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As filed with the Securities and Exchange Commission on September 10, 1998
Registration No. 333-..................
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INTERIORS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
13-3590047
(I.R.S. Employer Identification No.)
320 WASHINGTON STREET
MT. VERNON, NEW YORK 10553
(914) 665-5400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
MAX MUNN COPY TO:
PRESIDENT ARTHUR L. ZWICKEL, ESQ.
320 WASHINGTON STREET PAUL, HASTINGS, JANOFSKY & WALKER LLP
MT. VERNON, NEW YORK 10553 555 S. FLOWER STREET, TWENTY-THIRD FLOOR
(914) 665-5400 LOS ANGELES, CALIFORNIA 90071
(213) 683-6000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Approximate date of commencement of proposed sale to public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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Title of each Proposed Proposed
class of Maximum Maximum
securities to Amount to be Offering Price Aggregate Amount of
be registered Registered/(1)/ Per Share/(2)/ Offering Price/(2)/ Registration Fee/(3)/
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Class A Common Stock, $.001 par 10,294,208 $1.1875 $12,224,372 $3,606.19
value
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</TABLE>
(1) This amount represents: (i) 4,944,069 Class A Shares, representing 200%
of the number of Class A Shares estimated to be issued upon conversion of
$2,250,000 principal amount 7% Convertible Debentures due July 26, 2001
based upon the number of Class A Shares that would be issuable if the
holders of such debentures had converted the entire principal amount of
such debentures on September 2, 1998, (ii) 1,638,922 Class A Shares,
representing 200% of the number of Class A Shares estimated to be issued
upon conversion of $750,000 principal amount 7% Convertible Debentures due
August 24, 2001 (the convertible debentures described in clauses (i) and
(ii) are collectively referred to herein as the "Convertible Debentures")
based upon the number of Class A Shares that would be issuable if the
holders of such debentures had converted the entire principal amount of
such debentures on September 2, 1998, (iii) 1,339,286 Class A Shares
issuable upon the exercise of warrants (the "Warrants") to purchase Class A
Shares issued concurrently with the sale of the Convertible Debentures,
112,500 of which were issued to finders, (iv) 1,500,000 Class A Shares
issued in connection with the Registrant's acquisition of Windsor Art, Inc.
("Windsor"), (v) 715,000 Class A Shares issued in connection with the
Registrant's acquisition of Troy Lighting, Inc. ("Troy"), which includes
up to 65,000 Class A Shares that may be issued by the Registrant on July 2,
1999 to certain former shareholders of Troy as an adjustment to the
consideration received by such former shareholders in such acquisition, and
(vi) 44,431 Class A Shares issued to a key management employee of the
Registrant.
<PAGE>
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457, based upon the closing price for shares of the
Registrant's Class A Shares on September 2, 1998 of $1.1875 per share as
reported on the NASDAQ National Small Cap Market.
(3) This Registration Statement also covers such indeterminate number of
Class A Shares as may be issued by reason of any stock dividend, stock
split, recapitalization or similar transaction effected without receipt of
consideration which results in an increase in the number of outstanding
Class A Shares.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAW OF ANY SUCH STATE.
Subject to Completion, Dated September 10, 1998
PROSPECTUS
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INTERIORS, INC.
_______________
10,294,208 Shares of Class A Common Stock
This Prospectus relates to 10,294,208 Shares of Class A Common Stock ("Class
A Shares"), $.001 par value, of Interiors, Inc., a Delaware corporation
("Interiors" or the "Company") to be offered and sold from time to time for the
accounts of certain security holders of the Company (the "Selling Security
Holders"). The Class A Shares offered hereby consist of (i) 4,944,069 Class A
Shares, representing 200% of the number of Class A Shares estimated to be issued
upon conversion of $2,250,000 principal amount 7% Convertible Debentures due
July 26, 2001 based upon the number of Class A Shares that would be issuable if
the holders of such debentures had converted the entire principal amount of such
debentures on September 2, 1998, (ii) 1,638,922 Class A Shares, representing
200% of the number of Class A Shares estimated to be issued upon conversion of
$750,000 principal amount 7% Convertible Debentures due August 24, 2001 (the
convertible debentures described in clauses (i) and (ii) are collectively
referred to herein as the "Convertible Debentures") based upon the number of
Class A Shares that would be issuable if the holders of such debentures had
converted the entire principal amount of such debentures on September 2, 1998,
(iii) 1,339,286 Class A Shares issuable upon the exercise of warrants (the
"Warrants") to purchase Class A Shares issued concurrently with the sale of the
Convertible Debentures, 112,500 of which were issued to finders, (iv) 1,500,000
Class A Shares issued in connection with the Company's acquisition of Windsor
Art, Inc. ("Windsor"), (v) 715,000 Class A Shares issued in connection with the
Company's acquisition of Troy Lighting, Inc. ("Troy"), which includes up to
65,000 Class A Shares which may be issued by the Company on July 2, 1999 to
certain former shareholders of Troy as an adjustment to the consideration
received by such former shareholders in such acquisition, and (vi) 44,431 Class
A Shares issued to a key management employee of the Company.
The Class A Shares offered hereby may be offered for sale from time to time
by the Selling Security Holders acting as principals for their own accounts or
in brokerage transactions at prevailing market prices or in transactions at
negotiated prices. No representation is made that any of these Class A Shares
will or will not be offered for sale. The Company will not receive any proceeds
from the sale of these Class A Shares. It is not possible at the present time
to determine the price to the public in any sale of these Class A Shares by the
Selling Security Holders and each Selling Security Holder reserves the right to
accept or reject, in whole or in part, any proposed purchase of Class A Shares.
Accordingly, the public offering price and the amount of any applicable
underwriting discounts and commissions will be determined at the time of such
sale by the Selling Security Holders. All costs, expenses and fees incurred in
connection with the registration of the Class A Shares are being borne by the
Company, but all selling and other expenses incurred by the Selling Security
Holders will be borne by such Selling Security Holders.
The Selling Security Holders, and the brokers through whom sales of the
Class A Shares are made, may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act of 1933, as amended. In addition, any
profits realized by the Selling Security Holders or such brokers on the sale of
the Class A Shares may be deemed to be underwriting commissions.
The Class A Shares are currently listed for quotation on the Nasdaq Small
Cap Market ("NASDAQ") under the symbol "INTXA." On September 2, 1998, the last
reported sales price for the Class A Shares as reported by NASDAQ was $1.1875.
THE OFFERING INVOLVES A HIGH DEGREE OF RISK. FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
SHARES, SEE "RISK FACTORS."
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<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
_______________
The date of this Prospectus is September __, 1998
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<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Copies of such reports, proxy and information
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at the Commission's regional offices at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of such materials can be
obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a Web site at (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
The Company's Class A Shares are listed on NASDAQ and reports, proxy and
information statements and other information concerning the Company may be
inspected at the offices of the National Association of Securities Dealers,
Inc., 9513 Key West Avenue, Rockville, Maryland 20850.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with any amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Class A Shares offered hereby. This Prospectus is part of
the Registration Statement and does not contain all of the information set forth
in the Registration Statement, certain portions of which have been omitted
pursuant to the rules and regulations of the Commission. For further
information with respect to the Company and the offering pursuant to this
Prospectus, reference is made to such Registration Statement, which may be
inspected without charge at the Commission's office in Washington, D.C., and
copies of all or any part thereof may be obtained from such office after payment
of fees prescribed by the Commission.
