listed.
16. "Piggy-Back" Registration. In addition to the terms of the
Registration Rights Agreement, the Holders of this Warrant shall have the right
to include all Warrant Shares as part of any registration of securities filed
by the Company (other than in connection with a transaction contemplated by
Rule 145(a) promulgated under the Act or pursuant to Form S-8, or the financing
arrangement presently under review with Cruttenden Roth Incorporated or any
substitute entity therefor and having substantially the same terms) and must be
notified in writing of such filing; provided, however, that the holder of this
Warrant agrees it shall not have any piggy-back registration rights pursuant to
this Warrant if the Warrant Shares may be sold in the United States pursuant to
the provisions of Rule 144. The Holder shall have five (5) business days to
notify the Company in writing as to whether the Company is to include Holder or
not include Holder as part of the registration; provided, however, that if any
registration pursuant to this Section shall be underwritten, in whole or in
part, the Company may require that the Registrable Securities requested for
inclusion pursuant to this Section be included in the underwriting on the same
terms and conditions as the securities otherwise being sold through the
underwriters. If in the good faith judgment of the underwriter evidenced in
writing of such offering only a limited number of Registrable Securities should
be included in such offering, or no such shares should be included, the Holder,
and all other selling stockholders, shall be limited to registering such
proportion of their respective shares as shall equal the proportion that the
number of shares of selling stockholders permitted to be registered by the
underwriter in such offering bears to the total number of all shares then held
by all selling stockholders desiring to participate in such offering. Those
Registrable Securities which are excluded from an underwritten offering
pursuant to the foregoing provisions of this Section (and all other Registrable
Securities held by the selling stockholders) shall be withheld from the market
by the Holders thereof for a period, not to exceed one hundred eighty (180)
days, which the underwriter may reasonably determine is necessary in order to
effect such underwritten offering. The Company shall have the right to
terminate or withdraw any registration initiated by it under this Agreement
prior to the effectiveness of such registration whether or not any Warrant
holder elected to include securities in such registration. All registration
expenses incurred by the Company in complying with this Warrant shall be paid
by the Company, exclusive of underwriting discounts, commissions and legal fees
and expenses for counsel to the holders of the Warrants.
17. Miscellaneous.
--------------
(a) Issue Date; Jurisdiction. The provisions of this Warrant
shall be construed and shall be given effect in all respects as if it had been
issued and delivered by the Company on
<PAGE>
the date hereof. This Warrant shall be binding upon any successors or assigns
of the Company. This Warrant shall constitute a contract under the laws of New
York without regard to its conflict of law, principles or rules, and be subject
to arbitration pursuant to the terms set forth in the Agreement.
(b) Restrictions. The holder hereof acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, or if no
exemption from registration exists, will have restrictions upon resale imposed
by state and federal securities laws. Each certificate representing the Warrant
Shares (if not registered, or if no exemption from registration exists) issued
to the Holder upon exercise will bear substantially the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN
ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE
DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM, OR
NOT SUBJECT TO, SUCH REGISTRATION".
(c) Modification and Waiver. This Warrant and any provisions hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof by the Company shall
be delivered or shall be sent by certified or registered mail, postage prepaid,
to each such holder at its address as shown on the books of the Company or to
the Company at the address set forth in the Agreement.
[Remainder of Page Intentionally Left Blank]
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: July 30, 1998
INTERIORS INC.
By /s/ Max Munn
----------------------------------
Name: Max Munn
Title: President
<PAGE>
NOTICE OF EXERCISE
To: INTERIORS INC.
(1) The undersigned hereby elects to purchase _________ shares of
Class A Common Stock, par value US$0.001 per share (the "Common Stock") of
INTERIORS INC., pursuant to the terms of the attached Warrant, and tenders
herewith payment of the exercise price in full, together with all applicable
transfer taxes, if any.
(2) Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other name as
is specified below:
--------------------------------
(Name)
--------------------------------
(Address)
--------------------------------
Dated:
------------------------------------------
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
______________________________________________________ whose address is
______________________________________________________________________________.
_______________________________________________________________________________
Dated: _______________,
Holder's Signature: ________________________________
Holder's Address: __________________________________
__________________________________
Signature Guaranteed: _____________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of the 27th day of
July, 1998, among the entities listed on Schedule A (collectively referred to
as the "Holders"), the placement agent (hereinafter also referred to as the
"Holders") and INTERIORS INC., a corporation incorporated under the laws of the
state of Delaware, and having its principal place of business at 320 Washington
Street, Mount Vernon, New York 10553 (the "Company").
WHEREAS, the Investors are purchasing from the Company, pursuant
to a 7% Convertible Debenture Subscription Agreement dated the date hereof
(the "Subscription Agreement"), an aggregate of Two Million Two Hundred Fifty
Thousand ($2,250,000) Dollars principal amount of the Company's 7% Convertible
Debenture, and Warrants to purchase One Million Seventy Six Thousand Seven
Hundred Eighty Six (1,076,786) shares of the Company's Common Stock; and
WHEREAS, the Company desires to grant to the Holders the
registration rights set forth herein with respect to the underlying shares of
Common Stock convertible under the Debenture (the "Underlying Shares") where
applicable, and the registration rights set forth herein with respect to the
shares of Common Stock underlying the Warrants (the "Warrant Shares")
(collectively hereinafter referred to as the "Stock" or "Securities" of the
Company). All capitalized terms not defined herein shall have the same meaning
as set forth in the Subscription Agreement
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
"Registrable Security" means the Securities; provided, however, that with
respect to any particular Registrable Security, such security shall cease to be
a Registrable Security when, as of the date of determination, (i) it has been
effectively registered under the Securities Act of 1933, as amended (the "1933
Act") and disposed of pursuant thereto, (ii) registration under the 1933 Act is
no longer required for the immediate public distribution of such security as a
result of the provisions of Rule 144 promulgated under the 1933 Act, or (iii)
it has ceased to be outstanding. The term "Registrable Securities" means any
and/or all of the securities falling within the foregoing definition of a
"Registrable Security." In the event of any merger, reorganization,
consolidation, recapitalization or other change in corporate structure
affecting the Common Stock, such adjustment shall be made in the definition of
"Registrable Security" as is appropriate in order to prevent any dilution or
enlargement of the rights granted pursuant to this Section 1.
Section 2. Restrictions on Transfer. The Holders acknowledge and
understand that prior to the registration of the Securities as provided herein,
the Securities are "restricted securities" as defined in Rule 144 promulgated
under the Act. The Holders understand that no disposition or transfer of the
Securities may be made by the Holders in the absence of (i) an opinion of
counsel to the Holders that such transfer may be made without registration
under the 1933 Act or (ii) such registration.
<PAGE>
Section 3. Registration Rights.
--------------------
(a) The Company agrees that it will use its best efforts to
prepare and file with the Securities and Exchange Commission ("Commission"),
within forty-five (45) days after the Closing Date, a registration statement
which shall cover the underlying shares and warrant shares (on Form S-3) under
the 1933 Act (the "Registration Statement"), at the sole expense of the
Company (except as provided in Section 3(c) hereof), in respect of all holders
of Registrable Securities, so as to permit a resale of the Registrable
Securities under the Act. The Company shall use its best efforts to cause the
Registration Statement that the Company is required to file to become effective
within one hundred five (105) days from the Closing Date. The number of shares
designated in the Registration Statement or any amendment thereto, to be
registered, shall be two hundred (200%) percent of the number of Securities
that would be required if all the Registrable Securities were issued on the day
before the filing of the Registration Statement.
(b) The Company will maintain the effectiveness the
Registration Statement or post-effective amendment filed under this Section 3
hereof current under the 1933 Act until the earlier of (i) the date that all of
the Registrable Securities have been sold pursuant to the Registration
Statement, (ii) the date the holders thereof receive an opinion of counsel that
all of the Registrable Securities may be sold under the provisions of Rule 144
or (iii) five years after the Issuance Date.
(c) All fees, disbursements and out-of-pocket expenses and
costs incurred by the Company in connection with the preparation and filing of
the Registration Statement and the amendment under subparagraph 3(a) and in
complying with applicable securities and Blue Sky laws (including, without
limitation, all attorneys' fees) shall be borne by the Company. The Holder
shall bear the cost of underwriting discounts and commissions, if any,
applicable to the Registrable Securities being registered and the fees and
expenses of its counsel. The Company shall qualify any of the securities for
sale in such states as such Holder reasonably designates and shall furnish
indemnification in the manner provided in Section 6 hereof. However, the
Company shall not be required to qualify any of the securities for sale in any
state which will require an escrow or other restriction relating to the Company
and/or the sellers. The Company at its expense will supply the Holder with
copies of the Registration Statement and the prospectus or offering circular
included therein and other related documents in such quantities as may be
reasonably requested by the Holders.
(d) The Company shall not be required by this Section 3 to
include a Holder's Registrable Securities in any Registration Statement which
is to be filed if, in the opinion of counsel for both the Holders and the
Company (or, should they not agree, in the opinion of another counsel
experienced in securities law matters acceptable to counsel for the Holders and
the Company) the proposed offering or other transfer as to which such
registration is requested is exempt from applicable federal and state
securities laws and would result in all Investors or transferees obtaining
securities which are not "restricted securities", as defined in Rule 144 under
the 1933 Act.
2
<PAGE>
(e) In the event the Registration Statement to be filed by
the Company pursuant to Section 3(a) above is not filed with the Commission
within forty-five (45) days from the Closing Date and/or the Registration
Statement is not declared effective by the Commission within one hundred five
(105) days from the Closing Date, then the Company will pay Holder (pro rated
on a daily basis), as liquidated damages for such failure and not as a penalty,
two (2%) percent of the Purchase Price of the then outstanding Securities for
the first thirty (30) day period that such filing and/or effectiveness is
delayed, and three (3%) percent of the Purchase Price of the then outstanding
Securities for every thirty (30) days thereafter until the Registration
Statement has been filed and/or declared effective. Such payment of the
liquidated damages shall be made to the Holder in cash, immediately upon
demand, provided, however, that the payment of such liquidated damages shall
not relieve the Company from its obligations to register the Securities
pursuant to this Section.
If the Company does not remit the damages to the Holders as
set forth above, the Company will pay the Holders' reasonable costs of
collection, including attorneys' fees, in addition to the liquidated damages.
The registration of the Securities pursuant to this provision shall not affect
or limit Holders' other rights or remedies as set forth in this Agreement.
(f) No provision contained herein shall preclude the Company
from selling securities pursuant to any Registration Statement in which it is
required to include Registrable Securities pursuant to this Section 3.
(g) If at any time or from time to time after the effective
date of the Registration Statement, the Company notifies the Holders in writing
of the existence of a Potential Material Event (as defined in Section 3(h)
below), the Holders shall not offer or sell any Registrable Securities or
engage in any other transaction involving or relating to Registrable
Securities, from the time of the giving of notice with respect to a Potential
Material Event until such Holder receives written notice from the Company that
such Potential Material Event either has been disclosed to the public or no
longer constitutes a Potential Material Event; provided, however, that the
Company may not so suspend the right to such holders of Securities for more
than two (2) twenty (20) day periods in the aggregate during any twelve month
period, during the periods the Registration Statement is required to be in
effect. If a Potential Material Event shall occur prior to the date the
Registration Statement is filed, then the Company's obligation to file the
Registration Statement shall be delayed without penalty for not more than two
(2) twenty (20) day periods. The Company must give each Holder notice in
writing at least two (2) business days prior to the first day of the blackout
period.
(h) "Potential Material Event" means any of the following:
(a) the possession by the Company of material information not ripe for
disclosure in a registration statement, or (b) any material engagement or
activity by the Company which would be adversely affected by disclosure in a
registration statement at such time, that the Registration Statement would be
materially misleading absent the inclusion of such information.
Section 4 Cooperation with Company. Holders will cooperate
with the Company in all respects in connection with this Agreement, including
timely supplying all
3
<PAGE>
information reasonably requested by the Company and executing and returning all
documents reasonably requested in connection with the registration and sale of
the Registrable Securities.
Section 5. Registration Procedures. If and whenever the Company is
required by any of the provisions of this Agreement to effect the registration
of any of the Registrable Securities under the Act, the Company shall (except
as otherwise provided in this Agreement), as expeditiously as possible:
(a) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the time period specified in Section 3(b) hereof and to comply with the
provisions of the Act with respect to the sale or other disposition of all
securities covered by such registration statement whenever the Holder of such
securities shall desire to sell or otherwise dispose of the same (including
prospectus supplements with respect to the sales of securities from time to
time in connection with a registration statement pursuant to Rule 415
promulgated under the Act);
(b) furnish to each Holder such numbers of copies of a
summary prospectus or other prospectus, including a preliminary prospectus or
any amendment or supplement to any prospectus, in conformity with the
requirements of the Act, and such other documents, as such Holder may
reasonably request in order to facilitate the public sale or other disposition
of the securities owned by such Holder;
(c) register and qualify the securities covered by the
Registration Statement under such other securities or blue sky laws of such
jurisdictions as the Holders shall reasonably request (subject to the
limitations set forth in Section 3(d) above), and do any and all other acts and
things which may be necessary or advisable to enable each Holder to consummate
the public sale or other disposition in such jurisdiction of the securities
owned by such Holder, except that the Company shall not for any such purpose be
required to qualify to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified or to file therein any general consent to
service of process;
(d) list such securities on the OTC Bulletin Board or NASDAQ
Small Cap Stock Market or other national securities exchange on which any
securities of the Company are then listed, if the listing of such securities is
then permitted under the rules of such exchange or NASDAQ;
(e) notify each Holder of Registrable Securities covered by
the Registration Statement, at any time when a prospectus relating thereto
covered by the Registration Statement is required to be delivered under the
Act, of the happening of any event of which it has knowledge as a result of
which the prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing.
4
<PAGE>
Section 6 Indemnification.
----------------
(a) The Company agrees to indemnify and hold harmless the
Holders, and each officer, director or person, if any, who controls each Holder
within the meaning of the 1933 Act ("Distributing Holder") against any losses,
claims, damages or liabilities, joint or several (which shall, for all purposes
of this Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys fees), to which the Distributing Holder may
become subject, under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, or any related preliminary
prospectus, final prospectus, offering circular, notification or amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however,
that the Company (i) will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto in reliance upon, and
in conformity with, written information furnished to the Company by the
Distributing Holder, specifically for use in the preparation thereof, or (ii)
cannot pay any amounts paid in settlement of any loss, claim, damage or
liability if such settlement is effected without the consent of the Company,
which consent shall not be unreasonably withheld. This Section 6(a) shall not
inure to the benefit of any Distributing Holder with respect to any person
asserting such loss, claim, damage or liability who purchased the Registrable
Securities which are the subject thereof if the Distributing Holder failed to
send or give (in violation of the 1933 Act or the rules and regulations
promulgated thereunder) a copy of the prospectus contained in such Registration
Statement to such person at or prior to the written confirmation of such person
of the sale of such Registrable Securities, where the Distributing Holder was
obligated to do so under the 1933 Act or the rules and regulations promulgated
thereunder. This indemnity provision will be in addition to any liability which
the Company may otherwise have.
(b) Each Distributing Holder agrees that it will indemnify
and hold harmless the Company, and each officer, director, or person, if any,
who controls the Company within the meaning of the 1933 Act, against any
losses, claims, damages or liabilities (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees) to which the Company or any such
officer, director or controlling person may become subject under the 1933 Act
or otherwise, insofar as such losses claims, damages or liabilities (or actions
in respect thereof); arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, or any related preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto, or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but in each case only to the extent that such untrue statement
or alleged untrue statement or omission or alleged omission was made in the
Registration Statement, preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto in reliance upon, and
in conformity with, written information furnished to the Company by such
Distributing Holder, specifically for use in the preparation
5
<PAGE>
thereof. This indemnity provision will be in addition to any liability which
the Distributing Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under
this Section 6 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 6, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve the indemnifying party from any liability which it may have to any
indemnified party otherwise than as to the particular item as to which
indemnification is then being sought solely pursuant to this Section 6. In
case any such action is brought against any indemnified party, and it notifies
the indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate in, and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, assume the defense
thereof, subject to the provisions herein stated and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section 6 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation, unless the indemnifying party shall not
pursue the action to its final conclusion. The indemnified party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the indemnified
party; provided that if the indemnified party is the Distributing Holder, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party, or (ii) the named parties to any such action
(including any impleaded parties) include both the Distributing Holder and the
indemnifying party and the Distributing Holder shall have been advised by such
counsel that there may be one or more legal defenses available to the
indemnifying party different from or in conflict with any legal defenses which
may be available to the Distributing Holder (in which case the indemnifying
party shall not have the right to assume the defense of such action on behalf
of the Distributing Holder, it being understood, however, that the indemnifying
party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances, be liable only for the
reasonable fees and expenses of one separate firm of attorneys for the
Distributing Holder, which firm shall be designated in writing by the
Distributing Holder). No settlement of any action against an indemnified party
shall be made without the prior written consent of the indemnified party, which
consent shall not be unreasonably withheld.
Section 7. Contribution. In order to provide for just and
equitable contribution under the 1933 Act in any case in which (i) the
indemnified party makes a claim for indemnification pursuant to Section 6
hereof but is judicially determined (by the entry of a final judgment or decree
by a court of competent jurisdiction and the expiration of time to appeal or
the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
Section 6 hereof provide for indemnification in such case, or (ii) contribution
under the 1933 Act may be required on the part of any indemnified party, then
the Company and the applicable distributing Holder shall
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<PAGE>
contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (which shall, for all purposes of this Agreement, include,
but not be limited to, all costs of defense and investigation and all
attorneys' fees), in either such case (after contribution from others) on the
basis of relative fault as well as any other relevant equitable considerations.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the applicable Distributing Holder
on the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Distributing Holder agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in this Section 7. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to
above in this Section 7 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
Section 8. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile,
addressed as set forth below or to such other address as such party shall have
specified most recently by written notice. Any notice or other communication
required or permitted to be given hereunder shall be deemed effective (a) upon
hand delivery or delivery by facsimile, with accurate confirmation generated by
the transmitting facsimile machine, at the address or number designated below
(if delivered on a business day during normal business hours where such notice
is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by reputable courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
If to INTERIORS INC.:
INTERIORS INC.
320 Washington Street
Mount Vernon, New York 10553
Attn: Max Munn, President
Facsimile:(914) 665-5469
Telephone:(914) 665-5400
If to the Holders at the addresses set forth on Schedule A attached
hereto.
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Any party hereto may from time to time change its address or facsimile
number for notices under this Section by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
Section 9. Assignment. This Agreement is binding upon and inures
to the benefit of the parties hereto and their respective heirs, successors and
permitted assigns. The rights granted the Holders under this Agreement shall
not be assigned without the written consent of the Company, which consent shall
not be unreasonably withheld. In the event of a transfer of the rights granted
under this Agreement, the Holder agrees that the Company may require that the
transferee comply with reasonable conditions as determined in the discretion of
the Company.
