SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark one)
|X| Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended September 30, 1999
|_| Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _____________________to________________________
Commission file number 0-24352
INTERIORS, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3590047
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
320 Washington Street, Mount Vernon, New York 10553
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(Address of Principal Executive Offices)
(914) 665-5400
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(Issuer's Telephone Number, Including Area Code )
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of November 11, 1999, the
registrant had 32,079,802 and 2,455,000 outstanding shares of Class A Common
Stock and Class B Common Stock, respectively.
Transitional Small Business Disclosure Format (check one) Yes |_| No |X|
<PAGE>
INTERIORS, INC.
Table Of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statement
Consolidated Balance Sheet as of September 30, 1999....................... 2
Consolidated Statements of Operations for the Three Months Ended
September 30, 1999 and 1998............................................ 3
Consolidated Statement of Changes in Stockholders' Equity for the
Three Months Ended September 30, 1999................................... 4
Consolidated Statements of Cash Flows for the Three Months Ended
September 30, 1999 and 1998............................................. 5
Notes to Consolidated Financial Statements................................ 7
Item 2. Management's Discussion and Analysis or Plan of Operation......... 9
PART II OTHER INFORMATION
Item 2. Changes in Securities............................................. 13
Item 5. Other Information................................................. 13
Item 6. Exhibits and Reports on Form 8-K.................................. 14
<PAGE>
PART I
FINANCIAL INFORMATION
Interiors, Inc.
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
September 30,
1999
-------------
<S> <C>
Assets
Current Assets:
Cash and cash equivalents .................................................. $ 3,627,300
Accounts receivable, net of allowance for doubtful accounts of $755,665 .... 16,458,218
Inventories ................................................................ 25,350,091
Other current assets ....................................................... 4,467,767
------------
Total current assets ..................................................... 49,903,376
------------
Property and Equipment, net .................................................. 11,842,170
Goodwill, net ................................................................ 31,992,608
Other Assets ................................................................. 2,093,625
------------
Total assets ............................................................. 95,831,779
============
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable and current maturities of long-term debt ..................... 9,970,103
Accounts payable and accrued liabilities ................................... 25,562,377
------------
Total current liabilities ................................................ 35,532,480
------------
Long Term Debt ............................................................... 13,462,139
Other Long Term Liabilities .................................................. 938,880
Mandatory Redeemable Series B Preferred Stock ................................ 1,000,000
Stockholders' Equity:
Preferred stock, $.01 par value, 5,300,000 shares authorized, 1,204,407
shares issued and outstanding
Series A Convertible Redeemable Preferred Stock, $.01 par value,
2,870,000 shares authorized, 1,002,907 shares issued and outstanding ..... 10,029
Series B Convertible Redeemable Preferred Stock, $.01 par value, 200,000
shares authorized, 200,000 shares issued and outstanding ................. 1,000
Series C Convertible Redeemable Preferred Stock, $.01 par value 6,527
shares authorized, 1,500 shares issued and outstanding ................... 65
Class A common stock, $.001 par value, 60,000,000 shares
Authorized, 31,378,067 shares issued and outstanding ..................... 31,378
Class B common stock, $.001 par value, 2,500,000 shares
Authorized, 2,455,000 shares issued and outstanding ...................... 2,455
Treasury stock ............................................................. (1,317,023)
Additional paid-in-capital ................................................. 65,605,448
Accumulated deficit ........................................................ (16,223,192)
Notes receivable ........................................................... (3,211,880)
------------
Total stockholders' equity ............................................... 44,898,280
------------
Total liabilities and stockholders' equity ................................... $ 95,831,779
============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
Interiors, Inc.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended
September 30,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net Sales.................................................. $ 35,640,122 $ 10,406,470
Cost of Goods Sold ........................................ 22,045,499 6,842,734
------------ ------------
Gross profit............................................. 13,594,623 3,563,736
------------ ------------
Selling, General, and Administrative Expenses ............. 12,207,335 2,873,042
Income from operations................................... 1,387,288 690,694
------------ ------------
Other Expenses (Income)
Interest expense ........................................ 752,329 429,983
Financing charges - non-cash ............................ 83,338 90,150
Anticipated recovery on non-operating receivables and
reduction of reserve for loan guarantee ............... (250,000) --
Consulting and management fees .......................... -- (97,500)
Minority interest ....................................... (54,703) --
------------ ------------
Total other expense (income)........................... 530,964 422,633
------------ ------------
Income before provision (benefit) for income taxes .... 856,324 268,061
Provision (Benefit) for Income Taxes....................... 30,813 (14,914)
------------ ------------
Net Income ................................................ 825,511 282,975
============ ============
Earnings Per Common Share:
Net Income .............................................. 825,511 282,975
Preferred dividends ..................................... 125,363 289,524
Accreted preferred dividends ............................ 500,000 --
============ ============
Net income (loss) attributable to common shares ......... 200,148 (6,549)
============ ============
Net earnings per common share - basic.................... 0.01 0.00
============ ============
Net Earnings from common share -- diluted................ 0.01 0.00
============ ============
Weighted Average Number of Shares Used in Computation
Basic.................................................... 32,857,662 9,467,209
============ ============
Diluted.................................................. $ 32,857,662 $ 10,378,752
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
Interiors, Inc.
Consolidated Statement of Changes in Stockholders' Equity
For the three months ended September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Series A Series B Series C Class A
Preferred Stock Preferred Stock Preferred Stock Common Stock
--------------- --------------- --------------- ------------
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance June 30, 1999 1,066,050 10,660 100,000 1,000 6,527 65 30,173,459 30,173
Conversion of preferred stock to
common stock (63,143) (631) 189,429 190
Shares issued in connection with
employment agreement 53,343 53
Additional shares issued regarding
MHI acquisition 968,271 968
Reversal of previously issued stock
dividend (6,435) (6)
Net income through
September 30, 1999
Balance September 30, 1999 1,002,907 10,029 100,000 1,000 6,527 65 31,378,067 31,378
Class B Additional Accumulated Treasury Note
Common Stock Paid in Capital (Deficit) Stock Receivable Total
------------ --------------- --------- ----- ---------- -----
Shares Amount
------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance June 30, 1999 2,455,000 2,455 65,531,022 (17,048,703) (1,317,023) (3,211,880) $43,997,769
Conversion of preferred stock to
common stock 441 ($0)
Shares issued in connection with
employment agreement 74,947 $75,000
Additional shares issued regarding
MHI acquisition (968) $0
Reversal of previously issued stock
dividend 6 $0
Net income through
September 30, 1999 825,511 $825,511
Balance September 30, 1999 2,455,000 2,455 65,605,448 (16,223,192) (1,317,023) (3,211,880) $44,898,280
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
Interiors, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended
September 30,
---------------------------
1999 1998
------------ ------------
<S> <C>
Cash Flow From Operating Activities:
Net Income .............................................. $ 825,511 $ 282,975
Adjustments To Reconcile Net Income (Loss) To Net Cash
Used In Operating Activities:
Depreciation and amortization ............................ 1,408,955 337,964
NBV of rental property disposed .......................... 597,604 --
Provision for losses on accounts receivable .............. (84,676) --
Anticipated recovery on non-operating receivables and
reduction of reserve for loan guarantee ................ (250,000) --
Non-cash financing charge ................................ 83,338 90,150
Minority interest in subsidiary .......................... (54,703) --
Provision for issuance of stock .......................... 75,000 --
Changes In Assets and Liabilities:
Increase in accounts receivable, trade ................... (1,946,738) (438,458)
Increase in inventories .................................. (2,378,517) (728,371)
Decrease (increase) in prepaid expenses and other
current assets ......................................... (720,633) 165,732
Increase in other assets ................................. (523,777) (511,601)
Increase in notes payable and current
maturities of long term debt ........................... 4,229,337
Increase in accounts payable and accrued
expenses ............................................... 2,539,504 13,599
------------ ------------
Net cash provided by (used in) operating activities ...... (429,079) 3,441,327
------------ ------------
Cash Flow From Investing Activities:
Capital expenditures ..................................... (1,543,068) (81,792)
Acquisition of Bentley International ..................... -- (2,006,992)
Acquisition of Troy Lighting ............................. -- (1,968,378)
------------ ------------
Net cash used in investing activities .................... (1,543,068) (4,057,162)
------------ ------------
Cash Flow From Financing Activities:
Net proceeds from issuance of debt ....................... 1,231,212 2,737,500
Repayments of debt and capitalized lease obligations ..... (2,541,785) (5,267,761)
Net proceeds from exercise of common and preferred
stock warrants ......................................... -- 360,776
------------ ------------
Net cash used in financing activities .................... (1,310,573) (2,169,485)
------------ ------------
Net decrease in cash ..................................... (3,282,713) (2,785,320)
Cash, beginning of period ................................ 6,910,013 4,035,590
============ ============
Cash, end of period ...................................... 3,627,300 1,250,270
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for -
Interest ................................................. 712,961 212,522
Taxes .................................................... 8,605 1,853
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
Interiors, Inc.
Consolidated Statements of Cash Flows (continued)
(Unaudited)
<TABLE>
<S> <C>
Non-Cash Financial Activities:
Conversion of Series A Preferred Stock to Class A Common
Stock .................................................. 441 703
Stock issuance for services ............................. 75,000 42,478
Stock issuance in connection with acquisitions ........... -- 3,505,219
Stock issuance for promissory notes ...................... -- 100,000
Debt issuance in connection with acquisitions ............ -- 2,000,000
Supplemental disclosure of cash flows related to
acquisitions:
Fair value of assets acquired, excluding cash ............ -- 8,532,567
Issuance of common stock ................................. -- (3,505,219)
Issuance of notes payable ................................ -- (2,000,0000)
Payments in connection with acquisitions, net of cash
acquired ............................................... -- (4,096,230)
Liabilities assumed ...................................... -- 7,043,778
Supplemental disclosure of non cash items from investing
and financing activities:
Issuance of common stock in connection with acquisitions -- 3,505,219
Issuance of warrants in connection with private
placements ............................................ -- 75,000
Issuance of warrant in connection with convertible
debentures ............................................ -- 1,000,000
Issuance of Class B Common Shares in connection with
Laurie Munn debt guarantees ........................... -- 397,500
Issuance of debt in connection with acquisitions ........ -- 2,000,000
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE>
Interiors, Inc.
Notes to Consolidated Financial Statements
September 30, 1999
1. Basis Of Presentation
The financial statements included herein are unaudited and have been
prepared by Interiors, Inc., a Delaware corporation (the "Company"), in
accordance with generally accepted accounting principles and pursuant to the
rules and regulations of the Securities and Exchange Commission. In the opinion
of management, these statements include all adjustments necessary to present
fairly the financial condition of the Company and its subsidiaries as of
September 30, 1999 and the results of operations of the Company and its
subsidiaries for the three-month period ended September 30, 1999 and 1998.
The Company's results of operations during the three months ended
September 30, 1999 are not necessarily indicative of any future results. The
financial statements included in this report should be read in conjunction with
the financial statements and notes thereto included in the Company's Annual
Report on Form 10-KSB for the fiscal year ended June 30, 1999, as amended.
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share." In accordance with SFAS No. 128, net
earnings per share amounts ("basic EPS") were computed by dividing net earnings
by the weighted average number of common shares outstanding, excluding any
potential dilution. For purposes of this calculation, common shares include both
Class A Common Stock, par value $.001 per share ("Class A Shares"), and Class B
Common Stock, par value $.001 per share, of the Company. Net earnings per
diluted share amounts ("diluted EPS") were computed assuming potential dilution
from the exercise of outstanding stock options, warrants and other securities.
All periods presented include a deduction for the dividend requirement of the
Company's 10% Series A Cumulative Convertible Preferred Stock, par value $.01
per share ("Series A Preferred Shares"), Series B Preferred Stock, par value
$.01 per share ("Series B Preferred Shares"), and Series C Preferred Stock, par
value $.01 per share ("Series C Preferred Shares").
2. Notes Payable
In January 1999, the Company issued a 24.5% secured promissory note due
October 25, 1999 to the Landis Brothers Corporation in the principal amount of
$1,000,000 (the "Landis Note"). The Landis Note is personally guaranteed by Max
Munn, Chairman, President and Chief Executive Officer of the Company, and his
spouse. On April 1, 1999, the Landis Note was amended to change the interest
rate to 16% per year. Effective September 27, 1999, the maturity date was
extended to October 25, 2000 and the interest rate was set at prime plus 8%;
provided, however, that as long as the prime rate does not exceed 8.25%, the
rate of the note shall be 16%.
On October 4, 1999, the Company consummated a transaction with Limeridge
LLC pursuant to which $5,027,000 principal amount of Series C Preferred Shares,
plus accrued and unpaid dividends, were exchanged for Secured Convertible Notes
due September 30, 2004 bearing interest at 17% per annum (the "Secured Notes").
The Company received aggregate proceeds of $7.5 million and after certain fees
and expenses, net proceeds of approximately $7.2 million in the transaction. The
Secured Notes have an aggregate principal amount of $13,540,626, are secured by
the common stock of Petals, Inc., a wholly owned subsidiary of the Company, and
convertible after September 30, 2000 into Class A Shares at the fair market
value of such securities at the time of conversion. Interest on the Secured
Notes is not payable until the earlier of a redemption, conversion or default of
such securities, however, the Company is required to pay an administrative fee
in connection with the Secured Notes equal to 1% of the outstanding principal
amount of the securities per month until the earlier of a redemption, conversion
or default of such securities. In connection therewith, the Company issued
1,000,000 warrants to purchase Class A Shares at an exercise price of $2.00 per
share (the "Secured Note Warrants"). At any time, the Company may redeem the
Secured Notes at their face value, plus all accrued and unpaid interest, and
redeem the Secured Note Warrants at $0.25 per warrant
3. Shareholders' Equity.
On August 8, 1999, the Company issued to James McCorry, President of
Habitat Solutions, Inc., a wholly owned subsidiary of the Company, an incentive
bonus of 53,343 Class A Shares. On such date, the Company also added 968,271
Class A Shares to the escrow established in connection with the Company's
acquisition of Model Home Interiors, Inc. See Item 2. "Changes in Securities."
7
<PAGE>
As of September 30, 1999, the Company entered into a transaction with
Limeridge LLC pursuant to which $5,027,000 principal amount of the Company's
outstanding Series C Preferred Shares, plus accrued and unpaid dividends, were
exchanged for Secured Notes. See Note 2. "Notes Payable."
8
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Company's
unaudited consolidated financial statements and notes thereto included elsewhere
in this Quarterly Report.
Overview
Interiors, Inc., a Delaware corporation ("Interiors" or the "Company"), is
a designer, manufacturer and marketer of a broad range of decorative accessories
for the residential, commercial, institutional and contract markets, including
museum-quality traditional and contemporary picture frames, framed wall mirrors,
oil paintings and prints under glass, portable and installed lighting and
lighting fixtures, sculptures and decorative tabletop accessories and silk
floral and tree arrangements. 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's silk flower and tree arrangements,
as well as other accessories, are also sold directly to consumers through a
direct mail catalogue, and the Company has recently begun marketing several
products through the internet. The Company also provides design, merchandising
and leasing services to the homebuilding industry. 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 begun 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 the Company believes will lead to better
product design and greater efficiency in manufacturing, shipping and inventory
management, resulting in increased sales.
Results of Operations
Comparison of Three Months Ended September 30, 1999 and 1998
Net Sales for the three months ended September 30, 1999 were $35,640,122
as compared to $10,406,470 for the same period in 1998, an increase of
$25,233,652 or 242%. The increase in net sales was primarily due to the
Company's acquisitions Windsor Art, Inc. ("Windsor") in August 1998, the
acquisition of Troy Lighting Inc. ("Troy") in August 1998, the acquisition of
Model Home Interiors, Inc. ("MHI") in February 1999, the acquisition of
Stylecraft Lamps, Inc. ("Stylecraft") in February 1999, the acquisition of
Petals, Inc. ("Petals") in March 1999 and the acquisition of an interest of CSL
Lighting Manufacturing, Inc. ("CSL") in March 1999.
Cost of goods sold for the three months ended September 30, 1999 increased
to $22,045,499 from $6,842,734 for the same period in 1998, an increase of
$15,202,765. Cost of goods sold includes the costs directly related to the
recognition of the Company's net sales. The increase in cost of goods sold was
primarily due to the Company's acquisitions of Windsor, Troy, MHI, Stylecraft,
Petals and CSL.
As a percentage of net sales, cost of goods sold for the three month
period ended September 30, 1999 decreased to 61.9% from 65.8% for the same
period of the prior year. The concomitant increase in profit margin resulted
primarily from the acquisition of additional businesses with higher margin
structures particularly Stylecraft and Petals.
Selling, general and administrative expenses increased to $12,207,335 for
the three months ended September 30, 1999 as compared to $2,873,042 for the same
period in 1998, an increase of $9,334,293. General and administrative expenses
represent overhead and administrative expenses excluding costs directly related
to operations and the recognition of the Company's net sales. The increase in
general and administrative expenses was primarily due to the Company's
acquisitions of Windsor, Troy, MHI, Stylecraft, Petals and CSL.
As a percentage of net sales, selling, general and administrative expenses
for the three month period ended September 30, 1999 increased to 34.3% from
27.6% for the same period of the prior year. This increase primarily resulted
from acquisitions of new businesses with alternative cost structures,
particularly Petals, a catalogue company with a higher selling expense ratio
than the Company's manufacturing businesses.
9
<PAGE>
Interest expense and non-cash financing charges increased to $835,667 for
the three months ended September 30, 1999 from $520,133 for the same period in
1998 principally due to financing activities associated with the Company's
acquisitions.
Other income reported for the three month period ended September 30, 1999
increased to $304,703 from $97,500 for the same period of 1998. Other income of
$100,000 resulted from the Company's reduction a reserve previously established
for the possibility that the Company would be required to pay up to $300,000
pursuant to its guaranty of indebtedness of Decor Group, Inc. ("Decor"), a
related publicly-traded entity, owed to Austin Financial. The Company reduced
such reserve because the most recent financial report of Decor showed a
significant improvement in operating results thereby reducing the possibility
that the Company would be required to pay on the guaranty. In addition, $150,000
of other income resulted the Company's reduction of a reserve established for
the uncollectibility of $250,000 of its receivable owed to the Company from
Photo-to-Art, Ltd. ("Photo-To- Art"). The Company reduced such reserve because
Photo-To-Art has agreed to pay the Company $150,000 and has begun selling its
products through a national avenue of distribution. The Company currently has a
reserve for the uncollectibility of $100,000 of its $300,000 receivable owed to
the Company by Photo-To-Art.
Liquidity and Capital Resources
Since the beginning of the fiscal year, the Company has primarily used its
cash to support operating activities and for capital expenditures. The Company's
primary sources of cash during this period have been the proceeds raised by the
issuance of the Secured Notes (as defined below) and cash flow from operations.
In addition, as discussed below, the Company currently has formula based secured
financing arrangements with Austin Financial Services, Inc. ("Austin"),
NationsBank, N.A. ("NationsBank") and Finova Growth Finance ("Finova"). At
September 30, 1999, the Company had working capital of $14,370,896.
Net cash used in operating activities during the first three months of
fiscal 2000 was $429,079, principally due to increases in receivables and
inventory caused by normal seasonal activity.
Net cash used in investing activities during the first three months of
fiscal 2000 was $1,543,068, primarily due to increases in Model Home's operating
inventories of approximately $1.1 million, which are classified by the Company
as capital expenditures. Model Home's inventories include interior decorating
items that are not immediately offered for resale. Certain of such items are
leased to customers.
Net cash used in financing activities during the first three months of
fiscal 2000 was $1,310,573.
The Company has secured formula based financing arrangements with several
lenders relating to the operations of its subsidiaries. As of November 3, 1999,
the Company owed Austin Financial approximately $9,202,000 at an annual rate
equal to prime plus 2.0% (10.25% as of the date of this filing), and could
borrow approximately an additional $4,600,000, relating to the operations of
Windsor, Troy, Vanguard and Stylecraft. As of November 3, 1999, the Company owed
NationsBank approximately $2,400,000 at an annual rate equal to prime (8.25% as
of the date of this filing), and could borrow approximately an additional \
$1,600,000, relating to the operations of MHI. As of November 3, 1999 the
Company owed Finova approximately $625,000 at an annual rate equal to prime plus
8.0% (16.25% as of the date of this filing), and could borrow approximately an
additional $875,000, relating to the operations of the Company's A.P.F. Master
Framemakers division. The Company's obligations owed to Finova are personally
guaranteed by Max Munn, the Chairman, President and Chief Executive Officer of
the Company, and his spouse. The Company is currently seeking to replace these
financing arrangements in an effort to reduce its overall interest expense.
There can be no assurance, however, that the Company will be able to obtain
sufficient financing on terms that are equal to or more favorable than its
current arrangements.
On October 4, 1999, the Company consummated a transaction with Limeridge,
LLC pursuant to which $5,027,000 principal amount of Series C Preferred Stock,
par value $.01 per share ("Series C Preferred Shares"), plus accrued and unpaid
dividends, were exchanged for Secured Convertible Notes due September 30, 2004
bearing interest at 17% per annum (the "Secured Notes"). The Secured Notes have
an aggregate principal amount of $13,540,626, are secured by the common stock of
Petals, Inc., a wholly owned subsidiary of the Company, and convertible after
September 30, 2000 into Class A Shares at the fair market value of such
securities at the time of conversion. Interest on the Secured Notes is not
payable until the earlier of a redemption, conversion or default of such
securities, however, the Company is required to pay an administrative fee in
connection with the Secured Notes equal to 1% of the outstanding principal
amount of the securities per month until the earlier of a redemption, conversion
or default of such securities. In connection therewith, the Company issued
1,000,000 warrants to purchase Class A Shares at an exercise price of $2.00 per
share (the "Secured Note Warrants"). At any time, the Company may redeem the
Secured Notes at their face value, plus all accrued and unpaid interest, and
redeem the Secured Note Warrants at $0.25 per warrant. The Company received
aggregate proceeds of $7.5 million and after certain fees and expenses, net
proceeds of approximately $7.2 million in the transaction.
During the past year, the Company has conducted an active acquisition
program using both cash, stock and debt as consideration in its transactions. In
order to accomplish additional acquisitions, the Company anticipates that it
will required to pay additional cash, issue additional shares of stock and/or
incur additional debt.
10
<PAGE>
The Company believes that its current cash, cash flow from operations, and
available lines of credit will enable it to meet its working capital and capital
expenditure requirements through the second quarter of fiscal 2000.
Impact of Inflation
The Company does not believe that inflation has had a material adverse
effect on sales or income during the past several years. Increases in supplied
and other operating costs could adversely effect the Company's operations,
however, the Company believes that it should be able to increase prices to
offset increases in cost of goods sold or other operating costs.
Sales Variations
The Company's net sales are not generally subject to seasonal fluctuations
experienced by certain retailers, however, the Company does experience some
minor variations in the level of sales during the year. The first quarter of the
Company's fiscal year (July through September) is generally the Company's
slowest sales period due to the fact that the summer is typically when retailers
are in their slowest purchasing period. During this time, certain of the
Company's warehouses and factories close for three to five days to take annual
physical inventories and to consolidate vacation periods for certain of the
Company's employees. In addition, the second quarter of the Company's fiscal
year (October through December) is generally the highest sales period for the
Company's subsidiary, Petals.
Year 2000 Compliance
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, in less than one year, computer systems and
software used by many companies may need to be upgraded to comply with Year 2000
requirements. The Company has completed a full evaluation of its Year 2000
compliance needs with respect to its financial computer systems and has
authorized funding of approximately $735,000 and contracted with a Year 2000
consulting service to meet those needs. The Company is currently in the process
of restructuring its computer systems in order to prevent disruptions in
operations involving the transition of dates from 1999 to 2000 and expects to be
fully Year 2000 compliant by such time. If due to an unforeseen circumstance,
the Company cannot achieve complete Year 2000 compliance by the year 2000, the
Company 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. Under a worst case scenario, however, system failure
or miscalculation could result in an inability to process transactions, send
invoices, accept customer orders, provide customers with products and services,
or engage in similar normal business activity. The Company has not completed its
assessment of potential Year 2000 related problems among third parties upon
which it relies, including its suppliers and customers. Substantial business
interruptions at key suppliers or major customers could have a material adverse
effect on the Company
As Year 2000 preparations continue, the Company may discover additional
Year 2000 problems, may not be able to develop, implement or test remediation or
contingency plans, or may find that the costs of these activities exceed current
expectations and become material. The foregoing factors, individually or in the
aggregate, could materially adversely affect the Company's operating results and
could make comparison of historic operating results and balances difficult or
not meaningful.
Forward Looking Statements
When used in this Quarterly Report on Form 10-QSB, the words "may,"
"will," "should," "expect," "believe," "anticipate," "continue," "estimate,"
"project," "intend" and similar expressions are intended to identify
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act regarding events, conditions and
financial trends that may affect the Company's future plans of operations,
business strategy, results of operations and financial condition. The Company
wishes to ensure that such statements are accompanied by meaningful cautionary
statements pursuant to the safe harbor established in the Private Securities
Litigation Reform Act of 1995. Prospective investors are cautioned that any
forward-looking statements are not guarantees of future performance and are
subject to risks and uncertainties and that actual results may differ materially
from those included within the forward-looking statements as a result of various
factors. Such forward-looking statements should, therefore, be considered in
light of various important factors, including those set forth herein and others
set forth from time to time in the Company's reports and registration statements
filed with the Securities and Exchange Commission. The Company disclaims any
intent or obligation to update such forward-looking statements.
In particular, in connection with certain past acquisitions the Company
has disclosed expected additions to its revenues from such transactions. Such
revenue forecasts are forward-looking information and as such are inherently
subject to risk and uncertainty. Important factors, including those set forth
below, could cause the Company's actual results from these
11
<PAGE>
transactions to differ materially and adversely from the projections, or the
additional revenues from these transactions could be offset by a diminution of
other revenues. Accordingly, there can be no assurance that the Company will
achieve the projected revenues, or, if attained, what effect such revenues will
have on the Company's net earnings or earnings per share. In addition, the
Company is particularly susceptible to various factors that may affect future
results, such as: risks relating to the integration in connection with the
acquisitions; hiring and retaining upper management personnel; capital
requirements; identification of growth opportunities; implementation of cost and
accounting controls; and the possible volatility of stock prices.
12
<PAGE>
PART II
OTHER INFORMATION
Item 2. Changes in Securities
On August 8, 1999, the Company issued to the President of Habitat
Solutions, Inc., a wholly owned subsidiary of the Company, an incentive bonus of
53,343 Class A Shares. On such date, the Company also added 968,271 Class A
Shares to the escrow established in connection with the Company's acquisition of
Model Home Interiors, Inc. These issuances were exempt from registration under
Section 4(2) of the Securities Act, as transactions by the issuer not involving
a public offering.
On October 4, 1999, the Company consummated a transaction with Limeridge,
LLC pursuant to which $5,027,000 principal amount, plus accrued and unpaid
dividends, of Series C Preferred Shares were exchanged for Secured Notes. See
Item 2. "Management's Discussion and Analysis or Plan of Operation - Liquidity
and Capital Resources."
Item 5. Other Information.
On or about July 31, 1999, the former shareholders of Troy agreed to sell
650,000 Class A Shares held in escrow for the benefit of such shareholders (the
"Troy Merger Shares") to Dominion Capital Fund, Ltd., Dominion Investment Fund,
LLC and Sovereign Partners, L.P. (collectively, the "Troy Purchasers") for
$1,000,000. Contemporaneously therewith, the Company and the Troy Purchasers
entered into a letter agreement pursuant to which the Troy Purchasers agreed not
to sell or otherwise transfer the Troy Merger Shares until December 25, 1999. If
the Troy Merger Shares are worth less $1,150,500 based on the sixty-day average
of the Class A Shares following such date, the Company must either pay cash or
issue additional Class A Shares to the Troy Purchasers in the amount of the
shortfall.
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description
- ----------- -----------
4.1 Secured Convertible Note Purchase Agreement dated as of September
30, 1999 between Limeridge LLC and Interiors, Inc.
4.2 Secured Convertible Note dated as of September 30, 1999 in favor of
Limeridge LLC
4.3 Common Stock Purchase Warrant dated as of September 30, 1999.
10.1 Registration Rights Agreement dated as of September 30, 1999 between
Limeridge LLC and Interiors, Inc.
10.2 Security Agreement dated as of September 30, 1999 between Limeridge
LLC, Interiors, Inc. and Petals, Inc.
10.3 Stock Purchase Agreement dated as of July 30, 1999 by and among
Interiors, Barry R. Jackson, U.S. Bank Trust and the entities listed
on Schedule A annexed thereto*
10.4 Letter Agreement dated August 2, 1999 by and among Interiors,
Sovereign, Dominion and Dominion Investment Fund, LLC.*
11 Computation of Earnings per Share
27 Financial Data Schedule
* Incorporated by reference to Annual Report on Form 10-KSB for the year ended
June 30, 1999 filed on October 13, 1999;
(b) Reports on Form 8-K
None
14
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: INTERIORS, INC.
November 15, 1999 By: /s/ Max Munn
---------------------------------------
Max Munn
President and Chief Executive
Officer
November 15, 1999 By: /s/ Richard P. Belenski
---------------------------------------
Richard P. Belenski
Chief Financial and Principal
Accounting Officer
15
================================================================================
SECURED CONVERTIBLE NOTE PURCHASE AGREEMENT
among
Interiors, Inc.
and
Limeridge LLC
September 30, 1999
================================================================================
THE GOLDSTEIN LAW GROUP, P.C.
65 Broadway, 10th Floor
New York, N.Y. 10006
Telephone: (212) 809-4220
Facsimile: (212) 809-4228
<PAGE>
SECURED CONVERTIBLE NOTE PURCHASE AGREEMENT
THIS SECURED CONVERTIBLE NOTE PURCHASE AGREEMENT, dated as of September
30, 1999 (the "Agreement"), among Limeridge LLC (hereinafter referred to as the
"Investor"), and Interiors, Inc., a corporation organized and existing under the
laws of the State of Delaware (Nasdaq Small Cap symbol "INTXA", the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
and the Investors shall purchase up to $13,540,626 principal amount of Notes (as
defined below), and Warrants to purchase an aggregate of 1,000,000 Warrant
Shares, in exchange for the Cash Purchase Price (as defined below); and
WHEREAS, such investment will be made in reliance upon the provisions of
Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the United
States Securities Act of 1933, as amended, and the regulations promulgated
thereunder (the "Securities Act"), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments in Common Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1 "Additional Shares" shall have that meaning set forth in
Section 2.4 below.
Section 1.2 "Bid Price" shall mean the closing bid price (as reported by
Bloomberg L.P.) of the Common Stock on the Principal Market.
Section 1.3 "Business Day" means any day except Saturday, Sunday and any
day that shall be a Federal legal holiday or a day on which banking institutions
in the State of New York are authorized or required by law or other government
actions to close.
Section 1.4 "Capital Shares" shall mean the Common Stock and any shares of
any other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
Section 1.5 "Capital Shares Equivalents" shall mean any securities,
rights, or obligations that are convertible into or exchangeable for, or giving
any right to subscribe for, any Capital Shares of the Company or any warrants,
options or other rights to subscribe for or purchase Capital Shares or any such
convertible or exchangeable securities.
<PAGE>
Section 1.6 "Closing" shall mean the closing of the purchase and sale of
the Notes and Warrants pursuant to Article II below.
Section 1.7 "Closing Date" shall mean the date each of the conditions
precedent to Closing as set forth in Section 2.6 below, have been satisfied or
waived in writing, and a Closing occurs.
Section 1.8 "Collateral" shall have the definition as set forth in the
Security Agreement.
Section 1.9 "Common Stock" shall mean the Company's Class A Common Stock,
$0.001 par value per share.
Section 1.10 "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of (i) 150%
of the Underlying Shares calculated as of the Trading Day immediately preceding
the filing date of the Registration Statement, and (ii) 100% of the Warrant
Shares.
Section 1.11 "Escrow Agent" shall mean the law firm of The Goldstein Law
Group, P.C., pursuant to the terms of the Escrow Agreement.
Section 1.12 "Escrow Agreement" shall mean the Escrow Agreement attached
hereto as Exhibit B.
Section 1.13 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.14 "Exchange Agreement" shall mean the Exchange Agreement of
even date herewith executed by the Company, Petals, Inc., and the Investors,
annexed hereto as Exhibit C.
Section 1.15 "Legend" shall have the meaning set forth in Article VIII
below.
Section 1.16 "Material Adverse Effect" shall mean any effect on the
business, operations, properties, prospects, or financial condition of the
Company and/or its subsidiaries that is material and adverse to the Company and
its subsidiaries and affiliates, taken as a whole, and/or any condition,
circumstance, or situation that would prohibit or otherwise in any material
respect interfere with the ability of the Company to enter into and perform any
of its obligations under this Agreement, the Escrow Agreement, the Security
Agreement, the Registration Rights Agreement, the Exchange Agreement, the Notes,
or Warrants in any material respect.
Section 1.17 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.18 "Notes" shall mean the Secured Convertible Notes of the
Company to be issued on the Closing Date in the form annexed hereto as Exhibit
A.
2
<PAGE>
Section 1.19 "Outstanding" when used with reference to shares of Common
Stock, preferred stock of the Company, or Capital Shares (collectively the
"Shares"), shall mean, at any date as of which the number of such Shares is to
be determined, all issued and outstanding Shares, and shall include all such
Shares issuable in respect of outstanding scrip or any certificates representing
fractional interests in such Shares; provided, however, that Outstanding shall
not mean any such Shares then directly or indirectly owned or held by or for the
account of the Company.
Section 1.20 "Person" shall mean an individual, a corporation, a
partnership, an association, a limited liability company, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.21 "Preferred Stock" shall mean the Company's Series C
Convertible Preferred Stock which is being exchanged by the Investor pursuant to
the Exchange Agreement.
Section 1.22 "Prime Rate" shall mean the rate of interest per annum
publicly announced from time to time by the principal New York City office of
the Chase Manhattan bank, or its successor, as its prime rate (which rate shall
change when and as such prime rate changes).
Section 1.23 "Principal Market" shall mean the Nasdaq National Market, the
Nasdaq Small Cap Market, the American Stock Exchange, or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock.
Section 1.24 "Purchase Price" shall mean $13,540,626, of which (a) as set
forth in Section 2.2 below, an aggregate of $5,027,000 of such Purchase Price is
payable by the exchange of the Preferred Stock, and (b) $7,500,000 of the
Purchase Price is payable to the Company by bank cashiers' check or wire
transfer of immediately available funds (the "Cash Purchase Price"), and (c)
$1,013,626 of the Purchase Price is in the form of monies owed by the Company
due to the Investor as set forth on Schedule A annexed hereto.
Section 1.25 "Registrable Securities" shall have the definition set forth
in the Registration Rights Agreement.
Section 1.26 "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investors on
the Subscription Date annexed hereto as Exhibit D.
Section 1.27 "Registration Statement" shall mean a registration statement
on Form S-3 (or other available form) for the registration of the resale by the
Investors of the Registrable Securities under the Securities Act.
Section 1.28 "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.29 "SEC" shall mean the Securities and Exchange Commission.
3
<PAGE>
Section 1.30 "Section 4(2)" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.31 "Securities" shall mean the Notes, Underlying Shares,
Warrants, Warrant Shares, and Additional Shares.
Section 1.32 "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.33 "Security Agreement" shall mean the agreement regarding the
Investors security interest in the Collateral, entered into between the Company,
Petals, Inc., and the Investors on the Subscription Date in the form annexed
hereto as Exhibit E.
Section 1.34 "Subscription Date" shall mean the date on which this
Agreement and all Exhibits and attachments hereto are executed and delivered by
the parties hereto.
Section 1.35 "Trading Day" shall mean any day during which the Principal
Market shall be open for business.
Section 1.36 "Underlying Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to conversion of the Notes.
Section 1.37 "Warrants" shall mean the Common Stock Purchase Warrants to
be issued on the Closing Date in the form annexed hereto as Exhibit F.
Section 1.38 "Warrant Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to the exercise of the Warrants.
ARTICLE II
Purchase and Sale of the Notes and Warrant
Section 2.1 Closing. On the Business Day that all of the conditions in
Section 2.5 have been satisfied and a Closing occurs, the Company will sell and
the Investor will buy, in reliance upon the representations and warranties
contained in this Agreement, and upon the terms and satisfaction of each of the
conditions set forth in Section 2.5 below, an aggregate of $13,540,626 principal
amount of Notes; and Warrants to purchase 1,000,000 Warrant Shares, in exchange
for the Purchase Price.
4
<PAGE>
Section 2.2 Forms of Payment/Deliveries.
(a) On the Subscription Date, the Company shall send to the Escrow Agent
the original Notes and Warrants being issued hereby, and the Investor shall wire
transfer to the Escrow Agent, the Cash Purchase Price and shall deliver to the
Escrow Agent the original Preferred Stock to be held in escrow by the Escrow
Agent, pending satisfaction of all of the conditions to the Closing and the
deliveries by the Company specified herein.
(b) Against delivery by the Company to the Escrow Agent of certificates
evidencing up to an aggregate principal amount of Notes of $7,500,000, the
Investor shall irrevocably instruct and cause the Escrow Agent to pay the Cash
Purchase Price by wire transfer of immediately available funds from the Escrow
Agent to the Company net of all fees payable as per the terms hereunder. In
addition, on the Closing Date, upon the consummation of the exchange
contemplated by the Exchange Agreement, the Investor shall pay the remainder of
the Purchase Price by causing and instructing the Escrow Agent to deliver to the
Company the original Preferred Stock against delivery by the Company to the
Escrow Agent of certificates evidencing up to $6,040,626 principal amount of
Notes.
Section 2.3 Additional Shares. If a "blackout period" (which is defined as
any period in which the effectiveness of the Registration Statement is suspended
for a reason other than a suspension of the Registration Statement arising
because the Company possesses material non-public information) occurs at any
time after the first anniversary of the Closing Date, and the Bid Price on the
Trading Day immediately preceding such "blackout period" (the "Old Bid Price")
is greater than the Bid Price on the first Trading Day following such "blackout
period" (the "New Bid Price"), the Company shall issue to the Investor the
number of additional shares of Common Stock equal to the difference between (y)
the product of (i) the number of Underlying Shares and Warrant Shares held by
the Investor during such "blackout period" that are or were not otherwise freely
tradable and (ii) the Old Bid Price, divided by the New Bid Price and (z) the
number of Underlying Shares and Warrant Shares held by the Investor during such
blackout period that were not otherwise freely tradable during such blackout
period. In the event a "blackout period" lasts for more than 30 calendar days
then the Investor shall have the right to demand the Company to redeem the Notes
and Warrants pursuant to the redemption provision of the Notes and Warrants.
Section 2.4 Liquidated Damages. In addition to any other provisions for
liquidated damages in this Agreement or any Exhibit annexed hereto, if that the
Company does not deliver unlegended, freely tradable Common Stock in connection
with the sale of such Common Stock by the Investor as set forth in Article VIII
below within five Business Days of surrender by the Investor of the Common Stock
certificate in accordance with the terms and conditions set forth in Article
VIII below (such date of receipt is referred to as the "Receipt Date"), the
Company shall pay to the Investor, in immediately available funds, upon demand,
as liquidated damages for such failure and not as a penalty, for every day
thereafter for the first ten days, two percent of the product of (i) the number
of shares of Common Stock undelivered and (ii) the Bid Price on the Receipt
Date, and three percent of the product of (i) the number of shares of Common
Stock undelivered and (ii) the Bid Price on the Receipt Date, for every day
thereafter that the unlegended shares of Common Stock are not delivered, which
liquidated damages shall accrue
5
<PAGE>
from the sixth Business Day after the Receipt Date. The parties hereto
acknowledge and agree that the sums payable pursuant to the Registration Rights
Agreement and as set forth above, and the obligation to issue Additional Shares
under Section 2.4 above, shall constitute liquidated damages and not penalties.
The parties further acknowledge that the amount of loss or damages likely to be
incurred in the event of a failure to deliver unlegended, freely tradable shares
of Common Stock cannot be precisely estimated, and the parties are sophisticated
business parties and have been represented by sophisticated and able legal and
financial counsel and negotiated this Agreement at arm's length. Notwithstanding
the above, in the event that the Company does not deliver unlegended Common
Stock in connection with the sale of such Common Stock by the Investor as set
forth in Article VIII below within five Business Days of the Receipt Date, the
Company shall also pay to the Investor, in immediately available funds, interest
(at the then current Prime Rate), based upon the product of (i) the number of
undelivered unlegended freely tradable shares, and (ii) the Bid Price of the
Common Stock on the Receipt Date, undelivered for every day thereafter that the
unlegended shares of Common Stock are not delivered. Any and all payments
required pursuant to this paragraph shall be payable only in cash, and any
payment hereunder shall not relieve the Company of its delivery obligations
under this Section or elsewhere in this Agreement or any Exhibit annexed hereto.
Section 2.5 Conditions to Closing. Upon the terms and satisfaction of each
of the following conditions, and in reliance upon the representations and
warranties contained in this Agreement, the Company will sell and the Investor
will buy the Notes and Warrants:
(A) Acceptance by the Investor of a satisfactory Secured
Convertible Note Purchase Agreement (including all Exhibits annexed
hereto) and due execution by all parties of this Agreement and the
Exhibits annexed hereto;
(B) Delivery into escrow by the Company of the original Notes,
and the original Warrants to be issued, as more fully set forth in the
Escrow Agreement;
(C) All representations and warranties of the Company
contained herein and in all Exhibits (and the representations and
warranties of Petals, Inc. contained in the Security Agreement) annexed
hereto shall remain true and correct in all material respects as of the
Closing Date;
(D) The Investor shall have received an opinion of counsel
substantially in the form of Exhibit G annexed hereto;
(E) The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the Notes,
and Warrants, or shall have the availability of exemptions therefrom. At
the Closing Date, all laws and regulations to which the Company and the
Investor are subject shall legally permit the sale and issuance of the
Notes and Warrants;
(F) The Company and Petals, Inc. shall have executed the
financing statements and Security Agreement (as set forth in Section 4.37
below) and authorized the Investor to file same with the proper state
authorities in the states of New York and Delaware giving notice of the
Investor's exclusive security interest in the Collateral;
6
<PAGE>
(G) The Company shall have authorized the payment of fees out
of the escrowed proceeds pursuant to Section 12.7 below; and
(H) The Company shall have obtained consents for the Company
to participate in this transaction from any party necessary to complete
this transaction.
