As filed with the Securities and Exchange Commission on August 16, 1999
Registration No. 333-63207
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INTERIORS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
13-3590047
(I.R.S. Employer Identification No.)
320 Washington Street
Mt. Vernon, New York 10553
(914) 665-5400
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Max Munn
President
320 Washington Street
Mt. Vernon, New York 10553
(914) 665-5400
Copy to:
Arthur L. Zwickel, Esq.
Paul, Hastings, Janofsky & Walker LLP
555 S. Flower Street, Twenty-Third Floor
Los Angeles, California 90071
(213) 683-6000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed sale to public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Title of each Proposed Proposed
class of Maximum Maximum
securities to Amount to be Offering Price Aggregate Amount of
be registered Registered(1)(2) Per Share(3) Offering Price(3) Registration Fee(4)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, $.001 par 14,170,878 $1.29 $17,225,276.30 $1,390.25
value
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) This amount represents: (i) 535,714 Class A Shares issuable upon
exercise of warrants (the "CD Warrants") issued concurrently with the sale
of $3,000,000 of 7% Convertible Debentures ("Convertible Debentures"),
(ii) 112, 500 Class A Shares issuable upon the exercise of warrants (the
"CD Finder Warrants") issued concurrently with the sale of the Convertible
Debentures, (iii) 260,000 Class A Shares which may be issued to holders of
650,000 Class A Shares originally issued in connection with the
acquisition of Troy Lighting, Inc. ("Troy"), (iv) 851,064 Class A Shares
issuable upon conversion of $2,000,000 liquidation value of 8% Series B
Convertible Redeemable Preferred Stock (the "Series B Preferred Shares"),
(v) 2,000,000 Class A Shares issuable upon exercise of redeemable warrants
issued concurrently with the sale the Series B Preferred Shares (the
"Series B Warrants"), (vi) 650,000 Class A Shares issuable upon conversion
of $686,000 principal amount of 12% convertible notes (the "12% Notes")
(vii) $5,221,600 Class A Shares issuable upon conversion of $6,527,000
liquidation value of 7% Series C Convertible Preferred Stock (the "Series
C Preferred Shares"), (viii) 100,000 Class A Shares issuable upon exercise
of certain three year warrants (the "Petals Warrants") issued in
connection with the acquisition of Petals, Inc. ("Petals"), (ix) 1,000,000
Class A Shares issuable upon conversion of the $2,000,000 10% convertible
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promissory note due March 23, 2001 issued in connection with the
acquisition of Petals (the "Petals Note") and (x) 3,440,000 Class A Shares
issued or to be issued in connection with the acquisition of Model Home
Interiors, Inc. ("MHI"), including 1,600,000 Class A Shares which may be
issued only upon the achievement of certain targets, to former
shareholders of MHI.
(2) This Registration Statement also covers such indeterminate number of
Class A Shares as may be issued by reason of any stock dividend, stock
split, recapitalization or similar transaction effected without receipt of
consideration which results in an increase in the number of outstanding
Class A Shares.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457, based upon the closing price for shares of the
Registrant's Class A Shares on August 11, 1999 of $1.29 per share as
reported on the NASDAQ Small Cap Market.
(4) A registration fee of $3,606.19 was previously paid with respect to
10,294,208 shares. A registration fee of $1,309.25 is being paid with
respect to an additional 3,876,670 shares included in this amendment.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAW OF ANY SUCH STATE.
Subject to Completion, Dated August ____, 1999
PROSPECTUS
INTERIORS, INC.
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14,170,878 Shares of Class A Common Stock
This Prospectus relates to 14,170,878 shares of Class A Common Stock,
$.001 par value per share (the "Class A Shares"), of Interiors, Inc., a Delaware
corporation ("Interiors" or the "Company") to be offered and sold from time to
time for the accounts of certain security holders of the Company (the "Selling
Security Holders"). The Class A Shares offered hereby consist of (i) 535,714
Class A Shares issuable upon exercise of warrants (the "CD Warrants") issued
concurrently with the sale of $3,000,000 of 7% Convertible Debentures
("Convertible Debentures"), (ii) 112, 500 Class A Shares issuable upon the
exercise of warrants (the "CD Finder Warrants") issued concurrently with the
sale of the Convertible Debentures, (iii) 260,000 Class A Shares which may be
issued to holders of 650,000 Class A Shares originally issued in connection with
the acquisition of Troy Lighting, Inc. ("Troy"), (iv) 851,064 Class A Shares
issuable upon conversion of $2,000,000 liquidation value of 8% Series B
Convertible Redeemable Preferred Stock (the "Series B Preferred Shares"), (v)
2,000,000 Class A Shares issuable upon exercise of redeemable warrants issued
concurrently with the sale the Series B Preferred Shares (the "Series B
Warrants"), (vi) 650,000 Class A Shares issuable upon conversion of $686,000
principal amount of 12% convertible notes (the "12% Notes") (vii) $5,221,600
Class A Shares issuable upon conversion of $6,527,000 liquidation value of 7%
Series C Convertible Preferred Stock (the "Series C Preferred Shares"), (viii)
100,000 Class A Shares issuable upon exercise of certain three year warrants
(the "Petals Warrants") issued in connection with the acquisition of Petals,
Inc. ("Petals"), (ix) 1,000,000 Class A Shares issuable upon conversion of the
$2,000,000 10% convertible promissory note due March 23, 2001 issued in
connection with the acquisition of Petals (the "Petals Note") and (x) 3,440,000
Class A Shares issued or to be issued in connection with the acquisition of
Model Home Interiors, Inc. ("MHI"), including 1,600,000 Class A Shares which may
be issued only upon the achievement of certain targets, to former shareholders
of MHI.
The Class A Shares offered hereby may be offered for sale from time to
time by the Selling Security Holders acting as principals for their own accounts
or in brokerage transactions at prevailing market prices or in transactions at
negotiated prices. No representation is made that any of these Class A Shares
will or will not be offered for sale. The Company will not receive any proceeds
from the sale of these Class A Shares. The Selling Security Holders, and the
brokers through whom sales of the Class A Shares are made, may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act of
1933, as amended. In addition, any profits realized by the Selling Security
Holders or such brokers on the sale of the Class A Shares may be deemed to be
underwriting commissions.
It is not possible at the present time to determine the price to the
public in any sale of these Class A Shares by the Selling Security Holders and
each Selling Security Holder reserves the right to accept or reject, in whole or
in part, any proposed purchase of Class A Shares. Accordingly, the public
offering price and the amount of any applicable underwriting discounts and
commissions will be determined at the time of such sale by the Selling Security
Holders. All costs, expenses and fees incurred in connection with the
registration of the Class A Shares are being borne by the Company, but all
selling and other expenses incurred by the Selling Security Holders will be
borne by such Selling Security Holders.
The Class A Shares are currently listed for quotation on the Nasdaq Small
Cap Market ("NASDAQ") under the symbol "INTXA." On August 11, 1999, the last
reported sales price for the Class A Shares as reported by NASDAQ was $1.29.
The offering involves a high degree of risk. For a discussion of certain
factors that should be considered in connection with an investment in the
Shares, see "Risk Factors" beginning on page 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is August ____, 1999
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Copies of such reports, proxy and information
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at the Commission's regional offices at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of such materials can be
obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a Web site at (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
The Company's Class A Shares are listed on NASDAQ and reports, proxy and
information statements and other information concerning the Company may be
inspected at the offices of the National Association of Securities Dealers,
Inc., 9513 Key West Avenue, Rockville, Maryland 20850.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with any amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Class A Shares offered hereby. This Prospectus is part of
the Registration Statement and does not contain all of the information set forth
in the Registration Statement, certain portions of which have been omitted
pursuant to the rules and regulations of the Commission. For further information
with respect to the Company and the offering pursuant to this Prospectus,
reference is made to such Registration Statement, which may be inspected without
charge at the Commission's office in Washington, D.C., and copies of all or any
part thereof may be obtained from such office after payment of fees prescribed
by the Commission.
TABLE OF CONTENTS
Page
Available Information................................. 2
Incorporation by Reference............................ 3
Forward-looking Statements............................ 4
The Company........................................... 4
Risk Factors.......................................... 5
Recent Transactions................................... 11
Plan of Distribution.................................. 16
Use of Proceeds....................................... 17
Selling Security Holders.............................. 18
Experts............................................... 20
Indemnification of Officers and Directors............. 20
NO DEALER, SALESMAN OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
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INCORPORATION BY REFERENCE
This Prospectus incorporates by reference certain documents which are not
presented herein or delivered herewith. These documents are available upon
request from Interiors, Inc., Attention: Secretary, 320 Washington Street, Mt.
Vernon, New York 10553, Telephone (914) 665-5400.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, upon the written or oral request of any such person, a copy of any
and all of the information that has been incorporated herein by reference, other
than exhibits to such information, unless such exhibits are specifically
incorporated herein by reference into the information that this Prospectus
incorporates. Requests for such documents should be directed to the person
indicated in the immediately preceding paragraph.
The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference
herein:
(a) The Annual Report on Form 10-KSB for the fiscal year ended June 30,
1998 (the "1998 Form 10-KSB") as filed with the Commission on October 13, 1998,
as amended by Amendment No. 1 to the 1998 Form 10-KSB as filed with the
Commission on October 27, 1998, as amended by Amendment No. 2 to the 1998 Form
10-KSB as filed with the Commission on October 29, 1998, as amended by Amendment
No. 3 to the 1998 Form 10-KSB as filed with the Commission on November 5, 1998
and as amended by Amendment No. 4 to the 1998 Form 10-KSB as filed with the
Commission on ____________, 1999;
(b) The Quarterly Report on Form 10-QSB for the quarter ended September
30, 1998, as amended by the Quarterly Report on Form 10-QSB as filed with the
Commission on _________, 1999;
(c) The Quarterly Report on Form 10-QSB for the quarter ended December 31,
1998 as filed with the Commission on February 22, 1999;
(d) The Quarterly Report on Form 10-QSB for the quarter ended March 31,
1999 as filed with the Commission on May 24, 1999;
(e) The Current Report on Form 8-K, as filed with the Commission on April
6, 1998 and as amended by the Current Report on Form 8-K as filed with the
Commission on May 29, 1998;
(f) The Current Report on Form 8-K as filed with the Commission on August
10, 1998, as amended by the Current Report on Form 8-K/A as filed with the
Commission on October 9, 1998;
(g) The Current Report on Form 8-K, as filed with the Commission on August
28, 1998, as amended by the Current Report on Form 8-K/A as filed with the
Commission on October 9, 1998;
(h) The Current Report on Form 8-K as filed with the Commission on March
4, 1999;
(i) The Current Report on Form 8-K as filed with the Commission on March
9, 1999;
(j) The Current Report on Form 8-K as filed with the Commission on March
9, 1999, as amended by the Current Report on Form 8-K/A as filed with the
Commission on May 10, 1999;
(k) The Current Report on Form 8-K as filed with the Commission on April
9, 1999, as amended by the Current Report on Form 8-K/A as filed with the
Commission on June 7, 1999;
(l) The Proxy Statement on Schedule 14A as filed with the Commission on
October 28, 1998, as amended by the Proxy Statement on Schedule 14A as filed
with the Commission on November 12, 1998;
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(m) The Registration Statement on Form 15 as filed with the Commission on
October 29, 1998; and
(n) The Registration Statement on Form 15 as filed with the Commission on
April 6, 1999.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date hereof and prior to the termination
of this offering shall be deemed to be incorporated herein by reference and to
be a part hereof from the date of filing of such documents. All information
appearing in this Prospectus or in any document incorporated herein by reference
is not necessarily complete and is qualified in its entirety by the information
and financial statements (including notes thereto) appearing in the documents
incorporated by reference herein and should be read together with such
information and documents. Any statement contained in a document incorporated or
deemed to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document that is deemed to
be incorporated herein by reference modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this
Prospectus constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company,
or industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, those set forth in this
Prospectus, including under the caption "Risk Factors." Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward-looking statements. The Company disclaims any obligation to
update any such statements or to publicly announce any updates or revisions to
any of the forward-looking statements contained herein to reflect any change in
the Company's expectation with regard thereto or any change in events,
conditions, circumstances or assumptions underlying such statements.
THE COMPANY
Interiors, Inc., a Delaware corporation ("Interiors" or the "Company"), is
a designer, manufacturer and marketer of a broad range of decorative accessories
for the residential, commercial, institutional and contract markets, including
museum-quality traditional and contemporary picture frames, framed wall mirrors,
framed hand-painted oil paintings, framed prints under glass, portable and
installed lighting and lighting fixtures, sculptures and decorative tabletop
accessories and silk flower 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 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 management believes will lead to better
product design and greater efficiency in manufacturing, shipping and inventory
management, resulting in increased sales.
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Prior to 1998, Interiors had two primary operating divisions: its Custom
Framing Division, which through its A.P.F. Master Framemakers Division, is
engaged in the manufacture of antique and contemporary picture and mirror frames
for museums, art galleries, designers, collectors and frame retailers; and its
Wholesale Division, which manufacturers and markets a line of high-end
traditional and contemporary mirrors sold through upscale retail furniture and
department stores. For its fiscal year ended June 30, 1998, annual sales
revenues of the Company were approximately $5.0 million.
Since early 1998, the Company has been rapidly acquiring additional
businesses in the decorative accessories industry, which it operates as
corporate subsidiaries or divisions, and has significantly expanded its product
lines. In March 1998, the Company acquired the businesses of Henlor, Inc.
("Henlor"), its subsidiary Vanguard Studios, Inc. ("Vanguard"), and Merchandise
Sales, Inc. ("MSI"), manufacturers of framed mirrors, paintings and prints,
lighting products, sculptures and tabletop accessories, with combined annual
sales of approximately $20.3 million for the twelve months ended June 30, 1998
(with Henlor and MSI consolidated with Vanguard, as a wholly-owned subsidiary of
the Company). In July 1998, the Company acquired the businesses of Windsor Art,
Inc. ("Windsor"), a manufacturer of framed painting and prints and framed
mirrors, with annual sales of approximately $12.7 million for its fiscal year
ended December 31, 1997. In August 1998, the Company acquired Troy, a
manufacturer of lighting products, with annual sales of approximately $12.5
million for its fiscal year ended December 31, 1997. In February 1999, the
Company acquired the business of Model Home Interiors, Inc., ("Model Home"), a
company that provides design, merchandising and leasing services to the
homebuilding industry, with annual sales of approximately $12.3 million for its
fiscal year ended December 31, 1998, and Stylecraft Lamps, Incorporated
("Stylecraft"), a manufacturer of portable lighting and lighting fixtures, with
annual sales of approximately $25.4 million for its fiscal year ended December
31, 1998. In March 1999, the Company acquired a 51% interest in CSL Lighting
Manufacturing, Inc. ("CSL"), a publicly traded manufacturer of lighting
fixtures, with annual sales of approximately $12.3 million for its fiscal year
ended December 31, 1998, and 100% of the capital stock of Petals, a manufacturer
of decorative artificial flowers, with annual sales of approximately $42.0
million for its fiscal year ended December 31, 1998. As a result of these
transactions, the Company's current business includes the design, manufacture
and distribution of a broad range of decorative accessories.
Interiors was originally incorporated in New York in October 1990 under
the name A.P.F. Holdings, Inc., which subsequently merged with and into
Interiors, Inc., a Delaware corporation, in March 1994. A.P.F. Holdings, Inc.
was formed for the purpose of acquiring the assets of the picture framing
business previously operated by a subsidiary of Collectors' Guild International,
a New York corporation formed in 1976.
The Company's principal executive offices are located at 320 Washington
Street, Mt. Vernon, New York 10553; its telephone number is (914) 665-5400.
RISK FACTORS
An investment in the Class A Shares offered hereby involves a high degree
of risk. The following risk factors should be considered carefully in evaluating
an investment in the Class A Shares.
Risks Associated With Company Acquisition Growth Strategy; No Assurance of
Ability to Manage Growth; Dependence on Outside Financing Sources
A significant component of the Company's strategy is to grow in size and
breadth of product offerings through acquisitions, such as the recent
acquisitions of Henlor, Vanguard, MSI, Windsor, Troy, Model Home, Stylecraft and
Petals and its investment in CSL (collectively, the "Acquired Companies").
Certain risks are inherent in an acquisition strategy, such as increasing
leverage and debt service requirements and combining disparate company cultures
and facilities. The process of integrating the Acquired Companies may involve
unforeseen difficulties and may require a disproportionate amount of
management's attention and the Company's financial and other resources. Failure
by the Company to successfully integrate the businesses of the Acquired
Companies could have a material adverse effect on
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the Company's results of operations and financial condition. The loss of, or
changes in buying patterns of, any significant customers of the Acquired
Companies would likely have an adverse effect on the Company's business,
financial condition and results of operations. The full impact of these
acquisitions on the Company cannot be forecasted at this time. There can be no
assurance that the Company will be able to integrate successfully the
operations, facilities and management of the Acquired Companies or realize any
benefits from these acquisitions.
Additional acquisitions will present greater administrative burdens,
increased exposure to uncertainties inherent in acquisitions and marketing new
products and services, the financial risks of additional operating costs and
potential additional interest costs. There can be no assurances that management
can manage the specific expansion described herein, nor can there be any
assurance that the Company will be able to recruit the necessary managers and
employees required for such growth. The Company will also most likely need to
obtain additional equity or debt financing in order to complete such
acquisitions and realize its business strategy. There can be no assurance that
the Company will be able to conclude any acquisitions in the future on terms
favorable to it, or at all, or that, once consummated, such acquisitions will be
advantageous to the Company.
The size, timing and integration of possible future acquisitions may cause
substantial fluctuations in operating results from quarter to quarter. As a
result, operating results for any quarter may not be indicative of the results
that may be achieved for any subsequent fiscal quarter or a full fiscal year.
Significant Financing Costs
The Company has incurred significant costs in the financing of its
business operations and acquisition strategy. As of March 31, 1999, the Company
had notes payable in the aggregate principal amount of approximately $16.1
million. In addition, under the terms of the agreements under which its Series B
Preferred Shares and Series C Preferred Shares were issued, the Company may
under certain circumstances, be required to redeem such securities for cash. As
a consequence of the Company's significant financing costs a substantial portion
of the Company's cash flow from operations is committed to the payment of debt
service and potential redemption obligations and will not be available to the
Company for other purposes. A substantial decrease in operating cash flow or an
increase in expenses could make it difficult for the Company to meet its debt
service and potential preferred stock redemption requirements and force it to
modify its operations. It is currently not necessary that the Company refinance
its indebtedness because the Company's cash flow from operations is currently
sufficient to meet debt service requirements. There can be no assurance,
however, that cash flow from operations will be sufficient for the foreseeable
future to meet its existing debt service and other contractual obligations and
to make possible acquisitions and capital expenditures. Consequently, the
Company is currently pursuing alternative financing arrangements, but as of the
date of this Prospectus, no such arrangements have been made. No assurances can
be given that the Company will be able to enter into alternative financing
arrangements, nor can assurances be given that such alternative arrangements
will be on terms more favorable to the Company than, or comparable to, the
Company's current financing arrangements. If the Company is unable to obtain
alternative financing arrangements, it could have a material adverse effect on
the Company.
Customer Concentration
The Company has historically conducted significant business activities
with certain major customers, resulting in a concentration of revenues in
certain divisions from these customers. Revenues from shipments to three
affiliated national fashion retailers, Victoria's Secret (14.8%), The Limited
(8.3%), and Abercrombie & Fitch (0.8%), represented in fiscal 1998, in the
aggregate, approximately 23.9% of the Company's net sales. Artmaster, Windsor
and Vanguard target moderate to high-priced markets and share many of the same
customers, which are primarily furniture retailers, home furnishings chains,
furniture departments in department stores and catalogs. Among their leading
customers are J.C. Penney Co., Sears Roebuck & Co., Levitz Furniture and Wickes
Furniture. Troy targets lighting showrooms and home improvement centers, and its
largest customer has historically been The Home Depot. There can be no assurance
that Interiors will continue to receive orders from existing major customers.
Should the Company's principal customers discontinue the placement of orders,
the Company would be materially adversely affected.
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Reliance on Outside Suppliers
The Company purchases a wide variety of raw materials for use in its
manufacturing operations, including metal, wood, hydrocal, paint, glass, gold
leaf, plexiglass, corrugated packaging materials, matboards and composite
resins. These materials are purchased from a wide variety of sources, and the
Company has at least two, and often more, suppliers for each item used in its
manufacturing process, and is therefore not dependent upon any sole supplier.
Nevertheless, due to the specialized nature of the Company's business operations
and materials requirements, should the present mix of suppliers change, a
potential disruption to the Company's ability to manufacture, and a
corresponding effect on revenues, could occur. Prices of certain commodities,
including lumber, used in the Company's manufacturing operations fluctuate over
time depending on factors such as weather and demand, which impact its
availability and cause a corresponding change in prices. Upward trends in prices
could have a short-term negative impact on the Company's margins.
Competition
The decorative accessories industry is highly competitive and includes a
large number of domestic and foreign manufacturers, none of which dominate the
market. The Company's competitors vary in size from small companies to large
companies which are well established and may have financial and other resources
equal to, or greater than, those of the Company. Due to the greater resources,
certain of the Company's competitors may be able to undertake more extensive
marketing campaigns, adopt more aggressive pricing policies and other strategies
unavailable to the Company. To the extent the Company's competitors may be able
to undertake these actions, it could have a material adverse effect on the
Company's business, operating results and financial condition.
Reliance on Key Personnel; Lack of "Key Person" Life Insurance for Key Personnel
The Company is highly dependent on the services of several key personnel.
Max Munn, President and Chief Executive Officer of the Company, has held both
positions since 1995. Mr. Munn is based in New York and maintains responsibility
for corporate strategy and acquisitions. Effective November 1, 1998, the Company
entered into a five-year employment agreement with Mr. Munn. Dennis D. D'Amore
is currently responsible for the day-to-day operations of the Company's
decorative accessories operations, including manufacturing, marketing, sales and
product development. In addition, Richard Belenski serves as Executive Vice
President of Finance and Administration and Chief Financial Officer of the
Company and Todd Langner serves as Senior Vice President of Sales and Marketing
of the Company. The loss of the services of any of these executives could have a
material adverse effect upon the business and prospects of the Company. The
Company does not currently maintain "key person" life insurance on any of its
key personnel.
The Company intends in the near future to create a number of senior
management positions to help oversee the Company's growth and operations. The
Company believes that its ability to manage its planned growth successfully will
depend in large part on its ability to attract and retain highly skilled and
qualified personnel. The inability to attract or retain such personnel could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Environmental Regulations
The Company is subject to federal, state and local governmental
environmental protection laws, rules and regulations relating to its
manufacturing operations. Any of these regulations could require the Company to
acquire equipment or to incur substantial other expenses to comply with
environmental regulations. If substantial additional expenses were incurred by
the Company, product costs could increase significantly, thus materially
adversely affecting the Company's business, financial condition and results of
operations. Any failure by the Company to comply with present or future
environmental laws, rules and regulations could result in fines imposed on the
Company, suspension of production or cessation of operations, any of which could
have a material adverse effect on the Company's business, financial condition
and results of operations.
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Possibility of Litigation Involving Works of Art
Although the Company endeavors to buy designs and products which it
believes the supplier has the right to distribute, in the event an artist of the
distributed work claims that his or her copyright has been violated, the Company
may be joined in any action against the supplier for infringement. Each of the
Company's contributing artists and vendors is required to execute and return to
the Company a certificate stating that the merchandise conforms to all federal
and state laws as to labeling, brands, etc., and agreeing to indemnify the
Company against claims arising from violation of trademark, patent or similar
laws; however, there can be no assurance that the Company would be successful in
enforcing any such agreement. The Company knows of no such claims which have
been asserted nor lawsuits which have been threatened other than as disclosed
herein. There can be no assurance that claims or lawsuits will not arise in the
future or that the cost of defending such actions will not be material. There
can be no assurance that the Company has obtained sufficient insurance coverage,
or that the Company will have sufficient resources, to satisfy any such claims
or lawsuits.
Year 2000
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 begun a full evaluation of its Year 2000
compliance needs with respect to its computer system and has authorized funding
and contracted with a Year 2000 consulting service to meet those needs. 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 unforseen 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.
Voting Control by Related Party
Laurie Munn, wife of the Company's President and Chief Executive Officer,
owns 2,455,000, or 100% of the Company's issued and outstanding shares of Class
B Common Stock, $.001 par value per share (the "Class B Shares"). Each Class B
Share entitles Ms. Munn to five non-cumulative votes per share, or in the
aggregate approximately 29.4%, as of March 31, 1999, of the votes, on all
matters on which stockholders may vote at meetings of stockholders (assuming
that none of the outstanding options, warrants or convertible securities are
exercised or converted). Accordingly, Ms. Munn may be in a position to influence
the election of the Company's directors and the course of the Company's business
affairs.
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Potential Substantial Dilution of Class A Shares
On August 5, 1999, an aggregate of 30,292,067 Class A Shares were issued
and outstanding. The issued and outstanding Class A Shares are subject to
substantial dilution upon the conversion of issued and outstanding Class B
Shares, Series A 10% Cumulative Convertible Preferred Stock ("Series A Preferred
Shares"), Series B Preferred Shares, Series C Preferred Shares, conversion of
the 12% Notes and upon exercise of currently outstanding warrants and options,
including the CD Warrants, the Series B Warrants and the Petals Warrants. The
aggregate number of Class A Shares that will be issuable upon exercise or
conversion of the foregoing securities as of August 5, 1999 could be as many as
21,672,665 Class A Shares. In addition, in connection with recent and continuing
acquisitions, the Company may be required to issue additional shares of Class A
Shares to the former shareholders of the Acquired Companies under certain
circumstances.
The anticipated financing requirements of the Company will likely cause
Interiors to issue substantial amounts of its securities in the future by way of
private or public offerings or exchange offerings of the Company's securities or
other financing arrangements. It can be expected that such additional issuances
will substantially dilute the public ownership as well as reduce the voting
power and ownership percentage of Class A Shareholders. Inasmuch as the Company
may, in the future, issue authorized shares of common stock or preferred stock
without prior stockholder approval, there may be substantial dilution to the
interests of the Company's stockholders. In addition, a stockholder's pro rata
ownership interest in the Company may be reduced to the extent of the issuance
or exercise of any options or warrants relating to Class A Shares.
Volatility of Share Price
The trading prices of the Class A Shares may be subject to wide
fluctuations. For example, during the fiscal year 1999 the highest bid price and
lowest bid price of the Class A Shares was $4.50 and $0.69, respectively, and
during the 1998 fiscal year the highest bid price and the lowest bid price of
the Class A Shares was $2.50 and $0.75, respectively. Factors such as variations
in operating results, adverse results in litigation, governmental regulation or
general economic and market conditions may adversely affect the market price of
the Class A Shares.
No Dividends on Class A Shares
To date, the Company has never declared nor paid cash dividends on the
Class A Shares. For the foreseeable future, the Company does not anticipate
declaring or paying any cash dividends on the Class A Shares.
Potential Rescission Rights
From the date of the Company's Initial Public Offering on June 15, 1994
through June 1, 1998, the Company issued approximately 1,959,579 Class A Shares
upon the exercise of warrants and the conversion of Series A Preferred Shares.
Certain of these Class A Shares may have been issued by the Company in violation
of the requirement under the Securities Act of 1933, as amended, in that the
Company may have failed to deliver to the purchasers of such Class A Shares a
prospectus meeting the requirements of Section 10(a)(3) of the Securities Act of
1933, as amended. Accordingly, certain holders of such Class A Shares may have
the right to recover from the Company the consideration paid for such Class A
Shares or damages as prescribed by applicable securities laws. The approximate
aggregate amount of consideration paid for the Class A Shares subject to
rescission rights is $3,919,158. The per share amount of consideration paid for
the Class A Shares subject to rescission rights ranged between $1.50 and $2.00.
Certain Provisions of Certificate of Incorporation and Bylaws; Potential
Anti-Takeover Effect
The Company's bylaws contain provisions which may discourage certain
transactions which involve an actual or threatened change in control of the
Company. The bylaws provide that certain vacancies on the Board of Directors
shall be filled by a majority of the remaining directors then in office, limit
the ability to call a special meeting of stockholders, and require that no
proposal by a stockholder be presented for vote at a special or annual meeting
of
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stockholders unless the stockholder provides the Board of Directors or the
Secretary of the Company with written notice of intention to present a proposal
for action at the meeting in accordance with the bylaws.
The Company has expressly not opted out of, and is therefore subject to,
Section 203 of the Delaware General Corporation Law regulating "business
combinations" between Delaware corporations and "interested stockholders." Under
this provision, a corporation subject to Section 203 may not engage in any
business combination with any interested stockholder for a period of three years
from the date of such person became an interested stockholder unless certain
conditions are satisfied. This provision may also have the effect of delaying or
preventing a change in control of the Company.
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation provides that a director of the Company will not be
personally liable to the Company or its stockholders for monetary damages for
breach of the fiduciary duty of care as a director, except under certain
circumstances including breach of the director's duty of loyalty to the Company
or its stockholders or entering into any transaction from which the director
derived an improper personal benefit. See "Indemnification of Directors and
Officers."
No Assurance of Continued Public Trading Market or Continued Nasdaq Inclusion
Prior to the Company's Initial Public Offering, which took place on June
23, 1994, there was no established trading market for any of the Company's
securities. In connection with the Initial Public Offering, the Company applied
for, and was granted, inclusion of the Class A Shares on the Nasdaq SmallCap
Market ("NASDAQ"). The Class A Shares commenced quotation on NASDAQ on June 23,
1994 under the symbol "INTXA." However, there can be no assurance given that the
Company will be able to satisfy the requirements for continued quotation, that
such quotation will otherwise continue or that any market for the Company's
securities that has developed since completion of the Initial Public Offering
will continue or be sustained. If for any reason, however, the Class A Shares
are not eligible for continued listing or a public trading market does not
develop, purchasers of the Class A Shares may have difficulty selling their
securities should they desire to do so.
Possible NASDAQ Delisting; Potential Regulation as a Penny Stock
The continued trading of the Class A Shares on NASDAQ is conditioned upon
the Company's meeting certain quantitative and qualitative requirements
regarding assets, capital, earnings surplus, stock price and corporate
governance features. The National Association of Securities Dealers, Inc.
revised the standards for continued listing effective February 23, 1998, which
standards include: (i) maintenance of any of (x) $2,000,000 of net tangible
assets, (y) $35,000,000 of market capitalization, or (z) $500,000 of net income
for two of the last three years; (ii) at least 500,000 shares in public float
valued at $1,000,000 or more; (iii) a minimum bid price for Class A Shares of
$1.00; (iv) at least two market makers; and (v) at least 300 holders of Class A
Shares. As of March 31, 1999, the Company had net tangible assets of
approximately $3.1 million. There can be no assurance that the Company will be
successful in maintaining the quantitative and qualitative criteria for
continued listing on NASDAQ.
In addition, NASDAQ Marketplace Regulations require a listed company to
obtain stockholder approval prior to issuing its common stock or securities
convertible into or exercisable for common stock at prices (including conversion
or exercise prices) below the current market price of the common stock on the
date of issuance, if the fully-diluted common stock issuable in connection with
each such transaction represents 20% or more of the company's outstanding common
stock on the date of issuance. Although the Company believes, based on
correspondence with NASDAQ, that its issuances of the Series B Preferred Shares
and Series C Preferred Shares were separate securities with unrelated investors,
issued in transactions to provide it with capital for unrelated purposes and
otherwise complied with NASDAQ's Marketplace Regulations, there is no assurance
that NASDAQ will not allege that these offerings violated such requirements.
In the event that the Company is unable to satisfy the new NASDAQ
maintenance criteria or is found to have violated NASDAQ Marketplace
Regulations, the Class A Shares will be subject to being delisted, and trading
in the
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Class A Shares thereafter, if any, will likely be conducted in the
over-the-counter markets in the so-called "pink sheets" or the National
Association of Securities Dealers' Electronic Bulletin Board. As a consequence
of any such delisting, it is expected that the stockholders of the Company would
find it more difficult to dispose of, or to obtain accurate quotations as to the
market value of, the Class A Shares. In addition, any such delisting will make
the Class A Shares substantially less attractive as collateral for margin and
purpose loans, for investment by financial institutions under their internal
policies or state legal investment laws, as consideration in future capital
raising transactions.
In the event that the Class A Shares are no longer approved for quotation
on NASDAQ the Class A Shares may become subject to regulation as a "penny
stock." The Commission has adopted regulations which generally define "penny
stock" to be any equity security that has a market price or exercise price less
than $5.00 per share, subject to certain exceptions, including listing on
NASDAQ. If the Class A Shares are removed from listing by NASDAQ and no other
exception applies, the Class A Shares may become subject to the Commission's
Penny Stock Rules, Rule l5g-1 through Rule l5g-9 under the Exchange Act. For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of such securities and have received
the purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a risk disclosure
document mandated by the Commission relating to the penny stock market. The
broker-dealer must also disclose the commission payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the penny stock rules may restrict
the ability of broker-dealers to sell the Company's securities and may affect
the ability of holders to sell the Company's securities in the secondary market
and the price at which such holders can sell any such securities. Rule l5g-9
under the Exchange Act imposes additional sales practice requirements on
broker-dealers who sell such securities except in transactions exempted from
such rule, including transactions meeting the requirements of Rule 505 or 506 of
Regulation D promulgated under the Securities Act and transactions in which the
purchaser is an institutional accredited investor or an established customer of
the broker-dealer.
RECENT TRANSACTIONS
Henlor. On March 10, 1998, the Company consummated the transactions
contemplated by a March 10, 1998 merger agreement among the Company, an
acquisition subsidiary of the Company, Henlor and the shareholders of Henlor.
Pursuant to the agreement, the Company's acquisition subsidiary merged with and
into Henlor, with Henlor continuing as the surviving corporation. The merger
consideration paid by the Company consisted of (i) a cash payment of $705,621,
(ii) an 8% promissory note in the aggregate principal amount of $794,379 due
December 1, 2000, issued to the former shareholders of Henlor, and (iii) the
issuance of 299,581 Class A Shares to the former shareholders of Henlor, which
shares are subject to adjustment on March 10, 2000 to the extent such shares are
worth more than $1,000,000 or less than $250,000.
MSI. On March 23, 1998, the Company consummated the transactions
contemplated by a March 23, 1998 merger agreement among the Company, Artmaster,
MSI and certain shareholders of MSI. Pursuant to the agreement, MSI merged with
and into Artmaster, with Artmaster continuing as the surviving corporation and
as a wholly-owned subsidiary of the Company. The merger consideration paid by
the Company consisted of delivery of a 10% subordinated note of the Company in
the amount of $537,248 and 779,302 Class A Shares (the "MSI Merger Shares"). In
addition, the Company agreed to repay indebtedness of MSI owed to certain
creditors of MSI in the aggregate amount of $1,022,752 (which payment consisted
of a cash payment of $750,000 and a 10% subordinated promissory note of the
Company in the amount of $272,752). The Company repaid the $272,752 and $537,248
promissory notes on July 31, 1998 and March 31, 1999, respectively. Pursuant to
a stock purchase agreement dated April 23, 1999, the former shareholders of MSI
transferred the MSI Merger Shares to Aberdeen Avenue, LLC in consideration for
$1,250,000, and the Company was released from all continuing obligations under
the merger agreement.
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Windsor. On July 30, 1998, the Company consummated the transactions
contemplated by a July 7, 1998 stock purchase agreement between the Company and
Bentley International, Inc. ("Bentley"), a publicly-held corporation. Pursuant
to the agreement, the Company purchased all of the issued and outstanding shares
of Windsor, a wholly-owned subsidiary of Bentley. The purchase price paid to
Bentley consisted of a cash payment of $1,706,992 and the delivery of two
secured, subordinated 8% promissory notes, one in $3.3 million principal amount
and the other in $2.0 million principal amount (collectively, the "Windsor
Notes"). One of the Windsor Notes, in the amount of $3,300,000, was repaid on
September 30, 1998. Concurrently with the purchase of the shares of Windsor, the
Company purchased 150,000 shares of common stock of Bentley and a warrant to
purchase 300,000 shares of common stock of Bentley. The purchase price paid to
Bentley for such shares and warrant consisted of the issuance of 1,500,000 Class
A Shares to Bentley (the "Bentley Shares"). On December 1, 1998, Interiors
repurchased the Bentley Shares and the $2,000,000 Windsor Note. In addition, an
officer of Bentley agreed to terminate his consulting agreement with Windsor.