Section 10. Counterparts; Facsimile; Amendments. This Agreement
may be executed in multiple counterparts, each of which may be executed by less
than all of the parties and shall be deemed to be an original instrument which
shall be enforceable against the parties actually executing such counterparts
and all of which together shall constitute one and the same instrument. Except
as otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 11. Termination of Registration Rights. The rights granted
pursuant to this Agreement shall terminate as to each Holder (and permitted
transferees or assignees) upon the occurrence of any of the following:
(a) all Holder's Securities subject to this Agreement have been
registered;
(b) all of such Holder's Securities subject to this Agreement may
be sold without such registration pursuant to Rule 144 promulgated by the SEC
pursuant to the Securities Act;
(c) all of such Holder's Securities subject to this Agreement can
be sold pursuant to Rule 144(k).
Section 12. Headings. The headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 13. Governing Law; Venue; Jurisdiction. This Agreement
will be construed and enforced in accordance with and governed by the laws of
the State of New York, except for matters arising under the Act, without
reference to principles of conflicts of law. Each of the parties consents to
the jurisdiction of the U.S. District Court sitting in the Southern District of
the State of New York or the state courts of the State of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. Each party hereby agrees that if another party to this Agreement
obtains a judgment against it in such a proceeding, the party which obtained
such judgment may enforce same by summary judgment in the courts of any country
having jurisdiction over the party against whom such judgment was obtained, and
each party hereby
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<PAGE>
waives any defenses available to it under local law and agrees to the
enforcement of such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law.
Section 14. Severability. If any provision of this Agreement shall
for any reason be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision hereof and this Agreement
shall be construed as if such invalid or unenforceable provision had never been
contained herein.
Section 15. Capitalized Terms. All capitalized terms not
otherwise defined herein shall have the meaning assigned to them in the 7%
Convertible Debenture Subscription Agreement.
Section 16. Entire Agreement. This Agreement, together with all
documents referenced herein, embody the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and
supersedes all prior oral or written agreements and understandings relating to
the subject matter hereof. No statement, representation, warranty, covenant or
agreement of any kind not expressly set forth in this Agreement shall affect,
or be used to interpret, change or restrict, the express terms and provisions
of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed, on the day and year from above written.
INTERIORS, INC.
By /s/ Max Munn
--------------------------------------------
Name: Max Munn
Title: President
RBB BANK AG
By /s/ Herbert Scraub
--------------------------------------------
Name: Herbert Scraub
Title:
SOVEREIGN PARTNERS L.P.
By /s/ Mark Valentine
--------------------------------------------
Name: Mark Valentine
Title: Agent
DOMINION CAPITAL FUND, LTD
By /s/ Mark Valentine
--------------------------------------------
Name: Mark Valentine
Title: Agent
CARDINAL CAPITAL MANAGEMENT INC.
By /s/ Scott F. Koch
--------------------------------------------
Name: Scott F. Koch
Title: Sr. Managing Director
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE STATE SECURITIES LAWS
AND HAS BEEN ISSUED IN RELIANCE UPON REGULATION D PROMULGATED UNDER THE
SECURITIES ACT. THIS WARRANT SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A
SOLICITATION OF AN OFFER TO BUY THE WARRANT IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL.
THIS WARRANT MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT FROM
REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS; AND IN THE CASE OF AN EXEMPTION, ONLY IF THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL THAT SUCH TRANSACTION DOES NOT
REQUIRE REGISTRATION OF THE WARRANT, WHICH OPINION AND WHICH COUNSEL SHALL BE
SATISFACTORY TO THE COMPANY IN ITS SOLE DISCRETION.
NO. 1
COMMON STOCK PURCHASE WARRANT A
To Purchase 187,500 Shares of Common Stock of
INTERIORS INC.
THIS CERTIFIES that, for value received, SOVEREIGN PARTNERS, L.P.
(the "Investor"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, from August 25, 1998 (the "Issuance Date"), on or prior
to August 24, 2003 (the "Termination Date") but not thereafter, to subscribe
for and purchase from INTERIORS INC., a corporation incorporated in the State
of Delaware (the "Company"), up to One Hundred Eighty Seven Thousand Five
Hundred (187,500) shares (the "Warrant Shares") of Class A Common Stock, par
value US $0.001 per share of the Company (the "Common Stock"). The purchase
price of one share of Common Stock (the "Exercise Price") under this Warrant
shall be equal to the lower of either: (i) one hundred twenty percent (120%) of
the closing bid price of the Common Stock on the Trading Day immediately
preceding the Issuance Date, or (ii) one hundred twenty percent (120%) of the
closing bid price of the Common Stock on the reset date (the "Reset Date")
which shall be a single date during the period commencing on the ninety-first
(91st) day after the Issuance Date through and including the two hundred tenth
(210th) day after the Issuance date and which Reset Date shall be designated by
the holder of the Warrant; plus a premium (the "Exercise Premium").
<PAGE>
The Exercise Premium shall equal one half (1/2) of the Premium Price as defined
herein less the Trigger Price as defined herein provided the Premium Price is
greater than the Trigger Price. In the event the Premium Price is equal to or
less than the Trigger Price then the Exercise Premium shall equal zero. The
"Premium Price" shall be the closing bid price of the Common Stock on the
Trading Day immediately preceding the date that the notice of exercise (the
"Exercise Date") was sent to the Issuer, and the "Trigger Price" shall be Four
Dollars and Eleven Cents (US$4.11) per share. The Exercise Price and the
number of shares for which the Warrant is exercisable shall be subject to
adjustment as provided herein. This Warrant is being issued in connection with
the 7% Convertible Debenture as defined in the 7% Convertible Debenture
Subscription Agreement (the "Agreement") dated as of the Issuance Date between
the Company and Investor and is subject to its terms. In the event of any
conflict between the terms of this Warrant and the Agreement, the Agreement
shall control.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws and the restrictions on transfer described
herein, this Warrant and all rights hereunder are transferable, in whole or in
part, at the office or agency of the Company by the holder hereof in person or
by duly authorized attorney, upon surrender of this Warrant together with the
Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares
of Common Stock which may be issued upon the exercise of rights represented by
this Warrant will, upon exercise of the rights represented by this Warrant and
payment for the Warrant Shares as provided herein, be duly authorized, validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
in respect of the issue thereof (other than those created by the Investor and
other than taxes in respect of any transfer occurring contemporaneously with
such issue).
3. Exercise of Warrant. Exercise of the purchase rights represented
by this Warrant may be made in accordance with the following terms and
conditions:
(a) At any time after the ninetieth (90th) day from the Issuance
Date and prior to the close of business on the Termination Date, or such
earlier date on which this Warrant may terminate as provided in paragraph 11
below, the Holder may exercise its right to purchase up to 31,250 Warrant
Shares [equal to one-sixth (1/6th) of the aggregate number of the Warrant
Shares originally issuable on the Issuance Date];
(b) At any time after the one hundred twentieth (120th) day from
the Issuance Date and before the close of business on the Termination Date, or
such earlier date on which this Warrant may terminate as provided in paragraph
11 below, the Holder may exercise its right to purchase an additional 31,250
Warrant Shares [equal to one-sixth (1/6th) of the aggregate number of the
Warrant Shares originally issuable hereto];
(c) At any time after the one hundred fiftieth (150th) day from the
Issuance Date and before the close of business on the Termination Date, or such
earlier date on which this Warrant may terminate as provided in paragraph 11
below, the Holder may exercise its right to
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<PAGE>
purchase an additional 31,250 Warrant Shares [equal to one-sixth (1/6th) of the
aggregate number of the Warrant Shares originally issuable hereto];
(d) At any time after the one hundred eightieth (180th) day from
the Issuance Date and before the close of business on the Termination Date, or
such earlier date on which this Warrant may terminate as provided in paragraph
11 below, the Holder may exercise its right to purchase an additional 31,250
Warrant Shares [equal to one-sixth (1/6th) of the aggregate number of the
Warrant Shares originally issuable hereto];
(e) At any time after the two hundred tenth (210th) day from the
Issuance Date and before the close of business on the Termination Date, or such
earlier date on which this Warrant may terminate as provided in paragraph 11
below, the Holder may exercise its right to purchase an additional 31,250
Warrant Shares [equal to one-sixth (1/6th) of the aggregate number of the
Warrant Shares originally issuable hereto];
(f) At any time after the two hundred fortieth (240th) day from the
Issuance Date and before the close of business on the Termination Date, or such
earlier date on which this Warrant may terminate as provided in paragraph 11
below, the Holder may exercise its right to purchase all remaining and
outstanding Warrant Shares originally issuable hereto;
(g) The exercise of the purchase rights represented by this Warrant
may be made as set forth in (a) - (f) above by the surrender of this Warrant
and the Notice of Exercise Form annexed hereto duly executed, at the principal
office of the Company, 320 Washington Street, Mount Vernon, New York (or such
other office or agency of the Company as it may designate by notice in writing
to the registered holder hereof at the address of such holder appearing on the
books of the Company) and upon payment of the Exercise Price of the shares
thereby purchased; whereupon the holder of this Warrant shall be entitled to
receive a certificate for the number of shares of Common Stock so purchased.
Certificates for shares purchased hereunder shall be delivered to the holder
hereof within six (6) business days after the date on which this Warrant shall
have been exercised as aforesaid. Payment of the Exercise Price of the shares
may be by certified check or cashier's check or by wire transfer to an account
designated by the Company in an amount equal to the Exercise Price multiplied
by the number of shares being purchased.
4. No Fractional Shares or Scrip/ Restrictions on Exercise. No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for shares
of Common Stock upon the exercise of this Warrant shall be made without charge
to the holder hereof for any issue or transfer tax or other incidental expense
in respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by
the holder of this Warrant; provided, however, that in the event certificates
for shares of Common Stock are to be issued in a name other than the name of
the holder of this Warrant, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof; and provided further, that upon any transfer
3
<PAGE>
involved in the issuance or delivery of any certificates for shares of Common
Stock, the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.
6. Closing of Books. The Company will at no time close its
shareholder books or records in any manner which interferes with the timely
exercise of this Warrant.
7. No Rights as Shareholder until Exercise. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company prior to the exercise thereof. Upon the surrender of this
Warrant and the payment of the aggregate Exercise Price, the Warrant Shares so
purchased shall be and be deemed to be issued to such holder as the record
owner of such shares as of the close of business on the later of the date of
such surrender or payment.
8. Assignment and Transfer of Warrant. Subject to the restriction
on transfer described herein, this Warrant may be assigned by the surrender of
this Warrant and the Assignment Form annexed hereto duly executed at the office
of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the registered holder hereof at the address
of such holder appearing on the books of the Company).
9. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant certificate or any stock certificate
relating to the Warrant Shares, and in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it, and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor and
dated as of such cancellation, in lieu of such Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a legal
holiday.
11. Effect of Certain Events.
-------------------------
(a) If at any time the Company proposes (i) to sell or otherwise
convey all or substantially all of its assets or (ii) to effect a transaction
(by merger or otherwise) in which more than 50% of the voting power of the
Company is disposed of (collectively, a "Sale or Merger Transaction"), in which
the consideration to be received by the Company or its shareholders consists
solely of cash, the Company shall give the holder of this Warrant thirty (30)
days' notice of the proposed effective date of the transaction specifying that
the Warrant shall terminate if the Warrant has not been exercised by the
effective date of the transaction.
(b) In case the Company shall at any time effect a Sale or Merger
Transaction in which the consideration to be received by the Company or its
shareholders consists in part of
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<PAGE>
consideration other than cash, the holder of this Warrant shall have the right
thereafter to purchase, by exercise of this Warrant and payment of the
aggregate Exercise Price in effect immediately prior to such action, the kind
and amount of shares and other securities and property which it would have
owned or have been entitled to receive after the happening of such transaction
had this Warrant been exercised immediately prior thereto.
(c) The Company agrees that the Warrant Shares shall be included in
the Registration Statement to be filed by the Company pursuant to the
Agreement.
12. Adjustments of Exercise Price and Number of Warrant Shares. The
number and kind of securities purchasable upon the exercise of this Warrant and
the Exercise Price (inclusive of the Premium Price and Trigger Price used in
calculating the Exercise Price) shall be subject to adjustment from time to
time upon the happening of any of the following.
In case the Company shall (i) declare or pay a dividend in shares
of Common Stock or make a distribution in shares of Common Stock to holders of
its outstanding Common Stock, (ii) subdivide its outstanding shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital stock
in a reclassification of the Common Stock, then the number of Warrant Shares
purchasable upon exercise of this Warrant immediately prior thereto shall be
adjusted so that the holder of this Warrant shall be entitled to receive the
kind and number of Warrant Shares or other securities of the Company which he
would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. Upon each such adjustment of the kind and number
of Warrant Shares or other securities of the Company which are purchasable
hereunder, the holder of this Warrant shall thereafter be entitled to purchase
the number of Warrant Shares or other securities resulting from such adjustment
at an Exercise Price per such Warrant Share or other security obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment
by the number of Warrant Shares purchasable pursuant hereto immediately prior
to such adjustment and dividing by the number of Warrant Shares or other
securities of the Company resulting from such adjustment. An adjustment made
pursuant to this paragraph shall become effective immediately after the
effective date of such event retroactive to the record date, if any, for such
event.
13. Voluntary Adjustment by the Company. The Company may at any
time during the term of this Warrant, reduce the then current Exercise Price to
any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
14. Notice of Adjustment. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt requested,
to the holder of this Warrant notice of such adjustment or adjustments setting
forth the number of Warrant Shares (and other securities or property)
purchasable upon the exercise of this Warrant and the Exercise Price of such
Warrant Shares (and other securities or property) after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which such adjustment was
5
<PAGE>
made. Such notice, in absence of manifest error, shall be conclusive evidence
of the correctness of such adjustment.
15. Authorized Shares. The Company covenants that during the period
the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this Warrant. The
Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the OTC Bulletin Board
or NASDAQ Small Cap Stock Market or any domestic securities exchange upon which
the Common Stock may be listed.
16. "Piggy-Back" Registration. In addition to the terms of the
Registration Rights Agreement, the Holders of this Warrant shall have the right
to include all Warrant Shares as part of any registration of securities filed
by the Company (other than in connection with a transaction contemplated by
Rule 145(a) promulgated under the Act or pursuant to Form S-8, or the financing
arrangement presently under review with Cruttenden Roth Incorporated or any
substitute entity therefor and having substantially the same terms) and must be
notified in writing of such filing; provided, however, that the holder of this
Warrant agrees it shall not have any piggy-back registration rights pursuant to
this Warrant if the Warrant Shares may be sold in the United States pursuant to
the provisions of Rule 144. The Holder shall have five (5) business days to
notify the Company in writing as to whether the Company is to include Holder or
not include Holder as part of the registration; provided, however, that if any
registration pursuant to this Section shall be underwritten, in whole or in
part, the Company may require that the Registrable Securities requested for
inclusion pursuant to this Section be included in the underwriting on the same
terms and conditions as the securities otherwise being sold through the
underwriters. If in the good faith judgment of the underwriter evidenced in
writing of such offering only a limited number of Registrable Securities should
be included in such offering, or no such shares should be included, the Holder,
and all other selling stockholders, shall be limited to registering such
proportion of their respective shares as shall equal the proportion that the
number of shares of selling stockholders permitted to be registered by the
underwriter in such offering bears to the total number of all shares then held
by all selling stockholders desiring to participate in such offering. Those
Registrable Securities which are excluded from an underwritten offering
pursuant to the foregoing provisions of this Section (and all other Registrable
Securities held by the selling stockholders) shall be withheld from the market
by the Holders thereof for a period, not to exceed one hundred eighty (180)
days, which the underwriter may reasonably determine is necessary in order to
effect such underwritten offering. The Company shall have the right to
terminate or withdraw any registration initiated by it under this Agreement
prior to the effectiveness of such registration whether or not any Warrant
holder elected to include securities in such registration. All registration
expenses incurred by the Company in complying with this Warrant shall be paid
by the Company, exclusive of
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<PAGE>
underwriting discounts, commissions and legal fees and expenses for counsel to
the holders of the Warrants.
17. Miscellaneous.
--------------
(a) Issue Date; Jurisdiction. The provisions of this Warrant shall
be construed and shall be given effect in all respects as if it had been issued
and delivered by the Company on the date hereof. This Warrant shall be binding
upon any successors or assigns of the Company. This Warrant shall constitute a
contract under the laws of New York without regard to its conflict of law,
principles or rules, and be subject to arbitration pursuant to the terms set
forth in the Agreement.
(b) Restrictions. The holder hereof acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, or if no
exemption from registration exists, will have restrictions upon resale imposed
by state and federal securities laws. Each certificate representing the Warrant
Shares (if not registered, or if no exemption from registration exists) issued
to the Holder upon exercise will bear substantially the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN
ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE
DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM, OR
NOT SUBJECT TO, SUCH REGISTRATION".
(c) Modification and Waiver. This Warrant and any provisions hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof by the Company shall
be delivered or shall be sent by certified or registered mail, postage prepaid,
to each such holder at its address as shown on the books of the Company or to
the Company at the address set forth in the Agreement.
[Remainder of Page Intentionally Left Blank]
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: August 25, 1998
INTERIORS INC.
By /s/ Max Munn
-----------------------------------
Name:Max Munn
Title: President
8
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE STATE SECURITIES LAWS
AND HAS BEEN ISSUED IN RELIANCE UPON REGULATION D PROMULGATED UNDER THE
SECURITIES ACT. THIS WARRANT SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A
SOLICITATION OF AN OFFER TO BUY THE WARRANT IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL.
THIS WARRANT MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT FROM
REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS; AND IN THE CASE OF AN EXEMPTION, ONLY IF THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL THAT SUCH TRANSACTION DOES NOT
REQUIRE REGISTRATION OF THE WARRANT, WHICH OPINION AND WHICH COUNSEL SHALL BE
SATISFACTORY TO THE COMPANY IN ITS SOLE DISCRETION.
NO. 2
COMMON STOCK PURCHASE WARRANT A
To Purchase 187,500 Shares of Common Stock of
INTERIORS INC.
THIS CERTIFIES that, for value received, DOMINION CAPITAL FUND,
LTD. (the "Investor"), is entitled, upon the terms and subject to the
conditions hereinafter set forth, from August 25, 1998 (the "Issuance Date"),
on or prior to August 24, 2003 (the "Termination Date") but not thereafter, to
subscribe for and purchase from INTERIORS INC., a corporation incorporated in
the State of Delaware (the "Company"), up to One Hundred Eighty Seven Thousand
Five Hundred (187,500) shares (the "Warrant Shares") of Class A Common Stock,
par value US $0.001 per share of the Company (the "Common Stock"). The purchase
price of one share of Common Stock (the "Exercise Price") under this Warrant
shall be equal to the lower of either: (i) one hundred twenty percent (120%) of
the closing bid price of the Common Stock on the Trading Day immediately
preceding the Issuance Date, or (ii) one hundred twenty percent (120%) of the
closing bid price of the Common Stock on the reset date (the "Reset Date")
which shall be a single date during the period commencing on the ninety-first
(91st) day after the Issuance Date through and including the two hundred tenth
(210th) day after the Issuance date and which Reset Date shall be designated by
the holder of the Warrant; plus a premium (the "Exercise Premium").