ARTICLE III
Representations and Warranties of the Investor
The Investor represents and warrants to the Company that:
Section 3.1 Intent. Without limiting its ability to resell the Securities
pursuant to an effective registration statement or an exemption from
registration, the Investor has no present arrangement (whether or not legally
binding) at any time to sell the Securities to or through any person or entity;
provided, however, that by making the representations herein, the Investor does
not agree to hold the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with
federal and state securities laws applicable to such disposition. Without
limiting its ability to resell the Securities, the Investor represents that the
Notes and Warrants are purchased for the Investor's own account, for investment
purposes only and not for distribution or resale to others. The Investor agrees
that it will not sell the Securities unless they are registered under the
Securities Act or unless an exemption from such registration is available.
Section 3.2 Accredited Investor/Investment Experience. The Investor is an
accredited investor (as defined in Rule 501 of Regulation D), and has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in the Notes and Warrants. As of the
Closing Date, the Investors (i) has adequate means of providing for its current
need and possible personal contingencies, (ii) has no need for liquidity in this
investment, (iii) is able to bear the substantial economic risk of an investment
in the Notes and Warrant for an indefinite period, and (iv) can afford the
complete loss of its investment. The Investor recognizes the highly speculative
nature of this investment. The Investor acknowledges that it has carefully read
the SEC Documents and the terms and conditions of the Notes and Warrants and
fully understands the contents thereof.
Section 3.3 Authority. This Agreement has been duly authorized and validly
executed and delivered by the Investor and is a valid and binding agreement of
the Investor enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application. The decision to invest and the
execution and delivery of this Agreement by the Investor, the performance by the
Investor of its obligations hereunder and the consummation by the Investor of
the transactions contemplated hereby have been duly authorized and requires no
other proceedings on the part of the Investor. This Agreement has been duly
executed and delivered by the Investor and, assuming the due execution and
delivery hereof and acceptance thereof by the Company, will constitute the
legal,
7
<PAGE>
valid and binding obligations of the Investor, enforceable against the Investor
in accordance with its terms.
Section 3.4 Not an Affiliate. The Investor is neither an officer, director
or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company.
Section 3.5 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated hereby and thereby, and
compliance with the requirements thereof, will not (a) violate the
organizational documents of any of the Investor; (b) violate any law, rule,
regulation, order, writ, judgment, injunction, decree or award binding on any of
the Investor, or, to the knowledge of the Investor; (c) violate any provision of
any indenture, instrument or agreement to which the Investor is a party or are
subject, or by which the Investor or any of its assets is bound; (d) conflict
with or constitute a material default thereunder; (e) result in the creation or
imposition of any lien pursuant to the terms of any such indenture, instrument
or agreement, or constitute a breach of any fiduciary duty owed by the Investor
to any third party; or (f) require the approval of any third-party (which has
not been obtained) pursuant to any material contract, agreement, instrument,
relationship or legal obligation to which the Investor is subject or to which
any of its assets, operations or management may be subject.
Section 3.6 Disclosure; Access to Information. The Investor has received
all documents, records, books and other information pertaining to Investor's
investment in the Company that have been requested by the Investor. The Investor
has had the opportunity to ask questions of, and receive answers from, the
Company.
Section 3.7 Manner of Sale. At no time was the Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising in
connection with the offer and sale of the Notes and Warrants.
Section 3.8 Exemption from Registration. The Investor acknowledges and
understands that the Notes and Warrant have not been registered under the
Securities Act by reason of an exemption under the provisions of the Securities
Act.
Section 3.9 No Legal, Tax or Investment Advice. The Investor understands
that nothing in this Agreement or any other materials presented to the Investor
in connection with the purchase and sale of the Notes and Warrants constitutes
legal, tax or investment advice. The Investor has relied on, and have consulted
with, such legal, tax and investment advisors as the Investor, in its sole
discretion, has deemed necessary or appropriate in connection with its purchase
of the Notes and Warrants.
Section 3.10 No Advertisements. The Investor is not purchasing the Notes
and Warrants as a result of, or subsequent to, any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media or broadcast over television or radio, or presented at any seminar or
meeting.
8
<PAGE>
ARTICLE IV
Representations and Warranties of the Company
The Company represents and warrants that:
Section 4.1 Organization of the Company. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted except as described in the SEC
Documents. The Company is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
other than those (individually or in the aggregate) in which the failure so to
qualify would not reasonably be expected to have a Material Adverse Effect. The
Company is not in violation of any material terms of its Articles of
Incorporation (as defined below) or Bylaws (as defined below).
Section 4.2 Authority. (i) The Company has the requisite corporate power
and authority to enter into and perform its obligations under this Agreement,
and all Exhibits annexed hereto, and to issue the Securities, (ii) the
execution, issuance and delivery of this Agreement, and all Exhibits annexed
hereto by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company, its
shareholders, or its Board of Directors is necessary, and (iii) this Agreement,
and all Exhibits annexed hereto, have been duly executed and delivered by the
Company and constitute valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws relating to, or affecting generally the enforcement of, creditors' rights
and remedies or by other equitable principles of general application. Upon their
issuance and delivery pursuant to this Agreement, the Securities will be validly
issued, fully paid and nonassessable, and will be free of any liens or
encumbrances other than those created hereunder or by the actions of the
Investor; provided, however, that the Securities are subject to restrictions on
transfer under state and/or federal securities laws. The issuance and sale of
the Securities will not give rise to any preemptive right or right of first
refusal or right of participation on behalf of any person other than the
Investor pursuant to the terms of this Agreement.
Section 4.3 Capitalization. As of September 27, 1999, the authorized
capital stock of the Company consists of 60,000,000 shares of Class A Common
Stock, $0.001 par value, of which 31,378,067 shares of Class A Common Stock are
outstanding, 2,500,000 shares of Class B Common Stock, of which 2,445,000 shares
of Class B Common Stock are outstanding, and 5,300,000 shares of preferred
stock, of which 1,002,907 of Series A Preferred Stock are outstanding, 200,000
shares of Series B Preferred Stock are outstanding, and 6,527 shares of Series C
Preferred Stock are outstanding. All of the outstanding shares of the Company's
capital stock have been duly and validly authorized and issued and are fully
paid and nonassessable. No shares of Common Stock or preferred stock of the
Company are entitled to preemptive or similar rights. Except as disclosed in the
SEC Documents or on Schedule 4.3 annexed hereto, there are no outstanding
options, warrants, rights to subscribe to, calls or commitments of any character
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whatsoever relating to, or, except as a result of the purchase and sale of the
Notes and Warrants, securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings, or
arrangements by which the Company or any subsidiary is or may become bound to
issue additional shares of Common Stock or securities or rights convertible or
exchangeable into shares of Common Stock. Except as disclosed in the SEC
Documents or on Schedule 4.3 annexed hereto, and to the knowledge of the
Company, no Person or group of Persons beneficially owns (as determined pursuant
to Rule 13d-3 promulgated under the Exchange Act) or has the right to acquire by
agreement with or by obligation binding upon the Company beneficial ownership of
in excess of five percent of the Common Stock.
Section 4.4 Common Stock. The Company has registered its Common Stock
pursuant to Section 12(g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and such Common Stock is currently
listed or quoted, and trades, on the Nasdaq Small Cap Stock Market, and the
Company is in full compliance with the rules and regulations of the Nasdaq Small
Cap Stock Market.
Section 4.5 SEC Documents. The Company has delivered or made available to
the Investor true and complete copies of the SEC Documents filed by the Company
with the SEC during the twelve months immediately preceding the date hereof. The
Company has not provided to the Investor any information that, according to
applicable law, rule or regulation, should have been disclosed publicly prior to
the date hereof by the Company, but which has not been so disclosed. The SEC
Documents comply in all material respects with the requirements of the
Securities Act and/or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder and none of the SEC Documents
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii) in
the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). The Company has filed a Form 12b-25 on June 30, 1999, relating to
its Form 10-K for the year ended June 30, 1999 and agrees that it shall file the
aforementioned Form 10-K in a timely manner as set forth on the Form 12b-25.
Section 4.6 Valid Issuances. Neither the issuance of the Securities, nor
the Company's performance of its obligations under this Agreement, and all
Exhibits annexed hereto, will (i) result in the creation or imposition by the
Company of any liens, charges, claims or other encumbrances upon the Securities,
issued or issuable hereunder, or any of the assets of the Company other than the
security interest granted under the Security Agreement, or (ii) entitle the
holders of Outstanding
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Capital Shares to preemptive or other rights to subscribe to or acquire any
Capital Shares or other securities of the Company.
Section 4.7 No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates, nor any distributor
or any person acting on its or their behalf (i) has conducted or will conduct
any general solicitation (as that term is used in Rule 502(c) of Regulation D)
or general advertising in connection with the offer and sale of the Notes and
Warrants, or (ii) has made any offers or sales of any security or solicited any
offers to buy any security under any circumstances that would require
registration of the Notes and Warrants under the Securities Act, except as
contemplated by this Agreement.
Section 4.8 Corporate Documents. The Company has furnished or made
available to the Investor true and correct copies of the Company's Articles of
incorporation, as amended and in effect on the date hereof (the "Articles of
Incorporation"), and the Company's bylaws, as amended and in effect on the date
hereof (the "ByLaws"). The Articles of Incorporation and ByLaws are in full
force and effect as of the Closing Date, without change or amendment.
Section 4.9 No Conflicts. The execution, delivery and performance of this
Agreement (including all Exhibits annexed hereto) by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby,
including without limitation the issuance of the Securities, do not and will not
(i) result in a violation of the Articles of Incorporation or ByLaws or (ii)
conflict with, or constitute a material default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, patent, patent license, indenture, instrument or any "lock-up" or
similar provision of any underwriting or similar agreement to which the Company
is a party, or (iii) result in a violation of any federal, state or local law,
rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations) applicable to the Company or by which any
property or asset of the Company is bound or affected, nor is the Company
otherwise in violation of, in conflict with, or in default under, any of the
foregoing except as would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect. The business of the Company is not
being conducted in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations that either singly or in the
aggregate would not reasonably be expected to have a Material Adverse Effect.
Except for the filing of a Form D within 15 days after the Closing Date (which
the Company agrees it will file), and such other form(s) required by "blue sky"
laws, the Company is not required under federal, state or local law, rule or
regulation to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement or issue
and sell the Note, or Warrant, in accordance with the terms hereof; provided
that, for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Investor herein.
Section 4.10 No Material Adverse Change. Since January 1, 1999, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents, or as publicly announced.
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Section 4.11 No Undisclosed Liabilities. The Company has no liabilities or
obligations, known or unknown, absolute or otherwise (individually or in the
aggregate), which are not disclosed in the SEC Documents or otherwise publicly
announced, or as incurred in the ordinary course of the Company's businesses
since January 1, 1999, or which, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.
Section 4.12 No Undisclosed Events or Circumstances. Since January 1,
1999, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company, but which
has not been so publicly announced or disclosed in the SEC Documents.
Section 4.13 Litigation and Other Proceedings. Except as set forth in the
SEC Documents, there are no lawsuits or proceedings pending or to the knowledge
of the Company threatened, against the Company, nor has the Company received any
written or oral notice of any such action, suit, proceeding or investigation,
which would reasonably be expected to have a Material Adverse Effect. Except as
set forth in the SEC Documents, no judgment, order, writ, injunction or decree
or award has been issued by or, so far as is known by the Company, requested of
any court, arbitrator or governmental agency which would be reasonably expected
to result in a Material Adverse Effect.
Section 4.14 Accuracy of Reports and Information. The Company is in
compliance, to the extent applicable, with all reporting obligations under
either Section 12(b), 12(g) or 15(d) of the Exchange Act. The Company has
complied in all material respects and to the extent applicable with all
reporting obligations, under either Section 13(a) or 15(d) of the Exchange Act
for a period of at least twelve (12) months immediately preceding the Closing
Date.
Section 4.15 Acknowledgment of Dilution. The Company is aware and
acknowledges that issuance of Common Stock upon the conversion of the Notes
and/or exercise of the Warrants, may result in dilution of the outstanding
shares of Common Stock, which dilution may be substantial under certain market
conditions. The Company further acknowledges that its obligation to issue
Additional Shares in accordance with the terms herein, Underlying Shares in
accordance with the Notes, and Warrant Shares in accordance with the Warrant is
unconditional and absolute regardless of the effect of any such dilution.
Section 4.16 Employee Relations. The Company is not involved in any labor
dispute, nor, to the knowledge of the Company, is any such dispute threatened
which could reasonably be expected to have a Material Adverse Effect. None of
the Company's employees is a member of a union and the Company believes that its
relations with its employees are good.
Section 4.17 Insurance. The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company is engaged. The Company has no notice to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires, or obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a Material
Adverse Effect.
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Section 4.18 Board Approval. The Board of Directors of the Company has
concluded, in its good faith business judgment that the issuances of the
securities of the Company in connection with this Agreement are in the best
interests of the Company.
Section 4.19 Integration. The Company, any of its affiliates, or any
person acting on its or their behalf has not, shall not, and shall use its best
efforts to ensure that no affiliate shall, directly or indirectly, sell, offer
for sale or solicit offers to buy or otherwise negotiate in respect of any
security of the Company that would be integrated with the offer or sale of the
Notes and Warrants in a manner that would require the registration under the
Securities Act of the issue, offer or sale of the Notes and Warrants to the
Investor. The Notes and Warrants are being offered and sold pursuant to the
terms hereunder, are not being offered and sold as part of a previously
commenced private placement of securities.
Section 4.20 Patents and Trademarks. The Company has, or has rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses, trade secrets and other
intellectual property rights which are necessary for use in connection with its
business or which the failure to so have would have a Material Adverse Effect
(collectively, the "Intellectual Property Rights"). To the best knowledge of the
Company, none of the Intellectual Property Rights infringe on any rights of any
other Person, and the Company either owns or has duly licensed or otherwise
acquired all necessary rights with respect to the Intellectual Property Rights.
The Company has not received any notice from any third party of any claim of
infringement by the Company of any of the Intellectual Property Rights, and has
no reason to believe there is any basis for any such claim. To the best
knowledge of the Company, there is no existing infringement by another Person on
any of the Intellectual Property Rights.
Section 4.21 Use of Proceeds. The net proceeds are to be used for general
working capital and not for the repayment of any judgment.
Section 4.22 Subsidiaries. Except as disclosed in the SEC Documents, the
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, partnership, association or other business entity.
Petals, Inc. ("Petals") is a wholly owned subsidiary of the Company. The Company
is the beneficial owner all of the outstanding shares of Petals (a total of 411
shares of Petals common stock). Petals is authorized to, and has the power to
enter into, and perform its obligations as set forth in this Agreement and all
Exhibits annexed hereto.
Section 4.23 No Private Placements. Except as disclosed in the SEC
Documents and in Schedule 4.3 annexed hereto, the Company has not conducted a
private placement of its Common Stock or of any debt or equity instrument
convertible into Common Stock within one year prior to the Closing Date. Except
for the transactions contemplated hereby, there are no outstanding securities
issued by the Company that are entitled to registration rights under the
Securities Act. Except as disclosed in the SEC Documents, there are no
outstanding securities issued by the Company that are directly or indirectly
convertible into, exercisable into, or exchangeable for, shares of Common Stock,
that have anti-dilution or similar rights that would be affected by the issuance
of the Securities.
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Section 4.24 Permits; Compliance. The Company and each of its subsidiaries
is in possession of and operating in compliance with all franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted
(collectively, the "Company Permits") all of which are valid and in full force
and effect, and there is no action pending or, to the knowledge of the Company,
threatened regarding the suspension or cancellation of any of the Company
Permits except for such Company Permits, the failure of which to possess, or the
cancellation, or suspension of which, would not, individually or in the
aggregate, have a Material Adverse Effect. To the Company's knowledge, neither
the Company nor any of its subsidiaries is in material conflict with, or in
material default or material violation of, any of the Company Permits. Since
January 1, 1999 neither the Company nor any of its subsidiaries has received any
notification with respect to possible material conflicts, material defaults or
material violations of applicable laws.
Section 4.25 Taxes. Except where non-compliance would not have a Material
Adverse Effect, all federal, state, city and other tax returns, reports and
declarations required to be filed by or on behalf of the Company have been filed
and such returns are complete and accurate and disclose all taxes (whether based
upon income, operations, purchases, sales, payroll, licenses, compensation,
business, capital, properties or assets or otherwise) required to be paid in the
periods covered thereby.
Section 4.26 No Bankruptcy. The Company is aware of no facts or claims
against it that would, and the Company has no present intention to, liquidate
the assets of the Company and/or seek bankruptcy protection either voluntarily
or involuntarily.
Section 4.27 No Default. Except where non-compliance would not have a
Material Adverse Effect, the Company is not in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust or other material instrument
or agreement to which it is a party or by which it is or its property is bound.
Section 4.28 Absence of Events of Default. Except as set forth in the SEC
Documents and this Agreement, no Event of Default, as defined in any agreement
to which the Company is a party, and no event which, with the giving of notice
or the passage of time or both, would become an Event of Default (as so
defined), has occurred and is continuing, which would have a Material Adverse
Effect.
Section 4.29 Governmental Consent, etc. Except for the filing of the Form
D and any state securities filings, no consent, approval or authorization of or
designation, declaration or filing with any governmental authority on the part
of the Company is required in connection with the valid execution and delivery
of this Agreement, or the offer, sale or issuance of the Securities, or the
consummation of any other transaction contemplated hereby.
Section 4.30 Intellectual Property Rights. Except as disclosed in the SEC
Documents, the Company has sufficient trademarks, trade names, patent rights,
copyrights and licenses to conduct its business. To the Company's knowledge,
neither the Company nor its products is
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infringing or will infringe any trademark, trade name, patent right, copyright,
license, trade secret or other similar right of others currently in existence;
and there is no claim being made against the Company regarding any trademark,
trade name, patent, copyright, license, trade secret or other intellectual
property right which could have a Material Adverse Effect.
Section 4.31 Material Contracts. Except as set forth in the SEC Documents,
the agreements to which the Company is a party described in the SEC Documents
are valid agreements, in full force and effect the Company is not in material
breach or material default (with or without notice or lapse of time, or both)
under any of such agreements and, to the Company's knowledge, the other
contracting party or parties thereto are not in material breach or material
default (with or without notice or lapse of time, or both) under any of such
agreements.
Section 4.32 Title to Assets. Except as set forth in SEC Documents, the
Company has good and marketable title to all properties and material assets
described in the SEC Documents as owned by it, free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest other than
such as are not material to the business of the Company.
Section 4.33 Full Disclosure. There is no fact known to the Company (other
than general economic conditions known to the public generally) that has not
been publicly disclosed by the Company or disclosed in writing to the Investor
which could reasonably be expected to have a Material Adverse Effect, or could
reasonably be expected to materially and adversely affect the ability of the
Company to perform its obligations pursuant to this Agreement.
Section 4.34 Security Interest. The Company agrees to cause Petals to give
the Investor a security interest on the Collateral during the time that any
portion of the Notes remains outstanding. The Company represents and warrants
that as of the Closing Date there are no liens, encumbrances, claims or security
interests on the Collateral, other than the security interest given to the
Investor pursuant to this Agreement. The Company hereby authorizes the Investor
to file a UCC-1 Financing Statement on the Collateral in favor of the Investor.
The Company agrees that it will not, and will not cause Petals to, encumber the
Collateral in any way during the time the Notes remain outstanding.
ARTICLE V
Covenants of the Investor
Section 5.1 4.99% Limitation. The number of shares of Common Stock which
may be acquired by the Investor pursuant to the terms of this Agreement shall
not exceed the number of such shares which, when aggregated with all other
shares of Common Stock then owned by the Investor, would result in the Investor
owning more than 4.99% of the then issued and outstanding Common Stock at any
one time. The preceding sentence shall not interfere with the Investor's right
to convert any portion of the Notes and/or exercise the Warrant over time which
in the aggregate totals more than 4.99% of the then outstanding shares of Common
Stock so long as the Investor owns more than 4.99% of the then outstanding
Common Stock at any given time.
ARTICLE VI
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Covenants of the Company
Section 6.1 Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect so long as any Registrable
Securities remain outstanding and the Company shall comply in all material
respects with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof, the
Company has authorized and reserved and the Company shall continue to reserve
and keep available at all times, free of preemptive rights, no less than 150% of
the Underlying Shares assuming conversion of the full principal amount of Notes
on the Trading Day immediately preceding the Closing Date, plus 100% of the
Warrant Shares for the purpose of enabling the Company to satisfy any obligation
to issue the Underlying Shares and Warrant Shares; such number of shares of
Common Stock to be reserved shall be calculated based upon the Conversion Price
and Exercise Price under the terms of this Agreement, the Notes and Warrants on
the Trading Day immediately preceding the Closing Date. The number of shares so
reserved shall be increased to reflect potential decreases in the Common Stock
that the Company may thereafter be so obligated to issue by reason of
adjustments to the Conversion Price and/or Exercise Price as set forth in the
Notes and Warrants, or in the event of a reduction of the Bid Price.
Section 6.3 Listing of Common Stock. The Company shall (a) not later than
the 30th calendar day following the Closing Date prepare and file with the
Principal Market (as well as any other national securities exchange, market or
trading facility on which the Common Stock is then listed) an additional shares
listing application covering at least the sum of (i) 150% the number of
Underlying Shares as would be issuable upon a conversion of (and as payment of
dividends in respect of) the full principal amount of the Notes, assuming such
conversion occurred on the Closing Date, and (ii) the Warrant Shares issuable
upon exercise in full of the Warrants, (b) take all steps necessary to cause
such shares to be approved for listing on the Principal Market (as well as on
any other national securities exchange, market or trading facility on which the
Common Stock is then listed) as soon as possible thereafter, and (c) provide to
the Investor evidence of such listing, and the Company shall maintain the
listing of its Common Stock on such exchange or market for so long as the
Securities is owned by the Investor. In addition, if at any time the number of
shares of Common Stock issuable on conversion of all then outstanding principal
amount of Notes, and/or upon exercise in full of the Warrant is greater than the
number of shares of Common Stock theretofore listed with the Principal Market
(and any such other national securities exchange, market or trading facility),
the Company shall promptly take such action (including the actions described in
the preceding sentence), if required pursuant to the rules and regulations of
the Principal Market, to file an additional shares listing application with the
Principal Market (and any such other national securities exchange, market or
trading facility) covering at least a number of shares equal to the sum of (x)
150% of the number of Underlying Shares as would then be issuable upon a
conversion in full of the Notes, and (y) the number of Warrant Shares as would
be issuable upon exercise in full of the Warrants. The Company warrants that it
(i) has not received any notice, oral or written, affecting it's continued
listing on the Nasdaq Small Cap Market, and (ii) is in full compliance with the
requirements for continued listing on the Nasdaq Small Cap Market. The Company
will take no action, which would adversely impact its continued listing or the
eligibility of the Company for such listing. The Company will comply with the
listing and trading requirements of its Common Stock on the Nasdaq Small Cap
Market (and of any then Principal Market) and will comply in all respects
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with the Company's reporting, filing and other obligations under the bylaws or
rules of the Principal Market. If the Company receives notification from Nasdaq
or any other entity stating that the Company is not in compliance with the
listing qualifications of such Principal Market, the Company will immediately
thereafter give written notice to the Investor and take all action necessary to
bring the Company into compliance with all applicable listing standards of the
Principal Market.
Section 6.4 Exchange Act Registration. The Company will maintain the
registration of its Common Stock under Section 12 of the Exchange Act, will
comply in all respects with its reporting and filing obligations under the
Exchange Act, and will not take any action or file any document (whether or not
permitted by Exchange Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Act.
Section 6.5 Legends. The securities to be sold by the Company pursuant to
this Agreement shall be free of restrictive legends, except as set forth in
Article VIII.
Section 6.6 Corporate Existence. The Company will take all steps necessary
to preserve and continue the corporate existence of the Company.
Section 6.7 Notice of Certain Events Affecting Registration. The Company
will immediately notify the Investor upon the occurrence of any of the following
events in respect of a registration statement or related prospectus in respect
of an offering of Registrable Securities: (i) receipt of any request for
additional information by the SEC or any other federal or state governmental
authority during the period of effectiveness of the Registration Statement for
amendments or supplements to the Registration Statement or related prospectus;
(ii) the issuance by the SEC or any other federal or state governmental
authority of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose; (iii) receipt
of any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate. The Company will
promptly make available to the Investor any such supplement or amendment to the
related prospectus.
Section 6.8 Consolidation; Merger. For so long as any of the Securities
are owned by the Investor, the Company shall not, at any time after the date
hereof, effect any merger or consolidation of the Company with or into, or a
transfer of all or substantially all of the assets of
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the Company to, another entity (a "Consolidation Event") unless the resulting
successor or acquiring entity (if not the Company) assumes by written instrument
the obligation to deliver to the Investor such shares of stock and/or securities
as the Investor is entitled to receive pursuant to this Agreement, and all
Exhibits annexed hereto.
Section 6.9 Issuance of Underlying Shares and Warrant Shares. The issuance
of the Warrant Shares and the Underlying Shares pursuant to exercise of the
Warrants and the conversion of the Notes, shall be made in accordance with the
provisions and requirements of Section 4(2) of the Securities Act or Regulation
D and any applicable state securities law.
Section 6.10 Legal Opinion. The Company's independent counsel shall
deliver to the Investor upon execution of this Agreement, an opinion in the form
of Exhibit G. The Company will obtain for the Investor, at the Company's
expense, any and all opinions of counsel which may be reasonably required in
order to convert the Notes and/or exercise the Warrants, including, but not
limited to, obtaining for the Investor an opinion of counsel, subject only to
receipt of a notice of conversion (the "Notice of Conversion") in the form of
Exhibit H, and/or subject only to a receipt of a notice of exercise in the form
annexed to the Warrant, directing the Company's transfer agent to remove the
legend from the certificate.
Section 6.11 Restrictions on Future Financing. The Company agrees that it
shall not enter into any financing transactions which provide for (i) the
issuance of shares of Common Stock that are freely tradable by such holder prior
to the first anniversary of the Closing Date, or (ii) any securities that are
convertible into Common Stock prior to the first anniversary of the Closing
Date.
Section 6.12 Exercise of Warrants. The Company will permit the Investor to
exercise its right to purchase shares of Common Stock upon exercise of the
Warrants as is set forth in the Warrants.
Section 6.13 Conversion of Notes. The Company will permit the Investor to
exercise its right to convert the Notes by telecopying an executed and completed
Notice of Conversion to the Company.
Section 6.14 Increase in Authorized Shares. At such time as the Company
would be, if a Notice of Conversion or notice of exercise (as the case may be)
were to be delivered on such date, precluded from (a) converting in full all of
the Notes that remain unconverted at such date (and paying any accrued but
unpaid dividends in respect thereof in shares of Common Stock), or (b) honoring
the exercise in full of the Warrant, due to the unavailability of a sufficient
number of shares of authorized but unissued or re-acquired Common Stock, the
Board of Directors of the Company shall promptly (and in any case within 75
calendar days from such date) hold a shareholders meeting in which the
shareholders would vote for authorization to amend the Articles of Incorporation
to increase the number of shares of Common Stock which the Company is authorized
to issue to at least a number of shares equal to the sum of (i) all shares of
Common Stock then outstanding, (ii) the number of shares of Common Stock
issuable on account of all outstanding warrants, options and convertible
securities (other than the Notes and Warrants) and on account of all shares
reserved under any stock option, stock purchase, warrant or similar plan, (iii)
150% of the number of Underlying Shares as would then be issuable upon a
conversion in
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full of the then outstanding Notes and as payment of all future dividends
thereon in shares of Common Stock in accordance with the terms of this Agreement
and the Notes, and (iv) such number of Warrant Shares as would then be issuable
upon the exercise in full of the Warrant. In connection therewith, the Board of
Directors shall (x) adopt proper resolutions authorizing such increase, (y)
recommend to its shareholders, and otherwise use its best efforts to promptly
and duly obtain shareholder approval to carry out such resolutions and (z)
within five Business Days of obtaining such shareholder authorization, file an
appropriate amendment to the Articles of Incorporation to evidence such
increase. The foregoing shall not relieve the Company from any claim for damages
that the Investor may have against the Company as a result of the Company not
having a sufficient number of authorized shares of Common Stock to satisfy its
obligations under this Agreement or any Exhibit annexed hereto.
Section 6.15 Notice of Breaches. Each of the Company on the one hand, and
the Investor on the other, shall give prompt written notice to the other of any
breach by it of any representation, covenant, warranty or other agreement
contained in this Agreement or any Exhibit annexed hereto, as well as any events
or occurrences arising after the date hereof, which would reasonably be likely
to cause any representation, covenant, or warranty or other agreement of such
party, as the case may be, contained in this Agreement or any Exhibit annexed
hereto, to be incorrect or breached as of such Closing Date. However, no
disclosure by either party pursuant to this Section shall be deemed to cure any
breach of any representation, warranty or other agreement contained in this
Agreement or any Exhibit annexed hereto. Notwithstanding the generality of the
foregoing, the Company shall promptly notify the Investor of any notice or claim
(written or oral) that it receives from any lender of the Company to the effect
that the consummation of the transactions contemplated by this Agreement or any
Exhibit annexed hereto, violates or would violate any written agreement or
understanding between such lender and the Company, and the Company shall
promptly furnish by facsimile to the Investor a copy of any written statement in
support of or relating to such claim or notice.
Section 6.16 Transfer of Intellectual Property Rights. Except in the
ordinary course of the Company's business or in connection with the sale of all
or substantially all of the assets of the Company, the Company shall not
transfer, sell or otherwise dispose of, any Intellectual Property Rights, or
allow the Intellectual Property Rights to become subject to any Liens, or fail
to renew such Intellectual Property Rights (if renewable and would otherwise
expire); provided, however, the Company may license the Intellectual Property
Rights.
Section 6.17 Notices. The Company agrees to provide all holders of Notes
and Warrants with copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to the holders of shares of Common Stock, contemporaneously with
the delivery of such notices or information to such Common Stock holders.
Section 6.18 Questions/Answers. The Company shall provide the Investor
with the opportunity to ask additional questions of, and receive answers (all of
which information shall be limited to information in the public domain) from the
Company concerning the Company during the period that the Investor own the Notes
and/or Warrants.
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<PAGE>
Section 6.19 Rule 144 Compliance. The Company covenants and agrees that
for so long as any of the Common Stock issuable upon conversion of the Notes
remain outstanding and continue to be "restricted securities" within the meaning
of Rule 144 under the Act, the Company shall cooperate in order to permit
resales of the Underlying Shares pursuant to Rule 144 under the Act. The Company
shall provide the Company's transfer agent any and all papers necessary to
complete the transfer under Rule 144, including, but not limited to, opinions of
counsel to the Company's transfer agent, and the Company shall continue to file
all material required to be filed pursuant to Sections 13(a) or 15(d) of the
1934 Act.
Section 6.20 Issuance Limitation. The aggregate number of shares of Common
Stock which may be acquired by the Investor upon conversion of all of Notes and
upon exercise of all of the Warrants, shall not equal or exceed nineteen and
nine tenths (19.9%) percent of the aggregate number of issued and outstanding
shares of Common Stock, Class B Common Stock or other Securities of the Company
having voting power as at the Closing Date (the "Maximum Underlying Shares").
Until such time as the Notes and Warrants issued under this Agreement shall have
been either converted or redeemed pursuant, and the Warrants shall have either
been exercised or shall have expired, the Investor may not convert his or its
Note and/or exercise his or its Warrant into an aggregate number of Underlying
Shares and Warrant Shares which shall exceed the product of multiplying (a) a
fraction, the numerator of which shall be the original principal amount of this
Note and the denominator of which shall be $13,540,626, by (b) the aggregate
number of Maximum Underlying Shares. In lieu of such issuance(s) the Company
shall pay to the Investor the cash value of such shares of Common Stock due to
the Investor within five Business Days of when such issuance is due based upon
the Bid Price of the Common Stock on the Trading Date of when due (or such next
Trading Day if such day is not a Trading Day).
ARTICLE VII
Due Diligence Review; Non-Disclosure of Non-Public Information
Section 7.1 Due Diligence Review. The Company shall make available for
inspection and review by the Investor, advisors to and representatives of the
Investor (who may or may not be affiliated with the Investor), and any
underwriter participating in any disposition of the Registrable Securities on
behalf of the Investor pursuant to the Registration Statement, any such
registration statement or amendment or supplement thereto or any blue sky, NASD
or other filing, all financial and other records, all SEC Documents and other
filings with the SEC, and all other corporate documents and properties of the
Company as may be reasonably necessary for the purpose of such review, and cause
the Company's officers, directors and employees to supply all such information
reasonably requested by the Investor or any such representative, advisor or
underwriter in connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries reasonably made or
submitted by any of them), prior to and from time to time after the filing and
effectiveness of the Registration Statement for the sole purpose of enabling the
Investor and such representatives, advisors and underwriters and its respective
accountants and attorneys to conduct initial and ongoing due diligence with
respect to the Company and the accuracy of the Registration Statement.
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<PAGE>
Section 7.2 Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose non-public information to the
Investor, or advisors to or representatives of, the Investor unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Investor, and their advisors and
representatives, with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to disclosing
any non-public information hereunder, require the Investor, advisors and
representatives of the Investor, to enter into a confidentiality agreement in
form reasonably satisfactory to the Company and the Investor.
(b) Nothing herein shall require the Company to disclose non-public
information to the Investor or its advisors or representatives, and the Company
represents that it does not disseminate non-public information to any investors
who purchase stock in the Company in a public offering, to money managers or to
securities analysts, provided, however, that notwithstanding anything herein to
the contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements,
therein, in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section shall be construed to mean that such persons
or entities other than the Investor (without the written consent of the Investor
prior to disclosure of such information) may not obtain non-public information
in the course of conducting due diligence in accordance with the terms of this
Agreement and nothing herein shall prevent any such persons or entities from
notifying the Company of its opinion that based on such due diligence by such
persons or entities, that the Registration Statement contains an untrue
statement of a material fact or omits a material fact required to be stated in
the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading.
ARTICLE VIII
Legends
Section 8.1 Legends. The Investor agrees to the imprinting, so long as is
required by this Section, of the following legend (or such substantially similar
legend as is acceptable to the Investor and its counsel, the parties agreeing
that any unacceptable legended securities shall be replaced promptly by and at
the Company's cost) on each of the Securities (provided that the Additional
Shares, Underlying Shares and Warrant Shares shall not contain such legend if
such
21
<PAGE>
shares have been included as part of a then effective Registration Statement or
an exemption from registration then exists):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SECURITIES UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT THERE IS AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
The Company agrees that it will provide the Investor, upon request, with a
certificate or certificates representing the Securities, free from such legend
at such time as such legend is no longer required hereunder. The Company may not
take any action or make any notation on its records or give instructions to any
transfer agent of the Company that enlarge the restrictions of transfer set
forth in this Section.
Upon the one-year anniversary of the Closing Date, the Company shall issue
to the transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
of Exhibit I hereto. Such instructions shall be irrevocable by the Company from
and after the date hereof or from and after the issuance thereof to any such
substitute or replacement transfer agent, as the case may be, except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent for the Common Stock from time to time upon transfer of
Registrable Securities by the Investor to issue certificates evidencing such
Registrable Securities free of the Legend during the following periods and under
the following circumstances and except as provided below, without consultation
by the transfer agent with the Company or its counsel and without the need for
any further advice or instruction or documentation to the transfer agent by or
from the Company or its counsel or the Investor:
(a) at any time after one year after the Closing Date, and the
Effective Date has occurred, upon surrender of one or more certificates
evidencing the Warrant, Notes, Underlying Shares or Warrant Shares that bear the
aforementioned Legend, to the extent accompanied by a notice requesting the
issuance of new certificates free of the aforementioned legend to replace those
surrendered; provided that (i) the Registration Statement shall then be
effective; (ii) the Investor confirms to the transfer agent that it has sold,
pledged or otherwise transferred or agreed to sell, pledge or otherwise transfer
such Common Stock in a bona fide transaction to a third party that is not an
affiliate of the Company; and (iii) the Investor confirms to the transfer agent
that the Investor has complied with the prospectus delivery requirement; or
(b) at any time upon any surrender of one or more certificates
evidencing Registrable Securities, that bear the aforementioned legend, to the
extent accompanied by a notice requesting the issuance of new certificates free
of such legend to replace those surrendered
22
<PAGE>
and containing representations that (i) the Investor is permitted to dispose of
such Registrable Securities, without limitation as to amount or manner of sale
pursuant to Rule 144(k) under the Securities Act (or any other similar exemption
as may then be in effect), or (ii) the Investor has sold, pledged or otherwise
transferred or agreed to sell, pledge or otherwise transfer such Registrable
Securities, in a manner other than pursuant to an effective registration
statement, to a transferee who will upon such transfer be entitled to freely
tradable securities. The Company shall have counsel provide any and all opinions
necessary for the sale under Rule 144 (or such other applicable exemption).
Any of the notices referred to above in this Section may be sent by
facsimile to the Company's transfer agent.
Section 8.2 No Legend or Stock Transfer Restrictions. No instructions or
"stop transfer orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect to the Notes, Warrants or Securities other than as expressly set forth
in this Article.
ARTICLE IX
Choice of Law; Venue; Jurisdiction
Section 9.1 Choice of Law; Venue; Jurisdiction. This Agreement will be
construed and enforced in accordance with and governed exclusively by the laws
of the State of New York, except for matters arising under the Securities Act,
without reference to principles of conflicts of law. Each of the parties
consents to the exclusive jurisdiction of the U.S. District Court sitting in the
Southern District of the State of New York sitting in Manhattan in connection
with any dispute arising under this Agreement and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on forum
non conveniens, to the bringing of any such proceeding in such jurisdictions.
ARTICLE X
Assignment; Termination
Section 10.1 Assignment. The Investor's interest in this Agreement and
their ownership of the Notes and Warrant may be assigned or transferred at any
time, in whole or in part, to any other person or entity (including any
affiliate of the Investor) who agrees to, and truthfully can, make the
representations and warranties contained in Article III, and who agrees to be
bound by the covenants of Article V. The provisions of this Agreement shall
inure to the benefit of, and be enforceable by, any transferee of any of the
Notes and/or Warrant purchased or acquired by the Investor hereunder with
respect to the Common Stock held by such person.
Section 10.2 Termination. This Agreement shall terminate upon the earliest
of (i) the date that all the Securities have been sold by the Investor; (ii) all
of the principal amount of the Notes and all of the Warrants issued on the
Closing date shall have been redeemed by the Company as per the terms of the
Notes and Warrants; (iii) five years after the Closing Date; or (iv) the date
the Investor receives an opinion from Company counsel that all of the
Registrable Securities may be publicly sold under Rule 144, or pursuant to an
effective Registration
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<PAGE>
Statement without volume limitation; provided, however, that the provisions of
Articles III, IV, V, VI, VII, VIII, IX, X, XI, and XII herein and the terms of
the Registration Rights Agreement shall survive the termination of this
Agreement.
ARTICLE XI
Notices
Section 11.1 Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a Business Day between the hours of 9:00 a.m. and 5:00 p.m. where
such notice is to be received), or the first Business Day following such
delivery (if delivered other than on a Business Day between the hours of 9:00
a.m. and 5:00 p.m. where such notice is to be received), (b) on the second
Business Day following the date of mailing by reputable courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur, or (c) five calendar days after sent by regular
mail. The addresses for such communications shall be:
If to the Company:
Interiors, Inc.
320 Washington Street
Mount Vernon, New York 10553
Telephone: (914) 665-5400
Facsimile: (914) 665-5469
Attention: President
With a copy to:
Greenberg Traurig
200 Park Avenue
New York, New York 10166
Telephone: (212) 801-9200
Facsimile: (212) 801-6400
Attention: Stephen A. Weiss, Esq.
24
<PAGE>
If to the Investor:
Limeridge LLC
c/o Citco Trustees Cayman Limited
Corporate Centre
PO Box 31106SMB
Grand Cayman, Cayman Islands
British West Indies
Attention: Sabrina Hew
Facsimile: 345 945-7566
Telephone: 345 949-3977
Any party hereto may from time to time change its address or facsimile
number for notices under this Section 11.1 by giving at least ten calendar days'
prior written notice of such changed address or facsimile number to the other
party hereto.
Section 11.2 Indemnification. The Company agrees to indemnify and hold
harmless the Investor and each agent and affiliate of the Investor against any
losses, claims, damages or liabilities, joint or several (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees), to which any of the Investor may
become subject, under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon the breach by the Company of any term of this Agreement. This
indemnity agreement will be in addition to any liability, which the Company may
otherwise have.
The Investor agree that it will indemnify and hold harmless the Company,
and each officer, director of the Company or person, if any, who controls the
Company within the meaning of the Securities Act, against any losses, claims,
damages or liabilities (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such officer, director or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon the breach by such Person of any term of
this Agreement. This indemnity agreement will be in addition to any liability,
which the Investor or any subsequent assignee may otherwise have.
Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party otherwise
than as to the particular item as to which indemnification is then being sought
solely pursuant to this Section. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, assume the defense thereof, subject to the provisions herein stated
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this
25
<PAGE>
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation, unless the indemnifying party shall not pursue the
action to its final conclusion. The indemnified party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the expense
of the indemnifying party if the indemnifying party has assumed the defense of
the action with counsel reasonably satisfactory to the indemnified party;
provided that if the indemnified party is one of the Investor, the fees and
expenses of such counsel shall be at the expense of the indemnifying party if
(i) the employment of such counsel has been specifically authorized in writing
by the indemnifying party, or (ii) the named parties to any such action
(including any impleaded parties) include both the Investor and the indemnifying
party and the Investor shall have been advised by such counsel that there may be
one or more legal defenses available to the indemnifying party different from or
in conflict with any legal defenses which may be available to the Investor (in
which case the indemnifying party shall not have the right to assume the defense
of such action on behalf of the Investor, it being understood, however, that the
indemnifying party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable only for the reasonable
fees and expenses of one separate firm of attorneys for the Investor, which firm
shall be designated in writing by the Investor). No settlement of any action
against an indemnified party shall be made without the prior written consent of
the indemnified party, which consent shall not be unreasonably withheld.
Each party hereby agrees that if another party to this Agreement obtains a
judgment against it in such a proceeding, the party which obtained such judgment
may enforce same by summary judgment in the courts of any country having
jurisdiction over the party against whom such judgment was obtained, and each
party hereby waives any defenses available to it under local law and agrees to
the enforcement of such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law. Each party waives
its right to a trial by jury. If the Investor, or any person claimed to be
affiliated or associated with the Investor, becomes involved in any capacity in
any action, proceeding or investigation brought by or against any such person,
including shareholders of the Company, in connection with or as a result of any
matter referred to in this Agreement or any Exhibit annexed hereto, the Company
shall reimburse the Investor and/or those claimed to be affiliated or associated
with the Investor for its legal fees and expenses and other expenses (including
the cost of any investigation and preparation) incurred in connection therewith,
provided, however, that if at the conclusion of such action, proceeding or
investigation it shall be finally judicially determined by a court of competent
jurisdiction that indemnity for such fees and expenses is contrary to law, or
that the Investor is not the prevailing party then in that event, the Company
shall not be responsible for such payment.
Section 11.3 Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 11.2 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal
26
<PAGE>
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
Section 11.2 hereof provide for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any
indemnified party, then the Company and the Investor shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), in either
such case (after contribution from others) on the basis of relative fault as
well as any other relevant equitable considerations. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in Section 11.2
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contributions from any person who was not guilty of such fraudulent
misrepresentation.
ARTICLE XII
Miscellaneous
Section 12.1 Counterparts; Facsimile; Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by the Company on the one hand, and all of the Investor on the other
hand.
Section 12.2 Entire Agreement. This Agreement, and the Exhibits and
Schedules annexed hereto, set forth the entire agreement and understanding of
the parties relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written relating to the subject matter hereof. The terms and
conditions of all Exhibits and Schedules to this Agreement are incorporated
herein by this reference and shall constitute part of this Agreement as is fully
set forth herein.
Section 12.3 Survival; Severability. The representations, and warranties,
of the parties hereto shall survive for a period of one year after the
termination of this Agreement as provided above. If any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.
Section 12.4 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
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<PAGE>
Section 12.5 Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement and all
Exhibits shall be Bloomberg, L.P. or any successor thereto. The written mutual
consent of the Investor and the Company shall be required to rely upon any other
reporting entity.
Section 12.6 Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of the Securities and (ii) in the case of any such loss, theft or
destruction of such certificate, upon delivery of an indemnity agreement or
security reasonably satisfactory in form and amount to the Company, and to the
Company's transfer agent, or (iii) in the case of any such mutilation, on
surrender and cancellation of such certificate, the Company at its expense will
execute and deliver, in lieu thereof, a new certificate of like tenor.
Section 12.7 Fees and Expenses. Each of the parties shall pay its own fees
and expenses (including the fees of any attorneys, accountants, appraisers or
others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby, except that the Company shall pay on the
Closing Date, in cash, out of escrow, to the Escrow Agent the sum of $35,000,
and the sum of $225,000 to Greenfield Capital. The Company shall pay to
Limeridge LLC the sum equal to one percent (1%) of the outstanding principal
amount of the Notes on the last Business Day of each calendar month (pro rated
for any period less than a full calendar month) after the Closing Date for as
long as the Notes remain outstanding.
Section 12.8 Publicity. The Company and the Investor shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and no party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other parties, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required
if such disclosure is required by law, in which such case the disclosing party
shall provide the other parties with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of the Investors without the prior written consent of the Investor, except to
the extent required by law, in which case the Company shall provide the Investor
with prior written notice of such public disclosure.
Exhibits: SCHEDULES:
- --------- ----------
A: Note 4.3 Capitalization
B: Escrow Agreement
C: Exchange Agreement
D: Registration Rights Agreement
E: Security Agreement
F: Common Stock Purchase Warrant
G: Opinion of Counsel
H: Notice of Conversion
I: Instruction Letter to Transfer Agent
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Secured
Convertible Note Purchase Agreement to be executed by the undersigned, thereunto
duly authorized, as of the date first set forth above.
Interiors, Inc.
By: /s/ Max Munn
---------------------------
Name: Max Munn
Title: President
INVESTOR:
LIMERIDGE LLC
By: /s/ ineligible
---------------------------
Name: Navigator Management Ltd.
Title: Director
29
<PAGE>
SCHEDULE A
Breakdown
$5,027,000 - Exchange of 5,027 shares of Interiors, Inc. Series C Preferred
Stock.
$517,258 - Monies owed by Interiors to Limeridge as warrant makeup.
$181,309 - Monies owed by Interiors to Limeridge as a Rule 144 makeup.
$215,059 - Interest on Series C Preferred Stock through September 1999.
$600,000 - Damages owed by Interiors to Limeridge for failure to file
registration statement in connection with purchase of Series C
Preferred Stock.
($500,000) - Monies owed to Interiors, Inc. from Limeridge LLC paid to
Interiors out of damages set forth above.
30
<PAGE>
EXHIBIT A
<PAGE>
No. 1 $13,540,626 USD
----- -----------
INTERIORS, INC.
Secured Convertible Note due September 29, 2004
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THERE IS AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
This Secured Convertible Note is duly authorized issue of Secured
Convertible Notes of Interiors Inc., a Delaware corporation (the "Issuer"),
issued on September 30, 1999 (the "Issuance Date"), and designated as its
Secured Convertible Note due September 29, 2004 (the "Note").
This Note has been issued under the terms and provisions of the
Secured Convertible Note Purchase Agreement dated as of September 30, 1999
between the Issuer and Holder and the other holder of Notes (the "Agreement")
and shall be subject to all of the terms and conditions and entitled to all of
the benefits thereof. This Note has been secured by the Collateral (as defined
in the Agreement) pursuant to the terms of the Agreement and a security
agreement (the "Security Agreement") entered into between the Issuer and the
Holder.
FOR VALUE RECEIVED, the Issuer promises to pay to
LIMERIDGE LLC
the registered holder hereof or its registered assigns, if any (the
"Holder"), the principal sum of:
Thirteen Million Five Hundred forty Thousand Six Hundred and Twenty Six
United States Dollars,
<PAGE>
on or prior to September 29, 2004 (the "Maturity Date") or such earlier date
this Note is required to be repaid by the Issuer pursuant to the terms herein,
and to pay interest, as outlined below, at the rate of seventeen percent (17%)
per annum on the principal sum outstanding for the term of this Note. Accrual of
interest shall commence as of the Issuance Date and shall accrue from day to
day. Interest shall be payable in cash by the Issuer upon the earlier to occur
of (a) a Conversion Date, (b) redemption as set forth below, or (c) upon an
Event of Default as defined below. Unless otherwise agreed in writing by both
parties hereto, the interest so payable will be paid to the person in whose name
this Note (or one or more predecessor Notes) is registered on the records of the
Issuer regarding registration and transfers of the Note (the "Note Register"),
provided, however, that the Issuer's obligation to a transferee of this Note
arises only if such transfer, sale or other disposition is made in accordance
with the terms and conditions contained in the Agreement and this Note.
In the event this Note is outstanding on the Maturity Date it shall
automatically be converted into shares of the Issuer's Class A Common Stock,
$0.001 par value per share (the "Common Stock") (as set forth below) as if the
Holder voluntarily elected such conversion in accordance with the procedures,
terms and conditions set forth in this Note, provided, that such shares of
Common Stock are either (a) registered at such time for resale under the
Securities Act, or (b) otherwise resalable under the Securities Act without
restriction to limitation under Rule 144, and (i) the Common Stock is listed on
the Nasdaq Small Cap Market or other Principal Market (as defined in the
Agreement) at such time and has been listed on such market for at least the
preceding sixty trading days, (ii) there has not been any suspension in the
trading of the Common Stock on the Nasdaq Small Cap Market or other Principal
Market, and the (iii) the Issuer has been in compliance in all material respects
with the terms and conditions of this Note and the Agreement (including all
Exhibits annexed to the Agreement). In the event that (i), (ii), and (iii) of
the preceding sentence are not satisfied then the Issuer shall be obligated to
pay the Holder the cash value of the principal amount of this Note outstanding
on such date as if such Note had been converted and sold on such date (at the
Bid Price as defined below) in accordance with the conversion provisions set
forth below, plus all unpaid interest. Principal and interest are payable at the
address last appearing on the Note Register as designated in writing by the
Holder hereof from time to time.
The Note is subject to the following additional provisions:
1. The Note is exchangeable for like Notes in equal aggregate principal
amount of authorized denominations, as requested by the Holder surrendering the
same, but shall not be issuable in denominations of less than $50,000 (unless
such amount represents the remaining principal balance outstanding). No service
charge will be made for such registration or transfer or exchange.
2. The Issuer shall be entitled to withhold from all payments of principal
and/or interest of this Note any amounts required to be withheld under the
applicable provisions of the U.S. Internal Revenue Code of 1986, as amended, or
other applicable laws at the time of such payments.
<PAGE>
3. This Note has been issued subject to investment representations of the
original Holder hereof and may be transferred or exchanged only in compliance
with the Securities Act and applicable state securities laws and in compliance
with the restrictions on transfer provided in the Agreement. Prior to the due
presentment for such transfer of this Note, the Issuer and any agent of the
Issuer may treat the person in whose name this Note is duly registered on the
Note Register as the owner hereof for the purpose of receiving payment as herein
provided and all other purposes, whether or not this Note is overdue, and
neither the Issuer nor any such agent shall be affected by notice to the
contrary. The transferee shall be bound, as the original Holder by the same
representations and terms described herein and under the Agreement.
4. The Holder is entitled, at its option, at any time after September 29,
2000 to convert this Note, in whole or in part, in minimum denominations of
$50,000 (unless such amount represents the remaining principal balance
outstanding), in accordance with the following terms and conditions:
(a) The Holder may exercise its right to convert the Note by
telecopying an executed and completed notice of conversion (the "Notice of
Conversion") to the Issuer and delivering the original Notice of Conversion and
the original Note to the Issuer by express courier. Each Business Day on which a
Notice of Conversion is telecopied to and received by the Issuer in accordance
with the provisions hereof shall be deemed a "Conversion Date". The Issuer will
transmit the certificates representing shares of Common Stock issuable upon
conversion of the Note (together with the certificates representing the Note not
so converted) to the Holder via express courier, by electronic transfer (if
applicable) or otherwise within five Business Days after the Conversion Date,
provided, the Issuer has received the original Notice of Conversion and Note
being so converted. If the Company has not received the original Notice of
Conversion and original Note being converted within three Business Days after
Conversion Date, then the Issuer shall transmit the certificates representing
the shares of Common Stock issuable upon conversion of the Note (together with
the certificates representing the Note not so converted) to the Holder via
express courier, by electronic transfer (if applicable) or otherwise within
three Business Days after receipt of the original Notice of Conversion and
original Note being converted. In addition to any other remedies which may be
available to the Holder, in the event that the Issuer fails to effect delivery
of such shares of Common Stock within (i) five Business Days after receipt of a
Notice of Conversion (provided the Issuer has received the original Notice of
Conversion and Note within three Business Days after the Conversion Date), or
(ii) three Business Days after receipt of the original Notice of Conversion and
original Note being converted if the Issuer has not received the original Notice
of Conversion and original Note being converted within three Business Days after
the Conversion Date, the Holder will be entitled to revoke the Notice of
Conversion by delivering a notice to such effect to the Issuer whereupon the
Issuer and the Holder shall each be restored to their respective positions
<PAGE>
immediately prior to delivery of the Notice of Conversion. The Notice of
Conversion and Note representing the portion of the Note converted shall be
delivered as follows:
To the Issuer:
Interiors, Inc.
320 Washington Street
Mount Vernon, New York 10553
Telephone: (914) 665-5400
Facsimile: (914) 665-5469
Attention: President
or to such other address as may be communicated by the Issuer to the
Holder in writing.
In the event that the Common Stock issuable upon conversion of the
Note is not delivered to the Holder within (i) seven Business Days after the
Conversion Date (provided the Issuer has received the original Notice of
Conversion and Note within three Business Days after the Conversion Date), or
(ii) three Business Days after receipt of the original Notice of Conversion and
original Note being converted if the Issuer has not received the original Notice
of Conversion and original Note being converted within three Business Days after
the Conversion Date (and assuming the Holder has not revoked such Notice of
Conversion as permitted above), the Issuer shall pay to the Holder, in
immediately available funds, upon demand, as liquidated damages for such failure
and not as a penalty, for each $100,000 principal amount of Note sought to be
converted, $250 for each calendar day that the shares of Common Stock are not
delivered, which liquidated damages shall run from the eighth Business Day after
the Conversion Date up until the time that either the Notice of Conversion is
revoked or the Common Stock is delivered, at which time such liquidated damages
shall cease. Any and all payments required pursuant to this paragraph shall be
payable only in cash immediately. The Holder's right to liquidated damages
pursuant to the terms of this Section shall in no way affect the Holder's right
pursuant to Section 7 below to consider this Note immediately due and payable
upon the occurrence of an Event of Default (as defined in Section 7 below).
(b) The Holder may, at its sole option convert this Note into that
number of shares of fully paid and nonassessable shares of Common Stock (the
"Conversion Shares") which is to be derived from dividing the Conversion Amount
by the Conversion Price. For purposes of this Note, the term "Conversion Amount"
shall mean the principal dollar amount of the Note being converted. The
"Conversion Price" shall be equal to one hundred (100%) percent of the average
of Bid Price during the five consecutive trading days immediately preceding a
Conversion Date, as such Conversion Price shall be adjusted pursuant to the
terms hereof. The "Bid Price" shall be deemed to be the reported last bid price
regular way of the Common Stock as reported by Bloomberg LP or if unavailable,
on the principal national securities exchange on which the Common Stock is
listed or admitted to trading, or if the Common Stock is not listed or admitted
to trading on any national securities exchange, the closing bid price as
reported by Nasdaq or such other system then in use, or, if the Common Stock is
not quoted by any such organization, the closing bid price in the
over-the-counter
<PAGE>
market as furnished by the principal national securities exchange on which the
Common Stock is traded. The principal amount of this Note shall be reduced as
per that principal amount indicated on the Notice of Conversion upon the proper
receipt by the Holder of such shares of Common Stock due upon such Notice of
Conversion.
(c) Upon each adjustment of the Conversion Price, the Holder shall
thereafter be entitled to (but not obligated to) receive upon conversion of this
Note, at the Conversion Price resulting from such adjustment, the number of
shares of Common Stock obtained by (i) multiplying the Conversion Price in
effect immediately prior to such adjustment by the number of shares of Common
Stock receivable hereunder immediately prior to such adjustment and (ii)
dividing the product thereof by the Conversion Price resulting from such
adjustment.
(d) The Conversion Price shall be adjusted as follows:
(i) In the case of any amendment to the Issuer's Certificate
of Incorporation to change the designation of the Common Stock or the rights,
privileges, restrictions or conditions in respect to the Common Stock or
division of the Common Stock, this Note shall be adjusted so as to provide that
upon exercise thereof, the Holder shall receive, in lieu of each share of Common
Stock theretofore issuable upon such conversion, the kind and amount of shares,
other securities, money and property receivable upon such designation, change or
division by the Holder issuable upon such conversion had the conversion occurred
immediately prior to such designation, change or division. This Note shall be
deemed thereafter to provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section. The provisions of this Subsection (i) shall apply in the same manner to
successive reclassifications, changes, consolidations and mergers.
(ii) If the Issuer shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares of Common Stock, or
declare a dividend or make any other distribution upon the Common Stock payable
in shares of Common Stock, the Conversion Price in effect immediately prior to
such subdivision or dividend or other distribution shall be proportionately
reduced, and conversely, in case the outstanding shares of Common Stock shall be
combined into a smaller number of shares of Common Stock, the Conversion Price
in effect immediately prior to such combination shall be proportionately
increased.
(iii) If any capital reorganization or reclassification of the
capital stock of the Issuer, or any consolidation or merger of the Issuer with
or into another corporation or other entity, or the sale of all or substantially
all of the Issuer's assets to another corporation or other entity shall be
effected in such a way that holders of shares of Common Stock shall be entitled
to receive stock, securities, other evidence of equity ownership or assets with
respect to or in exchange for shares of Common Stock, then, as a condition of
such reorganization, reclassification, consolidation, merger or sale (except as
otherwise provided below in this Section) lawful and adequate provisions shall
be made whereby the Holder shall thereafter have the right to receive upon the
conversion hereof upon the basis and upon the terms and conditions specified
herein, such shares of stock, securities, other evidence of equity ownership or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of
Common Stock immediately theretofore
<PAGE>
receivable upon the conversion of this Note under this Section had such
reorganization, reclassification, consolidation, merger or sale not taken place,
and in any such case appropriate provisions shall be made with respect to the
rights and interests of the holder to the end that the provisions hereof
(including, without limitation, provisions for adjustments of the Conversion
Price and of the number of shares of Common Stock receivable upon the conversion
of this Note) shall thereafter be applicable, as nearly as may be, in relation
to any shares of stock, securities, other evidence of equity ownership or assets
thereafter deliverable upon the exercise hereof including an immediate
adjustment, by reason of such consolidation or merger, of the Conversion Price
to the value for the Common Stock reflected, by the terms of such consolidation
or merger if the value so reflected is less than the Conversion Price in effect
immediately prior to such consolidation or merger. Subject to the terms of this
Note, in the event of a merger or consolidation of the Issuer with or into
another corporation or other entity as a result of which the number of shares of
common stock of the surviving corporation or other entity issuable to investors
of Common Stock, is greater or lesser than the number of shares of Common Stock
of the Issuer outstanding immediately prior to such merger or consolidation,
then the Conversion Price in effect immediately prior to such merger or
consolidation shall be adjusted in the same manner as though there were a
subdivision or combination of the outstanding shares of Common Stock. The Issuer
shall not effect any such consolidation, merger or sale, unless, prior to the
consummation thereof, the successor corporation (if other than the Issuer)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume by written instrument the obligation to deliver to the
Holder such shares of stock, securities, other evidence of equity ownership or
assets as, in accordance with the foregoing provisions, the Holder may be
entitled to receive or otherwise acquire. If a purchase, tender or exchange
offer is made to and accepted by the holders of more than fifty (50%) percent of
the outstanding shares of Common Stock, the Issuer shall not effect any
consolidation, merger or sale with the person having made such offer or with any
affiliate of such person, unless prior to the consummation of such
consolidation, merger or sale the Holder shall have been given a reasonable
opportunity to then elect to receive upon the conversion of this Note the amount
of stock, securities, other evidence of equity ownership or assets then issuable
with respect to the number of shares of Common Stock in accordance with such
offer.
(iv) In case the Issuer shall, at any time prior to conversion
of this Note, consolidate or merge with any other corporation or other entity
(where the Issuer is not the surviving entity) or transfer all or substantially
all of its assets to any other corporation or other entity, then the Issuer
shall, as a condition precedent to such transaction, cause effective provision
to be made so that the Holder upon the conversion of this Note after the
effective date of such transaction shall be entitled to receive the kind and,
amount of shares, evidences of indebtedness and/or other securities or property
receivable on such transaction by the Holder of the number of shares of Common
Stock as to which this Note was convertible immediately prior to such
transaction (without giving effect to any restriction upon such exercise); and,
in any such case, appropriate provision shall be made with respect to the rights
and interests of the Holder to the end that the provisions of this Note shall
thereafter be applicable (as nearly as may be practicable) with respect to any
shares, evidences of indebtedness or other securities or assets thereafter
deliverable upon conversion of this Note. Upon the occurrence of any event
described in this Subsection (iv), the Holder shall have the right to (i)
convert this Note immediately prior to such event at a Conversion Price equal to
the lesser of (a) the then Conversion Price or (b) the
<PAGE>
price per share of Common Stock paid in such event, (ii) retain ownership of
this Note, in which event, appropriate provisions shall be made so that this
Note shall be convertible at the Holder's option into shares of stock,
securities or other equity ownership of the surviving or acquiring entity, or
(iii) force redemption of the then outstanding principal amount of this Note in
accordance with the provisions of Section 18 below.
(v) Whenever the Conversion Price shall be adjusted pursuant
to this Section the Issuer shall promptly mail by registered or certified mail,
return receipt requested, to the Holder a certificate signed by its President or
Vice President and by its Treasurer, or Secretary, setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated (including a description of the
basis on which the Board of Directors of the Issuer made any determination
hereunder), and the Conversion Price after giving effect to such adjustment, and
shall cause copies of such certificates to be mailed (by first-class mail,
postage prepaid) to the Holder. The Issuer shall make such certificate and mail
it to the Holder immediately after each adjustment.
(e) The Issuer will not, by amendment of its Certificate of
Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Issuer, but will
at all times in good faith assist in the carrying out of all the provisions of
this Note and in taking of all such action as may be necessary or appropriate in
order to protect the conversion rights of the Holder against impairment.
(f) In the event of any liquidation, dissolution or winding up of
the Issuer, whether voluntary or involuntary, before any distribution may be
made with respect to the Issuer's Common Stock or any other class of common
stock or preferred stock of the Issuer, the Holder shall be entitled to receive
out of the assets available for distribution to shareholders an amount in cash
equal to the Redemption Price of such principal amount of Note then outstanding
(the "Liquidation Amount"). If any portion of the principal amount of this Note
shall have been prepaid or converted into Common Stock prior to such
liquidation, dissolution or winding up, the interest component of the
Liquidation Amount pursuant to clause (ii) above shall be calculated annually
based on the average principal amount of this Note which shall be outstanding
during each consecutive twelve month period from the date of issuance of this
Note to the date immediately prior to such liquidation, dissolution or winding
up of the Company. If the assets of the Company available for distribution to
shareholders shall be insufficient to pay the Holder the full Liquidation Amount
to which they shall be entitled, then any such distribution of assets of the
Issuer shall be distributed ratably to all of the holders of the Notes. After
the payment of the Liquidation Amount shall have been made in full to the Holder
or funds necessary for such payment shall have been set aside by the Issuer in
trust for the account of holders of the Notes so as to be available for such
payments, the holders of the Notes shall be entitled to no further participation
in the distribution of the assets of the Issuer, and the remaining assets of the
Issuer legally available for distribution to shareholders shall be distributed
among the holders of Common Stock and any other classes or series of Common
Stock or preferred stock of the Issuer in accordance with their respective
terms.
<PAGE>
5. No provision of this Note shall alter or impair the obligation of the
Issuer, which is absolute and unconditional, upon an Event of Default (as
defined below), to pay the principal of, and interest on this Note at the place,
time, and rate, and in the coin or currency herein prescribed.
6. The Issuer hereby expressly waives demand and presentment for payment,
notice on nonpayment, protest, notice of protest, notice of dishonor, notice of
acceleration or intent to accelerate, and diligence in taking any action to
collect amounts called for hereunder and shall be directly and primarily liable
for the payment of all sums owing and to be owing hereon, regardless of and
without any notice, diligence, act or omission as or with respect to the
collection of any amount called for hereunder.
7. If one or more of the following described events (each of which being
an "Event of Default" hereunder) shall occur and shall be continuing (as set
forth below) for a period of seven Business Days after notice from the Holder:
(a) any of the representations, covenants, or warranties made by the
Issuer herein, or in the Agreement (including all Exhibits annexed
thereto) shall have been incorrect when made; or
(b) any of the representations, covenants, or warranties made by
Petals, Inc. in the Security Agreement shall have been incorrect when made
in any material respect; or
(c) the Issuer shall breach, fail to perform, or fail to observe in
any material respect any material covenant, term, provision, condition,
agreement or obligation of the Issuer under this Note (or any security of
the Issuer held by the Holder), the Security Agreement, the Registration
Rights Agreement, and the Agreement, between the parties of even date
herewith,; or
(d) Petals, Inc. shall breach, fail to perform, or fail to observe
in any material respect any material covenant, term, provision, condition,
agreement or obligation of Petals, Inc. under the Security Agreement
between the parties of even date herewith; or
(e) a trustee, liquidator or receiver shall be appointed for the
Issuer (and/or Petals, Inc.) or for a substantial part of its property or
business without its consent and shall not be discharged within thirty
(30) calendar days after such appointment; or
(f) any governmental agency or any court of competent jurisdiction
at the instance of any governmental agency shall assume custody or control
of the whole or any substantial portion of the properties or assets of the
Issuer (and/or Petals, Inc.) and shall not be dismissed within thirty (30)
calendar days thereafter; or
(g) bankruptcy reorganization, insolvency or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for
the relief of debtors shall be instituted by or against the Issuer (and/or
Petals, Inc.) and, if instituted against the Issuer (and/or Petals, Inc.),
Issuer (and/or Petals, Inc.) shall by any action or answer
<PAGE>
approve of, consent to or acquiesce in any such proceedings or admit the
material allegations of, or default in answering a petition filed in any
such proceeding or such proceedings shall not be dismissed within thirty
(30) calendar days thereafter; or
(h) the Common Stock is suspended and/or delisted from trading on
the Nasdaq Small Cap Market, or the Issuer has received notice of final
action concerning delisting from the Nasdaq Small Cap Market, unless in
each such instance, the Issuer's Common Stock shall be listed on the
Nasdaq National Market, the American Stock Exchange or the New York Stock
Exchange within seven business days from such suspension and/or delisting
on the Nasdaq Small Cap Market; or
(i) the Registration Statement including the shares of Common Stock
underlying this Note has not been filed with the Securities and Exchange
Commission and/or declared effective in a timely manner as per Sections
3(a) and 3(f) of the Registration Rights Agreement between the Issuer and
the Holder of even date herewith, or the effectiveness of such
Registration Statement shall be suspended for more than seven consecutive
business days; or
(j) the Issuer shall have failed to pay interest within five
Business Days of when due hereunder and/or principal within three Business
Days of when due hereunder and/or comply with the redemption provisions
contained herein within three Business Days of when due hereunder; in each
case, upon receipt of written notice of such payment default; or
(k) the Issuer shall have failed to timely deliver shares of Common
Stock issuable upon conversion of the Notes and/or exercise of the
Warrants issued by the Issuer pursuant to the terms of this Note and the
Warrants; or
(l) the Issuer, or any other party, shall, at any time after the
Issuance Date, (i) in any way materially and adversely alter Holder's
security interest that it has been granted in the Collateral pursuant to
the Security Agreement, or (ii) sell, transfer or convey the Collateral;
or
(m) the Company and/or Petals, Inc. shall cease operations, cease to
operate as a going concern, terminate its corporate existence, or sell,
transfer and/or convey all or substantially all of its assets, or either
shall combine with another entity whereby the Issuer is not the surviving
entity; or
(n) a judgment in excess of $100,000 shall be entered against Debtor
and/or Subsidiary or a warrant of execution or similar process shall be
issued or levied against its property and within thirty (30) days after
such judgment, warrant or process shall not have been paid in full or
proper appeal of the same made.
(o) the occurrence of any "Event of Default" as that term is defined
in the Security Agreement,
<PAGE>
then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been cured or waived in writing by the Holder (which
waiver shall not be deemed to be a waiver of any subsequent default) or cured as
provided herein, at the option of the Holder, and in the Holder's sole
discretion, the Holder may consider the entire principal amount of this Note
(and all interest through such date) immediately due and payable in cash, at the
cash equivalent of the Redemption Price for such then outstanding principal
amount of Note, (or the Holder shall be entitled to recover from the Collateral
as per the terms of the Security Agreement, but shall be entitled to enforce its
rights hereunder in the event the Collateral is insufficient to the amounts due
and owing as aforesaid) without presentment, demand protest or notice of any
kind, all of which are hereby expressly waived, anything herein or in any note
or other instruments contained to the contrary notwithstanding, and Holder may
immediately, and without expiration of any period of grace, enforce any and all
of the Holder's rights and remedies provided herein or any other rights or
remedies afforded by law (including but not limited to consequential damages if
any). It is agreed that in the event of such action, such Holder shall be
entitled to receive all reasonable fees, costs and expenses incurred, including
without limitation such reasonable fees and expenses of attorneys. Nothing
contained herein shall limit the rights of the Holder to collect liquidated
damages as provided herein or in any other agreement entered into between the
Holder and the Issuer, or any other damages that the Holder may otherwise be
entitled to under the terms of this Note or the Agreement (including any Exhibit
annexed thereto).
8. In case any provision of this Note is held by a court of competent
jurisdiction to be excessive in scope or otherwise invalid or unenforceable,
such provision shall be adjusted rather than voided, if possible, so that it is
enforceable to the maximum extent possible, and the validity and enforceability
of the remaining provisions of this Note will not in any way be affected or
impaired thereby.
9. [this section intentionally left blank]
10. This Note, together with all documents referenced herein, embodies the
full and entire understanding and agreement between the Issuer and Holder with
respect to the subject matter hereof and supersedes all prior oral or written
agreements and understandings relating to the subject matter hereof. Neither
this Note nor any terms hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the Issuer and the Holder. All
capitalized terms not otherwise defined herein shall have the same meaning as
given in the Agreement. In the event of any inconsistencies between this Note
and the Agreement, the Note shall control. No statement, representation,
warranty, covenant or agreement of any kind not expressly set forth in this Note
shall affect, or be used to interpret, change or restrict, the express terms and
provisions of this Note.
11. This Note will be exclusively construed and enforced in accordance
with and governed exclusively by the laws of the State of New York, except for
matters arising under the Securities Act, without reference to principles of
conflicts of law. Each of the parties consents to the exclusive jurisdiction of
the U.S. District Court sitting in the Southern District of the State of New
York sitting in Manhattan in connection with any dispute arising under this Note
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens, to the bringing of any
such proceeding in such jurisdictions.
<PAGE>
Each party hereby agrees that if the other party to this Note obtains a judgment
against it in such a proceeding, the party which obtained such judgment may
enforce same by summary judgment in the courts of any country having
jurisdiction over the party against whom such judgment was obtained, and each
party hereby waives any defenses available to it under local law and agrees to
the enforcement of such a judgment. Each party to this Note irrevocably consents
to the service of process in any such proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to such party at its
address set forth herein. Nothing herein shall affect the right of any party to
serve process in any other manner permitted by law. Each party waives its right
to a trial by jury.
12. The convertibility of this Note shall be restricted such that
(a) that portion of the Note which, if otherwise converted, would
result in Holder owning 4.99% or more of the then issued and outstanding Common
Stock, shall not be convertible until the Holder is not an owner of 4.99% or
more of the then issued and outstanding Common Stock; and
(b) The aggregate number of shares of Common Stock which may be
acquired by the Holder and all other holders of Notes similar to this Note upon
conversion of all of Notes and upon exercise of all of the Warrants, pursuant to
the terms set forth in the Secured Convertible Note Purchase Agreement, dated of
even date, among the Holder, other holders of Notes and the Issuer (the
"Purchase Agreement") and in the Warrant (constituting an exhibit to the
Purchase Agreement), shall not equal or exceed nineteen and nine tenths (19.9%)
percent of the aggregate number of issued and outstanding shares of Common
Stock, Class B Common Stock or other Securities of the Company having voting
power as at the Closing Date (the "Maximum Underlying Shares"). Until such time
as this Note and all other Notes and Warrants issued under the Purchase
Agreement shall have been either converted into Conversion Shares or redeemed
pursuant to the Purchase Agreement, and the Warrants shall have either been
exercised or shall have expired, the Holder of this Note may not convert his or
its Note and/or exercise his or its Warrant into an aggregate number of
Conversion Shares and Warrant Shares which shall exceed the product of
multiplying (a) a fraction, the numerator of which shall be the original
principal amount of this Note and the denominator of which shall be $13,540,626,
by (b) the aggregate number of Maximum Underlying Shares. In lieu of such
issuance(s) the Company shall pay to the Holder(s) the cash value of such shares
of Common Stock in excess of those converted due to the Holder(s) within five
Business Days of when such issuance is due based upon the Bid Price of the
Common Stock on the Trading Date of when due (or such next Trading Day if such
day is not a Trading Day).
13. In the event the Issuer, at any time while this Note is outstanding,
shall issue any shares of Common Stock (or any instrument convertible into
Common Stock), otherwise than: (i) pursuant to options, warrants, instruments
and agreements under which convertible notes and/or shares of convertible
preferred stock of the Issuer were issued, or other obligations to issue shares
of Common Stock as of the Issuance Date, all as described in Section 4.3 of the
Agreement or in the SEC filings made by the Issuer within twelve months prior to
the Issuance Date, or (ii) all shares reserved for issuance pursuant to the
Issuer's stock option, incentive, or other similar plan, which plan and which
grant was in effect as of the Issuance Date and
<PAGE>
approved by the Board of Directors of the Issuer ((i) and (ii) collectively
referred to as the "Existing Obligations"), for a consideration less than the
Conversion Price that would be in effect at the time of such issue, then, and
thereafter successively upon each such issue, the Conversion Price shall be
amended from then on to be equal to the lesser of (i) one hundred (100%) percent
of the average of the Bid Prices during the five consecutive trading days
immediately preceding a Conversion Date, or (ii) the resulting quotient from the
following formula: (y) the number of shares of Common Stock outstanding
immediately prior to such issue shall be multiplied by the Conversion Price in
effect at the time of such issue and the product shall be added to the aggregate
consideration, if any received by the Issuer upon such issue of additional
shares of Common Stock; and (z) the sum so obtained shall be divided by the
number of shares of Common Stock outstanding immediately after such issue.
Except for the Existing Obligations, and options that may be issued under any
employee incentive stock option and/or any qualified stock option plan adopted
by the Issuer, for the purposes of this adjustment, the issuance of any security
of the Issuer carrying the right to convert such security into shares of Common
Stock or of any warrant, right, or option to purchase Common Stock shall result
in an adjustment to the Conversion Price upon issuance of shares of Common Stock
upon the Holder's exercise of its conversion rights.
14. In the event the Holder shall elect to convert any portion of this
Note as provided herein, the Issuer cannot refuse conversion based on any claim
that the Holder or anyone associated or affiliated with the Holder has been
engaged in any violation of law, unless an injunction from a court, restraining
and/or enjoining conversion of all or part of said portion of this Note shall
have been issued and the Issuer posts a surety bond for the benefit of the
Holder in the amount of 130% of the principal amount of the Note sought to be
converted plus outstanding interest through such date, which is subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to the Holder in the event it obtains a favorable judgment (but shall not in any
way limit any additional damages the Holder may be entitled to).
15. Upon receipt by the Issuer of evidence of the loss, theft, destruction
or mutilation of any Note certificate(s), and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Issuer, and
upon the cancellation of the Note certificate(s), if mutilated, the Issuer shall
execute and deliver new certificates for Note(s) of like tenure and date.
16. This Note does not entitle the Holder to any voting rights or other
rights as a shareholder of the Issuer prior to the conversion into Common Stock
thereof, except as provided by applicable law. If, however, at the time of the
surrender of this Note and conversion the Holder hereof shall be entitled to
convert this Note, the shares of Common Stock so issued shall be and be deemed
to be issued to the Holder as the record owner of such shares as of the close of
business on the Conversion Date.
17. Except as expressly provided herein or as required by law, so long as
this Note remains outstanding, the Issuer shall not, without the approval by
vote or written consent by the Holder, take any action that would adversely
affect the rights, preferences or privileges of this Note.
18. The Issuer shall have the right to redeem this Note, in whole or in
part (except that portion of the principal amount of this Note that is the
subject of a Notice of Conversion
<PAGE>
which has previously been sent to the Issuer), in cash at the Redemption Price
(as defined below) at any time by thereafter providing written notice (the
"Redemption Notice") to the Holder. The Issuer shall wire transfer the
appropriate amount of funds to the Holder to complete the redemption, which
shall be (if the Redemption Notice is received via facsimile by the Holder prior
to the first anniversary of the Issuance Date) no later than the tenth Business
Day after the Holder has received the Redemption Notice via facsimile (the
"Redemption Date") and if the Redemption Notice is received via facsimile by the
Holder after the first anniversary of the Issuance Date no later than the third
Business Day after the Holder has received the Redemption Notice via facsimile
(also referred to as a Redemption Date. Upon facsimile receipt of the Redemption
Notice, the Holder's right to convert this Note shall terminate and be canceled
immediately; provided, however, that the right to convert this Note shall
immediately be reinstated if the Issuer fails to comply with the redemption
provisions hereof. In the event the Issuer fails to wire the appropriate amount
of funds to the Holders as set forth in the Redemption Notice on or before the
Redemption Date, or shall otherwise fail to comply with the redemption
provisions set forth herein on three separate occasions, then the Issuer shall
have waived its right to redeem any portion of this Note at any time thereafter
(the foregoing shall have not be deemed as a waiver by the Holder of any rights
it may have under Section 7 herein).
The Redemption Notice shall set forth (i) the Redemption Date, (ii)
the Redemption Price, as defined below, and (iii) the principal amount of the
Note being redeemed. The Redemption Notice shall be irrevocable, and it shall be
delivered by facsimile to the Holder at its address as the same shall appear on
the books of the Issuer.
The Redemption Price shall be equal to the sum of (a) the entire
outstanding principal amount of this Note being redeemed, (b) all accrued and
unpaid interest on this Note, (c) all accrued and unpaid fees and expenses
required to be paid for so long as the Note is outstanding pursuant to Section
12.7 of the Agreement.
At the close of business on the Redemption Date, subject to the
Holder's receipt of the applicable Redemption Price, the portion of this Note
being redeemed shall be automatically canceled and converted into a right to
receive the Redemption Price, and all rights of this Note, including the right
to conversion shall cease without further action. Immediately following the
Redemption Date (assuming full compliance by the Issuer with the redemption
provisions set forth herein), the Holder shall surrender its original Note at
the office of the Issuer, and the Issuer shall issue to the Holder a new Note
certificate for the principal amount that remains outstanding, if any.
The Redemption Price shall be adjusted proportionally upon any adjustment
of the Conversion Price as set forth above.
The Issuer shall not be entitled to send any Redemption Notice and begin
the redemption procedure hereunder unless it has:
(i) the full amount of the Redemption Price in cash, available
in a demand or other immediately available account in a bank or similar
financial institution;
<PAGE>
(ii) immediately available credit facilities, in the full
amount of the Redemption Price with a bank or similar financial
institution; or
(iii) a combination of the items set forth in (a) and (b)
above, aggregating the full amount of the Redemption Price.
[the balance of this page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this Convertible Note to
be duly executed by an officer thereunto duly authorized.
INTERIORS, INC.
By_______________________________
Name: Max Munn
Title: President
Date: September 30, 1999
<PAGE>
EXHIBIT B
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is made as of the 30th day of September, 1999 by and
between Interiors Inc., with its principal office at 320 Washington Street,
Mount Vernon, New York 10553 (hereinafter the "Company"), the Limeridge LLC
(hereinafter referred to as the "Investor") and The Goldstein Law Group P.C., 65
Broadway, 10th Fl., New York, NY 10006 (hereinafter the "Escrow Agent").
W I T N E S E T H:
WHEREAS, pursuant to the Secured Convertible Note Purchase Agreement dated
September 30, 1999 (the "Purchase Agreement"), the Investor will be purchasing
Notes and Warrants at the Purchase Price as set forth in the Purchase Agreement,
signed by the Company and the Investor; and
WHEREAS, pursuant to the Exchange Agreement dated September 30, 1999 the
Investor will be exchanging shares of Preferred Stock for that certain principal
amount of Notes (as set forth in the Exchange Agreement); and
WHEREAS, all capitalized terms used herein and not otherwise defined shall
have that meaning as set forth in the Purchase Agreement; and
WHEREAS, the Company has requested that the Escrow Agent hold the Cash
Purchase Price and Preferred Stock in escrow until the Escrow Agent has received
the original Notes and Warrants. The Escrow Agent will then immediately wire
transfer or otherwise deliver to the Company the Purchase Price (net of all fees
as provided in the Purchase Agreement), and deliver the original shares of
Preferred Stock to the Company, and arrange for delivery of the Notes and
Warrants to the Investor per the Investor's written instructions.
NOW, THEREFORE, in consideration of the covenants and mutual promises
contained herein and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged and intending to be legally
bound hereby, the parties agree as follows:
ARTICLE 1
TERMS OF THE CASH ESCROW
1.1 The parties hereby agree to establish an escrow account with the
Escrow Agent whereby the Escrow Agent shall hold the Cash Purchase Price for the
purchase of the Notes and Warrants.
1.2 Upon Escrow Agent's receipt of the Cash Purchase Price, the Escrow
Agent shall notify the Company, or the Company's designated attorney or agent.
1.3 The Company, upon receipt of said notice and acceptance of the
Investors' Purchase Agreement, as evidenced by the Company's execution thereof,
shall deliver to Escrow Agent the Notes and Warrants being purchased. Escrow
Agent shall then communicate with the Company to confirm the receipt of such
Notes and Warrants.
<PAGE>
1.4 Once Escrow Agent confirms the receipt of the Notes and Warrants, the
Escrow Agent shall immediately wire that amount of funds necessary to purchase
the Notes and Warrants, per the written instructions of the Company. The Company
will furnish the Escrow Agent with a "net letter" directing payment of fees
pursuant to the terms of the Purchase Agreement. The net balance shall be
payable to the Company. Once the Company has received the funds, the Escrow
Agent shall then arrange to have the Notes and Warrants delivered to each
Investor as per instructions from the Investor.