The value of the Bentley Shares and the Bentley Note on the repurchase date was
approximately $5,000,000. The aggregate repurchase price paid by the Company to
Bentley and was approximately $2,634,000 and consisted of (i) a cash payment of
$2,580,000 and (ii) other consideration. The cash portion of the repurchase was
provided by the Company's internal working capital, and did not require the
issuance of additional equity. On February 22, 1999, the Bentley Shares were
retired by the Company.
Troy. On August 14, 1998, the Company consummated the transactions
contemplated by a July 2, 1998 merger agreement among the Company, Troy, and the
Troy stockholders, pursuant to which a wholly-owned subsidiary of the Company
merged with and into Troy, with Troy continuing as the surviving corporation.
The merger consideration paid by the Company consisted of a cash payment of
$250,000 and the issuance of 650,000 Class A Shares (the "Troy Merger Shares")
to the former shareholders of Troy. In addition, the Company agreed to cause
Troy to repay $1,700,000 in indebtedness to certain former shareholders of Troy.
On or about July 31, 1999, the former shareholders of Troy agreed to sell 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 for a period of six months.
If the Troy Merger Shares are worth less $1,150,500 based on the sixty-day
average of the Class A Shares following the six month anniversary of the letter
agreement, the Company must either pay cash or issue additional Class A Shares
(hereinafter referred to as Troy Merger Shares) to the Troy Purchasers in the
amount of the shortfall.
Model Home. On February 26, 1999, the Company consummated the transactions
contemplated by a December 31, 1998 merger agreement among the Company, Model
Home and a wholly-owned subsidiary of the Company (the "MHI Merger Agreement"),
pursuant to which the Company's wholly-owned acquisition subsidiary merged with
and into Model Home, with Model Home as the surviving corporation of the merger.
The purchase price paid by the Company consisted of (i) a cash payment of
$2,000,000, (ii) promissory notes of the Company in the aggregate principal
amount of $230,766 and (iii) Class A Shares with a fair market value of
$2,300,000 (the "MHI Merger Shares") payable on the eighteenth month anniversary
of the closing date. Additionally, the Company agreed to issue to former Model
Home shareholders Class A Shares with a maximum fair market value of $2,000,000
(the "Earnout Shares") upon the attainment of certain earnings goals by Model
Home. The MHI Merger Shares will be held in escrow as security for the mutual
obligations of the parties under the merger agreement.
Stylecraft. On February 22, 1999, the Company consummated the transactions
contemplated by an August 27, 1998 stock purchase agreement among the Company
and the shareholders of Stylecraft. Pursuant to the purchase agreement, the
Company purchased 100% of the stock of Stylecraft. The purchase price paid to
the former shareholder of Stylecraft consisted of a cash payment of $10,319,000.
Redemption of WB Warrants and WC Warrants. On March 20, 1999, the Company
redeemed 919,251 of its publicly-traded WB Warrants and 171,020 of its
publicly-traded WC Warrants for aggregate consideration of $10,902.71 or $0.01
per warrant. As a result of the redemption, there are no longer any outstanding
WB Warrants or WC Warrants. From January 1 through March 31, 1999, an amount of
WB Warrants and WC Warrants were exercised
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at $2.00 and $5.50, respectively, resulting in the issuance of 2,696,632 Class A
Shares and 2,152,485 Series A Preferred Shares, and the Company received gross
proceeds of approximately $17.2 million.
The CSL Investment. On March 2, 1999, Interiors consummated the
acquisition of 1,191,752 newly-issued shares of common stock, par value $.001
per share, (the "CSL Shares") of CSL representing approximately 51% of the
issued and outstanding shares of common stock of CSL as of such date, pursuant
to a March 1, 1999 stock purchase agreement between Interiors and CSL. The
purchase price paid to CSL for the CSL shares consisted of (i) a cash payment of
$600,000 and (ii) the issuance of 1,927 Series C Preferred Shares to certain
creditors of CSL in exchange for the cancellation of certain CSL debt having a
principal face amount of $1,027,500. See "Description of Securities Series C
Convertible Preferred Stock."
The $600,000 cash payment was provided from Interiors' working capital. In
conjunction with the transaction, Interiors and CSL entered into a standstill
agreement and CSL expanded its board of directors to seven members, including
three designees of Interiors. Pursuant to the standstill agreement, for a period
of 150 days from the closing Interiors and its affiliates are prohibited from
acquiring any shares of CSL common stock, which would increase Interiors'
holdings above 51%.
Petals. On December 11, 1998, the Company entered into a stock purchase
agreement with the majority stockholders of Petals, owning 72% of the
outstanding capital stock of Petals, pursuant to which the Company agreed to pay
to the majority stockholders, in consideration for their Petals shares and the
cancellation of $2,440,000 of debt owed by Petals to one of such stockholders,
an aggregate of $4,000,000 in cash and a 8% $2,000,000 Company convertible note
due two years from the closing and convertible into Class A Shares at a
conversion price of $2.00 per share. In January 1999, the four minority
stockholders of Petals (owning in the aggregate 28% of its capital stock) filed
two separate actions in the Supreme Court of the State of New York claiming,
among other things, that the majority stockholders had breached the terms of a
1993 shareholders' agreement. The court granted temporary restraining orders
prohibiting the majority stockholders from transferring their interest to the
Company. On February 19, 1999, two of the four minority stockholders settled all
of their claims and received $1.8 million from Petals in redemption for the
Petals stock owned by them. On March 17, 1999, the remaining minority
stockholders (owners of approximately 16.7% of the outstanding stock of Petals)
agreed to sell to Petals all of their Petals shares for approximately $2.15
million in cash and an additional $262,500 paid over nine months in settlement
of their employment agreements with Petals. In addition, the Company agreed to
issue to such minority stockholders three year warrants to purchase an aggregate
of 100,000 Class A Shares at an exercise price of $3.50 per share (the "Petals
Warrants").
On March 26, 1999, the litigation was dismissed, the Company consummated
the acquisition of the shares from the majority stockholders, Petals redeemed
the equity interests of the remaining minority stockholders, and the Company
issued the Petals Warrants. As a result, the Company acquired 100% of the Petals
capital stock.
The Stevens Settlement. In July 1996, the Company issued an aggregate of
50,000 Class A Shares in a private placement to Ann Stevens, a former executive
of the Company and sister of the Company's President and Chief Executive
Officer, pursuant to the Company's June 30, 1996 settlement with Ms. Stevens
(the "Stevens Settlement"). Pursuant to the Stevens Settlement the Company
placed into escrow 1,250,000 Class B Common (the "Escrow Shares") with Michael
Levine, Esq., attorney of Ms. Stevens, as escrow agent. Pursuant to the terms of
the Stevens Settlement, in November 1997, February 1998 and September 1998, the
Company added an aggregate of 12,500,000 Class A Shares to the Escrow Shares.
The Escrow Shares were held as security for certain obligations of the Company
under the Stevens Settlement. On October 30, 1998, all of the Company's
obligations to Ms. Stevens under the Stevens Settlement were extinguished and
the escrow related thereto was dissolved in consideration of a cash payment of
$500,000. The Stevens Settlement was partially financed by a 10% demand loan
from an accredited investor. In connection with this loan, 2,500,000 Class A
Shares and 1,250,000 Class B Shares formerly held by the escrow agent were
transferred as collateral for the demand loan, and 10,000,000 Class A Shares
formerly held by the escrow agent were retired. The accredited investor executed
on the collateral and the demand loan was repaid in full on November 18, 1999.
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Cancellation of Options. In November 1998, Max Munn, the President and
Chief Executive Officer of the Company, voluntarily canceled all options granted
to him through October 31, 1998 (the "Canceled Options"). On November 2, 1998,
the Board of Directors approved the grant to Mr. Munn of options to purchase
250,000 shares of Series A Preferred Shares and 2,500,000 Class A Shares at the
end of such ten-year period, subject to acceleration if certain defined
performance measures are met. The exercise price for these options is the
closing market price on November 2, 1998. The Canceled Options consist of a
grant to Mr. Munn pursuant to the Company's 1994 Director's Stock Option and
Appreciation Rights Plan of 25,000 options to purchase Class A Shares at an
exercise price of $3.85 per share and with an expiration date of September 16,
2004.
Repayment of Convertible Debentures. In July 1998 the Company issued
$2,250,000 of its 7% three year Convertible Debentures and in August 1998 issued
an additional $750,000 of such three year Convertible Debentures to three
accredited investors. In connection with the issuance of such Convertible
Debentures, the Company issued warrants to purchase an aggregate of 1,339,286
Class A Shares at an exercise price equal to 120% of the current market price
and issued the CD Finder Warrants to finders in the transaction. In March 1999,
the Company repurchased and retired all $3,000,000 principal amount of
Convertible Debentures. The Company believes that the redemption and repurchase
of the Convertible Debentures was in the best interests of the Company and its
stockholders as it avoided the potential substantial dilution which could have
resulted from the issuance of as much as 6,600,000 additional Class A Shares,
depending on the market price of the Company's Class A Shares at the time of a
future conversion of the Convertible Debentures.
DESCRIPTION OF SECURITIES
Common Stock
Class A Shares. The Certificate of Incorporation of the Company authorizes
the issuance of up to 60,000,000 Class A Shares, of which 30,292,067 Class A
Shares were issued and outstanding as of August 4, 1999. Each Class A Share is
entitled to one non-cumulative vote per share on all matters on which
stockholders may vote at meetings of stockholders. The Class A Shares are not
convertible into any other securities of the Company.
Class B Shares. The Certificate of Incorporation of the Company authorizes
the issuance of up to 2,500,000 Class B Shares of which 2,455,000 Class B Shares
are issued and outstanding as of August 4, 1999. Each Class B Share is entitled
to five non-cumulative votes per share on all matters on which stockholders may
vote at meetings of stockholders. The Class B Shares are convertible on a
one-for-one basis at any time after issuance at the option of the holder into
Class A Shares. Issuance of Class B Shares could, under certain circumstances,
have the effect of delaying or preventing a change in control of the Company and
may adversely affect the rights of holders of Class A Shares. See "Risk Factors
- - Voting Control by Related Party."
The holders of Class A Shares and Class B Shares (collectively, the
"Common Stock"): (i) have equal ratable rights to dividends from funds legally
available therefor, when, as and if declared by the Board of Directors of the
Company; (ii) are entitled to share ratably in all of the assets of the Company
available for distribution to holders of Common Stock, upon liquidation,
dissolution or winding up of the affairs of the Company; and (iii) do not have
preemptive or subscription rights and there are no redemption or sinking fund
provisions applicable thereto. All shares of Common Stock issued and outstanding
are duly authorized, fully paid and nonassessable. Except as otherwise required
by law, the holders of Common Stock shall vote together as a single class on all
matters.
Preferred Stock
The Certificate of Incorporation of the Company authorizes the issuance of
up to 5,300,000 shares of Preferred Stock, $.01 par value per share. Of this
amount, an aggregate of (i) 2,870,000 shares have been designated as voting
Series A Preferred Shares with a $5.00 per share liquidation value, (ii) 200,000
shares have been designated as non-voting Series B Preferred Shares with a
$10.00 per share liquidation value, and (iii) 6,500 shares have been designated
as non-voting Series C Preferred Shares with a $1,000 per share liquidation
value. The Board of Directors is authorized
14
<PAGE>
to issue shares of Preferred Stock from time to time in one or more series and,
subject to the limitations contained in the Certificate of Incorporation and any
limitations prescribed by law, to establish and designate any such series and to
fix the number of shares and the relative conversion rights, voting rights and
terms of redemption (including sinking fund provisions) and liquidation
preferences.
If additional shares of Preferred Stock are issued with voting rights,
such issuance could affect the voting rights of the holders of the Company's
Class A Shares by increasing the number of outstanding shares having voting
rights, and by the creation of class or series voting rights. Shares of
Preferred Stock with conversion rights could potentially increase the number of
Class A Shares outstanding. Issuance of Preferred Stock could, under certain
circumstances, have the effect of delaying or preventing a change in control of
the Company and may adversely affect the rights of holders of Class A Shares.
Also, Preferred Stock could have preferences over the Class A Shares (and other
series of stock) with respect to dividends and liquidation rights.
Series A 10% Cumulative Convertible Preferred Stock
The Series A Preferred Shares consist of 2,870,000 shares, of which
1,026,514 shares were issued and outstanding as of August 4, 1999. After
September 17, 2000, each Series A Preferred Share is redeemable by the Company
in whole or in part at $5.50 per share upon 30 days prior written notice. Each
Series A Preferred Share is convertible, subject to adjustment, into three Class
A Shares. The Series A Preferred Shares are entitled to a dividend, prior to any
payment of dividends on the Class A Shares or Class B Shares, of $0.50 per share
per annum payable in semi-annual installments of $0.25 per share. If the Series
A Preferred Shares dividend is not paid, it accumulates until paid in full to
date. The Company may elect to pay the Series A Preferred Shares dividend either
in cash or in Class A Shares, which Class A Shares shall be issued for such
purposes on the basis of the average closing prices of the Class A Shares for
the ten business days prior to the date of declaration of the Series A Preferred
Shares dividend. The Series A Preferred Shares shall not have any right to vote
except to the extent, if any, required by Delaware law. Upon liquidation of the
Company, each share of Series A Preferred Shares is entitled to receive $5.00
plus accrued and unpaid dividends before any payment is made to the holders of
Common Stock.
Series B Redeemable Convertible Preferred Stock.
The Series B Preferred Shares consist of 200,000 shares, all of which are
issued and outstanding. On January 22, 1999, in order to provide it with
additional working capital, the Company completed a private placement with one
accredited investor of newly designated Series B Preferred Shares, with a par
value of $0.01 and a liquidation value of $10.00 per share, and redeemable three
year warrants to purchase up to 2,000,000 shares of Class A Common Stock at an
exercise price of $0.75 per share (the "Series B Warrants"). The Company
received $2,020,000 of gross proceeds from the sale of the Series B Preferred
Shares and Series B Warrants.
The Series B Preferred Shares rank in parity with the Company's Series A
Preferred Shares with respect to dividends and liquidation, pay an 8% annual
dividend, payable quarterly in cash or by the issuance of additional shares of
Series B Preferred Shares, and are convertible by the holder at any time on or
after January 31, 2000 into Class A Shares at a conversion price of $2.35 per
share. Under certain limited conditions relating to a sale of the Company,
through merger, sale of substantially all of its assets or tender offer, the
Series B Preferred Shares may be converted into Class A Shares by the holder
prior to January 31, 2000. The conversion price and the number of Class A Shares
issuable upon conversion of the Series B Preferred Shares is subject to
adjustment to protect the holder against dilution.
In the event that the average per share price of the Company's Class A
Shares, as traded on NASDAQ or another national securities exchange, for the 12
trading days immediately prior to January 1, 2000 (the "Anniversary Price")
shall be less than 140% of the conversion price in effect ($3.30 per share,
based on the $2.35 per share conversion price), the Company has the right to
redeem the Series B Preferred Shares prior to January 31, 2000, for a price
equal to the sum of $10 per share, plus accrued and unpaid dividends, plus a
premium of $5.00 per share, prorated over the period from January 22, 1999 to
the date of redemption. In such event, the Company may also redeem the Series B
Warrants for $0.1 each. In the event that such Anniversary Price shall be less
than the conversion price, the
15
<PAGE>
holder of the Series B Preferred Shares shall have the right, during the 30 days
ending January 31, 2000, to compel the Company to redeem and repurchase up to
50% of the Series B Preferred Shares for a redemption price equal to $10 per
share, plus accrued and unpaid dividends. In the event that the Anniversary
Price shall exceed 140% of the conversion price of the Series B Preferred Shares
then in effect, the Company shall also have the right after January 1, 2000 to
redeem all of the Series B Warrants for $.01 each, and a lesser number of Series
B Warrants in pro- rata amounts if such Anniversary Price exceeds the conversion
price, but is less than 140% of such conversion price.
The holders of the Series B Preferred Shares were granted certain
registration rights with respect to the underlying Class A Shares issuable upon
conversion of the Series B Preferred Shares or exercise of the Series B
Warrants, and such underlying Class A Shares are included in the Registration
Statement of which this Prospectus is a part. See "Selling Stockholders."
Series C Convertible Preferred Stock.
In February 1999, in order to provide it with the capital resources to
complete the Stylecraft and Petals acquisitions, the Company completed a private
placement with four accredited investors of 6,427 shares of newly created Series
C Preferred Shares. The Series C Preferred Shares have a liquidation value of
$1,000 per share. In consideration for the issuance of 4,500 Series C Preferred
Shares, the Company received $4,500,000 in gross proceeds. In addition, two of
the purchasers of the Series C Preferred Shares, who were also holders of
$1,027,500 of 7% notes previously issued to them by CSL, canceled such notes in
exchange for the issuance of an additional 1,927 Series C Preferred Shares. See
"Certain Material Transactions - The CSL Investment."
The Series C Preferred Shares rank in parity with the Company's Series A
Preferred Shares and Series B Preferred Shares with respect to dividends and
upon liquidation, pay a 7% cumulative annual dividend, payable quarterly in
cash, and are convertible at any time on or before October 15, 1999 at a
conversion price per share equal to 120% of the average closing bid prices of
the Company's Class A Shares for the five trading days immediately prior to
conversion, or at any time from and after October 16, 1999, at a conversion
price per shares equal to 100% of the average closing bid prices of the
Company's Class A Shares for the five trading days immediately prior to
conversion. The conversion price and the number of Class A Shares issuable upon
conversion of the Series C Preferred Shares are subject to adjustment to protect
the holders against dilution. However, in no event may the aggregate number of
Class A Shares issuable upon conversion of all shares of Series C Preferred
Shares exceed 19.9% (or approximately 4,275,000 Class A Shares) of the issued
and outstanding Company Class A Shares and Class B Shares at the date of
issuance of the Series C Preferred Shares. In the event that such limitation on
the maximum number of Class A Shares issuable shall, based on the conversion
price then in effect, not permit the holders to convert all shares of Series C
Preferred Shares into Class A Shares, the remaining Series C Preferred Shares
shall be redeemed by the Company for their $1,000 per shares liquidation value,
plus accrued and unpaid dividends, either by the payment in cash or by the
issuance of the Company's 15% demand note. At the end of three years from their
effective date of issuance (January 31, 2002), the Series C Preferred Shares
shall be subject to mandatory conversion into Class A Shares at the conversion
price then in effect; provided, that the Company's Class A Shares are then
traded on NASDAQ or another national securities exchange at a price of$1.00 or
more. If such conditions are not met, any unconverted Series C Preferred Shares
are subject to redemption at the option of the holders at $1,571 per share, plus
accrued dividends.
The holders of the Series C Preferred Shares were granted certain
registration rights with respect to the underlying Class A Shares issuable upon
conversion of the Series C Preferred Shares, and such underlying Class A Shares
are included in the Registration Statement of which this Prospectus is a part.
See "Selling Stockholders."
PLAN OF DISTRIBUTION
Pursuant to certain registration rights agreements, the Company has agreed
to maintain the effectiveness of the Registration Statement until the earlier of
(i) the date that all of the Class A Shares underlying the CD Warrants, CD
Finder Warrants, the Series B Preferred Shares, the Series B Warrants, the
Series C Preferred Shares and the other Class A Shares being registered pursuant
to the registration statement of which this Prospectus is a part (collectively,
the "Registered Class A Shares") are sold pursuant to the Registration
Statement, (ii) the date the holders thereof receive an opinion of counsel that
all of such Registered Class A Shares may be sold pursuant to Rule 144
promulgated under
16
<PAGE>
the Exchange Act or (iii) five years from the respective dates of issuance of
the Registered Class A Shares or the securities which are convertible into or
exercisable for Registered Class A Shares.
All Registered Class A Shares are being offered by the Selling Security
Holders. The Registered Class A Shares may be sold from time to time by the
Selling Security Holders. Such sales may be made in one or more exchanges or in
the over-the-counter market (including the NASDAQ National Market System) or
otherwise, at prices and at terms then prevailing or at prices related to the
then current market price, or in negotiated transactions. The Registered Class A
Shares may be sold by one or more of the following: (a) a block trade in which
the broker-dealer so engaged will attempt to sell the Registered Class A Shares
as agent but may position and resell a portion of the block as principal to
facilitate the transaction; (b) purchases by a broker-dealer as principal and
resale by such broker-dealer for its account pursuant to this Prospectus; (c)
certain distribution in accordance with the rules of such exchange; and (d)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers. In effecting sales, broker-dealers engaged by the Selling Security
Holders may arrange for other broker-dealers to participate in the resales.
The Registered Class A Shares issued in connection with the Troy
acquisition will be held in escrow by U.S. Bank Trust (the "Escrow Agent") until
the later of (i) September 10, 1999, or (ii) the day which the last pending
indemnification claim made by the Company against the former Troy shareholders
and arising out of the Troy acquisition has been resolved. Beginning on July 2,
1999, however, the Escrow Agent shall sell the Registered Class A Shares over a
10 week period; thereafter, the Escrow Agent will distribute the proceeds from
such sales to the former Troy shareholders to the extent there are no pending or
unpaid claims by the Company against the former Troy shareholders.
The Registered Class A Shares issued in connection with the acquisition of
MHI are subject to adjustment on August 26, 2000 to the extent the MHI Merger
Shares have a fair market other than $2,300,000. In addition, Registered Class A
Shares with a value of up to $2,000,000 will be issued only upon the attainment
of certain earnings goals by MHI.
The remaining Registered Class A Shares covered by this Prospectus are
issuable upon (i) conversion of the 12% Notes, the Petals Note, the Series B
Preferred Shares and the Series C Preferred Shares, or (ii) exercise of the CD
Warrants, the CD Finder Warrants, the Series B Warrants or the Petals Warrants
The Company will not receive any proceeds from the sale of the Registered
Class A Shares by the Selling Security Holders. The Company has agreed to bear
all expenses of registration of the Registered Class A Shares (excluding fees
and expenses of counsel to the Selling Security Holders). Any commissions,
discounts, concessions or other fees, if any, payable to broker-dealers in
connection with the sale of the Registered Class A Shares will be borne by the
Selling Security Holders selling such Registered Class A Shares. In addition,
the Company has agreed to indemnify certain Selling Security Holders against
certain losses, claims, damages and liabilities, including liabilities under the
Securities Act.
Notwithstanding the registration of the Registered Class A Shares, the
Selling Security Holders have no obligation to sell all or any portion of the
Registered Class A Shares, other than those Registered Class A Shares issued in
connection with the Troy acquisition.
USE OF PROCEEDS
The Company will receive no proceeds from the sale of the Registered Class
A Shares offered hereby by the Selling Security Holders. A maximum of 112,500
Class A Shares can be purchased upon exercise of some or all of the CD Finder
Warrants. The Company will receive a maximum of $236,250 upon exercise of the CD
Warrants (assuming that the CD Warrants are exercised to purchase the maximum
number of Class A Shares purchasable upon the exercise thereof). The Company
will also receive a maximum of $350,000 upon the exercise of the 100,000 Petals
Warrants and $1,500,000 from the exercise of the 2,000,000 Series B Warrants.
The proceeds received by the Company upon exercise of the CD Warrants, CD Finder
Warrants, the Petals Warrants and the Series B Warrants, if any, will be used
for working capital.
17
<PAGE>
SELLING SECURITY HOLDERS
The following table sets forth as of August 4, 1999, and upon completion
of the offering described in this Prospectus, information with regard to the
beneficial ownership of the Company's Common Stock by the Selling Security
Holders. The Selling Security Holders may not have a present intention of
selling the Class A Shares and may offer no Class A Shares for sale or less than
the number of Class A Shares indicated, or may sell the Class A Shares by a
means other than this offering.
<TABLE>
<CAPTION>
Class A Shares Class A Shares
Beneficially Class A Beneficially
Owned Before Offering Shares to Owned After Offering
--------------------- --------------------
Name** Number Percentage(1) be Offered(2) Number Percentage
- ------ ------ ------------- ------------- ------ ----------
<S> <C> <C> <C> <C> <C>
Sovereign Partners, L.P.(3) 2,188,400 4.92% 2,188,400 0 0%
365 Bay Street, 10th Floor
Toronto, Ontario M5H 2V2
Dominion Capital Fund, Ltd.(4) 1,714,200 3.92% 1,714,200 0 0%
365 Bay Street, 10th Floor
Toronto, Ontario M5H 2V2
Cardinal Capital Management(5) 112,500 0.25% 112,500 0 0%
Seaside Partners LP(6) 2,851,064 6.41% 2,851,064 0 0%
623 Ocean Drive
Sea Girt, NJ 08750
Dominion Investment Fund LLC(7) 272,000 0.61% 272,000 0 0%
365 Bay Street, 10th Floor
Toronto, Ontario M5H 2V2
The Endeavour Capital Fund(8) 1,280,000 2.88% 1,280,000 0 0%
14/14 Divrei Chaim Street
Jerusalem 94479 Israel
John R. Corelli(9) 50,000 0.11% 50,000 0 0%
Christopher Corelli(9) 50,000 2.11% 50,000 0 0%
Bret Davis(10) 94,900 0.21% 94,900 0 0%
Pro-Frame Contracting, Inc.(10) 236,600 0.53% 236,600 0 0%
Fredrick A. or Phyllis Meyer(10) 94,900 0.21% 94,900 0 0%
Mario J. Arena(10) 176,150 0.40% 176,150 0 0%
Charles Michael Gilliam(10) 47,450 0.11% 47,450 0 0%
Norwest Bank of Minnesota, NA(11) 3,440,000 7.74% 3,440,000 0 0%
1100 Broken Land Parkway
Columbia, Maryland 21044
</TABLE>
18
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
DMB Property Ventures Limited 1,000,000 2.25% 1,000,000 0 0%
Partnership(12)
RBB Bank AG(13) 535,714 1.20% 535,714 0 0%
</TABLE>
- ----------
* Less than 1%.
** Address provided for beneficial owners of more than 5% of the Company's
Class A Shares.
(1) Based on 44,462,945 Class A Shares, constituting 30,292,067 Class A Shares
issued and outstanding on August 4, 1999, and 14,170,878 Class A Shares to be
offered in connection with the offering described in this Prospectus.
(2) The Selling Shareholders may offer less than the amount of Class A Shares
indicated. No representation is made that any Class A Shares will or will not be
offered for sale.
(3) Represents the maximum number of Class A Shares issuable upon conversion of
the 2,573 Shares owned by such stockholder and 130,000 of the Troy Merger
Shares. The holder is prohibited from converting Series C Preferred Shares into
Class A Shares if such conversion would result in the holder owing more than
4.9% of the outstanding Class A Shares. Accordingly, the holder disclaims
beneficial ownership of any Class A Shares in excess of such amount.
(4) Represents the maximum number of Class A Shares issuable upon conversion of
the 2,144 Series C Preferred Shares owned by such stockholder and 26,000 of the
Troy Merger Shares. The holder is prohibited from converting Series C Preferred
Shares into Class A Shares if such conversion would result in the holder owing
more than 4.9% of the outstanding Class A Shares. Accordingly, the holder
disclaims beneficial ownership of any Class A Shares in excess of such amount.
(5) Represents Class A Shares issuable upon the exercise of CD Finder Warrants.
(6) Represents the maximum number of Class A Shares issuable upon conversion of
200,000 Class B Preferred Shares at $2.35 per share and exercise of 2,000,000
Redeemable Series B Warrants at $0.75 per share.
(7) Represents the maximum number of Class A Shares issuable upon conversion of
the 210 Series C Preferred Shares owned by such stockholder and 104,000 of the
Troy Merger Shares. The holder is prohibited from converting Series C Preferred
Shares into Class A Shares if such conversion would result in the holder owing
more than 4.9% of the outstanding Class A Shares. Accordingly, the holder
disclaims beneficial ownership of any Class A Shares in excess of such amount.
(8) Represents the maximum number of Class A Shares issuable upon conversion of
the 1,500 shares of Series C Preferred Shares owned by such stockholder.
(9) Represents Class A Shares issuable upon exercise of Petals Warrants issued
to the former minority stockholders of Petals in connection with the Petals
acquisition.
(10) Represents the maximum number of Class Shares estimated to be issued upon
conversion of the 12% Notes held by such holder if the entire principal amount,
plus accrued but unpaid interest, of such 12% Notes were converted into Class A
Shares.
(11) Represents Class A Shares held in escrow in connection with the acquisition
of MHI. The Class A Shares held by Norwest Bank of Minnesota, N.A. will be sold
no earlier than August 26, 2000. See "Plan of Distribution." After adjustment,
the remaining Class A Shares will be distributed in the following percentages to
the former shareholders of MHI: Jerry L. Bashore - 12.50%; C.R. Broderick, III -
12.50%; Rita Carlson - 12.50%; William F. Carroll - 12.50%; Andrew and Marianne
d'Elia - 8.75%; Gerald and Christine Fisher - 10.00%; James Kretzing - 6.25%;
Carl McWilliams - 12.50%; and Langley Spurlock - 12.50%.
(12) Represents Class A Shares issuable upon conversion of the Petals Note
issued in connection with the Petals acquisition.
(13) Represents Class A Shares issuable upon exercise of the CD Warrants.
19
<PAGE>
EXPERTS
The Form 10-KSB for the year ended June 30, 1998, as amended, incorporated
by reference in this Registration Statement has been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and is included herein in reliance upon the authority of said firm as
experts in giving said report. The Current Report on Form 8-K, as filed with the
Commission on April 6, 1998 and as amended by the Current Report on Form 8-K/A
as filed with the Commission on May 29, 1998 incorporated by reference in this
Registration Statement includes financial statements of MSI which have been
audited by Kellogg & Andelson Accountancy Corporation, independent public
accountants, as indicated in their report with respect thereto, and is included
herein in reliance upon the authority of said firm as experts in giving said
report. The Current Report on Form 8-K, as filed with the Commission on August
10, 1998 and as amended by the Current Report on Form 8-K/A as filed with the
Commission on October 9, 1998 incorporated by reference in this Registration
Statement includes financial statements of Windsor which have been audited by
Rubin, Brown, Gornstein & Co. LLP, independent public accountants, as indicated
in their report with respect thereto, and is included herein in reliance upon
the authority of said firm as experts in giving said report. The Current Report
on Form 8-K, as filed with the Commission on August 28, 1998 and as amended by
the Current Report on Form 8-K/A as filed with the Commission on October 9, 1998
incorporated by reference in this Registration Statement includes financial
statements of Troy which have been audited by Deloitte & Touche LLP, independent
public accountants, as indicated in their report with respect thereto, and is
included herein in reliance upon the authority of said firm as experts in giving
said report. The Current Report on Form 8-K as filed with the Commission on
March 9, 1999 and as amended by the Current Report on Form 8-K/A as filed with
the Commission on May 10, 1999 incorporated by reference in this Registration
Statement includes financial statements of Stylecraft which have been audited by
BDO Seidman, LLP, independent public accountants, as indicated in their report
with respect thereto, and is included herein in reliance upon the authority of
said firm as experts in giving said report.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of the performance of their duties as directors and
officers provided that this provision shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
arising under Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived an improper personal benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, vote of shareholders or otherwise.
Article Seven of Interior's Certificate of Incorporation eliminates the
personal liability of directors to the fullest extent permitted by section
102(b)(7) of the Delaware General Corporation Law.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The above discussion of the Company's Bylaws, Certificate of Incorporation
and indemnification agreements and of Section 145 of the Delaware General
Corporation Law is not intended to be exhaustive and is qualified in its
entirety by such Bylaws, Certificate of Incorporation, indemnification
agreements and statute. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
20
<PAGE>
Part II Information Not Required in Prospectus
Item 14. Other Expenses of Issuance and Distribution.
The fees and expenses payable by the Company in connection with the sale
of the Class A Shares being registered are estimated as follows:
Amount
------
SEC Filing Fee........................................ $ 4,996.44
Legal Fees and Expenses............................... 75,000.00
Accounting Fees....................................... 25,000.00
Consulting Fees....................................... 0
Printing Expenses..................................... 1,250.00*
Miscellaneous......................................... 5,000.00
Total..................................... $ 111,246.44
---------
* Estimated
Item 15. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of the performance of their duties as directors and
officers provided that this provision shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
arising under Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived an improper personal benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, vote of shareholders or otherwise.
Article Seven of the Company's Certificate of Incorporation eliminates the
personal liability of directors to the fullest extent permitted by section
102(b)(7) of the Delaware General Corporation Law.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The above discussion of the Company's Bylaws, Certificate of Incorporation
and indemnification agreements and of Section 145 of the Delaware General
Corporation Law is not intended to be exhaustive and is qualified in its
entirety by such Bylaws, Certificate of Incorporation, indemnification
agreements and statute.
II-1
<PAGE>
Item 16. Exhibits.
Exhibit
No. Description of Exhibit
2.1 Agreement and Plan of Merger dated March 23, 1998 by and among Interiors,
Artmaster, MSI and certain shareholders of MSI.1/
2.2 Agreement and Plan of Merger dated April 21, 1998 by and between Interiors
and Decor.4/
2.3 Agreement and Plan of Merger dated July 2, 1998 by and among Troy
Acquisition Corp., Interiors, Troy, Barry R. Jackson, and Todd R.
Langner.3/
2.4 Stock Purchase Agreement dated July 30, 1998 by and between Interiors and
Bentley.2/
2.5 Stock Purchase Agreement dated August 27 1998 by and among Interiors and
Jimmy D. Webster, Jr., Betty Jo Webster and Henry L. Gray, each of whom
are shareholders of Stylecraft.7/
2.6 Purchase Agreement dated December 11, 1998 by and among Interiors, the
majority shareholders of Petals and DMB Property Ventures Limited
Partnership ("DMB").8/
2.7 Agreement and Plan of Merger dated December 31, 1998 by and among MHI
Acquisition Corp., Interiors and Model Home.6/
2.8 Stock Purchase Agreement dated March 1, 1999 by and between Interiors and
CSL.5/
4.1 Certificate of Designation of Series B Preferred Stock of Interiors.
4.2 Certificate of Designation of Series C Convertible Preferred Stock of
Interiors.
4.3 Escrow Agreement dated July 2, 1998 by and among Buyer, U.S. First Trust,
a national association, and Barry R. Jackson.
4.4 The Windsor Art, Inc. Voting Trust Agreement No. 1 dated July 30, 1998 by
and among Lloyd R. Abrams and Max Munn, Buyer and Bentley.
4.5 Common Stock Purchase Warrant B to Purchase 50,000 Shares of Common Stock
of Interiors dated July 27, 1998 issued by Interiors to Cardinal Capital
Management Inc. ("Cardinal").4/
4.6 Common Stock Purchase Warrant B to Purchase 62,500 Shares of Common Stock
of Interiors dated July 30, 1998 issued by Interiors to Cardinal.4/
4.7 Series B Warrant To Purchase up to 2,000,000 Shares of Class A Common
Stock of Interiors dated January 22, 1999 issued by Interiors to Seaside
Partners, L.P.
4.8 Form of 12% Convertible Promissory Note.
4.9 Form of Subscription Agreement to purchase 12% Convertible Promissory
Note.
4.10 Settlement Agreement dated March 17, 1999 by and among Interiors, John
Corelli, Christopher Corelli and Petals.
4.11 Form of Warrant to Purchase Shares of Class A Common Stock of Interiors
issued by Interiors to the minority shareholders of Petals.
II-2
<PAGE>
4.12 Form of Registration Rights Agreement by and among Interiors and the
minority shareholders of Petals.
4.13 Form of Severance Agreement by and between Petals and the minority
shareholders of Petals.
4.14 Form of Non-Competition, Non-Disclosure and Non-Solicitation Agreement in
favor of Petals.
4.15 Form of General Release by Interiors, Petals and the minority shareholders
of Petals.
4.16 Form of General Release by Interiors, Petals and the majority shareholders
of Petals.
4.17 10% Convertible Promissory Note, dated March 23, 1999, in the amount of
$2,000,000 issued by Interiors to DMB.
5 Opinion of counsel as to legality of securities being registered.*
23.1 Consent of Arthur Andersen LLP, independent auditors.*
23.2 Consent of Deloitte & Touche LLP, independent auditors.*
23.3 Consent of Kellogg & Andelson, independent auditors.
23.4 Consent of Rubin, Brown, Gornstein & Co., LLP, independent auditors.
23.5 Consent of BDO Seidman, LLP, independent auditors.*
24.1 Power of Attorney (included herein on the signature page).
1/ Previously filed as an exhibit to Interiors' Current Report on Form 8-K
filed March 23, 1998 (File No. 00-24352), which exhibit is incorporated
herein by this reference.
2/ Previously filed as an exhibit to Interiors' Current Report on Form 8-K
filed July 30, 1998 (File No. 00-24352), which exhibit is incorporated
herein by this reference.