<PAGE>
The Exercise Premium shall equal one half (1/2) of the Premium Price as defined
herein less the Trigger Price as defined herein provided the Premium Price is
greater than the Trigger Price. In the event the Premium Price is equal to or
less than the Trigger Price then the Exercise Premium shall equal zero. The
"Premium Price" shall be the closing bid price of the Common Stock on the
Trading Day immediately preceding the date that the notice of exercise (the
"Exercise Date") was sent to the Issuer, and the "Trigger Price" shall be Four
Dollars and Eleven Cents (US$4.11) per share. The Exercise Price and the
number of shares for which the Warrant is exercisable shall be subject to
adjustment as provided herein. This Warrant is being issued in connection with
the 7% Convertible Debenture as defined in the 7% Convertible Debenture
Subscription Agreement (the "Agreement") dated as of the Issuance Date between
the Company and Investor and is subject to its terms. In the event of any
conflict between the terms of this Warrant and the Agreement, the Agreement
shall control.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws and the restrictions on transfer described
herein, this Warrant and all rights hereunder are transferable, in whole or in
part, at the office or agency of the Company by the holder hereof in person or
by duly authorized attorney, upon surrender of this Warrant together with the
Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares
of Common Stock which may be issued upon the exercise of rights represented by
this Warrant will, upon exercise of the rights represented by this Warrant and
payment for the Warrant Shares as provided herein, be duly authorized, validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
in respect of the issue thereof (other than those created by the Investor and
other than taxes in respect of any transfer occurring contemporaneously with
such issue).
3. Exercise of Warrant. Exercise of the purchase rights represented
by this Warrant may be made in accordance with the following terms and
conditions:
(a) At any time after the ninetieth (90th) day from the Issuance
Date and prior to the close of business on the Termination Date, or such
earlier date on which this Warrant may terminate as provided in paragraph 11
below, the Holder may exercise its right to purchase up to 31,250 Warrant
Shares [equal to one-sixth (1/6th) of the aggregate number of the Warrant Shares
originally issuable on the Issuance Date];
(b) At any time after the one hundred twentieth (120th) day from
the Issuance Date and before the close of business on the Termination Date, or
such earlier date on which this Warrant may terminate as provided in paragraph
11 below, the Holder may exercise its right to purchase an additional 31,250
Warrant Shares [equal to one-sixth (1/6th) of the aggregate number of the
Warrant Shares originally issuable hereto];
(c) At any time after the one hundred fiftieth (150th) day from the
Issuance Date and before the close of business on the Termination Date, or such
earlier date on which this Warrant may terminate as provided in paragraph 11
below, the Holder may exercise its right to
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<PAGE>
purchase an additional 31,250 Warrant Shares [equal to one-sixth (1/6th) of the
aggregate number of the Warrant Shares originally issuable hereto];
(d) At any time after the one hundred eightieth (180th) day from
the Issuance Date and before the close of business on the Termination Date, or
such earlier date on which this Warrant may terminate as provided in paragraph
11 below, the Holder may exercise its right to purchase an additional 31,250
Warrant Shares [equal to one-sixth (1/6th) of the aggregate number of the
Warrant Shares originally issuable hereto];
(e) At any time after the two hundred tenth (210th) day from the
Issuance Date and before the close of business on the Termination Date, or such
earlier date on which this Warrant may terminate as provided in paragraph 11
below, the Holder may exercise its right to purchase an additional 31,250
Warrant Shares [equal to one-sixth (1/6th) of the aggregate number of the
Warrant Shares originally issuable hereto];
(f) At any time after the two hundred fortieth (240th) day from the
Issuance Date and before the close of business on the Termination Date, or such
earlier date on which this Warrant may terminate as provided in paragraph 11
below, the Holder may exercise its right to purchase all remaining and
outstanding Warrant Shares originally issuable hereto;
(g) The exercise of the purchase rights represented by this Warrant
may be made as set forth in (a) - (f) above by the surrender of this Warrant
and the Notice of Exercise Form annexed hereto duly executed, at the principal
office of the Company, 320 Washington Street, Mount Vernon, New York (or such
other office or agency of the Company as it may designate by notice in writing
to the registered holder hereof at the address of such holder appearing on the
books of the Company) and upon payment of the Exercise Price of the shares
thereby purchased; whereupon the holder of this Warrant shall be entitled to
receive a certificate for the number of shares of Common Stock so purchased.
Certificates for shares purchased hereunder shall be delivered to the holder
hereof within six (6) business days after the date on which this Warrant shall
have been exercised as aforesaid. Payment of the Exercise Price of the shares
may be by certified check or cashier's check or by wire transfer to an account
designated by the Company in an amount equal to the Exercise Price multiplied
by the number of shares being purchased.
4. No Fractional Shares or Scrip/ Restrictions on Exercise. No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for shares
of Common Stock upon the exercise of this Warrant shall be made without charge
to the holder hereof for any issue or transfer tax or other incidental expense
in respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by
the holder of this Warrant; provided, however, that in the event certificates
for shares of Common Stock are to be issued in a name other than the name of
the holder of this Warrant, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof; and provided further, that upon any transfer
3
<PAGE>
involved in the issuance or delivery of any certificates for shares of Common
Stock, the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.
6. Closing of Books. The Company will at no time close its
shareholder books or records in any manner which interferes with the timely
exercise of this Warrant.
7. No Rights as Shareholder until Exercise. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company prior to the exercise thereof. Upon the surrender of this
Warrant and the payment of the aggregate Exercise Price, the Warrant Shares so
purchased shall be and be deemed to be issued to such holder as the record
owner of such shares as of the close of business on the later of the date of
such surrender or payment.
8. Assignment and Transfer of Warrant. Subject to the restriction
on transfer described herein, this Warrant may be assigned by the surrender of
this Warrant and the Assignment Form annexed hereto duly executed at the office
of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the registered holder hereof at the address
of such holder appearing on the books of the Company).
9. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant certificate or any stock certificate
relating to the Warrant Shares, and in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it, and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor and
dated as of such cancellation, in lieu of such Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a legal
holiday.
11. Effect of Certain Events.
-------------------------
(a) If at any time the Company proposes (i) to sell or otherwise
convey all or substantially all of its assets or (ii) to effect a transaction
(by merger or otherwise) in which more than 50% of the voting power of the
Company is disposed of (collectively, a "Sale or Merger Transaction"), in which
the consideration to be received by the Company or its shareholders consists
solely of cash, the Company shall give the holder of this Warrant thirty (30)
days' notice of the proposed effective date of the transaction specifying that
the Warrant shall terminate if the Warrant has not been exercised by the
effective date of the transaction.
(b) In case the Company shall at any time effect a Sale or Merger
Transaction in which the consideration to be received by the Company or its
shareholders consists in part of
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<PAGE>
consideration other than cash, the holder of this Warrant shall have the right
thereafter to purchase, by exercise of this Warrant and payment of the
aggregate Exercise Price in effect immediately prior to such action, the kind
and amount of shares and other securities and property which it would have
owned or have been entitled to receive after the happening of such transaction
had this Warrant been exercised immediately prior thereto.
(c) The Company agrees that the Warrant Shares shall be included in
the Registration Statement to be filed by the Company pursuant to the
Agreement.
12. Adjustments of Exercise Price and Number of Warrant Shares. The
number and kind of securities purchasable upon the exercise of this Warrant and
the Exercise Price (inclusive of the Premium Price and Trigger Price used in
calculating the Exercise Price) shall be subject to adjustment from time to
time upon the happening of any of the following.
In case the Company shall (i) declare or pay a dividend in shares
of Common Stock or make a distribution in shares of Common Stock to holders of
its outstanding Common Stock, (ii) subdivide its outstanding shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital stock
in a reclassification of the Common Stock, then the number of Warrant Shares
purchasable upon exercise of this Warrant immediately prior thereto shall be
adjusted so that the holder of this Warrant shall be entitled to receive the
kind and number of Warrant Shares or other securities of the Company which he
would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. Upon each such adjustment of the kind and number
of Warrant Shares or other securities of the Company which are purchasable
hereunder, the holder of this Warrant shall thereafter be entitled to purchase
the number of Warrant Shares or other securities resulting from such adjustment
at an Exercise Price per such Warrant Share or other security obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment
by the number of Warrant Shares purchasable pursuant hereto immediately prior
to such adjustment and dividing by the number of Warrant Shares or other
securities of the Company resulting from such adjustment. An adjustment made
pursuant to this paragraph shall become effective immediately after the
effective date of such event retroactive to the record date, if any, for such
event.
13. Voluntary Adjustment by the Company. The Company may at any
time during the term of this Warrant, reduce the then current Exercise Price to
any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
14. Notice of Adjustment. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt requested,
to the holder of this Warrant notice of such adjustment or adjustments setting
forth the number of Warrant Shares (and other securities or property)
purchasable upon the exercise of this Warrant and the Exercise Price of such
Warrant Shares (and other securities or property) after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which such adjustment was
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<PAGE>
made. Such notice, in absence of manifest error, shall be conclusive evidence
of the correctness of such adjustment.
15. Authorized Shares. The Company covenants that during the period
the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this Warrant. The
Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the OTC Bulletin Board
or NASDAQ Small Cap Stock Market or any domestic securities exchange upon which
the Common Stock may be listed.
16. "Piggy-Back" Registration. In addition to the terms of the
Registration Rights Agreement, the Holders of this Warrant shall have the right
to include all Warrant Shares as part of any registration of securities filed
by the Company (other than in connection with a transaction contemplated by
Rule 145(a) promulgated under the Act or pursuant to Form S-8, or the financing
arrangement presently under review with Cruttenden Roth Incorporated or any
substitute entity therefor and having substantially the same terms) and must be
notified in writing of such filing; provided, however, that the holder of this
Warrant agrees it shall not have any piggy-back registration rights pursuant to
this Warrant if the Warrant Shares may be sold in the United States pursuant to
the provisions of Rule 144. The Holder shall have five (5) business days to
notify the Company in writing as to whether the Company is to include Holder or
not include Holder as part of the registration; provided, however, that if any
registration pursuant to this Section shall be underwritten, in whole or in
part, the Company may require that the Registrable Securities requested for
inclusion pursuant to this Section be included in the underwriting on the same
terms and conditions as the securities otherwise being sold through the
underwriters. If in the good faith judgment of the underwriter evidenced in
writing of such offering only a limited number of Registrable Securities should
be included in such offering, or no such shares should be included, the Holder,
and all other selling stockholders, shall be limited to registering such
proportion of their respective shares as shall equal the proportion that the
number of shares of selling stockholders permitted to be registered by the
underwriter in such offering bears to the total number of all shares then held
by all selling stockholders desiring to participate in such offering. Those
Registrable Securities which are excluded from an underwritten offering
pursuant to the foregoing provisions of this Section (and all other Registrable
Securities held by the selling stockholders) shall be withheld from the market
by the Holders thereof for a period, not to exceed one hundred eighty (180)
days, which the underwriter may reasonably determine is necessary in order to
effect such underwritten offering. The Company shall have the right to
terminate or withdraw any registration initiated by it under this Agreement
prior to the effectiveness of such registration whether or not any Warrant
holder elected to include securities in such registration. All registration
expenses incurred by the Company in complying with this Warrant shall be paid
by the Company, exclusive of
6
<PAGE>
underwriting discounts, commissions and legal fees and expenses for counsel to
the holders of the Warrants.
17. Miscellaneous.
--------------
(a) Issue Date; Jurisdiction. The provisions of this Warrant shall
be construed and shall be given effect in all respects as if it had been issued
and delivered by the Company on the date hereof. This Warrant shall be binding
upon any successors or assigns of the Company. This Warrant shall constitute a
contract under the laws of New York without regard to its conflict of law,
principles or rules, and be subject to arbitration pursuant to the terms set
forth in the Agreement.
(b) Restrictions. The holder hereof acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, or if no
exemption from registration exists, will have restrictions upon resale imposed
by state and federal securities laws. Each certificate representing the Warrant
Shares (if not registered, or if no exemption from registration exists) issued
to the Holder upon exercise will bear substantially the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN
ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE
DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM, OR
NOT SUBJECT TO, SUCH REGISTRATION".
(c) Modification and Waiver. This Warrant and any provisions hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof by the Company shall
be delivered or shall be sent by certified or registered mail, postage prepaid,
to each such holder at its address as shown on the books of the Company or to
the Company at the address set forth in the Agreement.
[Remainder of Page Intentionally Left Blank]
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: August 25, 1998
INTERIORS INC.
By /s/ Max Munn
-----------------------------------
Name:Max Munn
Title: President
8
<PAGE>
No.1 $375,000 USD
INTERIORS INC.
7% Convertible Debenture due August 24, 2001
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE STATE SECURITIES LAWS
AND HAS BEEN ISSUED IN RELIANCE UPON REGULATION D PROMULGATED UNDER THE
SECURITIES ACT. THIS DEBENTURE SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A
SOLICITATION OF AN OFFER TO BUY THE DEBENTURE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL.
THIS DEBENTURE MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
UNDER APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT
FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS; AND IN THE CASE OF AN
EXEMPTION, ONLY IF THE COMPANY HAS RECEIVED AN OPINION FROM THEIR COUNSEL THAT
SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION OF THE SECURITIES.
THIS DEBENTURE is one of a duly authorized issue of Debentures of
INTERIORS INC., a corporation duly organized and existing under the laws of the
State of Delaware (the "ISSUER"), issued on August 25, 1998 (the "Issuance
Date"), and designated as its 7% Convertible Debentures due August 24, 2001, in
an aggregate face amount not exceeding Seven Hundred Fifty Thousand
(USD$750,000) Dollars.
THIS DEBENTURE HAS BEEN ISSUED UNDER THE TERMS AND PROVISIONS OF
THE 7% CONVERTIBLE DEBENTURES SUBSCRIPTION AGREEMENT DATED AS OF AUGUST 25,
1998 BETWEEN THE ISSUER AND HOLDER (THE "AGREEMENT") AND SHALL BE SUBJECT TO
ALL OF THE TERMS AND CONDITIONS AND ENTITLED TO ALL OF THE BENEFITS THEREOF.
FOR VALUE RECEIVED, the ISSUER promises to pay to
SOVEREIGN PARTNERS, L.P.
the registered holder hereof or its registered assigns, if any (the "HOLDER"),
the principal sum of:
THREE HUNDRED SEVENTY FIVE THOUSAND
United States Dollars,
<PAGE>
on August 24, 2001 (the "Maturity Date"), and to pay interest, as outlined
below, at the rate of seven (7%) percent per annum on the principal sum
outstanding for the term of this Debenture. Accrual of interest shall commence
on the date hereof. Interest shall be payable by the ISSUER in cash, quarterly,
commencing on the first business day of the Company's next fiscal quarter
immediately following the Issuance Date, on that portion of the principal
amount of this Debenture which is then outstanding. The interest so payable
will be paid to the person in whose name this Debenture (or one or more
predecessor Debentures) is registered on the records of the ISSUER regarding
registration and transfers of the Debenture (the "Debenture Register"),
provided, however, that the ISSUER'S obligation to a transferee of this
Debenture arises only if such transfer, sale or other disposition is made in
accordance with the terms and conditions contained in the Agreement. The
principal of this Debenture is payable as provided below in shares of Common
Stock at any time prior to the Maturity Date upon the HOLDER exercising its
conversion rights set forth below. In the event this Debenture is outstanding
on the Maturity Date it shall automatically be converted into freely tradable
shares of Common Stock as if the HOLDER voluntarily elected such conversion in
accordance with the procedures, terms and conditions set forth in this
Debenture provided, that (i) the Common Stock is listed on the OTC Bulletin
Board or Nasdaq Small Cap Stock Market, (ii) the Bid Price is greater than One
($1.00) Dollar for the ten (10) Trading Days immediately preceding the
Maturity Date, (iii) there has not been any suspension in the trading of the
Common Stock on the OTC Bulletin Board or Nasdaq Small Cap Stock Market during
the thirty (30) Trading Days immediately preceding the Maturity Date, and the
(iv) the ISSUER has been in full compliance with the terms and conditions of
this Debenture and the Agreement. In the event all of the aforementioned
conditions are not satisfied, or the ISSUER is not able to issue freely
tradable shares of Common Stock as described above, the ISSUER agrees to pay to
the HOLDER, in cash, within three (3) Trading Days of the Maturity Date, the
dollar value of the number of shares of Common Stock issuable to the HOLDER as
if the HOLDER had exercised its conversion rights on the Maturity Date,
multiplied by the closing bid price of the Common Stock on the Maturity Date.
Principal and interest are payable at the address last appearing on the
Debenture Register as designated in writing by the HOLDER hereof from time to
time.
The Debenture is subject to the following additional provisions:
1. Subject to the restrictions on transferability set forth herein
and in the Agreement, the Debenture is exchangeable for like Debentures in
equal aggregate principal amount of authorized denominations, as requested by
the HOLDER surrendering the same. No service charge will be made for such
registration or transfer or exchange, although the HOLDER shall be responsible
for their own expenses associated with complying with the restrictions on
transfer of the Debenture in the Agreement.
2. The ISSUER shall be entitled to withhold from all payments of
principal of this Debenture any amounts required to be withheld under the
applicable provisions of the U.S. Internal Revenue Code of 1986, as amended, or
other applicable laws at the time of such payments.
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<PAGE>
3. This Debenture has been issued subject to investment
representations of the original HOLDER hereof and may be transferred or
exchanged in the United States only in compliance with the 1933 Act and
applicable state securities laws and in compliance with the restrictions on
transfer provided in the Agreement. Prior to the due presentment for such
transfer of this Debenture, the ISSUER and any agent of the ISSUER may treat
the person in whose name this Debenture is duly registered on the Debenture
Register as the owner hereof for the purpose of receiving payment as herein
provided and all other purposes, whether or not this Debenture is overdue, and
neither the ISSUER nor any such agent shall be affected by notice to the
contrary. The transferee shall be bound, as the original HOLDER by the same
representations and terms described herein and under the Agreement.
4. At any time after the two hundred fortieth (240th) day from the
Issuance Date, the HOLDER is entitled, at its option, to convert this
Debenture, in whole or in part, in accordance with the following terms and
conditions:
(a) The HOLDER may exercise its right to convert the Debenture by
telecopying an executed and completed notice of conversion (the "Notice of
Conversion") to the ISSUER and delivering the original Notice of Conversion and
the original Debenture to the ISSUER by express courier. Each business date on
which a Notice of Conversion is telecopied to and received by the ISSUER in
accordance with the provisions hereof shall be deemed a "Conversion Date". The
ISSUER will transmit the certificates representing shares of Common Stock
issuable upon conversion of the Debenture (together with the certificates
representing the Debenture not so converted) to the HOLDER via express courier,
by electronic transfer or otherwise within six business days after the
Conversion Date if the ISSUER has received the original Notice of Conversion
and Debenture being so converted by such date. In addition to any other
remedies which may be available to the HOLDER, in the event that the ISSUER
fails to effect delivery of such shares of Common Stock within such six
business day period, the HOLDER will be entitled to revoke the Notice of
Conversion by delivering a notice to such effect to the ISSUER whereupon the
ISSUER and the HOLDER shall each be restored to their respective positions
immediately prior to delivery of the Notice of Conversion. The Notice of
Conversion and Debenture representing the portion of the Debenture converted
shall be delivered as follows:
To the ISSUER:
INTERIORS INC.