ARTICLE 2
TERMS OF THE EXCHANGE ESCROW
2.1 The parties hereby agree to that the Escrow Agent shall hold the
Preferred Stock being exchanged for the purchase of the Notes.
2.2 The Company shall certify in writing to the Escrow Agent and the
Investor that it has satisfied all of the terms and conditions precedent to
completing the exchange pursuant to the Purchase Agreement and the Exchange
Agreement. The Company shall then deliver to the Escrow Agent the original Notes
being purchased by the Investor. Upon receipt of such notice the Investor shall
overnight the Preferred Stock via reputable overnight courier to the Escrow
Agent. The Escrow Agent shall notify the Company, or the Company's designated
attorney or agent, upon receipt of the Preferred Stock. The Escrow Agent shall
thereafter send the Preferred Stock to the Company, and the Notes and Warrants
to the Investor, via reputable overnight courier.
ARTICLE 3
MISCELLANEOUS
3.1 This Agreement may be altered or amended only with the consent of all
of the parties hereto. Should the Company or the Investor attempt to change this
Agreement in a manner, which in the Escrow Agent's discretion, shall be
undesirable, the Escrow Agent may resign as Escrow Agent by notifying the
Company and the Investor in writing. In the case of the Escrow Agent's
resignation or removal, his only duty, until receipt of notice from the Company
and the Investor or its agent that a successor escrow agent shall have been
appointed, shall be to hold and preserve the Preferred Stock, Notes, and/or
funds. Upon receipt by the Escrow Agent of said notice from the Company and the
Investor of the appointment of a successor escrow agent, the name of a successor
escrow account and a direction to transfer the Preferred Stock, Notes and/or
funds, the Escrow Agent shall promptly thereafter transfer all of the Preferred
Stock, Notes, and/or funds held in escrow to said successor escrow agent.
Immediately after said transfer of Preferred Stock, Notes, and/or funds, the
Escrow Agent shall furnish the Company and the Investor with proof of such
transfer. The Escrow Agent is authorized to disregard any notices, requests,
instructions or demands received by it from the Company or the Investor after
notice of resignation or removal shall have been given, unless the same shall be
the aforementioned notice from the Company and the Investor to transfer the
Preferred Stock, Notes, and funds to a successor escrow agent or to return same
to the respective parties.
<PAGE>
3.2 The Escrow Agent acknowledges that it is being compensated for its
services hereunder as provided in the Purchase Agreement. The Escrow Agent shall
be reimbursed by the Company and the Investor for any reasonable expenses
incurred in the event there is a conflict between the parties and the Escrow
Agent shall deem it necessary to retain counsel.
3.3 The Escrow Agent shall not be liable for any action taken or omitted
by him in good faith in accordance with the advice of the Escrow Agent's
counsel; and in no event shall the Escrow Agent be liable or responsible except
for the Escrow Agent's own gross negligence or willful misconduct.
3.4 The Company and the Investor warrant to and agree with the Escrow
Agent that, unless otherwise expressly set forth in this Agreement:
(i) there is no security interest in the Preferred Stock or Notes or any
part thereof;
(ii) no financing statement under the Uniform Commercial Code is on file
in any jurisdiction claiming a security interest or in describing (whether
specifically or generally) the Preferred Stock or Notes or any part
thereof; and
(iii) the Escrow Agent shall have no responsibility at any time to
ascertain whether or not any security interest exists in the Preferred
Stock or Notes or any part thereof or to file any financing statement
under the Uniform Commercial Code with respect to the Preferred Stock or
Notes or any part thereof.
3.5 The Escrow Agent has no liability hereunder to either party other than
to hold the Preferred Stock, Notes, and funds and to deliver them under the
terms hereof. Each party hereto agrees to indemnify and hold harmless the Escrow
Agent from and with respect to any suits, claims, actions or liabilities arising
in any way out of this transaction including the obligation to defend any legal
action brought which in any way arises out of or is related to this Escrow other
than actions arising of or related to Escrow Agent gross negligence of willful
misconduct.
3.6 No waiver or any breach of any covenant or provision herein contained
shall be deemed a waiver of any preceding or succeeding breach thereof, or of
any other covenant or provision herein contained. No extension of time for
performance of any obligation or act shall be deemed any extension of the time
for performance of any other obligation or act.
3.7 All notices or other communications required or permitted hereunder
shall be in writing, and shall be sent by fax, overnight courier, registered or
certified mail, postage prepaid, return receipt requested, and shall be deemed
received upon receipt thereof, as follows:
(i) Interiors Inc.
320 Washington Street
Mount Vernon, New York 10553
Attention: Max Munn, President
Telephone: (914) 665-5400
Facsimile: (914) 665-5469
<PAGE>
(ii) The Goldstein Law Group, P.C.
65 Broadway
New York, NY 10006
Attention: Scott H. Goldstein, Esq.
Telephone: (212) 809-4220
Facsimile: (212) 809-4228
(iii) Limeridge LLC
c/o Citco Trustees Cayman Limited
Corporate Centre
PO Box 31106SMB
Grand Cayman, Cayman Islands
British West Indies
Attention: Sabrina Hew
Facsimile: 345 945-7566
Telephone: 345 949-3977
3.8 This Agreement shall be binding upon and shall inure to the benefit of
the permitted successors and assigns of the parties hereto.
3.9 This Agreement is the final expression of, and contains the entire
Agreement between, the parties with respect to the subject matter hereof and
supersedes all prior understandings with respect thereto. This Agreement may not
be modified, changed, supplemented or terminated, nor may any obligations
hereunder be waived, except by written instrument signed by the parties to be
charged or by its agent duly authorized in writing or as otherwise expressly
permitted herein.
3.10 Whenever required by the context of this Agreement, the singular
shall include the plural and masculine shall include the feminine. This
Agreement shall not be construed as if it had been prepared by one of the
parties, but rather as if both parties had prepared the same. Unless otherwise
indicated, all references to Articles are to this Agreement.
3.11 The Company acknowledges and confirms that it is not being
represented in a legal capacity by The Goldstein Law Group, P.C. and it has had
the opportunity to consult with its own legal advisors prior to the signing of
this Agreement.
3.12 The parties hereto expressly agree that this Agreement shall be
exclusively governed by, interpreted under, construed and enforced in accordance
with the laws of the State of New York. Each of the parties consents to the
exclusive jurisdiction of the United States District Court for the Southern
District of New York in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens, to the bringing of any
such proceeding in such jurisdictions.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement
as of the 30th day of September, 1999.
Interiors, Inc.
By: _________________________
Name: Max Munn
Title: President
INVESTOR:
LIMERIDGE LLC
By: _________________________
Name:
Title:
ESCROW AGENT:
The Goldstein Law Group, P.C.
By______________________________
Name:
<PAGE>
EXHIBIT C
<PAGE>
EXCHANGE AGREEMENT
This Convertible Note Exchange Agreement (the "Agreement") is made by and
between Interiors, Inc., a Delaware corporation ("Interiors") and Limeridge
(hereinafter referred to as the "Holder") of 5,027 shares of Series C
Convertible Preferred Stock (the "Preferred Stock") of Interiors.
Recitals
A. Holder Limeridge LLC is currently the record owner of 5,027 shares of
Preferred Stock.
B. Interiors has created a secured convertible note (the "Notes") with all
of the rights and privileges set forth in the Note annexed as Exhibit A to the
Purchase Agreement.
C. By this Agreement, Interiors desires to assign, convey, transfer and
deliver to the Holder of the Preferred Stock that principal amount of Notes set
forth beside the Holder's name on Schedule A hereto, in exchange for the
surrender of the Preferred Stock, set forth on such Schedule.
Statement of Agreement
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Exchange of Preferred Shares. Interiors and the Holder agree to
exchange that number of shares of Preferred Stock into that principal amount of
Notes as set forth on Schedule A, pursuant to the terms of the Purchase
Agreement and the Escrow Agreement (annexed to the Purchase Agreement as Exhibit
B) within ten Business Days after the date hereof. The "Exchange Date" shall be
defined as the date the Escrow Agent receives the Notes and the Preferred Stock
being exchange thereby. On the Exchange Date, the Holder will cease to have any
right to receipt or payment of dividends in whole or in part, on the Preferred
Stock, but will begin the right to receipt or payment of interest or principal
on the Notes.
2. Representations and Warranties of Interiors and Holder.
2.1 Interiors Representations and Warranties.
(a) Organization and Good Standing. Interiors is a corporation duly
formed, validly existing and in good standing under the laws of the State of
Delaware, with the full authority to issue the Notes and complete the exchange
as set forth herein and to carry out the provisions hereof.
(b) Notes. The Notes, when issued pursuant to the terms of this Agreement
and the Purchase Agreement, will be duly authorized, and validly issued, and
will be subject to no lien or encumbrance. The Notes shall be convertible into
shares of Class A Common Stock of Interiors
<PAGE>
pursuant to the terms and conditions set forth in the Note in the form attached
the Purchase Agreement as Exhibit A.
(c) Registration Rights. The terms and conditions of the Registration
Rights Agreement between Interiors and the Holder, substantially in the form
annexed to the Purchase Agreement as Exhibit D, shall be executed by the parties
herein, and remain in full force and effect when exchange occurs pursuant to the
terms of this Agreement, and all provisions of the Registration rights Agreement
are incorporated herein by reference and made a part of this Agreement.
(d) Execution of this Agreement. Interiors has the full right, power and
authority to enter into and to perform this Agreement and all other agreements,
certificates and documents executed and delivered, or to be executed and
delivered, by Interiors in connection herewith (collectively, with this
Agreement, the "Interiors Documents"). This Agreement has been duly authorized,
executed and delivered by Interiors, and the Interiors Documents are (or when
executed and delivered will be) legal, valid and binding obligations of
Interiors, enforceable in accordance with their respective terms.
(e) Information True and Correct. All the information that is set forth in
this Agreement with respect to the Interiors is correct and complete as of the
date of this Agreement.
2.2 Holder's Representations and Warranties.
(a) Title. The Holder is the owner, beneficially and of record, of all the
shares of Preferred Stock set forth beside its name on Schedule A, exchanged
hereby, free and clear of all liens, encumbrances, security agreements,
equities, options, claims, charges and restrictions. The Holder has full power
to transfer the Preferred Stock exchanged hereby with Interiors without
obtaining the consent or approval of any other person, entity or governmental
authority. The Preferred Stock being exchanged hereby constitute all of the
Preferred Stock owned by the Holder.
(b) Information True and Correct. All the information that is set forth in
this Agreement with respect to the Holder is correct and complete as of the date
of this Agreement.
(c) Knowledge and Experience. The Holder has such knowledge and experience
in financial and business matters that the Holder, together with its
representatives and advisors, if any, is capable of evaluating the merits and
risks of an investment in the Notes.
(d) Holder's Liquidity. The Holder has adequate means of providing for its
current needs and contingencies and has no need for liquidity in connection with
the investment contemplated herein. The Holder acknowledges that it must bear
the economic risk of investment in the Notes for an indefinite period of time,
and that it could bear a loss of its entire investment in the Notes, without
materially impairing its financial wherewithal.
(e) Execution of this Agreement. The Holder has the full right, power and
authority to enter into and to perform this Agreement and all other agreements,
certificates and documents executed and delivered, or to be executed and
delivered, by the Holder in connection herewith (collectively, with this
Agreement, the "Holder Documents"). This Agreement has been duly
<PAGE>
authorized, executed and delivered by the Holder, and the Holder Documents are
(or when executed and delivered will be) legal, valid and binding obligations of
the Holder, enforceable in accordance with their respective terms.
3. Notices. All notices or other communications in connection with this
Agreement shall be in writing and shall be considered given when personally
delivered or when mailed by registered or certified mail, postage prepaid,
return receipt requested, or when sent via commercial courier or telecopier,
directed as follows:
If to Interiors:
Interiors, Inc.
320 Washington Street
Mount Vernon, New York 10553
Attention: Max Munn, President
Telephone: (914) 665-5400
Facsimile: (914) 665-5469
If to the Holder:
Limeridge LLC
c/o Citco Trustees Cayman Limited
Corporate Centre
PO Box 31106SMB
Grand Cayman, Cayman Islands
British West Indies
Attention: Sabrina Hew
Facsimile: 345 945-7566
Telephone: 345 949-3977
with a copy to:
Scott H. Goldstein, Esq.
The Goldstein Law Group, P.C.
65 Broadway, 10th Floor
New York, New York 10006
Telephone No. (212) 809-4220
Telecopier No. (212) 809-4228
4. Choice of Law/Jurisdiction. This Agreement and all transactions
contemplated by this Agreement shall be exclusively governed by, and construed
and enforced in accordance with, the internal laws of the State of New York
without regard to principles of conflicts of laws. Each party consents to the
exclusive jurisdiction of the United States District Court of the Southern
District of New York in connection with any dispute arising under this Agreement
and hereby waive, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens, to the bringing of any
such proceeding in such jurisdictions.
<PAGE>
5. Survival of Representations. All statements contained in any
certificate or instrument or conveyance delivered by or on behalf of the parties
pursuant to this Agreement or in connection with the transactions contemplated
hereby shall be deemed to be additional representations and warranties of the
parties making such disclosure. All representations and warranties shall survive
the exchange as contemplated herein.
6. Assignment. Neither this Agreement nor any of the rights or obligations
hereunder may be assigned by either party without the prior written consent of
the other party hereto, which consent shall not be unreasonably withheld or
delayed. Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, and no other person shall have any right, benefit or obligation
hereunder.
7. Entire Agreement; Amendments and Waivers. This Agreement, along with
the portions of the Purchase Agreement incorporated herein by reference,
together with all exhibits, attachments and schedules hereto, constitutes the
entire agreement among the parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties. No supplement, amendment, modification
or waiver of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided.
8. Invalidity. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein shall
for any reason be held invalid, illegal or unenforceable in any respect, then
such invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement or any other instrument.
9. Further Assurances. The parties shall cooperate and take such actions,
and execute such other documents, in connection with the transactions
contemplated herein, as either may reasonably request in order to carry out the
provisions or purpose of this Agreement.
10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11. Incorporation by Reference. All of the terms and provisions of the
Purchase Agreement are incorporated herein by reference.
12. Capitalized Terms. All capitalized terms used herein and not otherwise
defined shall have that meaning as set forth in the Purchase Agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned has duly executed this Exchange
Agreement on the 30th day of September, 1999.
Interiors, Inc.
By:___________________________
Name:
Title:
LIMERIDGE LLC
By:___________________________
Name:
Title:
<PAGE>
Schedule A
Principal Amount of No. Shares of
Holder Notes Preferred Stock
------ ----- ---------------
Limeridge LLC $5,027,000 5,027
<PAGE>
EXHIBIT D
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of the 30th day of
September 1999, between Limeridge LLC (referred to as the "Holder") and
Interiors, Inc. a corporation incorporated under the laws of the State of
Delaware (the "Company").
WHEREAS, pursuant to the Secured Convertible Note Purchase Agreement
dated as of September 30, 1999 (the "Purchase Agreement") and the Exchange
Agreement (annexed as an Exhibit to the Purchase Agreement), the Holder will be
purchasing Notes and Warrants (hereinafter collectively referred to as the
"Securities" of the Company) of the Company at the Purchase Prices as set forth
in the Purchase Agreement; All capitalized terms not hereinafter defined shall
have that meaning assigned to them in the Purchase Agreement; and
WHEREAS, the Company desires to grant to the Holder the registration
rights set forth herein with respect to the Securities set forth in the Purchase
Agreement.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
"Registrable Security" shall mean the Additional Shares, Warrant Shares, and
Underlying Shares (for that portion of the Note that remains outstanding when
the Company's obligation to file a Registration Statement arises as set forth in
Section 3 below): (i) in respect of which a registration statement (covering
these securities) has not been declared effective by the SEC, (ii) which have
not been sold under circumstances under which all of the applicable conditions
of Rule 144 (or any similar provision then in force) under the Securities Act
("Rule 144") are met, (iii) which have not been otherwise transferred to holders
who may trade such shares without restriction under the Securities Act, or (iv)
the sales of which, in the opinion of counsel to the Company, are subject to any
time, volume or manner limitations pursuant to Rule 144(k) (or any similar
provision then in effect) under the Securities Act. The term "Registrable
Securities" means any and/or all of the securities falling within the foregoing
definition of a Registrable Security. In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be made in the
definition of Registrable Security as is appropriate in order to prevent any
dilution or enlargement of the rights granted pursuant to this Section.
Section 2. Restrictions on Transfer. The Holder acknowledges and
understands that prior to the registration of the Registrable Securities as
provided herein and prior to an exemption to registration being available, the
Registrable Securities are "restricted securities" as defined in Rule 144
promulgated under the Securities Act. The Holder understands that no disposition
or transfer of the Registrable Securities may be made by the Holder in the
absence of (i) an opinion of counsel to the Company (which shall not
unreasonably be withheld and/or delayed) that such transfer may be made without
registration under the Securities Act and state law, or (ii) such registration.
<PAGE>
Section 3. Registration Rights.
(a) The Company agrees, that in the event that all of the
principal amount of the Notes has not been redeemed (as per the terms of the
Notes) on or before May 30, 2000, it will prepare and file with the Securities
and Exchange Commission ("SEC"), on or before June 30, 2000, a registration
statement (on Form S-3) under the Securities Act (the "Registration Statement"),
at the sole expense of the Company (except as provided in Section 3(c) hereof),
in respect of the Holder for resales under the Securities Act of the Registrable
Securities. The Company shall use its best efforts to cause the Registration
Statement to become effective on or before September 30, 2000. The number of
shares of Common Stock designated in the Registration Statement to be registered
shall be one hundred fifty (150%) percent of the number of shares of Common
Stock that would be required if the then outstanding principal amount of the
Notes and Warrants were converted and exercised on the Trading Day immediately
preceding the date the Registration Statement was filed.
(b) The Company will maintain the effectiveness of any
Registration Statement or post-effective amendment filed under this Section 3
hereof under the Securities Act until the earlier of (i) the date that all of
the Registrable Securities have been sold pursuant to a Registration Statement,
(ii) the date the holders thereof receive an opinion of counsel that all of the
Registrable Securities may be sold (without volume limitation) under the
provisions of Rule 144 or (iii) five and one half years after the filing of such
Registration Statement.
(c) All fees, disbursements, out-of-pocket expenses and costs
incurred by the Company in connection with the preparation and filing of the
Registration Statement and in complying with applicable securities and blue sky
laws (including, without limitation, all attorneys' fees) shall be borne by the
Company. The Holder shall bear the cost, pro rata, of underwriting discounts and
commissions, if any, applicable to the Registrable Securities being registered
and the fees and expenses of their counsel. The Company shall qualify any of the
Registrable Securities for sale in such states as the Holder reasonably
designates and shall furnish indemnification in the manner provided in Section 8
hereof. However, the Company shall not be required to qualify in any state that
will require an escrow or other restriction relating to the Company and/or the
sellers. The Company at its expense will supply the Holder with copies of the
Registration Statement and the prospectus or offering circular included therein
and other related documents in such quantities as may be reasonably requested by
the Holder.
(e) Unless otherwise agreed to in writing by the Holder, the
Company shall only be permitted to include the Registrable Securities in the
Registration Statement. The Company represents that as of the date hereof it is
not obligated to file a registration statement on behalf of any other Person
and/or entity not a party to this Agreement.
(f) In the event the Registration Statement to be filed by the
Company pursuant to Section 3(a) above has not been filed by the Company in a
timely manner as provided above, or declared effective by the SEC on or before
the September 30, 2000, then the Company will pay to the Holder, as liquidated
damages for such failure and not as a penalty, two (2%) percent of the principal
amount of the then outstanding Notes for each 30 calendar day period thereafter
(pro rated on a daily basis), until the Registration Statement has been filed
<PAGE>
and/or declared effective. Notwithstanding the foregoing the Company shall not
be obligated for liquidated damages if not filed in a timely manner if the
Registration Statement has been declared effective on or before September 30,
2000. Such payment of the liquidated damages shall be made to the Holder in
cash, immediately upon written demand, provided, however, that the payment of
such liquidated damages shall not relieve the Company from its obligations to
register the Securities pursuant to this Section and registration shall not
relieve the Company from any obligation to pay liquidated damages. The Holder's
rights to liquidated damages as set forth herein shall not interfere with the
Holder's right to call the Notes due and payable immediately as per the terms of
the Note for the failure of the Company to timely file the Registration
Statement, or the failure of the Registration Statement to be declared effective
by the SEC in a timely manner as provided herein.
(g) If the Company does not remit the damages to the Holder as
set forth above, the Company will pay the Holder's reasonable costs of
collection, including reasonable attorney's fees, in addition to the liquidated
damages. The registration of the Securities pursuant to this provision shall not
affect or limit the Holders other rights or remedies as set forth in this
Agreement.
(h) The Company agrees that within five calendar days after
being notified by the SEC that the Registration Statement has been cleared to go
effective, the Company it will declare Registration Statement effective. The
Company also agrees that it shall respond in writing to any questions and/or
comments from the SEC that relate to the Registration Statement within ten
calendar days of receipt of such question or comment.
(i) In the event the number of shares of Common Stock included
in the Registration Statement shall be insufficient to cover the number of
Registrable Securities due to the Holder under the terms of the Purchase
Agreement and/or the Notes and Warrants, the Company agrees that it shall file
either a new Registration Statement including such additional shares or amend
the then existing Registration Statement. The Company agrees that in such event
it will file with the SEC either an amendment to the then existing Registration
Statement or a new Registration Statement within 30 calendar days of when
required hereunder, and use its best efforts to cause either the amendment or
such Registration Statement to become effective within 90 calendar days from
when required to file such Registration Statement pursuant to the terms herein.
If such amendment or new Registration Statement is not filed and/or declared
effective in a timely manner as set forth herein, the Company shall be subject
to liquidated damages as pursuant to the provisions of Section 3(e).
Section 4. Cooperation with Company. The Holder will cooperate with
the Company in all respects in connection with this Agreement, including timely
supplying all information reasonably requested by the Company and executing and
returning all documents reasonably requested in connection with the registration
and sale of the Registrable Securities.
Section 5. Registration Procedures. If and whenever the Company is
required by any of the provisions of this Agreement to effect the registration
of any of the Registrable Securities under the Securities Act, the Company shall
(except as otherwise provided in this Agreement), as expeditiously as possible:
<PAGE>
(a) prepare and file with the SEC such amendments and
supplements to the Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such registration statement
whenever the Holder of such securities shall desire to sell or otherwise dispose
of the same (including prospectus supplements with respect to the sales of
securities from time to time in connection with a registration statement
pursuant to Rule 415 promulgated under the Securities Act);
(b) furnish to the Holder copies of the Registration Statement
(and any amendments thereto), a summary prospectus or other prospectus,
including a preliminary prospectus or any amendment or supplement to any
prospectus, in conformity with the requirements of the Securities Act, and shall
also furnish such other documents as the Holder may reasonably request in order
to facilitate the public sale or other disposition of the Securities owned by
the Holder;
(c) register and qualify the Registrable securities covered by
the Registration Statement under such other securities or blue sky laws of such
jurisdictions as the Holder shall reasonably request, and do any and all other
acts and things which may be necessary or advisable to enable the Holder to
consummate the public sale or other disposition in such jurisdiction of the
securities owned by the Holder, except that the Company shall not for any such
purpose be required to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified, or to file therein any general
consent to service of process, or to qualify any of the securities for sale in
any state which will require an escrow or other restriction relating to the
Company and/or sellers;
(d) list such securities on the Nasdaq Small Cap Market or
other national securities exchange on which any securities of the Company are
then listed, if the listing of such securities is then permitted under the rules
of such exchange or market;
(e) notify the Holder of Registrable Securities covered by the
Registration Statement, at any time when a prospectus relating thereto covered
by the Registration Statement is required to be delivered under the Securities
Act, of the happening of any event of which the executive officers of the
Company have knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
Section 6. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Holder, and each officer, director or person, if any, who controls the Holder
within the meaning of the Securities Act ("Distributing Holder") against any
losses, claims, damages or liabilities, joint or several (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs
<PAGE>
of defense and investigation and all reasonable attorneys' fees), to which the
Distributing Holder may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, or any
related preliminary prospectus, final prospectus, offering circular,
notification or amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company (i) will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, preliminary prospectus,
final prospectus, offering circular, notification or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by the Distributing Holder, specifically for use in the
preparation thereof, or (ii) cannot pay any amounts paid in settlement of any
loss, claim, damage or liability if such settlement is effected without the
consent of the Company, which consent shall not be unreasonably withheld. This
Section 6(a) shall not inure to the benefit of any Distributing Holder with
respect to any person asserting such loss, claim, damage or liability who
purchased the Registrable Securities which are the subject thereof if the
Distributing Holder failed to send or give (in violation of the Securities Act
or the rules and regulations promulgated thereunder) a copy of the prospectus
contained in such Registration Statement to such person at or prior to the
written confirmation of such person of the sale of such Registrable Securities,
where the Distributing Holder was obligated to do so under the Securities Act or
the rules and regulations promulgated thereunder. This indemnity provision will
be in addition to any liability that the Company may otherwise have.
(b) Each Distributing Holder agrees that it will indemnify and
hold harmless the Company, each officer, director, or person, if any, who
controls the Company within the meaning of the Securities Act (each a "Company
Indemnitee"), and each other Distributing Holder, against any losses, claims,
damages or liabilities, joint or several (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all reasonable attorneys' fees) to which any Company
Indemnitee or other Distributing Holder may become subject under the Securities
Act or otherwise, insofar as such losses claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, or any related preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto, or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but in each case only to the extent that such untrue statement
or alleged untrue statement or omission or alleged omission was made in the
Registration Statement, preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto in reliance upon, and
in conformity with, written information furnished to the Company by such
Distributing Holder, specifically for use in the preparation thereof. This
indemnity provision will be in addition to any liability that the Distributing
Holder may otherwise have.
<PAGE>
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 6, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified party
otherwise than as to the particular item as to which indemnification is then
being sought solely pursuant to this Section 6. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, assume the defense thereof, subject to the provisions
herein stated and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying party
will not be liable to such indemnified party under this Section 6 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation, unless
the indemnifying party shall not pursue the action to its final conclusion. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party; provided that if the indemnified party is
the Distributing Holder, the fees and expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including any impleaded parties) include both the
Distributing Holder and the indemnifying party and the Distributing Holder shall
have been advised by such counsel that there may be one or more legal defenses
available to the indemnifying party different from or in conflict with any legal
defenses which may be available to the Distributing Holder (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the Distributing Holder, it being understood, however, that the
indemnifying party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable only for the reasonable
fees and expenses of one separate firm of attorneys for the Distributing Holder,
which firm shall be designated in writing by the Distributing Holder). No
settlement of any action against an indemnified party shall be made without the
prior written consent of the indemnified party, which consent shall not be
unreasonably withheld.
Section 7. Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 6 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 6 hereof provide
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any indemnified party, then the Company and the
applicable Distributing Holder shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees), in either such case (after
contribution from
<PAGE>
others) on the basis of relative fault as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the applicable
Distributing Holder on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Distributing Holder agree that it
would not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in this
Section 7. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof) referred
to above in this Section 7 shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
Section 8. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a Business Day between the hours of 9:00 a.m. and 5:00 p.m. where
such notice is to be received), or the first Business Day following such
delivery (if delivered other than on a Business Day between the hours of 9:00
a.m. and 5:00 p.m. where such notice is to be received), (b) on the second
Business Day following the date of mailing by reputable courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur, or (c) five calendar days after sent by regular
mail. The addresses for such communications shall be:
If to the Company:
Interiors, Inc.
320 Washington Street
Mount Vernon, New York 10553
Telephone: (914) 665-5400
Facsimile: (914) 665-5469
Attention: President
<PAGE>
If to the Holder:
Limeridge LLC
c/o Citco Trustees Cayman Limited
Corporate Centre
PO Box 31106SMB
Grand Cayman, Cayman Islands
British West Indies
Attention: Sabrina Hew
Facsimile: 345 945-7566
Telephone: 345 949-3977
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 8 by giving at least ten calendar days'
prior written notice of such changed address or facsimile number to the other
party hereto.
Section 9. Assignment. This Agreement is binding upon and inures to
the benefit of the parties hereto and their respective heirs, successors and
permitted assigns. In the event of a transfer of the rights granted under this
Agreement, the Holder agrees that the Company may require that the transferee
comply with reasonable conditions as determined in the discretion of the
Company.
Section 10. Counterparts; Facsimile; Amendments. This Agreement may
be executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 11. Termination of Registration Rights. This Agreement shall
terminate as to the Holder (and permitted transferees or assignees) upon the
occurrence of any of the following:
(a) all Holder's Securities subject to this Agreement have been
registered;
(b) all of such Holder's Securities subject to this Agreement may be
sold without such registration pursuant to Rule 144 promulgated by the SEC
pursuant to the Securities Act; and
(c) all of such Holder's Securities subject to this Agreement can be
sold pursuant to Rule 144(k) without limitation.
Section 12. Headings. The headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
<PAGE>
Section 13. Governing Law: Venue; Jurisdiction. This Agreement will
be exclusively construed and enforced in accordance with and governed by the
laws of the State of New York, except for matters arising under the Securities
Act, without reference to principles of conflicts of law. Each of the parties
consents to the exclusive jurisdiction of the U.S. District Court sitting in the
Southern District of the State of New York in connection with any dispute
arising under this Agreement and hereby waives, to the maximum extent permitted
by law, any objection, including any objection based on forum non conveniens, to
the bringing of any such proceeding in such jurisdictions. Each party hereby
agrees that if another party to this Agreement obtains a judgment against it in
such a proceeding, the party which obtained such judgment may enforce same by
summary judgment in the courts of any country having jurisdiction over the party
against whom such judgment was obtained, and each party hereby waives any
defenses available to it under local law and agrees to the enforcement of such a
judgment. Each party to this Agreement irrevocably consents to the service of
process in any such proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to such party at its address set forth herein.
Nothing herein shall affect the right of any party to serve process in any other
manner permitted by law.
Section 14. Severability. If any provision of this Agreement shall
for any reason be held invalid or unenforceable, such invalidity or
unenforceablity shall not affect any other provision hereof and this Agreement
shall be construed as if such invalid or unenforceable provision had never been
contained herein. Terms not otherwise defined herein shall be defined in
accordance with the Agreement.
Section 15. Capitalized Terms. All capitalized terms not otherwise
defined herein shall have the meaning assigned to them in the Purchase
Agreement.
Section 16. Entire Agreement. This Agreement, together with all
documents referenced herein, embody the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and
supersedes all prior oral or written agreements and understandings relating to
the subject matter hereof. No statement, representation, warranty, covenant or
agreement of any kind not expressly set forth in this Agreement shall affect, or
be used to interpret, change or restrict, the express terms and provisions of
this Agreement.
[Remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed, on the day and year first above written.
INTERIORS, INC.
By: _________________________
Name: Max Munn
Title: President
INVESTOR:
LIMERIDGE LLC
By: _________________________
Name:
Title:
<PAGE>
EXHIBIT E
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made as of September 30,
1999, by and between Interiors, Inc., a Delaware corporation ("Debtor"), Petals,
Inc., a Delaware corporation (the "Subsidiary") and Limeridge LLC (hereinafter
referred to as the "Secured Party").
1. Definitions.
(a) Certain Defined Terms. The following terms, as used herein, have the
meanings set forth below:
Collateral - has the meaning assigned to that term in Section 2.
Event of Default - has the meaning assigned to that term in Section 9.
Note - means that certain Secured Convertible Notes of even date herewith,
in the aggregate original principal amount of $13,540,626, made and executed by
Debtor and issued to Secured Party, and all amendments and supplements thereto,
restatements thereof and renewals, extensions, restructuring and refinancings
thereof.
Person - means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts or other organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof.
Proceeds - means all proceeds of, and all other profits, rentals or
receipts, in whatever form, arising from the collection, sale, lease, exchange,
assignment, licensing or other disposition of, or realization upon, any
Collateral including, without limitation, all claims against third parties for
loss of, damage to or destruction of, or for proceeds payable under, or unearned
premiums with respect to, policies of insurance with respect to any Collateral,
and any condemnation or requisition payments with respect to any Collateral, in
each case whether now existing or hereafter arising.
Purchase Agreement - means that certain Secured Convertible Note Purchase
Agreement (including all Exhibits annexed thereto) of even date herewith, by and
between Debtor and Secured Party.
Secured Obligations - has the meaning assigned to that term in Section 3.
Security Interests - means the security interests granted pursuant to
Section 2, as well as all other security interests created or assigned as
additional security for the Secured Obligations pursuant to the provisions of
this Agreement.
<PAGE>
Shares - means all of the outstanding securities of Petals, Inc.
UCC - means the Uniform Commercial Code as in effect on the date hereof in
the State of New York, provided that if by reason of mandatory provisions of
law, the perfection or the effect of perfection or non-perfection of the
Security Interest in any Collateral or the availability of any remedy hereunder
is governed by the Uniform Commercial Code as in effect on or after the date
hereof in any other jurisdiction, "UCC" means the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the provisions hereof relating
to such perfection or effect of perfection or non-perfection or availability of
such remedy.
(b) Other Definition Provisions. References to "Sections", "subsections",
"Exhibits" and "Schedules" shall be to Sections, subsections, Exhibits and
Schedules, respectively, of this Agreement unless otherwise specifically
provided. Any of the terms defined in Section 1(a) may, unless the context
otherwise requires, be used in the singular or the plural depending on the
reference. All references to statutes and related regulations shall include
(unless otherwise specifically provided herein) any amendments of same and any
successor statutes and regulations.
2. Grant of Security Interest
In order to secure the payment and performance of the Secured Obligations
in accordance with the terms thereof, Debtor and Subsidiary hereby grant to
Secured Party a continuing security interest in and to all right, title and
interest of Debtor and/or Subsidiary in the Shares (also referred to as the
"Collateral").
3. Security for Obligations
This Agreement secures the payment and performance of the Purchase
Agreement and the Note, and all renewals, extensions, restructuring and
refinancings thereof (the "Secured Obligations").
4. Representations and Warranties. Debtor and Subsidiary represent and
warrant as follows:
(a) Binding Obligation. This Agreement has duly executed and
delivered by the Subsidiary and Debtor, which is a legal, valid and binding
obligation of Debtor and Subsidiary, enforceable against Debtor and Subsidiary
in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium, or similar laws or equitable
principles relating to or limiting creditor's rights generally. This Agreement
is not in violation of any other agreements, instruments, order or judgment by
which Debtor and/or Subsidiary is bound or subject. The execution, delivery and
performance of this Agreement by Debtor and Subsidiary do not require the
consent or approval of any other person, entity or governmental agency.
(b) Ownership of Shares. Debtor owns the Shares free and clear of
any lien, security interest or encumbrance. No effective financing statement or
other form of lien notice covering all or any part of the Collateral is on file
in any recording office. Debtor is, and as long
<PAGE>
as this Agreement shall be in effect pursuant to its terms, shall be the sole,
record, legal and beneficial owner of, and has good and marketable title to, the
Shares, subject to no lien, pledge or encumbrance, except the lien on the Shares
created by this Agreement.
(c) Office Locations; Debtor Names.
(i) As of the date hereof, the chief place of business, the
chief executive office and the office where Debtor and Subsidiary keeps
its books and records is located at 320 Washington Street, Mount Vernon,
New York 10553. Debtor and/or Subsidiary have not maintained any other
address at any time during the five years preceding the date hereof.
(ii) Debtor and Subsidiary do not do business nor, as of the
date hereof, have they done business during the past five years under any
corporate name, trade name or fictitious business name except for Debtor
and Subsidiary's corporate name set forth above. Debtor and Subsidiary
will notify Secured Party promptly in writing at least thirty (30)
calendar days prior to (a) any change in Debtor and/or Subsidiary's name
and (b) Debtor and/or Subsidiary's commencing the use of any trade name,
assumed name or fictitious name.
(d) Perfection. This Agreement, together with the UCC filings
referenced herein, created to secure the Secured Obligations a valid, perfected
and priority security interest in the Collateral, and all filings and other
actions necessary or desirable to perfect and protect such security interest
have been duly taken.
(e) Governmental Authorizations; Consents. No authorization,
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body or consent of any other Person is required either
(i) for the grant by Debtor and Subsidiary of the Security Interests granted
hereby or for the execution, delivery or performance of this Agreement by Debtor
and Subsidiary or (ii) for the perfection of or the exercise by Secured Party of
its rights and remedies hereunder (except as may have been taken by or at the
direction of Debtor, Subsidiary or Secured Party) other than the filing of
financing statements in connection with the perfection of the Security
Interests.
(f) Value of Collateral. The value of the Collateral as of the date
hereof is approximately $10,000,000.
(g) Accurate Information. All information heretofore, herein or
hereafter supplied to Secured Party by or on behalf of Debtor and Subsidiary
with respect to the Collateral is and will be accurate and complete in all
material respects.
(h) Deficiency. Debtor and Subsidiary will remain liable for any
deficiency in the event that the delivery of the Shares to the Secured Party is
insufficient to satisfy the Debtor's obligations under the Notes.
(i) Survival. From and after the date hereof and so long as this
Agreement shall be in effect pursuant to its terms, the Debtor and Subsidiary
agree that they shall not take
<PAGE>
any action that would cause the Debtor and/or Subsidiary to be in breach or
default of any of the Secured Obligations, that all representations and
warranties made by Debtor and Subsidiary shall survive this Agreement and that
as of the date hereof, the Secured Party shall be deemed to have a priority lien
on the Shares for the purposes and in accordance with the terms and provisions
hereof, and the Debtor and Subsidiary shall cooperate with the Secured Party and
take all action requested by the Secured Party to ensure the representations and
warranties shall survive this Agreement with respect thereto.
(j) Delivery. Upon the Shares being delivered to the Secured Party
as heretofore provided, they shall become fully the property of the Secured
Party. In addition, the Debtor and Subsidiary shall promptly take all necessary
action, at the direction of the Secured Party (at no cost to the Secured Party)
to transfer the Shares to the Secured Party or its nominee for sale.
(k) Valid Issuances. The Subsidiary's performance of its obligations
under this Agreement will not (i) result in the creation or imposition by the
Debtor and Subsidiary of any liens, charges, claims or other encumbrances upon
the Shares, or any of the assets of the Subsidiary other than the security
interest granted under this Agreement, or (ii) entitle the holders of
outstanding capital shares of the Subsidiary to preemptive or other rights to
subscribe to or acquire any capital shares or other securities of the
Subsidiary.
(l) No Conflicts. The execution, delivery and performance of this
Agreement by the Subsidiary and the consummation by the Subsidiary of the
transactions contemplated hereby do not and will not (i) result in a violation
of its Articles of Incorporation or ByLaws or (ii) conflict with, or constitute
a material default (or an event that with notice or lapse of time or both would
become a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, patent, patent license,
indenture, instrument or any "lock-up" or similar provision of any underwriting
or similar agreement to which the Subsidiary is a party, or (iii) result in a
violation of any federal, state or local law, rule, regulation, order, judgment
or decree (including federal and state securities laws and regulations)
applicable to the Subsidiary or by which any property or asset of the Subsidiary
is bound or affected, nor is the Subsidiary otherwise in violation of, in
conflict with, or in default under, any of the foregoing except as would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect. The business of the Subsidiary is not being conducted in
violation of any law, ordinance or regulation of any governmental entity, except
for possible violations that either singly or in the aggregate would not
reasonably be expected to have a Material Adverse Effect.
(m) No Undisclosed Liabilities. The Subsidiary has no liabilities or
obligations, known or unknown, absolute or otherwise (individually or in the
aggregate), which have not been disclosed in writing to the Secured Party or
otherwise publicly announced, or as incurred in the ordinary course of the
Subsidiary's business since January 1, 1999, or which, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect.
(n) Litigation and Other Proceedings. There are no lawsuits or
proceedings pending or to the knowledge of the Debtor and/or Subsidiary
threatened, against the Subsidiary,
<PAGE>
nor has the Debtor and Subsidiary received any written or oral notice of any
such action, suit, proceeding or investigation, which would reasonably be
expected to have a Material Adverse Effect. No judgment, order, writ, injunction
or decree or award has been issued by or, so far as is known by the Debtor and
Subsidiary, requested of any court, arbitrator or governmental agency which
would be reasonably expected to result in a Material Adverse Effect.
(o) Employee Relations. The Subsidiary is not involved in any labor
dispute, nor, to the knowledge of the Debtor and Subsidiary, is any such dispute
threatened which could reasonably be expected to have a Material Adverse Effect.
None of the Subsidiary's employees is a member of a union and the Debtor and
Subsidiary believe that Subsidiary's relations with its employees are good.
(p) Insurance. The Subsidiary is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Debtor and Subsidiary believe to be prudent and customary in
the businesses in which the Subsidiary is engaged. The Debtor and Subsidiary
have no notice to believe that the Subsidiary will not be able to renew its
existing insurance coverage as and when such coverage expires, or obtain similar
coverage from similar insurers as may be necessary to continue its business at a
cost that would not have a Material Adverse Effect.
(q) Patents and Trademarks. The Subsidiary has, or has rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses, trade secrets and other
intellectual property rights which are necessary for use in connection with its
business or which the failure to so have would have a Material Adverse Effect
(collectively, the "Intellectual Property Rights"). To the best knowledge of the
Subsidiary, none of the Intellectual Property Rights is infringing, or will
infringe on any trademark, trade name, patent right, copyright, license, trade
secret or other similar right of others currently in existence rights of any
other Person, and the Subsidiary either owns or has duly licensed or otherwise
acquired all necessary rights with respect to the Intellectual Property Rights.