3/ Previously filed as an exhibit to Interiors' Current Report on Form 8-K
filed August 14, 1998 (File No. 00-24352), which exhibit is incorporated
herein by this reference.
4/ Previously filed as an exhibit to Interiors' Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1998 (File No. 0-24352), which exhibit
is incorporated herein by this reference.
5/ Previously filed as an exhibit to Interiors' Current Report on Form 8-K
filed March 4, 1999 (File No. 00-24352), which exhibit is incorporated
herein by this reference.
6/ Previously filed as an exhibit to Interiors' Current Report on Form 8-K
filed March 9, 1999 (File No. 00-24352), which exhibit is incorporated
herein by this reference.
7/ Previously filed as an exhibit to Interiors' Current Report on Form 8-K
filed March 9, 1999 (File No. 00-24352), which exhibit is incorporated
herein by this reference.
8/ Previously filed as an exhibit to Interiors' Current Report on Form 8-K
filed April 9, 1999 (File No. 00-24352), which exhibit is incorporated
herein by this reference.
* To be filed by amendment.
II-3
<PAGE>
Item 17. Undertakings.
The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) Reflect in the Prospectus any facts or events arising
after the effective date of this registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
this Registration Statement;
(iii) Include any material information with respect to the
plan of distribution not previously disclosed in this registration
statement or any material change to such information in this Registration
Statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Company pursuant
to Section 13 or Section 15(d) of the Exchange Act that are incorporated
by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) To remove from registration by means of post-effective amendment
any of the securities which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the registrant's annual report pursuant to
section 13(a) or section 15(d) of the Exchange Act (and, where applicable,
each filling of an employee benefit plan's annual report pursuant to
section 15(d) of the Exchange Act) that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bonafide
offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise,
the Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Securities Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, there unto
duly authorized, in the City of Mt. Vernon, State of New York, on August
16, 1999.
INTERIORS, INC.
a Delaware corporation
By: /s/ MAX MUNN
-----------------------------------------------
Max Munn, President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Max Munn his true and lawful
attorney-in-fact and agent, each acting alone, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign this Amendment No. 1 to Registration Statement and any and
all amendments (including post-effective amendments) to the Registration
Statement, and to file the same with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
In accordance with the requirements of the Securities Act of 1933, as
amended, this Amendment No. 1 to Registration Statement on Form S-3 was signed
by the following persons in the capacities and on the dates stated.
Signature Title Date
- --------- ----- ----
/s/ MAX MUNN President, Chief Executive Officer August 16, 1999
- ------------------------- and Director
Max Munn
/s/ RICHARD BELENSKI Chief Financial Officer August 16, 1999
- ------------------------- and Principal Accounting Officer
Richard Belenski
/s/ ROGER LOURIE Director August 16, 1999
- -------------------------
Roger Lourie
/s/ RICHARD A. JOSEPHBERG Director August 16, 1999
- -------------------------
Richard A. Josephberg
II-5
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
2.1 Agreement and Plan of Merger dated March 23, 1998 by and among Interiors,
Artmaster, MSI and certain shareholders of MSI.1/
2.2 Agreement and Plan of Merger dated April 21, 1998 by and between Interiors
and Decor.4/
2.3 Agreement and Plan of Merger dated July 2, 1998 by and among Troy
Acquisition Corp., Interiors, Troy, Barry R. Jackson, and Todd R.
Langner.3/
2.4 Stock Purchase Agreement dated July 30, 1998 by and between Interiors and
Bentley.2/
2.5 Stock Purchase Agreement dated August 27 1998 by and among Interiors and
Jimmy D. Webster, Jr., Betty Jo Webster and Henry L. Gray, each of whom
are shareholders of Stylecraft.7/
2.6 Purchase Agreement dated December 11, 1998 by and among Interiors, the
majority shareholders of Petals and DMB Property Ventures Limited
Partnership ("DMB").8/
2.7 Agreement and Plan of Merger dated December 31, 1998 by and among MHI
Acquisition Corp., Interiors and Model Home.6/
2.8 Stock Purchase Agreement dated March 1, 1999 by and between Interiors and
CSL.5/
4.1 Certificate of Designation of Series B Preferred Stock of Interiors.
4.2 Certificate of Designation of Series C Convertible Preferred Stock of
Interiors.
4.3 Escrow Agreement dated July 2, 1998 by and among Buyer, U.S. First Trust,
a national association, and Barry R. Jackson.
4.4 The Windsor Art, Inc. Voting Trust Agreement No. 1 dated July 30, 1998 by
and among Lloyd R. Abrams and Max Munn, Buyer and Bentley.
4.5 Common Stock Purchase Warrant B to Purchase 50,000 Shares of Common Stock
of Interiors dated July 27, 1998 issued by Interiors to Cardinal Capital
Management Inc. ("Cardinal").4/
4.6 Common Stock Purchase Warrant B to Purchase 62,500 Shares of Common Stock
of Interiors dated July 30, 1998 issued by Interiors to Cardinal.4/
4.7 Series B Warrant To Purchase up to 2,000,000 Shares of Class A Common
Stock of Interiors dated January 22, 1999 issued by Interiors to Seaside
Partners, L.P.
4.8 Form of 12% Convertible Promissory Note.
4.9 Form of Subscription Agreement to purchase 12% Convertible Promissory
Note.
4.10 Settlement Agreement dated March 17, 1999 by and among Interiors, John
Corelli, Christopher Corelli and Petals.
4.11 Form of Warrant to Purchase Shares of Class A Common Stock of Interiors
issued by Interiors to the minority shareholders of Petals.
4.12 Form of Registration Rights Agreement by and among Interiors and the
minority shareholders of Petals.
II-6
<PAGE>
4.13 Form of Severance Agreement by and between Petals and the minority
shareholders of Petals.
4.14 Form of Non-Competition, Non-Disclosure and Non-Solicitation Agreement in
favor of Petals.
4.15 Form of General Release by Interiors, Petals and the minority shareholders
of Petals.
4.16 Form of General Release by Interiors, Petals and the majority shareholders
of Petals.
4.17 10% Convertible Promissory Note, dated March 23, 1999, in the amount of
$2,000,000 issued by Interiors to DMB.
5 Opinion of counsel as to legality of securities being registered.*
23.1 Consent of Arthur Andersen LLP, independent auditors.*
23.2 Consent of Deloitte & Touche LLP, independent auditors.*
23.3 Consent of Kellogg & Andelson, independent auditors.
23.4 Consent of Rubin, Brown, Gornstein & Co. LLP, independent auditors.
23.5 Consent of BDO Seidman, LLP, independent auditors.*
24.1 Power of Attorney (included herein on the signature page).
1/ Previously filed as an exhibit to Interiors' Current Report on Form 8-K
filed March 23, 1998 (File No. 00-24352), which exhibit is incorporated
herein by this reference.
2/ Previously filed as an exhibit to Interiors' Current Report on Form 8-K
filed July 30, 1998 (File No. 00-24352), which exhibit is incorporated
herein by this reference.
3/ Previously filed as an exhibit to Interiors' Current Report on Form 8-K
filed August 14, 1998 (File No. 00-24352), which exhibit is incorporated
herein by this reference.
4/ Previously filed as an exhibit to Interiors' Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1998 (File No. 0-24352), which exhibit
is incorporated herein by this reference.
5/ Previously filed as an exhibit to Interiors' Current Report on Form 8-K
filed March 4, 1999 (File No. 00-24352), which exhibit is incorporated
herein by this reference.
6/ Previously filed as an exhibit to Interiors' Current Report on Form 8-K
filed March 9, 1999 (File No. 00-24352), which exhibit is incorporated
herein by this reference.
7/ Previously filed as an exhibit to Interiors' Current Report on Form 8-K
filed March 9, 1999 (File No. 00-24352), which exhibit is incorporated
herein by this reference.
8/ Previously filed as an exhibit to Interiors' Current Report on Form 8-K
filed April 9, 1999 (File No. 00-24352), which exhibit is incorporated
herein by this reference.
* To be filed by amendment.
II-7
CERTIFICATE OF DESIGNATION
of
SERIES B PREFERRED STOCK
of
INTERIORS, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
Interiors, Inc., a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), does hereby certify that, pursuant
to the authority conferred on the Board of Directors of the Corporation by the
Certificate of Incorporation (the "Certificate of Incorporation"), of the
Corporation and in accordance with Section 151 of the General Corporation Law of
the State of Delaware, the Board of Directors of the Corporation adopted the
following resolution establishing a series of 200,000 shares of Preferred Stock
of the Corporation designated as "Series B Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the Board of
Directors of this Corporation by the Certificate of Incorporation, a
series of Preferred Stock, $0.01 par value per share, of the Corporation
is hereby established and created, and that the designation and number of
shares thereof and the voting and other powers, preferences and relative,
participating, optional or other rights of the shares of such series and
the qualifications, limitations and restrictions thereof are as follows:
There shall be a series of 8% convertible redeemable Preferred Stock
of the Corporation designated as "Series B Preferred Stock" and the number of
shares constituting such series shall be 200,000, subject to adjustment as
provided herein. Such series is referred to herein as the "Series B Preferred
Stock".
1. Voting. The holders of shares of Series B Preferred Stock shall not be
entitled to any vote with respect to such shares on any question or matter,
except as expressly set forth herein or as required by applicable law.
2. Dividends. The holders of shares of Series B Preferred Stock shall be
entitled to receive out of funds legally available therefor dividends, payable
on each anniversary of the date of issuance of the Series B Preferred Stock (the
"Anniversary Date"), at the rate of eighty ($.20) cents for each outstanding
share of Series B Preferred Stock, or, if greater, dividends at the same rate as
cash dividends (if any) paid on the Company's issued and outstanding shares of
Class A Common Stock, (treating each share of Series B Preferred Stock as being
equal to the number of shares of Class A Common Stock, including fractions of a
share, into which each share of Series B Preferred Stock is then convertible).
In the event and to the extent that the Company shall not declare and pay a full
annual dividend in cash on outstanding shares of Series B Preferred Stock,
<PAGE>
as aforesaid, the aggregate amount of such annual dividend not paid in cash (the
"Deficiency") shall be paid by issuing to the holders of the outstanding shares
of Series B Preferred Stock (pro-rata) such additional number of shares of
Series B Preferred Stock as shall be determined by (a) multiplying .08 by (i)
the aggregate number of shares of Series B Preferred Stock then outstanding,
times (ii) $10.00 per share, (b) subtracting from the product of clause (a) the
amount of such annual dividend paid in cash (if any), and (c) dividing the
result thereof by $10.00.
3. Liquidation, Dissolution and Winding-up.
3A. Subject to adjustment as set forth in paragraph 3C below, upon
any liquidation, dissolution or winding up of the Corporation, whether voluntary
or involuntary, the holders of the shares of Series B Preferred Stock shall be
paid an amount equal to (i) $10.00 per share; such amount to be subject to
equitable adjustment whenever there shall occur a stock split combination,
reclassification or other similar event involving the Series B Preferred Stock
(the "Original Purchase Price"), plus (ii) in the case of each share, an amount
equal to dividends accrued but unpaid thereon, computed to the date payment
thereof is made available, before any payment shall be made to the holders of
any stock ranking on liquidation junior to the Series B Preferred Stock. The
amount payable with respect to one share of Series B Preferred Stock is
sometimes referred to as the "Series B Liquidation Preference Payment" and with
respect to all shares of Series B Preferred Stock is sometimes referred to as
the "Series B Liquidation Preference Payments." The holders of Series B
Preferred Stock shall be entitled to receive Series B Liquidation Preference
Payments in parity with the holders of the Company's outstanding 10% Cumulative
Convertible Preferred Stock (the "Series A Preferred Stock"), on a pro-rata
basis based upon the amount by which (a) the product of outstanding shares of
Series A Preferred Stock multiplied by the $5.00 per share liquidation
preference on such Series A Preferred Stock, and (b) the product of the
outstanding shares of Series B Preferred Stock multiplied by the $10.00 per
share Original Purchase Price attributible to the Series B Preferred Stock,
bears to each other. If upon any liquidation, dissolution, or winding up of the
Corporation, the assets to be distributed to the holders of the Series B
Preferred Stock shall be insufficient to permit payment to such stockholders of
the full preferential amounts aforesaid, then all of the assets of the
Corporation available for distribution to holders of the Series B Preferred
Stock shall be distributed to such holders of the Series B Preferred Stock pro
rata, so that each holder receives that portion of the assets available for
distribution as the number of shares of Series B Preferred Stock held by such
holder bears to the total number of shares of Series B Preferred Stock then
outstanding. For purposes hereof, the Class A Common Stock and the Class B Class
A Common Stock of the Corporation shall rank on liquidation junior to the Series
B Preferred Stock.
3B. Upon any liquidation, dissolution or winding up of the
Corporation, immediately after the holders of Series B Preferred Stock shall
have been paid in full the Series B Liquidation Preference Payments or funds
necessary for such Series B Liquidation Preference Payments shall have been set
aside by the Corporation in trust for the account of holders of the Series B
Preferred Stock so as to be available for such Series B Liquidation Preference
Payments, the holders of the Series B Preferred Stock shall be entitled to no
further participation in the distribution of the assets of the Corporation, and
the remaining assets of the Corporation legally available for distribution to
its stockholders shall be distributed among the holders of other classes of
securities of the Corporation in accordance with their respective terms.
2
<PAGE>
3C. Written notice of such liquidation, dissolution or winding up,
stating a payment date and the place where said payments shall be made, shall be
given by mail, postage prepaid, or by telex to non-U.S. residents, not less than
20 days prior to the payment date stated therein, to the holders of record of
Series B Preferred Stock, such notice to be addressed to each such holder at its
address as shown by the records of the Corporation.
3D The (i) consolidation or merger of the Corporation into or with
any other entity or entities which results in the exchange of outstanding shares
of the Corporation for securities or other consideration issued or paid or
caused to be issued or paid by any such entity or affiliate thereof (except a
consolidation or merger into a wholly-owned subsidiary or merger in which the
Corporation is the surviving Corporation and the holders of the Corporation's
voting stock outstanding immediately prior to the transaction constitute a
majority of the holders of voting stock outstanding immediately following the
transaction), (ii) the sale or transfer by the Corporation of all or
substantially all its assets, or (iii) the sale or transfer by the Corporation's
stockholders of more than 50% in voting power of the Corporation's capital
stock, shall be deemed to be a liquidation, dissolution or winding up of the
Corporation within the meaning of the provisions of this paragraph 3.
Whenever the distributions provided for in this paragraph 3 shall be payable in
property other than cash, the value of such distributions shall be the fair
market value of such property as determined in good faith by the Board of
Directors of the Corporation.
4. Restrictions. At any time when at least 25% of the shares of Series B
Preferred Stock issued pursuant to the Purchase Agreement (as defined in Section
7(b) hereof) remain outstanding, except where the vote or written consent of the
holders of a greater number of shares of the Corporation is required by law or
by the certificate of incorporation, and in addition to any other vote required
by law or the certificate of incorporation, without the written consent of the
holders of at least two-thirds in interest of the then outstanding shares of
Series B Preferred Stock given in writing or by vote at a meeting, consenting or
voting (as the case may be) separately as a class, the Corporation will not:
(1) Amend, alter or repeal any provision of the Corporation's
certificate of incorporation or bylaws in a manner which shall materially
and adversely affect the rights, designations and privileges attributable to
the Series B Preferred Stock;
(2) Create or authorize the creation of any additional class or
series of shares of stock or create or authorize any obligation or security
convertible into any class or series of Class A Common Stock or Preferred
Stock which shall rank senior to the Series B Preferred Stock as to
dividends and the distribution of assets on the liquidation, dissolution or
winding up of the Corporation, or increase the authorized amount of Series B
Preferred Stock or create or authorize any obligation or security
convertible into shares of Series B Preferred Stock unless the same ranks
junior to the Series B Preferred Stock as to dividends and the distribution
of assets on the liquidation, dissolution or winding up of the Corporation;
or
(3) In any manner alter or change the designations or the powers,
preferences or rights, privileges or the restrictions of the shares of
Series B Preferred Stock so as to affect such shares adversely;
3
<PAGE>
(4) Except with respect to existing rights with respect to Series A
Preferred Stock, purchase or redeem, or set aside any sums for the purchase
or redemption of any shares of stock other than the Series B Preferred
Stock, except for dividends or other distributions payable on the Series A
Preferred Stock or Class A Common Stock.
5. Conversion. The holders of shares of Series B Preferred Stock shall
have the following conversion rights:
5A. Right to Convert. Subject to the terms and conditions of this
paragraph 5, the holder of any share or shares of Series B Preferred Stock shall
have the right and option (the "Conversion Right"), exercisable at any time or
from time to time on or after a date which shall be from and after March 31,
2000 (the "Conversion Commencement Date"), to convert all or any portion of its
or their shares of Series B Preferred Stock (except that upon any liquidation of
the Corporation the right of conversion shall terminate at the close of business
on the business day fixed for payment of the amounts distributable on the Series
B Preferred Stock) into such number of fully paid and nonassessable shares of
Class A Common Stock as is obtained by (i) multiplying the number of shares of
Series B Preferred Stock so to be converted by the Original Purchase Price, and
(ii) dividing the result by a price equal to $____ per share, being the average
of the closing prices of the Company's Class A Common Stock, as traded on The
Nasdaq Stock Market, Inc. SmallCap Market or National Market, the American Stock
Exchange, the National Association of Securities Dealers, Inc. OTC-Bulletin
Board or any other national securities exchange (a "National Securities
Exchange"), as reported by such National Securities Exchange on the twenty five
(25) consecutive trading days immediately preceding the Closing Date (the
"Conversion Price"). Each share of Series B Preferred Stock shall be convertible
into that number of shares of Class A Common Stock as shall be determined by
dividing the Original Purchase Price by the Conversion Price.
Such rights of conversion shall be exercised by the holder thereof at any
time or from time to time on and after the Conversion Commencement Date by
giving written notice that the holder elects to convert a stated number of
shares of Series B Preferred Stock into Class A Common Stock and by surrender of
a certificate or certificates for the shares so to be converted to the
Corporation at its principal office (or such other office or agency of the
Corporation as the Corporation may designate by notice in writing to the holders
of the Series B Preferred Stock) at any time during its usual business hours on
the date set forth in such notice, together with a statement of the name or
names (with address) in which the certificate or certificates for shares of
Class A Common Stock shall be issued.
Notwithstanding the foregoing, the holder of Series B Preferred Stock
shall have the right prior to the Conversion Commencement Date to convert all or
any of its shares of Series B Preferred Stock into Class A Common Stock at the
Conversion Price then in effect in the event that, prior to such Conversion
Commencement Date, there shall occur any of the following events or the
Corporation shall enter into a definitive binding agreement to consummate any of
the following events: (i) the consolidation or merger of the Corporation into or
with any other entity or entities which results in the exchange of outstanding
shares of the Corporation for securities or other consideration issued or paid
or caused to be issued or paid by any such entity or affiliate thereof (except a
consolidation or merger into a wholly-owned subsidiary or merger in which the
Corporation is the surviving Corporation or the holders of the Corporation's
voting
4
<PAGE>
stock outstanding immediately prior to the transaction constitute a majority of
the holders of voting stock outstanding immediately following the transaction);
(ii) the sale or transfer by the Corporation of all or substantially all its
assets; (iii) the sale or transfer by the Corporation's stockholders of more
than 50% in voting power of the Corporation's capital stock; (iv) the
commencement of a tender offer for more than 50% in voting power of the
Corporation's capital stock.
5B. Issuance of Certificates; Time Conversion Effected. Promptly
after the receipt of the written notice referred to in paragraph 5A and
surrender of the certificate or certificates for the share or shares of Series B
Preferred Stock to be converted, but in no event later than five (5) trading
days, the Corporation shall issue and deliver, or cause to be issued and
delivered, to the holder, registered in such name or names as such holder may
direct, a certificate or certificates for the number of whole shares of Class A
Common Stock issuable upon the conversion of such share or shares of Series B
Preferred Stock. In the event the Corporation fails to deliver the proper
documentation to the Corporation's transfer agent such that the transfer agent
may deliver to the holder such shares of Class A Common Stock within such
5-trading day period, the Corporation shall be obligated to pay to the holder a
late payment fee of (i) $100 per each $10,000 of Series B Preferred Stock
surrendered for each of the first five (5) trading days following the specified
date of delivery and (ii) $300 per each $20,000 of Series B Preferred Stock
surrendered for each trading day thereafter. To the extent permitted by law,
such conversion shall be deemed to have been effected as of the close of
business on the date on which such written notice shall have been received by
the Corporation and the certificate or certificates for such share or shares
shall have been surrendered as aforesaid (the "Conversion Date"), and at such
time the rights of the holder of such share or shares of Series B Preferred
Stock shall cease, and the person or persons in whose name or names any
certificate or certificates for shares of Class A Common Stock shall be issuable
upon such conversion shall be deemed to have become the holder or holders of
record of the shares represented thereby.
5C. Fractional Shares; Dividends; Partial Conversion. No fractional
shares shall be issued upon conversion of Series B Preferred Stock into Class A
Common Stock and no payment or adjustment shall be made upon any conversion on
account of any cash dividends on the Class A Common Stock issued upon such
conversion. Subject to the provisions of paragraph 3A, at the time of each
conversion, the Corporation shall: (i) if cash is legally available, pay in cash
an amount equal to all dividends accrued and unpaid on the shares of Series B
Preferred Stock surrendered for conversion to the date upon which such
conversion is deemed to take place as provided in paragraph 5B, or (ii) if cash
is not legally available, provide to such holder a certificate representing a
number of shares of Class A Common Stock equal to the quotient of (A) the sum of
all dividends accrued and unpaid on the shares of Series B Preferred Stock so
surrendered divided by (B) the applicable Conversion Price. In case the number
of shares of Series B Preferred Stock represented by the certificate or
certificates surrendered pursuant to paragraph 5A exceeds the number of shares
converted, the Corporation shall, upon such conversion, execute and deliver to
the holder, at the expense of the Corporation, a new certificate or certificates
for the number of shares of Series B Preferred Stock represented by the
certificate or certificates surrendered which are not to be converted. If any
fractional share of Class A Common Stock would, except for the provisions of the
first sentence of this paragraph 5C, be delivered upon such conversion, the
Corporation, in lieu of delivering such fractional share, shall pay to the
holder surrendering the Series B Preferred Stock for conversion an amount in
cash equal to the current market price of such fractional share as determined in
5
<PAGE>
good faith by the Board of Directors of the Corporation, and based upon the
aggregate number of shares of Series B Preferred Stock surrendered by any one
holder.
5D. Adjustment of Conversion Price Upon Issuance of Additional
Shares of Class A Common Stock. In the event that the Corporation shall issue
shares of its Class A Common Stock for a consideration per share which shall be
less than the Conversion Price, the number of shares of Class A Common Stock
issuable upon conversion of each share of the Series B Preferred Stock in effect
immediately prior to such issuance shall be adjusted in accordance with the
following formula:
N = E x (O + A)
-------
(O + P)
where:
N = the number of shares of Class A Common Stock issuable upon conversion of
each share of the Class B Preferred Stock after giving effect to such
adjustment.
E = the then current number of shares of Class A Common Stock issuable upon
conversion of each shares of the Class B Preferred Stock in effect
immediately prior to the time of such issuance.
O = the number of shares of Class A Common Stock outstanding immediately
prior to the issuance of such additional shares of Class A Common Stock.
A = the number of additional shares of Class A Common Stock issued.
P = the number of shares of Class A Common Stock that could be purchased at
the Conversion Price with the aggregate consideration received in the
dilutive issuance, calculated by dividing (i) the aggregate consideration
received for the issuance of such additional shares of Class A Common
Stock, by (ii) the Conversion Price per share of Class A Common Stock on
the date of sale of such additional shares.
The adjustment shall be made successively whenever such sale or issuance is made
and shall become effective immediately after such sale or issuance.
The foregoing paragraph 5D shall not apply to:
(1) the conversion or exchange of other securities convertible or
exchangeable for Class A Common Stock,
(2) Common Stock issued to the employees, officers or directors of
the Corporation or any of its direct or indirect subsidiaries under bona fide
employee benefit plans adopted by the Board of Directors and approved by the
holders of the Class A Common Stock when required by law, if such Class A Common
Stock would otherwise be covered by this paragraph 5D (but only to the extent
that the aggregate number of shares of Class A Common Stock excluded hereby and
issued on or after the date hereof shall not exceed 10% of the Class A
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Common Stock outstanding at the time of the adoption of each such employee
benefit plan, plus all shares of Class A Common Stock issuable upon conversion
of the Series B Preferred Stock, exclusive of anti-dilution adjustments
hereunder),
(3) Class A Common Stock issued upon the exercise of rights or
warrants issued to the holders of Class A Common Stock or Series B Preferred
Stock,
(4) Class A Common Stock issued (A) as consideration when any
corporation or business is acquired, merged with or becomes part of the
Corporation or any direct or indirect subsidiary of the Corporation, or (B) in
good faith in consideration of any acquisition of assets (other than cash or
cash equivalents), in each case, in any arm's-length transaction between the
Corporation or any direct or indirect subsidiary of the Corporation and a person
other than an affiliate of the Corporation,
(5) Class A Common Stock issued in a bona fide public offering
pursuant to a firm commitment underwriting,
(6) Class A Common Stock outstanding on the date of the "Closing
Date" (as defined in the Purchase Agreement, herein described), or
(7) any issuance for which an adjustment is provided under clause
5D(1), 5D(2), 5D(3) or 5D(4) of this paragraph 5D.
For purposes of this paragraph 5D, the following subparagraphs 5D(1)
to 5D(7) shall also be applicable:
5D(1) Adjustments for Convertible Securities Issues. If the
Corporation shall issue any securities convertible into or exchangeable for
Class A Common Stock (collectively, "Convertible Securities") for a
consideration per share of Class A Common Stock initially deliverable upon
conversion or exchange of such securities (determined by dividing (i) the total
amount received or receivable by the Corporation as consideration for the issue
or sale of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the conversion
or exchange thereof, by (ii) the total maximum number of shares of Class A
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities) which shall be less than the Conversion Price of such Class A Common
Stock on the date of issuance of such securities, the number of shares of Class
A Common Stock issuable upon conversion of each share of the Series B Preferred
Stock in effect immediately prior to such issuance shall be adjusted in
accordance with the following formula:
N = E x (O + D)
-------
(O + P)
where:
N = the number of shares of Class A Common Stock issuable upon conversion of
each share of the Class B Preferred Stock after giving effect to such
adjustment.
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<PAGE>
E = the then current number of shares of Class A Common Stock issuable upon
conversion of each shares of the Class B Preferred Stock in effect
immediately prior to the time of such issuance.
O = the number of shares of Class A Common Stock outstanding immediately
prior to the issuance of such additional shares of Class A Common Stock.
D = the maximum number of additional shares of Class A Common Stock
deliverable upon conversion or in exchange for such securities at the
initial conversion or exchange rate.
P = the number of shares of Class A Common Stock that could be purchased at
the Conversion Price with the aggregate consideration received in the
dilutive issuance, calculated by dividing (i) the aggregate consideration
received for the issuance of such additional shares of Class A Common
Stock issuable upon conversion or exchange of the relevant securities
(determined by dividing (x) the total amount received or receivable by the
Corporation as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration,
if any, payable to the Corporation upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Class A Common Stock
issuable upon the conversion or exchange of all such Convertible
Securities ), by (ii) the Conversion Price per share of Class A Common
Stock on the date of sale of such additional shares.
The adjustment shall be made successively whenever such sale or issuance is made
and shall become effective immediately after such sale or issuance.
The foregoing paragraph 5D(1) shall not apply to:
(1) the conversion or exchange of other securities convertible or
exchangeable for Class A Common Stock,
(2) Common Stock issued to the employees, officers or directors of
the Corporation or any of its direct or indirect subsidiaries under bona fide
employee benefit plans adopted by the Board of Directors and approved by the
holders of the Class A Common Stock when required by law, if such Class A Common
Stock would otherwise be covered by this paragraph 5D (but only to the extent
that the aggregate number of shares of Class A Common Stock excluded hereby and
issued on or after the date hereof shall not exceed 10% of the Class A Common
Stock outstanding at the time of the adoption of each such employee benefit
plan, plus all shares of Class A Common Stock issuable upon conversion of the
Series B Preferred Stock, exclusive of anti-dilution adjustments hereunder),
(3) Class A Common Stock issued upon the exercise of rights or
warrants issued to the holders of Class A Common Stock or Series B Preferred
Stock,
(4) Class A Common Stock issued (A) as consideration when any
corporation or business is acquired, merged with or becomes part of the
Corporation or any direct or indirect subsidiary of the Corporation, or (B) in
good faith in consideration of any acquisition of assets
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<PAGE>
(other than cash or cash equivalents), in each case, in any arm's-length
transaction between the Corporation or any direct or indirect subsidiary of the
Corporation and a person other than an affiliate of the Corporation,
(5) Class A Common Stock issued in a bona fide public offering
pursuant to a firm commitment underwriting,
(6) Class A Common Stock outstanding on the date of the "Closing
Date" (as defined in the Purchase Agreement, herein described), or
(7) any issuance for which an adjustment is provided under clause
5D, 5D(2), 5D(3) or 5D(4) of this paragraph 5D.
5D(2) Adjustments for Issues of Options. If the Corporation shall in
any manner grant (whether directly or by assumption in a merger or otherwise)
any warrants or other rights to subscribe for or to purchase, or any options for
the purchase of, Class A Common Stock (such warrants, rights or options being
collectively referred to herein as "Options") whether or not such Options are
immediately exercisable, and the price per share for which Class A Common Stock
is issuable upon the exercise of such Options (determined by dividing (i) the
total amount, if any, received or receivable by the Corporation as consideration
for the granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Corporation upon the exercise of all
such Options, by (ii) the total maximum number of shares of Class A Common Stock
issuable upon the exercise of all such Options) for a consideration per share
which shall be less than the Conversion Price in effect immediately prior to the
time of the granting of such Options, the number of shares of Class A Common
Stock issuable upon conversion of each share of the Series B Preferred Stock in
effect immediately prior to such issuance shall be adjusted in accordance with
the following formula:
N = E x (O + M)
-------
(O + P)
where:
N = the number of shares of Class A Common Stock issuable upon conversion of
each share of the Class B Preferred Stock after giving effect to such
adjustment.
E = the then current number of shares of Class A Common Stock issuable upon
conversion of each shares of the Class B Preferred Stock in effect
immediately prior to the time of such issuance.
O = the number of shares of Class A Common Stock outstanding immediately
prior to the issuance of such additional shares of Class A Common Stock.
M = the maximum number of additional shares of Class A Common Stock
deliverable upon exercise of the Options or in exchange for such
securities at the initial exercise price.
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<PAGE>
P = the number of shares of Class A Common Stock that could be purchased at
the Conversion Price with the aggregate consideration received in the
dilutive issuance, calculated by dividing (i) the aggregate consideration
received for the issuance of such additional shares of Class A Common
Stock issuable upon exercise of the relevant Options (determined by
dividing (x) the total amount received or receivable by the Corporation as
consideration for the grant of such Options, plus the minimum aggregate
amount of additional consideration, if any, payable to the Corporation
upon the exercise thereof, by (y) the total maximum number of shares of
Class A Common Stock issuable upon the exercise of all such Options), by
(ii) the Conversion Price per share of Class A Common Stock on the date of
sale of such additional shares.
The adjustment shall be made successively whenever such sale or issuance is made
and shall become effective immediately after such sale or issuance.
The foregoing paragraph 5D(2) shall not apply to:
(1) the conversion or exchange of other securities convertible or
exchangeable for Class A Common Stock,
(2) Common Stock issued to the employees, officers or directors of
the Corporation or any of its direct or indirect subsidiaries under bona fide
employee benefit plans adopted by the Board of Directors and approved by the
holders of the Class A Common Stock when required by law, if such Class A Common
Stock would otherwise be covered by this paragraph 5D (but only to the extent
that the aggregate number of shares of Class A Common Stock excluded hereby and
issued on or after the date hereof shall not exceed 10% of the Class A Common
Stock outstanding at the time of the adoption of each such employee benefit
plan, plus all shares of Class A Common Stock issuable upon conversion of the
Series B Preferred Stock, exclusive of anti-dilution adjustments hereunder),
(3) Class A Common Stock issued upon the exercise of rights or
warrants issued to the holders of Class A Common Stock or Series B Preferred
Stock,
(4) Class A Common Stock issued (A) as consideration when any
corporation or business is acquired, merged with or becomes part of the
Corporation or any direct or indirect subsidiary of the Corporation, or (B) in
good faith in consideration of any acquisition of assets (other than cash or
cash equivalents), in each case, in any arm's-length transaction between the
Corporation or any direct or indirect subsidiary of the Corporation and a person
other than an affiliate of the Corporation,
(5) Class A Common Stock issued in a bona fide public offering
pursuant to a firm commitment underwriting,
(6) Class A Common Stock outstanding on the date of the "Closing
Date" (as defined in the Purchase Agreement, herein described), or
(7) any issuance for which an adjustment is provided under clause
5D, 5D(1), 5D(3) or 5D(4) of this paragraph 5D.
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<PAGE>
5D(3) Change in Option Price or Conversion Rate. Upon the happening
of any of the following events, namely, if the purchase price provided for in
any Option referred to in subparagraph 5D(2), the additional consideration, if
any, payable upon the conversion or exchange of any Convertible Securities
referred to in subparagraph 5D(1), or the rate at which Convertible Securities
referred to in subparagraph 5D(1) are convertible into or exchangeable for Class
A Common Stock shall change at any time (including, but not limited to, changes
under or by reason of provisions designed to protect against dilution), the
Conversion Price in effect at the time of such event shall forthwith be
readjusted to the Conversion Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or conversion rate, as the case
may be, at the time initially granted, issued or sold, but only if as a result
of such adjustment the Conversion Price then in effect hereunder is thereby
reduced; and on the expiration of any such Option or the termination of any such
right to convert or exchange such Convertible Securities, the Conversion Price
then in effect hereunder shall forthwith be increased to the Conversion Price
which would have been in effect at the time of such expiration or termination
had such Option or Convertible Securities, to the extent outstanding immediately
prior to such expiration or termination, never been issued.
5D(4) Stock Dividends. In case the Corporation shall declare a
dividend or make any other distribution upon any stock of the Corporation
payable in Class A Common Stock (except for the issue of stock dividends or
distributions upon the outstanding Class A Common Stock for which adjustment is
made pursuant to paragraph 5G), Options or Convertible Securities, any Class A
Common Stock, Options or Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to have been issued or
sold without consideration.
5D(5) Consideration for Stock. In case any shares of Class A Common
Stock, Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of any expenses incurred or
any underwriting commissions or concessions paid or allowed by the Corporation
in connection therewith. In case any shares of Class A Common Stock, Options or
Convertible Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Corporation, without
deduction of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith. In case
any Options shall be issued in connection with the issue and sale of other
securities of the Corporation, together comprising one integral transaction in
which no specific consideration is allocated to such Options by the parties
thereto, such Options shall be deemed to have been issued for such consideration
as determined in good faith by the Board of Directors of the Corporation.
5D(6) Record Date. In case the Corporation shall take a record of
the holders of its Class A Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Class A Common Stock,
Options or Convertible Securities or (ii) to subscribe for or purchase Class A
Common Stock, Options or Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the shares of Class A Common
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<PAGE>
Stock deemed to have been issued or sold upon the declaration of such dividend
or the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
5D(7) Treasury Shares. The number of shares of Class A Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Corporation, and the disposition of any such shares shall be
considered an issue or sale of Class A Common Stock for the purpose of this
paragraph 5D.
5E. Certain Issues of Class A Common Stock Excepted. Anything herein
to the contrary notwithstanding, the Corporation shall not be required to make
any adjustment of the Conversion Price in the case of the issuance of shares of
Class A Common Stock issuable upon exercise of the Warrants issued pursuant to
Purchase Agreement referred to in Paragraph 7(b) hereof.
5F. Subdivision or Combination of Class A Common Stock. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Class A Common Stock into a greater number
of shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, conversely, in case the outstanding
shares of Class A Common Stock shall be combined into a smaller number of
shares, the Conversion Price in effect immediately prior to such combination
shall be proportionately increased.