320 Washington Street
Mount Vernon, New York 10553
Attn:Max Munn, President
Facsimile: (914) 665-5469
Telephone: (914) 665-5400
In the event that the Common Stock issuable upon conversion of the
Debenture is not delivered, within six (6) business days of receipt by the
ISSUER of a valid Notice of Conversion and the Debenture to be converted, the
ISSUER shall pay to the HOLDER, in
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<PAGE>
immediately available funds, upon demand, as liquidated damages for such
failure and not as a penalty, for each $ 100,000 principal amount of Debenture
sought to be converted, $500 for each of the first ten (10) days and $ 1,000
per day thereafter that the shares of Common Stock are not delivered, which
liquidated damages shall run from the seventh business day after the Conversion
Date up until the time that either the Conversion Notice is revoked or the
Common Stock is delivered, at which time such liquidated damages shall cease.
Any and all payments required pursuant to this paragraph shall be payable only
in cash immediately and shall not be in addition to the liquidated damages set
forth in Section 4(ii) of the Agreement.
(b) Each Debenture shall be convertible, at the sole option of the
HOLDER, into that number of shares of fully paid and nonassessable shares of
Common Stock which is to be derived from dividing the Conversion Amount by the
Conversion Price. For purposes of this Debenture, the Conversion Amount shall
mean the principal dollar amount of the Debenture being converted plus all
accrued and unpaid interest attributable to the Debenture being converted as of
the Conversion Date. The Conversion Price shall be equal to the lesser of: (i)
eighty (80%) percent of the average closing bid price of the Common Stock
during the three day trading period immediately preceding the Conversion Date,
or (ii) US$2.10. The closing bid price shall be deemed to be the reported last
bid price regular way as reported by Bloomberg LP or if unavailable, on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading, or if the Common Stock is not listed or admitted to
trading on any national securities exchange, the closing bid price as reported
by NASDAQ or such other system then in use, or, if the Common Stock is not
quoted by any such organization, the closing bid price in the over-the-counter
market as furnished by the principal national securities exchange on which the
Common Stock is traded. Notwithstanding anything in this Debenture to the
contrary, the ability of Holder to convert this Debenture shall be restricted
as set forth in Sections 9.1 and 9.2 of the Agreement provided the Company
complies with these sections and pays the Economic Benefit.
(c) The number of shares of Common Stock issuable upon the
conversion of the Debenture and the Conversion Price shall be subject to
adjustment as follows:
(i) In case the ISSUER shall (A) pay a dividend on Common
Stock in Common Stock or securities convertible into, exchangeable for or
otherwise entitling a holder thereof to receive Common Stock, (B) declare a
dividend payable in cash on its Common Stock and at substantially the same time
offer its shareholder a right to purchase new Common Stock (or securities
convertible into, exchangeable for or otherwise entitling a holder thereof to
receive Common Stock) from proceeds of such dividend (all Common Stock so
issued shall be deemed to have been issued as a stock dividend), (C) subdivide
its outstanding shares of Common Stock into a greater number of shares of
Common Stock, (D) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock, or (E) issue by reclassification of its
Common Stock any shares of Common Stock of the ISSUER, the number of shares of
Common Stock issuable upon conversion of the Debenture immediately prior
thereto shall be adjusted so that the holders of the Debenture shall be
entitled to receive after the happening of any of the events described above
that number and kind of shares as the holders would have received had such
Debenture been converted immediately prior to the happening of
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such event or any record date with respect thereto. Any adjustment made
pursuant to this subdivision shall become effective immediately after the close
of business on the record date in the case of a stock dividend and shall become
effective immediately after the close of business on the record date in the
case of a stock split, subdivision, combination or reclassification.
(ii) Any adjustment in the numbers of shares of Common Stock
issuable hereunder otherwise required to be made by this paragraph 4(c) will
not have to be made if such adjustment would not require an increase or
decrease in one (1%) percent or more in the number of shares of Common Stock
issuable upon conversion of the Debenture.
(iii) Whenever the number of shares of Common Stock issuable
upon the conversion of the Debenture is adjusted, as herein provided, the
Conversion Price shall be adjusted (to the nearest cent) by multiplying such
Conversion Price immediately prior to such adjustment by a fraction of which
the numerator shall be the number of shares of Common Stock issuable upon the
exercise of each share of Debenture immediately prior to such adjustment, and
of which the denominator shall be the number of shares of Common Stock issuable
immediately thereafter.
(d) In the case of any (i) consolidation or merger of the ISSUER
into any entity (other than a consolidation or merger that does not result in
any reclassification, conversion, exchange or cancellation of outstanding
shares of Common Stock of the ISSUER), (ii) sale, transfer, lease or conveyance
of all or substantially all of the assets of the ISSUER as an entirety or
substantially as an entirety, or (iii) reclassification, capital reorganization
or change of the Common Stock (other than solely a change in par value, or from
par value to no par value), in each case as a result of which shares of Common
Stock shall be converted into the right to receive stock, securities or other
property (including cash or any combination thereof), each holder of a
Debenture then outstanding shall have the right thereafter to convert such
Debenture only into the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale, transfer, capital
reorganization or reclassification by a holder of the number of shares of
Common Stock of the ISSUER into which such Debenture would have been converted
immediately prior to such consolidation, merger, sale, transfer, capital
reorganization or reclassification, assuming such holder of Common Stock of the
ISSUER (A) is not an entity with which the ISSUER consolidated or into which
such sale or transfer was made, as the case may be ("constituent entity"), or
an affiliate of the constituent entity, and (B) failed to exercise his or her
rights of election, if any, as to the kind or amount of securities, cash and
other property receivable upon such consolidation, merger, sale or transfer
(provided that if the kind or amount of securities, cash or other property
receivable upon such consolidation, merger, sale or transfer is not the same
for each share of Common Stock of the ISSUER held immediately prior to such
consolidation, merger, sale or transfer by other than a constituent entity or
an affiliate thereof and in respect of which the ISSUER merged into the ISSUER
or to which such rights or election shall not have been exercised
("non-electing share"), then for the purpose of this Section (4)(d) the kind
and amount of securities, cash or other property receivable upon such
consolidation, merger, sale or transfer by each non-electing share shall be
deemed to be the kind and amount so receivable per share by a majority of the
non-electing shares). If necessary, appropriate adjustment shall be made in the
application of the provision set forth herein with respect to the
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rights and interest thereafter of the HOLDER, to the end that the provisions
set forth herein shall thereafter correspondingly be made applicable, as nearly
as may reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the conversion of the Debenture. The above
provisions shall similarly apply to successive consolidations, mergers, sales,
transfers, capital reorganizations and reclassifications. The ISSUER shall not
effect any such consolidation, merger, sale or transfer unless prior to or
simultaneously with the consummation thereof the successor ISSUER or entity (if
other than the ISSUER) resulting from such consolidation, merger, sale or
transfer shall assume, by written instrument, the obligation to deliver to the
HOLDER such shares of Common Stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to receive under this
paragraph.
(e) The ISSUER will not, by amendment of its Certificate of
Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the ISSUER, but will
at all times in good faith assist in the carrying out of all the provisions of
this paragraph and in taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the HOLDERS against
impairment.
5. First Redemption Prior to 240 Days Following Issuance Date. At
any time prior to the two hundred fortieth (240th) day following the Issuance
Date the Issuer shall be entitled to Redeem all or any portion of the
outstanding Debenture in cash pursuant to the following procedures and at the
First Redemption Price hereinafter provided by providing seven (7) business
days prior written notice (the "First Redemption Notice") to the HOLDER:
(a) The First Redemption Notice shall set forth (i) the First
Redemption Date which shall be ten (10) trading days after the First Redemption
Notice Date, (ii) the First Redemption Price which shall equal the Purchase
Price of that portion of the Debenture being redeemed plus all accrued interest
attributable to that portion of the Debenture being redeemed, (iii) a statement
that interest on that portion of the Debenture being redeemed will cease to
accrue on such First Redemption Date, and (iv) a statement of or reference to
the conversion right set forth in this Debenture (including that the right to
give a notice of conversion in respect of any shares to be redeemed shall
terminate on the First Redemption Date). The First Redemption Notice shall be
irrevocable, and it shall be mailed, postage prepaid, at least ten (10)
business days prior to the First Redemption Date to the HOLDER at their address
as the same shall appear on the books of the Company. If fewer than all of the
principal amount of the Debentures owned by the HOLDER are then to be redeemed,
the notice shall specify the amount thereof that is to be redeemed and, if
practicable, the numbers of the certificates representing such Debenture.
(b) Immediately following the First Redemption Date, the HOLDER
shall surrender their original Debenture at the office of the ISSUER, and the
ISSUER shall issue to the HOLDER a new Debenture Certificate for the principal
amount that remains outstanding, if any.
(c) The ISSUER shall not be entitled to send any First Redemption
Notice and begin the First redemption procedure hereunder unless it has:
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<PAGE>
(i) the full amount of the First Redemption Price in cash,
available in a demand or other immediately available account in a bank
or similar financial institution;
(ii) immediately available credit facilities, in the full
amount of the First Redemption Price with a bank or similar financial
institution; or
(iii) a combination of the items set forth in (i) and (ii)
above, aggregating the full amount of the First Redemption Price.
(d) In the event the ISSUER fails to make payment pursuant to the
First Redemption Notice on the First Redemption Date or otherwise fails to
comply with the Redemption provisions set forth herein, the First Redemption
and First Redemption Notice shall be deemed null and void and the ISSUER shall
lose any and all further redemption privileges and rights.
6. Second Redemption Subsequent to 240 Days Following Issuance
Date. At any time after the two hundred fortieth (240th) day following the
Issuance Date the Issuer shall be entitled to redeem all or any portion of the
outstanding Debenture in cash pursuant to the following procedures and at the
Second Redemption Price hereinafter provided by providing and the Holder
receiving, twenty (20) calendar days prior written notice (the "Second
Redemption Notice").
(a) The Second Redemption Notice shall set forth (i) the Second
Redemption Date which shall be twenty (20) calendar days after the Second
Redemption Notice Date, (ii) the Second Redemption Price which shall equal that
portion of the Purchase Price of the Debenture being redeemed, plus all accrued
interest attributable to that portion of the Debenture being Redeemed, plus a
premium calculated on a daily pro rata basis equal to ten percent (10%) of the
principal amount of that portion of the Debenture being redeemed for the first
thirty (30) day period following the two hundred fortieth (240th) day after the
Issuance Date plus an additional two percent (2%) of the principal amount of
the Debenture being redeemed for each thirty (30) day period following the two
hundred seventieth (270th) day after the Issuance Date and ending on the Second
Redemption Notice Date, (iii) a statement that interest on that portion of the
Debenture being redeemed will cease to accrue on such Second Redemption Date.
The Second Redemption Notice shall be irrevocable, and it shall be mailed,
postage prepaid, at least twenty (20) calendar days prior to the Second
Redemption Date to the HOLDER at their address as the same shall appear on the
books of the Company (the date of such mailing being the "Second Redemption
Notice Date"). If fewer than all of the principal amount of the Debentures
owned by the HOLDER are then to be Redeemed, the notice shall specify the
amount thereof that is to be redeemed and, if practicable, the numbers of the
certificates representing such Debenture.
(b) Immediately following the Second Redemption Date, the HOLDER
shall surrender their original Debenture at the office of the ISSUER, and the
ISSUER shall issue to the HOLDER a new Debenture Certificate for the principal
amount that remains outstanding, if any.
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(c) The ISSUER shall not be entitled to send any Second Redemption
Notice and begin the redemption procedure hereunder unless it has:
(i) the full amount of the Second Redemption Price in cash,
available in a demand or other immediately available account in a bank
or similar financial institution;
(ii) immediately available credit facilities, in the full
amount of the Second Redemption Price with a bank or similar financial
institution; or
(iii) a combination of the items set forth in (i) and (ii)
above, aggregating the full amount of the Second Redemption Price.
(d) In the event the ISSUER fails to make payment pursuant to the
Second redemption Notice on the Second Redemption Date or otherwise fails to
comply with the Redemption provisions set forth herein, the Second Redemption
and Second Redemption Notice shall be deemed null and void and the ISSUER shall
lose any and all further redemption privileges and rights.
(e) Notwithstanding the above, at any time prior to the Second
Redemption Date the HOLDER is entitled, at its option, to convert the
Debentures being noticed for redemption, in whole or in part in accordance with
the terms and conditions set forth above in Section 4.
7. No provision of this Debenture shall alter or impair the
obligation of the ISSUER, which is absolute and unconditional, upon an Event of
Default (as defined below), to pay the principal of, and interest on this
Debenture at the place, time, and rate, and in the coin or currency herein
prescribed.
8. The ISSUER hereby expressly waives demand and presentment for
payment, notice on nonpayment, protest, notice of protest, notice of dishonor,
notice of acceleration or intent to accelerate, and diligence in taking any
action to collect amounts called for hereunder and shall be directly and
primarily liable for the payment of all sums owing and to be owing hereon,
regardless of and without any notice, diligence, act or omission as or with
respect to the collection of any amount called for hereunder.
9. If one or more of the following described "Events of Default"
shall occur,
(a) Any of the representations or warranties made by the ISSUER
herein, or in the Agreement shall have been incorrect when made in any material
respect; or
(b) The ISSUER shall fail to perform or observe in any material
respect any covenant, term, provision, condition, agreement or obligation of
the ISSUER under this
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Debenture, the Registration Rights Agreement and the Agreement, between the
parties of even date herewith, which shall remain uncured for five business
days after notice hereof; or
(c) A trustee, liquidator or receiver shall be appointed for the
ISSUER or for a substantial part of its property or business without its
consent and shall not be discharged within thirty (30) days after such
appointment; or
(d) Any governmental agency or any court of competent jurisdiction
at the instance of any governmental agency shall assume custody or control of
the whole or any substantial portion of the properties or assets of the ISSUER
and shall not be dismissed within thirty (30) calendar days thereafter; or
(e) Bankruptcy reorganization, Insolvency or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the ISSUER and, if
instituted against the ISSUER, ISSUER shall by any action or answer approve of,
consent to or acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in any such proceeding
or such proceedings shall not be dismissed within thirty (30) days thereafter;
or
(f) The Common Stock is delisted from trading on the NASDAQ Small
Cap Stock Market (except pursuant to section 9.2 of the Agreement), or the
Company has received notice concerning delisting from the NASDAQ Small Cap
Stock Market.
(g) The effectiveness of the Registration Statement has been
suspended for a period of ten (10) Trading Days.
Then, or at any time thereafter, and in each and every such case,
unless such Event of Default shall have been waived in writing by the HOLDER
(which waiver shall not be deemed to be a waiver of any subsequent default) at
the option of the HOLDER and in the HOLDER'S sole discretion, the HOLDER may
consider this Debenture immediately due and payable in cash, (at the equivalent
dollar value of the number of shares of Common Stock issuable upon conversion
(assuming a Conversion Date as of the date of such notice from the HOLDER)
times the Bid Price on the Trading Day immediately preceding such notice from
the HOLDER, without presentment, demand protest or notice of any kind, all of
which are hereby expressly waived, anything herein or in any note or other
instruments contained to the contrary notwithstanding, and HOLDER may
immediately, and without expiration of any period of grace, enforce any and all
of the HOLDER'S rights and remedies provided herein or any other rights or
remedies afforded by law. It is agreed that in the event of such action, such
HOLDER shall be entitled to receive all reasonable fees, costs and expenses
incurred, including without limitation such reasonable fees and expenses of
attorneys (if litigation is commenced).
10. In case any provision of this Debenture is held by a court of
competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if
possible, so that it is enforceable to the maximum extent
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<PAGE>
possible, and the validity and enforceability of the remaining provisions of
this Debenture will not in any way be affected or impaired thereby.
11. In addition to the terms of the Registration Rights Agreement
of even date herewith, the HOLDER shall have the right to include all of the
shares of Common Stock underlying this Debenture (the "Registrable Securities")
as part of any registration of securities filed by the ISSUER (other than in
connection with a transaction contemplated by Rule 145(a) promulgated under the
Act or pursuant to Form S-8, or the financing arrangement presently under
review with Cruttenden Roth Incorporated or any substitute entity for a
transaction therefor and having substantially the same terms) and must be
notified in writing of such filing; provided, however, that the HOLDER agrees
it shall not have any piggy-back registration rights pursuant to this Debenture
if the shares of Common Stock underlying this Debenture may be sold in the
United States pursuant to the provisions of Rule 144. HOLDER shall have five
(5) business days to notify the ISSUER in writing as to whether the ISSUER is
to include HOLDER or not include HOLDER as part of the registration; provided,
however, that if any registration pursuant to this Section shall be
underwritten, in whole or in part, the Company may require that the Registrable
Securities requested for inclusion pursuant to this Section be included in the
underwriting on the same terms and conditions as the securities otherwise being
sold through the underwriters. If in the good faith judgment of the underwriter
evidenced in writing of such offering only a limited number of Registrable
Securities should be included in such offering, or no such shares should be
included, the HOLDER, and all other selling stockholders, shall be limited to
registering such proportion of their respective shares as shall equal the
proportion that the number of shares of selling stockholders permitted to be
registered by the underwriter in such offering bears to the total number of all
shares then held by all selling stockholders desiring to participate in such
offering. Those Registrable Securities which are excluded from an underwritten
offering pursuant to the foregoing provisions of this Section (and all other
Registrable Securities held by the selling stockholders) shall be withheld from
the market by the HOLDERS thereof for a period, not to exceed one hundred
eighty (180) days, which the underwriter may reasonably determine is necessary
in order to effect such underwritten offering. The ISSUER shall have the right
to terminate or withdraw any registration initiated by it under this Agreement
prior to the effectiveness of such registration whether or not any Debenture
holder elected to include securities in such registration. All registration
expenses incurred by the ISSUER in complying with this Agreement shall be paid
by the ISSUER, exclusive of underwriting discounts, commissions and legal fees
and expenses for counsel to the HOLDERS of this Debenture.
12. This Debenture and the Agreement (along with all exhibits
attached thereto) constitute the full and entire understanding and agreement
between the ISSUER and HOLDER with respect hereto. Neither this Debenture nor
any terms hereof may be amended, waived, discharged or terminated other than by
a written instrument signed by the ISSUER and the HOLDER. Any capitalized terms
shall have the same meaning as given in the Agreement. In the event of any
inconsistencies between this Debenture and the Agreement, the Agreement shall
control.