The Subsidiary has not received any notice from any third party of any claim of
infringement by the Subsidiary of any of the Intellectual Property Rights, and
has no reason to believe there is any basis for any such claim. To the best
knowledge of the Subsidiary, there is no existing infringement by another Person
on any of the Intellectual Property Rights.
(r) Permits; Compliance. Subsidiary is in possession of and
operating in compliance with all franchises, grants, authorizations, licenses,
permits, easements, variances, exemptions, consents, certificates, approvals and
orders necessary to own, lease and operate its properties and to carry on its
business as it is now being conducted (collectively, the "Subsidiary Permits")
all of which are valid and in full force and effect, and there is no action
pending or, to the knowledge of the Subsidiary, threatened regarding the
suspension or cancellation of any of the Subsidiary Permits except for such
Subsidiary Permits, the failure of which to possess, or the cancellation, or
suspension of which, would not, individually or in the aggregate, have a
Material Adverse Effect. To the Debtor and/or Subsidiary's knowledge, the
Subsidiary is in material conflict with, or in material default or material
violation of, any of the Subsidiary Permits. Since January 1, 1999 the
Subsidiary has not received any notification with respect to possible material
conflicts, material defaults or material violations of applicable laws.
<PAGE>
(s) Taxes. All federal, state, city and other tax returns, reports
and declarations required to be filed by or on behalf of the Subsidiary have
been filed and such returns are complete and accurate and disclose all taxes
(whether based upon income, operations, purchases, sales, payroll, licenses,
compensation, business, capital, properties or assets or otherwise) required to
be paid in the periods covered thereby.
(t) No Bankruptcy. Debtor and Subsidiary are aware of no facts or
claims against it that would, and the Debtor and/or Subsidiary has no present
intention to, liquidate the assets of the Subsidiary and/or seek bankruptcy
protection either voluntarily or involuntarily.
(u) No Default. Subsidiary is not in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust or other material instrument
or agreement to which it is a party or by which it is or its property is bound.
(v) Title to Assets. Subsidiary has good and marketable title to all
properties and material assets as owned by it, free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest other than
such as are not material to the business of Subsidiary.
(w) Organization of the Subsidiary. The Subsidiary is a corporation
duly incorporated and existing in good standing under the laws of the State of
Delaware and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. The Subsidiary is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary, other than those (individually or in the
aggregate) in which the failure so to qualify would not reasonably be expected
to have a Material Adverse Effect. The Subsidiary is not in violation of any
material terms of its Articles of Incorporation or Bylaws.
(x) Authority. (i) The Subsidiary has the requisite corporate power
and authority to enter into and perform its obligations under this Agreement,
(ii) the execution, issuance and delivery of this Agreement by the Subsidiary
and the consummation by it of the transactions contemplated hereby have been
duly authorized by all necessary corporate action and no further consent or
authorization of the Subsidiary, its shareholders, or its Board of Directors is
necessary, and (iii) this Agreement has been duly executed and delivered by the
Subsidiary and constitute valid and binding obligations of the Subsidiary
enforceable against the Subsidiary in accordance with their terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
Upon their issuance and delivery pursuant to this Agreement, the Shares will be
validly issued, fully paid and nonassessable, and will be free of any liens or
encumbrances other than those created hereunder or by the actions of the Secured
Party.
<PAGE>
5. Further Assurances; Covenants
(a) Other Documents and Actions. Debtor and Subsidiary will, from
time to time, at its expense, promptly execute and deliver all further
instruments and documents and take all further action that may be necessary or
desirable, or that Secured Party may reasonably request, in order to perfect and
protect any security interest granted or purported to be granted hereby or to
enable Secured Party to exercise and enforce its rights and remedies hereunder
with respect to any Collateral. Without limiting the generality of the
foregoing, Debtor and/or Subsidiary will: (i) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments or
notices, as may be necessary or desirable, or as Secured Party may reasonably
request, in order to perfect and preserve the security interests granted or
purported to be granted hereby; (ii) at any reasonable time, upon demand by
Secured Party exhibit the Collateral to allow inspection of the Collateral by
Secured Party or persons designated by Secured Party; (iii) upon Secured Party's
request, appear in and defend any action or proceeding that may affect
Subsidiary's title to or Secured Party's security interest in the Collateral,
and (iv) take all action necessary to have the Pledged Stock transferred in the
name of the Pledgee.
(b) Secured Party Authorized. Debtor and Subsidiary hereby
authorizes Secured Party to file one or more financing or continuation
statements, and amendments thereto, relating to all or any part of the
Collateral without the signature of Debtor and/or Subsidiary where permitted by
law.
(c) Stock Dividends, Distributions, etc. If, while this Agreement is
in effect, the Debtor and/or Subsidiary shall became entitled to receive or
shall receive any stock certificate (including, without limitation, any
certificate representing a stock dividend, stock split, conversion of a
convertible security or a distribution in connection with any reclassification
or any increase or reduction of capital, or issued in connection with any
reorganization), option or right, whether as an addition to, in substitution, of
or in exchange for any of the Shares, Debtor and Subsidiary agrees that such
stock certificate, option or right shall be additional collateral security for
the Secured Obligations, and shall be delivered to Escrow Agent to be held as
Collateral pursuant to the terms of this Agreement.
(d) Other Information. Debtor and Subsidiary will, promptly upon
request, provide to Secured Party all information and evidence it may reasonably
request concerning the Collateral to enable Secured Party to enforce the
provisions of this Agreement.
(e) Maintenance. The Debtor and Subsidiary will maintain the
business of the Subsidiary as presently operated, and shall take any and all
actions necessary for such maintenance as are customary.
6. Escrow Agent. The parties each hereby designate The Goldstein Law
Group, P.C., New York NY 10006 as the "Escrow Agent" to hold the Shares in
accordance with the escrow agreement dated as of the date hereof. Simultaneously
with the execution of this Agreement, Debtor has delivered the Shares along with
duly endorsed stock powers that permit Secured Party to transfer the Shares to
the Secured Party if an Event of Default occurs, as set forth herein or in the
Notes to the Escrow Agent to be held by Escrow Agent as Collateral under
<PAGE>
this Agreement, to secure complete and final payment by the debtor of the
Secured Obligations in accordance with the terms and provisions of this
Agreement.
7. Voting Rights. Unless an Event of Default, as defined herein or in the
Note, shall have occurred, Debtor shall be entitled to vote the Shares and to
give consents, waiver and ratification in respect of the Shares; provided,
however, that no vote shall be cast, or consent, waiver or ratification given or
action taken, which would violate any rights the Secured Party has to the Shares
under the terms of this Agreement or the Notes.
8. Rights of Secured Party. Any of the Shares may, if an Event of Default
has occurred and is continuing (as defined below or in the Note), (a) be
registered in the name of the Secured Party and its nominees (for which a power
of attorney coupled with an interest is hereby granted), which may thereafter
exercise all voting and other rights and exercise any and all rights of
conversion, exchange, subscription or any other rights, privileges or options
pertaining to any of the Shares as if it were the absolute owner thereof or (b)
to the extent permitted by law, be sold by Secured Party in the name of Debtor
to any third party with proceeds (up to the amount equal to the Secured
Obligations plus any and all monies due to the Secured Party pursuant to this
Agreement and the Purchase Agreement) of such sale being paid to Secured Party
(for which a power of attorney coupled with an interest is hereby granted). In
addition, Debtor and Subsidiary grant to Secured Party a power of attorney
coupled with an interest to sign on behalf of Debtor and Subsidiary after an
Event of Default (as defined herein or in the Note), a statement renouncing or
modifying Debtor and Subsidiary right under section 9-505 of the Uniform
Commercial Code of the State of New York.
9. Secured Party Appointed Attorney-in-Fact. Debtor and Subsidiary hereby
irrevocably appoint Secured Party as its attorney-in-fact, with full authority
in the place and stead of Debtor and Subsidiary and in the name of Debtor and
Subsidiary, Secured Party or otherwise, from time to time in Secured Party's
discretion to take any action and to execute any instrument that Secured Party
may deem necessary or advisable after the occurrence and during the continuation
of an Event of Default to accomplish the purposes of this Agreement, including,
without limitation:
(a) to obtain and adjust insurance required to be paid to Secured
Party;
(b) to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for monies due and to become due under or in
respect of any of the Collateral;
(c) to file any claims or take any action or institute any
proceedings that Secured Party may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
Secured Party with respect to any of the Collateral;
(d) to pay or discharge taxes or liens, levied or placed upon or
threatened against the Collateral, the legality or validity thereof and the
amounts necessary to discharge the same to be determined by Secured Party in its
sole discretion, and such payments made by Secured Party to become obligations
of Debtor and Subsidiary, due and payable immediately without demand and secured
by the Security Interests; and
<PAGE>
(e) generally to sell, transfer, pledge, make any agreement with
respect to or otherwise deal with any of the Collateral as fully and completely
as though Secured Party were the absolute owner thereof for all purposes, and to
do, at Secured Party's option and Debtor and Subsidiary's expense, at any time
or from time to time, all acts and things that Secured Party deems necessary to
protect, preserve or realize upon the Collateral.
This power, being coupled with an interest, is irrevocable so long as this
Agreement shall remain in force.
10. Transfers and Other Liens. Debtor and Subsidiary shall not, without
Secured Party's prior written consent:
(a) Sell, assign (by operation of law or otherwise) or otherwise
dispose of, or grant any option with respect to, any of the Collateral.
(b) Create or suffer to exist any lien, security interest or other
charge or encumbrance upon or with respect to any of the Collateral to secure
indebtedness of any Person except for the security interest created by this
Agreement.
11. Events of Default. The occurrence of any "Event of Default" as that
term is defined in Note shall constitute an Event of Default by Debtor and/or
Subsidiary under this Agreement.
12. Remedies
(a) If any Event of Default shall have occurred and be continuing,
Secured Party may declare the entire outstanding principal amount of the Note
immediately due and payable without any notice, demand or other action on the
part of Secured Party.
(b) If any Event of Default shall have occurred and be continuing,
Secured Party may exercise in respect of the Collateral, in addition to all
other rights and remedies provided for herein or otherwise available to it, all
the rights and remedies of a secured party on default under the UCC (whether or
not the UCC applies to the affected Collateral) and also may: (i) without notice
or demand or legal process, take possession of the Collateral and take any and
all actions necessary to transfer the Shares in the name of the Secured Party;
(ii) without notice except as specified below, sell the Collateral or any part
thereof at such time or times, for cash, on credit or for future delivery, and
at such price or prices and upon such other terms as Secured Party may deem
commercially reasonable; (iii) notify the obligors on any Accounts or
Instruments to make payments there under directly to Secured Party; (iv) without
notice to Debtor and/or Subsidiary, renew, modify or extend any of the Accounts
and Instruments or grant waivers or indulgences with respect thereto or accept
partial payment thereof, or substitute any obligor thereon, in any manner as
Secured Party may deem advisable, without affecting or diminishing Debtor and/or
Subsidiary's continuing obligations hereunder, and (v) and shall have all
applicable remedies set forth in the New York Uniform Commercial Code.
<PAGE>
13. Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default as set forth herein, the proceeds of any sale
of, or other realization upon, all or any part of the Collateral shall be
applied: first, to all fees, costs and expenses incurred by Secured Party with
respect to the Collateral; and second, to the Secured Obligations. Secured Party
shall pay over to Debtor and Subsidiary any surplus and Debtor and Subsidiary
shall remain liable for any deficiency.
14. Expenses. Debtor and Subsidiary agree to pay all insurance expenses
and all expenses of protecting, storing, warehousing, appraising, insuring,
handling, maintaining and shipping the Collateral, all costs, fees and expenses
of perfecting and maintaining the Security Interests, and any and all excise,
property, sales and use taxes imposed by any state, federal or local authority
on any of the Collateral, or with respect to periodic appraisals and inspections
of the Collateral, or with respect to the sale or other disposition thereof. If
Debtor and/or Subsidiary fails promptly to pay any portion of the above expenses
when due or to perform any other obligation of Debtor and/or Subsidiary under
this Agreement, Secured Party may, at its option, but shall not be required to,
pay or perform the same, and Debtor and Subsidiary agree to reimburse Secured
Party therefor on demand. All sums so paid or incurred by Secured Party for any
of the foregoing, any and all other sums for which Debtor and Subsidiary may
become liable hereunder and all costs and expenses (including attorneys' fees,
legal expenses and court costs) incurred by Secured Party in enforcing or
protecting the Security Interests or any of their rights or remedies under this
Agreement shall be payable on demand, shall constitute Secured Obligations,
shall bear interest until paid at the rate provided in the Note and shall be
secured by the Collateral.
15. Termination of Security Interests; Release of Collateral. Upon payment
in full of all Secured Obligations, the Security Interests shall terminate and
all rights to the Collateral shall revert to Debtor and Subsidiary. Upon such
termination of the Security Interests or release of any Collateral, Secured
Party will, at the expense of Debtor and Subsidiary, execute and deliver to
Debtor and Subsidiary such documents as Debtor and Subsidiary shall reasonably
request to evidence the termination of the Security Interests or the release of
such Collateral, as the case may be.
16. Notices. Each notice, communication and delivery under this Agreement:
(a) shall be made in writing signed by the party giving it; (b) shall specify
the section of this Agreement pursuant to which given; (c) shall either be
delivered in person or by telecopier, a nationally recognized next business day
courier service or Express Mail; (d) unless delivered in person, shall be given
to the address specified below; (e) shall be deemed to be given (i) if delivered
in person, on the date delivered, (ii) if sent by telecopier, on the date of
telephonic confirmation of receipt, (iii) if sent by a nationally recognized
next business day courier service with all costs paid, on the next business day
after it is delivered to such courier, or (iv) if sent by Express Mail (with
postage and other fees paid), on the next business day after it is mailed. Such
notice shall not be effective unless copies are provided contemporaneously as
specified below, but neither the manner nor the time of giving notice to those
to whom copies are to be given (which need not be the same as the addressee)
shall control the date notice is given or received. The addresses and
requirements for copies are as follows:
<PAGE>
If to Debtor or Subsidiary:
Interiors, Inc.
320 Washington Street
Mount Vernon, New York 10553
Telephone: (914) 665-5400
Facsimile: (914) 665-5469
Attention: Max Munn
With a copy to:
Greenberg Traurig
200 Park Avenue
New York, New York 10166
Telephone: (212) 801-9200
Facsimile: (212) 801-6400
Attention: Stephen A. Weiss, Esq.
If to Secured Party:
Limeridge LLC
c/o Citco Trustees Cayman Limited
Corporate Centre
PO Box 31106SMB
Grand Cayman, Cayman Islands
British West Indies
Attention: Sabrina Hew
Facsimile: 345 945-7566
Telephone: 345 949-3977
Except as otherwise expressly set forth in any particular provision of
this Agreement, any consent or approval required or permitted by this Agreement
to be given by Secured Party may be given, and any term of this Agreement or of
any other instrument related hereto or mentioned herein may be amended, and the
performance or observance by Debtor and/or Subsidiary of any term of this
Agreement, the Purchase Agreement or the Note may be waived (either generally or
in a particular instance and either retroactively or prospectively) with, but
only with, the written specific consent of Secured Party. No waiver shall extend
to or affect any obligation not expressly waived or impair any right consequent
thereon. No course of dealing or delay or omission on the part of Secured Party
in exercising any right shall operate as a waiver thereof or otherwise be
prejudicial thereto. No notice to or demand upon Debtor and/or Subsidiary shall
entitle Debtor and/or Subsidiary to other or further notice or demand in similar
or other circumstances. The rights in this Agreement, the Purchase Agreement and
the Note are cumulative and are not exclusive of any other remedies provided by
law. The invalidity, illegality or unenforceability of any provision in or
obligation under this Agreement shall not affect or impair the validity,
legality or enforceability of the remaining provisions or obligations under this
Agreement.
<PAGE>
17. Successors and Assigns. This Agreement is for the benefit of Secured
Party and its successors and assigns, and in the event of an assignment of all
or any of the Secured Obligations, the rights hereunder, to the extent
applicable to the Secured Obligations so assigned, may be transferred with such
Secured Obligations. This Agreement shall be binding on Debtor and Subsidiary
and its successors and assigns, provided that Debtor and/or Subsidiary shall not
assign this Agreement without Secured Party's prior written consent.
18. Changes in Writing. No amendment, modification, termination or waiver
of any provision of this Agreement or consent to any departure by Debtor and/or
Subsidiary therefrom, shall in any event be effective without the written
concurrence of Secured Party, Debtor, and Subsidiary.
19. Governing Law/Venue/Jurisdiction. This Agreement shall be exclusively
governed by and construed in accordance with the laws of the State of New York,
without giving effect to the conflicts of law principles thereof. Each of the
parties consents to the exclusive jurisdiction of the U.S. District Court
sitting in the Southern District of the State of New York sitting in Manhattan
in connection with any dispute arising under this Agreement and hereby waives,
to the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. Each party hereby agrees that if the other party to this
Agreement obtains a judgment against it in such a proceeding, the party which
obtained such judgment may enforce same by summary judgment in the courts of any
country having jurisdiction over the party against whom such judgment was
obtained, and each party hereby waives any defenses available to it under local
law and agrees to the enforcement of such a judgment. Each party to this
Agreement irrevocably consents to the service of process in any such proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to such party at its address set forth herein. Nothing herein shall
affect the right of any party to serve process in any other manner permitted by
law. Each party waives its right to a trial by jury.
20. Headings. Cross reference pages and headings contained herein are for
convenience of reference only, do not constitute a part of this Agreement, and
shall not be deemed to limit or affect any of the provisions hereof.
21. Counterparts. This Agreement may be executed by each party upon a
separate copy, and in such case one counterpart of this Agreement shall consist
of enough of such copies to reflect the signatures of all of the parties. This
Agreement may be executed in two or more counterparts, each of which shall be an
original, and each of which shall constitute one and the same agreement. Any
party may deliver an executed copy of this Agreement and of any documents
contemplated hereby by facsimile transmission to another party and such delivery
shall have the same force and effect as any other delivery of a manually signed
copy of this Agreement or of such other documents.
<PAGE>
This Security Agreement has been duly executed and delivered by the
parties on the date first written above.
Interiors, Inc.
By:______________________________
Name: Max Munn
Title: President
Petals, Inc.
By:______________________________
Name:
Title:
SECURED PARTY:
LIMERIDGE LLC
By:______________________________
Name:
Title:
<PAGE>
EXHIBIT F
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THERE IS AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.
COMMON STOCK PURCHASE WARRANT
No.
To Purchase ______ Shares of Common Stock of
INTERIORS, INC.
THIS CERTIFIES that, for value received, ________ (the "Holder", including
permitted assigns), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after September 30, 2000, and on or
prior to September 29, 2004 (the "Termination Date") but not thereafter, to
subscribe for and purchase from Interiors, Inc. a Delaware corporation (the
"Company"), _______ (_____) shares of Common Stock (the "Warrant Shares"). The
purchase price of one share of Common Stock (the "Exercise Price") under this
Warrant shall be equal to $2.00, or the Holder may exercise this Warrant
pursuant to the Cashless Exercise feature set forth in Section 3 below. The
Exercise Price and the number of shares for which the Warrant is exercisable
shall be subject to adjustment as provided herein. This Warrant is being issued
in connection with the Secured Convertible Note Purchase Agreement dated as of
September 30, 1999 (the "Agreement") entered into between the Company, and the
Holder. In the event of any conflict between the terms of this Warrant and the
Agreement, the Agreement shall control. Any capitalized terms used herein but
not otherwise defined shall have that meaning assigned in the Agreement.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THERE IS AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.
COMMON STOCK PURCHASE WARRANT
No. 99-1
To Purchase 1,000,000 Shares of Common Stock of
INTERIORS, INC.
THIS CERTIFIES that, for value received, Limeridge LLC (the "Holder",
including permitted assigns), is entitled, upon the terms and subject to the
conditions hereinafter set forth, at any time on or after September 30, 2000,
and on or prior to September 29, 2004 (the "Termination Date") but not
thereafter, to subscribe for and purchase from Interiors, Inc. a Delaware
corporation (the "Company"), One Million (1,000,000) shares of Common Stock (the
"Warrant Shares"). The purchase price of one share of Class A Common Stock of
the Company (the "Common Stock")under this Warrant shall be equal to $2.00 (the
"Exercise Price"), or the Holder may exercise this Warrant pursuant to the
Cashless Exercise feature set forth in Section 3 below. The Exercise Price and
the number of shares for which the Warrant is exercisable shall be subject to
adjustment as provided herein. This Warrant is being issued in connection with
the Secured Convertible Note Purchase Agreement dated as of September 30, 1999
(the "Agreement") entered into between the Company, and the Holder. In the event
of any conflict between the terms of this Warrant and the Agreement, the
Agreement shall control. Any capitalized terms used herein but not otherwise
defined shall have that meaning assigned in the Agreement.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
<PAGE>
3. Exercise of Warrant. Exercise of the purchase rights represented by
this Warrant may be made at any time or times, in whole or in part, before the
close of business on the Termination Date, or such earlier date on which this
Warrant may terminate as provided in paragraph 11 below, by the surrender of
this Warrant and the Exercise Form annexed hereto duly executed, to the office
of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the registered holder hereof at the address of
such holder appearing on the books of the Company) and upon payment of the
Exercise Price of the Warrant Shares purchased thereby, or pursuant to the
cashless exercise feature set forth herein. Certificates for Warrant Shares
purchased hereunder shall be delivered to the Holder within three Business Days
after the date on which this Warrant shall have been exercised as aforesaid.
Payment of the Exercise Price (in the event the Holder does not choose to
utilize the cashless exercise feature) of the Warrant Shares may be by wire
transfer (of same day funds) to the Company in an amount equal to the Exercise
Price multiplied by the number of Warrant Shares being purchased.
The Holder may pay the Exercise Price in cash or pursuant to a
cashless exercise, as follows:
(a) Cash Exercise. The Holder shall deliver immediately available
funds;
(b) Cashless Exercise. The Holder may surrender this Warrant to the
Company together with a Notice of Exercise, indicating it is utilizing the
Cashless Exercise feature, in which event the Company shall issue to the Holder
the number of Warrant Shares determined as follows:
X = Y (A-B)/A
Where: X = the number of Warrant Shares to be issued to the Holder.
Y = the number of Warrant Shares with respect to which this
Warrant is being exercised.
A = the average of the closing sale prices of the Common Stock
for the five (5) Trading Days immediately prior to (but not
including) the date the Company receives a facsimile of the
Notice of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is
intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
been commenced, on the original issuance date of this Warrant.
<PAGE>
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of issuing fractional shares, the Company shall round up to the
nearest whole share the number of Warrant Shares due upon exercise of this
Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without charge to
the Holder for any issue or transfer tax or other incidental expense in respect
of the issuance of such certificate, all of which taxes and expenses shall be
paid by the Company, and such certificates shall be issued in the name of the
Holder or in such name or names as may be directed by the Holder; provided,
however, that in the event certificates for shares of Common Stock are to be
issued in a name other than the name of the holder of this Warrant, this Warrant
when surrendered for exercise shall be accompanied by the Assignment Form
attached hereto duly executed by the Holder.
6. Closing of Books. The Company will at no time close its shareholder
books or records in any manner that interferes with the timely exercise of this
Warrant.
7. No Rights as Shareholder until Exercise. This Warrant does not entitle
the Holder to any voting rights or other rights as a shareholder of the Company
prior to the exercise thereof. If, however, at the time of the surrender of this
Warrant the Holder shall be entitled to exercise this Warrant, the Warrant
Shares so purchased shall be and be deemed to be issued to such Holder as the
record owner of such shares as of the close of business on the date on which the
Company shall have received the Exercise Price along with the Notice of Exercise
and Warrant being exercised, or in the event of a cashless exercise on the close
of business on the date on which the Company receives the original Warrant being
exercised along with the Notice of Exercise..
8. Assignment and Transfer of Warrant. This Warrant may be assigned by the
surrender of this Warrant and the Assignment Form annexed hereto duly executed
at the office of the Company (or such other office or agency of the Company as
it may designate by notice in writing to the registered holder hereof at the
address of such holder appearing on the books of the Company); provided,
however, that this Warrant may not be resold except (i) in a transaction
registered under the Securities Act, or (ii) in a transaction pursuant to an
exemption, if available, from such registration and whereby, if requested by the
Company, an opinion of counsel reasonably satisfactory to the Company is
obtained by the holder of this Warrant to the effect that the transaction is so
exempt.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
represents and warrants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
or stock certificate, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and upon reimbursement to the Company of
all reasonable expenses incidental thereto, and upon surrender and cancellation
of such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of this Warrant or stock certificate.
<PAGE>
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a legal
holiday.
11. Adjustments. The Exercise Price shall be adjusted as provided below in
this Section (the Exercise Price, and the Exercise Price as thereafter then
adjusted, shall be included in the definition of Exercise Price) and the
Exercise Price from time to time shall be further adjusted as provided for below
in this Section. Upon each adjustment of the Exercise Price, the Holder shall
thereafter be entitled to receive upon exercise of this Warrant, at the Exercise
Price resulting from such adjustment, the number of shares of Common Stock
obtained by (a) multiplying the Exercise Price in effect immediately prior to
such adjustment by the number of shares of Common Stock purchasable hereunder
immediately prior to such adjustment and (b) dividing the product thereof by the
Exercise Price resulting from such adjustment. The Exercise Price shall be
adjusted as follows:
(i) In the case of any amendment to the Company's Articles of
Incorporation to change the designation of the Common Stock or the rights,
privileges, restrictions or conditions in respect to the Common Stock or
division of the Common Stock, this Warrant shall be adjusted so as to provide
that upon exercise thereof, the Holder shall receive, in lieu of each share of
Common Stock theretofore issuable upon such exercise, the kind and amount of
shares, other securities, money and property receivable upon such designation,
change or division by the Holder issuable upon such exercise had the exercise
occurred immediately prior to such designation, change or division. This Warrant
shall be deemed thereafter to provide for adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section. The provisions of this Subsection (i) shall apply in the same manner to
successive reclassifications, changes, consolidations and mergers.
(ii) If the Company shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares of Common Stock, or
declare a dividend or make any other distribution upon the Common Stock payable
in shares of Common Stock, the Exercise Price in effect immediately prior to
such subdivision or dividend or other distribution shall be proportionately
reduced, and conversely, in case the outstanding shares of Common Stock shall be
combined into a smaller number of shares of Common Stock, the Exercise Price in
effect immediately prior to such combination shall be proportionately increased.
(iii) Whenever the number of Warrant Shares purchasable upon the
exercise of this Warrant is adjusted, as provided above, the Exercise Price
payable upon exercise of this Warrant shall be adjusted by multiplying such
Exercise Price immediately prior to such adjustment by a fraction, of which the
numerator shall be the number of Warrant Shares purchasable upon the exercise of
this Warrant immediately prior to such adjustment, and of which the denominator
shall be the number of Warrant Shares purchasable immediately thereafter.
<PAGE>
(iv) In case the Company shall issue shares of Common Stock
("Additional Shares") or in case the Company shall issue rights, options or
warrants to purchase shares of Common Stock or securities convertible into or
exchangeable for Common Stock, in any case at a Price Per Share (as defined
below) which is lower than the closing price per share of Common Stock (as
reported by Bloomberg, L.P. ("Bloomberg"), as traded on The Nasdaq Stock Market,
the OTC Bulletin Board or any other national securities exchange on the date of
issuance of such Additional Shares, rights, options, warrants or other
convertible securities (the "Trigger Price"), the number of Warrant Shares
hereafter purchasable upon the exercise of this Warrant shall be determined by
multiplying the number of Warrant Shares theretofore purchasable upon exercise
of this Warrant by the following fraction:
(A)(i) The number of shares of Common Stock outstanding
immediately prior to the issuance of such Additional Shares or rights,
options, warrants or convertible securities, plus (ii) the number of
Additional Shares actually subscribed for and purchased and shares of
Common Stock issuable upon conversion or exercise of such rights, options,
warrants, or convertible securities, divided by
(B)(i) The number of shares of Common Stock outstanding
immediately prior to issuance of such Additional Shares or rights,
options, warrants or convertible securities plus (ii) the number of shares
of Common Stock which the aggregate Proceeds (as defined below) received
by the Company upon the sale of such Additional Shares or exercise or
conversion of such rights, options, warrants and convertible securities
would purchase at the Trigger Price.
Such adjustment shall be made whenever such Additional Shares or rights,
options, warrants or convertible securities are issued, and shall become
effective on the date of distribution retroactive to the record date for the
determination of stockholders entitled to receive such rights, options or
warrants.
For purposes of this Section, "Price Per Share" shall be defined and
determined according to the following formula:
R
P = ----------
N
where
P = Price Per Share,
R = the "Proceeds" received or receivable by the Company
which (i) in the case of shares of Common Stock is the total amount received or
receivable by the Company in consideration for the sale and issuance of such
shares; (ii) in the case of rights, options or warrants to subscribe for or
purchase shares of Common Stock or of securities convertible into or
exchangeable or exercisable for shares of Common Stock, is the total amount
received or receivable by the Company in consideration for the sale and issuance
of
<PAGE>
such rights, options, warrants or convertible or exchangeable or exercisable
securities, plus the minimum aggregate amount of additional consideration, other
than the surrender of such convertible or exchangeable securities, payable to
the Company upon exercise, conversion or exchange thereof; and (iii) in the case
of rights, options or warrants to subscribe for or purchase convertible or
exchangeable or exercisable securities, is the total amount received or
receivable by the Company in consideration for the sale and issuance of such
rights, options or warrants, plus the minimum aggregate amount of additional
consideration other than the surrender of such convertible or exchangeable
securities, payable upon the exercise, conversion or exchange of such rights,
options or warrants and upon the conversion or exchange or exercise of the
convertible or exchangeable or exercisable securities; provided that in each
case the proceeds received or receivable by the Company shall be deemed to be
the gross cash proceeds without deducting therefrom any compensation paid or
discount allowed in the sale, underwriting or purchase thereof by underwriters
or dealers or other performing similar services or any expenses incurred in
connection therewith,
and
N = the "Number of Shares," which (i) in the case of Common
Stock is the number of shares issued; (ii) in the case of rights, options or
warrants to subscribe for or purchase shares of Common Stock or of securities
convertible into or exchangeable or exercisable for shares of Common Stock, is
the maximum number of shares of Common Stock initially issuable upon exercise,
conversion or exchange thereof; and (iii) in the case of rights, options or
warrants to subscribe for or purchase convertible or exchangeable or exercisable
securities, is the maximum number of shares of Common Stock initially issuable
upon conversion, exchange or exercise of the convertible, exchangeable or
exercisable securities issuable upon the exercise of such rights, options or
warrants.
If the Company shall issue shares of Common Stock or rights,
options, warrants or convertible or exchangeable or exercisable securities for a
consideration consisting, in whole or in part, of property other than cash, the
amount of such consideration shall be determined in good faith by the Board of
Directors of the Company whose determination shall be conclusive and binding
upon the Holder(s) of this Warrant.
(v) No adjustment in the number of Warrant Shares
purchasable hereunder shall be required unless such adjustment would result in
an increase or decrease of at least one percent (1%) of the Exercise Price;
provided that any adjustments which by reason of this paragraph (e) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations shall be made to the nearest cent or to
the nearest one-thousandth of a share, as the case may be.
(vi) No adjustment in the number of Warrant Shares purchasable upon
the exercise of this Warrant need be made under paragraph (iii) or (iv) if the
Company issues or distributes to the holder of this Warrant the shares, rights,
options, warrants or convertible or exchangeable securities, or evidences of
indebtedness or assets referred to in those paragraphs which the holder of this
Warrant would have been entitled to receive had this Warrant been exercised
prior to the happening of such event or the record date with respect thereto. In
no
<PAGE>
event shall the Company be required or obligated to make any such distribution
otherwise than in its sole discretion. No adjustment in the number of Warrant
shares purchasable upon the exercise of this Warrant need be made for sales of
Common Stock pursuant to a Company plan for reinvestment of dividends or
interest. No adjustment need be made for a change in the par value of the Common
Stock.
(vii) In the event that at any time, as a result of an adjustment
made pursuant to paragraph (i) above, the holder of this Warrant shall become
entitled to purchase any securities of the Company other than shares of Common
Stock, thereafter the number of such other shares so purchasable upon exercise
of this Warrant and the Exercise Price of such shares shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant Shares contained in
paragraphs (i) through (iii), inclusive, above.
(viii) If any capital reorganization or reclassification of the
capital stock of the Company, or any consolidation or merger of the Company with
or into another corporation or other entity, or the sale of all or substantially
all of the Company's assets to another corporation or other entity shall be
effected in such a way that holders of shares of Common Stock shall be entitled
to receive stock, securities, other evidence of equity ownership or assets with
respect to or in exchange for shares of Common Stock, then, as a condition of
such reorganization, reclassification, consolidation, merger or sale (except as
otherwise provided below in this Section) lawful and adequate provisions shall
be made whereby the Holder shall thereafter have the right to receive upon the
exercise hereof upon the basis and upon the terms and conditions specified
herein, such shares of stock, securities, other evidence of equity ownership or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of
Common Stock immediately theretofore purchasable and receivable upon the
exercise of this Warrant under this Section had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in any such
case appropriate provisions shall be made with respect to the rights and
interests of the Holder to the end that the provisions hereof (including,
without limitation, provisions for adjustments of the Exercise Price and of the
number of shares of Common Stock receivable upon the exercise of this Warrant)
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities, other evidence of equity ownership or assets thereafter
deliverable upon the exercise hereof including an immediate adjustment, by
reason of such consolidation or merger, of the Exercise Price to the value for
the Common Stock reflected, by the terms of such consolidation or merger if the
value so reflected is less than the Exercise Price in effect immediately prior
to such consolidation or merger. Subject to the terms of this Warrant, in the
event of a merger or consolidation of the Company with or into another
corporation or other entity as a result of which the number of shares of common
stock of the surviving corporation or other entity issuable to investors of
Common Stock, is greater or lesser than the number of shares of Common Stock
outstanding immediately prior to such merger or consolidation, then the Exercise
Price in effect immediately prior to such merger or consolidation shall be
adjusted in the same manner as though there were a subdivision or combination of
the outstanding shares of Common Stock. The Company shall not effect any such
consolidation, merger or sale, unless, prior to the consummation thereof, the
successor corporation (if other than the Company)
<PAGE>
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume by written instrument executed and mailed or delivered to
the Holder, the obligation to deliver to the Holder such shares of stock,
securities, other evidence of equity ownership or assets as, in accordance with
the foregoing provisions, the Holder may be entitled to receive or otherwise
acquire. If a purchase, tender or exchange offer is made to and accepted by the
holders of more than fifty (50%) percent of the outstanding shares of Common
Stock, the Company shall not effect any consolidation, merger or sale with the
person having made such offer or with any affiliate of such person, unless prior
to the consummation of such consolidation, merger or sale the Holder shall have
been given a reasonable opportunity to then elect to receive upon the exercise
of this Warrant the amount of stock, securities, other evidence of equity
ownership or assets then issuable with respect to the number of shares of Common
Stock in accordance with such offer.
(ix) In case the Company shall, at any time prior to exercise of
this Warrant, consolidate or merge with any other corporation or other entity
(where the Company is not the surviving entity) or transfer all or substantially
all of its assets to any other corporation or other entity, then the Company
shall, as a condition precedent to such transaction, cause effective provision
to be made so that the Holder upon the exercise of this Warrant after the
effective date of such transaction shall be entitled to receive the kind and,
amount of shares, evidences of indebtedness and/or other securities or property
receivable on such transaction by the Holder of the number of shares of Common
Stock as to which this Warrant was exercisable immediately prior to such
transaction (without giving effect to any restriction upon such exercise); and,
in any such case, appropriate provision shall be made with respect to the rights
and interest of the Holder to the end that the provisions of this Warrant shall
thereafter be applicable (as nearly as may be practicable) with respect to any
shares, evidences of indebtedness or other securities or assets thereafter
deliverable upon exercise of this Warrant. Upon the occurrence of any event
described in this Subsection (v), the Holder shall have the right to (i)
exercise this Warrant immediately prior to such event at an Exercise Price equal
to lesser of (1) the then Exercise Price or (2) the price per share of Common
Stock paid in such event, or (ii) retain ownership of this Warrant, in which
event, appropriate provisions shall be made so that the Warrant shall be
exercisable at the Holder's option into shares of stock, securities or other
equity ownership of the surviving or acquiring entity.
12. Notice of Adjustment. Whenever the number of Warrant Shares or number
or kind of securities or other property purchasable upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company shall
promptly mail by registered or certified mail, return receipt requested, to the
Holder a certificate signed by its President or Vice President and by its
Treasurer, or Secretary, setting forth, in reasonable detail, the event
requiring the adjustment, the computation by which such adjustment was made, the
method by which such adjustment was calculated (including a description of the
basis on which the Board of Directors of the Company made any determination
hereunder), and the Exercise Price after giving effect to such adjustment, and
shall cause copies of such certificates to be mailed (by first-class mail,
postage prepaid) to the Holder. The Company shall make such certificate and mail
it to the Holder immediately after each adjustment.
<PAGE>
13. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of Common Stock
upon the exercise of any purchase rights under this Warrant. The Company further
covenants that its issuance of this Warrant shall constitute full authority to
its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of the Company's Common
Stock upon the exercise of the purchase rights under this Warrant. The Company
will take all such action as may be necessary to assure that such shares of
Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the domestic securities
exchange or market upon which the Common Stock may be listed.
14. 4.99% Limitation. The number of shares of Common Stock which may be
acquired by the Holder pursuant to the terms herein shall not exceed the number
of such shares which, when aggregated with all other shares of Common Stock then
owned by the Holder, would result in the Holder owning more than 4.99% of the
then issued and outstanding Common Stock at any one time. The preceding shall
not interfere with the Holder's right to exercise this Warrant over time which
in the aggregate totals more than 4.99% of the then outstanding shares of Common
Stock so long as the Holder does not own more than 4.99% of the then outstanding
Common Stock at any given time.
15. Miscellaneous.
(a) Issue Date; Choice of Law; Venue; Jurisdiction. The provisions
of this Warrant shall be construed and shall be given effect in all respects as
if it had been issued and delivered by the Company on the date hereof. This
Warrant shall be binding upon any successors or assigns of the Company. This
Warrant will be construed and enforced in accordance with and governed
exclusively by the laws of the State of New York, except for matters arising
under the Securities Act, without reference to principles of conflicts of law.
The parties consent to the exclusive jurisdiction of the U.S. District Court
sitting in the Southern District of the State of New York in connection with any
dispute arising under this Warrant and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions. Each
party hereby agrees that if the other party to this Warrant obtains a judgment
against it in such a proceeding, the party which obtained such judgment may
enforce same by summary judgment in the courts of any country having
jurisdiction over the party against whom such judgment was obtained, and each
party hereby waives any defenses available to it under local law and agrees to
the enforcement of such a judgment. Each party to this Warrant irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law. Each party waives
its right to a trial by jury.
(b) Restrictions. The Holder acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered (or if no
exemption from registration exists), will have restrictions upon resale imposed
by state and federal securities laws. Each certificate
<PAGE>
representing the Warrant Shares issued to the Holder upon exercise (if not
registered or if no exemption from registration exists) will bear the following
legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SECURITIES UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT THERE IS AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT."
(c) Modification and Waiver. This Warrant and any provisions hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a Business Day between the hours of 9:00 a.m. and 5:00 p.m. where
such notice is to be received), or the first Business Day following such
delivery (if delivered other than on a Business Day between the hours of 9:00
a.m. and 5:00 p.m. where such notice is to be received), (b) on the second
Business Day following the date of mailing by reputable courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur, or (c) five calendar days after sent by regular
mail.
16. The Company shall have the right to redeem the purchase rights
granted under this Warrant then existing, in whole or in part, in cash at the
Redemption Price (as defined below) at any time thereafter by providing written
notice (the "Redemption Notice") to the Holder. The Company shall wire transfer
the appropriate amount of funds to the Holder to complete the redemption, which
shall be (if the Redemption Notice is received via facsimile by the Holder prior
to the first anniversary of the date of this Warrant) no later than the tenth
Business Day after the Holder has received the Redemption Notice via facsimile
(the "Redemption Date") and if the Redemption Notice is received via facsimile
by the Holder after the first anniversary of the date of this Warrant, than no
later than the third Business Day after the Holder has received the Redemption
Notice via facsimile (also referred to as a Redemption Date). Upon facsimile
receipt of the Redemption Notice, the Holder's right to exercise this Warrant
shall
<PAGE>
terminate and be canceled immediately; provided, however, that the right to
exercise this Warrant shall immediately be reinstated if the Company fails to
comply with the redemption provisions hereof. In the event the Company fails to
wire the appropriate amount of funds to the Holders as set forth in the
Redemption Notice on or before the Redemption Date, or shall otherwise fail to
comply with the redemption provisions set forth herein on three separate
occasions, then the Company shall have waived its right to redeem any portion of
the purchase rights under this Warrant at any time thereafter.
The Redemption Notice shall set forth (i) the Redemption Date, (ii)
the Redemption Price, as defined below, and (iii) the number of purchase rights
of Warrant Shares being redeemed. The Redemption Notice shall be delivered by
facsimile to the Holder at its address as the same shall appear on the books of
the Company. The Redemption Price shall be equal to $0.25 per purchase right of
a Warrant Share being redeemed.
At the close of business on the Redemption Date, subject to the
Holder's receipt of the applicable Redemption Price, the portion of this Warrant
being redeemed shall be automatically canceled and converted into a right to
receive the Redemption Price, and all rights of this Warrant, including the
right to exercise shall cease without further action. Immediately following the
Redemption Date (assuming full compliance by the Company with the redemption
provisions set forth herein), the Holder shall surrender its original Warrant at
the office of the Company, and the Company shall issue to the Holder a new
Warrant certificate for that number of Warrant Shares purchasable hereunder, if
any.
The Redemption Price shall be adjusted proportionally upon any adjustment
of the Exercise Price as set forth above.