TABLE OF CONTENTS
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<TABLE>
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Page
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Available Information....................... 5
Incorporation by Reference.................. 6
Forward-Looking Statements.................. 6
The Company................................. 7
Risk Factors................................ 7
Material Changes............................ 15
Description of Securities................... 18
Plan of Distribution........................ 19
Use of Proceeds............................. 20
Selling Security Holders.................... 21
Experts..................................... 22
Indemnification of Directors and Officers... 22
</TABLE>
NO DEALER, SALESMAN OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
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<PAGE>
INCORPORATION BY REFERENCE
This Prospectus incorporates by reference certain documents which are not
presented herein or delivered herewith. These documents are available upon
request from Interiors, Inc., Attention: Secretary, 320 Washington Street, Mt.
Vernon, New York 10553, Telephone (914) 665-5400.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, upon the written or oral request of any such person, a copy of any
and all of the information that has been incorporated herein by reference, other
than exhibits to such information, unless such exhibits are specifically
incorporated herein by reference into the information that this Prospectus
incorporates. Requests for such documents should be directed to the person
indicated in the immediately preceding paragraph.
The following documents, which have been filed with the Commission pursuant
to the Exchange Act, are hereby incorporated by reference herein:
(a) Company's Annual Report on Form 10-KSB for the year ended June 30,
1997;
(b) Company's Quarterly Reports on Form 10-QSB for the quarters ended
September 30, 1997, December 31, 1997, and March 31, 1998;
(c) Company's Current Report on Form 8-K, as filed with the Commission on
March 25, 1998 and as amended by the Company's Current Report on Form 8-K/A as
filed with the Commission on May 26, 1998;
(d) Company's Current Report on Form 8-K, as filed with the Commission on
April 6, 1998 and as amended by the Company's Current Report on Form 8-K/A as
filed with the Commission on May 29, 1998;
(e) Company's Current Report on Form 8-K, as filed with the Commission on
August 10, 1998;
(f) Company's Current Report on Form 8-K, as filed with the Commission on
August 28, 1998; and
(g) The description of the Class A Shares contained in the Company's
Registration Statement on Form 8-A filed with the Commission to register such
securities under Section 12(g) of the Exchange Act, including any amendment or
report filed for the purpose of updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date hereof and prior to the termination of
this offering shall be deemed to be incorporated herein by reference and to be a
part hereof from the date of filing of such documents. All information
appearing in this Prospectus or in any document incorporated herein by reference
is not necessarily complete and is qualified in its entirety by the information
and financial statements (including notes thereto) appearing in the documents
incorporated by reference herein and should be read together with such
information and documents. Any statement contained in a document incorporated
or deemed to be incorporated herein by reference shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document that is deemed to
be incorporated herein by reference modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this
Prospectus constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results,
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performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, those set forth in this Prospectus, including under the caption
"Risk Factors." Given these uncertainties, prospective investors are cautioned
not to place undue reliance on such forward-looking statements. The Company
disclaims any obligation to update any such statements or to publicly announce
any updates or revisions to any of the forward-looking statements contained
herein to reflect any change in the Company's expectation with regard thereto or
any change in events, conditions, circumstances or assumptions underlying such
statements.
THE COMPANY
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 operation (sometimes referred to herein as "APF"),
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 units and expanding its product lines such that today its business
includes a third division involved with the design, manufacture and distribution
of a broad range of decorative accessories.
The Company's principal executive offices are located at 320 Washington
Street, Mt. Vernon, New York 10553; its telephone number is (914) 665-5400.
RISK FACTORS
An investment in the Shares offered hereby involves a high degree of risk.
The following risk factors should be considered carefully in evaluating an
investment in the Shares offered hereby.
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<PAGE>
RISKS ASSOCIATED WITH COMPANY ACQUISITION GROWTH STRATEGY; NO ASSURANCE OF
ABILITY TO MANAGE GROWTH; DEPENDENCE ON OUTSIDE FINANCING SOURCES
A significant component of the Company's strategy is to grow in size and
breadth of product offerings through acquisitions, such as the recent
acquisitions of Windsor and Troy and the earlier acquisitions of Henlor, Inc.
("Henlor") and Merchandise Sales, Inc. ("MSI"). Certain risks are inherent in
an acquisition strategy, such as increasing leverage and debt service
requirements and combining disparate company cultures and facilities. The
process of integrating the recently acquired businesses of Henlor, Windsor,
Troy, and MSI may involve unforeseen difficulties and may require a
disproportionate amount of management's attention and the Company's financial
and other resources. Failure by the Company to successfully integrate the
businesses of Henlor, Windsor, Troy, and MSI could have a material adverse
effect on the Company's results of operations and financial condition. The loss
of, or changes in buying patterns of, any significant customers of Henlor,
Windsor, Troy, and MSI would likely have an adverse effect on the Company's
business, financial condition and results of operations. The full impact of
these acquisitions on the Company cannot be forecasted at this time. There can
be no assurance that the Company will be able to integrate successfully the
operations, facilities and management of Henlor, Windsor, Troy, and MSI or
realize any benefits from these acquisitions.
Although additional acquisitions may enhance the Company's ability to
increase net income over time, such acquisitions will present greater
administrative burdens, increased exposure to uncertainties inherent in
acquisitions and marketing new products and services, the financial risks of
additional operating costs and potential additional interest costs. There can
be no assurances that management can manage the specific expansion described
herein, nor can there be any assurance that the Company will be able to recruit
the necessary managers and employees required for such growth. The Company will
also most likely need to obtain additional equity or debt financing in order to
complete such acquisitions and realize its business strategy. There can be no
assurance that the Company will be able to conclude any acquisitions in the
future on terms favorable to it, or at all, or that, once consummated, such
acquisitions will be advantageous to the Company.
The size, timing and integration of possible future acquisitions may cause
substantial fluctuations in operating results from quarter to quarter. As a
result, operating results for any quarter may not be indicative of the results
that may be achieved for any subsequent fiscal quarter or a full fiscal year.
FINANCIAL CONDITION
The Company's independent auditors have modified their report on the
Company's financial statements for the year ended June 30, 1997. The Company's
ability to continue as a going concern is dependent upon the achievement of
certain initiatives currently in progress. Sales from operations for the
Company's custom frame division for the nine months ended March 31, 1998
increased by approximately $3,267,000 to approximately $6,225,000, or 110% over
the approximately $2,958,000 for the nine-month period ended March 31, 1997.
The Company expects to continue to grow its custom frame division. With the
consummation of the acquisitions of Henlor, Troy, Windsor and MSI, management
believes that the Company has further improved its financial condition.
However, the Company's ability to continue as a going concern is dependent upon
its ability to integrate the operations of these acquisitions into the Company,
and to consummate other potential acquisitions, including the merger with Decor
Group, Inc. ("Decor"). There is no assurance that the Company will be able to
successfully achieve these initiatives.
The Company is currently undertaking additional initiatives to improve its
results of operations, including (i) seeking to improve efficiency and reduce
expenses by consolidating the packaging, warehousing and shipping functions of
Henlor and MSI in approximately 30% less space than that currently utilized, and
to consolidate administrative activities for all divisions, such as purchasing
and accounting, (ii) seeking to grow APF's market share (currently only 10%) of
the high-end frame retailers market through an aggressive advertising and
marketing campaign, including creating direct mail brochures, advertising in
trade journals, participating in leading trade shows and telemarketing and (iii)
contracting with Artisan House, Inc. ("Artisan"), a subsidiary of Decor, for the
distribution of framed mirrors to the home furnishings industry. The Company
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<PAGE>
has also participated with Artisan in the production of a catalog for the
purpose of increasing revenues from wholesale sales. In the event of the
consummation of the Company's acquisition of Decor, the Company will acquire the
business of Artisan. No assurances can be given that these actions, or any
subsequent actions, will materially improve the Company's financial condition.