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13. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York.
14. This Debenture, together with all documents referenced herein,
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersedes all prior oral or written
agreements and understandings relating to the subject matter hereof. No
statement, representation, warranty, covenant or agreement of any kind not
expressly set forth in this Debenture or the Agreement shall affect, or be used
to interpret, change or restrict, the express terms and provisions of this
Debenture.
[Remainder of page intentionally left blank]
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the ISSUER has caused this Debenture to be
duly executed by an officer thereunto duly authorized.
INTERIORS INC.
By /s/ Max Munn
---------------------------------------
Name: Max Munn
Title: President
Date: August 25, 1998
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No.2 $375,000 USD
INTERIORS INC.
7% Convertible Debenture due August 24, 2001
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE STATE SECURITIES LAWS
AND HAS BEEN ISSUED IN RELIANCE UPON REGULATION D PROMULGATED UNDER THE
SECURITIES ACT. THIS DEBENTURE SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A
SOLICITATION OF AN OFFER TO BUY THE DEBENTURE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL.
THIS DEBENTURE MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
UNDER APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT
FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS; AND IN THE CASE OF AN
EXEMPTION, ONLY IF THE COMPANY HAS RECEIVED AN OPINION FROM THEIR COUNSEL THAT
SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION OF THE SECURITIES.
THIS DEBENTURE is one of a duly authorized issue of Debentures of
INTERIORS INC., a corporation duly organized and existing under the laws of the
State of Delaware (the "ISSUER"), issued on August 25, 1998 (the "Issuance
Date"), and designated as its 7% Convertible Debentures due August 24, 2001, in
an aggregate face amount not exceeding Seven Hundred Fifty Thousand
(USD$750,O00) Dollars.
This Debenture has been issued under the terms and provisions of
the 7% Convertible Debentures Subscription Agreement dated as of August 25,
1998 between the ISSUER and HOLDER (the "Agreement") and shall be subject to
all of the terms and conditions and entitled to all of the benefits thereof.
FOR VALUE RECEIVED, the ISSUER promises to pay to
DOMINION CAPITAL FUND, LTD.
the registered holder hereof or its registered assigns, if any (the "HOLDER"),
the principal sum of:
Three Hundred Seventy Five Thousand
United States Dollars,
<PAGE>
on August 24, 2001 (the "Maturity Date"), and to pay interest, as outlined
below, at the rate of seven (7%) percent per annum on the principal sum
outstanding for the term of this Debenture. Accrual of interest shall commence
on the date hereof. Interest shall be payable by the ISSUER in cash, quarterly,
commencing on the first business day of the Company's next fiscal quarter
immediately following the Issuance Date, on that portion of the principal
amount of this Debenture which is then outstanding. The interest so payable
will be paid to the person in whose name this Debenture (or one or more
predecessor Debentures) is registered on the records of the ISSUER regarding
registration and transfers of the Debenture (the "Debenture Register"),
provided, however, that the ISSUER'S obligation to a transferee of this
Debenture arises only if such transfer, sale or other disposition is made in
accordance with the terms and conditions contained in the Agreement. The
principal of this Debenture is payable as provided below in shares of Common
Stock at any time prior to the Maturity Date upon the HOLDER exercising its
conversion rights set forth below. In the event this Debenture is outstanding
on the Maturity Date it shall automatically be converted into freely tradable
shares of Common Stock as if the HOLDER voluntarily elected such conversion in
accordance with the procedures, terms and conditions set forth in this
Debenture provided, that (i) the Common Stock is listed on the OTC Bulletin
Board or Nasdaq Small Cap Stock Market, (ii) the Bid Price is greater than One
($1.00) Dollar for the ten (10) Trading Days immediately preceding the
Maturity Date, (iii) there has not been any suspension in the trading of the
Common Stock on the OTC Bulletin Board or Nasdaq Small Cap Stock Market during
the thirty (30) Trading Days immediately preceding the Maturity Date, and the
(iv) the ISSUER has been in full compliance with the terms and conditions of
this Debenture and the Agreement. In the event all of the aforementioned
conditions are not satisfied, or the ISSUER is not able to issue freely
tradable shares of Common Stock as described above, the ISSUER agrees to pay to
the HOLDER, in cash, within three (3) Trading Days of the Maturity Date, the
dollar value of the number of shares of Common Stock issuable to the HOLDER as
if the HOLDER had exercised its conversion rights on the Maturity Date,
multiplied by the closing bid price of the Common Stock on the Maturity Date.
Principal and interest are payable at the address last appearing on the
Debenture Register as designated in writing by the HOLDER hereof from time to
time.
The Debenture is subject to the following additional provisions:
1. Subject to the restrictions on transferability set forth herein
and in the Agreement, the Debenture is exchangeable for like Debentures in
equal aggregate principal amount of authorized denominations, as requested by
the HOLDER surrendering the same. No service charge will be made for such
registration or transfer or exchange, although the HOLDER shall be responsible
for their own expenses associated with complying with the restrictions on
transfer of the Debenture in the Agreement.
2. The ISSUER shall be entitled to withhold from all payments of
principal of this Debenture any amounts required to be withheld under the
applicable provisions of the U.S. Internal Revenue Code of 1986, as amended, or
other applicable laws at the time of such payments.
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<PAGE>
3. This Debenture has been issued subject to investment
representations of the original HOLDER hereof and may be transferred or
exchanged in the United States only in compliance with the 1933 Act and
applicable state securities laws and in compliance with the restrictions on
transfer provided in the Agreement. Prior to the due presentment for such
transfer of this Debenture, the ISSUER and any agent of the ISSUER may treat
the person in whose name this Debenture is duly registered on the Debenture
Register as the owner hereof for the purpose of receiving payment as herein
provided and all other purposes, whether or not this Debenture is overdue, and
neither the ISSUER nor any such agent shall be affected by notice to the
contrary. The transferee shall be bound, as the original HOLDER by the same
representations and terms described herein and under the Agreement.
4. At any time after the two hundred fortieth (240th) day from the
Issuance Date, the HOLDER is entitled, at its option, to convert this
Debenture, in whole or in part, in accordance with the following terms and
conditions:
(a) The HOLDER may exercise its right to convert the Debenture by
telecopying an executed and completed notice of conversion (the "Notice of
Conversion") to the ISSUER and delivering the original Notice of Conversion and
the original Debenture to the ISSUER by express courier. Each business date on
which a Notice of Conversion is telecopied to and received by the ISSUER in
accordance with the provisions hereof shall be deemed a "Conversion Date". The
ISSUER will transmit the certificates representing shares of Common Stock
issuable upon conversion of the Debenture (together with the certificates
representing the Debenture not so converted) to the HOLDER via express courier,
by electronic transfer or otherwise within six business days after the
Conversion Date if the ISSUER has received the original Notice of Conversion
and Debenture being so converted by such date. In addition to any other
remedies which may be available to the HOLDER, in the event that the ISSUER
fails to effect delivery of such shares of Common Stock within such six
business day period, the HOLDER will be entitled to revoke the Notice of
Conversion by delivering a notice to such effect to the ISSUER whereupon the
ISSUER and the HOLDER shall each be restored to their respective positions
immediately prior to delivery of the Notice of Conversion. The Notice of
Conversion and Debenture representing the portion of the Debenture converted
shall be delivered as follows:
To the ISSUER:
INTERIORS INC.
320 Washington Street
Mount Vernon, New York 10553
Attn: Max Munn, President
Facsimile: (914) 665-5469
Telephone: (914) 665-5400
In the event that the Common Stock issuable upon conversion of the
Debenture is not delivered, within six (6) business days of receipt by the
ISSUER of a valid Notice of Conversion and the Debenture to be converted, the
ISSUER shall pay to the HOLDER, in
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<PAGE>
immediately available funds, upon demand, as liquidated damages for such
failure and not as a penalty, for each $100,000 principal amount of Debenture
sought to be converted, $500 for each of the first ten (10) days and $1,000
per day thereafter that the shares of Common Stock are not delivered, which
liquidated damages shall run from the seventh business day after the Conversion
Date up until the time that either the Conversion Notice is revoked or the
Common Stock is delivered, at which time such liquidated damages shall cease.
Any and all payments required pursuant to this paragraph shall be payable only
in cash immediately and shall not be in addition to the liquidated damages set
forth in Section 4(ii) of the Agreement.
(b) Each Debenture shall be convertible, at the sole option of the
HOLDER, into that number of shares of fully paid and nonassessable shares of
Common Stock which is to be derived from dividing the Conversion Amount by the
Conversion Price. For purposes of this Debenture, the Conversion Amount shall
mean the principal dollar amount of the Debenture being converted plus all
accrued and unpaid interest attributable to the Debenture being converted as of
the Conversion Date. The Conversion Price shall be equal to the lesser of: (i)
eighty (80%) percent of the average closing bid price of the Common Stock
during the three day trading period immediately preceding the Conversion Date,
or (ii) US$2.10. The closing bid price shall be deemed to be the reported last
bid price regular way as reported by Bloomberg LP or if unavailable, on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading, or if the Common Stock is not listed or admitted to
trading on any national securities exchange, the closing bid price as reported
by NASDAQ or such other system then in use, or, if the Common Stock is not
quoted by any such organization, the closing bid price in the over-the-counter
market as furnished by the principal national securities exchange on which the
Common Stock is traded. Notwithstanding anything in this Debenture to the
contrary, the ability of Holder to convert this Debenture shall be restricted
as set forth in Sections 9.1 and 9.2 of the Agreement provided the Company
complies with these sections and pays the Economic Benefit.
(c) The number of shares of Common Stock issuable upon the
conversion of the Debenture and the Conversion Price shall be subject to
adjustment as follows:
(i) In case the ISSUER shall (A) pay a dividend on Common
Stock in Common Stock or securities convertible into, exchangeable for or
otherwise entitling a holder thereof to receive Common Stock, (B) declare a
dividend payable in cash on its Common Stock and at substantially the same time
offer its shareholder a right to purchase new Common Stock (or securities
convertible into, exchangeable for or otherwise entitling a holder thereof to
receive Common Stock) from proceeds of such dividend (all Common Stock so
issued shall be deemed to have been issued as a stock dividend), (C) subdivide
its outstanding shares of Common Stock into a greater number of shares of
Common Stock, (D) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock, or (E) issue by reclassification of its
Common Stock any shares of Common Stock of the ISSUER, the number of shares of
Common Stock issuable upon conversion of the Debenture immediately prior
thereto shall be adjusted so that the holders of the Debenture shall be
entitled to receive after the happening of any of the events described above
that number and kind of shares as the holders would have received had such
Debenture been converted immediately prior to the happening of
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such event or any record date with respect thereto. Any adjustment made
pursuant to this subdivision shall become effective immediately after the close
of business on the record date in the case of a stock dividend and shall become
effective immediately after the close of business on the record date in the
case of a stock split, subdivision, combination or reclassification.
(ii) Any adjustment in the numbers of shares of Common Stock
issuable hereunder otherwise required to be made by this paragraph 4(c) will
not have to be made if such adjustment would not require an increase or
decrease in one (1%) percent or more in the number of shares of Common Stock
issuable upon conversion of the Debenture.
(iii) Whenever the number of shares of Common Stock issuable
upon the conversion of the Debenture is adjusted, as herein provided, the
Conversion Price shall be adjusted (to the nearest cent) by multiplying such
Conversion Price immediately prior to such adjustment by a fraction of which
the numerator shall be the number of shares of Common Stock issuable upon the
exercise of each share of Debenture immediately prior to such adjustment, and
of which the denominator shall be the number of shares of Common Stock issuable
immediately thereafter.
(d) In the case of any (i) consolidation or merger of the ISSUER
into any entity (other than a consolidation or merger that does not result in
any reclassification, conversion, exchange or cancellation of outstanding
shares of Common Stock of the ISSUER), (ii) sale, transfer, lease or conveyance
of all or substantially all of the assets of the ISSUER as an entirety or
substantially as an entirety, or (iii) reclassification, capital reorganization
or change of the Common Stock (other than solely a change in par value, or from
par value to no par value), in each case as a result of which shares of Common
Stock shall be converted into the right to receive stock, securities or other
property (including cash or any combination thereof), each holder of a
Debenture then outstanding shall have the right thereafter to convert such
Debenture only into the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale, transfer, capital
reorganization or reclassification by a holder of the number of shares of
Common Stock of the ISSUER into which such Debenture would have been converted
immediately prior to such consolidation, merger, sale, transfer, capital
reorganization or reclassification, assuming such holder of Common Stock of the
ISSUER (A) is not an entity with which the ISSUER consolidated or into which
such sale or transfer was made, as the case may be ("constituent entity"), or
an affiliate of the constituent entity, and (B) failed to exercise his or her
rights of election, if any, as to the kind or amount of securities, cash and
other property receivable upon such consolidation, merger, sale or transfer
(provided that if the kind or amount of securities, cash or other property
receivable upon such consolidation, merger, sale or transfer is not the same
for each share of Common Stock of the ISSUER held immediately prior to such
consolidation, merger, sale or transfer by other than a constituent entity or
an affiliate thereof and in respect of which the ISSUER merged into the ISSUER
or to which such rights or election shall not have been exercised
("non-electing share"), then for the purpose of this Section (4)(d) the kind
and amount of securities, cash or other property receivable upon such
consolidation, merger, sale or transfer by each non-electing share shall be
deemed to be the kind and amount so receivable per share by a majority of the
non-electing shares). If necessary, appropriate adjustment shall be made in the
application of the provision set forth herein with respect to the
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rights and interest thereafter of the HOLDER, to the end that the provisions
set forth herein shall thereafter correspondingly be made applicable, as nearly
as may reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the conversion of the Debenture. The above
provisions shall similarly apply to successive consolidations, mergers, sales,
transfers, capital reorganizations and reclassifications. The ISSUER shall not
effect any such consolidation, merger, sale or transfer unless prior to or
simultaneously with the consummation thereof the successor ISSUER or entity (if
other than the ISSUER) resulting from such consolidation, merger, sale or
transfer shall assume, by written instrument, the obligation to deliver to the
HOLDER such shares of Common Stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to receive under this
paragraph.
(e) The ISSUER will not, by amendment of its Certificate of
Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the ISSUER, but will
at all times in good faith assist in the carrying out of all the provisions of
this paragraph and in taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the HOLDERS against
impairment.
5. First Redemption Prior to 240 Days Following Issuance Date. At
any time prior to the two hundred fortieth (240th) day following the Issuance
Date the Issuer shall be entitled to redeem all or any portion of the
outstanding Debenture in cash pursuant to the following procedures and at the
First Redemption Price hereinafter provided by providing seven (7) business
days prior written notice (the "First Redemption Notice") to the HOLDER:
(a) The First Redemption Notice shall set forth (i) the First
Redemption Date which shall be ten (10) trading days after the First Redemption
Notice Date, (ii) the First Redemption Price which shall equal the Purchase
Price of that portion of the Debenture being redeemed plus all accrued interest
attributable to that portion of the Debenture being redeemed, (iii) a statement
that interest on that portion of the Debenture being redeemed will cease to
accrue on such First Redemption Date, and (iv) a statement of or reference to
the conversion right set forth in this Debenture (including that the right to
give a notice of conversion in respect of any shares to be redeemed shall
terminate on the First Redemption Date). The First Redemption Notice shall be
irrevocable, and it shall be mailed, postage prepaid, at least ten (10)
business days prior to the First Redemption Date to the HOLDER at their address
as the same shall appear on the books of the Company. If fewer than all of the
principal amount of the Debentures owned by the HOLDER are then to be redeemed,
the notice shall specify the amount thereof that is to be redeemed and, if
practicable, the numbers of the certificates representing such Debenture.
(b) Immediately following the First Redemption Date, the HOLDER
shall surrender their original Debenture at the office of the ISSUER, and the
ISSUER shall issue to the HOLDER a new Debenture Certificate for the principal
amount that remains outstanding, if any.
(c) The ISSUER shall not be entitled to send any First Redemption
Notice and begin the First redemption procedure hereunder unless it has:
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(i) the full amount of the First Redemption Price in cash,
available in a demand or other immediately available account in a bank
or similar financial institution;
(ii) immediately available credit facilities, in the full
amount of the First Redemption Price with a bank or similar financial
institution; or
(iii) a combination of the items set forth in (i) and (ii)
above, aggregating the full amount of the First Redemption Price.
(d) In the event the ISSUER fails to make payment pursuant to the
First Redemption Notice on the First Redemption Date or otherwise fails to
comply with the Redemption provisions set forth herein, the First Redemption
and First Redemption Notice shall be deemed null and void and the ISSUER shall
lose any and all further redemption privileges and rights.
6. Second Redemption Subsequent to 240 Days Following Issuance
Date. At any time after the two hundred fortieth (240th) day following the
Issuance Date the ISSUER shall be entitled to redeem all or any portion of the
outstanding Debenture in cash pursuant to the following procedures and at the
Second Redemption Price hereinafter provided by providing and the HOLDER
receiving, twenty (20) calendar days prior written notice (the "Second
Redemption Notice").
(a) The Second Redemption Notice shall set forth (i) the Second
Redemption Date which shall be twenty (20) calendar days after the Second
Redemption Notice Date, (ii) the Second Redemption Price which shall equal that
portion of the Purchase Price of the Debenture being redeemed, plus all accrued
interest attributable to that portion of the Debenture being Redeemed, plus a
premium calculated on a daily pro rata basis equal to ten percent (10%) of the
principal amount of that portion of the Debenture being redeemed for the first
thirty (30) day period following the two hundred fortieth (240th) day after the
Issuance Date plus an additional two percent (2%) of the principal amount of
the Debenture being redeemed for each thirty (30) day period following the two
hundred seventieth (270th) day after the Issuance Date and ending on the Second
Redemption Notice Date, (iii) a statement that interest on that portion of the
Debenture being redeemed will cease to accrue on such Second Redemption Date.
The Second Redemption Notice shall be irrevocable, and it shall be mailed,
postage prepaid, at least twenty (20) calendar days prior to the Second
Redemption Date to the HOLDER at their address as the same shall appear on the
books of the Company (the date of such mailing being the "Second Redemption
Notice Date"). If fewer than all of the principal amount of the Debentures
owned by the HOLDER are then to be Redeemed, the notice shall specify the
amount thereof that is to be redeemed and, if practicable, the numbers of the
certificates representing such Debenture.
(b) Immediately following the Second Redemption Date, the HOLDER
shall surrender their original Debenture at the office of the ISSUER, and the
ISSUER shall issue to the HOLDER a new Debenture Certificate for the principal
amount that remains outstanding, if any.
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(c) The ISSUER shall not be entitled to send any Second Redemption
Notice and begin the redemption procedure hereunder unless it has:
(i) the full amount of the Second Redemption Price in cash,
available in a demand or other immediately available account in a bank
or similar financial institution;
(ii) immediately available credit facilities, in the full
amount of the Second Redemption Price with a bank or similar financial
institution; or
(iii) a combination of the items set forth in (i) and (ii)
above, aggregating the full amount of the Second Redemption Price.