The Company shall not be entitled to send any Redemption Notice and begin
the redemption procedure hereunder unless it has:
(i) the full amount of the Redemption Price in cash, available
in a demand or other immediately available account in a bank or similar
financial institution;
(ii) immediately available credit facilities, in the full
amount of the Redemption Price with a bank or similar financial
institution; or
(iii) a combination of the items set forth in (a) and (b)
above, aggregating the full amount of the Redemption Price.
17. The aggregate number of Warrant Share which may be acquired by the
Holder upon conversion of all of Notes and upon exercise of all of the Warrants,
shall not equal or exceed nineteen and nine tenths (19.9%) percent of the
aggregate number of issued and outstanding shares of Common Stock, Class B
Common Stock or other Securities of the Company having voting power as at the
Closing Date (the "Maximum Underlying Shares").
<PAGE>
Until such time as the Notes and Warrants issued under this Agreement shall have
been either converted or redeemed pursuant, and the Warrants shall have either
been exercised or shall have expired, the Investor(s) may not convert his or its
Note and/or exercise his or its Warrant into an aggregate number of Underlying
Shares and Warrant Shares which shall exceed the product of multiplying (a) a
fraction, the numerator of which shall be the original principal amount of this
Note and the denominator of which shall be $13,540,626, by (b) the aggregate
number of Maximum Underlying Shares. In lieu of such issuance(s) the Company
shall pay to the Investor(s) the cash value of such shares of Common Stock due
to the Holder(s) within five Business Days of when such issuance is due based
upon the Bid Price of the Common Stock on the Trading Date of when due (or such
next Trading Day if such day is not a Trading Day).
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: September , 1999
Interiors, Inc.
By: ___________________________
Name: Max Munn
Title: President
<PAGE>
NOTICE OF EXERCISE
To: Interiors, Inc.
(1) The undersigned hereby elects to purchase ________ shares of Common Stock of
Interiors, Inc. pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price in full, together with all applicable
transfer taxes, if any.
(2) The undersigned chooses to utilize the cashless exercise feature of this
Warrant and pursuant to the terms of the Warrant is entitled to receive _____
Warrant Shares upon the cashless exercise of _____ Warrant Shares.
(3) Upon exercise pursuant to this Notice of Exercise, the undersigned will not
own 4.99% or more of the then issued and outstanding shares of Common Stock of
the Company.
(4) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as are
specified below:
_______________________________
(Name)
_______________________________
(Address)
_______________________________
Dated:
_______________________________
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
__________________________________________________________ whose address is
____________________________________________________________________________.
____________________________________________________________________________
Dated: ______________,
Holder's Signature: _________________________________
Holder's Address: ___________________________________
Signature Guaranteed: ______________________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
<PAGE>
Exhibit G
<PAGE>
Opinion
Gentlemen:
We have acted as counsel to Interiors, Inc. a Delaware corporation (the
"Company"), in connection with the issuance and sale to you of the Notes and
Warrants pursuant to the Secured Convertible Note Purchase Agreement dated as of
September 30, 1999 between the Company and you (the "Purchase Agreement") and
all Exhibits annexed thereto including the Security Agreement, Exchange
Agreement, Registration Rights Agreement, Note, Warrant, and Escrow Agreement
(collectively, along with the Purchase Agreement hereinafter referred to as the
"Transaction Documents"). We have also acted as counsel to Petals, Inc. (the
"Subsidiary") in connection with the Security Agreement. This letter is being
delivered to you pursuant to the Purchase Agreement. All capitalized terms used
in this letter which are defined in the Purchase Agreement but not otherwise
defined herein shall have the meanings assigned to them in the Purchase
Agreement.
As counsel to the Company, we have examined such corporate documents and
we have made such inquiries or investigations of such other legal and factual
matters as we have deemed necessary or appropriate for purposes of this letter.
In rendering this opinion, we have relied upon and assumed the following
without independent investigation or verification of any kind:
(a) We have assumed the authenticity of all documents and
instruments submitted to us as originals, the genuineness of all signatures and
the conformity to original documents and instruments of all documents and
instruments submitted to us as certified, photostatic or telecopied copies.
(b) We have assumed the power and authority of each corporate (other
than the Company) signatory of a document or instrument to execute said document
or instrument.
(c) We have assumed that any certificate of a public authority on
which we have relied that was given or dated earlier than the date of this
opinion continues to remain accurate, insofar as relevant to such opinion, from
such earlier date through and including the date of this opinion.
(d) We have assumed the consummation of the transactions
contemplated at the Closing on the Closing Date and the receipt of the proceeds
thereof.
(e) We have assumed the due authorization, execution and delivery of
the Transaction Documents by you.
(f) As members of the Bar of the State of New York, we do not
purport to be experts in the laws of any jurisdictions other than the Federal
laws of the United States, the laws of the State of New York and the Delaware
General Corporation Law. No opinion is expressed with respect to the laws, rules
or regulations of any other jurisdiction, whether U.S. or foreign.
<PAGE>
(g) The enforceability of any agreement referred to in this letter
is limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium and other laws of general application relating to or
affecting creditors' rights and the application of equitable principles relating
to the availability of remedies (regardless of whether such enforceability is
considered in a proceeding in equity or at law), and rights to indemnity and
contribution may be limited by federal or state securities laws and the public
policy underlying such laws.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation validly existing and in good standing
under the laws of the State of Delaware. The Company has the requisite corporate
power and authority to own, lease and operate its properties and carry on its
business except as described in the SEC Documents.
2. The Subsidiary is a corporation validly existing and in good standing
under the laws of the State of Delaware. The Subsidiary has the requisite
corporate power and authority to own, lease and operate its properties and carry
on its business.
3. The Company is duly qualified as a foreign corporation to do business
and is in good standing in every United States jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary, except where the failure to so qualify would not have a Material
Adverse Effect. The Company is not in violation of any material terms of its
Articles of Incorporation or Bylaws.
4. The Subsidiary is duly qualified as a foreign corporation to do
business and is in good standing in every United States jurisdiction in which
the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to so qualify would not have a
Material Adverse Effect. The Subsidiary is not in violation of any material
terms of its articles of incorporation or bylaws.
5. As of September 27, 1999, the authorized capital stock of the Company
consists of 60,000,000 shares of Class A Common Stock, $0.001 par value, of
which 31,378,067 shares of Class A Common Stock are outstanding, 2,500,000
shares of Class B Common Stock, of which 2,445,000 shares of Class B Common
Stock are outstanding, and 5,300,000 shares of preferred stock, of which
1,002,907 of Series A Preferred Stock are outstanding, 200,000 shares of Series
B Preferred Stock are outstanding, and 6,527 shares of Series C Preferred Stock
are outstanding. All of the outstanding shares of the Company's capital stock
have been duly and validly authorized and issued and are fully paid and
nonassessable. No shares of Common Stock or preferred stock of the Company are
entitled to preemptive or similar rights. Except as disclosed in the SEC
Documents, there are no outstanding options, warrants, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or, except as a
result of the purchase and sale of the Notes and Warrants, securities, rights or
obligations convertible into or
<PAGE>
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings, or
arrangements by which the Company or any subsidiary is or may become bound to
issue additional shares of Common Stock or securities or rights convertible or
exchangeable into shares of Common Stock. Except as disclosed in the SEC
Documents, to the knowledge of the Company, no Person or group of Persons
beneficially owns (as determined pursuant to Rule 13d-3 promulgated under the
Exchange Act) or has the right to acquire by agreement with or by obligation
binding upon the Company beneficial ownership of in excess of five percent of
the Common Stock.
6. As of August 31, 1999, the authorized capital stock of the Subsidiary
consists of ________ shares of common stock, $____ par value, of which ______
shares are outstanding, and _________ shares of preferred stock, ______ of which
are outstanding. All of the outstanding shares of the Subsidiary's capital stock
have been duly and validly authorized and issued and are fully paid and
nonassessable. No shares of common stock or preferred stock of the Subsidiary
are entitled to preemptive or similar rights. There are no outstanding options,
warrants, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or, except as a result of the Subsidiary entering into
the Security Agreement, securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of common stock, or contracts, commitments, understandings, or
arrangements by which the Subsidiary is or may become bound to issue additional
shares of common stock or securities or rights convertible or exchangeable into
shares of common stock of the Subsidiary.
7. The issuance of the Notes and Warrants, and the shares of Class A
Common Stock underlying the Notes and Warrants will not violate the applicable
listing agreement between the Company and any securities exchange or market on
which the Company's securities are listed. The Company has registered its Common
Stock pursuant to Section 12(g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and such Common Stock is
currently listed or quoted, and trades, on the Nasdaq Small Cap Stock Market,
and the Company is in full compliance with the rules and regulations of the
Nasdaq Small Cap Stock Market.
8. The Company has the requisite corporate power and authority to enter
into and perform the Transaction Documents, and to issue the Notes, Warrants,
Additional Shares, the shares of Common Stock that may be acquired upon
conversion of the Notes (the "Conversion Shares") and the Warrant Shares that
may be acquired upon exercise of the Warrants, in accordance with the terms of
the Transaction Documents. Each of the Transaction Documents has been duly
authorized, executed and delivered by the Company and is a valid and legally
binding agreement of the Company, enforceable against the Company in accordance
with its terms.
9. The Subsidiary has the requisite corporate power and authority to enter
into and perform its obligations under the Security Agreement. The Security
Agreement has been duly
<PAGE>
authorized, executed and delivered by the Subsidiary and is a valid and legally
binding agreement of the Subsidiary, enforceable against the Subsidiary in
accordance with its terms.
10. The Notes, the Warrants, Additional Shares, the Conversion Shares and
the Warrant Shares have been duly authorized. The Conversion Shares, Additional
Shares, and the Warrant Shares, when issued and delivered in accordance with the
terms of the Transaction Documents, will be validly issued, fully paid,
non-assessable, and free of any liens, encumbrances and preemptive or similar
rights contained in the Company's Articles or Bylaws or, to our knowledge, in
any agreement to which the Company is party. The Notes and the Warrants, when
issued and delivered in accordance with the terms of the Transaction Documents,
will constitute legal, valid and binding obligations of the Company.
11. The execution and delivery by the Company of the Transaction Documents
do not and will not (i) conflict with, constitute a default (or an event with
notice or lapse of time, or both, would become a default) under or give to
others any right of termination, amendment, acceleration or cancellation of any
agreement, indenture or instrument to which the Company is a party, or (ii)
require the Company to obtain any consent, approval or authorization of any
court, governmental authority or stock exchange (other than any SEC, Nasdaq, or
stock exchange or state securities filings that may be required to be made by
the Company subsequent to the date hereof and any registration statement that
may be filed pursuant to any of the Transaction Documents), or (iii) violate any
provision of the Articles of Incorporation or By-laws of the Company, or (iv)
violate any provisions of any Federal law, rule or regulation to which the
Company is subject.
12. The execution and delivery by the Subsidiary of the Security
Agreement, and the performance of its obligations thereunder, do not and will
not (i) conflict with, constitute a default (or an event with notice or lapse of
time, or both, would become a default) under or give to others any right of
termination, amendment, acceleration or cancellation of any agreement, indenture
or instrument to which the Subsidiary is a party, or (ii) require the Subsidiary
to obtain any consent, approval or authorization of any court, governmental
authority or stock exchange, or (iii) violate any provision of the articles of
incorporation or by-laws of the Subsidiary, or (iv) violate any provisions of
any Federal law, rule or regulation to which the Subsidiary is subject.
13. The issuance and the sale of the Notes, the Warrants, the Additional
Shares, the Conversion Shares and the Warrant Shares to you pursuant to the
Transaction Documents are exempt from the registration requirements of the
Securities Act.
14. Except as disclosed in the SEC Documents, to our knowledge there are
no claims, actions, suits, proceedings or investigations that are pending
against the Company or its properties, or against any officer or director of the
Company in his or her capacity as such, nor has the Company received any written
threat of any such claims, actions, suits, proceedings, or investigations which
are required to be and have not been disclosed in the SEC Documents. To our
knowledge, the Company is not a party to or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality.
<PAGE>
15. The Company is the sole, record, legal and beneficial owner of, and
has good and marketable title to, all of the outstanding securities of the
Subsidiary free and clear of any lien, pledge, security interest or encumbrance.
No effective financing statement or other form of lien notice covering all or
any part of the Collateral (as defined in the Security Agreement) is on file in
any recording office.
The opinions expressed herein are limited solely to those items set forth
above, and we specifically do not render any opinions pertaining to any matter
not expressly stated herein. The information and opinions set forth in this
letter are as of this date, and we disclaim any undertaking to advise you of
changes that thereafter may be brought to our attention.
This letter is provided to you solely for your benefit in connection with
the Purchase Agreement. This letter may not be provided to, circulated, used,
quoted to or relied upon by any other person, without our prior written consent.
Very truly yours,
<PAGE>
EXHIBIT H
<PAGE>
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to
Convert the Secured Convertible Notes)
The undersigned hereby irrevocably elects to convert $_____ principal amount of
Secured Convertible Note Number ____ (the "Note") of Interiors, Inc. (the
"Company") into shares of Common Stock according to the conditions hereof, as of
the date written below.
The undersigned represents and warrants that:
(i) that all offers and sales by the undersigned of the shares of Common
Stock issuable to the undersigned upon conversion of the Note shall
be made pursuant to an exemption from registration under the
Securities Act of 1933, as amended (the "Act"), or pursuant to
registration of the Common Stock under the Act;
(ii) the undersigned has not engaged in any transaction or series of
transaction that is a part of or a plan or scheme to evade the
registration requirements of the Act; and
(iii) upon conversion pursuant to this Notice of Conversion, the
undersigned will not own an aggregate of 4.99% or more of the then
issued and outstanding shares of Common Stock of the Company.
______________________________ _________________________________
Date of Conversion Applicable Conversion Price
______________________________ _________________________________
Number of Shares Common Stock Principal amount of Note
due upon Conversion being converted
______________________________ _________________________________
Signature Name
Address: Delivery of Shares of Common Stock to:
<PAGE>
EXHIBIT I
<PAGE>
IRREVOCABLE INSTRUCTIONS TO TRANSFER AGENT
September 30, 2000
Dear Sir or Madam:
Reference is made to the Secured Convertible Note Purchase Agreement and
all Exhibits annexed thereto (the "Agreement") dated as of September 30, 1999,
between Limeridge LLC (hereinafter referred to as the "Investor"), and
Interiors, Inc. (the "Company"). Pursuant to the Agreement, and subject to the
terms and conditions set forth in the Agreement, the Investor has agreed to
purchase from the Company and the Company has agreed to sell to the Investor
pursuant to the terms of the Agreement $13,540,626 principal amount of Secured
Convertible Notes of the Company (the "Notes"), (ii) warrants of the Company to
purchase Common Stock (the "Warrants"), and (iii) certain additional shares of
Common Stock (the "Additional Shares"). As a condition to the effectiveness of
the Agreement, the Company has agreed to issue to you, as the transfer agent for
the Common Stock (the "Transfer Agent"), these instructions relating to the
shares of Common Stock underlying the Notes and Warrants. All terms used herein
and not otherwise defined shall have the meaning set forth in the Agreement.
1. ISSUANCE OF COMMON STOCK
The Transfer Agent shall deliver to the Investor certificates representing
Common Stock due upon conversion of the Notes, exercise of the Warrants, and as
Additional Shares, not bearing any restrictive legend without requiring further
advice or instruction or additional documentation from the Company or its
counsel, or the Investor or its counsel or any other party, as per the terms of
these instructions.
At any time after the September 30, 2000 and the effective date of the
applicable registration statement covering the Additional Shares, shares of
Common Stock underlying the Notes and/or Warrants (provided that the Company has
not informed the Transfer Agent in writing that such registration statement is
not effective) upon any surrender of one or more certificates which bear the
Legend, to the extent accompanied by (i) a notice requesting the issuance of new
certificates free of the Legend to replace those surrendered, (ii) a
confirmation in writing to the Transfer Agent that the Investor has sold,
pledged or otherwise transferred or agreed to sell, pledge or otherwise transfer
such Common Stock in a bona fide transaction to a third party that is not an
affiliate of the Company; and (iii) the Investor confirms to the Transfer Agent
that it has complied with the prospectus delivery requirement the Transfer Agent
shall deliver to the Investor the certificates representing the Common Stock not
bearing the Legend, in such names and denominations as the Investor shall
request. In the event a registration statement is not filed by the Company, or
for any reason the registration statement which is filed by the Company is not
declared effective by the Securities and Exchange Commission, the Investor, or
its permitted assignee, or its broker(s) confirms to the Transfer Agent that (i)
the Investor has held the Notes and/or Warrants for at least one year, (ii)
counting the shares surrendered as being sold upon the date the unlegended
certificates would be delivered to the Investor (or the Trading
<PAGE>
Day immediately following if such date is not a Trading Day), the Investor will
not have sold more than the greater of (a) one percent of the total number of
outstanding shares of Common Stock, or (b) the average weekly trading volume of
the Common Stock for the preceding four weeks during the three months ending
upon such delivery date (or the Trading Day immediately following if such date
is not a Trading Day), and (iii) the Investor has complied with the manner of
sale and notice requirements of Rule 144 under the Securities Act, and the
Company shall have furnished an opinion from its independent counsel,
authorizing the removal of the Legend.
Any advice, notice, or instructions to the Transfer Agent required or
permitted to be given hereunder may be transmitted via facsimile to the Transfer
Agent's facsimile number of () .
2. MECHANICS OF DELIVERY OF CERTIFICATES REPRESENTING COMMON STOCK
In connection with any issuance of Common Stock by the Transfer Agent
pursuant to which the Investor acquires Common Stock under the Agreement, the
Transfer Agent shall deliver to the Investor as defined in the Agreement,
certificates representing Common Stock (with or without the Legend, as
appropriate) as soon as possible.
3. FEES OF TRANSFER AGENT; INDEMNIFICATION
The Company agrees to pay the Transfer Agent for all fees incurred in
connection with these Irrevocable Instructions. The Company agrees to indemnify
the Transfer Agent and its officers, employees and agents, against any losses,
claims, damages or liabilities, joint or several, to which it or they become
subject based upon the performance by the Transfer Agent of its duties in
accordance with the Irrevocable Instructions.
4. THIRD PARTY BENEFICIARY
The Company and the Transfer Agent acknowledge and agree that the Investor
is an express third party beneficiary of these Irrevocable Instructions and
shall be entitled to rely upon, and enforce, the provisions thereof.
Interiors, Inc.
By: __________________________
Name: Max Munn
Title: President
AGREED:
By:__________________________
Name:
Title:
2
No. 1 $13,540,626 USD
----- ----------
INTERIORS, INC.
Secured Convertible Note due September 29, 2004
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THERE IS AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
This Secured Convertible Note is duly authorized issue of Secured
Convertible Notes of Interiors Inc., a Delaware corporation (the "Issuer"),
issued on September 30, 1999 (the "Issuance Date"), and designated as its
Secured Convertible Note due September 29, 2004 (the "Note").
This Note has been issued under the terms and provisions of the Secured
Convertible Note Purchase Agreement dated as of September 30, 1999 between the
Issuer and Holder and the other holder of Notes (the "Agreement") and shall be
subject to all of the terms and conditions and entitled to all of the benefits
thereof. This Note has been secured by the Collateral (as defined in the
Agreement) pursuant to the terms of the Agreement and a security agreement (the
"Security Agreement") entered into between the Issuer and the Holder.
FOR VALUE RECEIVED, the Issuer promises to pay to
LIMERIDGE LLC
the registered holder hereof or its registered assigns, if any (the
"Holder"), the principal sum of:
Thirteen Million Five Hundred forty Thousand Six Hundred and Twenty Six
United States Dollars,
<PAGE>
on or prior to September 29, 2004 (the "Maturity Date") or such earlier date
this Note is required to be repaid by the Issuer pursuant to the terms herein,
and to pay interest, as outlined below, at the rate of seventeen percent (17%)
per annum on the principal sum outstanding for the term of this Note. Accrual of
interest shall commence as of the Issuance Date and shall accrue from day to
day. Interest shall be payable in cash by the Issuer upon the earlier to occur
of (a) a Conversion Date, (b) redemption as set forth below, or (c) upon an
Event of Default as defined below. Unless otherwise agreed in writing by both
parties hereto, the interest so payable will be paid to the person in whose name
this Note (or one or more predecessor Notes) is registered on the records of the
Issuer regarding registration and transfers of the Note (the "Note Register"),
provided, however, that the Issuer's obligation to a transferee of this Note
arises only if such transfer, sale or other disposition is made in accordance
with the terms and conditions contained in the Agreement and this Note.
In the event this Note is outstanding on the Maturity Date it shall
automatically be converted into shares of the Issuer's Class A Common Stock,
$0.001 par value per share (the "Common Stock") (as set forth below) as if the
Holder voluntarily elected such conversion in accordance with the procedures,
terms and conditions set forth in this Note, provided, that such shares of
Common Stock are either (a) registered at such time for resale under the
Securities Act, or (b) otherwise resalable under the Securities Act without
restriction to limitation under Rule 144, and (i) the Common Stock is listed on
the Nasdaq Small Cap Market or other Principal Market (as defined in the
Agreement) at such time and has been listed on such market for at least the
preceding sixty trading days, (ii) there has not been any suspension in the
trading of the Common Stock on the Nasdaq Small Cap Market or other Principal
Market, and the (iii) the Issuer has been in compliance in all material respects
with the terms and conditions of this Note and the Agreement (including all
Exhibits annexed to the Agreement). In the event that (i), (ii), and (iii) of
the preceding sentence are not satisfied then the Issuer shall be obligated to
pay the Holder the cash value of the principal amount of this Note outstanding
on such date as if such Note had been converted and sold on such date (at the
Bid Price as defined below) in accordance with the conversion provisions set
forth below, plus all unpaid interest. Principal and interest are payable at the
address last appearing on the Note Register as designated in writing by the
Holder hereof from time to time.
The Note is subject to the following additional provisions:
1. The Note is exchangeable for like Notes in equal aggregate principal
amount of authorized denominations, as requested by the Holder surrendering the
same, but shall not be issuable in denominations of less than $50,000 (unless
such amount represents the remaining principal balance outstanding). No service
charge will be made for such registration or transfer or exchange.
2. The Issuer shall be entitled to withhold from all payments of principal
and/or interest of this Note any amounts required to be withheld under the
applicable provisions of the U.S. Internal Revenue Code of 1986, as amended, or
other applicable laws at the time of such payments.
<PAGE>
3. This Note has been issued subject to investment representations of the
original Holder hereof and may be transferred or exchanged only in compliance
with the Securities Act and applicable state securities laws and in compliance
with the restrictions on transfer provided in the Agreement. Prior to the due
presentment for such transfer of this Note, the Issuer and any agent of the
Issuer may treat the person in whose name this Note is duly registered on the
Note Register as the owner hereof for the purpose of receiving payment as herein
provided and all other purposes, whether or not this Note is overdue, and
neither the Issuer nor any such agent shall be affected by notice to the
contrary. The transferee shall be bound, as the original Holder by the same
representations and terms described herein and under the Agreement.
4. The Holder is entitled, at its option, at any time after September 29,
2000 to convert this Note, in whole or in part, in minimum denominations of
$50,000 (unless such amount represents the remaining principal balance
outstanding), in accordance with the following terms and conditions:
(a) The Holder may exercise its right to convert the Note by
telecopying an executed and completed notice of conversion (the "Notice of
Conversion") to the Issuer and delivering the original Notice of Conversion and
the original Note to the Issuer by express courier. Each Business Day on which a
Notice of Conversion is telecopied to and received by the Issuer in accordance
with the provisions hereof shall be deemed a "Conversion Date". The Issuer will
transmit the certificates representing shares of Common Stock issuable upon
conversion of the Note (together with the certificates representing the Note not
so converted) to the Holder via express courier, by electronic transfer (if
applicable) or otherwise within five Business Days after the Conversion Date,
provided, the Issuer has received the original Notice of Conversion and Note
being so converted. If the Company has not received the original Notice of
Conversion and original Note being converted within three Business Days after
Conversion Date, then the Issuer shall transmit the certificates representing
the shares of Common Stock issuable upon conversion of the Note (together with
the certificates representing the Note not so converted) to the Holder via
express courier, by electronic transfer (if applicable) or otherwise within
three Business Days after receipt of the original Notice of Conversion and
original Note being converted. In addition to any other remedies which may be
available to the Holder, in the event that the Issuer fails to effect delivery
of such shares of Common Stock within (i) five Business Days after receipt of a
Notice of Conversion (provided the Issuer has received the original Notice of
Conversion and Note within three Business Days after the Conversion Date), or
(ii) three Business Days after receipt of the original Notice of Conversion and
original Note being converted if the Issuer has not received the original Notice
of Conversion and original Note being converted within three Business Days after
the Conversion Date, the Holder will be entitled to revoke the Notice of
Conversion by delivering a notice to such effect to the Issuer whereupon the
Issuer and the Holder shall each be restored to their respective positions
<PAGE>
immediately prior to delivery of the Notice of Conversion. The Notice of
Conversion and Note representing the portion of the Note converted shall be
delivered as follows:
To the Issuer:
Interiors, Inc.
320 Washington Street
Mount Vernon, New York 10553
Telephone: (914) 665-5400
Facsimile: (914) 665-5469
Attention: President
or to such other address as may be communicated by the Issuer to the
Holder in writing.
In the event that the Common Stock issuable upon conversion of the
Note is not delivered to the Holder within (i) seven Business Days after the
Conversion Date (provided the Issuer has received the original Notice of
Conversion and Note within three Business Days after the Conversion Date), or
(ii) three Business Days after receipt of the original Notice of Conversion and
original Note being converted if the Issuer has not received the original Notice
of Conversion and original Note being converted within three Business Days after
the Conversion Date (and assuming the Holder has not revoked such Notice of
Conversion as permitted above), the Issuer shall pay to the Holder, in
immediately available funds, upon demand, as liquidated damages for such failure
and not as a penalty, for each $100,000 principal amount of Note sought to be
converted, $250 for each calendar day that the shares of Common Stock are not
delivered, which liquidated damages shall run from the eighth Business Day after
the Conversion Date up until the time that either the Notice of Conversion is
revoked or the Common Stock is delivered, at which time such liquidated damages
shall cease. Any and all payments required pursuant to this paragraph shall be
payable only in cash immediately. The Holder's right to liquidated damages
pursuant to the terms of this Section shall in no way affect the Holder's right
pursuant to Section 7 below to consider this Note immediately due and payable
upon the occurrence of an Event of Default (as defined in Section 7 below).
(b) The Holder may, at its sole option convert this Note into that
number of shares of fully paid and nonassessable shares of Common Stock (the
"Conversion Shares") which is to be derived from dividing the Conversion Amount
by the Conversion Price. For purposes of this Note, the term "Conversion Amount"
shall mean the principal dollar amount of the Note being converted. The
"Conversion Price" shall be equal to one hundred (100%) percent of the average
of Bid Price during the five consecutive trading days immediately preceding a
Conversion Date, as such Conversion Price shall be adjusted pursuant to the
terms hereof. The "Bid Price" shall be deemed to be the reported last bid price
regular way of the Common Stock as reported by Bloomberg LP or if unavailable,
on the principal national securities exchange on which the Common Stock is
listed or admitted to trading, or if the Common Stock is not listed or admitted
to trading on any national securities exchange, the closing bid price as
reported by Nasdaq or such other system then in use, or, if the Common Stock is
not quoted by any such organization, the closing bid price in the
over-the-counter
<PAGE>
market as furnished by the principal national securities exchange on which the
Common Stock is traded. The principal amount of this Note shall be reduced as
per that principal amount indicated on the Notice of Conversion upon the proper
receipt by the Holder of such shares of Common Stock due upon such Notice of
Conversion.
(c) Upon each adjustment of the Conversion Price, the Holder shall
thereafter be entitled to (but not obligated to) receive upon conversion of this
Note, at the Conversion Price resulting from such adjustment, the number of
shares of Common Stock obtained by (i) multiplying the Conversion Price in
effect immediately prior to such adjustment by the number of shares of Common
Stock receivable hereunder immediately prior to such adjustment and (ii)
dividing the product thereof by the Conversion Price resulting from such
adjustment.
(d) The Conversion Price shall be adjusted as follows:
(i) In the case of any amendment to the Issuer's Certificate
of Incorporation to change the designation of the Common Stock or the rights,
privileges, restrictions or conditions in respect to the Common Stock or
division of the Common Stock, this Note shall be adjusted so as to provide that
upon exercise thereof, the Holder shall receive, in lieu of each share of Common
Stock theretofore issuable upon such conversion, the kind and amount of shares,
other securities, money and property receivable upon such designation, change or
division by the Holder issuable upon such conversion had the conversion occurred
immediately prior to such designation, change or division. This Note shall be
deemed thereafter to provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section. The provisions of this Subsection (i) shall apply in the same manner to
successive reclassifications, changes, consolidations and mergers.
(ii) If the Issuer shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares of Common Stock, or
declare a dividend or make any other distribution upon the Common Stock payable
in shares of Common Stock, the Conversion Price in effect immediately prior to
such subdivision or dividend or other distribution shall be proportionately
reduced, and conversely, in case the outstanding shares of Common Stock shall be
combined into a smaller number of shares of Common Stock, the Conversion Price
in effect immediately prior to such combination shall be proportionately
increased.
(iii) If any capital reorganization or reclassification of the
capital stock of the Issuer, or any consolidation or merger of the Issuer with
or into another corporation or other entity, or the sale of all or substantially
all of the Issuer's assets to another corporation or other entity shall be
effected in such a way that holders of shares of Common Stock shall be entitled
to receive stock, securities, other evidence of equity ownership or assets with
respect to or in exchange for shares of Common Stock, then, as a condition of
such reorganization, reclassification, consolidation, merger or sale (except as
otherwise provided below in this Section) lawful and adequate provisions shall
be made whereby the Holder shall thereafter have the right to receive upon the
conversion hereof upon the basis and upon the terms and conditions specified
herein, such shares of stock, securities, other evidence of equity ownership or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of
Common Stock immediately theretofore
<PAGE>
receivable upon the conversion of this Note under this Section had such
reorganization, reclassification, consolidation, merger or sale not taken place,
and in any such case appropriate provisions shall be made with respect to the
rights and interests of the holder to the end that the provisions hereof
(including, without limitation, provisions for adjustments of the Conversion
Price and of the number of shares of Common Stock receivable upon the conversion
of this Note) shall thereafter be applicable, as nearly as may be, in relation
to any shares of stock, securities, other evidence of equity ownership or assets
thereafter deliverable upon the exercise hereof including an immediate
adjustment, by reason of such consolidation or merger, of the Conversion Price
to the value for the Common Stock reflected, by the terms of such consolidation
or merger if the value so reflected is less than the Conversion Price in effect
immediately prior to such consolidation or merger. Subject to the terms of this
Note, in the event of a merger or consolidation of the Issuer with or into
another corporation or other entity as a result of which the number of shares of
common stock of the surviving corporation or other entity issuable to investors
of Common Stock, is greater or lesser than the number of shares of Common Stock
of the Issuer outstanding immediately prior to such merger or consolidation,
then the Conversion Price in effect immediately prior to such merger or
consolidation shall be adjusted in the same manner as though there were a
subdivision or combination of the outstanding shares of Common Stock. The Issuer
shall not effect any such consolidation, merger or sale, unless, prior to the
consummation thereof, the successor corporation (if other than the Issuer)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume by written instrument the obligation to deliver to the
Holder such shares of stock, securities, other evidence of equity ownership or
assets as, in accordance with the foregoing provisions, the Holder may be
entitled to receive or otherwise acquire. If a purchase, tender or exchange
offer is made to and accepted by the holders of more than fifty (50%) percent of
the outstanding shares of Common Stock, the Issuer shall not effect any
consolidation, merger or sale with the person having made such offer or with any
affiliate of such person, unless prior to the consummation of such
consolidation, merger or sale the Holder shall have been given a reasonable
opportunity to then elect to receive upon the conversion of this Note the amount
of stock, securities, other evidence of equity ownership or assets then issuable
with respect to the number of shares of Common Stock in accordance with such
offer.
(iv) In case the Issuer shall, at any time prior to conversion
of this Note, consolidate or merge with any other corporation or other entity
(where the Issuer is not the surviving entity) or transfer all or substantially
all of its assets to any other corporation or other entity, then the Issuer
shall, as a condition precedent to such transaction, cause effective provision
to be made so that the Holder upon the conversion of this Note after the
effective date of such transaction shall be entitled to receive the kind and,
amount of shares, evidences of indebtedness and/or other securities or property
receivable on such transaction by the Holder of the number of shares of Common
Stock as to which this Note was convertible immediately prior to such
transaction (without giving effect to any restriction upon such exercise); and,
in any such case, appropriate provision shall be made with respect to the rights
and interests of the Holder to the end that the provisions of this Note shall
thereafter be applicable (as nearly as may be practicable) with respect to any
shares, evidences of indebtedness or other securities or assets thereafter
deliverable upon conversion of this Note. Upon the occurrence of any event
described in this Subsection (iv), the Holder shall have the right to (i)
convert this Note immediately prior to such event at a Conversion Price equal to
the lesser of (a) the then Conversion Price or (b) the
<PAGE>
price per share of Common Stock paid in such event, (ii) retain ownership of
this Note, in which event, appropriate provisions shall be made so that this
Note shall be convertible at the Holder's option into shares of stock,
securities or other equity ownership of the surviving or acquiring entity, or
(iii) force redemption of the then outstanding principal amount of this Note in
accordance with the provisions of Section 18 below.
(v) Whenever the Conversion Price shall be adjusted pursuant
to this Section the Issuer shall promptly mail by registered or certified mail,
return receipt requested, to the Holder a certificate signed by its President or
Vice President and by its Treasurer, or Secretary, setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated (including a description of the
basis on which the Board of Directors of the Issuer made any determination
hereunder), and the Conversion Price after giving effect to such adjustment, and
shall cause copies of such certificates to be mailed (by first-class mail,
postage prepaid) to the Holder. The Issuer shall make such certificate and mail
it to the Holder immediately after each adjustment.
(e) The Issuer will not, by amendment of its Certificate of
Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Issuer, but will
at all times in good faith assist in the carrying out of all the provisions of
this Note and in taking of all such action as may be necessary or appropriate in
order to protect the conversion rights of the Holder against impairment.
(f) In the event of any liquidation, dissolution or winding up of
the Issuer, whether voluntary or involuntary, before any distribution may be
made with respect to the Issuer's Common Stock or any other class of common
stock or preferred stock of the Issuer, the Holder shall be entitled to receive
out of the assets available for distribution to shareholders an amount in cash
equal to the Redemption Price of such principal amount of Note then outstanding
(the "Liquidation Amount"). If any portion of the principal amount of this Note
shall have been prepaid or converted into Common Stock prior to such
liquidation, dissolution or winding up, the interest component of the
Liquidation Amount pursuant to clause (ii) above shall be calculated annually
based on the average principal amount of this Note which shall be outstanding
during each consecutive twelve month period from the date of issuance of this
Note to the date immediately prior to such liquidation, dissolution or winding
up of the Company. If the assets of the Company available for distribution to
shareholders shall be insufficient to pay the Holder the full Liquidation Amount
to which they shall be entitled, then any such distribution of assets of the
Issuer shall be distributed ratably to all of the holders of the Notes. After
the payment of the Liquidation Amount shall have been made in full to the Holder
or funds necessary for such payment shall have been set aside by the Issuer in
trust for the account of holders of the Notes so as to be available for such
payments, the holders of the Notes shall be entitled to no further participation
in the distribution of the assets of the Issuer, and the remaining assets of the
Issuer legally available for distribution to shareholders shall be distributed
among the holders of Common Stock and any other classes or series of Common
Stock or preferred stock of the Issuer in accordance with their respective
terms.
<PAGE>
5. No provision of this Note shall alter or impair the obligation of the
Issuer, which is absolute and unconditional, upon an Event of Default (as
defined below), to pay the principal of, and interest on this Note at the place,
time, and rate, and in the coin or currency herein prescribed.
6. The Issuer hereby expressly waives demand and presentment for payment,
notice on nonpayment, protest, notice of protest, notice of dishonor, notice of
acceleration or intent to accelerate, and diligence in taking any action to
collect amounts called for hereunder and shall be directly and primarily liable
for the payment of all sums owing and to be owing hereon, regardless of and
without any notice, diligence, act or omission as or with respect to the
collection of any amount called for hereunder.
7. If one or more of the following described events (each of which being
an "Event of Default" hereunder) shall occur and shall be continuing (as set
forth below) for a period of seven Business Days after notice from the Holder:
(a) any of the representations, covenants, or warranties made by the
Issuer herein, or in the Agreement (including all Exhibits annexed
thereto) shall have been incorrect when made; or
(b) any of the representations, covenants, or warranties made by
Petals, Inc. in the Security Agreement shall have been incorrect when made
in any material respect; or
(c) the Issuer shall breach, fail to perform, or fail to observe in
any material respect any material covenant, term, provision, condition,
agreement or obligation of the Issuer under this Note (or any security of
the Issuer held by the Holder), the Security Agreement, the Registration
Rights Agreement, and the Agreement, between the parties of even date
herewith,; or
(d) Petals, Inc. shall breach, fail to perform, or fail to observe
in any material respect any material covenant, term, provision, condition,
agreement or obligation of Petals, Inc. under the Security Agreement
between the parties of even date herewith; or
(e) a trustee, liquidator or receiver shall be appointed for the
Issuer (and/or Petals, Inc.) or for a substantial part of its property or
business without its consent and shall not be discharged within thirty
(30) calendar days after such appointment; or
(f) any governmental agency or any court of competent jurisdiction
at the instance of any governmental agency shall assume custody or control
of the whole or any substantial portion of the properties or assets of the
Issuer (and/or Petals, Inc.) and shall not be dismissed within thirty (30)
calendar days thereafter; or
(g) bankruptcy reorganization, insolvency or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for
the relief of debtors shall be instituted by or against the Issuer (and/or
Petals, Inc.) and, if instituted against the Issuer (and/or Petals, Inc.),
Issuer (and/or Petals, Inc.) shall by any action or answer
<PAGE>
approve of, consent to or acquiesce in any such proceedings or admit the
material allegations of, or default in answering a petition filed in any
such proceeding or such proceedings shall not be dismissed within thirty
(30) calendar days thereafter; or
(h) the Common Stock is suspended and/or delisted from trading on
the Nasdaq Small Cap Market, or the Issuer has received notice of final
action concerning delisting from the Nasdaq Small Cap Market, unless in
each such instance, the Issuer's Common Stock shall be listed on the
Nasdaq National Market, the American Stock Exchange or the New York Stock
Exchange within seven business days from such suspension and/or delisting
on the Nasdaq Small Cap Market; or
(i) the Registration Statement including the shares of Common Stock
underlying this Note has not been filed with the Securities and Exchange
Commission and/or declared effective in a timely manner as per Sections
3(a) and 3(f) of the Registration Rights Agreement between the Issuer and
the Holder of even date herewith, or the effectiveness of such
Registration Statement shall be suspended for more than seven consecutive
business days; or
(j) the Issuer shall have failed to pay interest within five
Business Days of when due hereunder and/or principal within three Business
Days of when due hereunder and/or comply with the redemption provisions
contained herein within three Business Days of when due hereunder; in each
case, upon receipt of written notice of such payment default; or
(k) the Issuer shall have failed to timely deliver shares of Common
Stock issuable upon conversion of the Notes and/or exercise of the
Warrants issued by the Issuer pursuant to the terms of this Note and the
Warrants; or
(l) the Issuer, or any other party, shall, at any time after the
Issuance Date, (i) in any way materially and adversely alter Holder's
security interest that it has been granted in the Collateral pursuant to
the Security Agreement, or (ii) sell, transfer or convey the Collateral;
or
(m) the Company and/or Petals, Inc. shall cease operations, cease to
operate as a going concern, terminate its corporate existence, or sell,
transfer and/or convey all or substantially all of its assets, or either
shall combine with another entity whereby the Issuer is not the surviving
entity; or
(n) a judgment in excess of $100,000 shall be entered against Debtor
and/or Subsidiary or a warrant of execution or similar process shall be
issued or levied against its property and within thirty (30) days after
such judgment, warrant or process shall not have been paid in full or
proper appeal of the same made.
(o) the occurrence of any "Event of Default" as that term is defined
in the Security Agreement,
<PAGE>
then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been cured or waived in writing by the Holder (which
waiver shall not be deemed to be a waiver of any subsequent default) or cured as
provided herein, at the option of the Holder, and in the Holder's sole
discretion, the Holder may consider the entire principal amount of this Note
(and all interest through such date) immediately due and payable in cash, at the
cash equivalent of the Redemption Price for such then outstanding principal
amount of Note, (or the Holder shall be entitled to recover from the Collateral
as per the terms of the Security Agreement, but shall be entitled to enforce its
rights hereunder in the event the Collateral is insufficient to the amounts due
and owing as aforesaid) without presentment, demand protest or notice of any
kind, all of which are hereby expressly waived, anything herein or in any note
or other instruments contained to the contrary notwithstanding, and Holder may
immediately, and without expiration of any period of grace, enforce any and all
of the Holder's rights and remedies provided herein or any other rights or
remedies afforded by law (including but not limited to consequential damages if
any). It is agreed that in the event of such action, such Holder shall be
entitled to receive all reasonable fees, costs and expenses incurred, including
without limitation such reasonable fees and expenses of attorneys. Nothing
contained herein shall limit the rights of the Holder to collect liquidated
damages as provided herein or in any other agreement entered into between the
Holder and the Issuer, or any other damages that the Holder may otherwise be
entitled to under the terms of this Note or the Agreement (including any Exhibit
annexed thereto).
8. In case any provision of this Note is held by a court of competent
jurisdiction to be excessive in scope or otherwise invalid or unenforceable,
such provision shall be adjusted rather than voided, if possible, so that it is
enforceable to the maximum extent possible, and the validity and enforceability
of the remaining provisions of this Note will not in any way be affected or
impaired thereby.