5G. Reorganization or Reclassification. If any capital
reorganization, reclassification, recapitalization, consolidation, merger, sale
of all or substantially all of the Corporation's assets or other similar
transaction (any such transaction being referred to herein as an "Organic
Change") shall be effected in such a way that holders of Class A Common Stock
shall be entitled to receive (either directly or upon subsequent liquidation)
stock, securities or assets with respect to or in exchange for Class A Common
Stock, then, as a condition of such Organic Change, lawful and adequate
provisions shall be made whereby each holder of a share or shares of Series B
Preferred Stock shall thereupon have the right to receive, upon the basis and
upon the terms and conditions specified herein and in lieu of or in addition to,
as the case may be, the shares of Class A Common Stock immediately theretofore
receivable upon the conversion of such share or shares of Series B Preferred
Stock, such shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for a number of outstanding shares of such Class
A Common Stock equal to the number of shares of such Class A Common Stock
immediately theretofore receivable upon such conversion had such Organic Change
not taken place, and in any case of a reorganization or reclassification only
appropriate provisions shall be made with respect to the rights and interests of
such holder to the end that the provisions hereof (including without limitation
provisions for adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise of such conversion rights.
5H. Notice of Adjustment. Upon any adjustment of the Conversion
Price, then and in each such case the Corporation shall give written notice
thereof, by first class mail, postage prepaid, or by facsimile transmission to
non-U.S. residents, addressed to each holder of shares of Series B Preferred
Stock at the address of such holder as shown on the books of the
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<PAGE>
Corporation, which notice shall state the Conversion Price resulting from such
adjustment, setting forth in reasonable detail the method upon which such
calculation is based.
5I. Other Notices. In case at any time:
(1) the Corporation shall declare any dividend upon its Class A
Common Stock payable in cash or stock or make any other distribution to the
holders of its Class A Common Stock;
(2) the Corporation shall offer for subscription pro rata to the
holders of its Class A Common Stock any additional shares of stock of any
class or other rights;
(3) there shall be any capital reorganization or reclassification of
the capital stock of the Corporation, or a consolidation or merger of the
Corporation with or into, or a sale of all or substantially all its assets
to, another entity or entities; or
(4) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by facsimile transmission to non-U.S. residents,
addressed to each holder of any shares of Series B Preferred Stock at the
address of such holder as shown on the books of the Corporation, (a) at least 20
days' prior written notice of the date on which the books of the Corporation
shall close or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up and (b) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, at least 20 days' prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing clause (a) shall
also specify, in the case of any such dividend, distribution or subscription
rights, the date on which the holders of Class A Common Stock shall be entitled
thereto and such notice in accordance with the foregoing clause (b) shall also
specify the date on which the holders of Class A Common Stock shall be entitled
to exchange their Class A Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
5J. Stock to be Reserved. The Corporation will at all times reserve
and keep available out of its authorized Class A Common Stock, solely for the
purpose of issuance upon the conversion of Series B Preferred Stock as herein
provided, such number of shares of Class A Common Stock as shall then be
issuable upon the conversion of all outstanding shares of Series B Preferred
Stock. The Corporation covenants that all shares of Class A Common Stock which
shall be so issued shall be duly and validly issued and fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, and, without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all such action as may
be requisite to assure that the par value per share of the Class A Common Stock
is at all times equal to or less than the Conversion Price in effect at the
time. The Corporation will take all such action as may be necessary to assure
that all such shares of Class A Common Stock may
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<PAGE>
be so issued without violation of any applicable law or regulation, or of any
requirement of any national securities exchange upon which the Class A Common
Stock may be listed.
5K. No Reissuance of Series B Preferred Stock. Shares of Series B
Preferred Stock which are converted into shares of Class A Common Stock as
provided herein shall not be reissued.
5L. Issue Tax. The issuance of certificates for shares of Class A
Common Stock upon conversion of Series B Preferred Stock shall be made without
charge to the holders thereof for any issuance tax in respect thereof, provided
that the Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Series B Preferred
Stock which is being converted.
5M. Closing of Books. The Corporation will at no time close its
transfer books against the transfer of any Preferred Stock or of any shares of
Class A Common Stock issued or issuable upon the conversion of any shares of
Preferred Stock in any manner which interferes with the timely conversion of
such Preferred Stock, except as may otherwise be required to comply with
applicable securities laws.
5N. Definition of Class A Common Stock. As used in this paragraph 5,
the term "Class A Common Stock" shall mean and include the Corporation's
authorized Class A Common Stock, par value $.01 per share, as constituted on the
date of filing of these terms of the Series B Preferred Stock; provided that the
shares of Class A Common Stock receivable upon conversion of shares of Series B
Preferred Stock shall include only shares designated as Class A Common Stock of
the Corporation on the date of filing of this instrument, or in case of any
reorganization or reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in paragraph 5G.
5O. Limitations on Conversion. Except as otherwise expressly
provided in Paragraph 5A, the holders of Series B Preferred Stock shall not be
entitled to exercise the Conversion Right set forth in this Paragraph 5 prior to
the March 31, 2000 Conversion Commencement Date.
5P. Mandatory Conversion. All outstanding shares of Series B
Preferred Stock shall automatically convert to shares of Class A Common Stock on
the third (3rd) Anniversary Date of the Closing Date (as defined in the Purchase
Agreement).
6. Redemption.
6A. Optional Redemption. In the event that at any time prior to
January 1, 2000, the average of the closing prices of the Company's Class A
Common Stock, as traded on a National Securities Exchange, as reported by such
National Securities Exchange (the "Average Price") for the twenty five (25)
consecutive trading days immediately preceding the date notice of redemption
shall be given shall be less than 140% (1.4 times) the Conversion Price then in
effect, the Corporation shall have the right (but not the obligation), by
written notice given to all holders of Series B Preferred Stock (the "Optional
Redemption Notice') to redeem for cash all or any portion of the shares of
Series B Preferred Stock by paying to the holders of
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<PAGE>
such shares of Series B Preferred Stock, for each full share of Series B
Preferred Stock to be redeemed, an amount which shall be equal to the sum of the
following (i) the Original Purchase Price per share, (ii) $0.80 multiplied by a
fraction, the numerator of which shall be the number of days from the Closing
Date to the date fixed in the Redemption Notice (not to exceed 60 days from the
date of such Optional Redemption Notice) upon which such Series B Preferred
Stock shall be redeemed and repurchased (the "Optional Redemption Date"), and
the denominator of which shall be 365, and (iii) 50% of the Original Purchase
Price per share, multiplied by a fraction, the numerator of which shall be the
number of days from the Closing Date to the Redemption Date and the denominator
of which shall be 365 (the "Optional Redemption Price").
6B. Mandatory Redemption.
(1) In the event that on January 1, 2000, the Average Price
for the twenty five (25) consecutive trading days immediately preceding January
1, 2000 (the `Anniversary Price") shall be less than the Conversion Price then
in effect, the holder(s) of the Series B Preferred Stock shall have the right
(but not the obligation), by written notice (the "Mandatory Redemption Notice")
given to the Corporation given at any time from and after January 1, 2000 up to
and including January 31, 2000 (the "Mandatory Redemption Period") to cause the
Corporation to redeem for cash that number of shares of the Class B Preferred
Stock as shall be determined by dividing (a) the difference between (i) the
number of shares of Class A Common Stock that would be issuable upon conversion
at the Anniversary Price of those shares of Series B Preferred Stock which the
holder(s) elects to redeem, and (ii) the number of shares of Class A Common
Stock that would be issuable upon conversion at the Conversion Price of those
shares of Series B Preferred Stock which the holder(s) elects to redeem, by (b)
the Original Purchase Price; provided, however, in no event shall each holder of
Series B Preferred Stock and all holders of Series B Preferred Stock be entitled
to compel mandatory redemption pursuant to this Paragraph 6B of more than fifty
(50%) percent of the aggregate number of shares of Series B Preferred Stock held
by each such holder and all such holders in the aggregate. Holders of Series B
Preferred Stock shall have the right to rescind their Mandatory Redemption
Notice at any time during the Mandatory Redemption Period. Following expiration
of the January 31, 2000 Mandatory Redemption Period, unless one or more holders
of Series B Preferred Stock shall have given a timely Mandatory Redemption
Notice to the Corporation, the holders of Series B Preferred Stock shall have no
further rights to compel or require the Corporation to redeem any of their
shares of Series B Preferred Stock, whether pursuant to this Section 6B or
otherwise, other than to receive the Mandatory Redemption Payment, out of funds
legally available therefore, if a Mandatory Redemption Notice had been timely
given on or before January 31, 2000.
(2) In the event and to the extent that any shares of Series B
Preferred Stock shall be subject to mandatory redemption pursuant to this
Paragraph 6B, the Corporation shall pay to the holders of such shares of Series
B Preferred Stock seeking redemption, out of funds legally available therefore,
an amount, for each full share of Series B Preferred Stock to be redeemed (the
"Mandatory Redemption Price"), which shall be equal to the Original Purchase
Price per share, plus all accrued and unpaid dividends of such shares of Series
B Preferred Stock to be redeemed through the date of the Mandatory Redemption
Notice. In the event that the Corporation shall fail to pay the Mandatory
Redemption Price or shall otherwise be restricted, pursuant to any loan, credit
or securities purchase agreement or provision of applicable law, from paying the
Mandatory Redemption Price, in either case within the period specified in
Section 6C
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below, at the end of every consecutive thirty (30) day period in which the
payment of the Mandatory Redemption Price shall be in arrears, the exercise
price of the "Warrants" referred to in clause (3) of this Section 6B, shall be
reduced to an amount which shall be ninety-five (95%) of the amount of such
exercise price in effect as at the end of the immediately preceding thirty (30)
day period. Thus, by way of illustration, if the exercise price of the Warrants
is $0.75 per share and a Mandatory Redemption Notice shall be given on January
15, 2000, resulting in the applicable Mandatory Redemption Price being due and
payable on March 14, 2000, unless the Mandatory Redemption Price were paid prior
thereto, commencing on April 15, 2000 the exercise price of the Warrants would
be reduced to $0.7125 per share, and would continue to be reduced by five (5%)
percent at the end of each 30 day period thereafter, until the Mandatory
Redemption Price is paid in full..
(3) In the event and to the extent that any holder(s) of
Series B Preferred Stock shall have the right and shall demand that any portion
of its or their Series B Preferred be redeemed pursuant to this Paragraph 6B,
the Corporation shall have the right (but not the obligation) to redeem (at the
same time it pays the Redemption Price) for $.01 per Warrant, that number of the
Warrants issued to the original holders of Series B Preferred Stock pursuant to
the Purchase Agreement referred to in Paragraph 7(b) as shall evidence the
holder's right to purchase a number of shares of the Corporation's Class A
Common Stock issuable upon exercise of such Warrants (the "Warrant Shares") as
shall be equal to 200% of the number of shares of the Corporation's Class A
Common Stock issuable upon conversion at the Conversion Price of the shares of
Series B Preferred Stock which are to be so redeemed. Thus, by way of
illustration of the foregoing, if the Conversion Price is $1.50 and the
Anniversary Price is $1.00, a maximum of fifty thousand (50,000) shares of
Series B Preferred Stock would be subject to mandatory redemption at the
Original Purchase Price plus accrued and unpaid dividends pursuant to this
Paragraph 6B, and the Company would be entitled to redeem and repurchase up to
666,667 of the Warrants for $.01 each.
6C. Redemption Payment. The Corporation shall pay an aggregate
amount for all shares of Series B Preferred Stock to be redeemed pursuant to
this Paragraph 6, whether at the Optional Redemption Price or the Mandatory
Redemption Price, as applicable (the "Redemption Payment"), calculated by
multiplying the number of shares so redeemed by the applicable Optional
Redemption Price or Mandatory Redemption Price, not later than sixty (60) days
following the Optional Redemption Notice or Mandatory Redemption Notice, as
applicable by payment of the Optional Redemption Price or Mandatory Redemption
Price (as the case may be) by bank cashiers' or certified check payable to the
applicable holders of the Series B Preferred Stock or wire transfer of
immediately available funds to accounts designated by such holders against
delivery of the Series B Preferred Stock in accordance with clause 6D below.
6D. Delivery of Shares. The holders of Series B Preferred Stock
whose Shares are to be redeemed pursuant to this Section 6 shall deliver to the
Corporation, against receipt of the applicable Redemption Payment all of their
shares of Series B Preferred Stock to be redeemed, duly endorsed in blank for
transfer or accompanied by a duly executed stock power with the signature of the
record owner guaranteed by a bank or member firm of the New York Stock Exchange.
6E. Rights of Holders of Series B Preferred Stock. From and after
the applicable Redemption Date, unless there shall have been a default in
payment of the applicable
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<PAGE>
Redemption Price, all rights of the holders of shares of Series B Preferred
Stock designated for redemption in the applicable Redemption Notice as holders
of Series B Preferred Stock (except the right to receive the applicable
Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever. Subject to the rights of holders of
Series A Preferred Stock which may from time to time come into existence in
compliance with this Certificate of Designations, at any time thereafter if the
funds of the Corporation legally available for redemption of shares of Series B
Preferred Stock on any applicable Redemption Date are insufficient to redeem the
total number of shares of Series B Preferred Stock to be redeemed on such date,
those funds which are legally available will be used to redeem the maximum
possible number of such shares ratably among the holders of such shares to be
redeemed based upon their holdings of Series B Preferred Stock. The shares of
Series B Preferred Stock not redeemed shall remain outstanding and entitled to
all the rights and preferences provided herein. Subject to the rights of Series
A Preferred Stock which may from time to time come into existence in compliance
with this Certificate of Designations, at any time thereafter when additional
funds of the Company are legally available for the redemption of shares of
Series B Preferred Stock, such funds will immediately be used to redeem the
balance of the shares which the Corporation has become obliged to redeem on any
Redemption Date but which it has not redeemed.
7. Definitions. As used herein, the following terms shall have the following
meanings:
(a) The term Change of Control shall mean (i) any transaction
or series of transactions (including, without limitation, a tender offer, merger
or consolidation) the result of which is that any "person" or "group" (within
the meaning of sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), becomes the "beneficial" owners (as
defined in rule 13(d)(3) under the Securities Exchange Act of 1934) of more than
50 percent (50%) of the total aggregate voting power of all classes of the
voting stock of the Corporation and/or warrants or options to acquire such
voting stock, calculated on a fully diluted basis, or (ii) a sale of assets
constituting all or substantially all of the assets of the Corporation
(determined on a consolidated basis).
(b) The term "Purchase Agreement" shall mean the Series B
Preferred Stock Purchase Agreement to be entered into on or about the date this
Certificate of Designation becomes effective by and between the Corporation,
Seaside Partners, L.P. and the other party signatories thereto.
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IN WITNESS WHEREOF, Interiors, Inc. has caused this certificate to be
signed on its behalf by Max Munn, its President and Chief Executive Officer,
this 22 day of January, 1999.
INTERIORS, INC.
By: /s/Max Munn
-------------------------------
Max Munn, President and
Chief Executive Officer
ATTEST:
/s/ Joan York
- ------------------------
Joan York, Secretary
18
CERTIFICATE OF DESIGNATION
of
SERIES C CONVERTIBLE PREFERRED STOCK
of
INTERIORS, INC.
(Pursuant to Section 151 of the Delaware General Corporation Law)
INTERIORS, INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Company"), hereby
certifies that the following resolutions were adopted by the Board of Directors
of the Company as required by Section 151 of the General Corporation Law at a
meeting of the Company's Board of Directors held on February 16, 1999:
RESOLVED, that pursuant to the authority granted to and vested in
the Board of Directors of the Company (the "Board") in accordance with the
provisions of the Certificate of Incorporation (the "Certificate of
Incorporation"), the Board hereby creates out of the 5,300,000 shares of
preferred stock, par value $0.01 per share, of the Company authorized in the
Certificate of Incorporation (the "Preferred Stock"), a series of the Preferred
Stock of the Company, par value $0.01 per share, and hereby states the
designation and number of shares, and fixes the relative rights, preferences,
and limitations thereof as follows:
I. Designation and Amount. The shares of such series of Preferred Stock shall be
designated as "Series C Convertible Preferred Stock" (the "Series C Preferred
Stock") and the number of shares constituting the Series C Preferred Stock shall
be 6,500. The Series C Preferred Stock shall have a stated value (the "Stated
Value") of $1,000 per share.
II. Dividends.
A. The holders of shares of Series C Preferred Stock shall be entitled to
receive dividends, out of any assets legally available therefore, prior to, and
in preference to, any declaration or payment of any dividend on the Class A
Common Stock or Class B Common Stock of this Company, at a per share rate equal
to seven percent (7%) per annum (based upon a 365 calendar day year) of the
amount of the Stated Value of the Series C Preferred Stock, which is payable by
the Company in cash, quarterly, commencing on the first business day of the
Company's next fiscal quarter immediately following the Issuance Date (as
defined below). Dividends shall begin to accrue as of the Issuance Date.
B. Such dividends shall accrue on each share of Series C Preferred Stock
from the Issuance Date, and shall accrue from day to day whether or not earned
or declared. Such dividends shall be cumulative so that if such dividends in
respect of any previous or current annual dividend period, at the annual rate
specified above, shall not have been paid or declared and a sum sufficient for
the payment thereof set apart, for all Series C Preferred Stock at the time
outstanding, the deficiency shall first be fully paid before any dividend or
other distribution shall be paid on or declared or set apart for the Class A
Common Stock or Class B Common Stock. Dividends on the Series C Preferred Stock
shall be non-participating and the holders of the Series C Preferred Stock shall
not be entitled to participate in any other dividends beyond the cumulative
dividends specified herein.
III. Liquidation, Dissolution or Winding Up.
A. In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, before any distribution may be made
with respect to the Company's Class A Common Stock or any other
<PAGE>
class of common stock, holders of each share of Series C Preferred Stock shall
be entitled to receive out of the assets available for distribution to
shareholders $1,000 plus seven percent per annum thereon from the Issuance Date
(as defined below) to the Trading Day (as defined below) immediately prior to
such liquidation, dissolution or winding up of the Company ( the "Liquidation
Amount").
B. If the assets of the Company available for distribution to shareholders
shall be insufficient to pay the holders of shares of Series C Preferred Stock
the full Liquidation Amount to which they shall be entitled, then any such
distribution of assets of the Company shall be distributed ratably to the
holders of shares of Series C Preferred Stock
C. The holders of Series C Preferred Stock shall be entitled to receive
payment of the Liquidation Amount in parity with the holders of the Company's
2,870,000 outstanding shares of Series A 10% Cumulative Convertible Preferred
Stock, with a liquidation value of $5.00 per share (the "Series A Preferred
Stock"), and the Company's 200,000 outstanding shares of Series B 8% Convertible
Preferred Stock, with a liquidation value of $10.00 per share (the "Series B
Preferred Stock"), on a pro-rata basis based upon the amount by which (a) the
product of outstanding shares of Series A Preferred Stock multiplied by the
$5.00 per share liquidation preference on such Series A Preferred Stock, (b) the
product of the outstanding shares of Series B Preferred Stock multiplied by the
$10.00 per share liquidation preference on such Series B Preferred Stock, and
(c) the product of the outstanding shares of Series C Preferred Stock multiplied
by the $1,000 per share liquidation preference on such Series C Preferred Stock,
bears to each other. After the payment of the Liquidation Amount shall have been
made in full to the holders of the Series C Preferred Stock or funds necessary
for such payment shall have been set aside by the Company in trust for the
account of holders of the Series C Preferred Stock so as to be available for
such payments, the holders of the Series C Preferred Stock shall be entitled to
no further participation in the distribution of the assets of the Company, and
the remaining assets of the Company legally available for distribution to
shareholders shall be distributed among the holders of Class A Common Stock and
any other classes or series of Common Stock or preferred stock of the Company
(other than the Series A Preferred Stock and Series B Preferred Stock) in
accordance with their respective terms.
IV. Voting. Holders of Series C Preferred Stock shall have no voting rights
except as expressly required by law or as expressly provided herein.
V. Conversion of Series C Preferred Stock. The holders of Series C Preferred
Stock shall have the right, at such holder's option, to convert the Series C
Preferred Stock into shares of Class A Common Stock, on the following terms and
conditions:
A. Definitions. For purposes of this Certificate of Designation, the
following terms shall have the following meanings:
A "Business Day" shall mean any day except Saturday, Sunday and any day
which 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.
The "Closing Bid Price" shall mean, for any security as of any date, the
last closing bid price for such security on the Principal Market as reported by
Bloomberg Financial Markets ("Bloomberg"), or, if no last closing bid or trade
price is reported for such security by Bloomberg, the closing bid price shall be
determined by reference to the closing bid price as reported on the Principal
Market, and if not so reported shall be determined from the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
published by the National Quotation Bureau, Inc. If the Closing Bid Price cannot
be calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as mutually agreed by the Company and the holders of two thirds of the
outstanding shares of Series C Preferred Stock.
The "Conversion Price" shall mean: (a) if a Conversion Date shall be at
any time from and after the Issuance Date through and including October 15,
1999, one hundred and twenty (120%) percent of the average of the Closing Bid
Prices for the Class A Common Stock on the then Principal Market for the five
(5) consecutive Trading Days immediately prior to the Conversion Date; and (b)
if a Conversion Date shall be at any time from and after October 16, 1999, one
hundred (100%) percent of the average of the Closing Bid Prices for the Class A
Common Stock on the then Principal Market for the five (5) consecutive Trading
Days immediately prior to the Conversion Date.
2
<PAGE>
The "Conversion Date" shall mean the Business Day on which a Notice of
Conversion is delivered or telecopied to the Company.
"Effective Date" shall mean the date on which the Securities and Exchange
Commission (the "SEC") first declares effective a Registration Statement
registering the resale of a number of shares of Class A Common Stock issuable
upon conversion of all of the Series C Preferred Stock as shall be equal to the
Maximum Underlying Shares.
The "Issuance Date" shall mean, with respect to each share of Series C
Preferred Stock, the date of issuance of the applicable share of Series C
Preferred Stock.
The "Mandatory Conversion Date" shall mean the date which is the third
anniversary after the Issuance Date.
The "Mandatory Redemption Date" shall have the meaning set forth in
Section B of Article XI below.
The "Purchase Agreement" shall mean that Series C Convertible Preferred
Stock Purchase Agreement, dated as of January 31, 1999, among Sovereign Partners
LP, Endeavor Capital, LP and Interiors, Inc.
A "Trading Day" shall mean a day on which the Principal Market on which
the Company's Class A Common Stock shall trade shall be is open for trading.
The "Principal Market" shall mean the Nasdaq Stock Exchange National
Market, the Nasdaq Stock Exchange Small Cap Stock Market, the NASD OTC
Electronic Bulletin Board, the American Stock Exchange, or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Company's Class A Common Stock.
The "Maximum Underlying Shares" shall mean an aggregate of 4,275,000
shares of Class A Common Stock; being nineteen and nine tenths (19.9%) percent
of the aggregate number of issued and outstanding shares of Class A Common
Stock, Class B Common Stock or other securities of the Company having voting
power as at the Issuance Date.
The "Underlying Shares" shall mean all shares of Class A Common Stock or
other securities issued or issuable pursuant to conversion of the Preferred
Stock, up to, but not in excess of, the Maximum Underlying Shares.
B. Conversion. Subject at all times to the redemption provisions hereof,
at any time after the Issuance Date and up until the Mandatory Conversion Date,
the holder of the Series C Preferred Stock shall be entitled, at its option, to
convert any whole number of shares of Series C Preferred Stock into fully paid
and nonassessable shares of Class A Common Stock, which is determined (per share
of Series C Preferred Stock) by dividing (x) $1,000, by (y) the Conversion Price
then in effect.
(a) The holder may exercise its right to convert shares of Series C
Preferred Stock by telecopying an executed and completed notice of conversion
(the "Notice of Conversion") to the Company and delivering the original Notice
of Conversion and the original shares of Series C Preferred Stock being
converted to the Company by express courier. Each Business Day on which a Notice
of Conversion is telecopied to and received by the Company in accordance with
the provisions hereof shall be deemed a "Conversion Date". The Company will
transmit the certificates representing shares of Class A Common Stock (the
"Conversion Shares") issuable upon conversion of the shares of Series C
Preferred Stock (together with the certificates representing the shares of
Series C Preferred Stock not so converted) to the holder via express courier, by
electronic transfer or otherwise within seven (7) Business Days after the
Conversion Date if the Company has received the original Notice of Conversion
and the shares of Series C Preferred Stock being so converted by such date. In
addition to any other remedies which may be available to the holder, in the
event that the Company fails to effect delivery of the Conversion Shares within
such seven (7) Business Day period, the holder will be entitled to revoke the
Notice of Conversion by delivering a notice to such effect to the Company
whereupon the Company and the holder shall each be restored to their respective
positions immediately prior to delivery of the Notice of Conversion. The Notice
of Conversion and the shares of Series C Preferred Stock representing the
portion of the shares of Series C Preferred Stock being converted shall be
delivered as follows:
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<PAGE>
To the Company:
INTERIORS INC.
320 Washington Street
Mount Vernon, New York 10553
Attention: Max Munn, President
Facsimile: (914) 665-5469
Telephone: (914) 665-5400
In the event that the Conversion Shares are not delivered, within seven
Business Days of receipt by the Company of a valid Notice of Conversion via
telecopier, and the shares of Series C Preferred Stock to be converted have been
received by the Company, the Company 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 Series C Preferred Stock sought
to be converted, $500 for each of the first ten (10) days and $1,000 per day
thereafter that the Conversion Shares are not delivered, which liquidated
damages shall run from the eighth Business Day after the Conversion Date up
until the time that either the Conversion Notice is revoked or the Conversion
Shares are 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 payment of these liquidated damages by the Company shall not
relieve the Company of its obligations under this Certificate of Designation.
C. Adjustments. The number of shares of Class A Common Stock issuable upon
the conversion of the Preferred Stock and the Conversion Price shall be subject
to adjustment as follows:
(i) In case the Company shall (A) pay a dividend on Class A
Common Stock in Class A Common Stock or securities convertible into,
exchangeable for or otherwise entitling a holder thereof to receive Class A
Common Stock, (B) declare a dividend payable in cash on its Class A Common Stock
and at substantially the same time offer its shareholder a right to purchase new
Class A Common Stock (or securities convertible into, exchangeable for or
otherwise entitling a holder thereof to receive Class A Common Stock) from
proceeds of such dividend (all Class A Common Stock so issued shall be deemed to
have been issued as a stock dividend), (C) subdivide its outstanding shares of
Class A Common Stock into a greater number of shares of Class A Common Stock,
(D) combine its outstanding shares of Class A Common Stock into a smaller number
of shares of Class A Common Stock, or (E) issue by reclassification of its Class
A Common Stock any shares of Class A Common Stock of the Company, the number of
shares of Class A Common Stock issuable upon conversion of the Series C
Preferred Stock immediately prior thereto shall be adjusted so that the holders
of the Series C Preferred Stock shall be entitled to receive after the happening
of any of the events described above that number and kind of shares as the
holders would have received had such shares of Series C Preferred Stock been
converted immediately prior to the happening of such event or any record date
with respect thereto. Any adjustment made pursuant to this subdivision shall
become effective immediately after the close of business on the record date in
the case of a stock dividend and shall become effective immediately after the
close of business on the record date in the case of a stock split, subdivision,
combination or reclassification. In such event the holder may waive the 4.99%
limitation contained in Subsection (L) below.
(ii) Any adjustment in the numbers of shares of Class A Common
Stock issuable hereunder otherwise required to be made by this Section will not
have to be made if such adjustment would not require an increase or decrease in
one (1%) percent or more in the number of shares of Class A Common Stock
issuable upon conversion of the Series C Preferred Stock.
(iii) Whenever the number of shares of Class A Common Stock
issuable upon the conversion of the Series C Preferred Stock is adjusted, as
herein provided, the Conversion Price shall be adjusted (to the nearest cent) by
multiplying such Conversion Price immediately prior to such adjustment by a
fraction of which the numerator shall be the number of shares of Class A Common
Stock issuable upon the exercise of each share of Series C Preferred Stock
immediately prior to such adjustment, and of which the denominator shall be the
number of shares of Class A Common Stock issuable immediately thereafter.
4
<PAGE>
D. In the case of any (i) consolidation or merger of the Company into any
entity (other than a consolidation or merger that does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Class A Common Stock of the Company), (ii) sale, transfer, lease or conveyance
of all or substantially all of the assets of the Company as an entirety or
substantially as an entirety, or (iii) reclassification, capital reorganization
or change of the Class A Common Stock (other than solely a change in par value,
or from par value to no par value), in each case as a result of which shares of
Class A Common Stock shall be converted into the right to receive stock,
securities or other property (including cash or any combination thereof), each
holder of Series C Preferred Stock then outstanding shall have the right
thereafter to convert such Series C Preferred Stock only into the kind and
amount of securities, cash and other property receivable upon such
consolidation, merger, sale, transfer, capital reorganization or
reclassification by a holder of the number of shares of Class A Common Stock of
the Company into which such Series C Preferred Stock would have been converted
immediately prior to such consolidation, merger, sale, transfer, capital
reorganization or reclassification, assuming such holder of Class A Common Stock
of the Company (A) is not an entity with which the Company consolidated or into
which such sale or transfer was made, as the case may be ("constituent entity"),
or an affiliate of the constituent entity, and (B) failed to exercise his or her
rights of election, if any, as to the kind or amount of securities, cash and
other property receivable upon such consolidation, merger, sale or transfer
(provided that if the kind or amount of securities, cash or other property
receivable upon such consolidation, merger, sale or transfer is not the same for
each share of Class A Common Stock of the Company held immediately prior to such
consolidation, merger, sale or transfer by other than a constituent entity or an
affiliate thereof and in respect of which the Company merged into the Company or
to which such rights or election shall not have been exercised ("non-electing
share"), then for the purpose of this Section the kind and amount of securities,
cash or other property receivable upon such consolidation, merger, sale or
transfer by each non-electing share shall be deemed to be the kind and amount so
receivable per share by a majority of the non-electing shares). If necessary,
appropriate adjustment shall be made in the application of the provision set
forth herein with respect to the rights and interest thereafter of the holder,
to the end that the provisions set forth herein shall thereafter correspondingly
be made applicable, as nearly as may reasonably be, in relation to any shares of
stock or other securities or property thereafter deliverable on the conversion
of the Series C Preferred Stock. The above provisions shall similarly apply to
successive consolidations, mergers, sales, transfers, capital reorganizations
and reclassifications. The Company shall not effect any such consolidation,
merger, sale or transfer unless prior to or simultaneously with the consummation
thereof the successor Company or entity (if other than the Company) resulting
from such consolidation, merger, sale or transfer shall assume, by written
instrument, the obligation to deliver to the holder such shares of Class A
Common Stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to receive under this Section.
E. Upon the occurrence of each adjustment or readjustment of the
Conversion Price of Series C Preferred Stock, the Company, at its expense, shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to each holder of such Series C Preferred Stock a
certificate executed by the president and chief financial officer (or in the
absence of a person designated as the chief financial officer, by the treasurer)
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment are based. The Company shall, upon
written request at any time of any holder of Series C Preferred Stock, furnish
or cause to be furnished to such holder a certificate setting forth (A) the
Conversion Price at the time in effect, and (B) the number or shares of Class A
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of a share of Series C Preferred Stock.
F. Upon receipt by the Company of evidence of the loss, theft, destruction
or mutilation of any Series C Preferred Stock certificate(s), and (in the case
of loss, theft or destruction) of indemnity or security reasonably satisfactory
to the Company, and upon the cancellation of the Series C Preferred Stock
certificate(s), if mutilated, the Company shall execute and deliver new
certificates for Series C Preferred Stock of like tenure and date. However, the
Company shall not be obligated to reissue such lost or stolen certificates for
shares of Series C Preferred Stock if the holder contemporaneously requests the
Company to convert such shares of Series C Preferred Stock into Class A Common
Stock.
G. The Company shall not issue any fraction of a share of Class A Common
Stock upon any conversion. The Company shall round such fraction of a share of
Class A Common Stock up to the nearest whole share.
H. In the event some but not all of the shares of Series C Preferred Stock
represented by a certificate or certificates surrendered by a holder are
converted, the Company shall execute and deliver to or on the order of the
holder,
5
<PAGE>
at the expense of the Company, a new certificate representing the number of
shares of Series C Preferred Stock which were not converted.
I. The Company shall pay any and all original issue and/or transfer taxes
which may be imposed upon it with respect to the issuance and delivery of Class
A Common Stock upon conversion of the Series C Preferred Stock.
J. The Company 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 Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Certificate of Designation and in taking of all such action as may be necessary
or appropriate in order to protect the conversion rights of the holders of
Series C Preferred Stock against impairment.
K. The number of shares of Class A Common Stock which may be acquired by
any holder upon conversion pursuant to the terms set forth herein shall not
exceed the number of such shares which, when aggregated with all other shares of
Class A Common Stock then owned by such holder, would result in any holder
owning more than 4.99% of the then issued and outstanding Class A Common Stock.
The foregoing shall not interfere with any holder's right to convert Series C
Preferred Stock over time which in the aggregate totals more than 4.99% of the
then outstanding shares of Class A Common Stock so long as such holder does not
own more than 4.99% of the then outstanding Class A Common Stock at any given
time.
L. The aggregate number of shares of Class A Common Stock which may be
acquired by any holder and all holders of Series C Preferred Stock upon
conversion of all of the shares of Series C Preferred Stock pursuant to the
terms set forth herein shall not equal or exceed the Maximum Underlying Shares.
VI. Mandatory Conversion and No Reissuance of Series C Preferred Stock.
A. In the event any shares of Series C Preferred Stock are outstanding on
the Mandatory Conversion Date such shares of Series C Preferred Stock shall
automatically be converted into shares of Class A Common Stock as if the holder
voluntarily elected such conversion in accordance with the procedures, terms and
conditions set forth in this Certificate of Designation provided, that (i) the
Class A Common Stock is listed on the Nasdaq Small Cap Stock Market or another
Principal Market, (ii) the Closing Bid Price is greater than One ($1.00) Dollar
for the ten (10) Trading Days immediately preceding the Mandatory Conversion
Date, (iii) there has not been any suspension in the trading of the Class A
Common Stock on such Principal Market during the thirty (30) Trading Days
immediately preceding the Mandatory Conversion Date, and the (iv) the Company
has been in full compliance with the terms and conditions of this Certificate of
Designation. In the event all of the aforementioned conditions are not
satisfied, or the Company is not able to issue shares of Class A Common Stock as
described above, the Company agrees to pay, within seven (7) Trading Days of the
Mandatory Conversion Date, to each holder of Series C Preferred Stock an amount
in cash which shall be equal to the sum of (a) number of shares of Series C
Preferred Stock then owned of record by the holder multiplied by $1,521 per
share, and (b) all accrued and unpaid dividends due and owing on such shares of
Series C Preferred Stock.
B. No share or shares of Series C Preferred Stock acquired by the Company
by reason of purchase, conversion or otherwise shall be reissued, and all such
shares shall be canceled, retired and eliminated from the shares which the
Company shall be authorized to issue. The Company may from time to time take
such appropriate corporate action as may be necessary to reduce the authorized
number of shares of the Series C Preferred Stock accordingly.
VII. Reservation of Shares. The Company shall, so long as any of the Series C
Preferred Stock are outstanding reserve and keep available out of its authorized
and unissued Class A Common Stock, solely for the purpose of effecting the
conversion of the Series C Preferred Stock, such number of shares of Class A
Common Stock as shall from time to time be sufficient to effect the conversion
of all of the Series C Preferred Stock then outstanding up to the Maximum
Underlying Shares, and if at any time the number of authorized but unissued
shares of Class A Common Stock shall not be sufficient to maintain such number
of shares of Class A Common Stock, the Company shall take such corporate action
as may be necessary to increase its authorized but unissued shares of Class A
Common Stock to such number of shares as shall be sufficient for such purpose.
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<PAGE>
VIII. Restrictions and Limitations.
A. Except as expressly provided herein or as required by law, so long as
any shares of Series C Preferred Stock remain outstanding, the Company shall
not, without the approval by vote or written consent by the holders of at least
two thirds of the then outstanding shares of Series C Preferred Stock, voting as
a separate class take any action that would adversely affect the rights,
preferences or privileges of the holders of Series C Preferred Stock.
B. Without limiting the generality of the preceding paragraph, the Company
shall not, so long as any shares of Series C Preferred Stock remain outstanding,
amend its Articles of Incorporation without the approval by the holders of all
of the then outstanding shares of Series C Preferred Stock if such amendment
would:
1. create any other class or series of capital stock entitled to
seniority as to the payment of dividends in relation to the holders
of Series C Preferred Stock;
2. reduce the amount payable to the holders of Series C Preferred
Stock upon the voluntary or involuntary liquidation, dissolution or
winding up of the Company, or change the relative seniority of the
liquidation preferences of the holders of Series C Preferred Stock
to the rights upon liquidation of the holders of other capital stock
of the Company,
3. cancel or modify the conversion rights of the holders of Series C
Preferred Stock provided for in Section V herein;
4. cancel or modify the rights of the holders of the Series C
Preferred Stock provided for in this Section.