(d) In the event the ISSUER fails to make payment pursuant to the
Second Redemption Notice on the Second Redemption Date or otherwise fails to
comply with the Redemption provisions set forth herein, the Second Redemption
and Second Redemption Notice shall be deemed null and void and the ISSUER shall
lose any and all further redemption privileges and rights.
(e) Notwithstanding the above, at any time prior to the Second
Redemption Date the HOLDER is entitled, at its option, to convert the
Debentures being noticed for redemption, in whole or in part in accordance with
the terms and conditions set forth above in Section 4.
7. No provision of this Debenture shall alter or impair the
obligation of the ISSUER, which is absolute and unconditional, upon an Event of
Default (as defined below), to pay the principal of, and interest on this
Debenture at the place, time, and rate, and in the coin or currency herein
prescribed.
8. The ISSUER hereby expressly waives demand and presentment for
payment, notice on nonpayment, protest, notice of protest, notice of dishonor,
notice of acceleration or intent to accelerate, and diligence in taking any
action to collect amounts called for hereunder and shall be directly and
primarily liable for the payment of all sums owing and to be owing hereon,
regardless of and without any notice, diligence, act or omission as or with
respect to the collection of any amount called for hereunder.
9. If one or more of the following described "Events of Default"
shall occur,
(a) Any of the representations or warranties made by the ISSUER
herein, or in the Agreement shall have been incorrect when made in any material
respect; or
(b) The ISSUER shall fail to perform or observe in any material
respect any covenant, term, provision, condition, agreement or obligation of
the ISSUER under this
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Debenture, the Registration Rights Agreement and the Agreement, between the
parties of even date herewith, which shall remain uncured for five business
days after notice hereof; or
(c) A trustee, liquidator or receiver shall be appointed for the
ISSUER or for a substantial part of its property or business without its
consent and shall not be discharged within thirty (30) days after such
appointment; or
(d) Any governmental agency or any court of competent jurisdiction
at the instance of any governmental agency shall assume custody or control of
the whole or any substantial portion of the properties or assets of the ISSUER
and shall not be dismissed within thirty (30) calendar days thereafter; or
(e) Bankruptcy reorganization, Insolvency or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the ISSUER and, if
instituted against the ISSUER, ISSUER shall by any action or answer approve of,
consent to or acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in any such proceeding
or such proceedings shall not be dismissed within thirty (30) days thereafter;
or
(f) The Common Stock is delisted from trading on the NASDAQ Small
Cap Stock Market (except pursuant to section 9.2 of the Agreement), or the
Company has received notice concerning delisting from the NASDAQ Small Cap
Stock Market.
(g) The effectiveness of the Registration Statement has been
suspended for a period of ten (10) Trading Days.
Then, or at any time thereafter, and in each and every such case,
unless such Event of Default shall have been waived in writing by the HOLDER
(which waiver shall not be deemed to be a waiver of any subsequent default) at
the option of the HOLDER and in the HOLDER'S sole discretion, the HOLDER may
consider this Debenture immediately due and payable in cash, (at the equivalent
dollar value of the number of shares of Common Stock issuable upon conversion
(assuming a Conversion Date as of the date of such notice from the HOLDER)
times the Bid Price on the Trading Day immediately preceding such notice from
the HOLDER, without presentment, demand protest or notice of any kind, all of
which are hereby expressly waived, anything herein or in any note or other
instruments contained to the contrary notwithstanding, and HOLDER may
immediately, and without expiration of any period of grace, enforce any and all
of the HOLDER'S rights and remedies provided herein or any other rights or
remedies afforded by law. It is agreed that in the event of such action, such
HOLDER shall be entitled to receive all reasonable fees, costs and expenses
incurred, including without limitation such reasonable fees and expenses of
attorneys (if litigation is commenced).
10. In case any provision of this Debenture is held by a court of
competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if
possible, so that it is enforceable to the maximum extent
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possible, and the validity and enforceability of the remaining provisions of
this Debenture will not in any way be affected or impaired thereby.
11. In addition to the terms of the Registration Rights Agreement
of even date herewith, the HOLDER shall have the right to include all of the
shares of Common Stock underlying this Debenture (the "Registrable Securities")
as part of any registration of securities filed by the ISSUER (other than in
connection with a transaction contemplated by Rule 145(a) promulgated under the
Act or pursuant to Form S-8, or the financing arrangement presently under
review with Cruttenden Roth Incorporated or any substitute entity for a
transaction therefor and having substantially the same terms) and must be
notified in writing of such filing; provided, however, that the HOLDER agrees
it shall not have any piggy-back registration rights pursuant to this Debenture
if the shares of Common Stock underlying this Debenture may be sold in the
United States pursuant to the provisions of Rule 144. HOLDER shall have five
(5) business days to notify the ISSUER in writing as to whether the ISSUER is
to include HOLDER or not include HOLDER as part of the registration; provided,
however, that if any registration pursuant to this Section shall be
underwritten, in whole or in part, the Company may require that the Registrable
Securities requested for inclusion pursuant to this Section be included in the
underwriting on the same terms and conditions as the securities otherwise being
sold through the underwriters. If in the good faith judgment of the underwriter
evidenced in writing of such offering only a limited number of Registrable
Securities should be included in such offering, or no such shares should be
included, the HOLDER, and all other selling stockholders, shall be limited to
registering such proportion of their respective shares as shall equal the
proportion that the number of shares of selling stockholders permitted to be
registered by the underwriter in such offering bears to the total number of all
shares then held by all selling stockholders desiring to participate in such
offering. Those Registrable Securities which are excluded from an underwritten
offering pursuant to the foregoing provisions of this Section (and all other
Registrable Securities held by the selling stockholders) shall be withheld from
the market by the HOLDERS thereof for a period, not to exceed one hundred
eighty (180) days, which the underwriter may reasonably determine is necessary
in order to effect such underwritten offering. The ISSUER shall have the right
to terminate or withdraw any registration initiated by it under this Agreement
prior to the effectiveness of such registration whether or not any Debenture
holder elected to include securities in such registration. All registration
expenses incurred by the ISSUER in complying with this Agreement shall be paid
by the ISSUER, exclusive of underwriting discounts, commissions and legal fees
and expenses for counsel to the HOLDERS of this Debenture.
12. This Debenture and the Agreement (along with all exhibits
attached thereto) constitute the full and entire understanding and agreement
between the ISSUER and HOLDER with respect hereto. Neither this Debenture nor
any terms hereof may be amended, waived, discharged or terminated other than by
a written instrument signed by the ISSUER and the HOLDER. Any capitalized terms
shall have the same meaning as given in the Agreement. In the event of any
inconsistencies between this Debenture and the Agreement, the Agreement shall
control.
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13. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York.
14. This Debenture, together with all documents referenced herein,
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersedes all prior oral or written
agreements and understandings relating to the subject matter hereof. No
statement, representation, warranty, covenant or agreement of any kind not
expressly set forth in this Debenture or the Agreement shall affect, or be used
to interpret, change or restrict, the express terms and provisions of this
Debenture.
[Remainder of page intentionally left blank]
[Signature Page Follows]
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IN WITNESS WHEREOF, the ISSUER has caused this Debenture to be
duly executed by an officer thereunto duly authorized.
INTERIORS INC.
By /s/ Max Munn
---------------------------------------
Name: Max Munn
Title: President
Date: August 25, 1998
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of the 25th day of
August, 1998, among the entities listed on Schedule A (collectively referred to
as the "Holders"), the placement agent (hereinafter also referred to as the
"Holders") and INTERIORS INC., a corporation incorporated under the laws of the
state of Delaware, and having its principle place of business at 320 Washington
Street, Mount Vernon, New York 10553 (the "Company").
WHEREAS, the Investors are purchasing from the Company, pursuant to
a 7% Convertible Debenture Subscription Agreement dated the date hereof (the
"Subscription Agreement"), an aggregate of Seven Hundred and Fifty Thousand
($750,000) Dollars principal amount of the Company's 7% Convertible Debenture,
and Warrants to purchase Three Hundred Seventy Five Thousand (375,000) shares
of the Company's Common Stock; and
WHEREAS, the Company desires to grant to the Holders the
registration rights set forth herein with respect to the underlying shares of
Common Stock convertible under the Debenture (the "Underlying Shares") where
applicable, and the registration rights set forth herein with respect to the
shares of Common Stock underlying the Warrants (the "Warrant Shares")
(collectively hereinafter referred to as the "Stock" or "Securities" of the
Company). All capitalized terms not defined herein shall have the same meaning
as set forth in the Subscription Agreement.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
"Registrable Security" means the Securities; provided, however, that with
respect to any particular Registrable Security, such security shall cease to be
a Registrable Security when, as of the date of determination, (i) it has been
effectively registered under the Securities Act of 1933, as amended (the "1933
Act") and disposed of pursuant thereto, (ii) registration under the 1933 Act is
no longer required for the immediate public distribution of such security as a
result of the provisions of Rule 144 promulgated under the 1933 Act, or (iii)
it has ceased to be outstanding. The term "Registrable Securities" means any
and/or all of the securities falling within the foregoing definition of a
"Registrable Security." In the event of any merger, reorganization,
consolidation, recapitalization or other change in corporate structure affecting
the Common Stock, such adjustment shall be made in the definition of
"Registrable Security" as is appropriate in order to prevent any dilution or
enlargement of the rights granted pursuant to this Section 1.
Section 2. Restrictions on Transfer. The Holders acknowledge and
understand that prior to the registration of the Securities as provided herein,
the Securities are "restricted securities" as defined in Rule 144 promulgated
under the Act. The Holders understand that no disposition or transfer of the
Securities may be made by the Holders in the absence of (i) an opinion of
counsel to the Holders that such transfer may be made without registration
under the 1933 Act or (ii) such registration.
<PAGE>
Section 3. Registration Rights.
--------------------
(a) The Company agrees that it will use its best efforts to
prepare and file with the Securities and Exchange Commission ("Commission"),
within forty-five (45) days after the Closing Date, a registration statement
which shall cover the underlying shares and warrant shares (on Form S-3) under
the 1933 Act (the "Registration Statement"), at the sole expense of the Company
(except as provided in Section 3(c) hereof), in respect of all holders of
Registrable Securities, so as to permit a resale of the Registrable Securities
under the Act. The Company shall use its best efforts to cause the Registration
Statement that the Company is required to file to become effective within one
hundred five (105) days from the Closing Date. The number of shares designated
in the Registration Statement or any amendment thereto, to be registered, shall
be two hundred (200%) percent of the number of Securities that would be
required if all the Registrable Securities were issued on the day before the
filing of the Registration Statement.
(b) The Company will maintain the effectiveness the
Registration Statement or post-effective amendment filed under this Section 3
hereof current under the 1933 Act until the earlier of (i) the date that all of
the Registrable Securities have been sold pursuant to the Registration
Statement, (ii) the date the holders thereof receive an opinion of counsel that
all of the Registrable Securities may be sold under the provisions of Rule 144
or (iii) five years after the Issuance Date.
(c) All fees, disbursements and out-of-pocket expenses and
costs incurred by the Company in connection with the preparation and filing of
the Registration Statement and the amendment under subparagraph 3(a) and in
complying with applicable securities and Blue Sky laws (including, without
limitation, all attorneys' fees) shall be borne by the Company. The Holder
shall bear the cost of underwriting discounts and commissions, if any,
applicable to the Registrable Securities being registered and the fees and
expenses of its counsel. The Company shall qualify any of the securities for
sale in such states as such Holder reasonably designates and shall furnish
indemnification in the manner provided in Section 6 hereof. However, the
Company shall not be required to qualify any of the securities for sale in any
state which will require an escrow or other restriction relating to the Company
and/or the sellers. The Company at its expense will supply the Holder with
copies of the Registration Statement and the prospectus or offering circular
included therein and other related documents in such quantities as may be
reasonably requested by the Holders.
(d) The Company shall not be required by this Section 3 to
include a Holder's Registrable Securities in any Registration Statement which
is to be filed if, in the opinion of counsel for both the Holders and the
Company (or, should they not agree, in the opinion of another counsel
experienced in securities law matters acceptable to counsel for the Holders and
the Company) the proposed offering or other transfer as to which such
registration is requested is exempt from applicable federal and state
securities laws and would result in all Investors or transferees obtaining
securities which are not "restricted securities", as defined in Rule 144 under
the 1933 Act.
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(e) In the event the Registration Statement to be filed by
the Company pursuant to Section 3(a) above is not filed with the Commission
within forty-five (45) days from the Closing Date and/or the Registration
Statement is not declared effective by the Commission within one hundred five
(105) days from the Closing Date, then the Company will pay Holder (pro rated
on a daily basis), as liquidated damages for such failure and not as a penalty,
two (2%) percent of the Purchase Price of the then outstanding Securities for
the first thirty (30) day period that such filing and/or effectiveness is
delayed, and three (3%) percent of the Purchase Price of the then outstanding
Securities for every thirty (30) days thereafter until the Registration
Statement has been filed and/or declared effective. Such payment of the
liquidated damages shall be made to the Holder in cash, immediately upon
demand, provided, however, that the payment of such liquidated damages shall
not relieve the Company from its obligations to register the Securities
pursuant to this Section.
If the Company does not remit the damages to the Holders as
set forth above, the Company will pay the Holders' reasonable costs of
collection, including attorneys' fees, in addition to the liquidated damages.
The registration of the Securities pursuant to this provision shall not affect
or limit Holders' other rights or remedies as set forth in this Agreement.
(f) No provision contained herein shall preclude the Company
from selling securities pursuant to any Registration Statement in which it is
required to include Registrable Securities pursuant to this Section 3.
(g) If at any time or from time to time after the effective
date of the Registration Statement, the Company notifies the Holders in writing
of the existence of a Potential Material Event (as defined in Section 3(h)
below), the Holders shall not offer or sell any Registrable Securities or
engage in any other transaction involving or relating to Registrable
Securities, from the time of the giving of notice with respect to a Potential
Material Event until such Holder receives written notice from the Company that
such Potential Material Event either has been disclosed to the public or no
longer constitutes a Potential Material Event; provided, however, that the
Company may not so suspend the right to such holders of Securities for more
than two (2) twenty (20) day periods in the aggregate during any twelve month
period, during the periods the Registration Statement is required to be in
effect. If a Potential Material Event shall occur prior to the date the
Registration Statement is filed, then the Company's obligation to file the
Registration Statement shall be delayed without penalty for not more than two
(2) twenty (20) day periods. The Company must give each Holder notice in
writing at least two (2) business days prior to the first day of the blackout
period.
(h) "Potential Material Event" means any of the following:
(a) the possession by the Company of material information not ripe for
disclosure in a registration statement; or (b) any material engagement or
activity by the Company which would be adversely affected by disclosure in a
registration statement at such time, that the Registration Statement would be
materially misleading absent the inclusion of such information.
Section 4. Cooperation with Company. Holders will cooperate with
the Company in all respects in connection with this Agreement, including timely
supplying all
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information reasonably requested by the Company and executing and returning all
documents reasonably requested in connection with the registration and sale of
the Registrable Securities.
Section 5. Registration Procedures. If and whenever the Company is
required by any of the provisions of this Agreement to effect the registration
of any of the Registrable Securities under the Act, the Company shall (except
as otherwise provided in this Agreement), as expeditiously as possible:
(a) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the time period specified in Section 3(b) hereof and to comply with the
provisions of the Act with respect to the sale or other disposition of all
securities covered by such registration statement whenever the Holder of such
securities shall desire to sell or otherwise dispose of the same (including
prospectus supplements with respect to the sales of securities from time to
time in connection with a registration statement pursuant to Rule 415
promulgated under the Act);
(b) furnish to each Holder such numbers of copies of a
summary prospectus or other prospectus, including a preliminary prospectus or
any amendment or supplement to any prospectus, in conformity with the
requirements of the Act, and such other documents, as such Holder may
reasonably request in order to facilitate the public sale or other disposition
of the securities owned by such Holder;
(c) register and qualify the securities covered by the
Registration Statement under such other securities or blue sky laws of such
jurisdictions as the Holders shall reasonably request (subject to the
limitations set forth in Section 3(d) above), and do any and all other acts and
things which may be necessary or advisable to enable each Holder to consummate
the public sale or other disposition in such jurisdiction of the securities
owned by such Holder, except that the Company shall not for any such purpose be
required to qualify to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified or to file therein any general consent to
service of process;
(d) list such securities on the OTC Bulletin Board or NASDAQ
Small Cap Stock Market or other national securities exchange on which any
securities of the Company are then listed, if the listing of such securities is
then permitted under the rules of such exchange or NASDAQ;
(e) notify each Holder of Registrable Securities covered by
the Registration Statement, at any time when a prospectus relating thereto
covered by the Registration Statement is required to be delivered under the
Act, of the happening of any event of which it has knowledge as a result of
which the prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing.
4
<PAGE>
Section 6. Indemnification.
----------------
(a) The Company agrees to indemnify and hold harmless the
Holders, and each officer, director or person, if any, who controls each Holder
within the meaning of the 1933 Act ("Distributing Holder") against any losses,
claims, damages or liabilities, joint or several (which shall, for all purposes
of this Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees), to which the Distributing Holder may
become subject, under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, or any related preliminary
prospectus, final prospectus, offering circular, notification or amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however,
that the Company (i) will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto in reliance upon, and
in conformity with, written information furnished to the Company by the
Distributing Holder, specifically for use in the preparation thereof, or (ii)
cannot pay any amounts paid in settlement of any loss, claim, damage or
liability if such settlement is effected without the consent of the Company,
which consent shall not be unreasonably withheld. This Section 6(a) shall not
inure to the benefit of any Distributing Holder with respect to any person
asserting such loss, claim, damage or liability who purchased the Registrable
Securities which are the subject thereof if the Distributing Holder failed to
send or give (in violation of the 1933 Act or the rules and regulations
promulgated thereunder) a copy of the prospectus contained in such Registration
Statement to such person at or prior to the written confirmation of such person
of the sale of such Registrable Securities, where the Distributing Holder was
obligated to do so under the 1933 Act or the rules and regulations promulgated
thereunder. This indemnity provision will be in addition to any liability which
the Company may otherwise have.