SIGNIFICANT FINANCING COSTS
Currently, the Company incurs significant costs in the financing of its
business operations, and currently has notes payable in the aggregate principal
amount of approximately $21,000,000. On February 15, 1995, the Company entered
into an asset based financing agreement with United Credit Corporation
("United"). As of March 31, 1998, the amount due to United was approximately
$1,443,000. Interest is determined at an annual rate of 16% plus related fees.
The Company currently maintains a line of credit with Bank of New York based on
certain inventories, bearing interest at a rate of prime plus 1%. As of March
31, 1998, the balance of the line of credit was approximately $315,000. The
Company and Bank of New York have agreed that commencing December 1, 1997 the
line of credit will be reduced by $10,000 per month. There can be no assurance
that cash flow from operations will be sufficient for the foreseeable future to
meet debt service requirements and to make possible acquisitions and capital
expenditures. The Company is currently pursuing alternative financing
arrangements, but as of the date of this Prospectus, no such arrangements have
been made and there can be no assurance that any will be made in the future.
During November 1997 the Company borrowed $250,000 from Ekistics Corp.
This loan is due December 31, 1998 and bears interest at 12% per annum. In
addition, Henlor had $2,448,000 in outstanding revolving bank debt as of March
31, 1998 owing to Capital Business Credit. The debt bears interest at an annual
rate of prime plus 1.75%.
In March 1998 and April 1998, the Company issued convertible notes (the
"Notes") in the aggregate principal amount of $3,175,000. Of the Notes, notes
in the principal amount of $1,700,000 (the "6% Notes") accrue at a rate of 6%
per annum, with interest payable quarterly beginning July 1, 1998; any default
in payment of interest triggers a default interest rate of 16% per annum.
$1,000,000 of the Notes are three year convertible subordinated notes secured by
the stock of Henlor with an interest rate of 15%. These notes are convertible
at the election of the holders into Class A Shares at a rate of $1.50 per share.
The remaining $475,000 of the Notes are three year unsecured subordinated
debentures with an interest rate of 15%. These debentures are convertible at
the holders' election into Class A Shares at a rate of $1.75% per share.
In July and August 1998, the Company issued convertible debentures (the
"Convertible Debentures") in the aggregate principal amount of $3,000,000. 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. All or any portion of the
Convertible Debentures may be converted to Class A Shares any time after 240
days from their respective dates of issuance. The Company's recent issuance of
the Notes and the Convertible Debentures places further financial constraints on
the Company. For a more complete discussion of the terms of such notes, see
"Material Changes."
In connection with the Company's recent acquisitions of Henlor, Windsor,
and MSI, the Company and its wholly owned subsidiaries have issued four
promissory notes in the aggregate principal amount of $6,254,379. Two
subordinated promissory notes (the "Windsor Notes") in the aggregate outstanding
principal amount of $5,300,000 were issued to Bentley International, Inc., the
former sole shareholder of Windsor. Each of the Windsor Notes bears interest at
a rate of 8% per annum. One of the Windsor Notes, in the outstanding principal
amount of $3,000,000, matures on September 30, 1998. The second Windsor Note
matures on April 30, 2002 and calls for quarterly payments of principal and
interest commencing on July 1, 1999. One subordinated promissory note (the "MSI
Note") with an outstanding principal balance of $460,000 and a maturity date of
March 31, 1999, was issued to Robert M. Perkowitz, as trustee of the former
shareholders of MSI. A promissory note (the "Henlor Note") at an interest rate
of 8% per annum, in the aggregate principal amount of $794,379, with a maturity
date of December 1, 2000, was issued by Henlor, Inc. to Michael H. Greeley, as
representative for each of the former shareholders of Henlor.
In connection with Interiors' recent acquisition of Troy, Interiors
borrowed an additional $1,500,000 from United. The amount owing to United bears
interest at an annual rate of prime plus 6% and matures in January 1999. In
addition, on August 15, 1998 Troy had outstanding revolving bank debt of
approximately $1,805,000 owing to Austin Financial, Inc. and Windsor had
outstanding revolving bank debt of approximately $856,000 owing to Norwest
Business Credit, Inc. The Troy indebtedness bears interest at an annual rate of
prime plus 5 1/2% and is due in February 1999. The Windsor indebtedness bears
interest at the prime rate and has a maturity date of September 1998.
No assurances can be given that the Company will be able to enter into
alternative financing arrangements, nor can assurances be given that such
alternative arrangements will be on terms more favorable to the Company than, or
comparable to, the Company's current financing arrangements.
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CUSTOMER CONCENTRATION
APF has historically conducted significant business activities with certain
major customers, resulting in a concentration of revenues in that division from
these customers. Revenues from shipments to three national fashion retailers,
Victoria's Secret, Abercrombie & Fitch, and The Limited, represented in fiscal
1997, in the aggregate, approximately one-third of APF's total revenues.
Artmaster, Windsor and Vanguard target moderate- to high-priced markets and
share many of the same customers, which are primarily furniture retailers, home
furnishings chains, furniture departments in department stores and catalogs.
Among their leading customers are J.C. Penney Co., Sears Roebuck & Co., Levitz
Furniture and Wickes Furniture. Troy targets lighting showrooms and home
improvement centers, and its largest customer has historically been The Home
Depot. On a pro forma basis, J.C. Penney Co. represented approximately 8% of the
Company's total revenues for the twelve months ended March 31, 1998. There can
be no assurance that Interiors will continue to receive orders from existing
major customers. Should the Company's principal customers discontinue the
placement of orders, the Company would be materially adversely affected.
RELIANCE ON OUTSIDE SUPPLIERS
The Company purchases a wide variety of raw materials for use in its
manufacturing operations, including metal, wood, hydrocal, paint, glass, gold
leaf, plexiglass, corrugated packaging materials, matboards and composite
resins. These materials are purchased from a wide variety of sources, and the
Company has at least two, and often more, suppliers for each item used in its
manufacturing process, and is therefore not dependent upon any sole supplier.
Nevertheless, due to the specialized nature of the Company's business operations
and materials requirements, should the present mix of suppliers change, a
potential disruption to the Company's ability to manufacture, and a
corresponding effect on revenues, could occur. Prices of certain commodities,
including lumber, used in the Company's manufacturing operations fluctuate over
time depending on factors such as weather and demand, which impact its
availability and cause a corresponding change in prices. Upward trends in prices
could have a short-term negative impact on the Company's margins.
RELIANCE ON TRADE NAME REPUTATION
The Company's custom frame operation is conducted under the tradename
"A.P.F. Master Framemakers," which tradename has been used in the custom frame
business since 1955 and which the Company acquired in 1990. The Company believes
that its ability to market its high-end custom picture and mirror frames has
been based largely upon its reputation as a reliable source of high-quality
frames suitable for use by nationally known museums, art galleries, decorators,
fine frame retailers and collectors. As a result of this reliance on its
reputation, if the Company's custom frame products or service were to become
considered unreliable, or otherwise receive negative recognition, these
operations could experience a significant adverse impact. Similarly, many of
the Company's products carry the trademark "Lee Reynolds/(R)/," which is a
recognized name in the decorative accessories industry. If this trademark or the
products associated with the trademark were to receive negative recognition,
sales of the Company's products would likely decrease, having an adverse impact
on the Company's revenues.