IX. No Dilution or Impairment. The Company shall not, by amendment of its
Articles of Incorporation or through any reorganization, 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 of this Certificate of Designation set forth herein, but shall at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate in order to
protect the rights of the holders of the Series C Preferred Stock against
dilution or other impairment. Without limiting the generality of the foregoing,
the Company (a) shall not establish a par value of any shares of stock
receivable on the conversion of the Series C Preferred Stock above the amount
payable therefor on such conversion, (b) shall take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of stock on the conversion of all Series C
Preferred Stock from time to time outstanding, and (c) shall not consolidate
with or merge into any other person or entity, or permit any such person or
entity to consolidate with or merge into the Company (if the Company is not the
surviving person), unless such other person or entity shall expressly assume in
writing and will be bound by all of the terms of the Series C Preferred Stock
set forth herein.
X. Notices of Record Date. In the event of:
1. any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
2. any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger of the Company, or any transfer of all or substantially all of the assets
of the Company to any other corporation, or any other entity or person, or
3. any voluntary or involuntary dissolution, liquidation or
winding up of the Company, then and in each such event the Company shall mail or
cause to be mailed to each holder of Series C Preferred Stock a notice
specifying (i) the date on which any such record is to be taken for the purpose
of such dividend, distribution or right and a description of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, merger, dissolution, liquidation
or winding up is expected to become
7
<PAGE>
effective and (iii) the time, if any, that is to be fixed, as to when the
holders of record of Class A Common Stock (or other securities) shall be
entitled to exchange their shares of Class A Common Stock (or other securities)
for securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, merger, dissolution, liquidation
or winding up. Such notice shall be mailed at least ten Business Days prior to
the date specified in such notice on which such action is to be taken.
XI. Redemption.
A. Optional Redemption. At any time after the Issuance Date the Company
shall be entitled to redeem all or any shares of Series C Preferred Stock then
outstanding (the "Optional Redemption") in cash pursuant to the following
procedures at the Redemption Price (as defined below) by providing seven
Business Days prior written notice (the "Redemption Notice") to the holder of
the Series C Preferred Stock via facsimile at its address as the same shall
appear on the books of the Company. The Business Day between the hours of 9:00
a.m. and 5:00 Eastern Time the Redemption Notice is received by the holders of
the Series C Preferred Stock via facsimile is defined to be the "Redemption
Notice Date".
B. Mandatory Redemption. In the event that: (a) one or more of the holders
of Series C Preferred Stock shall on any one or more occasions prior to a date
which shall be three (3) years from the Issuance Date, elect pursuant to a
Notice of Conversion to convert all or any portion of its or their shares of
Series C Preferred Stock into Conversion Shares of Class A Common Stock; and (b)
based on the applicable Conversion Price then in effect, such holder(s) would,
as a result of the application of the provisions of Article V, Paragraph L of
this Certificate and Section 5.2 of the Purchase Agreement limiting the issuance
of Conversion Shares to the Maximum Underlying Shares, be prohibited from
converting all such shares of Series C Preferred Stock into Conversion Shares,
then and in such event such holder(s):
(i) shall be deemed to have converted that portion of its or their
Series C Preferred Stock into a number of Conversion Shares of Class A
Common Stock as shall be equal to the Maximum Underlying Shares into which
the Series C Preferred Stock could then be converted, and
(ii) the Company shall, on the Mandatory Redemption Date, redeem and
repurchase for cash all of the remaining unconverted shares of Series C
Preferred Stock owned by such holder(s) (the "Remaining Shares") for a
cash redemption price which shall be equal to the sum of (A) 100% of the
Stated Value of all Remaining Shares, and (B) the amount of all accrued
and unpaid dividends applicable to such Remaining Shares (the "Mandatory
Redemption Payment").
In the event and to the extent that, for any reason, the Company shall be
financially or legally unable to pay all or any portion of the Mandatory
Redemption Payment in cash, the unpaid amount shall be evidenced by the
Company's 15% demand promissory note payable to the holder(s), which demand note
require monthly payments of interest, payable in advance, and contain such other
terms and conditions as shall be acceptable to the holder(s).
C. Optional Redemption Price. In connection with an Optional Redemption
set forth in Paragraph A of this Article XI, the Redemption Notice shall set
forth (i) the "Optional Redemption Date" which shall be seven Business Days
after the Redemption Notice Date, (ii) the "Optional Redemption Price" which
shall equal the Stated Value of that number of shares of Series C Preferred
Stock being redeemed plus all accrued dividends attributable to those shares of
Series C Preferred Stock being redeemed, plus a premium calculated on a daily
pro rata basis equal to 15% of the total Stated Value of that number of shares
of Series C Preferred Stock being redeemed, (iii) a statement that dividends on
those shares of Series C Preferred Stock being redeemed will cease to accrue on
such Optional Redemption Date, and (iv) a statement of or reference to the
conversion right set forth in this Certificate of Designation (including that
the right to give a notice of conversion in respect of any shares to be redeemed
shall terminate on the Optional Redemption Date).
D. Redemption Procedures. Immediately following an Optional Redemption
Date or a Mandatory Redemption Date, as applicable (collectively, a "Redemption
Date"); provided the Company is in full compliance with the Redemption
provisions contained herein, the holder shall surrender their original shares of
Series C Preferred Stock being redeemed at the office of the Company, and the
Company shall issue to the holder a new certificate for the shares of Series C
Preferred Stock that remains outstanding, if any.
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(i) The Company shall not be entitled to send any Optional
Redemption Notice and begin the optional redemption procedure hereunder unless
it has:
(a) the full amount of the Optional Redemption Price in cash,
available in a demand or other immediately available account in a bank or
similar financial institution, specifically allotted for such redemption;
(b) immediately available credit facilities, in the full
amount of the Optional Redemption Price with a bank or similar financial
institution specifically allotted for such redemption; or
(c) a combination of the items set forth in (i) and (ii)
above, aggregating the full amount of the Optional Redemption Price.
E. In the event the Company fails to make payment pursuant to the Optional
Redemption Notice on the Optional Redemption Date or otherwise fails to comply
with the redemption provisions set forth herein, the Optional Redemption Notice
shall be deemed null and void and the Company shall lose any and all further
redemption privileges and rights.
F. Notwithstanding the above, at any time prior to the Optional Redemption
Date the holder is entitled, at its option, to convert the shares of Series C
Preferred Stock being noticed for redemption, in whole or in part in accordance
with the terms and conditions set forth above.
G. Subject to the occurrence of receipt by the holder of the Series C
Preferred Stock of payment by the Company of the Optional Redemption Price as
described in above, each share of Series C Preferred Stock to be redeemed shall
be automatically canceled and converted into a right to receive the Optional
Redemption Price, and all rights of the Series C Preferred Stock, including the
right to conversion shall cease without further action.
H. The Optional Redemption Price shall be adjusted proportionally upon any
adjustment of the Conversion Price as provided herein and in the event of any
stock dividend, stock split, combination of shares or similar event.
I. Partial redemptions shall be in an aggregate principal amount of at
least 100 shares of Preferred Stock. If fewer than all of the outstanding shares
of Series C Preferred Stock are to be redeemed, the Company will select those to
be redeemed pro-rata amongst the then holders of the Series C Preferred Stock.
If fewer than all of the shares of Series C Preferred Stock owned by a holder
are then to be redeemed, the notice shall specify the amount thereof that is to
be redeemed and, if practicable, the numbers of the certificates representing
shares of Series C Preferred Stock.
J. In the event the Company has failed to deliver shares of Class A Common
Stock within thirty calendar days after receipt of a Notice of Conversion,
without any further action, all of the then outstanding shares of Preferred
Stock shall be deemed to be redeemed by the Company and the holder(s) of such
shares of Series C Preferred Stock shall be entitled to receive the Optional
Redemption Price from the Company for such shares as if such thirtieth calendar
day was a Optional Redemption Date.
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RESOLVED, FURTHER, that the appropriate officers of the Company hereby are
authorized to execute and acknowledge a certificate setting forth these
resolution and to cause such certificate to be filed and recorded, all in
accordance with the requirements of Section 151 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, Interiors, Inc., has caused this Certificate to
be signed by its President, and attested to by its Assistant Secretary, this ___
day of February, 1999.
INTERIORS, INC.
By: /s/ Max Munn
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Attest: President Max Munn
/s/ Joan York
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Assistant Secretary Joan York
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Escrow Agreement") is made and entered
into as of the 2nd day of July, 1998, by and among Interiors, Inc., a Delaware
corporation ("Buyer"), U.S. Bank Trust, a national association (together with
its successors and assigns, the "Escrow Agent"), and Barry R. Jackson (the
"Shareholders' Representative"). For purposes of this Escrow Agreement, all
capitalized terms shall have the meanings ascribed to such terms in the Merger
Agreement (defined below) unless otherwise defined herein.
RECITALS
A. Pursuant to that certain Agreement and Plan of Merger, dated as
of the date hereof (the "Merger Agreement") by and among Troy Lighting, Inc., an
Illinois corporation (the "Company"), certain shareholders of the Company (the
"Principal Shareholders"), Buyer and Troy Acquisition Corp., an Illinois
corporation ("Newco"), Newco is merging with and into the Company.
B. The Merger Agreement provides that the Shareholders shall be
obligated to indemnify Buyer pursuant to the terms set forth in the Merger
Agreement for certain Damages resulting from breaches of representations,
warranties and covenants made by the Principal Shareholders in the Merger
Agreement.
C. The Merger Agreement provides that an escrow account will be
established to secure the indemnification obligations of the Shareholders, and
the execution and delivery of this Escrow Agreement is a condition precedent to
the obligation of Buyer to consummate the transactions contemplated by the
Merger Agreement.
D. The Shareholders have appointed the Shareholders' Representative
to act as their representative in connection with, among other things, the
execution and delivery of this Escrow Agreement and the administration of the
matters contemplated hereby.
NOW THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements contained in this Escrow
Agreement, and intending to be legally bound, the parties hereto agree as
follows:
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1. Escrow.
(a) Buyer hereby delivers to the Escrow Agent a certificate in the
name of the Escrow Agent representing ______ shares of Buyer Common Stock (the
"Escrow Shares") pursuant to Section 2.10 of the Merger Agreement, the receipt
of which the Escrow Agent hereby acknowledges. Buyer may deposit additional
shares of Buyer Common Stock with the Escrow Agent as provided in Section 1(f)
hereof. The entitlement of the Shareholders to the Escrow Shares shall be in
proportion to their respective percentages set forth opposite their names on
Schedule A attached hereto (the "Allocable Percentages"). The Escrow Shares
shall be deposited in an account established at the Escrow Agent for receipt of
such Escrow Shares (the "Escrow Account") and shall be held in such Escrow
Account and distributed in accordance with the terms and provisions of this
Escrow Agreement.
(b) Any securities, non-cash dividends or other property
distributable in respect of or in exchange for any of the Escrow Shares, whether
by way of stock dividends, stock splits or otherwise, shall be delivered to the
Escrow Agent, who shall hold such securities, non-cash dividends or other
property in the Escrow Account. Such securities shall be issued in the name of
the Escrow Agent or its nominee and all such securities, cash dividends or other
property shall be considered part of the Escrow Account for purposes hereof.
(c) The Shareholders' Representative shall have the right, in its
sole discretion, on behalf of, and as directed by, the Shareholders, to direct
the Escrow Agent in writing as to the exercise of any voting rights pertaining
to the Escrow Shares, and the Escrow Agent shall comply with any such written
instructions. In the absence of such instructions, the Escrow Agent shall not
vote the Escrow Shares allocated to the Shareholder from whom written
instructions have not been received.
(d) The respective interests of the Shareholders in the Escrow
Account shall not be assignable or transferable, other than by operation of law.
Notice of any such assignment or transfer by operation of law shall be given to
the Escrow Agent and Buyer, and no such assignment or transfer shall be valid
until such notice is given.
(e) Should any Shareholder desire to sell any of the Escrow Shares
prior to the Anniversary Date but after the Escrow Shares have been registered
pursuant to Section 7.10 of the Merger Agreement, the Shareholders'
Representative shall so notify Buyer in writing, specifying the number of Escrow
Shares requested to be sold. Buyer shall have the right, in its sole discretion,
to present the notice to the Escrow Agent, and to (i) direct the Escrow Agent to
sell the number of the Escrow Shares specified in the notice (all parties
acknowledging that Buyer shall be
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disinclined to direct the sale of more than ten percent (10%) of the total
number of Escrow Shares during any calendar week) and (ii) deposit the proceeds
of such sale into the Escrow Account.
(f) If, on the Anniversary Date, Buyer is required to issue
Additional Shares to the Shareholders pursuant to Section 2.08(a) of the Merger
Agreement, a certificate in the name of the Escrow Agent representing such
Additional Shares shall be delivered to the Escrow Agent for deposit into the
Escrow Account within twenty (20) Business Days of the Anniversary Date. Such
Additional Shares shall be treated as Escrow Shares for all purposes of this
Escrow Agreement.
(g) If on the Anniversary Date the Shareholders are required to
return to Buyer shares of Buyer Common Stock pursuant to Section 2.08(b) of the
Merger Agreement, Buyer and the Shareholders' Representative shall give joint
written notice of such event to the Escrow Agent within twenty (20) Business
Days of the Anniversary Date. Such written notice shall include the number of
Escrow Shares to be returned to Buyer pursuant to Section 2.08(b) of the Merger
Agreement (the "Returned Shares"), and the Escrow Agent shall release the
Returned Shares to Buyer out of the Escrow Account promptly upon receipt of such
written notice.
2. Investment of Escrow Account. Cash dividends, if any, distributable in
respect of any of the Escrow Shares and any cash proceeds resulting from the
sale of the Escrow Shares pursuant to Section 1(e) above, shall be held and
invested or reinvested by the Escrow Agent at the written or oral request of the
Shareholders' Representative in any of the following securities:
(a) obligations issued or guaranteed by the United States or any
person controlled or supervised by and acting as an instrumentality of the
United States pursuant to authority granted by Congress; and
(b) certificates of deposit of banks or trust companies, including
those of the Escrow Agent, organized under the laws of the United States of
America. In the absence of written instructions, funds shall be deposited in an
U.S. Bank Trust money market account.
Such investments shall be made subject to any orders of the
Shareholders' Representative with respect thereto, provided that investments of
monies in the Escrow Account shall in any event mature or be redeemable or be
subject to liquidation by sale or otherwise at the option of the Escrow Agent at
such time as may be necessary to make timely disbursements from the Escrow
Account. Subject to any such orders with respect thereto, or in the absence of
any orders from the Shareholders' Representative, the Escrow Agent may from time
to time sell such investments and reinvest the proceeds therefrom in other
investments of the type described in
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this Section maturing or redeemable as aforesaid. Any such investments may be
purchased from the Escrow Agent or any affiliate of the Escrow Agent. The Escrow
Account shall be credited with all proceeds of sale and income from such
investment.
3. Term. Subject to indemnification claims made by Buyer against the
Shareholders pursuant to the Merger Agreement, the term of this Escrow Agreement
shall commence on the date hereof and terminate on the later of (a) ten (10)
weeks after the Anniversary Date or (b) the date on which the last pending claim
is resolved and paid.
4. Claims Against Escrow Account.
(a) If, at any time during the term of this Escrow Agreement, Buyer
has incurred or suffered Damages for which it is entitled to indemnification
under Article IX of the Merger Agreement, Buyer shall give written notice of
such claim to the Shareholders' Representative and the Escrow Agent, stating in
reasonably sufficient detail the events or circumstances which are the basis for
and amount of such claim. If the Shareholders' Representative objects to any
such claim, he shall give written notice of such objection to Buyer and the
Escrow Agent within ten (10) days after the date of receipt of Buyer's notice,
and shall state the basis for such objection. Notwithstanding the foregoing,
such ten (10) day period shall be extended to a twenty (20) day period if within
such original ten (10) day period the Shareholders' Representative gives written
notice to Buyer and the Escrow Agent that additional time is necessary to
respond to the claim. If no objection to Buyer's claim is made by the
Shareholders' Representative within such ten (10) day period, or twenty (20) day
period, as applicable, the claim shall be deemed conclusively resolved and shall
be paid by the Escrow Agent pursuant to Section 5 without further mutual
instructions from the parties.
(b) If the Shareholders' Representative provides timely notice of
objection to any claim, Buyer and the Shareholders' Representative shall attempt
to resolve the dispute and, if they are able to do so, shall give mutual written
notice to the Escrow Agent of the resolution of the dispute and the amount of
the claim resolved, if any.
(c) If Buyer and the Shareholders' Representative are unable
informally to resolve a disputed claim pursuant to Section 4(b) above within
twenty (20) days after the date of the Shareholders' Representative's timely
objection to Buyer's claim, the dispute shall be settled solely by a court of
competent jurisdiction in the State of California or the United States District
Court for the Central District of California. Any decision or award of such
court shall be treated as a claim resolved under this Escrow Agreement and shall
be final and
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conclusive on the parties to this Escrow Agreement and their respective
affiliates, heirs, successors and assigns. The parties hereto agree that any
action or proceeding pursuant to this Escrow Agreement shall be brought
exclusively in an appropriate California court or in the United States District
Court for the Central District of California, and in connection with such action
or proceeding, the laws of the State of California shall govern. The parties
hereto hereby consent to the exclusive jurisdiction of such court. Buyer and the
Shareholders' Representative may each respectively appoint such attorneys,
accountants and agents to act for them before the court.
5. Payment of Resolved Claims. Within five (5) days following the day on
which a claim is resolved pursuant to Section 4 above, the Escrow Agent shall
release to Buyer Escrow Shares out of the Escrow Account having a Fair Market
Value equal to the lesser of (i) the amount of any such resolved claim or (ii)
the then current Fair Market Value of all Escrow Shares remaining in the Escrow
Account. For purposes of this Section 5, the "Fair Market Value" of Escrow
Shares shall mean the average closing bid price per share of Buyer Common Stock
for the thirty (30) trading days preceding the date on which a claim is
resolved.
6. Sale of the Escrow Shares. On the Anniversary Date, all of the Escrow
Shares shall be sold by the Escrow Agent over a period of ten (10) weeks from
the Anniversary Date, at such times and in such amounts as Buyer determines in
its sole discretion. All proceeds from the sale of the Escrow Shares shall be
retained by the Escrow Agent or distributed to the Shareholders in accordance
with Section 7 below. Buyer and Shareholders' Representative acknowledge that,
pursuant to the terms of a Shareholder Agreement, Buyer has agreed to reimburse
the Shareholders' Representative, for the benefit of the Shareholders, to the
extent that the aggregate proceeds received by the Shareholders upon the sale of
the Escrow Shares which were not the subject of any resolved claim, plus all
customary brokerage commissions, are less than the fair market value of such
shares on the Anniversary Date. For purposes of Section 6 and 7 hereof, the fair
market value per share of the Escrow Shares as of the Anniversary Date shall
mean the average closing bid price per share of Buyer Common Stock for the
thirty (30) trading days preceding the Anniversary Date.
7. Release of Escrow Property.
7.1 Immediately after the Anniversary Date, the Escrow Agent shall
sell, hold and distribute the Escrow Shares and all other property then held in
the Escrow Account in accordance with the following:
(a) If there is on that date neither any claim asserted by the
Buyer which has not yet been resolved pursuant to
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Section 4 hereof (a "pending claim"), nor any claim of Buyer resolved but not
paid, the Escrow Agent shall (i) commence the sale of the Escrow Shares, if any,
in accordance with the provisions of Section 6 hereof, and (ii) distribute to
the Shareholders the proceeds of the sale and any other property retained in the
Escrow Account in accordance with their respective Allocable Percentages.
(b) If there is on that date any pending claim, or any claim
resolved but not paid, the Escrow Agent shall retain in the Escrow Account for
the purpose of satisfying any such pending or resolved but unpaid claims an
amount of cash or cash equivalents equal to the amount of all pending claims and
resolved but not paid claims. In addition to the foregoing, the Escrow Agent
shall (i) commence the sale of the Escrow Shares in accordance with the
provisions of Section 6 hereof, (ii) retain the proceeds of the sale of the
Escrow Shares to the extent of any pending claim or any claim resolved but not
paid, and (iii) distribute to the Shareholders any other property retained in
the Escrow Account in accordance with their respective Allocable Percentages.
7.2 Following the expiration of the term of this Escrow Agreement,
as each pending claim is paid for which an amount was reserved according to
Section 7.1(b) hereof, the Escrow Agent shall distribute to the Shareholders the
balance of the cash and cash equivalents, if any, in the Escrow Account in
accordance with their respective Allocable Percentages; provided, however, that
if at that time there remain other pending claims or resolved but not paid
claims, the Escrow Agent shall continue to hold cash and cash equivalents in an
amount equal to the lesser of (a) the value of all cash and cash equivalents in
the Escrow Account, or (b) the total amount of all pending claims or resolved
but not paid claims. When no pending claims or resolved but not paid claims
remain, the Escrow Agent shall distribute to the Shareholders the balance, if
any, of the cash and cash equivalents in the Escrow Account in accordance with
their respective Allocable Percentages.
7.3 Any distribution to any Shareholder provided for herein shall be
paid to the estate of the Shareholder if the Shareholder is then deceased.
8. Escrow Agent.
8.1 The duties of the Escrow Agent hereunder shall be entirely
administrative and not discretionary. The Escrow Agent shall be obligated to act
only in accordance with written or oral instructions received by it as provided
in this Escrow Agreement and is authorized hereby to comply with any orders,
judgments or decrees of any court with or without jurisdiction and shall not be
liable as a result of its compliance with the same.
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8.2 As to any legal questions arising in connection with the
administration of this Escrow Agreement, the Escrow Agent may rely absolutely
upon the opinions given to it by its counsel and shall be free of liability for
acting in reliance on such opinions.
8.3 The Escrow Agent may rely absolutely upon the genuineness and
authorization of the signature and purported signature of any party upon any
instruction, notice, release, receipt or other document delivered to it pursuant
to this Escrow Agreement.
8.4 The Escrow Agent may, as a condition to the disbursement of
monies as provided herein, require from the payee or recipient a receipt
therefor and, upon final payment or disposition, a release of the Escrow Agent
from any liability arising out of its execution or performance of this Escrow
Agreement, such release to be in a form satisfactory to the Escrow Agent.
8.5 The parties agree that the Escrow Agent will be compensated for
its services by Buyer until termination of this Escrow Agreement or resignation
of the Escrow Agent.
9. Indemnity.
9.1 Buyer and the Shareholders' Representative agree to and hereby
do waive any suit, claim, demand or cause of action of any kind which they or it
may have or may assert against the Escrow Agent arising out of or relating to
the execution or performance by the Escrow Agent of this Escrow Agreement,
unless such suit, claim, demand or cause of action is based upon the wilful
neglect or gross negligence or bad faith of the Escrow Agent. They further agree
to indemnify the Escrow Agent against and from any and all claims, demands,
costs, liabilities and expenses, including reasonable counsel fees, which may be
asserted against it or to which it may be exposed or which it may incur by
reason of its execution or performance of this Escrow Agreement, unless they
arise from any suit, claim, demand or cause of action based upon the wilful
neglect or gross negligence or bad faith of the Escrow Agent. Such agreement to
indemnify shall survive the termination of this Escrow Agreement until
extinguished by any applicable statute of limitations.
9.2 In case any litigation is brought against the Escrow Agent in
respect of which indemnity may be sought hereunder, the Escrow Agent shall give
prompt notice of that litigation to the parties hereto, and the parties upon
receipt of that notice shall have the obligation and the right to assume the
defense of such litigation, provided that failure of the Escrow Agent to give
that notice shall not relieve the parties hereto from any of their obligations
under this Section unless that failure prejudices the
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defense of such litigation by said parties. At its own expense, the Escrow Agent
may employ separate counsel and participate in the defense. The parties hereto
shall not be liable for any settlement without their respective consents.
10. Acknowledgment by the Escrow Agent. By execution and delivery of this
Escrow Agreement, the Escrow Agent acknowledges that the terms and provisions of
this Escrow Agreement are acceptable and it agrees to carry out the provisions
of this Escrow Agreement on its part.
11. Resignation or Removal of Escrow Agent; Successors.
11.1 (a) The Escrow Agent may resign as such following the giving of
thirty (30) days' prior written notice to the other parties hereto. Similarly,
the Escrow Agent may be removed and replaced following the giving of thirty (30)
days' prior written notice to the Escrow Agent by both the Shareholders'
Representative and Buyer. In either event, the duties of the Escrow Agent shall
terminate thirty (30) days after the date of such notice (or as of such earlier
date as may be mutually agreeable); and the Escrow Agent shall then deliver the
balance of the escrow fund then in its possession to a successor Escrow Agent as
shall be appointed by the other parties hereto as evidenced by a written notice
filed with the Escrow Agent.
(b) If for any reason any person or entity is unwilling to
serve as successor Escrow Agent and if the other parties hereto are unable to
agree upon a successor or shall have failed to appoint a successor prior to the
expiration of thirty (30) days following the date of the notice of resignation
or removal, the then acting Escrow Agent may petition any court of competent
jurisdiction for the appointment of a successor Escrow Agent or other
appropriate relief; and any such resulting appointment shall be binding upon all
of the parties hereto.
11.2 Every successor Escrow Agent appointed hereunder shall execute,
acknowledge and deliver to its predecessor and the other parties hereto, an
instrument in writing accepting such appointment hereunder, and thereupon such
successor, without any further act, shall become fully vested with all the
duties, responsibilities and obligations of its predecessor; but such
predecessor shall, nevertheless, on the written request of its successor or any
of the parties hereto, execute and deliver an instrument or instruments
transferring to such successor all the rights of such predecessor hereunder, and
shall duly assign, transfer and deliver all property, securities and monies held
by it pursuant to this Escrow Agreement to its successor. Should any instrument
be required by any successor for more fully vesting in such successor the
duties, responsibilities and obligations hereby vested or intended to be vested
in the predecessor, any and all such instruments in writing shall, on the
request of any of the
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other parties hereto, be executed, acknowledged and delivered by the
predecessor.
11.3 In the event of an appointment of a successor, the predecessor
shall cease to be custodian of any funds, securities or other assets and records
it may hold pursuant to this Escrow Agreement, and the successor shall become
such custodian.
11.4 Upon acknowledgment by any successor Escrow Agent of the
receipt of the then remaining balance of the escrow fund, the then acting Escrow
Agent shall be fully released and relieved of all duties, responsibilities and
obligations under this Escrow Agreement.
12. Entire Agreement, Amendments and Waivers. This Escrow Agreement, the
Shareholders Agreement and the Merger Agreement contain the entire agreement
among the parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements, negotiations, discussions, arrangements or
understandings with respect thereto. No amendment, supplement, modification or
waiver of this Escrow Agreement shall be binding unless executed in writing by
the Escrow Agent, Buyer and the Shareholders' Representative. No waiver of any
of the provisions of this Escrow Agreement shall be deemed or shall constitute a
waiver of any other provision hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly provided. In
addition to the remedies provided in this Escrow Agreement, any party may pursue
any and all remedies now or hereafter existing at law or in equity.
13. Execution Counterparts. This Escrow Agreement may be executed in one
or more counterparts (including by facsimile), each of which shall be regarded
as an original and all of which shall constitute but one and the same
instrument.
14. Severability. If any provision of this Escrow Agreement, or any
covenant, obligation or agreement contained herein is determined by a court to
be invalid or unenforceable, such determination shall not affect any other
provision, covenant, obligation or agreement, each of which shall be construed
and enforced as if such invalid or unenforceable portion were not contained
therein. Such invalidity or unenforceability shall not affect any valid and
enforceable application thereof, and each such provision, covenant, obligation
or agreement shall be deemed to be effective, operative, made, entered into or
taken in the manner and to the full extent permitted by law.
15. Headings. The headings in this Escrow Agreement shall be solely for
convenience of reference and shall in no way define, limit or describe the scope
or intent of any provisions or sections of this Escrow Agreement.
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16. Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and shall be deemed to be sufficiently
given (a) if delivered personally, upon delivery, (b) if delivered by registered
or certified mail (return receipt requested), postage prepaid, upon the earlier
of actual delivery or upon three days after being mailed, and (c) if delivered
by telecopy, upon confirmation of transmission by telecopy, in each case to the
parties at the following address:
(a) As to Buyer: Interiors, Inc.
320 Washington Street
Mt. Vernon, New York 10553
Attention: Max Munn
Facsimile: (914) 665-1610
With a copy to: DeAnne H. Ozaki, Esq.
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street, 23rd Floor
Los Angeles, California 90071
Facsimile: (213) 627-0705
(b) As to Escrow Agent: U.S. Bank Trust
Global Escrow Depository Services
550 South Hope Street, Suite 500
Los Angeles, California 90071
Attention: Andrea Freeman
Facsimile: (213) 533-8736
(c) As to Shareholders'
Representative: Barry R. Jackson
23 West Street
P.O. Box 129
Annapolis, Maryland 21401
Facsimile: (410) 268-3963
With a copy to: Gerald M. Penner, Esq.
Katten, Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661
Facsimile: (312) 902-1061
Any of the parties hereto may, by notice given hereunder, designate any further
or different address to which subsequent notices or other communications shall
be sent.
17. Expenses. Except as otherwise provided for herein, each party shall be
responsible for its own costs and expenses with respect to matters involving
this Escrow Agreement.
18. Successors. This Escrow Agreement shall be binding upon, and inure to,
the benefit of the heirs, executors,
-10-
<PAGE>
successors and assignees of the parties hereto, and no other person shall have
any right, benefit or obligation hereunder.
19. Gender. Words of the masculine gender include the feminine and the
neuter, and when the context so requires, words of the neuter gender may refer
to any gender.
20. Applicable Law. This Escrow Agreement shall be governed by and
construed and enforced in accordance with the internal laws (and not the law of
conflicts) of the State of California.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Escrow Agreement to be executed on its behalf as of the day and year first above
written.
BUYER:
INTERIORS, INC.
By: /s/ Dennis D'Amore
------------------------------------
An Authorized Officer
ESCROW AGENT:
U.S. BANK TRUST
By: /s/ Andrea Freeman
------------------------------------
An Authorized Officer
SHAREHOLDERS' REPRESENTATIVE:
/s/ Barry R. Jackson
------------------------------------
Barry R. Jackson
-11-
THE WINDSOR ART, INC.
VOTING TRUST AGREEMENT NO. 1
THIS VOTING TRUST AGREEMENT (the "Agreement") is made and entered into
this 30th day of July, 1998, by and among LLOYD R. ABRAMS and MAX MUNN as voting
trustees (in such capacity, the "Voting Trustees"), INTERIORS, INC., a Delaware
corporation (the "Shareholder"), and BENTLEY INTERNATIONAL, INC., a Missouri
corporation ("Bentley").
W I T N E S S E T H:
WHEREAS, Shareholder has entered into on even date herewith a Stock
Purchase Agreement (the "Stock Purchase Agreement") with Bentley to acquire all
of the issued and outstanding shares (the "Shares") of common stock, par value
$1.00 per share ("Common Stock") of WINDSOR ART, INC., a Missouri corporation
("Windsor"); and
WHEREAS, pursuant to the terms of the Stock Purchase Agreement Shareholder
has agreed that the Shares shall be registered in the names of the Voting
Trustees and held pursuant to the terms and provisions of this Agreement until
certain indebtedness of Shareholder and Windsor is paid in full; and
WHEREAS, the Voting Trustees are willing to serve as Trustees with respect
to the Shares of Common Stock of Windsor as herein provided.
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Shares to be Held in Trust.
(a) Establishment of Voting Trust. Shareholder and the Voting
Trustees hereby establish and constitute this voting trust (the "Voting Trust")
with respect to the Shares of Common Stock of Windsor to be sold and transferred
pursuant to the Stock Purchase Agreement (such Shares of Common Stock of Windsor
hereinafter are referred to collectively as the "Trust Shares"). The Voting
Trust shall be administered on the terms set forth in this Agreement. The Voting
Trust may be referred to as "The Windsor Art, Inc. Voting Trust No. 1" without
reference to the date of this Agreement.
(b) Actions to be Taken. At the Closing described in the Stock
Purchase Agreement, the following actions shall be taken by each of the parties
hereto:
(i) Shareholder shall instruct Bentley and Windsor in writing
that all certificates evidencing Shares of Common Stock of Windsor
to be issued in connection with the Closing pursuant to the Stock
Purchase Agreement shall be issued to and in the name of the Voting
Trustees pursuant to this Agreement.
<PAGE>
Bentley shall cause such certificates to be so issued and delivered
to the Voting Trustees. The Voting Trustees hereby are authorized to
receive and to hold, in the name of the Voting Trustees, for the
benefit of Shareholder (subject to the rights of Bentley as stated
herein, in the Stock Purchase Agreement and in that certain Pledge
Agreement (the "Pledge Agreement") of even date herewith between
Shareholder and Bentley ), the Trust Shares.
(ii) Immediately following the receipt of the Trust Shares,
the Voting Trustees shall (a) issue to Interiors a voting trust
certificate in the form of Exhibit A attached hereto (the "Voting
Trust Certificate") evidencing the number of Trust Shares held by
the Voting Trustees, (b) deliver possession of all certificates
representing the Trust Shares to Riezman & Blitz, P.C., the "Agent,"
so designated in the Pledge Agreement and (c) execute in blank and
deliver to the Agent the irrevocable stock power attached hereto as
Exhibit B.
(iii) Immediately following the receipt of the Voting Trust
Certificate, Interiors shall (a) deliver possession of the Voting
Trust Certificate to the Agent and (b) shall execute and deliver to
the Agent the irrevocable stock power attached hereto as Exhibit B.
(c) Voting Securities Subsequently Acquired. The parties hereto
acknowledge that, if any additional voting securities of Windsor are issued with
respect to or in exchange for the Trust Shares, whether by reason of a stock
split, stock dividend, share exchange, merger, consolidation or similar
transaction, certificates representing such additional voting securities shall
be delivered to the Voting Trustees, who shall, in turn, deliver the same to the
Agent along with executed irrevocable stock powers with respect to such
additional voting securities in form and substance equivalent to Exhibit B, and
such additional voting securities shall constitute "Trust Shares" hereunder. The
Voting Trustees shall execute and deliver one or more Voting Trust Certificates
to Shareholder to represent Shareholder's interest in such additional voting
securities, which Shareholder, in turn, shall deliver forthwith to Agent along
with executed irrevocable stock powers with respect to such additional Voting
Trust Certificates in form and substance equivalent to Exhibit B. For purposes
of this Agreement, "voting securities" shall mean any equity securities of
Windsor (or any corporate successor, including any entity which acquires the
capital stock of Windsor or assets of Windsor in consideration for voting
securities) which may be entitled by law to vote at any time with respect to any
matter, whether or not such equity securities are accorded voting rights under
the Articles of Incorporation of Windsor (or such successor).
(d) Legend. All certificates representing the Trust Shares, and all
warrants and options exercisable for equity securities which shall become Trust
Shares as set forth herein, shall bear a legend substantially to the effect that
"The shares of stock of the corporation [represented hereby/receivable upon
exercise hereof] are subject to the terms of The Windsor Art, Inc. Voting Trust
Agreement No. 1, dated July 7, 1998, as the same may be amended and/or restated
from time to time, a copy of which is on file with the corporation."
2
<PAGE>
2. Voting Trust Shares.
(a) Power to Vote Trust Shares. Subject to the provisions of this
Agreement, the Voting Trustees shall have the power to vote the Trust Shares
with respect to any matter, for or against, on which the Trustees shall agree.
(b) Matters on Which Trust Shares May Be Voted. Subject to the
provisions of this Agreement, the Voting Trustees, as such, shall have full
power and discretion to vote the Trust Shares for the election of directors of
Windsor and on any and all other matters with respect to which holders of the
voting securities of Windsor are entitled to vote (including but not limited to
amendments of Windsor's Articles of Incorporation, mergers, consolidations,
share exchanges, dissolution of Windsor, acquisitions of business, issuances of
securities or sales or other dispositions of all or substantially all of the
assets or stock of Windsor or any subsidiary thereof), whether such matters are
considered in a meeting of such holders or in a unanimous written consent to be
executed by them.