(b) Each Distributing Holder agrees that it will indemnify
and hold harmless the Company, and each officer, director, or person, if any,
who controls the Company within the meaning of the 1933 Act, against any
losses, claims, damages or liabilities (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees) to which the Company or any such
officer, director or controlling person may become subject under the 1933 Act
or otherwise, insofar as such losses claims, damages or liabilities (or actions
in respect thereof); arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, or any related preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto, or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but in each case only to the extent that such untrue statement
or alleged untrue statement or omission or alleged omission was made in the
Registration Statement, preliminary prospectus, final prospectus, offering
circular, notification or
5
<PAGE>
amendment or supplement thereto in reliance upon, and in conformity with,
written information furnished to the Company by such Distributing Holder,
specifically for use in the preparation thereof. This indemnity provision will
be in addition to any liability which the Distributing Holder may otherwise
have.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 6, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
the indemnifying party from any liability which it may have to any indemnified
party otherwise than as to the particular item as to which indemnification is
then being sought solely pursuant to this Section 6. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, assume the defense thereof, subject to
the provisions herein stated and after notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation, unless the indemnifying party shall not pursue the
action to its final conclusion. The indemnified party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the expense
of the indemnifying party if the indemnifying party has assumed the defense of
the action with counsel reasonably satisfactory to the indemnified party;
provided that if the indemnified party is the Distributing Holder, the fees and
expenses of such counsel shall be at the expense of the indemnifying party if
(i) the employment of such counsel has been specifically authorized in writing
by the indemnifying party, or (ii) the named parties to any such action
(including any impleaded parties) include both the Distributing Holder and the
indemnifying party and the Distributing Holder shall have been advised by such
counsel that there may be one or more legal defenses available to the
indemnifying party different from or in conflict with any legal defenses which
may be available to the Distributing Holder (in which case the indemnifying
party shall not have the right to assume the defense of such action on behalf
of the Distributing Holder, it being understood, however, that the indemnifying
party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances, be liable only for the
reasonable fees and expenses of one separate firm of attorneys for the
Distributing Holder, which firm shall be designated in writing by the
Distributing Holder). No settlement of any action against an indemnified party
shall be made without the prior written consent of the indemnified party, which
consent shall not be unreasonably withheld.
Section 7. Contribution. In order to provide for just and equitable
contribution under the 1933 Act in any case in which (i) the indemnified party
makes a claim for indemnification pursuant to Section 6 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that the express provisions of Section 6 hereof
provide for
6
<PAGE>
indemnification in such case, or (ii) contribution under the 1933 Act may be
required on the part of any indemnified party, then the Company and the
applicable Distributing Holder shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees), in either such case (after
contribution from others) on the basis of relative fault as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
the applicable Distributing Holder on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the Distributing Holder agree that
it would not be just and equitable if contribution pursuant to this Section 7
were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in this
Section 7. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this Section 7 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
Section 8. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile,
addressed as set forth below or to such other address as such party shall have
specified most recently by written notice. Any notice or other communication
required or permitted to be given hereunder shall be deemed effective (a) upon
hand delivery or delivery by facsimile, with accurate confirmation generated by
the transmitting facsimile machine, at the address or number designated below
(if delivered on a business day during normal business hours where such notice
is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by reputable courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
7
<PAGE>
If to INTERIORS INC.:
INTERIORS INC.
320 Washington Street
Mount Vernon, New York 10553
Attn: Max Munn, President
Facsimile: (914) 665-5469
Telephone: (914) 665-5400
If to the Holders at the addresses set forth on Schedule A attached
hereto.
Any party hereto may from time to time change its address or facsimile
number for notices under this Section by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
Section 9. Assignment. This Agreement is binding upon and inures to
the benefit of the parties hereto and their respective heirs, successors and
permitted assigns. The rights granted the Holders under this Agreement shall
not be assigned without the written consent of the Company, which consent shall
not be unreasonably withheld. In the event of a transfer of the rights granted
under this Agreement, the Holder agrees that the Company may require that the
transferee comply with reasonable conditions as determined in the discretion of
the Company.
Section 10. Counterparts; Facsimile; Amendments. This Agreement may
be executed in multiple counterparts, each of which may be executed by less
than all of the parties and shall be deemed to be an original instrument which
shall be enforceable against the parties actually executing such counterparts
and all of which together shall constitute one and the same instrument. Except
as otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 11. Termination of Registration Rights. The rights granted
pursuant to this Agreement shall terminate as to each Holder (and permitted
transferees or assignees) upon the occurrence of any of the following:
(a) all Holder's Securities subject to this Agreement have been
registered;
(b) all of such Holder's Securities subject to this Agreement may
be sold without such registration pursuant to Rule 144 promulgated by the SEC
pursuant to the Securities Act;
(c) all of such Holder's Securities subject to this Agreement can
be sold pursuant to Rule 144(k).
8
<PAGE>
Section 12. Headings. The headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 13. Governing Law: Venue; Jurisdiction. This Agreement will
be construed and enforced in accordance with and governed by the laws of the
State of New York, except for matters arising under the Act, without reference
to principles of conflicts of law. Each of the parties consents to the
jurisdiction of the U.S. District Court sitting in the Southern District of the
State of New York or the state courts of the State of New York in connection
with any dispute arising under this Agreement and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on forum
non conveniens, to the bringing of any such proceeding in such jurisdictions.
Each party hereby agrees that if another party to this Agreement obtains a
judgment against it in such a proceeding, the party which obtained such
judgment may enforce same by summary judgment in the courts of any country
having jurisdiction over the party against whom such judgment was obtained, and
each party hereby waives any defenses available to it under local law and
agrees to the enforcement of such a judgment. Each party to this Agreement
irrevocably consents to the service of process in any such proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid, to
such party at its address set forth herein. Nothing herein shall affect the
right of any party to serve process in any other manner permitted by law.
Section 14. Severability. If any provision of this Agreement shall
for any reason be held invalid or unenforceable, such invalidity or
unenforceablity shall not affect any other provision hereof and this Agreement
shall be construed as if such invalid or unenforceable provision had never been
contained herein.
Section 15. Capitalized Terms. All capitalized terms not otherwise
defined herein shall have the meaning assigned to them in the 7% Convertible
Debenture Subscription Agreement.
Section 16. Entire Agreement. This Agreement, together with all
documents referenced herein, embody the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and
supersedes all prior oral or written agreements and understandings relating to
the subject matter hereof. No statement, representation, warranty, covenant or
agreement of any kind not expressly set forth in this Agreement shall affect,
or be used to interpret, change or restrict, the express terms and provisions
of this Agreement.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Registration Rights Agreement to be duly executed, on the day and year first
above written.
INTERIORS
By /s/ Max Munn
------------------------------------
Name: Max Munn
Title: President
SOVEREIGN PARTNERS L.P.
By
-----------------------------------
Name: Mark Valentine
Title:
DOMINION CAPITAL FUND, LTD
By
-----------------------------------
Name: Mark Valentine
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Registration Rights Agreement to be duly executed, on the day and year first
above written.
INTERIORS
By
------------------------------------
Name: Max Munn
Title: President
SOVEREIGN PARTNERS L.P.
By /s/ Mark Valentine
-----------------------------------
Name: Mark Valentine
Title: Agent
DOMINION CAPITAL FUND, LTD
By /s/ Mark Valentine
-----------------------------------
Name: Mark Valentine
Title: Agent
<PAGE>
EMPLOYMENT AGREEMENT made and entered into as of January 1, 1998 by
and between Interiors, Inc., ("Interiors") a Delaware corporation with an
office for the transaction of business in New York located at 320 Washington
Street Mount Vernon, New York 10553, ("Employer"), and Max Munn residing at 67
Tompkins Avenue, Hastings-on-Hudson, New York 10706 ("Employee").
WHEREAS, Employee has been employed by Interiors as its President,
Chief Executive Officer and as a member of its Board of Directors, and
WHEREAS, the parties wish to enter into an agreement for the
employment of the Employee by the Employer on the terms and conditions
specified below superseding other employment agreements between Employer and
Employee;
Now, therefore, it is mutually agreed as follows:
1. Employment. Employer hereby employs Employee as the President and
Chief Executive Officer of Interiors, and of such current and future
subsidiaries of Interiors for which Employee shall determine from time to time
to act in those capacities. Employee will report only to Employer's Board of
Directors, of which he is and will continue to be a member, and not to any
officer.
<PAGE>
2. Compensation. Employee will be paid as salary for his services
hereunder for the Employer, in any capacity during the term hereof, including
without limitation services as an executive, officer, or member of any
committee of the Employer or any subsidiary, affiliate of division hereof, at
the annual rate of $165,000. Employee's salary will be increased by ten percent
over the prior year cumulatively for each year of his employment hereunder.
Employee will also be paid such bonuses from time to time as may be
authorized by Employer's Board of Directors, and will be entitled to
participate in the Employers' pension, profit sharing and all other benefits
and plans as the Company provides to its senior executives.
3. Term. The term of this agreement shall be five years from the date
of this agreement. In the event that the Employer should breach this Agreement,
Employee's salary for the remaining balance of this Agreement will be
accelerated and will be due and payable on Employee's demand, in addition to
Employee's other remuneration and benefits or the value thereof, the provisions
of paragraph 8(b) of this Agreement relating to Employee's stock options shall
apply, and the Employee will not be obligated to reduce the sum of money he is
owed or paid by Employer by reason of any compensation which Employee may earn
after Employer's breach. Employee may be discharged only for
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<PAGE>
cause, which is deemed to be solely:(a) for a conviction of the Employee of a
felony for acts of dishonesty against Employer, not reversed by appeal, after
the expiration either of all appeals from the conviction or the time to take
such appeal or appeals if they are not taken, or (b) a determination by an
order or judgment of a court, not reversed by appeal, after the expiration of
all appeals, that Employee has refused, except for reasons of health or breach
by Employer, after written notice given by Employer's Board of Directors to
devote the time he is required to devote to Employer's business in accordance
with paragraph 4 of this Agreement. In the event that Employee will become ill
or disabled, he will nonetheless continue to be paid all of his remuneration
and benefits under this Agreement for a period of up to twelve months and he
will have the right resume his duties upon his recovery within such period of
time.
4. Duties. Employee will devote substantially all of his working time
and attention to Employer's business to the extent it will be necessary for him
to do so, subject to other activities which are similar or comparable to those:
(a) in which he is now engaged, or (b) becomes engaged in the future provided
that it will not interfere with his duties for the Employer.
5. Stock options. (a) Employer hereby grants to Employee options for
a period of 7 years from the date of this Agreement to purchase:(a) 250,000
shares, at 50 cents a Share, of
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<PAGE>
either, at Employee's discretion, Interiors, Inc.'s Class A Common
Stock or Class B Common Stock (all of the shares of stock of the
Company referred to in paragraph "5" of this Agreement are referred to
collectively the "Shares") plus; (b) an additional 150,000 Shares for each of
the second through fifth years of this Agreement (a total of 600,000 additional
shares) at 55 cents a Share for the second year, 61 cents a share for the third
year, 68 cents a share for the fourth year and 75 cents a Share for the fifth
year, plus (c) 150,000 shares of Employer's cumulative convertible preferred
stock at $2.50 a share. The options: (a) may be exercised in whole or in part
from the time or times they accrue through 7 years from the date of this
Agreement, and (b) they are assignable by Employee at any time prior to
exercise, by Employee's giving written notice of such assignment or assignments
to Employer. (The Employee's assignee or assignees shall have all of the same
rights with respect to the options and the Shares and their registration and
resale on or after exercise as the Employee.) The options granted hereunder are
subject to the maximum anti-dilution which Employer may grant Employee by law.
At Employee's discretion the options will be converted to options for shares of
stock of any entity with which Employer may merge or be consolidated or which
may acquire all or substantially all of Employer's assets.
The Employee shall have the right to convert, in whole or in part the
options (the "Conversion Right"), at any time from
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<PAGE>
time to time after Employee's right to options shall accrue, into Shares by
tendering to the Employer written notice or notices of exercise together with
advice of the delivery of an order to a broker to sell part or all of the
Shares, subject to such exercise notice and an irrevocable order to, and an
irrevocable commitment by, such broker to deliver to the Employer (or its
transfer agent) sufficient proceeds from the sale of such Shares to pay the
aggregate exercise price of the options and any withholding taxes. All
documentation and procedures to be followed in connection with such "cashless
exercise" shall be approved in advance by the Employer, which approval shall be
expeditiously provided and riot unreasonably withheld.
(b) The Employer agrees, at its sole cost and expense, that:
(i) Upon request of the Employee, the Employer shall file a registration
statement with the U.S. Securities & Exchange Commission (the "SEC") with
respect to registration of the Shares. Employee may make such request at any
time, or from time to time, after issuance of the options for the Shares.
(ii) If the Employer determines to file with the SEC a Registration Statement
in connection with the proposed issuance for cash of any of the Employer's
Common Stock (an "Employer Offering"), the Employer will give written or
telegraphic notice of its determination to Employee, at least twenty (20) days
prior to the anticipated filing date. Upon the written request of
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<PAGE>
Employee given within ten (10) days after the receipt of any such notice from
the Employer, the Employer will, subject to the limitations set forth below,
use its best efforts to cause such number of the Shares as are set specified in
such written request of Employee to be included in such registration statement
to the extent necessary, to permit the sale or other disposition by the
Employee of the Shares.
(iii) If the Employer's Registration Statement is proposed to be underwritten
in whole or in part, whether or not on a firm commitment or best efforts basis,
the Employee's shares shall be included at Employee's request on the same terms
and conditions as the Employer's Common Stock otherwise, being sold through the
underwriter(s), provided, however, that if in the opinion of the managing
underwriter(s) of such Employer Offering, the inclusion of the Securities would
interfere with the successful marketing of the Employer's Common Stock by the
Employer then the Employer and Employee shall reduce pro rata the amount of the
Shares to be included in the Employer Offering to the extent necessary to
comply with the recommendation of such managing underwriter(s) as to the
maximum number of shares to be registered.
(iv) If and whenever the Employer is required by this paragraph to effect the
registration of the Shares under the Securities Act, the Employer will use all
reasonable efforts to:
(a) Prepare and file with the Commission a registration statement with respect
to the Shares and to cause such registration
-6-
<PAGE>
statement to become effective at the earliest possible time and (by preparing
and filing with the Commission such amendments to such registration statement
and supplement to the prospectus contained therein as may be necessary) to
remain effective during the period required for the distribution of the Shares
covered by such registration statement;
(b) Enter into a written underwriting agreement in form and substance
reasonably satisfactory to the Employer and the managing underwriter(s) if an
Employer Offering is to be underwritten solely or in part, whether or not on a
Firm commitment or best efforts basis.
(c) Furnish to the Employee, in connection with an Employer Offering in which
the Employee is participating such reasonable number of copies of the
registration statement, preliminary prospectus, final prospectuses and other
documents as may reasonably be requested;
(d) Register or qualify the Shares under the securities or "blue sky" laws of
such jurisdictions Are within the United States as the Employer and the
managing underwriter(s) reasonably request, provided that the Employer shall
not be required to consent to general service of process for all purposes in
any jurisdiction where it is not then qualified to do business as a foreign
corporation;
(e) Notify the Employee promptly after the Employer shall receive notice
thereof, of the time when such registration statement has
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<PAGE>
become effective or a supplement to any prospectus forming a part of such
registration statement has been filed;
(f) Notify the Employee, during any period during which the Shares may be
distributed pursuant to a registered offering and a prospectus relating to such
registration statement is required to be delivered under the Securities Act of
the happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances then
existing, not misleading, and at the request of the Employee, prepare and
furnish to the Employee a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that as thereafter
delivered to the purchasers of such Shares. Such prospectus shall not include
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statement truthful in
light of the circumstances then existing, not misleading; and
(g) Furnish, at the request of the Employee, on the date that the Shares are
delivered to the underwriter(s) pursuant to an Underwritten Offering an
opinion, dated such date of the independent counsel representing the Employer
for the purposes of such registration, addressed to the underwriter(s) and to
the
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<PAGE>
Employee to the effect that such registration statement has become effective
under the Securities Act and that to the best knowledge of such counsel (A) no
stop order suspending the effectiveness thereof has been instituted or is
pending or contemplated under the Securities Act, (B) the registration
statement, the related prospectus, and each amendment or supplement thereto, as
of their respective effective or issue dates, compiled as to form in all
material respects with the requirements of the Securities Act and the
applicable rules and regulations of the Commission thereunder (except that such
counsel need express no opinion as to any statistical or other numerical data
or financial statements and notes related thereto contained therein); and (C)
in connection with the preparation of the registration statement, the related
prospectus and each amendment or supplement thereto no facts have come to the
attention of such counsel or that would lead such counsel to believe that
either the registration statement or the prospectus, or any amendment or
supplement thereto, as of their respective effective or issue dates, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statement therein in
light of the circumstances under which they were made, not misleading (except
that such counsel need express no opinion as to any statistical or other
numerical data or financial statements and the notes related thereto contained
therein), and
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<PAGE>
(ii) such counsel did not become aware of any pending legal or governmental
proceeding applying to the Employer which was not disclosed in the registration
statement or the prospectus, or any amendment or supplement thereto, which has
or might have a material adverse effect upon the business or financial
condition of the Employer, (iii) any other opinions that the underwriters may
reasonably request, and (iv) a letter, dated such date, from the independent
public accountants of the Employer, addressed to the Underwriter(s) and to the
Employee, stating that they are Independent public accountants within the
meaning of the Securities Act and the rules and regulations of the Commission
thereunder and that in the opinion of such accountants, the financial
statements and other financial data of the Employer included in the
registration statement or the prospectus, or any amendment or supplement
thereto, as of their respective effective or issue dates, complied as to form
in all material respects with the applicable accounting requirements of the
Securities Act and the rules and regulations of the Commission thereunder.
6. Reimbursement. Employer shall reimburse Employee for all reasonable
and necessary expenses incurred by him in performing his duties for the
Employer, including without limitation travel and entertainment expenses. Such
expenses will include the lease of an automobile and a car telephone for his
use, or reimbursement for his use of an automobile, to be
-10-
<PAGE>
selected by him at such times he will determine to do so, in addition to
insurance, maintenance and license fees. The automobile shall be of at least
the kind and quality of the Employee's choice. If the Employee is discharged
prior to the conclusion of the automobile's lease, Employer at Employee's
option will continue to make the lease payments or reimburse Employee for the
lease payments on the automobile, or will pay the termination fee under the
lease.
7. Insurance. Employer will furnish Employee and his family with the
same or comparable health insurance as the Employer will provide for its other
senior executive employees. Employer will immediately obtain for Employee and
will pay the premiums on a life insurance policy in the amount of $1,000,000.00
(the type and the beneficiary of which shall be designated by the Employee),
and the cost of a disability insurance policy in the amount of up to two thirds
of Employees salary. Such policies shall be owned by Employee's beneficiaries,
or by any other person or entity which Employee may designate. In the event
that Employee should become totally and permanently disabled, he will look
first to the proceeds of the disability insurance policy for part of his
compensation, and thereafter for the balance of his compensation under this
Agreement to the Employer who will be obligated to continue to honor its
obligations to the Employee for the balance of this Agreement's
-11-
<PAGE>
terms. For purposes of this Agreement (but not the disability insurance
policy), the Employee will not be deemed to be totally and permanently disabled
unless he will be unable by reason of disability to perform any services for
Employer for a period of six consecutive months. Employee shall be entitled to
receive his compensation under this Agreement unless he will be deemed totally
and permanently disabled, in accordance with the foregoing provisions of this
paragraph.