COMPETITION
Management believes that the sale of decorative accessories in the
wholesale market is highly fragmented, with thousands of small, specialized
manufacturers and distributors. Management is not currently aware of a
manufacturer of upscale decorative accessories attempting to acquire or merge
with several additional manufacturers of decorative accessories similar to the
Company's acquisition strategy. However, there is no assurance that one or more
other manufacturers may not engage in such an acquisition strategy, and in that
case such manufacturer or manufacturers may have greater financial resources
than the Company to complete such acquisitions, resulting in the Company's loss
of market share, which could materially adversely affect the Company's business
and financial condition. Furthermore, there can be no assurance that the
Company's acquisition strategy will be successful.
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RELIANCE ON KEY PERSONNEL, SKILLED CRAFTSMEN AND SALESPERSONS; LACK OF "KEY
PERSON" LIFE INSURANCE FOR KEY PERSONNEL
The Company is highly dependent on the services of several key personnel.
Max Munn, President and Chief Executive Officer of the Company, has held both
positions since 1995. Mr. Munn is based in New York and maintains responsibility
for corporate strategy and acquisitions. Effective January 1, 1998, the Company
entered into a five-year employment agreement with Mr. Munn. Dennis D. D'Amore
is currently responsible for the day-to-day operations of the Company's
decorative accessories operations, including manufacturing, marketing, sales and
product development. In addition, Todd Langner serves as Senior Vice President
of Sales and Marketing of the Company, and Ronald Taylor serves as Senior Vice
President of Manufacturing of the Company. The loss of the services of any of
these executives could have a material adverse effect upon the business and
prospects of the Company. The Company does not currently maintain "key person"
life insurance on any of its key personnel.
The Company intends in the near future to create a number of senior
management positions to help oversee the Company's growth and operations. The
Company believes that its ability to manage its planned growth successfully will
depend in large part on its ability to attract and retain highly skilled and
qualified personnel. The inability to attract or retain such personnel could
have a material adverse effect on the Company's business, financial condition
and results of operations.
APF relies on its skilled craftsmen and creative designers with specialized
skills in the design and crafting of its frames and the manufacture of other of
its products. Although the Company attempts to hire and train skilled
craftsmen, the inability of the Company to retain skilled craftsmen and creative
designers may adversely affect the division's operations. Furthermore, APF is
dependent on the showroom salespersons who have relationships with museum
curators, art collectors, architects and other purchasers of "museum" quality
picture frames. The loss of such persons could have a material adverse impact
on the Company.
ENVIRONMENTAL REGULATIONS
The Company is subject to federal, state and local governmental
environmental protection laws, rules and regulations relating to its
manufacturing operations. Any of these regulations could require the Company to
acquire equipment or to incur substantial other expenses to comply with
environmental regulations. If substantial additional expenses were incurred by
the Company, product costs could increase significantly, thus materially
adversely affecting the Company's business, financial condition and results of
operations. The Company believes that its facilities are in material compliance
with all applicable laws, rules and regulations, and that it has obtained all
material permits necessary to conduct its business. Any failure by the Company
to comply with present or future environmental laws, rules and regulations could
result in fines imposed on the Company, suspension of production or cessation of
operations, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations.
POSSIBILITY OF LITIGATION INVOLVING WORKS OF ART
Although the Company endeavors to buy designs and products which it
believes the supplier has the right to distribute, in the event an artist of the
distributed work claims that his or her copyright has been violated, the Company
may be joined in any action against the supplier for infringement. Each of the
Company's contributing artists and vendors is required to execute and return to
the Company a certificate stating that the merchandise conforms to all federal
and state laws as to labeling, brands, etc., and agreeing to indemnify the
Company against claims arising from violation of trademark, patent or similar
laws; however, there can be no assurance that the Company would be successful in
enforcing any such agreement. The Company knows of no such claims which have
been asserted nor lawsuits which have been threatened other than as disclosed
herein. There can be no assurance that claims or lawsuits will not arise in the
future or that the cost of defending such actions will not be material. There
can be no assurance that the Company has obtained sufficient insurance coverage,
or that the Company will have sufficient resources, to satisfy any such claims
or lawsuits.
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YEAR 2000
Interiors is currently in the process of restructuring its computer system
in order to prevent any disruption in operations involving the transition of
dates from 1999 to 2000 and expects to be fully Year 2000 compliant by such
time. Interiors has already performed a full evaluation of its Year 2000
compliance needs with respect to its computer system and has authorized funding
and contracted with a Year 2000 consulting service to meet those needs. If due
to an unforseen circumstance, Interiors cannot achieve complete Year 2000
compliance by the year 2000, Interiors is prepared to institute temporary
computer modifications which will allow it to transition from the year 1999 to
the year 2000 with only minor disruptions. These disruptions are not anticipated
to have any material effect on Interiors' operations.
Although the Company has not completed its assessment of potential Year
2000 related problems among third parties upon which it relies, including its
suppliers and its customers, the Company does not anticipate any material
disruption in its business as a result of any such potential Year 2000 related
problems.
VOTING CONTROL BY RELATED PARTY AND ESCROW AGENT
Laurie Munn, wife of the Company's President and Chief Executive Officer,
owns approximately 49%, and Michael Levine, Esq., as escrow agent, holds
approximately 51% (the "Escrow Shares"), of the Company's issued and outstanding
shares of Class B Common Stock, $.001 par value per share (the "Class B
Shares"). Each Class B Share (except for the Escrow Shares) entitles the holder
thereof to five non-cumulative votes per share, or in the aggregate
approximately 42% of the votes, on all matters on which stockholders may vote at
meetings of stockholders (assuming that none of the outstanding warrants are
exercised or outstanding Series A Preferred Shares are converted). Accordingly,
these two individuals may be in a position to influence the election of the
Company's directors and the course of the Company's business affairs. The
Escrow Shares are entitled to vote only in the event of the Company's default
under its settlement agreement with Ann Stevens, a former Company executive.
See "Possible Change of Control" below. The Company is not currently in default
on its obligation under the settlement agreement. On January 8, 1998, Laurie
Munn obtained an option to acquire the Escrow Shares in consideration, among
other things, for her continuing personal guarantees of Company obligations to
several lenders.
POSSIBLE CHANGE OF CONTROL
In fiscal year 1996 and 1997, the Company experienced various legal
proceedings among the Company's President and Chief Executive Officer, his wife,
other members of the Company's Board of Directors, a former member of the
Company's Board of Directors, and such former member's wife who was also a
Company executive. The parties to these various actions have entered into
various agreements in settlement of all differences. Under the terms of
settlement, the Company must, among other things, provide over seven years
beginning June 1996 bi-weekly payments in the amount of $3,654 to Ann Stevens in
settlement of her employment agreement with the Company. Ms. Stevens' attorney,
Michael Levine, Esq., has been appointed escrow agent and was issued the Escrow
Shares (see "--Voting Control by Related Party and Escrow Agent") together with
7,500,000 Class A Shares. Mr. Levine is empowered to vote these shares, which
represent in the aggregate approximately 48% of the votes on which stockholders
may vote at meetings of stockholders, to replace the Company's Board of
Directors in the event of the Company's default of its obligations under the
settlement agreements. After the Company fully performs under the settlement
agreements, the shares held in escrow will be returned to the Company.
In addition to the foregoing, as part of the terms of the Agreement and
Plan of Merger (the "MSI Merger Agreement") among the Company, its wholly-owned
subsidiary Artmaster Studios, Inc. ("Artmaster"), and MSI, and certain former
shareholders of MSI, Laurie Munn, the holder of 49% of the Class B Shares,
executed an irrevocable proxy appointing Robert M. Perkowitz, as trustee for the
former shareholders of MSI (the "Proxyholder"), as her attorney-in-fact, if an
event of default occurs under either of the MSI Notes. The proxy appoints the
Proxyholder to attend any meeting of shareholders of the Company in Ms. Munn's
stead, and to vote the Class B Shares held by
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Ms. Munn in the Proxyholder's complete and absolute discretion. One of the MSI
Notes further provides that an event of default under such Note triggers the
issuance to the Proxyholder of Class A Shares having a fair market value of $5
million. Accordingly, if an event of default occurs under the MSI Notes, the
Proxyholder may be in a position to influence the election of the Company's
directors and the course of the Company's business affairs.