(c) Special Matters Regarding Voting of Trust Shares. The foregoing
provisions of this Agreement notwithstanding, until there is a "Default"
(hereinafter defined), the Voting Trustees shall vote all the Trust Shares in
such manner as may be necessary (i) to provide that Windsor's Board of Directors
shall consist of two members, one designated by Shareholder and the other
designated by Bentley and (ii) to authorize and allow Windsor and Shareholder to
effect (A) financing based on the assets of Windsor within the limits set forth
in the Stock Purchase Agreement, (B) "Mezzanine Financing" as defined in and
subject to the limits set forth in the Stock Purchase Agreement, so long as the
proceeds of such financing are used to pay in full Windsor's existing "Credit
Facility" with Norwest Business Credit, Inc. and any outstanding indebtedness
(including interest) under the "Second Promissory Note" as defined in the Stock
Purchase Agreement. Anything herein to the contrary notwithstanding, upon and
after any Default (i) under either of the Promissory Notes between Shareholder
and Bentley executed on even date herewith as part of the consideration for the
Shares pursuant to the Stock Purchase Agreement or (ii) under that certain
Consulting Agreement between Windsor and Lloyd R. Abrams executed as of even
date herewith, Lloyd R. Abrams (or his successor Trustee hereunder) shall become
the sole Trustee of this Voting Trust and any other Trustee of the Voting Trust
shall cease to act in such capacity, and Lloyd R. Abrams (or his successor
Trustee hereunder) shall have the sole right and power, in his absolute
discretion, to vote the Trust Shares as described above in Section 2(a) and
Section 2(b) on any and all matters with respect to which holders of the voting
securities of Windsor are entitled to vote (including but not limited to
amendments of Windsor's Articles of Incorporation and Bylaws). For purposes of
this Agreement the term "Default" as used herein shall mean (a) any failure by
Shareholder to make any payment of interest or principal with respect to either
of the Promissory Notes when the same is due or within any grace period provided
for in such Promissory Notes, (b) any other Default as such term is defined in
either of such Promissory Notes or (c) any failure by Windsor to make any
payment of any amount under the Consulting Agreement when the same is due or
within any grace period provided for in such Consulting Agreement.
3
<PAGE>
3. Voting Trustees.
(a) Any individual acting as one of the Voting Trustees shall have
the right to resign as a Voting Trustee hereunder during his lifetime at any
time by notice delivered to the other Voting Trustee, Bentley and Shareholder,
such resignation to be effective at such time as a successor Voting Trustee
accepts this Agreement pursuant to Section 3(c).
(b) Subject to the terms of Section 2(c) of this Agreement, in the
event of the resignation, death or inability of one of the Voting Trustees to
serve for any reason, the successor to such Voting Trustee shall be an
individual appointed in accordance with the provisions of this Section 3(b). In
the event the trusteeship originally occupied by Lloyd R. Abrams (the "Bentley
Trusteeship") becomes vacant, Bentley within ten (10) days of its receipt of
notice of such vacancy shall appoint another individual to as a Voting Trustee
hereunder who shall occupy the Bentley Trusteeship and shall for purposes of
this Agreement be deemed Lloyd R. Abrams' successor; and in the event the
trusteeship originally occupied by Max Munn (the "Interiors Trusteeship")
becomes vacant, Interiors within ten (10) days of its receipt of notice of such
vacancy shall appoint another individual to as a Voting Trustee hereunder who
shall occupy the Interiors Trusteeship and shall for purposes of this Agreement
be deemed Max Munn's successor.
(c) Any person appointed as a successor Voting Trustee hereunder
shall become a Voting Trustee only upon written acceptance of this Agreement and
the rights, powers, duties and obligations of the Voting Trustees hereunder, and
the delivery of such acceptance to the acting Voting Trustee (if any), Bentley
and Shareholder. Each successor Voting Trustee shall have the same rights,
powers, duties and obligations as the Voting Trustee whom such successor
succeeds.
4. Cash Dividends; Shareholder Materials. During the term of this
Agreement, the Voting Trust Certificate holder shall continue to remain entitled
to receive any cash and in kind dividends declared and paid with respect to the
Trust Shares (except in kind dividends of voting securities), and any
informational materials distributed by Windsor to all holders of voting
securities of the Windsor. The Voting Trustees shall be solely responsible for
the delivery of such informational materials and cash and in kind dividends to
the Voting Trust Certificate holder.
5. Termination.
(a) This Agreement and the Voting Trust created herein shall
terminate upon the earlier to occur of the following: (i) the execution of an
instrument by all parties to this Agreement terminating this Agreement; (ii) at
such time as the Promissory Notes have been paid in full and all obligations
under the Consulting Agreement have either been paid in full or satisfied; or
(iii) at such time as the Voting Trust Certificate has been acquired by Bentley
pursuant to the Pledge Agreement.
4
<PAGE>
(b) Upon termination of this Agreement and the Voting Trust created
herein upon the occurrence of events recited in Section 5(a)(i) or Section
5(a)(ii) above, Shareholder shall surrender to the then acting Voting Trustees
Shareholder's Voting Trust Certificate, duly endorsed for transfer. The Voting
Trustees shall as soon as practicable thereafter cause to be distributed to
Shareholder, free from trust, one or more certificates representing the Trust
Shares to which Shareholder (or Shareholder's assignee) is entitled, which
certificates shall not contain the legend recited in Section 1(d) hereof.
(c) Upon termination of this Agreement and the Voting Trust created
herein upon the occurrence of events recited in Section 5(a)(iii) above, Bentley
shall surrender to the then acting Voting Trustees the Voting Trust Certificate,
duly endorsed for transfer. The Voting Trustees shall as soon as practicable
thereafter cause to be distributed to Bentley, free from trust, one or more
certificates representing the Trust Shares to which Bentley (or Bentley's
assignee) is entitled, which certificates shall not contain the legend recited
in Section 1(d) hereof.
6. Transfer and Distribution of Trust Shares. Except as expressly provided
in this Agreement and in the Pledge Agreement, no party to this Agreement shall
have the right or power to sell, pledge, give, assign or transfer in any other
manner the Voting Trust Certificate or any of the Trust Shares or any interest
in either. Each party hereto agrees that any transfer of the Voting Trust
Certificate or Trust Shares shall be in accordance with all applicable federal
and state securities laws.
7. Compensation of Voting Trustees. The Voting Trustees shall receive no
compensation for their services as Voting Trustees hereunder, but this provision
shall not limit in any way the compensation or benefits which a Voting Trustee
may receive in his or her capacity as an officer, director, consultant or
attorney of any of the parties to this Agreement.
8. Liability of Voting Trustees. Subject to the terms of this Agreement,
it is the intention of the parties that the Voting Trustees have unfettered
discretion to vote the Trust Shares as they deem appropriate. No Voting Trustee
shall be liable to Shareholder or any other person for any loss arising out of
or in connection with his or her voting of any of the Trust Shares or any other
action or inaction as Voting Trustees hereunder, unless such loss was caused by
a Voting Trustee's gross negligence or willful misconduct. The Voting Trustees
may consult with counsel of their choice, and shall have full and complete
authorization and protection for any action taken or suffered by the Voting
Trustees under this Agreement in good faith and in accordance with the opinion
of such counsel. No Voting Trustee acting hereunder shall be required to give a
bond or other security for the faithful performance of its duties as such.
9. Dissolution. In the event of the dissolution or total or partial
liquidation of the Windsor, whether voluntary or involuntary, the Voting
Trustees shall receive the moneys, securities, rights or property to which the
Voting Trust Certificate holders deposited hereunder are entitled and shall
distribute the same among the registered holders of Voting Trust Certificates in
proportion to their respective interests therein. Upon such distribution, all
further
5
<PAGE>
obligations or liability of the Voting Trustees in respect of such moneys,
securities, rights or property so received shall cease.
10. Non-Disqualification. Nothing herein contained shall disqualify a
Voting Trustee from voting for it or any of its employees, officers, directors,
shareholders or affiliates to serve or from having any such persons serve
Windsor or any of its subsidiaries or affiliates as an officer or director or in
any other capacity and from voting for any of its employees, officers,
directors, shareholders or affiliates to receive and having any such persons
receive compensation for such services.
11. Notices. All notices and other communications shall be in writing and
shall be personally delivered or delivered by certified mail, return receipt
requested, addressed to such party at its address hereinafter set forth, or such
other address as such party may hereafter specify by notice given pursuant to
this Section 11. Each such notice or other communication shall be effective (i)
if personally delivered, on the date of such delivery; and (ii) if given by
certified mail, return receipt requested, three (3) days after deposit in the
mail with appropriate certified postage prepaid, addressed as aforesaid.
In the case of the Voting Trustees, to:
Lloyd R. Abrams Max Munn
9719 Conway Road Interiors, Inc.
St. Louis, Missouri 63124 320 Washington Street
Mt.Vernon, NY 10553-1017
In the case of Shareholder to:
Interiors, Inc.
320 Washington Street
Mt. Vernon, NY 10553-1017
Attn: Max Munn
In the case of Bentley to:
Bentley International, Inc.
9719 Conway Road
St. Louis, Missouri 63124
Attn: Lloyd R. Abrams
In the case of any notice to Max Munn or Shareholder a copy shall be sent
also to:
Paul, Hastings, Janofsky & Walker LLP
Twenty-Third Floor
6
<PAGE>
555 South Flower Street
Los Angeles, California 90071
Attention: DeAnne H. Ozaki, Esq.
In the case of any notice to Lloyd R. Abrams or Bentley a copy shall be
sent also to:
Richard B. Rothman
Riezman & Blitz, P.C.
7700 Bonhomme Ave. 7th Floor
St. Louis, MO 63105
12. Amendment. This Agreement may be amended or modified in whole or in
part only by a document in writing signed by the Voting Trustees and each other
party against whom such amendment or modification is to be enforced.
13. Counterparts. This Voting Trust Agreement may be executed in one or
more counterparts, each of which shall constitute an original, and all of which
taken together shall constitute one instrument.
14. Severability. If any one or more of the provisions contained in this
Agreement or any application thereof shall be invalid, illegal or unenforceable
in any respect, the validity, legality or enforceability of the remaining
provisions of this Agreement and any other application thereof shall not in any
way be affected or impaired thereby.
15. Headings. The headings in this Agreement are inserted for convenience
only and in no way alter, amend, modify, limit or restrict the contractual
obligations of the parties hereto.
16. Binding Effect. This Agreement shall be binding on, inure to the
benefit of, and be enforceable by and against the Voting Trustees, the other
parties hereto, and their respective heirs, personal representatives,
distributees, successors and assigns.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Missouri.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
/s/ Lloyd R. Abrams /s/ Max Munn
- ------------------------------------- -------------------------------------
Lloyd R. Abrams, as a Voting Trustee Max Munn, as a Voting Trustee
BENTLEY INTERNATIONAL, INC. INTERIORS, INC.
By:/s/ Lloyd R. Abrams By:/s/ Max Munn
- ------------------------------------- -------------------------------------
Lloyd R. Abrams, President Max Munn, President
8
<PAGE>
Exhibit A to
Windsor Art, Inc. Voting Trust Agreement No. 1
THE SECURITIES REPRESENTED BY THIS VOTING TRUST CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE. WITHOUT SUCH REGISTRATION, SUCH SECURITIES MAY BE TRANSFERRED ONLY
IF REGISTERED UNDER APPLICABLE SECURITIES LAW OR IF AN EXEMPTION THEREFROM IS
AVAILABLE.
No.__________________ ___________________ Shares
Windsor Art, Inc.
a Missouri corporation
Voting Trust Certificate
This certifies that:
(1) certificates representing _______ shares of Common Stock of Windsor
Art, Inc., a Missouri corporation ("Company"), have been deposited with the
undersigned, as Voting Trustees under the Windsor Art, Inc. Voting Trust
Agreement No. 1 (the "Voting Trust Agreement"), dated as of July 7, 1998, among
Lloyd R. Abrams and Max Munn, as Voting Trustees, and the other parties thereto,
including the person named in the immediately succeeding paragraph; and
(2) Interiors, Inc., a Delaware corporation or the registered assigns
thereof, is entitled to all of the benefits arising from the deposit of such
shares, subject to the terms and conditions set forth in the Voting Trust
Agreement.
Subject to the limitations set forth in the Voting Trust Agreement, and
subject to limitations imposed by applicable law from time to time (if any),
this certificate and the rights of the registered holder may be transferred on
the records maintained by the Voting Trustees under the Voting Trust Agreement.
In the event of such a transfer, the Voting Trustees shall cause appropriate
evidence thereof to be endorsed hereon or shall, in the discretion of the Voting
Trustees, cause another certificate (or additional certificates) to be issued in
replacement for this certificate to reflect the transfer appropriately.
IN WITNESS WHEREOF, the undersigned Voting Trustees have executed this
certificate this 7th day of July, 1998.
_______________________________ _______________________________
Lloyd R. Abrams, Voting Trustee Max Munn, Voting Trustee
9
<PAGE>
Exhibit B to
Windsor Art, Inc. Voting Trust Agreement No. 1
IRREVOCABLE STOCK POWER AND ASSIGNMENT
FOR VALUE RECEIVED, the undersigned do hereby sell, assign and transfer
unto ____________________________ _______ shares of the of common stock, par
value $1.00 per share ("Common Stock"), of WINDSOR ART, INC. (the "Company")
represented by Stock Certificate No. ________ and all of the undersigned's
right, title and interests in and to that certain Voting Trust Certificate No.1
(issued pursuant to the terms and provisions of the Windsor Art, Inc. Voting
Trust Agreement No. 1), both certificates being attached hereto, being all of
the Common Stock of the Company owned by the undersigned, and do hereby
irrevocably constitute and appoint _____________________ as attorney to transfer
the said stock on the books of the Company and surrender the Voting Trust
Certificate as provided in the said Voting Trust Agreement in connection
therewith with full power of substitution in the premises.
Dated: July 7, 1998
_______________________________ _______________________________
Lloyd R. Abrams, Voting Trustee Max Munn, Voting Trustee
Being the Voting Trustees under the Windsor Art, Inc. Voting Trust Agreement No.
1
In the Presence Of:
_______________________________
Interiors, Inc.
By:_______________________________
Max Munn, President
In the Presence Of:
_______________________________
10
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "1933 ACT"). THIS STOCK PURCHASE WARRANT SHALL NOT
CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE
SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS
PERMITTED UNDER THE 1933 ACT PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
No. B1
CLASS A COMMON STOCK PURCHASE WARRANT
To Purchase up to 2,000,000 Shares of Class A Common Stock, $0.001 par value
per share,
of
INTERIORS, INC.
THIS CERTIFIES that, for value received, SEASIDE PARTNERS, L.P. (the
"Investor"), is entitled upon the terms and subject to the conditions
hereinafter set forth, at any time on or after January 31, 2000 (the "Initial
Exercise Date") and on or prior to December 31, 2002 (the "Termination Date")
but not thereafter, to subscribe for and purchase from INTERIORS, INC., a
Delaware corporation (the "Company"), up to 2,000,000 shares of Class A Common
Stock, $0.001 par value per share, of the Company (the "Class A Common Stock").
The aggregate number of shares of Class A Common Stock of the Company issuable
upon any one or more exercise of this Warrant is hereinafter referred to as the
"Warrant Shares." The purchase price of each full Warrant Share (the "Exercise
Price") issued upon full or partial exercise of this Warrant shall be
Seventy-Five One Hundredths ($0.75) of a Dollar. The Exercise Price and the
number of Warrant Shares shall be subject to adjustment as provided herein. This
Warrant is being issued pursuant to a Securities Purchase Agreement, dated as of
January 22, 1999 complete with all listed exhibits thereto (the "Agreement") by
and between the Company and the Investor and is subject to its terms. In the
event of any conflict between the terms of this Warrant and the Agreement, the
Agreement shall control. The Investor or any subsequent holder of this Warrant
is hereinafter referred to as a "holder" or "Holder."
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.
<PAGE>
2. Authorization of Shares. The Company covenants that all Warrant
Shares which may be transferred 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 non-assessable and free from all
taxes, liens and charters in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
3. Exercise of Warrant. Exercise of the purchase rights represented
by this Warrant may be made at any time or times, in whole or in part, on or
after the Initial Exercise Date, and before the close of business on the
Termination Date, or such earlier date on which this Warrant may terminate as
provided in Section 11(a) below, by the surrender of this Warrant and the Form
of Election to Purchase annexed hereto duly executed, at the office of the
Company (with copy to Stephen A. Weiss, Esq., Greenberg Traurig, 200 Park
Avenue, New York, New York 10166 or such other office or agency of the Company
as it may designate by notice in writing to the registered holder hereof at the
address of such holder appearing on the books of the Company) and upon payment
of the Exercise Price of the shares thereby purchased; whereupon the holder of
this Warrant shall be entitled to receive a certificate for the number of
Warrant Shares so purchased immediately. In the event upon exercising the
Warrant, the transfer agent requires an opinion of counsel, the Company shall
have such opinion furnished to the transfer agent to the transfer agent's
satisfaction. In the event the Investor is relying on an exemption from
registration under the 1933 Act, the Warrant Shares shall be issued immediately,
if the Investor furnishes an opinion of counsel, reasonably satisfactory to the
Company, that such exemption from registration be available. Certificates for
shares purchased hereunder shall be delivered to the holder hereof within three
(3) business days after the date on which this Warrant shall have been exercised
as aforesaid. Payment of the Exercise Price of the shares may be by certified
check or cashier's check or by wire transfer to an account designated by the
Company in an amount equal to the Exercise Price multiplied by the number of
shares being purchased.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant.
5. Charges, Taxes and Expenses. Reissuance of certificates in the
name of the holder hereof for Warrant Shares upon the exercise of this Warrant
shall be made without charge to the holder hereof for any issue or transfer tax
or other incidental expense in respect of the issuance of such certificate, all
of which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the holder of this Warrant or in such name or
names as may be directed by the holder of this Warrant; provided, however, that
in the event certificates for Warrant Shares are to be issued in a name other
than the name of the holder of this Warrant, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the holder hereof, together with evidence satisfactory to the
Company that such transfer or assignment is being made in compliance with all
applicable federal and state securities laws; and provided, further, that upon
any transfer involved in the issuance or delivery of any certificates for
Warrant Shares, the Company may require, as a condition thereto, the payment of
a sum sufficient to reimburse it for any transfer tax incidental thereto.
-2-
<PAGE>
6. Closing of Books. The Company will at no time close its
shareholder books or records in any manner which interferes with the timely
exercise of this Warrant.
7. Voting Rights. This Warrant does not entitle the holder hereof to
any rights as a shareholder of the Company prior to the exercise hereof except
for the voting rights set forth in this Section 7. If, however, at the time of
the surrender of this Warrant and purchase the holder hereof shall be entitled
to exercise this Warrant and the Warrant Shares so purchased shall be and shall
be deemed to be transferred and issued to such holder as of the close of
business on the date on which this Warrant shall have been exercised and the
Warrant Shares purchased. Effective as of the date of such exercise and payment
of the exercise price, the holder of this Warrant shall vote together with the
Class A Common Stock and not as a separate class on any transaction with respect
to which the Class A Common Stock is entitled to vote pursuant to applicable
Delaware law or the Certificate of Incorporation.
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 or otherwise transferred 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, 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.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a legal
holiday.
11. Effect of Certain Events.
(a) If at any time:
(i) the Company shall declare any cash dividend upon the Class
A Common Stock;
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<PAGE>
(ii) the Company shall declare a dividend upon the Class A
Common Stock payable in securities (other than a dividend payable
solely in Class A Common Stock) or make any special dividend or
other distribution to the holders of its Class A Common Stock;
(iii) the Company proposes (A) to sell or otherwise convey all
or substantially all of its assets or (B) to effect a transaction
(by merger or otherwise) in which more than 50% of the voting power
of the Company is disposed of (collectively, a "Sale or Merger
Transaction"), or (C) receive notice of publication of an offer from
a financially credible third party to purchase more than 50% of the
voting power of the Company's capital stock (a "Tender Offer"), in
each case, in which the consideration to be received by the Company
or its shareholders consists solely of cash; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
the Company shall give the holder of this Warrant fifteen (15) days' written
notice of the proposed effective date, by certified or registered mail, postage
prepaid, addressed to the registered holder of this Warrant at the address of
such holder as shown on the books of the Company. Such notice shall also
specify, in the case of any such dividend, distribution or option rights, the
date on which the holders of Class A Common Stock shall be entitled thereto. Any
notice relating to a Sale or Merger Transaction or Tender Offer shall also
specify the date on which the holders of Class A Common Stock shall be entitled
to exchange their Class A Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, as the case may be. If the Holder
of the Warrant does not exercise this Warrant prior to the occurrence of an
event described above, except as provided in Section 13(a), the Holder shall not
be entitled to receive the benefits accruing to existing holders of the Class A
Common Stock in such event.
(b) In case the Company shall at any time effect a Sale or
Merger Transaction or Tender Offer in which the consideration to be received by
the Company or its shareholders consists in part of consideration other than
cash, or shall issue any shares of its capital stock in a reclassification of
the Class A Common Stock, the holder of this Warrant shall have the right
thereafter to purchase, by exercise of action, the kind and amount of shares and
other securities and property which it would have owned or have been entitled to
receive after happening of such transaction had this Warrant been exercised
immediately prior thereto.
12. Registration Rights. The Company shall use its best efforts to
file with the Securities and Exchange Commission (the "SEC") not later than June
30, 1999 a shelf registration statement under the Securities Act on Form S-3, if
the Company is eligible to file a registration statement under such form (and if
the Company is not eligible to file a registration statement under Form S-3, to
file with the SEC a registration statement under the Securities Act on Form S-1
or any other form which is appropriate), to register the Warrant Shares, and
shall use its best efforts to cause such registration statement to be declared
effective by the SEC by not
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<PAGE>
later than December 31, 1999. Such registration rights shall be as specified in
the Registration Rights Agreement constituting an exhibit to the Securities
Purchase Agreement.
13. Adjustments of Exercise Price and Number of Warrant Shares. The
number and kind of securities purchasable upon the exercise of this Warrant and
the Exercise Price shall be subject to adjustment from time to time upon the
happening of certain events, as hereinafter set forth:
(a) Adjustment of Warrant Shares to be Issued Upon Issuance of
Additional Shares of Class A Common Stock. In the event that the Company shall
issue shares of its Class A Common Stock for a consideration per share which
shall be less than the Exercise Price in effect immediately prior to such
issuance, the number of shares of Class A Common Stock issuable upon exercise of
each Warrant shall be adjusted in accordance with the following formula:
N = E x (O + A)
-------
(O + P)
where:
N = the number of shares of Class A Common Stock issuable upon exercise of
each Warrant after giving effect to such adjustment.
E = the then current number of shares of Class A Common Stock issuable upon
exercise of each Warrant at the Exercise Price in effect immediately prior
to the time of such issuance.
O = the number of shares of Class A Common Stock outstanding immediately
prior to the issuance of such additional shares of Class A Common Stock.
A = the number of additional shares of Class A Common Stock issued.
P = the number of shares of Class A Common Stock that could be purchased at
the Exercise Price with the aggregate consideration received in the
dilutive issuance, calculated by dividing (i) the aggregate consideration
received for the issuance of such additional shares of Class A Common
Stock, by (ii) the Exercise Price per share of Class A Common Stock on the
date of sale of such additional shares.
The adjustment shall be made successively whenever such sale or issuance is made
and shall become effective immediately after such sale or issuance.
The foregoing Section 13(a) shall not apply to:
(1) the conversion or exchange of other securities convertible
or exchangeable for Class A Common Stock (existing on the date hereof),
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<PAGE>
(2) Common Stock issued to the employees, officers or
directors of the Company or any of its direct or indirect subsidiaries under
bona fide employee benefit plans adopted by the Board of Directors and approved
by the holders of the Class A Common Stock when required by law, if such Class A
Common Stock would otherwise be covered by this Section 13 (but only to the
extent that the aggregate number of shares of Class A Common Stock excluded
hereby and issued on or after the date hereof shall not exceed 10% of the Class
A Common Stock outstanding at the time of the adoption of each such employee
benefit plan, plus all shares of Class A Common Stock issuable upon exercise of
the Warrants, exclusive of anti-dilution adjustments hereunder),
(3) Class A Common Stock issued upon the exercise of rights or
warrants currently issued and outstanding to the holders of Company securities,
including shares of Series B Preferred Stock issued under the Securities
Purchase Agreement,
(4) Class A Common Stock issued (A) as consideration when any
corporation or business is acquired, merged with or becomes part of the Company
or any direct or indirect subsidiary of the Company, or (B) in good faith in
consideration of any acquisition of assets (other than cash or cash
equivalents), in each case, in any arm's-length transaction between the Company
or any direct or indirect subsidiary of the Company and a person other than an
affiliate of the Company (but only to the extent that the aggregate number of
shares of Class A Common Stock excluded hereby and issued on or after the date
hereof shall not exceed 20% of the Class A Common Stock outstanding at the time
of the transaction),
(5) Class A Common Stock issued in a bona fide public offering
pursuant to a firm commitment underwriting (but only to the extent that the
aggregate number of shares of Class A Common Stock excluded hereby and issued on
or after the date hereof shall not exceed 40% of the Class A Common Stock
outstanding at the time of the transaction),
(6) any issuance for which an adjustment is provided under
Section 13(b),(c), (d) or (e) of this Section 13.
(b) Adjustments for Convertible Securities Issues. If the Company
shall issue any securities convertible into or exchangeable for Class A Common
Stock (collectively, "Convertible Securities") for a consideration per share of
Class A Common Stock initially deliverable upon conversion or exchange of such
securities (determined by dividing (i) the total amount received or receivable
by the Company as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof, by (ii) the
total maximum number of shares of Class A Common Stock issuable upon the
conversion or exchange of all such Convertible Securities) which shall be less
than the Exercise Price of the Warrants in effect immediately prior to such
issuance, the number of shares of Class A Common Stock issuable upon exercise of
each Warrant shall be adjusted in accordance with the following formula:
N = E x (O + D)
-------
(O + P)
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<PAGE>
where:
N = the number of shares of Class A Common Stock issuable upon exercise of
each Warrant after giving effect to such adjustment.
E = the then current number of shares of Class A Common Stock issuable upon
exercise of each Warrant at the Exercise Price in effect immediately prior
to the time of such issuance.
O = the number of shares of Class A Common Stock outstanding immediately
prior to the issuance of such additional shares of Class A Common Stock.
D = the maximum number of additional shares of Class A Common Stock
deliverable upon conversion or in exchange for such securities at the
initial conversion or exchange rate.
P = the number of shares of Class A Common Stock that could be purchased
upon exercise of the Warrant at the Exercise Price with the aggregate
consideration received in the dilutive issuance, calculated by dividing
(i) the aggregate consideration received for the issuance of such
additional shares of Class A Common Stock issuable upon conversion or
exchange of the relevant securities (determined by adding the total amount
received or receivable by the Company as consideration for the issue or
sale of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
conversion or exchange thereof), by (ii) the Exercise Price per share of
Class A Common Stock on the date of sale of such additional shares.
The adjustment shall be made successively whenever such sale or issuance is made
and shall become effective immediately after such sale or issuance.
The foregoing Section 13(b) shall not apply to:
(1) the conversion or exchange of other securities convertible
or exchangeable for Class A Common Stock (existing on the date hereof),
(2) Common Stock issued to the employees, officers or
directors of the Company or any of its direct or indirect subsidiaries under
bona fide employee benefit plans adopted by the Board of Directors and approved
by the holders of the Class A Common Stock when required by law, if such Class A
Common Stock would otherwise be covered by this Section 13(b) (but only to the
extent that the aggregate number of shares of Class A Common Stock excluded
hereby and issued on or after the date hereof shall not exceed 10% of the Class
A Common Stock outstanding at the time of the adoption of each such employee
benefit plan, plus all shares of Class A Common Stock issuable upon conversion
of the Series B Preferred Stock, exclusive of anti-dilution adjustments
hereunder),
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<PAGE>
(3) Class A Common Stock issued upon the exercise of rights or
warrants currently issued and outstanding to the holders of Company securities,
including shares of Series B Preferred Stock issued under the Securities
Purchase Agreement,
(4) Class A Common Stock issued (A) as consideration when any
corporation or business is acquired, merged with or becomes part of the Company
or any direct or indirect subsidiary of the Company, or (B) in good faith in
consideration of any acquisition of assets (other than cash or cash
equivalents), in each case, in any arm's-length transaction between the Company
or any direct or indirect subsidiary of the Company and a person other than an
affiliate of the Company (but only to the extent that the aggregate number of
shares of Class A Common Stock excluded hereby and issued on or after the date
hereof shall not exceed 20% of the Class A Common Stock outstanding at the time
of the transaction),
(5) Class A Common Stock issued in a bona fide public offering
pursuant to a firm commitment underwriting (but only to the extent that the
aggregate number of shares of Class A Common Stock excluded hereby and issued on
or after the date hereof shall not exceed 40% of the Class A Common Stock
outstanding at the time of the transaction),
(6) any issuance for which an adjustment is provided under
Section 13(a),(c), (d) or (e) of this Section 13.
(c) Adjustments for Issues of Options. If the Company shall in any
manner grant (whether directly or by assumption in a merger or otherwise) any
warrants (excluding the Warrants) or other rights to subscribe for or to
purchase, or any options for the purchase of, Class A Common Stock (such other
warrants, rights or options being collectively referred to herein as "Options")
whether or not such Options are immediately exercisable, and the price per share
for which Class A Common Stock is issuable upon the exercise of such Options
(determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the granting of such Options, plus the minimum
aggregate amount of additional consideration payable to the Company upon the
exercise of all such Options, by (ii) the total maximum number of shares of
Class A Common Stock issuable upon the exercise of all such Options) for a
consideration per share which shall be less than the Exercise Price for the
Warrants in effect immediately prior to the time of the granting of such
Options, the number of shares of Class A Common Stock issuable upon conversion
of each share of the Series B Preferred Stock in effect immediately prior to
such issuance shall be adjusted in accordance with the following formula:
N = E x (O + M)
-------
(O + P)
where:
N = the number of shares of Class A Common Stock issuable upon exercise of
each Warrant after giving effect to such adjustment.
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<PAGE>
E = the then current number of shares of Class A Common Stock issuable upon
exercise of the Warrants at the Exercise Price in effect immediately prior
to the time of such issuance.
O = the number of shares of Class A Common Stock outstanding immediately
prior to the issuance of such additional shares of Class A Common Stock.
M = the maximum number of additional shares of Class A Common Stock
deliverable upon exercise of the Options or in exchange for such
securities at the initial exercise price.
P = the number of shares of Class A Common Stock that could be purchased at
the Exercise Price with the aggregate consideration received in the
dilutive issuance, calculated by dividing (i) the aggregate consideration
received for the issuance of such additional shares of Class A Common
Stock issuable upon exercise of the relevant Options (determined by adding
the total amount received or receivable by the Company as consideration
for the grant of such Options, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the exercise
thereof), by (ii) the Exercise Price per share of Class A Common Stock on
the date of sale of such additional shares.
The adjustment shall be made successively whenever such sale or issuance is made
and shall become effective immediately after such sale or issuance.
The foregoing Section 13(c) shall not apply to:
(1) the conversion or exchange of other securities convertible
or exchangeable for Class A Common Stock (existing on the date hereof),
(2) Common Stock issued to the employees, officers or
directors of the Company or any of its direct or indirect subsidiaries under
bona fide employee benefit plans adopted by the Board of Directors and approved
by the holders of the Class A Common Stock when required by law, if such Class A
Common Stock would otherwise be covered by this Section 13(c) (but only to the
extent that the aggregate number of shares of Class A Common Stock excluded
hereby and issued on or after the date hereof shall not exceed 10% of the Class
A Common Stock outstanding at the time of the adoption of each such employee
benefit plan, plus all shares of Class A Common Stock issuable upon conversion
of the Series B Preferred Stock, exclusive of anti-dilution adjustments
hereunder),
(3) Class A Common Stock issued upon the exercise of rights or
warrants issued to the holders of Class A Common Stock or Series B Preferred
Stock,
(4) Class A Common Stock issued (A) as consideration when any
corporation or business is acquired, merged with or becomes part of the Company
or any direct or indirect subsidiary of the Company, or (B) in good faith in
consideration of any acquisition of assets (other than cash or cash
equivalents), in each case, in any arm's-length transaction
-9-
<PAGE>
between the Company or any direct or indirect subsidiary of the Company and a
person other than an affiliate of the Company (but only to the extent that the
aggregate number of shares of Class A Common Stock excluded hereby and issued on
or after the date hereof shall not exceed 20% of the Class A Common Stock
outstanding at the time of the transaction),
(5) Class A Common Stock issued in a bona fide public offering
pursuant to a firm commitment underwriting (but only to the extent that the
aggregate number of shares of Class A Common Stock excluded hereby and issued on
or after the date hereof shall not exceed 40% of the Class A Common Stock
outstanding at the time of the transaction),
(6) any issuance for which an adjustment is provided under
Section 13(a), (b), (d) or (e) of this Section 13.
(d) Change in Option Price or Conversion Rate. Upon the happening of
any of the following events, namely, if the purchase price provided for in any
Option, the additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities, or the rate at which Convertible
Securities are convertible into or exchangeable for Class A Common Stock shall
change at any time (including, but not limited to, changes under or by reason of
provisions contained in such securities designed to protect against dilution),
the number of Warrant Shares issuable upon exercise of the Warrants at the time
of such event shall forthwith be readjusted to the number of Warrant Shares
issuable upon exercise of the Warrants which would have been issuable upon
exercise of the Warrants at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold, but only if as a result of such adjustment the number
of Warrant Shares issuable upon exercise of the Warrants is thereby increased;
and on the expiration of any such Option or the termination of any such right to
convert or exchange such Convertible Securities, the number of Warrant Shares
issuable upon exercise of the Warrants shall forthwith be reduced to the number
of Warrants Shares issuable upon exercise of the Warrants which would have been
issuable at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to such
expiration or termination, never been issued.
(e) Stock Dividends. In case the Company shall declare a dividend or
make any other distribution upon any stock of the Company payable in Class A
Common Stock (except for the issue of stock dividends or distributions upon the
outstanding Class A Common Stock for which adjustment is made pursuant to any
other section of this Section 13), Options or Convertible Securities, any Class
A Common Stock, Options or Convertible Securities, as the case may be, issuable
in payment of such dividend or distribution shall be deemed to have been issued
or sold without consideration and the Exercise Price then in effect shall be
appropriately decreased so that the number of shares of Class A Common Stock
issuable upon exercise of the Warrants shall be increased in proportion to such
increase in the aggregate number of shares of Class A Common Stock outstanding.
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<PAGE>
(f) Consideration for Stock. In case any shares of Class A Common
Stock, Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by the
Company therefor, without deduction therefrom of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Company in
connection therewith. In case any shares of Class A Common Stock, Options or
Convertible Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the Company
shall be deemed to be the fair value of such consideration as determined in good
faith by the Board of Directors of the Company, without deduction of any
expenses incurred or any underwriting commissions or concessions paid or allowed
by the Company in connection therewith. In case any Options shall be issued in
connection with the issue and sale of other securities of the Company, together
comprising one integral transaction in which no specific consideration is
allocated to such Options by the parties thereto, such Options shall be deemed
to have been issued for such consideration as determined in good faith by the
Board of Directors of the Company.
(g) Record Date. In case the Company shall take a record of the
holders of its Class A Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Class A Common Stock,
Options or Convertible Securities or (ii) to subscribe for or purchase Class A
Common Stock, Options or Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the shares of Class A Common Stock
deemed to have been issued or sold upon the declaration of such dividend or the
making of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(h) Treasury Shares. The number of shares of Class A Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Class A Common Stock for the purpose of this
Section 13.
(i) Certain Issues of Class A Common Stock Excepted. Anything herein
to the contrary notwithstanding, the Company shall not be required to make any
adjustment of the Exercise Price or the number of Warrant Shares issuable upon
exercise of the Warrants in the case of the issuance of shares of Class A Common
Stock issuable upon conversion of the Series B Preferred Stock issued pursuant
to Securities Purchase Agreement.
(j) Subdivision or Combination of Class A Common Stock. In case the
Company shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Class A Common Stock into a greater number
of shares, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, conversely, in case the outstanding
shares of Class A Common Stock shall be combined into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination shall
be proportionately increased.
(k) Reorganization or Reclassification. If any capital
reorganization, reclassification, recapitalization, consolidation, merger, sale
of all or substantially all of the Company's assets or other similar transaction
(any such transaction being referred to herein as an
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<PAGE>
"Organic Change") shall be effected in such a way that holders of Class A Common
Stock shall be entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Class A Common Stock, then, as a condition of such Organic Change, lawful and
adequate provisions shall be made whereby each holder of a share or shares of
Series B Preferred Stock shall thereupon have the right to receive, upon the
basis and upon the terms and conditions specified herein and in lieu of or in
addition to, as the case may be, the shares of Class A Common Stock immediately
theretofore receivable upon the conversion of such share or shares of Series B
Preferred Stock, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
such Class A Common Stock equal to the number of shares of such Class A Common
Stock immediately theretofore receivable upon such conversion had such Organic
Change not taken place, and in any case of a reorganization or reclassification
only appropriate provisions shall be made with respect to the rights and
interests of such holder to the end that the provisions hereof (including
without limitation provisions for adjustments of the Exercise Price) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise of such
conversion rights.