8. Change of Control. In the event that there shall be a Change of
Control (as hereinafter defined) of Interiors, Inc. or Employer or of any of
their material subsidiaries, Employee will have the right with or without good
reason, within two years after the occurrence of such Change of Control, on 10
days notice to terminate his obligations under this Agreement and Employer will
then be required at the time of termination: (a) to pay the Employee a lump sum
equal to three times Employee's then current annual compensation and all
benefits as if the Agreement had not been terminated, and (b) to deliver to
Employee without cost to him all of the shares of stock which Employee would
have been entitled to receive for the full term of this Agreement if the
Employee had not terminated his obligations; exercised all of the stock options
referred to in paragraph "5" of this Agreement, and paid for the shares of
stock on exercise. Change of Control for purposes of this paragraph shall be
deemed to occur upon (i) the election of one or more individuals to the Board
of Directors of the Employer which election results in the election of
directors, the majority of whom were nominated by a party other than the
management of the Employer, (ii) a board of directors election
-12-
<PAGE>
which results in the election of a Chairman of the Board other than the
Employee, (iii) the sale by the Employer of all or substantially all of its
assets in one transaction or a series of transactions, (iv) the merger or
consolidation of the Employer as a result of which the Employee does not remain
the President and Chief Executive Officer of the surviving or consolidated
entity, or (v) an other act or occurrence which may reasonably be deemed to
indicate that there was a change of control. (Nothing contained in this
definition shall limit or restrict the right of the Employee from participating
in any discussions or voting on any matter referred to in this definition at
any meeting of the Employer's Board of Directors.
9. Vacation. Employee shall be entitled to paid vacations which are
appropriate for persons of his status, annually, to be taken by him at such
times as shall be appropriate in light of his position and which will not
interfere with the performance of his duties. Such vacations will not be less
than 4 weeks a year.
10. Notices. Notices to be given under or with respect to this
agreement will be sufficient if given in writing and forwarded by Federal
Express to the parties at their addresses specified above, or to such other
addresses as they may give notice of, with copies by Federal Express to the
attorney whose
-13-
<PAGE>
name appears below:
Interiors, Inc. and its subsidiaries:
320 Washington Street
Mount Vernon, New York 10553
Max Munn
67 Tompkins Avenue
Hastings-on-Hudson, New York 10706
Irvin Rothfarb, Esq. 15
West 53rd Street New
York, New York 10019
11. Execution and delivery. This agreement may be executed in
counterparts, each one of which will be deemed to be an original.
12. Modification. This agreement contains the entire understanding of
the parties hereto with respect to the subject matter herein contained, and no
amendment or modification or termination thereof shall be valid unless
expressed in a written instrument signed by the party or parties to be charged.
13. Successors and assigns. This agreement shall not be assignable by
the Employee but it is binding upon and shall enure to the benefit of the
parties hereto and Employee's heirs and personal representative and binding
upon and to the benefit of Employer's successors and assigns.
-14-
<PAGE>
14. Legal Fees and indemnification. In the event that a dispute, shall
arise between Employer and Employee with respect to any provision of this
Agreement and the Employee shall prevail, Employer will pay or reimburse
payment of Employee's attorneys' fees and costs and expenses related to such
dispute. In addition, Employer will indemnify and hold Employee harmless to the
fullest extent permitted by law from any claims, lawsuits and judgments,
including the costs and attorneys fees emanating therefrom, arising out of his
employment hereunder or all other matters related to the Employer and its
subsidiaries.
15. Employers, Joint and Several obligation. Each of the entities
which constitute the Employer shall be jointly and severally liable to Employee
under this agreement. 11
16. Applicable Law and Forum Selection. This agreement shall be
governed by the law of Delaware. Litigation under or with respect to this
Agreement must be brought exclusively in Federal Court located in New York
State, or, if there should be no jurisdiction in Federal Court located in New
York, litigation must be brought exclusively in the Supreme Court of the State
of New York. Employer and Employee waive their rights to a jury in any such
litigation. if any provision of this will be determined to be unenforceable, it
will not effect the enforceability of the agreements other terms and
provisions. The State Courts of the
-15-
<PAGE>
State of New York will have exclusive jurisdiction in the event of litigation
between Employer and Employee.
Interiors, Inc.
By: /s/ Oudit Harbhajan
--------------------------------
Oudit Harbhajan
Vice President-Operations
/s/ Max Munn
--------------------------------
Max Munn
-16-
<PAGE>
PROMISSORY NOTE
$794,379 March 10, 1998
Los Angeles, California
FOR VALUE RECEIVED, Henlor, Inc., a Delaware corporation ("Obligor"),
hereby promises to pay to the order of Michael H. Greeley ("Holder"), as
representative for each of the persons listed on Attachment A hereto (the
"Shareholders"), the principal sum of SEVEN HUNDRED NINETY FOUR THOUSAND
THREE HUNDRED SEVENTY NINE DOLLARS ($794,379), together with interest thereon
at the rate of eight percent (8%) per annum, without offset or deduction of
any kind or nature (whether pertaining to this Note or to any other agreement
by or among the parties hereto), in accordance with the following schedule:
On December 1, 1998 Obligor shall make a principal payment of $294,379. On
March 1, 1999, Obligor shall make a principal payment of $62,500 together
with accrued interest on the unpaid principal balance of this Note from March
10, 1998 through March 1, 1999. Thereafter, Obligor shall make equal
quarterly payments of $62,500 commencing June 1, 1999, together with accrued
interest on the unpaid principal balance of this Note, until paid in full on
December 1, 2000; provided, however, that if, on or prior to November 30,
1998, Obligor elects to defer a portion of the principal payment due
December 1, 1998 (a "Payment Restructuring Election") pursuant to and in
accordance with the terms of that certain letter agreement dated as of the
date hereof between Holder and Obligor (the "Letter Agreement"), then the
payment schedule set forth above shall be modified as set forth in the
Letter Agreement.
If any payment of principal or interest on this Note is due on a Saturday,
Sunday or legal holiday under the laws of the State of California, such
payment shall be made on the next succeeding business day. Interest accrued
on the unpaid principal balance of this Note shall be payable on the dates
set forth above. Upon the payment in full of all unpaid principal of this
Note, all accrued and unpaid interest shall be due and payable forthwith.
The rate at which interest shall accrue on the unpaid principal balance of
this Note shall be subject to adjustment upon a Payment Restructuring
Election as provided in the Letter Agreement.
Each payment made pursuant to this Note shall be credited first on
interest then due and the remainder on principal; and interest shall
thereupon cease to accrue upon
<PAGE>
the principal so credited. Obligor reserves the right to prepay all or any
part of the principal of this Note at any time without penalty.
"Event of Default" shall mean the occurrence or existence of any one or
more of the following: (i) failure of Obligor to make any payment of interest
or principal on this Note within five (5) days after the due date (unless
cured within ten (10) days after Obligor's receipt of notice of the
occurrence thereof); (ii) if Obligor shall become insolvent or file a
petition under any chapter of the United States Bankruptcy Code or a petition
to take advantage of any other bankruptcy or insolvency law; (iii) if a
custodian, receiver or trustee of all or any part of Obligor's property shall
be appointed and not be dismissed within 60 days; (iv) if any assignment for
the benefit of Obligor's creditors shall be made; or (v) if Obligor admits in
writing its inability to pay its debts generally as they become due. Upon the
occurrence of any Event of Default described in clauses (ii), (iii), (iv) or
(v) of the preceding sentence, the unpaid principal amount of and accrued
interest on this Note shall automatically become immediately due and payable,
without presentment, demand, protest or other requirements of any kind, all
of which are hereby expressly waived by the Obligor. Upon the occurrence and
during the continuance of an Event of Default under clause (i), the Holder
may, at its option, by written notice to the Obligor declare all or any
portion of the principal of and interest on this Note to be, and the same
shall forthwith become, immediately due and payable. Any notice required to
be given to Obligor hereunder must be delivered in accordance with the
provisions of Section 11.01 of that certain Agreement and Plan of Merger
dated as of the date hereof among Obligor, the Shareholders and others.
Principal and interest shall be paid in lawful money of the United States
and shall be made at 22120 Kinzie Street, Chatsworth, California 91311, or at
such other place as Holder shall have designated to Obligor in writing for
such purpose.
Upon the occurrence of an Event of Default, Obligor agrees to pay, upon
demand, all reasonable expenses of Holder incident to the exercise of
Holder's rights hereunder, including reasonable attorneys' fees.
This Note is being delivered and is intended to be performed in the State
of California, and shall be governed
-2-
<PAGE>
by and construed and enforced in accordance with the internal laws of the
State of California.
HENLOR, INC.,
a Delaware corporation
By: /s/ Max Munn
------------------------
An Authorized Officer
-3-
<PAGE>
Attachment A
List of Shareholders
- --------------------
Michael H. Greeley
Judith Greeley
Mary P. Greeley Saunders
Russell Yeager
Judy Yeager
Amy Louise Greeley
Stephen J. M. Morris
Kathleen M. Cerruti
William M. Scott Nancy C. Scott
Revocable Trust
-4-
<PAGE>
SUBORDINATED PROMISSORY NOTE
$272,752.00 March 23, 1998
Los Angeles, California
FOR VALUE RECEIVED, Interiors, Inc., a Delaware
corporation ("Obligor"), hereby promises to pay to the order of Robert M.
Perkowitz ("Holder"), as trustee for each of the persons listed on Attachment A
hereto (the "Creditors"), the principal sum of TWO HUNDRED SEVENTY-TWO THOUSAND
SEVEN HUNDRED FIFTY-TWO DOLLARS ($272,752.00), together with interest thereon,
without offset or deduction of any kind or nature (whether pertaining to this
Note or to any other agreement by or among the parties hereto), on March 31,
1999, at which time the unpaid principal amount hereof and all accrued and
unpaid interest thereon shall become due and payable.
If any payment of principal or interest on this
Note is due on a Saturday, Sunday or legal holiday under the laws of the State
of California, such payment shall be made on the next succeeding business day.
Interest accrued on the unpaid principal balance of this Note shall be payable
on the date set forth above. Upon the payment in full of all unpaid principal
of this Note, all accrued and unpaid interest shall be due and payable
forthwith.
Interest on the unpaid balance of this Note shall
accrue at the rate of ten percent (10%) per annum from the date hereof through
the date that the principal of this Note is paid in full (subject to increase
upon the failure of Obligor to make the Prepayment, as provided below), and
such interest shall accrue on the basis of actual days based on a 365-day year.
Obligor may, at its election, on or prior to July 31,
1998, prepay to Holder the full principal amount of this Note together with all
accrued and unpaid interest on such prepaid principal amount (the
"Prepayment"). If Obligor fails to make the Prepayment, then interest on the
unpaid balance of this Note shall accrue at the rate of fifteen percent (15%)
per annum from July 31, 1998 through the date that the principal of this Note
is paid in full.
Each payment made pursuant to this Note shall be credited
first on interest then due and the remainder on principal; and interest shall
thereupon cease to accrue upon
-1-
<PAGE>
the principal so credited. Obligor reserves the right to prepay all or any part
of the principal of this Note at any time without penalty.
"Event of Default" shall mean the failure of Obligor to
make any payment of interest or principal on this Note within five (5) days
after the due date (unless cured within ten (10) days after Obligor's receipt
of written notice of the occurrence thereof). Any notice required to be given
to Obligor hereunder must be delivered in accordance with the provisions of
Section 12.01 of that certain Agreement and Plan of Merger dated as of the date
hereof among Obligor, Holder and others. Upon the occurrence of an Event of
Default, the unpaid principal amount of and accrued interest on this Note shall
automatically become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by the Obligor.
Principal and interest shall be paid in lawful money of
the United States and shall be made at 3817 Bonwood Drive, Charlotte, North
Carolina 28211, or at such other place as Holder shall have designated to
Obligor in writing for such purpose.
This Note and the indebtedness evidenced hereby shall be
subordinate in the manner and to the extent as may be set forth in a
Subordination Agreement between the Holder and Obligor's bank lender.
This Note may not be sold, transferred, assigned, pledged
or otherwise disposed of by Holder without the prior written consent of
Obligor.
This Note is being delivered and is intended to be
performed in the State of California, and shall be governed by and construed
and enforced in accordance with the internal laws of the State of California.
INTERIORS, INC.,
a Delaware corporation
By: /s/ Max Munn
---------------------
An Authorized Officer
-2-
<PAGE>
Attachment A
Sienna Limited Partnership II
Robert M. Perkowitz
Barrington Associates
-3-
<PAGE>
SUBORDINATED PROMISSORY NOTE
$537,248.00 March 23, 1998
Los Angeles, California
FOR VALUE RECEIVED, Interiors, Inc., a Delaware
corporation ("Obligor"), hereby promises to pay to the order of Robert M.
Perkowitz ("Holder"), as trustee for each of the persons listed on Attachment A
hereto (the "Shareholders"), the principal sum of FIVE HUNDRED THIRTY-SEVEN
THOUSAND TWO HUNDRED FORTY-EIGHT DOLLARS ($537,248.00), together with interest
thereon, without offset or deduction of any kind or nature (whether pertaining
to this Note or to any other agreement by or among the parties hereto), on
March 31, 1999, at which time the unpaid principal amount hereof and all
accrued and unpaid interest thereon shall become due and payable.
If any payment of principal or interest on this Note is
due on a Saturday, Sunday or legal holiday under the laws of the State of
California, such payment shall be made on the next succeeding business day.
Interest accrued on the unpaid principal balance of this Note shall be payable
on the date set forth above. Upon the payment in full of all unpaid principal
of this Note, all accrued and unpaid interest shall be due and payable
forthwith.
Interest on the unpaid balance of this Note shall accrue
at the rate of ten percent (10%) per annum from the date hereof through the
date that the principal of this Note is paid in full (subject to increase upon
the failure of Obligor to make the Prepayment, as provided below), and such
interest shall accrue on the basis of actual days based on a 365-day year.
Obligor may, at its election, on or prior to July 31,
1998, prepay to Holder SEVENTY-SEVEN THOUSAND TWO HUNDRED FORTY-EIGHT DOLLARS
($77,248.00) of the principal amount of this Note together with all accrued and
unpaid interest on such prepaid principal amount (the "Prepayment"); provided,
however, that the Prepayment shall not be permitted unless that certain
Subordinated Promissory Note dated as of the date hereof and made by Obligor in
favor of Holder, as trustee for certain creditors of Obligor (the "Creditor
Promissory Note"), shall have been paid in full. If Obligor fails to make the
Prepayment, then (i) interest on the unpaid balance of this Note shall accrue
at the rate of fifteen percent (15%) per annum from July 31, 1998 through the
date that the principal of this Note is
-1-
<PAGE>
paid in full and (ii) Obligor shall issue to the Holder (as trustee for the
Shareholders) not later than five (5) business days after July 31, 1998 shares
of Class A Common Stock, par value $.001 per share, of Obligor having a fair
market value equal to TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00) (which
shares will be deposited by Obligor into the Escrow Account (as defined in the
Merger Agreement)).
Each payment made pursuant to this Note shall be credited
first on interest then due and the remainder on principal; and interest shall
thereupon cease to accrue upon the principal so credited. Obligor reserves the
right to prepay all or any part of the principal of this Note at any time
without penalty.
"Event of Default" shall mean the failure of Obligor to
make any payment of interest or principal on this Note within five (5) days
after the due date (unless cured within ten (10) days after Obligor's receipt
of written notice of the occurrence thereof). Any notice required to be given
to Obligor hereunder must be delivered in accordance with the provisions of
Section 12.01 of that certain Agreement and Plan of Merger dated as of the date
hereof among Obligor, the Shareholders and others. Upon the occurrence of an
Event of Default, (i) the unpaid principal amount of and accrued interest on
this Note shall automatically become immediately due and payable, without
presentment, demand, protest or other requirements of any kind, all of which
are hereby expressly waived by the Obligor, (ii) the Irrevocable Proxy attached
hereto as Attachment B shall become effective in accordance with its terms and
(iii) Obligor shall issue to the Holder (as trustee for the Shareholders),
shares of Class A Common Stock, par value $.001 per share, of Obligor having a
fair market value equal to FIVE MILLION DOLLARS ($5,000.000.00) within three
days of such uncured default. For purposes of this Note, "fair market value"
shall be computed using the average closing bid price per share of the Class A
Common Stock for the thirty (30) trading days immediately preceding the
valuation date.
Principal and interest shall be paid in lawful money of
the United States and shall be made at 3817 Bonwood Drive, Charlotte, North
Carolina 28211, or at such other place as Holder shall have designated to
Obligor in writing for such purpose.
-2-
<PAGE>
This Note and the indebtedness evidenced hereby shall be
subordinate (i) to the Creditor Promissory Note and (ii) in the manner and to
the extent as may be set forth in a Subordination Agreement between the Holder
and Obligor's bank lender.
This Note may not be sold, transferred, assigned, pledged
or otherwise disposed of by Holder without the prior written consent of
Obligor.
This Note is being delivered and is intended to be
performed in the State of California, and shall be governed by and construed
and enforced in accordance with the internal laws of the State of California.
INTERIORS, INC.,
a Delaware corporation
By: /s/ Max Munn
---------------------
An Authorized Officer
-3-
<PAGE>
Attachment A
Sienna Limited Partnership I
Ed Ende
Robert Brennan
Sienna Limited Partnership II
Daniel L. Skaff
Paradian Management, Inc.
Robert Perkowitz
Tom Kubek
Ed Zambar
Lois Varga
Bryan Lawson
Victoria Bogust
-4-
<PAGE>
AGREEMENT
Agreement made this day July 29, 1998 by and between Local 210
I.B.T.U. and Interiors into the following and condition:
Duration - 5 years - Expiration on March 31, 2003
Wages - 3% Pay increase as of April 1, 1998
3% Pay increase as of April 1, 1999
3% Pay increase as of April 1, 2000
3% Pay increase as of April 1, 2001
3% Pay increase as of April 1, 2002
Health and Insurance - Contribution
1st year $6.80 as of Sept. 1, 1998
2nd year $8.80 as of April 1, 1999
3rd year $10.80 as of April 1, 2000
4th year $12.80 as of April 1, 2001
5th year $14,80 as of April 1, 2002
This amount will bring H&I to $184,000 per month per member,
Dental -
1st year $2.00
2nd year $3.00
3rd year $3.00
4th year $4.00
This amount will bring dental plan to $33.00 per member.
Agreement for the Company: WITNESS:
Interiors, Inc. - A.P.F.
/s/ Max Munn /s/ Pete Donatello
- -------------------------------- -------------------------
Pete Donatello
Agreement for the Union:
Local 210 I.B.T.U.
/s/ Lazaro Pina
- --------------------------------
Trustee/Agent
/s/ Louise Brown
- --------------------------------
Shop Steward
/s/ Nora Alvarez
- --------------------------------
<PAGE>
Subsidiaries of Registrant
Vanguard Studios, Inc., a Delaware corporation
Windsor Art, Inc., a Missouri corporation
Troy Lighting, Inc., an Illinois corporation