POTENTIAL DILUTION OF CLASS A SHARES
The issued and outstanding shares of Class A Stock are subject to dilution
upon the conversion of issued and outstanding Class B Shares (other than the
Escrow Shares) and Series A preferred stock, conversion of certain convertible
notes and debentures and upon exercise of currently outstanding warrants and
options. In addition, in connection with recent and continuing acquisitions,
the Company may be required to issue additional shares of Class A Shares to the
former shareholders of the acquired companies under certain circumstances.
The anticipated financing requirements of the Company, as well as the
proposed merger with Decor, will likely cause Interiors to issue substantial
amounts of its securities in the future by way of private or public offerings or
exchange offerings of the Company's securities or other financing arrangements.
It can be expected that such additional issuances will substantially dilute the
public ownership as well as reduce the voting power and ownership percentage of
Class A Shareholders. Inasmuch as the Company may, in the future, issue
authorized shares of common stock or preferred stock without prior stockholder
approval, there may be substantial dilution to the interests of the Company's
stockholders. In addition, a stockholder's pro rata ownership interest in the
Company may be reduced to the extent of the issuance or exercise of any options
or warrants relating to Class A Shares.
VOLATILITY OF SHARE PRICE
The trading prices of the Class A Shares may be subject to wide
fluctuations. Factors such as variations in operating results, adverse results
in litigation, governmental regulation or general economic and market conditions
may adversely affect the market price of the Class A Shares.
NO DIVIDENDS ON CLASS A SHARES
To date, the Company has never declared nor paid cash dividends on the
Class A Shares. For the foreseeable future, the Company does not anticipate
declaring or paying any cash dividends on the Class A Shares.
POTENTIAL RESCISSION RIGHTS
From the date of the Company's Initial Public Offering on June 15, 1994
through June 1, 1998, the Company has issued approximately 1,959,579 Class A
Shares upon the exercise of Redeemable Warrants and the conversion of Series A
Preferred Shares. Certain of these Class A Shares may have been issued by the
Company in violation of the requirement under the Securities Act of 1933, as
amended, in that the Company may have failed to deliver to the purchasers of
such Class A Shares a prospectus meeting the requirements of Section 10(a)(3) of
the Securities Act of 1933, as amended. Accordingly, certain holders of such
Class A Shares may have the right to recover from the Company the consideration
paid for such Class A Shares or damages as prescribed by applicable securities
laws.
CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AND BYLAWS; POTENTIAL ANTI-
TAKEOVER EFFECT
The Company's bylaws contain provisions which may discourage certain
transactions which involve an actual or threatened change in control of the
Company. The bylaws provide that certain vacancies on the Board of Directors
shall be filled by a majority of the remaining directors then in office, limit
the ability to call a special meeting of stockholders, and require that no
proposal by a stockholder be presented for vote at a special or annual
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meeting of stockholders unless the stockholder provides the Board of Directors
or the Secretary of the Company with written notice of intention to present a
proposal for action at the meeting in accordance with the bylaws.
The Company has expressly not opted out of, and is therefore subject to,
Section 203 of the Delaware General Corporation Law regulating "business
combinations" between Delaware corporations and "interested stockholders."
Under this provision, a corporation subject to Section 203 may not engage in any
business combination with any interested stockholder for a period of three years
from the date of such person became an interested stockholder unless certain
conditions are satisfied. This provision may also have the effect of delaying
or preventing a change in control of the Company.
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation provides that a director of the Company will not be
personally liable to the Company or its stockholders for monetary damages for
breach of the fiduciary duty of care as a director, except under certain
circumstances including breach of the director's duty of loyalty to the Company
or its stockholders or entering into any transaction from which the director
derived an improper personal benefit. See "Indemnification of Directors and
Officers."
NO ASSURANCE OF CONTINUED PUBLIC TRADING MARKET OR CONTINUED NASDAQ INCLUSION
Prior to the Company's Initial Public Offering, which took place on June
23, 1994, there was no established trading market for any of the Company's
securities. In connection with the Initial Public Offering, the Company applied
for, and was granted, inclusion of the Class A Shares on the Nasdaq SmallCap
Market ("NASDAQ"). The Class A Shares commenced quotation on NASDAQ on June 23,
1994 under the symbol "INTXA". However, there can be no assurance given that
the Company will be able to satisfy the requirements for continued quotation,
that such quotation will otherwise continue or that any market for the Company's
securities that has developed since completion of the Initial Public Offering
will continue or be sustained. If for any reason, however, the Class A Shares
are not eligible for continued listing or a public trading market does not
develop, purchasers of the Class A Shares may have difficulty selling their
securities should they desire to do so.
POSSIBLE NASDAQ DELISTING; POTENTIAL REGULATION AS A PENNY STOCK
The continued trading of the Class A Shares on NASDAQ is conditioned upon
the Company's meeting certain quantitative and qualitative requirements
regarding assets, capital, earnings surplus, stock price and corporate
governance features. The National Association of Securities Dealers, Inc.
revised the standards for continued listing effective February 23, 1998, which
standards include: (i) maintenance of any of (x) $2,000,000 of net tangible
assets, (y) $35,000,000 of market capitalization, or (z) $500,000 of net income
for two of the last three years; (ii) at least 500,000 shares in public float
valued at $1,000,000 or more; (iii) a minimum bid price for Class A Shares of
$1.00; (iv) at least two market makers; and (v) at least 300 holders of Class A
Shares.
As of March 31, 1998, the Company had net tangible assets of approximately
$5,442,000. The Company has not received any notice from NASDAQ that the
Company is not currently in compliance with the new requirements for continued
listing, although NASDAQ has inquired as to whether certain requirements are
being maintained. There can be no assurance that the Company will be successful
in maintaining these criteria. To the extent the Company is unable to satisfy
the new maintenance criteria, the Class A Shares will be subject to being
delisted, and trading in the Class A Shares thereafter, if any, will likely be
conducted in the over-the-counter markets in the so-called "pink sheets" or the
National Association of Securities Dealers' Electronic Bulletin Board. As a
consequence of any such delisting, it is expected that the stockholders of the
Company would find it more difficult to dispose of, or to obtain accurate
quotations as to the market value of, the Class A Shares. In addition, any
such delisting will make the Class A Shares substantially less attractive as
collateral for margin and purpose loans, for investment by financial
institutions under their internal policies or state legal investment laws, as
consideration in future capital raising transactions.
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In the event that the Class A Shares are no longer approved for quotation
on NASDAQ the Class A Shares may become subject to regulation as a "penny
stock." The Commission has adopted regulations which generally define "penny
stock" to be any equity security that has a market price or exercise price less
than $5.00 per share, subject to certain exceptions, including listing on
NASDAQ. If the Class A Shares are removed from listing by NASDAQ and no other
exception applies, the Class A Shares may become subject to the Commission's
Penny Stock Rules, Rule l5g-1 through Rule l5g-9 under the Exchange Act. For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of such securities and have received
the purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a risk disclosure
document mandated by the Commission relating to the penny stock market. The
broker-dealer must also disclose the commission payable to both the broker-
dealer and the registered representative, current quotations for the securities
and, if the broker-dealer is the sole market maker, the broker-dealer must
disclose this fact and the broker-dealer's presumed control over the market.