(l) Notice of Adjustment. Upon any adjustment of the Exercise Price,
then and in each such case the Company shall give written notice thereof, by
first class mail, postage prepaid, or by facsimile transmission to non-U.S.
residents, addressed to each holder of shares of Series B Preferred Stock at the
address of such holder as shown on the books of the Company, which notice shall
state the Exercise Price resulting from such adjustment, setting forth in
reasonable detail the method upon which such calculation is based.
14. Voluntary Adjustment by the Company. The Company may at its
option, at any time during the term of this Warrant, reduce the then current
Exchange Price to any amount and for any period of time deemed appropriate by
the Board of Directors of the Company.
15. 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 transfer agent for the Class A Common Stock and to the holder of this
Warrant notice of such adjustment or adjustments setting forth the number of
Warrant Shares (and other securities or property) purchasable upon the exercise
of this Warrant and the Exercise Price of such Warrant Shares after such
adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth computation by which such adjustment was made. Such
notice, in absence of manifest error, shall be conclusive evidence of the
correctness of such adjustment.
16. Authorized Shares. The Company covenants that during the period
the Warrant is outstanding, it will reserve from its holdings of Class A Common
Stock a sufficient number of shares to provide for the transfer of Class A
Common Stock upon the exercise of any purchase rights under this Warrant. The
Company further covenants that the 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 Class A Common Stock upon the exercise of the purchase rights under
this Warrant. The
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<PAGE>
Company will take all such reasonable action as may be necessary to assure that
such Warrant Shares may be transferred and reissued as provided herein without
violation of any applicable law or regulation, or of any requirements of any
national securities exchange upon which the Class A Common Stock may be listed.
17. Restrictions on Exercise. Notwithstanding anything to the
contrary contained herein, no Warrants may be converted by a Holder of Warrants
to the extent that, after giving effect to the Warrant Shares issued pursuant to
the exercise hereof, the total number of Class A Common Stock of the Company
deemed beneficially owned by such Holder (including any shares of Class A Common
Stock issuable upon conversion of the Series B Preferred Stock or exercise of
the Warrants), together with all Warrant Shares deemed beneficially owned by (a)
the Holder, (b) all other Investors (as such term is defined in the Agreement),
and (c) the Holder's "affiliates" (as defined in Rule 144 under the 1933 Act),
that would be aggregated for purposes of determining whether a group under
Section 13(d) of the Securities Exchange Act of 1934, as amended, exists, would
exceed twenty percent (20%) of the total issued and outstanding shares of Class
A Common Stock. The exercise of all or part of this Warrant by any Holder shall
be deemed a representation by such Holder it is in compliance with this Section
17. A transferee of Warrants shall not be bound by this provision unless it
expressly agrees to be so bound. The term "deemed beneficially owned" as used in
this Section 17 shall exclude shares that might otherwise be deemed beneficially
owned by reason of the exercisability of the Warrants.
18. Miscellaneous.
(a) Issue Date. 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 assigned of the Company. This Warrant shall constitute a contract
under the laws of New York and for all purposes shall be construed in accordance
with and governed by the laws of said state without regard to its conflict of
law, principles or rules.
(b) Restrictions. The holder hereof acknowledges that the Class A
Common Stock acquired upon the exercise of this Warrant, if not registered, may
have restrictions upon its resale imposed by state and federal securities laws.
(c) Modification and Waiver. This Warrant and any provisions hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof or the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid, or
by overnight courier or by facsimile to each such holder at its address (or fax
number) as shown on the books of the Company or to the Company at the addresses
(or fax numbers) set forth in the Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Company have caused this Warrant to be
executed by its officers thereunto duly authorized.
Dated: as of January 22, 1999
INTERIORS, INC.
By: /s/ Max Munn
-----------------------------------
Max Munn, President and
Chief Executive Officer
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<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute this form and supply
required information. Do not use this form to purchase
shares.)
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 the proper evidence of authority to assign the foregoing
Warrant.
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase __________ Warrant Shares
at an Exercise Price of $__________, and herewith tenders in payment for such
securities a certified check or official bank check payable in New York Clearing
House Funds to the order of Interiors, Inc. in the amount of $___, all in
accordance with the terms of the Stock Purchase Warrant of Interiors, Inc. that
a certificate for such securities be registered in the name of
_____________________________ whose address is ____________________________ and
that such Certificate be delivered to ___________________________ whose address
is ___________________________________________.
Dated: __________
Signature __________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
____________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
PROMISSORY NOTE
$________________________ December 15, 1998
New York, NY
For Value Received, Interiors, Inc. together with its successors and
assigns (the "Borrower" or "Maker"), hereby unconditionally promises to pay to
the order of _________________________ together with their successors and
assigns (the "Lender" or "Holder"), in lawful currency of the United States of
America, at such address as shall be designated by the Holder in a written
notice to the maker, the Principal sum of $____________ together with simple
interests at the rate of twelve percent (12%) per annum, payable at the earlier
120 days from above date or quarterly thereafter if the Holder chooses not to
convert (as defined in the SUBSCRIPTION AGREEMENT), commencing March 1st, June
1st, September 1st, January 1st. The Note shall be redeemable by the maker as
defined in paragraph 7 a, b, c, d, e, of the SUBSCRIPTION AGREEMENT, at the
earliest of 120 days or upon written notice of the Holder or the Maker.
This Note is the Note referred to in the SUBSCRIPTION AGREEMENT between maker
and the Holder and evidences the Maker's obligation thereunder. Presentment,
demand, protest, notices of protest, dishonor and non-payment of this Note and
all notices of every kind are hereby waived.
All payments of principal and interest hereunder shall be payable in lawful
money of the United States.
Upon the occurrence of the default of the maker in failing to make repayment
when due and payable, Holder at its option may accelerate the maturity of this
Note and declare all of the indebtedness or any portions thereof to be
immediately due and payable, together with accrued interest thereon, and payment
thereof may be enforced by suit or other process of laws.
The terms "Maker" and "Holder" shall be construed to include their respective
heirs, personal representatives, successors, subsequent holders and assigns.
Regardless of the place of execution or performance, this Note shall be
governed by, and construed in accordance with, the laws of the State of New
York without giving effect to such state's conflicts of laws provisions. Each of
the parties hereto irrevocable consents to the jurisdiction and venue of the
federal and state courts located in the State of New York, County of New York.
INTERIORS, INC.
By:
------------------------------------
Name:
Title:
SUBSCRIPTION AGREEMENT
This subscription agreement dated 15 December, 1998 is entered into between
Interiors, Inc., a Delaware corporation ("Interiors"), and _________________, an
individual, the investor executing this Subscription Agreement (the "Investor").
1. General. This subscription agreement sets forth the terms on which the
Investor shall purchase a 12% Convertible Promissory Note in a principal amount
of $____________ ("Note"). (In the form of Exhibit A Attached.) The total dollar
amount to be sold by Interiors, pursuant to this Subscription Agreement shall
not exceed $1,500,000. The Investor may convert at his option, the Notes into
shares of Class A Common Stock of Interiors, at a conversion price of $1.125 a
share.
2. Terms. The Note shall bear interest at the rate of 12% per annum, payable at
the earlier 120 days from date above or quarterly thereafter if the Investor
chooses not to convert, commencing March 1st, June 1st, September 1st, January
1st.
3. Offer and Acceptance. The Investor confirms that he or she has received and
reviewed a copy of the Confidential Business Plan, recent 10K and 10Q of
Interiors, Inc. If the Investor elects to subscribe for the Note, then execution
of this Subscription Agreement by the Investor shall constitute an offer by the
Investor to subscribe for the Note in the amount and on the terms and conditions
specified in this Subscription Agreement. Interiors shall have the right to
reject such offer, or, by executing a copy of this Subscription Agreement for
Interiors, to accept such offer in whole or in part by Interiors only when a
copy of the signature page of this Subscription Agreement is executed by an
officer of Interiors. If the Investor's subscription is rejected in whole or in
part, Interiors shall notify such person of such rejection after receipt of the
completed Subscription Agreement. Interiors reserves the right to terminate the
offering of the Unit at any time.
4. Subscription Amount and Payment. The Investor subscribes for a note in the
amount of $____________ payable by wire transfer or in the form of acceptable
funds at the time of subscription. The Investor must be an "accredited investor"
as defined in section 4(a) of this Subscription Agreement. To demonstrate
qualification as an "accredited investor", the Investor must complete and return
with this Subscription Agreement and Investor Questionnaire. Interiors may
reject any subscription for any reason whatsoever.
5. Investor's Representation and Warranties. The Investor represents and
warrants, certifies and covenants to Interiors as follows:
(a) the Investor is an "accredited investor" within the meaning of the
Rule 501(a) Regulation [ILLEGIBLE] promulgated by the Securities and
Exchange Commission. An accredited investor includes (i) any natural
person whose individual net worth, or joint net worth with that
person's spouse, at the time of his/her purchase, exceeds
$1,000,000.00 or (ii) any natural person who had an individual
income in excess of $200,000.00 in each of 2 most recent years, or
joint income with that person's spouse in excess of $300,000.00 in
each of those years and has a reasonable expectation of reaching
that same level of income in the current, or (iii) any entity, such
as a partnership, corporation or trust, in which all of the equity
owners are accredited investors under either of the foregoing
paragraphs;
(b) the Investor is (i) a natural person at least 21 years of age, and
(ii) a permanent resident of the jurisdiction set forth on the
signature page of this Subscription Agreement and has no present
intention of becoming a resident of any other jurisdiction;
(c) the Investor has fully considered the business, investment and other
risks set forth in the Confidential Business Plan;
(d) The Investor (i) understands that the purchase of this Note is a
speculative investment and may result in the complete loss of his or
its investment, (ii) is able to bear the economic risks of his or
<PAGE>
its investment, (iii) is able to hold his or its investment as
defined in the terms of this Subscription Agreement, (iv) is
presently able to afford a complete loss of the investment, (v) has
adequate means of providing for his or its current needs and
possible personal contingencies, (vi) has no need for liquidity in
his or its investment, and (vii) does not know of any circumstances
which might result in a change in the preceding representations and
warranties;
(e) the Investor has such knowledge and experience in financial and
business matters that he or its is capable of evaluating the merits
and risks of his or its investment and of making an informed
investment decision;
(f) the Investor confirms that in making his or its investment decision,
he or it has relied upon (a) the Confidential Business Plan (b)
Interiors Annual Report on form 10-KSB for the year ended June 30,
1998, (b) Interiors Quarterly Reports dated, September 1998, March
31, 1998, and December 31, 1997 (d) independent investigations made
by him, (e) that he or it has been given the opportunity to ask
questions of and to receive answers from, Interiors concerning the
information provided to him as described in Section 4(f)(I) of this
Subscription Agreement, (f) all documents pertaining to his or its
purchase of the Note have been made available upon reasonable notice
for inspection by him;
(g) the Note subscribed for will be acquired in good faith solely for
his or its own personal account for investment purposes only and
will not be purchased with a view to or for the resale,
fractionalization or distribution of this Subscription Agreement.
The Investor has no agreement or arrangement, formal or informal,
with any person to sell, transfer, or pledge to any person the Note
or any part of this Subscription Agreement and the Investor has no
present plans to enter into any such agreement or arrangement;
(h) the Investor understands that the legal consequences of the
representations and warranties set forth in this Subscription
Agreement are that he or it must bear the economic risks of his or
its investment for the period an indefinite period of time because
the Note and the Securities underlying same have not been registered
under the Securities Act of 1933, as amended or the securities law
of any state or other jurisdiction and, therefore, cannot be sold
unless they are subsequently so registered or an exemption from such
registration is available (which Interiors is not obligated to make
available.);
(i) the Investor consents to the placement of a legend on any
certificate or other documents evidencing the Note and the
Securities underlying the Note, which legend shall be in
substantially following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER ANY STATE SECURITIES LAW OR UNDER
ANY STATE SECURITIES LAWS OR UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE ACT). THESE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, OFFERED FOR
SALE, ASSIGNED, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED EXCEPT (i) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT WITH RESPECT TO THE SECURITIES
UNDER THE ACT AND ALL APPLICABLE STATE SECURITIES LAW,
OR (ii) IN A TRANSACTION AS TO WHICH INTERIORS HAS
RECEIVED AN OPINION OF COUNSEL WHICH OPINION AND COUNSEL
ARE SATISFACTORY TO INTERIORS, THAT REGISTRATION IS NOT
REQUIRED UNDER THE ACTS AND APPLICABLE STATE SECURITIES
LAWS.
6. Indemnification. The Investor shall indemnify and hold Interiors and any
person, corporation or entity affiliated with Interiors, the officers,
directors, and the employees of any of the foregoing and any professional
advisors to Interiors (the "Affiliates") harmless from and against any and all
loss, damage, liability, and expense, including costs and reasonable attorneys'
fees, to which Interiors or such Affiliate may be put or which it may incur by
reason of, or in connection with, any misrepresentation made by the Investor,
any breach of any of his or its representations or warranties or his or its
failure to fulfill any of his or its covenants or agreements under this
Subscription Agreement.
<PAGE>
7. Interiors' Covenant of Continuous Registration Rights. Interiors agrees:
(a) to register a sufficient amount of Class A Common Shares of
Interiors underlying the Note to enable the conversion of all the
notes within 120 days or earlier, with the SEC (Securities and
Exchange Commission) which shall be declared effective by the SEC
within 120 days from the date of this Subscription Agreement
("Registration Statement") and
(b) Interiors shall keep such Registration Statement effective until
such time as all the Registered Securities are sold.
(c) In any event or for any reason the underlying stock or Registration
Statement of the underlying stock is delayed beyond the 120 days as
outlined in 6(a), Interiors agrees to redeem the Investors' Note
plus interest that would have accrued at a rate of 12% per annum or,
(d) At the option of the Investor, be allowed to convert the note into
the underlying Common Stock of Interiors at the rate of $1.125 per
share as outlined in the Subscription Agreement and have such shares
of stock fully registered for sale to the public. Interiors will use
its best efforts possible to register the underlying shares as soon
as practicable.
(e) The Investor and Interiors agree, provided a sufficient amount of
Class A Common Shares of Interiors underlying the "Note" have been
declared effective by the SEC and the Investor has not elected to
convert the "Note" as outlined in 6(d), Interiors shall have the
right 120 days from the date of this subscription Agreement to repay
the Note in full, plus accrued and any unpaid interest and void any
rights of conversion by the Investor after giving the Investor a 10
day written notice of intent to do so.
8. Miscellaneous. This Subscription Agreement shall be governed by and construed
in accordance with New York State Law. Defined terms used, but not otherwise
defined in this Subscription Agreement shall have the meaning assigned to such
terms in the Confidential Business Plan. The provisions of this Subscription
Agreement may not be modified or waived except in writing executed by each of
the parties of this Subscription Agreement. This Subscription Agreement and the
rights, powers, and duties set forth in this Subscription Agreement shall,
except as set forth in this Subscription Agreement, bind and inure to the
benefit of the heirs, executors, administrators, legal representatives,
successors and permitted assigns of the parties of this Subscription Agreement.
If any term of this Subscription Agreement shall be held to be incomplete,
invalid illegal or unenforceable, the validity of all other terms of this
Subscription Agreement shall, in way, be affected by this.
The undersigned has executed this Subscription Agreement as the Investor on
December 15th, 1998.
Investor's Soc. Sec./Fed ID Number ______________________
Witnessed by:
______________________________ __________________________________
Investor's Name
______________________________ __________________________________
Investor's Address:
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT ("Agreement") is made and entered into this 17th
day of March 1999, by and among INTERIORS, INC., a Delaware corporation
("Interiors"), JOHN CORELLI, an individual ("J. Corelli"), CHRISTOPHER CORELLI
("C. Corelli"), and PETALS, INC., a Delaware corporation ("Petals").
W I T N E S S E T H:
WHEREAS, DMB Property Ventures Limited Partnership, a Delaware limited
partnership. ("DMB"), Mark N. Sklar, Drew M. Brown, the Bennett Dorrance Trust,
the Bennett Dorrance Jr. Trust, the Ashley Dorrance Trust and the Dorrance 1995
Issue Trust (hereinafter collectively referred to as the "Majority
Stockholders") own an aggregate of 411 shares of the common stock, without par
value per share, of Petals (the "Petals Stock"), and J. Corelli and C. Corelli
(collectively hereinafter referred to as the "Minority Stockholders") each own
40 shares of Petals Stock; and
WHEREAS, the Majority Stockholders, Petals, the Minority Stockholders and
Michael Corelli ("M. Corelli") and Randall Corelli ("R. Corelli") have entered
into a stockholders agreement, dated as of June 22, 1993 (the "Stockholders
Agreement") which, inter alia, grants certain contractual rights to the Minority
Stockholders, M. Corelli and R. Corelli, including the right to: (a) require
Petals to purchase at a formula price set forth in Section 3.1(c) of the
Stockholders Agreement all of the Petals Stock owned by any one or more of the
Minority Stockholders, M. Corelli and R. Corelli (the "Put Right"); and (b) be
offered an opportunity, pursuant to Section 2.4 of the Stockholders Agreement,
to negotiate for the purchase of shares of Petals Stock which the Majority
Stockholders, M. Corelli and R. Corelli elect to sell; and
WHEREAS, on November 6, 1998, R. Corelli and M. Corelli elected to
exercise their Put Right pursuant to the Stockholders Agreement, with respect to
their 80 shares of Petals Stock; and
WHEREAS, pursuant to a settlement agreement entered into in February 1999
(the "Separate Settlement Agreement") among Petals, the Majority Stockholders,
M. Corelli and R. Corelli, Petals agreed to pay $850,000 to each of M. Corelli
and R. Corelli, in exchange for an aggregate of 80 shares of Petals Stock owned
equally by M. Corelli and R. Corelli; and
WHEREAS, on December 11, 1998, the Majority Stockholders and Interiors
entered into a stock purchase agreement (the "Interiors Purchase Agreement")
pursuant to which the Majority Stockholders agreed to sell all of their shares
of Petals Stock to Interiors for a purchase price of $6.0 million, payable $4.0
million in cash and $2.0 million in the form of a convertible note of Interiors;
and
WHEREAS, R. Corelli and M. Corelli commenced an action against the
Majority Stockholders in the Supreme Court of the State of New York County of
Westchester, case number 98-20397 (the "Westchester County Litigation"), which
Westchester County Litigation was settled pursuant to the provisions of the
Separate Settlement Agreement; and
WHEREAS, J. Corelli and C. Corelli commenced a separate action against the
Majority Stockholders in the Supreme Court of the State of New York, County of
New York, case number 600342/99 ( the "New York County Litigation"), seeking to
enjoin the sale by the Majority Stockholders of their Petals Stock to Interiors;
and
WHEREAS, the parties hereto mutually desire to (a) settle and resolve all
disputes and controversies among them, including the New York County Litigation,
(b) consummate the sale by the Majority Stockholders of their shares of Petals
Stock to Interiors pursuant to the terms of the Interiors
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<PAGE>
Purchase Agreement; and (c) consummate Petals' repurchase of the shares of
Petals Stock owned by the Minority Stockholders; and (d) make arrangements for
an orderly transition of management and control of Petals; all upon the terms
and subject to the conditions set forth in this Agreement and the Exhibits
annexed hereto and made a part hereof.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement and the Exhibits hereto, the parties intending to be
bound hereby and thereby, it is mutually agreed as follows:
1. COVENANTS AND AGREEMENTS OF THE PARTIES. On the "Closing Date" (as herein
defined), the parties hereto do hereby mutually covenant and agree that
the following transactions shall be consummated:
1.1 Consummation of Purchase of Majority Stockholders' Petals Stock. On
the Closing Date:
(a) In accordance with the terms and conditions of the Interiors
Purchase Agreement, on the Closing Date Interiors shall
purchase from the Majority Stockholders, and the Majority
Stockholders shall sell, assign, convey, transfer and deliver
(collectively, "Transfer") to Interiors, all and not less than
all of the 411 shares of Petals Stock owned of record and
beneficially by the Majority Stockholders (the "Majority
Stockholders Petals Stock"). The Majority Stockholders Petals
Stock represents 100% of the shares of capital stock of Petals
owned by the Majority Stockholders, and 83.7% of the 491
shares of Petals stock outstanding after giving effect to the
redemption consummated pursuant to the Separate Settlement
Agreement.
(b) Certificates evidencing the Majority Stockholders Petals Stock
shall be delivered by the Majority Stockholders to Interiors,
duly endorsed for Transfer, against delivery by Interiors of
the $6.0 million purchase price for such Majority Stockholders
Petals Stock, of which $4.0 million shall be payable by bank
cashiers' checks or wire transfer of immediately available
funds, and the balance by delivery of Petals $2.0 million
convertible note, as specified in the Interiors Purchase
Agreement.
(c) The consummation of the purchase of the Majority Stockholders
Petals Stock shall occur on the Closing Date simultaneous with
the purchase of the Petals Stock from J. Corelli and C.
Corelli, as contemplated by Section 1.2 below.
1.2 Consummation of Purchase of Petals Stock from J. Corelli and C.
Corelli.
(a) Each of the Majority Stockholders, Petals, Interiors and J.
Corelli and C. Corelli do hereby mutually agree, subject only
to consummation of the transactions contemplated hereby, that
on the Closing Date, each of J. Corelli and C. Corelli shall
be deemed to have exercised their redemption Put of all of
their 80 shares of Petal Stock (the "J. Corelli and C. Corelli
Petals Stock") pursuant to Section 3.1 of the Stockholders
Agreement.
(b) On the Closing Date, and in accordance with the terms and
conditions of the Stockholders Agreement and this Agreement,
Petals shall redeem and purchase from J. Corelli and C.
Corelli, and J. Corelli and C. Corelli shall each Transfer to
Petals, all and not less than all of the eighty (80) shares of
J. Corelli and C. Corelli Petals Stock owned of record and
beneficially by them, representing 100% of the shares of
capital stock of Petals owned by J. Corelli and C. Corelli.
2
<PAGE>
(c) On the Closing Date, certificates evidencing the J. Corelli
and C. Corelli Petals Stock shall be delivered by J. Corelli
and C. Corelli to Petals, duly endorsed for Transfer, against
delivery by Petals of $2.150 million, representing the entire
purchase price for such J. Corelli and C. Corelli Petals
Stock, which amounts shall be payable by bank cashiers' checks
or wire transfer of immediately available funds in equal
$1,075,000 amounts to one or more bank account(s) designated
by J. Corelli and C. Corelli.
(d) Interiors shall unconditionally and irrevocably guaranty all
of Petals' obligations pursuant to this Section 1.2.
1.3 Settlement of New York County Litigation; General Releases. On the
Closing Date:
(a) The Minority Stockholders shall cause to be dismissed with
prejudice, the New York County Litigation and all arbitration
proceedings associated therewith, and shall cause to be filed
with the relevant courts such Stipulations of Dismissal and
related instruments as counsel for Interiors and the Majority
Stockholders may reasonably require.
(b) The Minority Stockholders, Petals and Interiors shall execute
and deliver the mutual releases in substantially the form of
Exhibit A-1 annexed hereto and made a part hereof.
(c) The Majority Stockholders, Petals and Interiors shall execute
and deliver the mutual releases in substantially the form of
Exhibit A-2 annexed hereto and made a part hereof.
1.4 Resignations; Termination of Agreements and Severance Agreement. On
the Closing Date:
(a) Each of the Majority Stockholders and their designees and each
of the Minority Stockholders and their designees shall resign
as members of the Board of Directors of Petals;
(b) Each of J. Corelli and C. Corelli shall resign as executive
officers and employees of Petals;
(c) Three persons designated by Interiors shall be elected to
serve as entire board of directors of Petals. Max Munn shall
be elected as President and Chief Executive Officer, Richard
Belinski shall be elected as Vice President and Chief
Financial Officer, and David A. Schwartz, Esq. shall be
elected as corporate Secretary of Petals, respectively, and
all bank accounts and bank and/or commercial finance borrowing
resolutions of Petals shall be amended to reflect the new
officers and directors of Petals;
(d) except for the Lease referred to in Section 3(e) below, the
Stockholders Agreement and all employment agreements,
consulting agreements, management agreements or other
agreements and instruments between or among Petals, the
Majority Stockholders, the Minority Stockholders, or any of
them, shall terminate as at the Closing Date and thereafter
shall be without any further force or effect; and
(e) Petals shall enter into a severance agreement with each of J.
Corelli and C. Corelli in substantially the form of Exhibit B
annexed hereto and made a part hereof (the "Severance
Agreement"). As indicated in said Exhibit B (i) payment of
the amounts
3
<PAGE>
due under the Severance Agreement shall be made quarterly in
advance, and (ii) Interiors shall irrevocably guaranty the
financial obligations of Petals to J. Corelli and C. Corelli
under the Severance Agreement; which payment obligations shall
be unconditional, save and except only for a violation by J.
Corelli or C. Corelli of their respective covenants set forth
in the Non-Competition Agreement described in Section 1.6
below; provided, that in the event that Petals or Interiors
shall allege any such violation by J. Corelli or C. Corelli,
Petals shall nonetheless continue to make all such severance
payments, as and when due, and deposit the same in escrow
pending a final settlement or determination of such dispute,
all as provided in the Severance Agreement.
1.5 Non-Competition Agreement. On the Closing Date, each of the Minority
Stockholders and the Majority Stockholders shall execute and deliver to Petals
and Interiors a non-competition, non-disclosure and non-solicitation agreement
substantially in the form of Exhibit C annexed hereto and made a part hereof
(the "Non-Competition Agreement"). It is expressly understood and agreed that
the obligations of the Minority Stockholders under the Non-Competition Agreement
and of the "Corelli Group" (as herein defined) under Section 4(c) below, shall
be subject to the payment by Petals or Interiors of the quarterly payments, when
due, under the Severance Agreements and the payment of the Fixed Rent, when due,
under the Lease referred to in Section 3(e) below. In the event that a default
in any such payment shall occur and not be cured within the time period, if any,
provided in the relevant agreement, the Non-Competition Agreement shall
terminate and shall be of no further force or effect.
1.6 Interiors Warrants. On the Closing Date, Interiors shall deliver and
issue to each of J. Corelli and C. Corelli three year warrants (the "Warrants")
to purchase 50,000 shares of Interiors Common Stock, $.001 par value per share,
at an exercise price of $3.25 per share; which Warrants shall be in
substantially the form of Exhibit D annexed hereto and made a part hereof. In
addition, on the Closing Date, Interiors shall execute and deliver to each of J.
Corelli and C. Corelli an agreement to register the shares of Interiors Common
Stock issuable upon exercise of the Warrants (the "Warrant Shares"), pursuant
to the registration rights agreement in substantially the form of Exhibit E
annexed hereto and made a part hereof. In the event that the Closing Date shall
occur prior to the filing of Interiors first amendment to its Form S-3
Registration Statement currently filed with the Securities and Exchange
Commission (the "Pending Registration Statement"), to the extent legally
permitted Interiors shall include the 100,000 shares of Interiors Common Stock
issuable upon exercise of the Warrants in the next amendment to such Pending
Registration Statement.
1.7 Certain Federal Income Tax Obligations. The parties hereto do hereby
agree as follows:
(a) Prior to the Closing Date, Petals shall have declared, as a
dividend and distribution to each of the Minority
Stockholders, an amount in cash as shall be equal to (i)
forty-three and seventy four one-hundredths (43.74%) percent
of their individual proportionate share of the net income
before taxes of Petals for its fiscal year ended December 31,
1998 (the "1998 Pre-Tax Income"), being the estimated amount
of federal, state and local income taxes that each of the
Minority Stockholders would be required to pay on their 1998
individual federal, state and local income tax returns, as a
result of Petals' Subchapter S election under Section 1372,
et. seq. of the Internal Revenue Code of 1986, as amended,
less (ii) all cash payments or distributions previously made
by Petals to each of the Minority Stockholders at any time
from and after January 1, 1998 through and including the
Closing Date, other than (A) regular salaries, medical
insurance or reimbursement of verified out-of-pocket business
expenses paid to J. Corelli or C. Corelli, and (B) payments
made during such period to defray any of such person's 1997
federal income tax payment obligations in respect of the
earnings and profits before taxes of Petals for its year ended
December 31, 1997 (collectively, the "Accrued 1998 Income Tax
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<PAGE>
Obligations"). On or before April 15, 1999 Petals shall cause
to be distributed to the Minority Stockholders an amount in
cash as shall be equal to the Accrued 1998 Income Tax
Obligations.
(b) In the event and to the extent that for the period commencing
January 1, 1999 and ending on the Closing Date (the "1999
Interim Period") Petals shall generate net income before taxes
(the "1999 Interim Pre-Tax Income") or incur a net loss (the
"1999 Interim Net Loss"), the Minority Stockholders shall
report on their respective 1999 Form 1040 individual,
partnership or other applicable federal income tax returns
their respective pro-rata share of such 1999 Interim Pre-Tax
Income or 1999 Interim Net Loss, as the case may be.
Accordingly, in the event and to the extent that the Minority
Stockholders shall be required to report any 1999 Interim
Pre-Tax Income on their 1999 Form 1040 individual tax returns,
prior to the April 15, 2000 date of filing of such tax returns
with the Internal Revenue Service, Petals shall pay to the
Minority Stockholders an amount in cash as shall be equal to
forty-three and seventy four one-hundredths (43.74%) percent
of their individual proportionate share of the 1999 Interim
Pre-Tax Income (the "Accrued 1999 Income Tax Obligations").
Notwithstanding the foregoing, if there shall be any 1999
Interim Pre-Tax Income which shall require the Minority
Stockholders to file and pay estimated quarterly income taxes
prior to April 2000, Petals shall pay to the Minority
Stockholders prior to June 15, 1999 forty-three and seventy
four one-hundredths (43.74%) percent of their individual
proportionate share of the 1999 Interim Pre-Tax Income, if
any.
(c) Notwithstanding the foregoing provisions of Section 1.7(a) and
Section 1.7(b) above, the amounts payable to the Minority
Stockholders pursuant to the provisions of this Section 1.7
shall be subject to reduction on a dollar-for-dollar basis, in
the event and to the extent (and only to the extent) of any
actual tax savings realized by either or both of the Minority
Stockholders from (i) the Accrued 1998 Income Tax Obligations
and/or Accrued 1999 Income Tax Obligations as paid by Petals
reducing the capital gains tax obligations of either of the
Minority Stockholders in respect of the purchase or redemption
of their Petals Stock, (ii) the Minority Stockholders' payment
of their individual capital gains taxes reducing, in whole or
in part, the Accrued 1998 Income Tax Obligations and/or
Accrued 1999 Income Tax Obligations of either of the Minority
Stockholders, or (iii) the pro rata portion of any 1999
Interim Net Loss reportable by the Minority Stockholders on
their 1999 Form 1040 income tax returns reducing any taxable
income or capital gain reportable by such Minority
Stockholders for such tax year.
(d) In the event that the audit of the financial statements of
Petals as at December 31, 1998 and for the fiscal year then
ended (the "Audited 1998 Financial Statements") currently
being conducted by Arthur Andersen & Co. shall result in an
increase or a decrease in the Accrued 1998 Income Tax
Obligations and an adjustment to the amount of the dividend
payable or paid pursuant to Section 1.7(a) above, the adjusted
amount of Accrued 1998 Income Tax Obligations shall be paid by
Petals to the Minority Stockholders or reimbursed by the
Minority Stockholders to Petals, as the case may be, on or
before April 15, 1999.
(e) Petals agrees to indemnify, defend and hold harmless each of
the Minority Stockholders from any liability with respect to
all tax obligations of Petals for all periods from January 1,
1999 to and including the Closing Date.
1.8 Settlement of Accounts. On the Closing Date: (a) all indebtedness for
money borrowed owed by Petals to each of the Majority Stockholders, M. Corelli,
R. Corelli and the Minority Stockholders
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<PAGE>
shall be paid in full, and (b) all loans, advances and other obligations owned
by any of the Majority Stockholders, M. Corelli, R. Corelli or the Minority
Stockholders to Petals shall be repaid in full, either in cash or as a reduction
and offset against amounts owed by Petals to such person(s).
1.9 Payment of Year End Bonuses. On the Closing Date, all bonuses which
shall have accrued on the books of Petals for the year ended December 31, 1998
to employees shall be paid in full; provided, that no such bonuses shall be
payable to any party to this Agreement or any of their affiliates, whether or
not accrued on the financial statements of Petals.
1.10 Access to Information; Cooperation. Each of the Minority Stockholders
do hereby covenant and agree that from and after March 1, 1999 and at all times
through and including the Closing Date, they have and will (a) provide
representatives of Interiors with full and complete access during reasonable
business hours to the premises of Petals; (b) permit Interiors and its legal and
financial representatives to examine all financial statements, books, records,
agreements, customer lists and other written data pertaining to Petals, its
business, legal and financial condition, and to make extracts or copies of such
documents; and (c) permit Interiors to contact or communicate with key suppliers
and customers of Petals; it being understood that all of the foregoing is
intended to permit Interiors and its legal and financial representatives to
complete their due diligence investigation of the business, financial condition,
legal affairs and prospects of Petals (the "Due Diligence Investigation"), which
was suspended as a result of the commencement of the New York County Litigation
and Westchester County Litigation.
2. CLOSING DATE. The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Greenberg Traurig,
200 Park Avenue, New York, New York 10166, upon written notice by Interiors to
the other parties hereto, on a date which shall be not earlier than March 22,
1999 and not later than March 25, 1999.
3. CONDITIONS TO CLOSING.
(a) The obligations of the parties hereto to consummate the transactions
contemplated by this Agreement shall be subject to satisfaction or
performance of all of the covenants and agreements of the respective
parties set forth in Section 1 above, each of which shall be
conditions precedent to the obligations of all parties hereto;
provided, that a party in whose favor a specific covenant and
agreement is to be performed may either (i) waive in writing
performance of such covenant or agreement, or (ii) commence an
action at law or in equity to enforce their rights under this
Agreement and the Exhibits hereto.
(b) Notwithstanding the foregoing, it is expressly understood and agreed
by and between all parties hereto, that the purchase by Interiors of
all of the shares of the Majority Stockholders Petals Stock in
accordance with the provisions of the Interiors Purchase Agreement
and this Agreement shall be a condition precedent to the obligations
of each of the Minority Stockholders under this Agreement.
(c) In the event and to the extent that on the Closing Date any of the
Minority Stockholders shall fail or refuse to deliver certificates
evidencing their shares of Petals Stock or otherwise fail or refuse
to execute and deliver the Exhibits to this Agreement to which they
are parties signatory, for any reason, other than (i) a breach of
the provisions of Section 3(b) above, or (ii) the failure of Petals
or Interiors to tender delivery of the payments or the securities to
such Minority Stockholder(s) in the amounts and in the manner
provided herein or executed copies of this Agreement and the
exhibits hereto, Interiors and the Majority Stockholders shall have
the absolute right to immediately consummate the purchase of the
Majority Stockholders Petals Stock in accordance with the terms of
the Interiors Purchase Agreement (notwithstanding any pending
litigation, this Agreement or the Stockholders Agreement or any
provisions hereof or thereof to the contrary) and either (A)
terminate this Agreement, or (B) seek specific performance of the
obligations of the Minority Stockholder(s) hereunder.
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<PAGE>
(d) On the Closing Date, Petals and Interiors shall have received a
certificate from each of the Majority Stockholders and the Minority
Stockholders in substantially the form of Exhibit F annexed hereto
and made a part hereof (the "Ownership Certificate") ; which
Ownership Certificate shall provide, in substance, that as at the
Closing Date the representations and warranties of each of such
Majority Stockholders and Minority Stockholders as to their
respective ownership interests in and to the shares of Petals Stock
set forth therein shall be true and correct in all material
respects. Except for the aforesaid representations and warranties,
the Minority Stockholders make no other representations or
warranties herein concerning the business, financial condition or
prospects of Petals and Interiors is not relying on any statements
or representations of such Minority Stockholders in making the
investment contemplated by this Agreement.