9. [this section intentionally left blank]
10. This Note, together with all documents referenced herein, embodies the
full and entire understanding and agreement between the Issuer and Holder with
respect to the subject matter hereof and supersedes all prior oral or written
agreements and understandings relating to the subject matter hereof. Neither
this Note nor any terms hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the Issuer and the Holder. All
capitalized terms not otherwise defined herein shall have the same meaning as
given in the Agreement. In the event of any inconsistencies between this Note
and the Agreement, the Note shall control. No statement, representation,
warranty, covenant or agreement of any kind not expressly set forth in this Note
shall affect, or be used to interpret, change or restrict, the express terms and
provisions of this Note.
11. This Note will be exclusively construed and enforced in accordance
with and governed exclusively by the laws of the State of New York, except for
matters arising under the Securities Act, without reference to principles of
conflicts of law. Each of the parties consents to the exclusive jurisdiction of
the U.S. District Court sitting in the Southern District of the State of New
York sitting in Manhattan in connection with any dispute arising under this Note
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens, to the bringing of any
such proceeding in such jurisdictions.
<PAGE>
Each party hereby agrees that if the other party to this Note obtains a judgment
against it in such a proceeding, the party which obtained such judgment may
enforce same by summary judgment in the courts of any country having
jurisdiction over the party against whom such judgment was obtained, and each
party hereby waives any defenses available to it under local law and agrees to
the enforcement of such a judgment. Each party to this Note irrevocably consents
to the service of process in any such proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to such party at its
address set forth herein. Nothing herein shall affect the right of any party to
serve process in any other manner permitted by law. Each party waives its right
to a trial by jury.
12. The convertibility of this Note shall be restricted such that
(a) that portion of the Note which, if otherwise converted, would
result in Holder owning 4.99% or more of the then issued and outstanding Common
Stock, shall not be convertible until the Holder is not an owner of 4.99% or
more of the then issued and outstanding Common Stock; and
(b) The aggregate number of shares of Common Stock which may be
acquired by the Holder and all other holders of Notes similar to this Note upon
conversion of all of Notes and upon exercise of all of the Warrants, pursuant to
the terms set forth in the Secured Convertible Note Purchase Agreement, dated of
even date, among the Holder, other holders of Notes and the Issuer (the
"Purchase Agreement") and in the Warrant (constituting an exhibit to the
Purchase Agreement), shall not equal or exceed nineteen and nine tenths (19.9%)
percent of the aggregate number of issued and outstanding shares of Common
Stock, Class B Common Stock or other Securities of the Company having voting
power as at the Closing Date (the "Maximum Underlying Shares"). Until such time
as this Note and all other Notes and Warrants issued under the Purchase
Agreement shall have been either converted into Conversion Shares or redeemed
pursuant to the Purchase Agreement, and the Warrants shall have either been
exercised or shall have expired, the Holder of this Note may not convert his or
its Note and/or exercise his or its Warrant into an aggregate number of
Conversion Shares and Warrant Shares which shall exceed the product of
multiplying (a) a fraction, the numerator of which shall be the original
principal amount of this Note and the denominator of which shall be $13,540,626,
by (b) the aggregate number of Maximum Underlying Shares. In lieu of such
issuance(s) the Company shall pay to the Holder(s) the cash value of such shares
of Common Stock in excess of those converted due to the Holder(s) within five
Business Days of when such issuance is due based upon the Bid Price of the
Common Stock on the Trading Date of when due (or such next Trading Day if such
day is not a Trading Day).
13. In the event the Issuer, at any time while this Note is outstanding,
shall issue any shares of Common Stock (or any instrument convertible into
Common Stock), otherwise than: (i) pursuant to options, warrants, instruments
and agreements under which convertible notes and/or shares of convertible
preferred stock of the Issuer were issued, or other obligations to issue shares
of Common Stock as of the Issuance Date, all as described in Section 4.3 of the
Agreement or in the SEC filings made by the Issuer within twelve months prior to
the Issuance Date, or (ii) all shares reserved for issuance pursuant to the
Issuer's stock option, incentive, or other similar plan, which plan and which
grant was in effect as of the Issuance Date and
<PAGE>
approved by the Board of Directors of the Issuer ((i) and (ii) collectively
referred to as the "Existing Obligations"), for a consideration less than the
Conversion Price that would be in effect at the time of such issue, then, and
thereafter successively upon each such issue, the Conversion Price shall be
amended from then on to be equal to the lesser of (i) one hundred (100%) percent
of the average of the Bid Prices during the five consecutive trading days
immediately preceding a Conversion Date, or (ii) the resulting quotient from the
following formula: (y) the number of shares of Common Stock outstanding
immediately prior to such issue shall be multiplied by the Conversion Price in
effect at the time of such issue and the product shall be added to the aggregate
consideration, if any received by the Issuer upon such issue of additional
shares of Common Stock; and (z) the sum so obtained shall be divided by the
number of shares of Common Stock outstanding immediately after such issue.
Except for the Existing Obligations, and options that may be issued under any
employee incentive stock option and/or any qualified stock option plan adopted
by the Issuer, for the purposes of this adjustment, the issuance of any security
of the Issuer carrying the right to convert such security into shares of Common
Stock or of any warrant, right, or option to purchase Common Stock shall result
in an adjustment to the Conversion Price upon issuance of shares of Common Stock
upon the Holder's exercise of its conversion rights.
14. In the event the Holder shall elect to convert any portion of this
Note as provided herein, the Issuer cannot refuse conversion based on any claim
that the Holder or anyone associated or affiliated with the Holder has been
engaged in any violation of law, unless an injunction from a court, restraining
and/or enjoining conversion of all or part of said portion of this Note shall
have been issued and the Issuer posts a surety bond for the benefit of the
Holder in the amount of 130% of the principal amount of the Note sought to be
converted plus outstanding interest through such date, which is subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to the Holder in the event it obtains a favorable judgment (but shall not in any
way limit any additional damages the Holder may be entitled to).
15. Upon receipt by the Issuer of evidence of the loss, theft, destruction
or mutilation of any Note certificate(s), and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Issuer, and
upon the cancellation of the Note certificate(s), if mutilated, the Issuer shall
execute and deliver new certificates for Note(s) of like tenure and date.
16. This Note does not entitle the Holder to any voting rights or other
rights as a shareholder of the Issuer prior to the conversion into Common Stock
thereof, except as provided by applicable law. If, however, at the time of the
surrender of this Note and conversion the Holder hereof shall be entitled to
convert this Note, the shares of Common Stock so issued shall be and be deemed
to be issued to the Holder as the record owner of such shares as of the close of
business on the Conversion Date.
17. Except as expressly provided herein or as required by law, so long as
this Note remains outstanding, the Issuer shall not, without the approval by
vote or written consent by the Holder, take any action that would adversely
affect the rights, preferences or privileges of this Note.
18. The Issuer shall have the right to redeem this Note, in whole or in
part (except that portion of the principal amount of this Note that is the
subject of a Notice of Conversion
<PAGE>
which has previously been sent to the Issuer), in cash at the Redemption Price
(as defined below) at any time by thereafter providing written notice (the
"Redemption Notice") to the Holder. The Issuer shall wire transfer the
appropriate amount of funds to the Holder to complete the redemption, which
shall be (if the Redemption Notice is received via facsimile by the Holder prior
to the first anniversary of the Issuance Date) no later than the tenth Business
Day after the Holder has received the Redemption Notice via facsimile (the
"Redemption Date") and if the Redemption Notice is received via facsimile by the
Holder after the first anniversary of the Issuance Date no later than the third
Business Day after the Holder has received the Redemption Notice via facsimile
(also referred to as a Redemption Date. Upon facsimile receipt of the Redemption
Notice, the Holder's right to convert this Note shall terminate and be canceled
immediately; provided, however, that the right to convert this Note shall
immediately be reinstated if the Issuer fails to comply with the redemption
provisions hereof. In the event the Issuer fails to wire the appropriate amount
of funds to the Holders as set forth in the Redemption Notice on or before the
Redemption Date, or shall otherwise fail to comply with the redemption
provisions set forth herein on three separate occasions, then the Issuer shall
have waived its right to redeem any portion of this Note at any time thereafter
(the foregoing shall have not be deemed as a waiver by the Holder of any rights
it may have under Section 7 herein).
The Redemption Notice shall set forth (i) the Redemption Date, (ii)
the Redemption Price, as defined below, and (iii) the principal amount of the
Note being redeemed. The Redemption Notice shall be irrevocable, and it shall be
delivered by facsimile to the Holder at its address as the same shall appear on
the books of the Issuer.
The Redemption Price shall be equal to the sum of (a) the entire
outstanding principal amount of this Note being redeemed, (b) all accrued and
unpaid interest on this Note, (c) all accrued and unpaid fees and expenses
required to be paid for so long as the Note is outstanding pursuant to Section
12.7 of the Agreement.
At the close of business on the Redemption Date, subject to the
Holder's receipt of the applicable Redemption Price, the portion of this Note
being redeemed shall be automatically canceled and converted into a right to
receive the Redemption Price, and all rights of this Note, including the right
to conversion shall cease without further action. Immediately following the
Redemption Date (assuming full compliance by the Issuer with the redemption
provisions set forth herein), the Holder shall surrender its original Note at
the office of the Issuer, and the Issuer shall issue to the Holder a new Note
certificate for the principal amount that remains outstanding, if any.
The Redemption Price shall be adjusted proportionally upon any adjustment
of the Conversion Price as set forth above.
The Issuer shall not be entitled to send any Redemption Notice and begin
the redemption procedure hereunder unless it has:
(i) the full amount of the Redemption Price in cash, available
in a demand or other immediately available account in a bank or similar
financial institution;
<PAGE>
(ii) immediately available credit facilities, in the full
amount of the Redemption Price with a bank or similar financial
institution; or
(iii) a combination of the items set forth in (a) and (b)
above, aggregating the full amount of the Redemption Price.
[the balance of this page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this Convertible Note to
be duly executed by an officer thereunto duly authorized.
INTERIORS, INC.
By: /s/ Max Munn
------------
Name: Max Munn
Title: President
Date: September 30, 1999
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THERE IS AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.
COMMON STOCK PURCHASE WARRANT
No. 99-1
To Purchase 1,000,000 Shares of Common Stock of
INTERIORS, INC.
THIS CERTIFIES that, for value received, Limeridge LLC (the "Holder",
including permitted assigns), is entitled, upon the terms and subject to the
conditions hereinafter set forth, at any time on or after September 30, 2000,
and on or prior to September 29, 2004 (the "Termination Date") but not
thereafter, to subscribe for and purchase from Interiors, Inc. a Delaware
corporation (the "Company"), One Million (1,000,000) shares of Common Stock (the
"Warrant Shares"). The purchase price of one share of Common Stock (the
"Exercise Price") under this Warrant shall be equal to $2.00, or the Holder may
exercise this Warrant pursuant to the Cashless Exercise feature set forth in
Section 3 below. The Exercise Price and the number of shares for which the
Warrant is exercisable shall be subject to adjustment as provided herein. This
Warrant is being issued in connection with the Secured Convertible Note Purchase
Agreement dated as of September 30, 1999 (the "Agreement") entered into between
the Company, and the Holder. In the event of any conflict between the terms of
this Warrant and the Agreement, the Agreement shall control. Any capitalized
terms used herein but not otherwise defined shall have that meaning assigned in
the Agreement.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THERE IS AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.
COMMON STOCK PURCHASE WARRANT
No. 99-1
To Purchase 1,000,000 Shares of Common Stock of
INTERIORS, INC.
THIS CERTIFIES that, for value received, Limeridge LLC (the "Holder",
including permitted assigns), is entitled, upon the terms and subject to the
conditions hereinafter set forth, at any time on or after September 30, 2000,
and on or prior to September 29, 2004 (the "Termination Date") but not
thereafter, to subscribe for and purchase from Interiors, Inc. a Delaware
corporation (the "Company"), One Million (1,000,000) shares of Common Stock (the
"Warrant Shares"). The purchase price of one share of Class A Common Stock of
the Company (the "Common Stock")under this Warrant shall be equal to $2.00 (the
"Exercise Price"), or the Holder may exercise this Warrant pursuant to the
Cashless Exercise feature set forth in Section 3 below. The Exercise Price and
the number of shares for which the Warrant is exercisable shall be subject to
adjustment as provided herein. This Warrant is being issued in connection with
the Secured Convertible Note Purchase Agreement dated as of September 30, 1999
(the "Agreement") entered into between the Company, and the Holder. In the event
of any conflict between the terms of this Warrant and the Agreement, the
Agreement shall control. Any capitalized terms used herein but not otherwise
defined shall have that meaning assigned in the Agreement.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
<PAGE>
3. Exercise of Warrant. Exercise of the purchase rights represented by
this Warrant may be made at any time or times, in whole or in part, before the
close of business on the Termination Date, or such earlier date on which this
Warrant may terminate as provided in paragraph 11 below, by the surrender of
this Warrant and the Exercise Form annexed hereto duly executed, to the office
of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the registered holder hereof at the address of
such holder appearing on the books of the Company) and upon payment of the
Exercise Price of the Warrant Shares purchased thereby, or pursuant to the
cashless exercise feature set forth herein. Certificates for Warrant Shares
purchased hereunder shall be delivered to the Holder within three Business Days
after the date on which this Warrant shall have been exercised as aforesaid.
Payment of the Exercise Price (in the event the Holder does not choose to
utilize the cashless exercise feature) of the Warrant Shares may be by wire
transfer (of same day funds) to the Company in an amount equal to the Exercise
Price multiplied by the number of Warrant Shares being purchased.
The Holder may pay the Exercise Price in cash or pursuant to a
cashless exercise, as follows:
(a) Cash Exercise. The Holder shall deliver immediately available
funds;
(b) Cashless Exercise. The Holder may surrender this Warrant to the
Company together with a Notice of Exercise, indicating it is utilizing the
Cashless Exercise feature, in which event the Company shall issue to the Holder
the number of Warrant Shares determined as follows:
X = Y (A-B)/A
Where: X = the number of Warrant Shares to be issued to the Holder.
Y = the number of Warrant Shares with respect to which this
Warrant is being exercised.
A = the average of the closing sale prices of the Common Stock
for the five (5) Trading Days immediately prior to (but not
including) the date the Company receives a facsimile of the
Notice of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is
intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
been commenced, on the original issuance date of this Warrant.
<PAGE>
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of issuing fractional shares, the Company shall round up to the
nearest whole share the number of Warrant Shares due upon exercise of this
Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without charge to
the Holder for any issue or transfer tax or other incidental expense in respect
of the issuance of such certificate, all of which taxes and expenses shall be
paid by the Company, and such certificates shall be issued in the name of the
Holder or in such name or names as may be directed by the Holder; provided,
however, that in the event certificates for shares of Common Stock are to be
issued in a name other than the name of the holder of this Warrant, this Warrant
when surrendered for exercise shall be accompanied by the Assignment Form
attached hereto duly executed by the Holder.
6. Closing of Books. The Company will at no time close its shareholder
books or records in any manner that interferes with the timely exercise of this
Warrant.
7. No Rights as Shareholder until Exercise. This Warrant does not entitle
the Holder to any voting rights or other rights as a shareholder of the Company
prior to the exercise thereof. If, however, at the time of the surrender of this
Warrant the Holder shall be entitled to exercise this Warrant, the Warrant
Shares so purchased shall be and be deemed to be issued to such Holder as the
record owner of such shares as of the close of business on the date on which the
Company shall have received the Exercise Price along with the Notice of Exercise
and Warrant being exercised, or in the event of a cashless exercise on the close
of business on the date on which the Company receives the original Warrant being
exercised along with the Notice of Exercise..
8. Assignment and Transfer of Warrant. This Warrant may be assigned by the
surrender of this Warrant and the Assignment Form annexed hereto duly executed
at the office of the Company (or such other office or agency of the Company as
it may designate by notice in writing to the registered holder hereof at the
address of such holder appearing on the books of the Company); provided,
however, that this Warrant may not be resold except (i) in a transaction
registered under the Securities Act, or (ii) in a transaction pursuant to an
exemption, if available, from such registration and whereby, if requested by the
Company, an opinion of counsel reasonably satisfactory to the Company is
obtained by the holder of this Warrant to the effect that the transaction is so
exempt.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
represents and warrants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
or stock certificate, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and upon reimbursement to the Company of
all reasonable expenses incidental thereto, and upon surrender and cancellation
of such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of this Warrant or stock certificate.
<PAGE>
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a legal
holiday.
11. Adjustments. The Exercise Price shall be adjusted as provided below in
this Section (the Exercise Price, and the Exercise Price as thereafter then
adjusted, shall be included in the definition of Exercise Price) and the
Exercise Price from time to time shall be further adjusted as provided for below
in this Section. Upon each adjustment of the Exercise Price, the Holder shall
thereafter be entitled to receive upon exercise of this Warrant, at the Exercise
Price resulting from such adjustment, the number of shares of Common Stock
obtained by (a) multiplying the Exercise Price in effect immediately prior to
such adjustment by the number of shares of Common Stock purchasable hereunder
immediately prior to such adjustment and (b) dividing the product thereof by the
Exercise Price resulting from such adjustment. The Exercise Price shall be
adjusted as follows:
(i) In the case of any amendment to the Company's Articles of
Incorporation to change the designation of the Common Stock or the rights,
privileges, restrictions or conditions in respect to the Common Stock or
division of the Common Stock, this Warrant shall be adjusted so as to provide
that upon exercise thereof, the Holder shall receive, in lieu of each share of
Common Stock theretofore issuable upon such exercise, the kind and amount of
shares, other securities, money and property receivable upon such designation,
change or division by the Holder issuable upon such exercise had the exercise
occurred immediately prior to such designation, change or division. This Warrant
shall be deemed thereafter to provide for adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section. The provisions of this Subsection (i) shall apply in the same manner to
successive reclassifications, changes, consolidations and mergers.
(ii) If the Company shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares of Common Stock, or
declare a dividend or make any other distribution upon the Common Stock payable
in shares of Common Stock, the Exercise Price in effect immediately prior to
such subdivision or dividend or other distribution shall be proportionately
reduced, and conversely, in case the outstanding shares of Common Stock shall be
combined into a smaller number of shares of Common Stock, the Exercise Price in
effect immediately prior to such combination shall be proportionately increased.
(iii) Whenever the number of Warrant Shares purchasable upon the
exercise of this Warrant is adjusted, as provided above, the Exercise Price
payable upon exercise of this Warrant shall be adjusted by multiplying such
Exercise Price immediately prior to such adjustment by a fraction, of which the
numerator shall be the number of Warrant Shares purchasable upon the exercise of
this Warrant immediately prior to such adjustment, and of which the denominator
shall be the number of Warrant Shares purchasable immediately thereafter.
<PAGE>
(iv) In case the Company shall issue shares of Common Stock
("Additional Shares") or in case the Company shall issue rights, options or
warrants to purchase shares of Common Stock or securities convertible into or
exchangeable for Common Stock, in any case at a Price Per Share (as defined
below) which is lower than the closing price per share of Common Stock (as
reported by Bloomberg, L.P. ("Bloomberg"), as traded on The Nasdaq Stock Market,
the OTC Bulletin Board or any other national securities exchange on the date of
issuance of such Additional Shares, rights, options, warrants or other
convertible securities (the "Trigger Price"), the number of Warrant Shares
hereafter purchasable upon the exercise of this Warrant shall be determined by
multiplying the number of Warrant Shares theretofore purchasable upon exercise
of this Warrant by the following fraction:
(A)(i) The number of shares of Common Stock outstanding
immediately prior to the issuance of such Additional Shares or rights,
options, warrants or convertible securities, plus (ii) the number of
Additional Shares actually subscribed for and purchased and shares of
Common Stock issuable upon conversion or exercise of such rights, options,
warrants, or convertible securities, divided by
(B)(i) The number of shares of Common Stock outstanding
immediately prior to issuance of such Additional Shares or rights,
options, warrants or convertible securities plus (ii) the number of shares
of Common Stock which the aggregate Proceeds (as defined below) received
by the Company upon the sale of such Additional Shares or exercise or
conversion of such rights, options, warrants and convertible securities
would purchase at the Trigger Price.
Such adjustment shall be made whenever such Additional Shares or rights,
options, warrants or convertible securities are issued, and shall become
effective on the date of distribution retroactive to the record date for the
determination of stockholders entitled to receive such rights, options or
warrants.
For purposes of this Section, "Price Per Share" shall be defined and
determined according to the following formula:
R
P = ---------
N
where
P = Price Per Share,
R = the "Proceeds" received or receivable by the Company
which (i) in the case of shares of Common Stock is the total amount
received or receivable by the Company in consideration for the sale and
issuance of such shares; (ii) in the case of rights, options or warrants
to subscribe for or purchase shares of Common Stock or of securities
convertible into or exchangeable or exercisable for shares of Common
Stock, is the total amount received or receivable by the Company in
consideration for the sale and issuance of
<PAGE>
such rights, options, warrants or convertible or exchangeable or
exercisable securities, plus the minimum aggregate amount of additional
consideration, other than the surrender of such convertible or
exchangeable securities, payable to the Company upon exercise, conversion
or exchange thereof; and (iii) in the case of rights, options or warrants
to subscribe for or purchase convertible or exchangeable or exercisable
securities, is the total amount received or receivable by the Company in
consideration for the sale and issuance of such rights, options or
warrants, plus the minimum aggregate amount of additional consideration
other than the surrender of such convertible or exchangeable securities,
payable upon the exercise, conversion or exchange of such rights, options
or warrants and upon the conversion or exchange or exercise of the
convertible or exchangeable or exercisable securities; provided that in
each case the proceeds received or receivable by the Company shall be
deemed to be the gross cash proceeds without deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or
purchase thereof by underwriters or dealers or other performing similar
services or any expenses incurred in connection therewith,
and
N = the "Number of Shares," which (i) in the case of Common
Stock is the number of shares issued; (ii) in the case of rights, options
or warrants to subscribe for or purchase shares of Common Stock or of
securities convertible into or exchangeable or exercisable for shares of
Common Stock, is the maximum number of shares of Common Stock initially
issuable upon exercise, conversion or exchange thereof; and (iii) in the
case of rights, options or warrants to subscribe for or purchase
convertible or exchangeable or exercisable securities, is the maximum
number of shares of Common Stock initially issuable upon conversion,
exchange or exercise of the convertible, exchangeable or exercisable
securities issuable upon the exercise of such rights, options or warrants.
If the Company shall issue shares of Common Stock or rights,
options, warrants or convertible or exchangeable or exercisable securities for a
consideration consisting, in whole or in part, of property other than cash, the
amount of such consideration shall be determined in good faith by the Board of
Directors of the Company whose determination shall be conclusive and binding
upon the Holder(s) of this Warrant.
(v) No adjustment in the number of Warrant Shares
purchasable hereunder shall be required unless such adjustment would result in
an increase or decrease of at least one percent (1%) of the Exercise Price;
provided that any adjustments which by reason of this paragraph (e) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations shall be made to the nearest cent or to
the nearest one-thousandth of a share, as the case may be.
(vi) No adjustment in the number of Warrant Shares purchasable upon
the exercise of this Warrant need be made under paragraph (iii) or (iv) if the
Company issues or distributes to the holder of this Warrant the shares, rights,
options, warrants or convertible or exchangeable securities, or evidences of
indebtedness or assets referred to in those paragraphs which the holder of this
Warrant would have been entitled to receive had this Warrant been exercised
prior to the happening of such event or the record date with respect thereto. In
no
<PAGE>
event shall the Company be required or obligated to make any such distribution
otherwise than in its sole discretion. No adjustment in the number of Warrant
shares purchasable upon the exercise of this Warrant need be made for sales of
Common Stock pursuant to a Company plan for reinvestment of dividends or
interest. No adjustment need be made for a change in the par value of the Common
Stock.
(vii) In the event that at any time, as a result of an adjustment
made pursuant to paragraph (i) above, the holder of this Warrant shall become
entitled to purchase any securities of the Company other than shares of Common
Stock, thereafter the number of such other shares so purchasable upon exercise
of this Warrant and the Exercise Price of such shares shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant Shares contained in
paragraphs (i) through (iii), inclusive, above.
(viii) If any capital reorganization or reclassification of the
capital stock of the Company, or any consolidation or merger of the Company with
or into another corporation or other entity, or the sale of all or substantially
all of the Company's assets to another corporation or other entity shall be
effected in such a way that holders of shares of Common Stock shall be entitled
to receive stock, securities, other evidence of equity ownership or assets with
respect to or in exchange for shares of Common Stock, then, as a condition of
such reorganization, reclassification, consolidation, merger or sale (except as
otherwise provided below in this Section) lawful and adequate provisions shall
be made whereby the Holder shall thereafter have the right to receive upon the
exercise hereof upon the basis and upon the terms and conditions specified
herein, such shares of stock, securities, other evidence of equity ownership or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of
Common Stock immediately theretofore purchasable and receivable upon the
exercise of this Warrant under this Section had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in any such
case appropriate provisions shall be made with respect to the rights and
interests of the Holder to the end that the provisions hereof (including,
without limitation, provisions for adjustments of the Exercise Price and of the
number of shares of Common Stock receivable upon the exercise of this Warrant)
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities, other evidence of equity ownership or assets thereafter
deliverable upon the exercise hereof including an immediate adjustment, by
reason of such consolidation or merger, of the Exercise Price to the value for
the Common Stock reflected, by the terms of such consolidation or merger if the
value so reflected is less than the Exercise Price in effect immediately prior
to such consolidation or merger. Subject to the terms of this Warrant, in the
event of a merger or consolidation of the Company with or into another
corporation or other entity as a result of which the number of shares of common
stock of the surviving corporation or other entity issuable to investors of
Common Stock, is greater or lesser than the number of shares of Common Stock
outstanding immediately prior to such merger or consolidation, then the Exercise
Price in effect immediately prior to such merger or consolidation shall be
adjusted in the same manner as though there were a subdivision or combination of
the outstanding shares of Common Stock. The Company shall not effect any such
consolidation, merger or sale, unless, prior to the consummation thereof, the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall
<PAGE>
assume by written instrument executed and mailed or delivered to the Holder, the
obligation to deliver to the Holder such shares of stock, securities, other
evidence of equity ownership or assets as, in accordance with the foregoing
provisions, the Holder may be entitled to receive or otherwise acquire. If a
purchase, tender or exchange offer is made to and accepted by the holders of
more than fifty (50%) percent of the outstanding shares of Common Stock, the
Company shall not effect any consolidation, merger or sale with the person
having made such offer or with any affiliate of such person, unless prior to the
consummation of such consolidation, merger or sale the Holder shall have been
given a reasonable opportunity to then elect to receive upon the exercise of
this Warrant the amount of stock, securities, other evidence of equity ownership
or assets then issuable with respect to the number of shares of Common Stock in
accordance with such offer.
(ix) In case the Company shall, at any time prior to exercise of
this Warrant, consolidate or merge with any other corporation or other entity
(where the Company is not the surviving entity) or transfer all or substantially
all of its assets to any other corporation or other entity, then the Company
shall, as a condition precedent to such transaction, cause effective provision
to be made so that the Holder upon the exercise of this Warrant after the
effective date of such transaction shall be entitled to receive the kind and,
amount of shares, evidences of indebtedness and/or other securities or property
receivable on such transaction by the Holder of the number of shares of Common
Stock as to which this Warrant was exercisable immediately prior to such
transaction (without giving effect to any restriction upon such exercise); and,
in any such case, appropriate provision shall be made with respect to the rights
and interest of the Holder to the end that the provisions of this Warrant shall
thereafter be applicable (as nearly as may be practicable) with respect to any
shares, evidences of indebtedness or other securities or assets thereafter
deliverable upon exercise of this Warrant. Upon the occurrence of any event
described in this Subsection (v), the Holder shall have the right to (i)
exercise this Warrant immediately prior to such event at an Exercise Price equal
to lesser of (1) the then Exercise Price or (2) the price per share of Common
Stock paid in such event, or (ii) retain ownership of this Warrant, in which
event, appropriate provisions shall be made so that the Warrant shall be
exercisable at the Holder's option into shares of stock, securities or other
equity ownership of the surviving or acquiring entity.
12. Notice of Adjustment. Whenever the number of Warrant Shares or number
or kind of securities or other property purchasable upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company shall
promptly mail by registered or certified mail, return receipt requested, to the
Holder a certificate signed by its President or Vice President and by its
Treasurer, or Secretary, setting forth, in reasonable detail, the event
requiring the adjustment, the computation by which such adjustment was made, the
method by which such adjustment was calculated (including a description of the
basis on which the Board of Directors of the Company made any determination
hereunder), and the Exercise Price after giving effect to such adjustment, and
shall cause copies of such certificates to be mailed (by first-class mail,
postage prepaid) to the Holder. The Company shall make such certificate and mail
it to the Holder immediately after each adjustment.
13. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number
<PAGE>
of shares to provide for the issuance of Common Stock upon the exercise of any
purchase rights under this Warrant. The Company further covenants that its
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of the Company's Common Stock upon the
exercise of the purchase rights under this Warrant. The Company will take all
such action as may be necessary to assure that such shares of Common Stock may
be issued as provided herein without violation of any applicable law or
regulation, or of any requirements of the domestic securities exchange or market
upon which the Common Stock may be listed.
14. 4.99% Limitation. The number of shares of Common Stock which may be
acquired by the Holder pursuant to the terms herein shall not exceed the number
of such shares which, when aggregated with all other shares of Common Stock then
owned by the Holder, would result in the Holder owning more than 4.99% of the
then issued and outstanding Common Stock at any one time. The preceding shall
not interfere with the Holder's right to exercise this Warrant over time which
in the aggregate totals more than 4.99% of the then outstanding shares of Common
Stock so long as the Holder does not own more than 4.99% of the then outstanding
Common Stock at any given time.
15. Miscellaneous.
(a) Issue Date; Choice of Law; Venue; Jurisdiction. The provisions
of this Warrant shall be construed and shall be given effect in all respects as
if it had been issued and delivered by the Company on the date hereof. This
Warrant shall be binding upon any successors or assigns of the Company. This
Warrant will be construed and enforced in accordance with and governed
exclusively by the laws of the State of New York, except for matters arising
under the Securities Act, without reference to principles of conflicts of law.
The parties consent to the exclusive jurisdiction of the U.S. District Court
sitting in the Southern District of the State of New York in connection with any
dispute arising under this Warrant and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions. Each
party hereby agrees that if the other party to this Warrant obtains a judgment
against it in such a proceeding, the party which obtained such judgment may
enforce same by summary judgment in the courts of any country having
jurisdiction over the party against whom such judgment was obtained, and each
party hereby waives any defenses available to it under local law and agrees to
the enforcement of such a judgment. Each party to this Warrant irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law. Each party waives
its right to a trial by jury.
(b) Restrictions. The Holder acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered (or if no
exemption from registration exists), will have restrictions upon resale imposed
by state and federal securities laws. Each certificate representing the Warrant
Shares issued to the Holder upon exercise (if not registered or if no exemption
from registration exists) will bear the following legend:
<PAGE>
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SECURITIES UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT THERE IS AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT."
(c) Modification and Waiver. This Warrant and any provisions hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a Business Day between the hours of 9:00 a.m. and 5:00 p.m. where
such notice is to be received), or the first Business Day following such
delivery (if delivered other than on a Business Day between the hours of 9:00
a.m. and 5:00 p.m. where such notice is to be received), (b) on the second
Business Day following the date of mailing by reputable courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur, or (c) five calendar days after sent by regular
mail.
16. The Company shall have the right to redeem the purchase rights
granted under this Warrant then existing, in whole or in part, in cash at the
Redemption Price (as defined below) at any time thereafter by providing written
notice (the "Redemption Notice") to the Holder. The Company shall wire transfer
the appropriate amount of funds to the Holder to complete the redemption, which
shall be (if the Redemption Notice is received via facsimile by the Holder prior
to the first anniversary of the date of this Warrant) no later than the tenth
Business Day after the Holder has received the Redemption Notice via facsimile
(the "Redemption Date") and if the Redemption Notice is received via facsimile
by the Holder after the first anniversary of the date of this Warrant, than no
later than the third Business Day after the Holder has received the Redemption
Notice via facsimile (also referred to as a Redemption Date). Upon facsimile
receipt of the Redemption Notice, the Holder's right to exercise this Warrant
shall terminate and be canceled immediately; provided, however, that the right
to exercise this Warrant shall immediately be reinstated if the Company fails to
comply with the redemption provisions hereof. In the event the Company fails to
wire the appropriate amount of funds to the Holders as set forth in the
Redemption Notice on or before the Redemption Date, or shall otherwise fail to
<PAGE>
comply with the redemption provisions set forth herein on three separate
occasions, then the Company shall have waived its right to redeem any portion of
the purchase rights under this Warrant at any time thereafter.
The Redemption Notice shall set forth (i) the Redemption Date, (ii)
the Redemption Price, as defined below, and (iii) the number of purchase rights
of Warrant Shares being redeemed. The Redemption Notice shall be delivered by
facsimile to the Holder at its address as the same shall appear on the books of
the Company. The Redemption Price shall be equal to $0.25 per purchase right of
a Warrant Share being redeemed.
At the close of business on the Redemption Date, subject to the
Holder's receipt of the applicable Redemption Price, the portion of this Warrant
being redeemed shall be automatically canceled and converted into a right to
receive the Redemption Price, and all rights of this Warrant, including the
right to exercise shall cease without further action. Immediately following the
Redemption Date (assuming full compliance by the Company with the redemption
provisions set forth herein), the Holder shall surrender its original Warrant at
the office of the Company, and the Company shall issue to the Holder a new
Warrant certificate for that number of Warrant Shares purchasable hereunder, if
any.
The Redemption Price shall be adjusted proportionally upon any adjustment
of the Exercise Price as set forth above.
The Company shall not be entitled to send any Redemption Notice and begin
the redemption procedure hereunder unless it has:
(i) the full amount of the Redemption Price in cash, available
in a demand or other immediately available account in a bank or similar
financial institution;
(ii) immediately available credit facilities, in the full
amount of the Redemption Price with a bank or similar financial
institution; or
(iii) a combination of the items set forth in (a) and (b)
above, aggregating the full amount of the Redemption Price.
17. The aggregate number of Warrant Share which may be acquired by the
Holder upon conversion of all of Notes and upon exercise of all of the Warrants,
shall not equal or exceed nineteen and nine tenths (19.9%) percent of the
aggregate number of issued and outstanding shares of Common Stock, Class B
Common Stock or other Securities of the Company having voting power as at the
Closing Date (the "Maximum Underlying Shares"). Until such time as the Notes and
Warrants issued under this Agreement shall have been either converted or
redeemed pursuant, and the Warrants shall have either been exercised or shall
have expired, the Investor(s) may not convert his or its Note and/or exercise
his or its Warrant into an aggregate number of Underlying Shares and Warrant
Shares which shall exceed the product of multiplying (a) a fraction, the
numerator of which shall be the original principal amount of this
<PAGE>
Note and the denominator of which shall be $13,540,626, by (b) the aggregate
number of Maximum Underlying Shares. In lieu of such issuance(s) the Company
shall pay to the Investor(s) the cash value of such shares of Common Stock due
to the Holder(s) within five Business Days of when such issuance is due based
upon the Bid Price of the Common Stock on the Trading Date of when due (or such
next Trading Day if such day is not a Trading Day).
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: September 30, 1999
Interiors, Inc.
By: /s/ Max Munn
------------
Name: Max Munn
Title: President
<PAGE>
NOTICE OF EXERCISE
To: Interiors, Inc.
(1) The undersigned hereby elects to purchase ________ shares of Common Stock of
Interiors, Inc. pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price in full, together with all applicable
transfer taxes, if any.
(2) The undersigned chooses to utilize the cashless exercise feature of this
Warrant and pursuant to the terms of the Warrant is entitled to receive _____
Warrant Shares upon the cashless exercise of _____ Warrant Shares.
(3) Upon exercise pursuant to this Notice of Exercise, the undersigned will not
own 4.99% or more of the then issued and outstanding shares of Common Stock of
the Company.
(4) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as are
specified below:
_______________________________
(Name)
_______________________________
(Address)
_______________________________
Dated:
_______________________________
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute this form and
supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_____________________________________________________ whose address is
_________________________________________________________________________.
__________________________________________________________________________
Dated: ______________,
Holder's Signature: _____________________________
Holder's Address: _______________________________
Signature Guaranteed: ______________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of the 30th day of
September 1999, between Limeridge LLC (referred to as the "Holder") and
Interiors, Inc. a corporation incorporated under the laws of the State of
Delaware (the "Company").
WHEREAS, pursuant to the Secured Convertible Note Purchase Agreement
dated as of September 30, 1999 (the "Purchase Agreement") and the Exchange
Agreement (annexed as an Exhibit to the Purchase Agreement), the Holder will be
purchasing Notes and Warrants (hereinafter collectively referred to as the
"Securities" of the Company) of the Company at the Purchase Prices as set forth
in the Purchase Agreement; All capitalized terms not hereinafter defined shall
have that meaning assigned to them in the Purchase Agreement; and
WHEREAS, the Company desires to grant to the Holder the registration
rights set forth herein with respect to the Securities set forth in the Purchase
Agreement.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
"Registrable Security" shall mean the Additional Shares, Warrant Shares, and
Underlying Shares (for that portion of the Note that remains outstanding when
the Company's obligation to file a Registration Statement arises as set forth in
Section 3 below): (i) in respect of which a registration statement (covering
these securities) has not been declared effective by the SEC, (ii) which have
not been sold under circumstances under which all of the applicable conditions
of Rule 144 (or any similar provision then in force) under the Securities Act
("Rule 144") are met, (iii) which have not been otherwise transferred to holders
who may trade such shares without restriction under the Securities Act, or (iv)
the sales of which, in the opinion of counsel to the Company, are subject to any
time, volume or manner limitations pursuant to Rule 144(k) (or any similar
provision then in effect) under the Securities Act. The term "Registrable
Securities" means any and/or all of the securities falling within the foregoing
definition of a Registrable Security. In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be made in the
definition of Registrable Security as is appropriate in order to prevent any
dilution or enlargement of the rights granted pursuant to this Section.
Section 2. Restrictions on Transfer. The Holder acknowledges and
understands that prior to the registration of the Registrable Securities as
provided herein and prior to an exemption to registration being available, the
Registrable Securities are "restricted securities" as defined in Rule 144
promulgated under the Securities Act. The Holder understands that no disposition
or transfer of the Registrable Securities may be made by the Holder in the
absence of (i) an opinion of counsel to the Company (which shall not
unreasonably be withheld and/or delayed) that such transfer may be made without
registration under the Securities Act and state law, or (ii) such registration.
<PAGE>
Section 3. Registration Rights.
(a) The Company agrees, that in the event that all of the
principal amount of the Notes has not been redeemed (as per the terms of the
Notes) on or before May 30, 2000, it will prepare and file with the Securities
and Exchange Commission ("SEC"), on or before June 30, 2000, a registration
statement (on Form S-3) under the Securities Act (the "Registration Statement"),
at the sole expense of the Company (except as provided in Section 3(c) hereof),
in respect of the Holder for resales under the Securities Act of the Registrable
Securities. The Company shall use its best efforts to cause the Registration
Statement to become effective on or before September 30, 2000. The number of
shares of Common Stock designated in the Registration Statement to be registered
shall be one hundred fifty (150%) percent of the number of shares of Common
Stock that would be required if the then outstanding principal amount of the
Notes and Warrants were converted and exercised on the Trading Day immediately
preceding the date the Registration Statement was filed.
(b) The Company will maintain the effectiveness of any
Registration Statement or post-effective amendment filed under this Section 3
hereof under the Securities Act until the earlier of (i) the date that all of
the Registrable Securities have been sold pursuant to a Registration Statement,
(ii) the date the holders thereof receive an opinion of counsel that all of the
Registrable Securities may be sold (without volume limitation) under the
provisions of Rule 144 or (iii) five and one half years after the filing of such
Registration Statement.
(c) All fees, disbursements, out-of-pocket expenses and costs
incurred by the Company in connection with the preparation and filing of the
Registration Statement and in complying with applicable securities and blue sky
laws (including, without limitation, all attorneys' fees) shall be borne by the
Company. The Holder shall bear the cost, pro rata, of underwriting discounts and
commissions, if any, applicable to the Registrable Securities being registered
and the fees and expenses of their counsel. The Company shall qualify any of the
Registrable Securities for sale in such states as the Holder reasonably
designates and shall furnish indemnification in the manner provided in Section 8
hereof. However, the Company shall not be required to qualify in any state that
will require an escrow or other restriction relating to the Company and/or the
sellers. The Company at its expense will supply the Holder with copies of the
Registration Statement and the prospectus or offering circular included therein
and other related documents in such quantities as may be reasonably requested by
the Holder.
(e) Unless otherwise agreed to in writing by the Holder, the
Company shall only be permitted to include the Registrable Securities in the
Registration Statement. The Company represents that as of the date hereof it is
not obligated to file a registration statement on behalf of any other Person
and/or entity not a party to this Agreement.
(f) In the event the Registration Statement to be filed by the
Company pursuant to Section 3(a) above has not been filed by the Company in a
timely manner as provided above, or declared effective by the SEC on or before
the September 30, 2000, then the Company will pay to the Holder, as liquidated
damages for such failure and not as a penalty, two (2%) percent of the principal
amount of the then outstanding Notes for each 30 calendar day period thereafter
(pro rated on a daily basis), until the Registration Statement has been filed
<PAGE>
and/or declared effective. Notwithstanding the foregoing the Company shall not
be obligated for liquidated damages if not filed in a timely manner if the
Registration Statement has been declared effective on or before September 30,
2000. Such payment of the liquidated damages shall be made to the Holder in
cash, immediately upon written demand, provided, however, that the payment of
such liquidated damages shall not relieve the Company from its obligations to
register the Securities pursuant to this Section and registration shall not
relieve the Company from any obligation to pay liquidated damages. The Holder's
rights to liquidated damages as set forth herein shall not interfere with the
Holder's right to call the Notes due and payable immediately as per the terms of
the Note for the failure of the Company to timely file the Registration
Statement, or the failure of the Registration Statement to be declared effective
by the SEC in a timely manner as provided herein.