Finally, monthly statements must be sent disclosing recent price information for
the penny stock held in the account and information on the limited market in
penny stocks. Consequently, the penny stock rules may restrict the ability of
broker-dealers to sell the Company's securities and may affect the ability of
holders to sell the Company's securities in the secondary market and the price
at which such holders can sell any such securities. Rule l5g-9 under the
Exchange Act imposes additional sales practice requirements on broker-dealers
who sell such securities except in transactions exempted from such rule,
including transactions meeting the requirements of Rule 505 or 506 of Regulation
D promulgated under the Securities Act and transactions in which the purchaser
is an institutional accredited investor or an established customer of the
broker-dealer.
MATERIAL CHANGES
In March 1998 and April 1998, the Company issued Notes in the aggregate
principal amount of $3,175,000. Of the Notes, the 6% Notes in the principal
amount of $1,700,000 accrue at a rate of 6% per annum, with interest payable
quarterly beginning July 1, 1998; any default in payment of interest triggers a
default interest rate of 16% per annum. The maturity date of the 6% Notes is
March 19, 2000. Events of default under these notes include: failure to make
timely payment; breach of a covenant; breach of a representation or warranty;
judgments in excess of $50,000 which remain outstanding for 45 days; delisting
of the Class A Shares from NASDAQ; Commission stop trade order or NASDAQ trading
suspension with respect to the Class A Shares for 10 days or more; or a failure
to register the Class A Shares in accordance with the subscription agreements
between the Company and the noteholders. $1,000,000 of the Notes are three year
convertible subordinated notes secured by the stock of Henlor with an interest
rate of 15%. These notes are convertible at the election of the holders into
Class A Shares at a rate of $1.50 per share. The remaining $475,000 of the Notes
are three year unsecured subordinated debentures with an interest rate of 15%.
These debentures are convertible at the holders' election into Class A Shares at
a rate of $1.75 per share. Attached to certain of the Notes are Note Warrants to
purchase an aggregate of 320,833 Class A Shares with expiration dates identical
to the maturity dates of the Notes to which they are attached. These exercise
prices range from $1.75 to $2.00 per Note Warrant. In addition, 15,000 Class B
Warrants and 15,000 Class C Warrants were issued in connection with the issuance
of certain Notes.
The 6% Notes are convertible into Class A Shares according to the following
terms: one-half of the principal amount of the 6% Notes are convertible at the
election of the noteholders from and after 180 days after the date of issuance
and at any time prior to full repayment of the principal amount of the 6% Notes;
the entire principal amount of the 6% Notes is convertible at the election of
the noteholders from and after 270 days after the date of issuance and at any
time prior to full repayment of the principal amount of the 6% Notes. The
Conversion Price for the 6% Notes 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
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for Class A Shares on NASDAQ for the 5 trading days immediately preceding (but
not including) the conversion date. The Conversion Price is adjustable in the
event of a merger, sale of assets, reclassification of the Class A Shares, stock
splits, and additional share issuances at less than the Conversion Price.
On April 21, 1998, the Company and Decor entered into an Agreement and Plan
of Merger approved by their respective Boards of Directors, whereby each issued
and outstanding share of common stock, par value $.0001 per share, of Decor
(other than those owned by the Company), will be converted into the right to
receive 0.50 Class A Shares. Upon and in the event of the consummation of the
merger of Decor with and into the Company, the Company will engage in the
design, manufacturing and marketing of metal wall, table and freestanding
sculptures. The Company has been an affiliate of Decor since the inception of
Decor in 1996, and as of the date of the announcement of the merger owned
approximately 86% of the voting securities of Decor. The transactions
contemplated by the Agreement and Plan of Merger with Decor will result in the
issuance of approximately 1,000,000 Class A Shares.
On July 30, 1998, the Company consummated the transactions contemplated by
that certain Stock Purchase Agreement dated July 7, 1998 between the Company and
Bentley International, Inc. ("Bentley"). Pursuant to the agreement, the Company
purchased all of the issued and outstanding shares of Windsor. Windsor engages
in the manufacture and distribution of decorative mirrors and framed prints to
furniture stores, designers, hotels and department stores throughout the United
States. The purchase price paid to Bentley consisted of a cash payment of
$1,706,992 and the delivery of two secured subordinated promissory notes in the
aggregate principal amount of $5,300,000. Each of the Windsor Notes bears
interest at a rate of 8% per annum. One of the Windsor Notes, in the outstanding
principal amount of $3,000,000, matures on September 30, 1998. The second
Windsor Note matures on April 30, 2002 and calls for quarterly payments of
principal and interest commencing on July 1, 1999. Concurrently with the
purchase of the shares of Windsor, the Company purchased 150,000 shares of
common stock of Bentley and a warrant to purchase 300,000 shares of common stock
of Bentley. The purchase price paid to Bentley for such shares and warrant
consisted of the issuance of 1,500,000 Class A Shares.
On August 14, 1998, the Company consummated the transaction contemplated by
that certain Agreement and Plan of Merger dated July 2, 1998 by and among the
Company, 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. Troy engages in the
manufacture and distribution of decorative lighting fixtures. The merger
consideration paid by the Company consisted of a cash payment of $250,000 and
the delivery of 650,000 Class A Shares. Such merger consideration is subject to
an adjustment on July 2, 1999. based upon the fair market value of Class A
Shares, of up to 65,000 Class A Shares and an indeterminate amount of cash. In
addition, the Company agreed to cause Troy to repay $1,700,000 in indebtedness
to certain former shareholders of Troy.
In July and August 1998, the Company issued Convertible Debentures in the
aggregate principal amount of $3,000,000. 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.
The Convertible Debentures are callable by the Company subject to the
following provisions: At any time up to the 240/th/ day from the respective
dates of issuance of the Convertible Debentures, the Company may redeem
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all or any portion of a Convertible Debenture for the cash value of the
principal amount being redeemed, plus any accrued and unpaid interest on that
portion of the principal amount being redeemed. At any time after the 240/th/
day from the respective dates of issuance of the Convertible Debentures, the
Company may redeem all or any portion of a Convertible Debenture for the cash
value of the principal amount being redeemed, plus any accrued and unpaid
interest on that portion of the principal amount being redeemed, plus a
surcharge equal to 10% of the principal amount being redeemed plus 2% of the
principal amount being redeemed for each 30 day period, or portion thereof,
following the 270/th/ day from respective dates of issuance of the Convertible
Debentures.
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 lesser 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 91/st/ day after the respective issuance dates of the A
Warrants through and including the 210/th/ 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.
Holders of A Warrants may not exercise the A Warrants except according to
the following schedule: Except as noted below, after 90 days from the
respective dates of issue of the A Warrants the Holder may exercise 1/6 of the
aggregate number of the A Warrants originally issued on their respective dates
of issue. After each subsequent 30 day period, another 1/6 of the aggregate
number of the A Warrants original issuable on the respective dates of issue may
be exercised. However, if the A Warrants would terminate at an earlier date due
to (i) a conveyance of all or substantially all of the Company's assets, or (ii)
a transaction where greater than 50% of the voting power of the Company is
disposed of solely in exchange for cash, the A Warrants may be exercised on
their date of termination. 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 A
Warrants may be used to purchase whatever assets or securities that the holders
of the A Warrants would have been able to acquire had the A Warrants been
previously used to purchase Class A Shares.
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.
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, of which 21,772,324 are issued
and outstanding as of August 24, 1998. 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.
Class B Shares. The Certificate of Incorporation of the Company authorizes
the issuance of up to 2,500,000 Class B Shares of which 2,105,000 are issued and
outstanding as of August 24, 1998. Each Class B Share is entitled
-17-
<PAGE>
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. Issuance of Class B Shares could, under certain circumstances, have
the effect of delaying or preventing a change in control of the Company and may
adversely affect the rights of holders of 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, of which 552,788
shares were issued and outstanding as of August 24, 1998. 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.
PLAN OF DISTRIBUTION
Pursuant to two Registration Rights Agreements executed in conjunction with
the sale of the Convertible Debentures, the Company has agreed to maintain the
effectiveness of the Registration Statement until the earlier of (i) the date
that all of the Class A Shares underlying the Convertible Debentures and related
A Warrants and B
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<PAGE>
Warrants are sold pursuant to the Registration Statement, (ii) the date the
holders thereof receive an opinion of counsel that all of such securities may be
sold pursuant to Rule 144 promulgated under the Exchange Act or (iii) five years
from the respective dates of issuance of the Convertible Debentures.
All Class A Shares registered hereby are offered by the Selling Security
Holders. The Class A Shares may be sold from time to time by the Selling
Security Holders. Such sales may be made in one or more exchanges or in the
over-the-counter market (including the NASDAQ National Market System) or
otherwise, at prices and at terms then prevailing or at prices related to the
then current market price, or in negotiated transactions. The Class A Shares
may be sold by one or more of the following: (a) a block trade in which the
broker-dealer so engaged will attempt to sell the Class A Shares as agent but
may position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker-dealer as principal and resale by such
broker-dealer for its account pursuant to this Prospectus; (c) certain
distribution in accordance with the rules of such exchange; and (d) ordinary
brokerage transactions and transactions in which the broker solicits purchasers.
In effecting sales, broker-dealers engaged by the Selling Security Holders may
arrange for other broker-dealers to participate in the resales.
Those Class A Shares issued in connection with the Bentley acquisition will
be held in escrow until the later of (i) July 30, 1999, or (ii) the day which
the last pending indemnification claim made by the Company against the Class A
Shares and arising out of the Windsor acquisition has been resolved. After this
date, the Class A Shares will be held by the voting trust created under the
Interiors, Inc. Voting Trust Agreement No. 1, which requires that such Class A
Shares be held by such voting trust until the Class A Shares are transferred or
the parties consent to the termination of the voting trust. Max Munn and Lloyd
R. Abrams will act as the voting trustees of the voting trust.
Those Class A Shares issued in connection with the Troy acquisition will be
held in escrow by U.S. Bank Trust (the "Escrow Agent") until the later of (i)
September 10, 1999, or (ii) the day which the last pending indemnification claim
made by the Company against the former Troy shareholders and arising out of the
Troy acquisition has been resolved. Beginning on July 2, 1999, however, the
Escrow Agent shall sell the Class A Shares over a 10 week period; thereafter,
the Escrow Agent will distribute the proceeds from such sales to the former Troy
shareholders to the extent there are no pending or unpaid claims by the Company
against the former Troy shareholders.
The remaining Class A Shares covered by this Prospectus are issuable upon
(i) exercise of the Debentures, (ii) exercise of the A Warrants, (iii) exercise
of the B Warrants, or (iv) exercise of the Options. See "Material Changes" for
a description of these securities.
The Company will not receive any proceeds from the sale of the Class A
Shares by the Selling Security Holders. The Company has agreed to bear all
expenses of registration of the Class A Shares (excluding fees and expenses of
counsel to the Selling Security Holders). Any commissions, discounts,
concessions or other fees, if any, payable to broker-dealers in connection with
the sale of the Class A Shares will be borne by the Selling Security Holders
selling such Class A Shares. In addition, the Company has agreed to indemnify
certain Selling Security Holders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
Notwithstanding the registration of the Class A Shares, the Selling
Security Holders have no obligation to sell all or any portion of the Class A
Shares, other than those Class A Shares issued in connection with the Troy
acquisition.
USE OF PROCEEDS
The Company will receive no proceeds from the sale of the Class A Shares
offered hereby by the Selling Security Holders. The effect upon the Company of
the conversion of the Convertible Debentures will be the discharge of long term
debt obligations in the aggregate amount of $3,000,000 (assuming that the
Convertible
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<PAGE>
Debentures are converted in full into Class A Shares). A maximum of 1,076,786
Class A Shares can be purchased upon exercise of some or all of the A Warrants.
The Company shall receive, per Class A Share purchased, (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 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
91/st/ day after the respective issuance dates of the A Warrants through and
including the 210/th/ 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 Company will receive a maximum of $236,250 upon exercise
of the B Warrants (assuming that the B Warrants are exercised to purchase the
maximum number of Class A Shares purchasable upon the exercise thereof). The
proceeds received by the Company upon exercise of the A Warrants and B Warrants,
if any, will be used for working capital.
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<PAGE>
SELLING SECURITY HOLDERS
The following table sets forth as of August 24, 1998, and upon
completion of the offering described in this Prospectus, information with regard
to the beneficial ownership of the Company's Common Stock by the Selling
Security Holders. The Selling Security Holders may not have a present intention
of selling the Class A Shares and may offer no Class A Shares for sale or less
than the number of Class A Shares indicated, or may sell the Class A Shares by a
means other than this offering.
<TABLE>
<CAPTION>
Class A Shares Class A Shares
Beneficially Beneficially
Owned Before Offering Class A Owned After Offering
--------------------- Shares to --------------------
Name** Number Percentage/(1)/ be Offered/(2)/ Number Percentage
- ------ ------ ---------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
James McCorry 44,431/(3)/ * 44,431 0 0%
U.S. Bank Trust/(4)/ 1,500,000 4.7% 1,500,000 0 0%
U.S. Bank Trust/(5)/ 650,000/(6)/(7)/ 2.0%/(7)/ 650,000/(7)/ 0 0%
Sovereign Partners, L.P./(6)//(8)/ 2,319,929 7.2% 2,319,929 0 0%
365 Bay Street, 10th Floor
Toronto, Ontario M5H 2V2
Dominion Capital Fund, Ltd./(6)//(9)/ 2,319,929 7.2% 2,319,929 0 0%
365 Bay Street, 10th Floor
Toronto, Ontario M5H 2V2
RBB Bank A.G./(6)//(10)/ 3,282,419 10.3% 3,282,419 0 0%
Burgring 16, 8010 Graz
Austria
Cardinal Capital Management/(6)//(11)/ 112,500 * 112,500 0 0%
- ---------
</TABLE>
* Less than 1%.
** Address provided for beneficial owners of more than 5% of the Company's Class
A Shares.
(1) Based on 32,001,532 Class A Shares, constituting 21,772,324 Class A Shares
issued and outstanding on August 24, 1998, and 10,229,208 Class A Shares to be
offered in connection with the offering described in this Prospectus.
(2) The Selling Shareholders may offer less than the amount of Class A Shares
indicated. No representation is made that any Class A Shares will or will not
be offered for sale.
(3) Based on a price per Class A Share of $1.6875. The number of shares issued
is subject to change according to fluctuations in the price per Class A Share as
reported by NASDAQ. See "Material Changes."
(4) The Class A Shares held by U.S. Bank Trust in escrow will be sold no
earlier than July 30, 1999. See "Plan of Distribution." Until the termination
of such escrow, any Class A Shares shall be placed in a voting trust which shall
be governed by the Interiors Voting Trust Agreement No. 1. Bentley does not
have the power to vote or dispose of such Class A Shares. Accordingly, Bentley
disclaims beneficial ownership of such Class A Shares.