(g) If the Company does not remit the damages to the Holder as
set forth above, the Company will pay the Holder's reasonable costs of
collection, including reasonable attorney's fees, in addition to the liquidated
damages. The registration of the Securities pursuant to this provision shall not
affect or limit the Holders other rights or remedies as set forth in this
Agreement.
(h) The Company agrees that within five calendar days after
being notified by the SEC that the Registration Statement has been cleared to go
effective, the Company it will declare Registration Statement effective. The
Company also agrees that it shall respond in writing to any questions and/or
comments from the SEC that relate to the Registration Statement within ten
calendar days of receipt of such question or comment.
(i) In the event the number of shares of Common Stock included
in the Registration Statement shall be insufficient to cover the number of
Registrable Securities due to the Holder under the terms of the Purchase
Agreement and/or the Notes and Warrants, the Company agrees that it shall file
either a new Registration Statement including such additional shares or amend
the then existing Registration Statement. The Company agrees that in such event
it will file with the SEC either an amendment to the then existing Registration
Statement or a new Registration Statement within 30 calendar days of when
required hereunder, and use its best efforts to cause either the amendment or
such Registration Statement to become effective within 90 calendar days from
when required to file such Registration Statement pursuant to the terms herein.
If such amendment or new Registration Statement is not filed and/or declared
effective in a timely manner as set forth herein, the Company shall be subject
to liquidated damages as pursuant to the provisions of Section 3(e).
Section 4. Cooperation with Company. The Holder will cooperate with
the Company in all respects in connection with this Agreement, including timely
supplying all information reasonably requested by the Company and executing and
returning all documents reasonably requested in connection with the registration
and sale of the Registrable Securities.
Section 5. Registration Procedures. If and whenever the Company is
required by any of the provisions of this Agreement to effect the registration
of any of the Registrable Securities under the Securities Act, the Company shall
(except as otherwise provided in this Agreement), as expeditiously as possible:
<PAGE>
(a) prepare and file with the SEC such amendments and
supplements to the Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such registration statement
whenever the Holder of such securities shall desire to sell or otherwise dispose
of the same (including prospectus supplements with respect to the sales of
securities from time to time in connection with a registration statement
pursuant to Rule 415 promulgated under the Securities Act);
(b) furnish to the Holder copies of the Registration Statement
(and any amendments thereto), a summary prospectus or other prospectus,
including a preliminary prospectus or any amendment or supplement to any
prospectus, in conformity with the requirements of the Securities Act, and shall
also furnish such other documents as the Holder may reasonably request in order
to facilitate the public sale or other disposition of the Securities owned by
the Holder;
(c) register and qualify the Registrable securities covered by
the Registration Statement under such other securities or blue sky laws of such
jurisdictions as the Holder shall reasonably request, and do any and all other
acts and things which may be necessary or advisable to enable the Holder to
consummate the public sale or other disposition in such jurisdiction of the
securities owned by the Holder, except that the Company shall not for any such
purpose be required to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified, or to file therein any general
consent to service of process, or to qualify any of the securities for sale in
any state which will require an escrow or other restriction relating to the
Company and/or sellers;
(d) list such securities on the Nasdaq Small Cap Market or
other national securities exchange on which any securities of the Company are
then listed, if the listing of such securities is then permitted under the rules
of such exchange or market;
(e) notify the Holder of Registrable Securities covered by the
Registration Statement, at any time when a prospectus relating thereto covered
by the Registration Statement is required to be delivered under the Securities
Act, of the happening of any event of which the executive officers of the
Company have knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
Section 6. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Holder, and each officer, director or person, if any, who controls the Holder
within the meaning of the Securities Act ("Distributing Holder") against any
losses, claims, damages or liabilities, joint or several (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all reasonable attorneys' fees), to which the Distributing
Holder
<PAGE>
may become subject, under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, or any related
preliminary prospectus, final prospectus, offering circular, notification or
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that the Company (i) will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, preliminary prospectus, final prospectus,
offering circular, notification or amendment or supplement thereto in reliance
upon, and in conformity with, written information furnished to the Company by
the Distributing Holder, specifically for use in the preparation thereof, or
(ii) cannot pay any amounts paid in settlement of any loss, claim, damage or
liability if such settlement is effected without the consent of the Company,
which consent shall not be unreasonably withheld. This Section 6(a) shall not
inure to the benefit of any Distributing Holder with respect to any person
asserting such loss, claim, damage or liability who purchased the Registrable
Securities which are the subject thereof if the Distributing Holder failed to
send or give (in violation of the Securities Act or the rules and regulations
promulgated thereunder) a copy of the prospectus contained in such Registration
Statement to such person at or prior to the written confirmation of such person
of the sale of such Registrable Securities, where the Distributing Holder was
obligated to do so under the Securities Act or the rules and regulations
promulgated thereunder. This indemnity provision will be in addition to any
liability that the Company may otherwise have.
(b) Each Distributing Holder agrees that it will indemnify and
hold harmless the Company, each officer, director, or person, if any, who
controls the Company within the meaning of the Securities Act (each a "Company
Indemnitee"), and each other Distributing Holder, against any losses, claims,
damages or liabilities, joint or several (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all reasonable attorneys' fees) to which any Company
Indemnitee or other Distributing Holder may become subject under the Securities
Act or otherwise, insofar as such losses claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, or any related preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto, or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but in each case only to the extent that such untrue statement
or alleged untrue statement or omission or alleged omission was made in the
Registration Statement, preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto in reliance upon, and
in conformity with, written information furnished to the Company by such
Distributing Holder, specifically for use in the preparation thereof. This
indemnity provision will be in addition to any liability that the Distributing
Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect
<PAGE>
thereof is to be made against the indemnifying party under this Section 6,
notify the indemnifying party of the commencement thereof; but the omission so
to notify the indemnifying party will not relieve the indemnifying party from
any liability which it may have to any indemnified party otherwise than as to
the particular item as to which indemnification is then being sought solely
pursuant to this Section 6. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, assume the defense thereof, subject to the provisions herein stated
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 6 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action to its final conclusion. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party; provided that if the indemnified party is
the Distributing Holder, the fees and expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including any impleaded parties) include both the
Distributing Holder and the indemnifying party and the Distributing Holder shall
have been advised by such counsel that there may be one or more legal defenses
available to the indemnifying party different from or in conflict with any legal
defenses which may be available to the Distributing Holder (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the Distributing Holder, it being understood, however, that the
indemnifying party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable only for the reasonable
fees and expenses of one separate firm of attorneys for the Distributing Holder,
which firm shall be designated in writing by the Distributing Holder). No
settlement of any action against an indemnified party shall be made without the
prior written consent of the indemnified party, which consent shall not be
unreasonably withheld.
Section 7. Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 6 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 6 hereof provide
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any indemnified party, then the Company and the
applicable Distributing Holder shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees), in either such case (after
contribution from others) on the basis of relative fault as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or
<PAGE>
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company on the
one hand or the applicable Distributing Holder on the other hand, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Distributing
Holder agree that it would not be just and equitable if contribution pursuant to
this Section 7 were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in this Section 7. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this Section 7 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
Section 8. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a Business Day between the hours of 9:00 a.m. and 5:00 p.m. where
such notice is to be received), or the first Business Day following such
delivery (if delivered other than on a Business Day between the hours of 9:00
a.m. and 5:00 p.m. where such notice is to be received), (b) on the second
Business Day following the date of mailing by reputable courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur, or (c) five calendar days after sent by regular
mail. The addresses for such communications shall be:
If to the Company:
Interiors, Inc.
320 Washington Street
Mount Vernon, New York 10553
Telephone: (914) 665-5400
Facsimile: (914) 665-5469
Attention: President
<PAGE>
If to the Holder:
Limeridge LLC
c/o Citco Trustees Cayman Limited
Corporate Centre
PO Box 31106SMB
Grand Cayman, Cayman Islands
British West Indies
Attention: Sabrina Hew
Facsimile: 345 945-7566
Telephone: 345 949-3977
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 8 by giving at least ten calendar days'
prior written notice of such changed address or facsimile number to the other
party hereto.
Section 9. Assignment. This Agreement is binding upon and inures to
the benefit of the parties hereto and their respective heirs, successors and
permitted assigns. In the event of a transfer of the rights granted under this
Agreement, the Holder agrees that the Company may require that the transferee
comply with reasonable conditions as determined in the discretion of the
Company.
Section 10. Counterparts; Facsimile; Amendments. This Agreement may
be executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 11. Termination of Registration Rights. This Agreement shall
terminate as to the Holder (and permitted transferees or assignees) upon the
occurrence of any of the following:
(a) all Holder's Securities subject to this Agreement have been
registered;
(b) all of such Holder's Securities subject to this Agreement may be
sold without such registration pursuant to Rule 144 promulgated by the SEC
pursuant to the Securities Act; and
(c) all of such Holder's Securities subject to this Agreement can be
sold pursuant to Rule 144(k) without limitation.
Section 12. Headings. The headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
<PAGE>
Section 13. Governing Law: Venue; Jurisdiction. This Agreement will
be exclusively construed and enforced in accordance with and governed by the
laws of the State of New York, except for matters arising under the Securities
Act, without reference to principles of conflicts of law. Each of the parties
consents to the exclusive jurisdiction of the U.S. District Court sitting in the
Southern District of the State of New York in connection with any dispute
arising under this Agreement and hereby waives, to the maximum extent permitted
by law, any objection, including any objection based on forum non conveniens, to
the bringing of any such proceeding in such jurisdictions. Each party hereby
agrees that if another party to this Agreement obtains a judgment against it in
such a proceeding, the party which obtained such judgment may enforce same by
summary judgment in the courts of any country having jurisdiction over the party
against whom such judgment was obtained, and each party hereby waives any
defenses available to it under local law and agrees to the enforcement of such a
judgment. Each party to this Agreement irrevocably consents to the service of
process in any such proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to such party at its address set forth herein.
Nothing herein shall affect the right of any party to serve process in any other
manner permitted by law.
Section 14. Severability. If any provision of this Agreement shall
for any reason be held invalid or unenforceable, such invalidity or
unenforceablity shall not affect any other provision hereof and this Agreement
shall be construed as if such invalid or unenforceable provision had never been
contained herein. Terms not otherwise defined herein shall be defined in
accordance with the Agreement.
Section 15. Capitalized Terms. All capitalized terms not otherwise
defined herein shall have the meaning assigned to them in the Purchase
Agreement.
Section 16. Entire Agreement. This Agreement, together with all
documents referenced herein, embody the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and
supersedes all prior oral or written agreements and understandings relating to
the subject matter hereof. No statement, representation, warranty, covenant or
agreement of any kind not expressly set forth in this Agreement shall affect, or
be used to interpret, change or restrict, the express terms and provisions of
this Agreement.
[Remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed, on the day and year first above written.
Interiors, Inc.
By: /s/ Max Munn
------------
Name: Max Munn
Title: President
INVESTOR:
LIMERIDGE LLC
By: /s/ ineligible
----------------
Name: Navigator Management Ltd.
Title: Director
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made as of September 30,
1999, by and between Interiors, Inc., a Delaware corporation ("Debtor"), Petals,
Inc., a Delaware corporation (the "Subsidiary") and Limeridge LLC (hereinafter
referred to as the "Secured Party").
1. Definitions.
(a) Certain Defined Terms. The following terms, as used herein, have the
meanings set forth below:
Collateral - has the meaning assigned to that term in Section 2.
Event of Default - has the meaning assigned to that term in Section 9.
Note - means that certain Secured Convertible Notes of even date herewith,
in the aggregate original principal amount of $13,540,626, made and executed by
Debtor and issued to Secured Party, and all amendments and supplements thereto,
restatements thereof and renewals, extensions, restructuring and refinancings
thereof.
Person - means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts or other organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof.
Proceeds - means all proceeds of, and all other profits, rentals or
receipts, in whatever form, arising from the collection, sale, lease, exchange,
assignment, licensing or other disposition of, or realization upon, any
Collateral including, without limitation, all claims against third parties for
loss of, damage to or destruction of, or for proceeds payable under, or unearned
premiums with respect to, policies of insurance with respect to any Collateral,
and any condemnation or requisition payments with respect to any Collateral, in
each case whether now existing or hereafter arising.
Purchase Agreement - means that certain Secured Convertible Note Purchase
Agreement (including all Exhibits annexed thereto) of even date herewith, by and
between Debtor and Secured Party.
Secured Obligations - has the meaning assigned to that term in Section 3.
Security Interests - means the security interests granted pursuant to
Section 2, as well as all other security interests created or assigned as
additional security for the Secured Obligations pursuant to the provisions of
this Agreement.
Shares - means all of the outstanding securities of Petals, Inc.
<PAGE>
UCC - means the Uniform Commercial Code as in effect on the date hereof in
the State of New York, provided that if by reason of mandatory provisions of
law, the perfection or the effect of perfection or non-perfection of the
Security Interest in any Collateral or the availability of any remedy hereunder
is governed by the Uniform Commercial Code as in effect on or after the date
hereof in any other jurisdiction, "UCC" means the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the provisions hereof relating
to such perfection or effect of perfection or non-perfection or availability of
such remedy.
(b) Other Definition Provisions. References to "Sections", "subsections",
"Exhibits" and "Schedules" shall be to Sections, subsections, Exhibits and
Schedules, respectively, of this Agreement unless otherwise specifically
provided. Any of the terms defined in Section 1(a) may, unless the context
otherwise requires, be used in the singular or the plural depending on the
reference. All references to statutes and related regulations shall include
(unless otherwise specifically provided herein) any amendments of same and any
successor statutes and regulations.
2. Grant of Security Interest
In order to secure the payment and performance of the Secured Obligations
in accordance with the terms thereof, Debtor and Subsidiary hereby grant to
Secured Party a continuing security interest in and to all right, title and
interest of Debtor and/or Subsidiary in the Shares (also referred to as the
"Collateral").
3. Security for Obligations
This Agreement secures the payment and performance of the Purchase
Agreement and the Note, and all renewals, extensions, restructuring and
refinancings thereof (the "Secured Obligations").
4. Representations and Warranties. Debtor and Subsidiary represent and
warrant as follows:
(a) Binding Obligation. This Agreement has duly executed and
delivered by the Subsidiary and Debtor, which is a legal, valid and binding
obligation of Debtor and Subsidiary, enforceable against Debtor and Subsidiary
in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium, or similar laws or equitable
principles relating to or limiting creditor's rights generally. This Agreement
is not in violation of any other agreements, instruments, order or judgment by
which Debtor and/or Subsidiary is bound or subject. The execution, delivery and
performance of this Agreement by Debtor and Subsidiary do not require the
consent or approval of any other person, entity or governmental agency.
(b) Ownership of Shares. Debtor owns the Shares free and clear of
any lien, security interest or encumbrance. No effective financing statement or
other form of lien notice covering all or any part of the Collateral is on file
in any recording office. Debtor is, and as long as this Agreement shall be in
effect pursuant to its terms, shall be the sole, record, legal and beneficial
owner of, and has good and marketable title to, the Shares, subject to no lien,
pledge
<PAGE>
or encumbrance, except the lien on the Shares created by this Agreement.
(c) Office Locations; Debtor Names.
(i) As of the date hereof, the chief place of business, the
chief executive office and the office where Debtor and Subsidiary keeps
its books and records is located at 320 Washington Street, Mount Vernon,
New York 10553. Debtor and/or Subsidiary have not maintained any other
address at any time during the five years preceding the date hereof.
(ii) Debtor and Subsidiary do not do business nor, as of the
date hereof, have they done business during the past five years under any
corporate name, trade name or fictitious business name except for Debtor
and Subsidiary's corporate name set forth above. Debtor and Subsidiary
will notify Secured Party promptly in writing at least thirty (30)
calendar days prior to (a) any change in Debtor and/or Subsidiary's name
and (b) Debtor and/or Subsidiary's commencing the use of any trade name,
assumed name or fictitious name.
(d) Perfection. This Agreement, together with the UCC filings
referenced herein, created to secure the Secured Obligations a valid, perfected
and priority security interest in the Collateral, and all filings and other
actions necessary or desirable to perfect and protect such security interest
have been duly taken.
(e) Governmental Authorizations; Consents. No authorization,
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body or consent of any other Person is required either
(i) for the grant by Debtor and Subsidiary of the Security Interests granted
hereby or for the execution, delivery or performance of this Agreement by Debtor
and Subsidiary or (ii) for the perfection of or the exercise by Secured Party of
its rights and remedies hereunder (except as may have been taken by or at the
direction of Debtor, Subsidiary or Secured Party) other than the filing of
financing statements in connection with the perfection of the Security
Interests.
(f) Value of Collateral. The value of the Collateral as of the date
hereof is approximately $10,000,000.
(g) Accurate Information. All information heretofore, herein or
hereafter supplied to Secured Party by or on behalf of Debtor and Subsidiary
with respect to the Collateral is and will be accurate and complete in all
material respects.
(h) Deficiency. Debtor and Subsidiary will remain liable for any
deficiency in the event that the delivery of the Shares to the Secured Party is
insufficient to satisfy the Debtor's obligations under the Notes.
(i) Survival. From and after the date hereof and so long as this
Agreement shall be in effect pursuant to its terms, the Debtor and Subsidiary
agree that they shall not take any action that would cause the Debtor and/or
Subsidiary to be in breach or default of any of the Secured Obligations, that
all representations and warranties made by Debtor and Subsidiary shall
<PAGE>
survive this Agreement and that as of the date hereof, the Secured Party shall
be deemed to have a priority lien on the Shares for the purposes and in
accordance with the terms and provisions hereof, and the Debtor and Subsidiary
shall cooperate with the Secured Party and take all action requested by the
Secured Party to ensure the representations and warranties shall survive this
Agreement with respect thereto.
(j) Delivery. Upon the Shares being delivered to the Secured Party
as heretofore provided, they shall become fully the property of the Secured
Party. In addition, the Debtor and Subsidiary shall promptly take all necessary
action, at the direction of the Secured Party (at no cost to the Secured Party)
to transfer the Shares to the Secured Party or its nominee for sale
(k) Valid Issuances. The Subsidiary's performance of its obligations
under this Agreement will not (i) result in the creation or imposition by the
Debtor and Subsidiary of any liens, charges, claims or other encumbrances upon
the Shares, or any of the assets of the Subsidiary other than the security
interest granted under this Agreement, or (ii) entitle the holders of
outstanding capital shares of the Subsidiary to preemptive or other rights to
subscribe to or acquire any capital shares or other securities of the
Subsidiary.
(l) No Conflicts. The execution, delivery and performance of this
Agreement by the Subsidiary and the consummation by the Subsidiary of the
transactions contemplated hereby do not and will not (i) result in a violation
of its Articles of Incorporation or ByLaws or (ii) conflict with, or constitute
a material default (or an event that with notice or lapse of time or both would
become a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, patent, patent license,
indenture, instrument or any "lock-up" or similar provision of any underwriting
or similar agreement to which the Subsidiary is a party, or (iii) result in a
violation of any federal, state or local law, rule, regulation, order, judgment
or decree (including federal and state securities laws and regulations)
applicable to the Subsidiary or by which any property or asset of the Subsidiary
is bound or affected, nor is the Subsidiary otherwise in violation of, in
conflict with, or in default under, any of the foregoing except as would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect. The business of the Subsidiary is not being conducted in
violation of any law, ordinance or regulation of any governmental entity, except
for possible violations that either singly or in the aggregate would not
reasonably be expected to have a Material Adverse Effect.
(m) No Undisclosed Liabilities. The Subsidiary has no liabilities or
obligations, known or unknown, absolute or otherwise (individually or in the
aggregate), which have not been disclosed in writing to the Secured Party or
otherwise publicly announced, or as incurred in the ordinary course of the
Subsidiary's business since January 1, 1999, or which, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect.
(n) Litigation and Other Proceedings. There are no lawsuits or
proceedings pending or to the knowledge of the Debtor and/or Subsidiary
threatened, against the Subsidiary, nor has the Debtor and Subsidiary received
any written or oral notice of any such action, suit, proceeding or
investigation, which would reasonably be expected to have a Material Adverse
<PAGE>
Effect. No judgment, order, writ, injunction or decree or award has been issued
by or, so far as is known by the Debtor and Subsidiary, requested of any court,
arbitrator or governmental agency which would be reasonably expected to result
in a Material Adverse Effect.
(o) Employee Relations. The Subsidiary is not involved in any labor
dispute, nor, to the knowledge of the Debtor and Subsidiary, is any such dispute
threatened which could reasonably be expected to have a Material Adverse Effect.
None of the Subsidiary's employees is a member of a union and the Debtor and
Subsidiary believe that Subsidiary's relations with its employees are good.
(p) Insurance. The Subsidiary is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Debtor and Subsidiary believe to be prudent and customary in
the businesses in which the Subsidiary is engaged. The Debtor and Subsidiary
have no notice to believe that the Subsidiary will not be able to renew its
existing insurance coverage as and when such coverage expires, or obtain similar
coverage from similar insurers as may be necessary to continue its business at a
cost that would not have a Material Adverse Effect.
(q) Patents and Trademarks. The Subsidiary has, or has rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses, trade secrets and other
intellectual property rights which are necessary for use in connection with its
business or which the failure to so have would have a Material Adverse Effect
(collectively, the "Intellectual Property Rights"). To the best knowledge of the
Subsidiary, none of the Intellectual Property Rights is infringing, or will
infringe on any trademark, trade name, patent right, copyright, license, trade
secret or other similar right of others currently in existence rights of any
other Person, and the Subsidiary either owns or has duly licensed or otherwise
acquired all necessary rights with respect to the Intellectual Property Rights.
The Subsidiary has not received any notice from any third party of any claim of
infringement by the Subsidiary of any of the Intellectual Property Rights, and
has no reason to believe there is any basis for any such claim. To the best
knowledge of the Subsidiary, there is no existing infringement by another Person
on any of the Intellectual Property Rights.
(r) Permits; Compliance. Subsidiary is in possession of and
operating in compliance with all franchises, grants, authorizations, licenses,
permits, easements, variances, exemptions, consents, certificates, approvals and
orders necessary to own, lease and operate its properties and to carry on its
business as it is now being conducted (collectively, the "Subsidiary Permits")
all of which are valid and in full force and effect, and there is no action
pending or, to the knowledge of the Subsidiary, threatened regarding the
suspension or cancellation of any of the Subsidiary Permits except for such
Subsidiary Permits, the failure of which to possess, or the cancellation, or
suspension of which, would not, individually or in the aggregate, have a
Material Adverse Effect. To the Debtor and/or Subsidiary's knowledge, the
Subsidiary is in material conflict with, or in material default or material
violation of, any of the Subsidiary Permits. Since January 1, 1999 the
Subsidiary has not received any notification with respect to possible material
conflicts, material defaults or material violations of applicable laws.
(s) Taxes. All federal, state, city and other tax returns, reports
and declarations required to be filed by or on behalf of the Subsidiary have
been filed and such
<PAGE>
returns are complete and accurate and disclose all taxes (whether based upon
income, operations, purchases, sales, payroll, licenses, compensation, business,
capital, properties or assets or otherwise) required to be paid in the periods
covered thereby.
(t) No Bankruptcy. Debtor and Subsidiary are aware of no facts or
claims against it that would, and the Debtor and/or Subsidiary has no present
intention to, liquidate the assets of the Subsidiary and/or seek bankruptcy
protection either voluntarily or involuntarily.
(u) No Default. Subsidiary is not in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust or other material instrument
or agreement to which it is a party or by which it is or its property is bound
(v) Title to Assets. Subsidiary has good and marketable title to all
properties and material assets as owned by it, free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest other than
such as are not material to the business of Subsidiary.
(w) Organization of the Subsidiary. The Subsidiary is a corporation
duly incorporated and existing in good standing under the laws of the State of
Delaware and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. The Subsidiary is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary, other than those (individually or in the
aggregate) in which the failure so to qualify would not reasonably be expected
to have a Material Adverse Effect. The Subsidiary is not in violation of any
material terms of its Articles of Incorporation or Bylaws.
(x) Authority. (i) The Subsidiary has the requisite corporate power
and authority to enter into and perform its obligations under this Agreement,
(ii) the execution, issuance and delivery of this Agreement by the Subsidiary
and the consummation by it of the transactions contemplated hereby have been
duly authorized by all necessary corporate action and no further consent or
authorization of the Subsidiary, its shareholders, or its Board of Directors is
necessary, and (iii) this Agreement has been duly executed and delivered by the
Subsidiary and constitute valid and binding obligations of the Subsidiary
enforceable against the Subsidiary in accordance with their terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
Upon their issuance and delivery pursuant to this Agreement, the Shares will be
validly issued, fully paid and nonassessable, and will be free of any liens or
encumbrances other than those created hereunder or by the actions of the Secured
Party.
<PAGE>
5. Further Assurances; Covenants
(a) Other Documents and Actions. Debtor and Subsidiary will, from
time to time, at its expense, promptly execute and deliver all further
instruments and documents and take all further action that may be necessary or
desirable, or that Secured Party may reasonably request, in order to perfect and
protect any security interest granted or purported to be granted hereby or to
enable Secured Party to exercise and enforce its rights and remedies hereunder
with respect to any Collateral. Without limiting the generality of the
foregoing, Debtor and/or Subsidiary will: (i) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments or
notices, as may be necessary or desirable, or as Secured Party may reasonably
request, in order to perfect and preserve the security interests granted or
purported to be granted hereby; (ii) at any reasonable time, upon demand by
Secured Party exhibit the Collateral to allow inspection of the Collateral by
Secured Party or persons designated by Secured Party; (iii) upon Secured Party's
request, appear in and defend any action or proceeding that may affect
Subsidiary's title to or Secured Party's security interest in the Collateral,
and (iv) take all action necessary to have the Pledged Stock transferred in the
name of the Pledgee.
(b) Secured Party Authorized. Debtor and Subsidiary hereby
authorizes Secured Party to file one or more financing or continuation
statements, and amendments thereto, relating to all or any part of the
Collateral without the signature of Debtor and/or Subsidiary where permitted by
law.
(c) Stock Dividends, Distributions, etc. If, while this Agreement is
in effect, the Debtor and/or Subsidiary shall became entitled to receive or
shall receive any stock certificate (including, without limitation, any
certificate representing a stock dividend, stock split, conversion of a
convertible security or a distribution in connection with any reclassification
or any increase or reduction of capital, or issued in connection with any
reorganization), option or right, whether as an addition to, in substitution, of
or in exchange for any of the Shares, Debtor and Subsidiary agrees that such
stock certificate, option or right shall be additional collateral security for
the Secured Obligations, and shall be delivered to Escrow Agent to be held as
Collateral pursuant to the terms of this Agreement.
(d) Other Information. Debtor and Subsidiary will, promptly upon
request, provide to Secured Party all information and evidence it may reasonably
request concerning the Collateral to enable Secured Party to enforce the
provisions of this Agreement.
(e) Maintenance. The Debtor and Subsidiary will maintain the
business of the Subsidiary as presently operated, and shall take any and all
actions necessary for such maintenance as are customary.
6. Escrow Agent. The parties each hereby designate The Goldstein Law
Group, P.C., New York NY 10006 as the "Escrow Agent" to hold the Shares in
accordance with the escrow agreement dated as of the date hereof. Simultaneously
with the execution of this Agreement, Debtor has delivered the Shares along with
duly endorsed stock powers that permit Secured Party to transfer the Shares to
the Secured Party if an Event of Default occurs, as set forth herein or in the
Notes to the Escrow Agent to be held by Escrow Agent as Collateral under
<PAGE>
this Agreement, to secure complete and final payment by the debtor of the
Secured Obligations in accordance with the terms and provisions of this
Agreement.
7. Voting Rights. Unless an Event of Default, as defined herein or in the
Note, shall have occurred, Debtor shall be entitled to vote the Shares and to
give consents, waiver and ratification in respect of the Shares; provided,
however, that no vote shall be cast, or consent, waiver or ratification given or
action taken, which would violate any rights the Secured Party has to the Shares
under the terms of this Agreement or the Notes.
8. Rights of Secured Party. Any of the Shares may, if an Event of Default
has occurred and is continuing (as defined below or in the Note), (a) be
registered in the name of the Secured Party and its nominees (for which a power
of attorney coupled with an interest is hereby granted), which may thereafter
exercise all voting and other rights and exercise any and all rights of
conversion, exchange, subscription or any other rights, privileges or options
pertaining to any of the Shares as if it were the absolute owner thereof or (b)
to the extent permitted by law, be sold by Secured Party in the name of Debtor
to any third party with proceeds (up to the amount equal to the Secured
Obligations plus any and all monies due to the Secured Party pursuant to this
Agreement and the Purchase Agreement) of such sale being paid to Secured Party
(for which a power of attorney coupled with an interest is hereby granted). In
addition, Debtor and Subsidiary grant to Secured Party a power of attorney
coupled with an interest to sign on behalf of Debtor and Subsidiary after an
Event of Default (as defined herein or in the Note), a statement renouncing or
modifying Debtor and Subsidiary right under section 9-505 of the Uniform
Commercial Code of the State of New York.
9. Secured Party Appointed Attorney-in-Fact. Debtor and Subsidiary hereby
irrevocably appoint Secured Party as its attorney-in-fact, with full authority
in the place and stead of Debtor and Subsidiary and in the name of Debtor and
Subsidiary, Secured Party or otherwise, from time to time in Secured Party's
discretion to take any action and to execute any instrument that Secured Party
may deem necessary or advisable after the occurrence and during the continuation
of an Event of Default to accomplish the purposes of this Agreement, including,
without limitation:
(a) to obtain and adjust insurance required to be paid to Secured
Party;
(b) to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for monies due and to become due under or in
respect of any of the Collateral;
(c) to file any claims or take any action or institute any
proceedings that Secured Party may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
Secured Party with respect to any of the Collateral;
(d) to pay or discharge taxes or liens, levied or placed upon or
threatened against the Collateral, the legality or validity thereof and the
amounts necessary to discharge the same to be determined by Secured Party in its
sole discretion, and such payments made by Secured Party to become obligations
of Debtor and Subsidiary, due and payable immediately without demand and secured
by the Security Interests; and
<PAGE>
(e) generally to sell, transfer, pledge, make any agreement with
respect to or otherwise deal with any of the Collateral as fully and completely
as though Secured Party were the absolute owner thereof for all purposes, and to
do, at Secured Party's option and Debtor and Subsidiary's expense, at any time
or from time to time, all acts and things that Secured Party deems necessary to
protect, preserve or realize upon the Collateral.
This power, being coupled with an interest, is irrevocable so long as this
Agreement shall remain in force.
10. Transfers and Other Liens. Debtor and Subsidiary shall not, without
Secured Party's prior written consent:
(a) Sell, assign (by operation of law or otherwise) or otherwise
dispose of, or grant any option with respect to, any of the Collateral.
(b) Create or suffer to exist any lien, security interest or other
charge or encumbrance upon or with respect to any of the Collateral to secure
indebtedness of any Person except for the security interest created by this
Agreement.
11. Events of Default. The occurrence of any "Event of Default" as that
term is defined in Note shall constitute an Event of Default by Debtor and/or
Subsidiary under this Agreement.
12. Remedies
(a) If any Event of Default shall have occurred and be continuing,
Secured Party may declare the entire outstanding principal amount of the Note
immediately due and payable without any notice, demand or other action on the
part of Secured Party.
(b) If any Event of Default shall have occurred and be continuing,
Secured Party may exercise in respect of the Collateral, in addition to all
other rights and remedies provided for herein or otherwise available to it, all
the rights and remedies of a secured party on default under the UCC (whether or
not the UCC applies to the affected Collateral) and also may: (i) without notice
or demand or legal process, take possession of the Collateral and take any and
all actions necessary to transfer the Shares in the name of the Secured Party;
(ii) without notice except as specified below, sell the Collateral or any part
thereof at such time or times, for cash, on credit or for future delivery, and
at such price or prices and upon such other terms as Secured Party may deem
commercially reasonable; (iii) notify the obligors on any Accounts or
Instruments to make payments there under directly to Secured Party; (iv) without
notice to Debtor and/or Subsidiary, renew, modify or extend any of the Accounts
and Instruments or grant waivers or indulgences with respect thereto or accept
partial payment thereof, or substitute any obligor thereon, in any manner as
Secured Party may deem advisable, without affecting or diminishing Debtor and/or
Subsidiary's continuing obligations hereunder, and (v) and shall have all
applicable remedies set forth in the New York Uniform Commercial Code.
<PAGE>
13. Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default as set forth herein, the proceeds of any sale
of, or other realization upon, all or any part of the Collateral shall be
applied: first, to all fees, costs and expenses incurred by Secured Party with
respect to the Collateral; and second, to the Secured Obligations. Secured Party
shall pay over to Debtor and Subsidiary any surplus and Debtor and Subsidiary
shall remain liable for any deficiency.
14. Expenses. Debtor and Subsidiary agree to pay all insurance expenses
and all expenses of protecting, storing, warehousing, appraising, insuring,
handling, maintaining and shipping the Collateral, all costs, fees and expenses
of perfecting and maintaining the Security Interests, and any and all excise,
property, sales and use taxes imposed by any state, federal or local authority
on any of the Collateral, or with respect to periodic appraisals and inspections
of the Collateral, or with respect to the sale or other disposition thereof. If
Debtor and/or Subsidiary fails promptly to pay any portion of the above expenses
when due or to perform any other obligation of Debtor and/or Subsidiary under
this Agreement, Secured Party may, at its option, but shall not be required to,
pay or perform the same, and Debtor and Subsidiary agree to reimburse Secured
Party therefor on demand. All sums so paid or incurred by Secured Party for any
of the foregoing, any and all other sums for which Debtor and Subsidiary may
become liable hereunder and all costs and expenses (including attorneys' fees,
legal expenses and court costs) incurred by Secured Party in enforcing or
protecting the Security Interests or any of their rights or remedies under this
Agreement shall be payable on demand, shall constitute Secured Obligations,
shall bear interest until paid at the rate provided in the Note and shall be
secured by the Collateral.
15. Termination of Security Interests; Release of Collateral. Upon payment
in full of all Secured Obligations, the Security Interests shall terminate and
all rights to the Collateral shall revert to Debtor and Subsidiary. Upon such
termination of the Security Interests or release of any Collateral, Secured
Party will, at the expense of Debtor and Subsidiary, execute and deliver to
Debtor and Subsidiary such documents as Debtor and Subsidiary shall reasonably
request to evidence the termination of the Security Interests or the release of
such Collateral, as the case may be.
16. Notices. Each notice, communication and delivery under this Agreement:
(a) shall be made in writing signed by the party giving it; (b) shall specify
the section of this Agreement pursuant to which given; (c) shall either be
delivered in person or by telecopier, a nationally recognized next business day
courier service or Express Mail; (d) unless delivered in person, shall be given
to the address specified below; (e) shall be deemed to be given (i) if delivered
in person, on the date delivered, (ii) if sent by telecopier, on the date of
telephonic confirmation of receipt, (iii) if sent by a nationally recognized
next business day courier service with all costs paid, on the next business day
after it is delivered to such courier, or (iv) if sent by Express Mail (with
postage and other fees paid), on the next business day after it is mailed. Such
notice shall not be effective unless copies are provided contemporaneously as
specified below, but neither the manner nor the time of giving notice to those
to whom copies are to be given (which need not be the same as the addressee)
shall control the date notice is given or received. The addresses and
requirements for copies are as follows:
<PAGE>
If to Debtor or Subsidiary:
Interiors, Inc.
320 Washington Street
Mount Vernon, New York 10553
Telephone: (914) 665-5400
Facsimile: (914) 665-5469
Attention: Max Munn
With a copy to:
Greenberg Traurig
200 Park Avenue
New York, New York 10166
Telephone: (212) 801-9200
Facsimile: (212) 801-6400
Attention: Stephen A. Weiss, Esq.
If to Secured Party:
Limeridge LLC
c/o Citco Trustees Cayman Limited
Corporate Centre
PO Box 31106SMB
Grand Cayman, Cayman Islands
British West Indies
Attention: Sabrina Hew
Facsimile: 345 945-7566
Telephone: 345 949-3977
Except as otherwise expressly set forth in any particular provision of
this Agreement, any consent or approval required or permitted by this Agreement
to be given by Secured Party may be given, and any term of this Agreement or of
any other instrument related hereto or mentioned herein may be amended, and the
performance or observance by Debtor and/or Subsidiary of any term of this
Agreement, the Purchase Agreement or the Note may be waived (either generally or
in a particular instance and either retroactively or prospectively) with, but
only with, the written specific consent of Secured Party. No waiver shall extend
to or affect any obligation not expressly waived or impair any right consequent
thereon. No course of dealing or delay or omission on the part of Secured Party
in exercising any right shall operate as a waiver thereof or otherwise be
prejudicial thereto. No notice to or demand upon Debtor and/or Subsidiary shall
entitle Debtor and/or Subsidiary to other or further notice or demand in similar
or other circumstances. The rights in this Agreement, the Purchase Agreement and
the Note are cumulative and are not exclusive of any other remedies provided by
law. The invalidity, illegality or unenforceability of any provision in or
obligation under this Agreement shall not affect or impair the validity,
legality or enforceability of the remaining provisions or obligations under this
Agreement.
<PAGE>
17. Successors and Assigns. This Agreement is for the benefit of Secured
Party and its successors and assigns, and in the event of an assignment of all
or any of the Secured Obligations, the rights hereunder, to the extent
applicable to the Secured Obligations so assigned, may be transferred with such
Secured Obligations. This Agreement shall be binding on Debtor and Subsidiary
and its successors and assigns, provided that Debtor and/or Subsidiary shall not
assign this Agreement without Secured Party's prior written consent.
18. Changes in Writing. No amendment, modification, termination or waiver
of any provision of this Agreement or consent to any departure by Debtor and/or
Subsidiary therefrom, shall in any event be effective without the written
concurrence of Secured Party, Debtor, and Subsidiary.
19. Governing Law/Venue/Jurisdiction. This Agreement shall be exclusively
governed by and construed in accordance with the laws of the State of New York,
without giving effect to the conflicts of law principles thereof. Each of the
parties consents to the exclusive jurisdiction of the U.S. District Court
sitting in the Southern District of the State of New York sitting in Manhattan
in connection with any dispute arising under this Agreement and hereby waives,
to the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. Each party hereby agrees that if the other party to this
Agreement obtains a judgment against it in such a proceeding, the party which
obtained such judgment may enforce same by summary judgment in the courts of any
country having jurisdiction over the party against whom such judgment was
obtained, and each party hereby waives any defenses available to it under local
law and agrees to the enforcement of such a judgment. Each party to this
Agreement irrevocably consents to the service of process in any such proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to such party at its address set forth herein. Nothing herein shall
affect the right of any party to serve process in any other manner permitted by
law. Each party waives its right to a trial by jury.
20. Headings. Cross reference pages and headings contained herein are for
convenience of reference only, do not constitute a part of this Agreement, and
shall not be deemed to limit or affect any of the provisions hereof.
21. Counterparts. This Agreement may be executed by each party upon a
separate copy, and in such case one counterpart of this Agreement shall consist
of enough of such copies to reflect the signatures of all of the parties. This
Agreement may be executed in two or more counterparts, each of which shall be an
original, and each of which shall constitute one and the same agreement. Any
party may deliver an executed copy of this Agreement and of any documents
contemplated hereby by facsimile transmission to another party and such delivery
shall have the same force and effect as any other delivery of a manually signed
copy of this Agreement or of such other documents.
<PAGE>
This Security Agreement has been duly executed and delivered by the
parties on the date first written above.
Interiors, Inc.
By: /s/ Max Munn
------------
Name: Max Munn
Title: President
Petals, Inc.
By: /s/ Max Munn
------------
Name: Max Munn
Title: Chairman
SECURED PARTY:
LIMERIDGE LLC
By: /s/ ineligible
--------------
Name: Navigator Management Ltd.
Title: Director
Exhibit 11
Interiors, Inc.
Computation of Weighted Average Number of Shares
Outstanding for the Quarter Ended September 30, 1999
<TABLE>
<CAPTION>
Class A &
Class B Weighted Weighted
Common Basic Diluted
(000) (000) (000)
--------- -------- --------
<S> <C> <C> <C>
Total Common Shares Outstanding at June 30, 1999 32,629
Escrow Shares at June 30, 1999 (82)
Class A Common and Class B Common for EPS at June 30, 1999 32,547 32,089 32,089
Additional Common Shares 1,205 769 769
Total Common Shares Outstanding at September 30, 1999 33,752
Escrow Shares at September 30, 1999
Class A Common and Class B Common for EPS at September 30, 1999 33,572 32,858 32,858
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,627,300
<SECURITIES> 0
<RECEIVABLES> 16,458,218
<ALLOWANCES> 0
<INVENTORY> 25,350,091
<CURRENT-ASSETS> 49,903,376
<PP&E> 11,842,170
<DEPRECIATION> 594,179
<TOTAL-ASSETS> 95,831,779
<CURRENT-LIABILITIES> 35,532,480
<BONDS> 0
1,000
10,094
<COMMON> 31,378
<OTHER-SE> 60,256,827
<TOTAL-LIABILITY-AND-EQUITY> 95,831,779
<SALES> 35,640,122
<TOTAL-REVENUES> 35,640,122
<CGS> 22,045,499
<TOTAL-COSTS> 34,252,834
<OTHER-EXPENSES> (304,703)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 835,667
<INCOME-PRETAX> 856,324
<INCOME-TAX> 0
<INCOME-CONTINUING> 856,324
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 832,726
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