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<PAGE>
(5) The Class A Shares held by U.S. Bank Trust in escrow will be sold no
earlier than July 2, 1999. See "Plan of Distribution." Once sold, the proceeds
will be distributed in varying amounts to the former shareholders of Troy.
(6) The Subscription Agreements relating to the sale of the Convertible
Debentures prohibit the conversion of any portion of a debenture which would
result in the holder being deemed be beneficial owner of more than 4.99% or more
of the issued and outstanding common stock of the Company. The Company has been
advised by the purchasers of the Convertible Debentures that they are not acting
in concert and interpret the foregoing ownership restriction as applicable to
each holder of the Convertible Debentures individually.
(7) Does not include 65,000 Class A Shares which may be issued by the Company
on July 2, 1999 to the former shareholders of Troy as an adjustment to the
consideration received by such former shareholders in connection with the
Company's acquisition of Troy.
(8) Includes (i) 1,918,143 Class A Shares, constituting 200% of the total
number of Class A Shares estimated to be issued upon conversion of the
Convertible Debentures held by such holder if the entire principal amount of
such Convertible Debentures were converted on September 2, 1998 and (ii) 401,786
Class A Shares issuable upon the exercise of A Warrants held by such holder.
(9) Includes (i) 1,918,143 Class A Shares, constituting 200% of the total
number of Class A Shares estimated to be issued upon conversion of the
Convertible Debentures held by such holder if the entire principal amount of
such Convertible Debentures were converted on September 2, 1998 and (ii) 401,786
Class A Shares issuable upon the exercise of A Warrants held by such holder.
(10) Includes (i) 2,746,705 Class A Shares, constituting 200% of the total
number of Class A Shares estimated to be issued upon conversion of the
Convertible Debentures held by such holder if the entire principal amount of
such Convertible Debentures were converted on September 2, 1998 and (ii) 535,714
Class A Shares issuable upon the exercise of A Warrants held by such holder.
(11) Represents Class A Shares issuable upon the exercise of B Warrants.
EXPERTS
The Form 10-KSB for the year ended June 30, 1997 incorporated by
reference in this Registration Statement has been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and is included herein in reliance upon the authority of said firm as
experts in giving said report. Reference is made to said report which includes
an explanatory fourth paragraph with respect to the Company's ability to
continue as a going concern. The Company's Current Report on Form 8-K, as filed
with the Commission on March 25, 1998 and as amended by the Company's Current
Report on Form 8-K/A as filed with the Commission on May 26, 1998 incorporated
by reference in this Registration Statement includes financial statements of
Henlor which have been audited by Thomashow, Brown & Paialii, independent public
accountants, as indicated in their report with respect thereto, and is included
herein in reliance upon the authority of said firm as experts in giving said
report. Company's Current Report on Form 8-K, as filed with the Commission on
April 6, 1998 and as amended by the Company's Current Report on Form 8-K/A as
filed with the Commission on May 29, 1998 incorporated by reference in this
Registration Statement includes financial statements of MSI which have been
audited by Kellogg & Andelson, independent public accountants, as indicated in
their report with respect thereto, and is included herein in reliance upon the
authority of said firm as experts in giving said report.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law empowers a
corporation to indemnify its directors and officers and to purchase insurance
with respect to liability arising out of the performance of their duties as
directors and officers provided that this provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts or omissions not in good
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<PAGE>
faith or which involve intentional misconduct or a knowing violation of law,
(iii) arising under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, vote of shareholders or otherwise.
Article Seven of Interior's Certificate of Incorporation eliminates
the personal liability of directors to the fullest extent permitted by section
102(b)(7) of the Delaware General Corporation Law.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The above discussion of the Company's Bylaws, Certificate of
Incorporation and indemnification agreements and of Section 145 of the Delaware
General Corporation Law is not intended to be exhaustive and is qualified in its
entirety by such Bylaws, Certificate of Incorporation, indemnification
agreements and statute. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
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<PAGE>
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
- --------
The fees and expenses payable by the Company in connection with the sale of
the shares of Common Stock being registered are estimated as follows:
<TABLE>
<CAPTION>
Amount
------
<S> <C>
SEC Filing Fee.............................. $ 3,680.97
Legal Fees and Expenses..................... 10,000*
Accounting Fees............................. 10,000*
Consulting Fees............................. 0
Printing Expenses........................... 1,250*
Miscellaneous............................... 5,000*
Total............................. 29,930.97
---------
</TABLE>
_________
* Estimated
II-1
<PAGE>
Item 15. Indemnification of Directors and Officers.
- --------
Section 145 of the Delaware General Corporation Law empowers a
corporation to indemnify its directors and officers and to purchase insurance
with respect to liability arising out of the performance of their duties as
directors and officers provided that this provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) arising under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, vote of shareholders or otherwise.
Article Seven of the Company's Certificate of Incorporation eliminates
the personal liability of directors to the fullest extent permitted by section
102(b)(7) of the Delaware General Corporation Law.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The above discussion of the Company's Bylaws, Certificate of
Incorporation and indemnification agreements and of Section 145 of the Delaware
General Corporation Law is not intended to be exhaustive and is qualified in its
entirety by such Bylaws, Certificate of Incorporation, indemnification
agreements and statute.
<TABLE>
<CAPTION>
Item 16. Exhibits.
- --------
<S> <C>
4 Instruments Defining Rights of Class A Shareholders.
(Incorporated by reference to Exhibits 4.1, 4.3, and 4.4 of the
Company's Annual Report on Form 10-KSB/A for the year ended June
30, 1996, as amended July 15, 1997).
5 Opinion of counsel as to legality of securities being
registered.*
23.1 Consent of Arthur Andersen LLP, independent auditors.*
23.2 Consent of Kellogg & Andelson, independent auditors.*
23.3 Consent of Thomashow, Brown & Paialii, independent auditors.*
24.1 Power of Attorney (included herein on the signature page).
</TABLE>
* To be filed by amendment.
Item 17. Undertakings.
- --------
The undersigned Company hereby undertakes:
II-2
<PAGE>
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the Prospectus any facts or events arising after the
effective date of this registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in this Registration
Statement;
(iii) Include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in this Registration Statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
-------- -------
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Company pursuant to
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) To remove from registration by means of post-effective amendment any
of the securities which remain unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Mt. Vernon, State of New York, on September 10, 1998.
INTERIORS, INC.
a Delaware corporation
By: /s/ MAX MUNN
------------------------------------------------
Max Munn, President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Max Munn his true and lawful attorney-in-fact and
agent, each acting alone, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign
this Registration Statement and any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorney-in-fact and agent, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-3 was signed by the following persons in
the capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ MAX MUNN President, Chief Executive Officer, September 9, 1998
- ----------------------------------- Director
Max Munn
/s/ ROGER LOURIE
- ----------------------------------- Director September 9, 1998
Roger Lourie
/s/ RICHARD A. JOSEPHBERG
- ----------------------------------- Director September 9, 1998
Richard A. Josephberg
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
4 Instruments Defining Rights of Class A Shareholders. (Incorporated by
reference to Exhibits 4.1, 4.3, and 4.4 of the Company's Annual Report
on Form 10-KSB/A for the year ended June 30, 1996, as amended July 15,
1997).
5 Opinion of counsel as to legality of securities being registered.*
23.1 Consent of Arthur Andersen LLP, independent auditors.*
23.2 Consent of Kellogg & Andelson, independent auditors.*
23.3 Consent of Thomashow, Brown & Paialii, independent auditors.*
24.1 Power of Attorney (included herein on
the signature page).
</TABLE>
* To be filed by amendment.
[EXHIBITS]
II-5