(e) In addition to satisfaction and performance of the covenants and
agreements set forth in Section 1 and in Section 3(d) of this
Agreement, on the Closing Date Petals and Interiors shall have
entered into an amendment (the "Lease Amendment") to the existing
lease between Petals, as lessee, and Cafco LP (an affiliate of the
Minority Stockholders), as lessor (the "Landlord") of the principal
executive offices and warehouse facilities of Petals located in
White Plains, New York (the "Lease"). Such Lease Amendment, in
substantially the form of Exhibit G annexed hereto, shall provide,
inter alia:
(i) the Landlord shall consent to the transactions contemplated by
the Interiors Purchase Agreement and this Agreement;
(ii) Interiors and its Stylecraft Lamps, Inc. subsidiary shall
unconditionally guaranty the obligations of Petals under the Lease;
(iii) in the event that Petals or the guarantors shall, for any
reason, fail to pay the monthly rent under the Lease, when due, the
Landlord may, at its option, commence a summary proceeding to require
Petals to vacate the leased premises within thirty (30) days of such
payment default, without resorting to any other form of eviction
proceedings, and Petals and the guarantors shall remain liable for any
unpaid rent, subject only to the Landlord's obligation to mitigate damages
and re-rent the leased premises; and
(iv) the Landlord shall have the right (in addition to and not in
lieu of the provisions of clause (iii) of this Section 3(e) ) to terminate
the Lease on or after December 31, 2000 (the "Early Lease Termination
Date") ; provided, that (A) the Landlord shall provide Petals with not
less than twelve (12) months prior written notice of such termination (the
"Lease Termination Notice"), (B) as at the time of such Lease Termination
Notice, the Landlord shall have received a bona fide written offer from an
unaffiliated third party to either purchase or lease the leased premises,
and (C) an unaffiliated third party shall either take actual title to or
possession of the leased premises on or before the Early Lease Termination
Date. In the event that an unaffiliated third party shall not be prepared
to either take actual title to or possession of the leased premises on or
before the Early Lease Termination Date, the Landlord shall give prompt
written notice of such event to Petals and, if such fact is then known,
include in such notice the revised date of the proposed taking of title or
possession. In such event Petals shall have the right (but not the
obligation), by giving written notice to the Landlord within ten business
days of receipt of the Landlord's notice, to extend the Early Lease
Termination Date for a period equal to a date which shall be the earlier
to occur of (A) the date on such unaffiliated third party shall take
actual title to or possession of the leased premises, or (B) the date on
which the Landlord shall be required to commence construction or relating
workover activities to the leased premises under the terms of any
agreements or instruments then existing between the Landlord and any such
unaffiliated third party.
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<PAGE>
4. MISCELLANEOUS.
(a) In the event that following the Closing Date Petals shall request that
J. Corelli and/or C. Corelli provide advise and services to Petals, if such
Minority Stockholders elect to provide such services they shall do so on a
consulting basis and on terms and conditions as shall be mutually satisfactory
to Petals and such person(s) ; provided, that any compensation paid in respect
of such services shall be in addition to, and not in lieu of, the severance
payments to which such persons are entitled under Exhibit B hereto.
(b) Petals hereby agrees that J. Corelli and C. Corelli shall have a
period of two weeks following the Closing Date to remove their personal property
and files from the Petals premises. Such property shall not, however, include
any business files or other confidential business materials.
(c) Petals hereby agrees that on and after the Closing, the Minority
Stockholders, M. Corelli, R. Corelli and Ronald Corelli (collectively, the
"Corelli Group") shall be granted a non-exclusive world-wide royalty free
license to use the name "Corham;" provided, that the right to use such name
shall be limited to uses that would otherwise be permitted to the Minority
Stockholders under the terms of the Non-Competition Agreement.
(d) This Agreement and the Exhibits hereto and all covenants, agreements,
representations and warranties made herein and therein shall survive the Closing
Date. Whenever in this Agreement any of the parties hereto is referred to, such
reference shall be deemed to include the successors and permitted assigns of
such party; and all covenants, promises and agreements in this Agreement
contained, by or on behalf of any one party hereto shall inure to the benefit of
and be binding upon the successors and assigns of such party.
(e) This Agreement and the Exhibits shall (irrespective of where same are
executed and delivered) be governed by and construed in accordance with the laws
of the State of New York (without giving effect to principles of conflicts of
laws).
(f) No amendment or modification of this Agreement or any Exhibit hereto
shall be deemed to be effective unless contained in a writing executed by all
relevant parties hereto or thereto.
(g) All notices, requests, demands and other communications under or in
respect of this Agreement or any transactions hereunder shall be in writing
(which may include telegraphic or telecopied communication) and shall be
personally delivered or mailed (by prepaid registered or certified mail, return
receipt requested), sent by prepaid recognized overnight courier service, or
telegraphed or telecopied by facsimile transmission to the applicable party at
its address or telecopier number indicated in Exhibit H annexed hereto and made
a part hereof. All such notices, requests, demands and other communications
shall be deemed given when personally delivered or when deposited in the mails
with postage prepaid (by registered or certified mail, return receipt requested)
or delivered to the telegraph company or overnight courier service, addressed as
aforesaid, or when submitted by facsimile transmission to a telecopier number
designated by such addressee. No other method of written notice is precluded.
(h) All disputes relating to or arising out of this Agreement or the
interpretation or application of this Agreement or any exhibit hereto shall be
resolved by final and binding arbitration before an arbitrator selected by the
Company from among the list of arbitrators set forth on Exhibit A. Any
arbitration before the selected arbitrator shall be administrated by JAMS
Endispute or the American Arbitration Association in New York. If such
arbitration shall be commenced by The Company it shall, with its demand for
arbitration, select the arbitrator and two alternatives in its demand. If such
arbitration shall be commenced by either Employee, then the Company shall select
an arbitrator and two alternatives within 5 days of being served with a copy of
the demand for arbitration. Each of the parties hereto do
8
<PAGE>
hereby consent to the jurisdiction of the courts of the State of New York and
the United States District Court for the Southern District of New York, as well
as to the jurisdiction of all courts from which an appeal may be taken from such
courts, for the purpose of enforcing the award of the arbitrator, or any suit,
action or other proceeding arising out of or with respect to this Agreement, or
any of the transactions contemplated hereby or thereby. The parties hereto
hereby expressly waive any and all objections which any of them may have as to
venue in any of such courts, and also waives trial by jury in any such suit,
action or proceeding.
(i) If any provision of this Agreement is held invalid or unenforceable,
either in its entirety or by virtue of its scope or application to given
circumstances, such provision shall thereupon be deemed modified only to the
extent necessary to render same valid, or not applicable to given circumstances,
or excised from this Agreement, as the situation may require, and this Agreement
shall be construed and enforced as if such provision had been included herein as
so modified in scope or application, or had not been included herein, as the
case may be.
(j) The Article and Section headings in this Agreement are included herein
for convenience of reference only, and shall not affect the construction or
interpretation of any provision of this Agreement.
(k) This Agreement, the Exhibits hereto and the Interiors Purchase
Agreement constitute the sole and entire agreement and understanding between the
parties hereto as to the subject matter hereof, and supersede all prior
discussions, agreements and understandings of every kind and nature between the
parties as to such subject matter.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers on the date set forth below, but
all as of the day and year first above written.
PETALS, INC.
By: /s/ Illegible Signature
------------------------------------
INTERIORS, INC.
By: /s/ Max Munn
------------------------------------
Max Munn, President
/s/ John Corelli
---------------------------------------
JOHN CORELLI
/s/ Christopher Corelli
---------------------------------------
CHRISTOPHER CORELLI
9
<PAGE>
EXHIBITS
Mutual Releases (R. Corelli and M. Corelli) Exhibit A-1
Mutual Releases (J. Corelli and C. Corelli) Exhibit A-2
Severance Agreements Exhibit B
Non-Competition Agreements Exhibit C
Interiors Warrants Exhibit D
Registration Rights Agreement Exhibit E
Ownership Certificates Exhibit F
Amendment to Lease Exhibit G
Addresses for Notices Exhibit I
10
WARRANT TO PURCHASE SHARES OF CLASS A
CLASS A COMMON STOCK OF INTERIORS, INC.
March __, 1999
New York, New York
THIS WARRANT AND THE SHARES OF CLASS A COMMON STOCK ISSUABLE UPON EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") AND SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
VOID AFTER 5:00 P.M., NEW YORK TIME
ON MARCH __, 2002
THIS CERTIFIES THAT for value received, [JOHN CORELLI] [CHRISTOPHER
CORELLI], an individual ("Corelli"), or their registered permitted assigns
(together with Corelli, hereinafter collectively referred to as the "Holder"),
may subscribe for and purchase, subject to the terms and conditions hereof, from
INTERIORS, INC., a Delaware corporation (the "Company"), 50,000 shares of Class
A Common Stock of the Company, par value $0.01 per share (the "Class A Common
Stock"), at any time during the period (the "Exercise Period") commencing at
9:00 a.m. New York Time on March __, 1999 (the "Effective Date") and ending at
5:00 p.m. New York Time, on March __, 2002, a date which is three (3) years from
the Effective Date (the "Expiration Date"), at an exercise price per share equal
to $3.25 (the "Exercise Price"). The number of shares of Class A Common Stock
issuable upon exercise of this Warrant, the Exercise Price, and the kind of
securities issuable upon exercise of this Warrant, shall be subject to
adjustment from time to time upon the occurrence of certain events as set forth
below. The shares of Class A Common Stock issuable upon exercise of this
Warrant, as adjusted from time to time, is sometimes referred to hereinafter as
"Warrant Shares."
1. Exercise Price and Expiration. (a) This Warrant may be exercised in
whole or in part on any Business Day (as such term is hereinafter defined) at
any time during the Exercise Period upon surrender to the Company, at its
address for notices set forth in Section 8 of this Warrant (or at such other
office of the Company, if any, or such other office of the Company's duly
authorized agent for such purpose, as may be maintained by the Company for such
purpose and so designated by the Company by written notice to the Holder prior
to such exercise), together with the following: (i) a duly completed and
executed Notice of Warrant Exercise in the form annexed hereto, and (ii) payment
of the full Exercise Price for this Warrant or the portion thereof then being
exercised. This Warrant and all rights and options hereunder shall expire on,
and shall be immediately wholly null and void to the extent the Warrant is not
properly exercised
<PAGE>
prior to the Expiration Date. As used in this Warrant the term "Business Day"
shall mean the time period between 9:00 a.m. New York, New York Time and 5:00
p.m. New York, New York Time on any day other than any Saturday, Sunday, or
other day on which commercial banks in New York, New York are required or are
authorized by law to close.
(b) Such Exercise Price shall be paid in lawful money of the United
States of America by bank cashier's check or by wire transfer of immediately
available funds to such account as shall have been designated in writing by the
Company to the Holder from time to time.
(c) Upon the Holder's surrender of the Warrant and payment of the
Exercise Price as set forth above, the Company shall promptly issue and cause to
be delivered to the Holder a certificate or certificates for the total number of
whole shares of Class A Common Stock for which this Warrant is then so
exercised, as the case may be (adjusted to reflect the effect of the
anti-dilution provisions contained in Section 2 of this Warrant, if any) in such
denominations as are requested for delivery to the Holder, and the Company shall
thereupon deliver such certificates to the Holder. The Holder shall be deemed to
be the Holder of record of the shares of Class A Common Stock issuable upon such
exercise, notwithstanding that the stock transfer books of the Company shall
then be closed or that certificates representing such shares of Class A Common
Stock shall not then be actually delivered to the Holder. If, at the time this
Warrant is exercised, a registration statement under the Securities Act is not
then in effect to register under said Securities Act the Warrant Shares issuable
upon exercise of this Warrant (together with any applicable state securities law
registrations), the Company may require the Holder to make such representations,
and may place such legends on certificates representing the Warrant Shares, as
may be reasonably required in the opinion of counsel to the Company to permit
the Warrant Shares to be issued without such registration, unless the Company
receives an opinion of counsel reasonably satisfactory to counsel to the Company
to the effect that said securities may be freely traded without registration
under the Securities Act.
(d) If the Holder shall exercise this Warrant with respect to less
than all of the Warrant Shares that may then be purchased under this Warrant,
having taken into account any prior exercise of the Warrant, the Company shall
promptly execute and deliver to the Holder a new warrant in the form of this
Warrant for the balance of such Warrant Shares.
2. Certain Anti-dilution Adjustments.
If the Company shall (a) pay a dividend or make a distribution to Holder
of shares of Company Class A Common Stock in the form of additional shares of
Class A Common Stock, (b) subdivide or split or reverse split or consolidate the
outstanding shares of Class A Common Stock into a larger or smaller number of
shares, (c) or otherwise effect an increase or decrease in the number of shares
of Class A Common Stock without consideration, or (d) effect a recapitalization
which shall reclassify the outstanding shares of Class A Common Stock into one
or more classes of Class A
2
<PAGE>
Common Stock, the number of shares of Class A Common Stock issuable upon
exercise of this Warrant and the Exercise Price shall be equitably and
proportionately adjusted immediately following the occurrence of any such event,
and the Holder of record of this Warrant shall be given notice of the same at
such Holder's address in the Company's books and records. An adjustment made
pursuant to this Section shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, split, combination or
reclassification; provided, if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the exercise price shall be recomputed accordingly as of the
close of business on such record date and thereafter such exercise price in
effect shall be as adjusted pursuant to this Section as of the time of actual
payment of such dividend or distribution.
3. Reorganization and Asset Sales.
If any capital reorganization or reclassification of the capital stock of
the Company, or any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of the capital stock of the
Company to another corporation, or the sale of all or substantially all of the
assets or properties of the Company to another corporation, shall be effected in
such a manner so that Holder of Company Class A Common Stock shall be entitled
to receive stock, securities or assets with respect to or in exchange for
Company Class A Common Stock, then, and in such event, the following provisions
shall apply:
(a) Not more than 90 or less than 30 days prior to the consummation
of any such reorganization, reclassification, consolidation, merger
or sale (collectively, "Reorganization Transactions"), the Company
shall notify the Holder of the Reorganization Transaction (at the
same time notice of same shall be made generally available to other
Holder of Company Class A Common Stock), describing in such notice
in reasonable detail the terms of the Reorganization Transaction and
the stock, securities or assets to be received with respect to or in
exchange for Class A Common Stock of the Company. In the event the
Holder exercise this Warrant not more than 90 or less than 30 days
prior to the consummation of the Reorganization Transaction, such
Holder shall be entitled to receive stock, securities or assets with
respect to or in exchange for Class A Common Stock (collectively,
"Reorganization Consideration") on the same basis as the other
Holder of Company Class A Common Stock participating in the
Reorganization Transaction as if such Holder had previously
exercised this Warrant and held such number of Warrant Shares to
which they are entitled based on the Exercise Price.
(b) The Company shall not effect any such Reorganization Transaction
unless prior to or simultaneous with the consummation thereof, the
successor corporation (if other than the Company) resulting
therefrom shall assume by written instrument executed and made
available to the Holder at the last address of the Holder appearing
on the books of the
3
<PAGE>
Company, the obligation to deliver to the Holder such shares of
stock, securities or assets, as, in accordance with the foregoing
provisions, the Holder may be entitled to receive, and all other
liabilities and obligations of the Company hereunder. In the event
the Holder of this Warrant shall not exercise the Warrant prior to
or simultaneous with consummation of the Reorganization Transaction,
such Holder shall be entitled to receive a warrant to purchase Class
A Common Stock in the successor corporation (if other than the
Company) which shall be appropriately adjusted as to exercise price,
number of shares which may be purchased thereunder and other terms,
so as to equitably reflect the Reorganization Transaction and
entitle the Holder to purchase that number of shares of Class A
Common Stock of the successor corporation equivalent in value to the
consideration that such Holder would have received had Holder
exercised this Warrant immediately prior to or simultaneously with
such Reorganization Transaction. In the event the successor
corporation (if other than the Company) resulting from the
Reorganization Transaction shall be a privately-held company and the
Reorganization Consideration, in part or in whole, shall be in the
form of securities for which there is no readily ascertainable
market value by virtue of not being traded on any national market or
exchange, the Company shall not effect any such Reorganization
Transaction unless prior to or simultaneous with the consummation
thereof, the successor corporation shall agree by written instrument
executed and made available to the Holder at the last address of the
Holder appearing on the books of the Company to pay to the Holder a
cash amount equivalent in value to the difference between the
Exercise Price and the Fair Market Value multiplied by the number of
Warrant Shares that such Holder would have received had the Holder
exercised this Warrant immediately prior to or simultaneously with
such Reorganization Transaction.
(c) If a purchase, tender or exchange offer is made to and accepted
by the Holder of more than fifty (50%) percent of the outstanding
shares of Class A Common Stock of the Company, the Company shall,
prior to the consummation of any consolidation, merger or sale to or
with the person, firm or corporation having made such offer or any
affiliate of such person, firm or corporation, give the Holder a
reasonable opportunity of not less than 10 days to elect to receive
upon the exercise of this Warrant, either the stock, securities or
assets then issuable with respect to the Class A Common Stock of the
Company or the stock, securities or assets, or the equivalent,
issued to previous Holder of the Class A Common Stock in accordance
with such purchase tender or exchange offer.
4
<PAGE>
4. Notice of Adjustment.
Whenever the Exercise and the number of Warrant Shares issuable upon the
exercise of this Warrant shall be adjusted as herein provided, or the rights of
the Holder shall change by reason of other events specified herein, the Company
shall compute the adjusted Exercise Price and the number of adjusted Warrant
Shares in accordance with the provisions hereof and shall prepare a certificate
signed by its Chief Executive Officer, or its President, or its Chief Financial
Officer, setting forth the adjusted Exercise Price and the adjusted number of
Warrant Shares issuable upon the exercise of this Warrant or specifying the
other shares of stock, securities, or assets receivable as a result of such
changes in rights, and showing in reasonable detail the facts and calculations
upon which such adjustments or other changes are based. The Company shall caused
to be mailed to the Holder copies of such officer's certificate together with a
notice stating that the Exercise Price and the number of Warrant Shares
purchasable upon exercise of this Warrant have been adjusted and setting forth
the adjusted Exercise Price and the adjusted number of Warrant Shares
purchasable upon the exercise of this Warrant.
5. Certain Representations of the Company.
Throughout the Exercise Period, the Company has (i) all requisite power
and authority to issue this Warrant and the Warrant Shares, and (ii) sufficient
authorized and unissued securities of Class A Common Stock to permit exercise of
this Warrant.
6. Certain Covenants of the Company.
(a) The Company shall take such steps as are necessary to cause the
Company to continue to have sufficient authorized and unissued shares of Class A
Common Stock reserved in order to permit the exercise of the unexercised and
unexpired portion of this Warrant, if any.
(b) The Company covenants and agrees that all Warrant Shares issued upon
the due exercise of this Warrant will, upon issuance in accordance with the
terms hereof, be duly authorized, validly issued, fully paid and non-assessable
and free and clear of all taxes, liens, charges, and security interests created
by the Company with respect to the issuance thereof.
(c) The Company will pay all documentary stamp taxes, if any, attributable
to the initial issuance of Warrant Shares upon the exercise of this Warrant;
provided, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issue of this Warrant or of
any certificates for Warrant Shares in a name other than that of the Holder upon
the exercise of this Warrant, and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax, or shall
have established to the satisfaction of the Company that such tax has been paid.
5
<PAGE>
(d) This Warrant and, when so issued, the shares of Class A Common Stock
which may be issued upon exercise of the Warrants, will have been issued,
pursuant to an available exemption from registration under the Securities Act.
(e) The Company covenants and agrees that if it fails (i) to register the
Warrant Shares as provided in a Registration Rights Agreement between the Holder
and the Company, dated of even date herewith, or (ii) to issue the shares of
Class A Common Stock upon the proper exercise of the Warrant, then the Holder
may immediately commence an action for specific performance and/or damages.
7. No Shareholder Rights. No Holder of this Warrant shall, as such, be
entitled to vote or be deemed the holder of Class A Common Stock or any other
kind of securities of the Company, nor shall anything contained herein be
construed to confer upon the Holder the rights of a shareholder of the Company
or the right to vote for the election of directors or upon any matter submitted
to shareholders at any meeting thereof, or give or withhold consent to any
corporate action or to receive notice of meetings or other actions affecting
shareholders (except as otherwise expressly provided herein), or to receive
dividends or subscription rights or otherwise, until the date of Holder' proper
exercise of this Warrant as described herein.
8. Notices. Any notice, demand, request, waiver or other communication
under this Agreement must be in writing and will be deemed to have been duly
given (i) on the date of delivery if delivered by hand to the address of the
party specified below (including delivery by courier), or (ii) on the fifth day
after deposit in the U.S. Mail if mailed to the party to whom notice is to be
given to the address specified below, by first class mail, certified or
registered, return receipt requested, First Class postage prepaid:
to the Company:
Interiors, Inc.
_____________________________
_____________________________
Attn: Max Munn, President
the Holder:
_____________________________
_____________________________
_____________________________
Any party may from time to time change its address for the purpose of notices to
that party by a similar notice specifying a new address, but no such change will
be deemed to have been given until it is actually received by the party sought
to be charged with its contents.
9. General.
(a) This Warrant shall be governed by and construed in accordance with the
laws of the State of New York without regard to its conflict of laws provisions.
6
<PAGE>
(b) Section and subsection headings used herein are included herein for
convenience of reference only and shall not affect the construction of this
Warrant or constitute a part of this Warrant for any other purpose.
(c) This Warrant may be executed simultaneously in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument when instruments
originally executed by each party shall have been received by the Company.
IN WITNESS WHEREOF, the Company has duly executed this Warrant on and as
of the date first set forth above.
INTERIORS, INC.
By:
----------------------------------
, President
7
<PAGE>
NOTICE
OF
WARRANT EXERCISE
TO INTERIORS, INC.:
The undersigned hereby irrevocably elects to exercise the Warrant and to
purchase thereunder ____ full shares of Class A Common Stock issuable upon the
exercise of such Warrant. The Exercise Price for this warrant shall be paid by
delivery of $__________ in cash as provided for in the Warrant.
The undersigned requests that certificates for such Warrant Shares be
issued in the name of:
Name:_______________________________________________
Address:____________________________________________
Employer I.D. or S. S.#:____________________________
If such number of Warrants shall not be all the Warrants evidenced by the
Warrant document, the undersigned requests that a new document evidencing the
Warrants not so exercised issued and registered in the name of and delivered to:
_______________________________________
Name
_______________________________________
Address
_______________________________________
Employer I.D. or Social Security Number
Date:____________ _______________________________________
Signature
(Signature must conform in all respects to
name of holder as specified on the face of
this Warrant Certificate)
8
REGISTRATION RIGHTS AGREEMENT
dated as of
March __, 1999
among
INTERIORS, INC.
and
JOHN CORELLI and CHRISTOPHER CORELLI
<PAGE>
EXHIBIT A
TABLE OF CONTENTS
Page
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ARTICLE 1 - DEFINITIONS........................................................1
1.1 Definitions..........................................................1
ARTICLE 2 - REGISTRATION RIGHTS................................................3
2.1 Securities Subject to this Agreement.................................3
2.2 Shelf Registration...................................................3
2.3 Piggyback Registration...............................................3
2.4 Registration Procedures..............................................5
2.5 Preparation; Reasonable Investigation................................9
2.6 Certain Rights of Holders............................................9
2.7 Registration Expenses................................................9
2.8 Indemnification; Contribution.......................................10
2.9 Participation in Underwritten Registrations.........................12
2.10 Selection of Underwriters..........................................12
ARTICLE 3 - RULE 144..........................................................13
ARTICLE 4 - MISCELLANEOUS.....................................................13
4.1 Entire Agreement....................................................13
4.2 Successors and Assigns..............................................13
4.3 Notices.............................................................13
4.4 Headings............................................................14
4.5 Counterparts........................................................14
4.6 Applicable Law......................................................14
4.7 Specific Enforcement................................................14
4.8 Amendment and Waivers...............................................14
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is dated as of March
__, 1999 between INTERIORS, INC., a Delaware corporation (the "Company");
CHRISTOPHER CORELLI ("C. Corelli") and JOHN CORELLI ("J. Corelli").
WHEREAS, pursuant to the terms of a settlement agreement, dated March __,
1999 (the "Settlement Agreement"), among the Company, Petals, Inc., C. Corelli,
J. Corelli and certain other persons and entities designated as "Majority
Stockholders" in the Settlement Agreement: (a) the Company issued to each of C.
Corelli and J. Corelli (sometimes referred to herein individually as a "Holder"
and collectively as the "Holders") the Warrants, and (b) agreed to grant
registration rights to the Holders with respect to the Warrant Shares issuable
upon exercise of the Warrants, and
WHEREAS, in connection with resales by the Holders of the Warrant Shares
upon or after exercise of the Warrants, the Company and the Holders now desire
to enter into this Agreement in order to facilitate such resales.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. The following terms, as used herein, have the following
meanings.
"Board" means the Board of Directors of the Company.
"Business Day" means any day except a Saturday, Sunday or other day on
which banks in New York, New York are authorized by law to close.
"Closing" and "Closing Date" shall have the meanings set forth in the
Settlement Agreement.
"Commission" means the Securities and Exchange Commission.
"Class A Common Stock" means the Class A Common Stock, par value $.001 per
share, of the Company.
"Company" means Interiors, Inc., a Delaware corporation.
"Company Registration Statement" means the registration statement of the
Company on Form S-3 (or if the Company shall not be eligible to use Form S-3
than on Form S-1 or any other
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applicable form for registering securities under the Securities Act of 1933, as
amended) relating to the registration for resale of the Registrable Securities,
including the Prospectus included therein, all amendments and supplements
thereto (including post-effective amendments) and all exhibits and material
incorporated by reference therein.
"Effective Time" means the date of effectiveness of any Registration
Statement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"NASD" means the National Association of Securities Dealers, Inc.
"Person" means an individual, corporation, partnership, association, trust
or other entity or organization, including a government or political subdivision
or an agency or instrumentality thereof.
"Prospectus" means the prospectus included in any Registration Statement,
as amended or supplemented by any prospectus supplement and by all other
amendments thereto, including post-effective amendments, and all material
incorporated by reference into such Prospectus.
"Registration Statement" means the Company Registration Statement.
"Registrable Securities" shall have the meaning set forth in the Section
2.2 of this Agreement.
"Restricted Securities" means any Securities until (i) a registration
statement covering such Securities has been declared effective by the Commission
and such Securities have been disposed of pursuant to such effective
registration statement, (ii) such Securities are sold under circumstances in
which all the applicable conditions of Rule 144 (or any similar provisions then
in force) under the Securities Act are met, or such Securities may be sold
pursuant to Rule 144(k) (or any similar provision then in force) under the
Securities Act, and are freely tradable after such sale by the transferee, (iii)
such Securities are otherwise transferred, the Company has delivered a new
certificate or other evidence of ownership for such Securities not bearing a
legend restricting further transfer and such Securities may be resold without
registration under the Securities Act, or (iv) such Securities shall have ceased
to be outstanding.
"Securities" means the Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Settlement Agreement" has the meaning given to it in the recitals to this
Agreement.
"Warrants" means the three (3) year Company warrants to purchase up to
100,000 Warrant Shares issued to the Holders in equal 50,000 amounts to each of
C. Corelli and J. Corelli, and in substantially the form of Exhibit E to the
Settlement Agreement.
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"Warrant Shares" shall mean all shares of Class A Common Stock issuable
upon exercise of the Warrants.
As used in this Agreement, words in the singular include the plural, and
in the plural include the singular.
ARTICLE 2
REGISTRATION RIGHTS
2.1 Securities Subject to this Agreement.
(a) The Securities entitled to the benefits of this Agreement are the
Restricted Securities, but only for so long as they remain Restricted
Securities.
(b) A Person is deemed to be a Holder of Restricted Securities whenever
such Person is the registered Holder of such Restricted Securities on the
Company's books and records.
2.2 Demand Registration. Not later than sixty (60) days following the date of
this Agreement, the Company shall file with the SEC (or include in the pending
Registration Statement on Form S-3 currently on file with the SEC, so long as
the same has not been declared effective by the SEC) the Company Registration
Statement, which shall include therein an aggregate of 100,000 shares of Company
Class A Common Stock, of which (a) 50,000 shares of Class A Common Stock
represent the Warrant Shares issuable upon exercise of the Warrants held by C.
Corelli and (b) 50,000 shares of Class A Common Stock represent the Warrant
Shares issuable upon exercise of the Warrants held by J. Corelli (collectively,
the "Registrable Securities"), and does further hereby agrees with the Holders
or their transferees to use its best efforts to cause such Registration
Statement to be declared effective by the SEC by June 30, 1999, or as soon as
practicable thereafter, so as to ensure that the Registrable Securities shall be
registered for resale under the Act.
2.3 Piggyback Registration. The provisions of this Section 2.3 shall be
applicable only in the event that the Registrable Securities of the Holders are
not registered under the Act pursuant to the provisions of Section 2.2 above.
(a) At any time that the Company proposes to file a Company Registration
Statement, either for its own account or for the account of a stockholder or
stockholders, the Company shall give the Holders written notice of its intention
to do so and of the intended method of sale (the "Registration Notice") within a
reasonable time prior to the anticipated filing date of the Company Registration
Statement effecting such Company Registration. Each Holder may request inclusion
of any Restricted Securities in such Company Registration by delivering to the
Company, within ten (10) Business Days after receipt of the Registration Notice,
a written notice (the "Piggyback Notice") stating the number of Restricted
Securities proposed to be included and that such shares are to be included in
any underwriting only on the same terms and conditions as the shares of Class A
Common Stock otherwise being sold through underwriters under such
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Company Registration Statement. The Company shall use its best efforts to cause
all Restricted Securities specified in the Piggyback Notice to be included in
the Company Registration Statement and any related offering, all to the extent
requisite to permit the sale by the Holders of such Restricted Securities in
accordance with the method of sale applicable to the other shares of Class A
Common Stock included in such Company Registration Statement; provided, however,
that if, at any time after giving written notice of its intention to register
any securities and prior to the effective date of the Company Registration
Statement filed in connection with such registration, the Company shall
determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to each Holder of Restricted Securities and, thereupon:
(i) in the case of a determination not to register, shall be
relieved of its obligation to register any Restricted Securities in
connection with such registration, and
(ii) in the case of a delay in registering, shall be permitted to
delay registering any Restricted Securities for the same period as the
delay in registering such other securities.
(b) The Company's obligation to include Restricted Securities in a Company
Registration Statement pursuant to Section 2.3(a) shall be subject to the
following limitations:
(i) The Company shall not be obligated to include any Restricted
Securities in a registration statement filed on Form S-4, Form S-8 or such
other similar successor forms then in effect under the Securities Act.
(ii) If a Company Registration Statement involves an underwritten
offering and the managing underwriter advises the Company in writing that,
in its opinion, the number of securities requested to be included in such
Company Registration Statement exceeds the number which can be sold in
such offering without adversely affecting the offering, the Company will
include in such Company Registration Statement the number of such
Securities which the Company is so advised can be sold in such offering
without adversely affecting the offering, determined as follows:
(A) first, the securities proposed by the Company to be
sold for it own account, and
(B) second, any Restricted Securities requested to be
included in such registration and any other securities of the
Company in accordance with the priorities, if any, then existing
among the Holders of such securities pro rata among the Holders
thereof requesting such registration on the basis of the number of
shares of such securities requested to be included by such Holders.
(iii) The Company shall not be obligated to include Restricted
Securities in more than two (2) Company Registration Statement(s).
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(c) No Holder of Restricted Securities may include any of its Restricted
Securities in the Company Registration Statement pursuant to this Agreement
unless and until such Holder furnishes to the Company in writing, within 10
business days after receipt of a written request therefor, such information
specified in Item 507 of Regulation S-K under the Securities Act or such other
information as the Company may reasonably request for use in connection with the
Company Registration Statement or Prospectus or preliminary Prospectus included
therein and in any application to the NASD. Each Holder as to which the Company
Registration Statement is being effected agrees to furnish promptly to the
Company all information required to be disclosed in order to make all
information previously furnished to the Company by such Holder not materially
misleading.
2.4 Registration Procedures. In connection with any Registration Statement and
any Prospectus required by this Agreement to permit the sale or resale of
Restricted Securities, the Company shall:
(a) prepare and file with the Commission such amendments and
post-effective amendments to such Registration Statement as may be necessary to
keep such Registration Statement effective if such Registration Statement is a
Company Registration Statement, until the earlier of such time as all of such
securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such Company
Registration Statement; and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such Registration
Statement during the applicable period in accordance with the intended method or
methods of distribution by the sellers thereof set forth in such Registration
Statement or supplement or the Prospectus;
(b) promptly (and in respect of events covered by clause (i) hereof, on
the same day as the Company shall receive notice of effectiveness) advise the
Holders covered by such Registration Statement and, if requested by such
Persons, to confirm such advice in writing, (i) when the Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and when the
same has become effective, (ii) of any request by the Commission for
post-effective amendments to such Registration Statement or post-effective
amendments or supplements to the Prospectus or for additional information
relating thereto, (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of any such Registration Statement under the
Securities Act or of the suspension by any state securities commission of the
qualification of the Restricted Securities for offering or sale in any
jurisdiction, or the initiation of any proceeding for any of the preceding
purposes, and (iv) of the existence of any fact or the happening of any event
that makes any statement of a material fact made in any such Registration
Statement, the related Prospectus, any amendment or supplement thereto, or any
document incorporated by reference therein untrue, or that requires the making
of any additions to or changes in any such Registration Statement or the related
Prospectus in order to make the statements therein not misleading. If at any
time the Commission shall issue any stop order suspending the effectiveness of
such Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification or
exemption from qualification of the Restricted Securities under state securities
or Blue Sky laws, the Company
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shall use its reasonable efforts to obtain the withdrawal or lifting of such
order at the earliest possible time;
(c) promptly furnish to each Holder of Restricted Securities covered by
any Registration Statement, and each underwriter, if any, without charge, at
least one conformed copy of any Registration Statement, as first filed with the
Commission, and of each amendment thereto, including all documents incorporated
by reference therein and all exhibits (including exhibits incorporated therein
by reference) and such other documents as such Holder may reasonably request;
(d) deliver to each Holder covered by any Registration Statement, and each
underwriter, if any, without charge, as many copies of the Prospectus (including
each preliminary prospectus) and any amendment or supplement thereto as such
person reasonably may request.
(e) enter into such customary agreements and take all such other
reasonable action in connection therewith (including those reasonably requested
by the selling Holders or the underwriter(s), if any) required in order to
expedite or facilitate the disposition of such Restricted Securities pursuant to
such Registration Statement, including, but not limited to, dispositions
pursuant to an underwritten registration, and in such connection:
(i) make such representations and warranties to the selling Holders
and underwriter(s), if any, in form, substance and scope as are
customarily made by issuers to underwriters in underwritten offerings
(whether or not sales of securities pursuant to such Registration
Statement are to be to an underwriter(s)) and confirm the same if and when
requested;
(ii) obtain opinions of counsel to the Company (which counsel and
opinions, in form and substance, shall be reasonably satisfactory to the
selling Holders and the underwriter(s), if any, and their respective
counsel) addressed to each selling Holder and underwriter, if any,
covering the matters customarily covered in opinions requested in
underwritten offerings (whether or not sales of securities pursuant to
such Registration Statement are to be made to an underwriter(s)) and dated
the date of effectiveness of any Registration Statement (and, in the case
of any underwritten sale of securities pursuant to such Registration
Statement, each closing date of sales to the underwriter(s) pursuant
thereto);
(iii) use reasonable efforts to obtain comfort letters dated the
date of effectiveness of any Registration Statement (and, in the case of
any underwritten sale of securities pursuant to such Registration
Statement, each closing date of sales to the underwriter(s) pursuant
thereto) from the independent certified public accountants of the Company
addressed to each selling Holder and underwriter, if any, such letters to
be in customary form and covering matters of the type customarily covered
in comfort letters in connection with underwritten offerings (whether or
not sales of securities pursuant to such Registration Statement are to be
made to an underwriter(s));
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(iv) provide for the indemnification provisions and procedures of
Section 2.8 hereof with respect to selling Holders and the underwriter(s),
if any, and;
(v) deliver such documents and certificates as may be reasonably
requested by the selling Holders or the underwriter(s), if any, and which
are customarily delivered in underwritten offerings (whether of not sales
of securities pursuant to such Registration Statement are to be made to an
underwriter(s), with such documents and certificates to be dated the date
of effectiveness of any Registration Statement.
The actions required by clauses (i) through (v) above shall be done at
each closing under such underwriting or similar agreement, as and to the extent
required thereunder, and if at any time the representations and warranties of
the Company contemplated in clause (i) above cease to be true and correct, the
Company shall so advise the underwriter(s), if any, and each selling Holder
promptly, and, if requested by such Person, shall confirm such advice in
writing;
(f) prior to any public offering of Restricted Securities, cooperate with
the selling Holders, the underwriter(s), if any, and their respective counsel in
connection with the registration and qualification of the Restricted Securities
under the securities or Blue Sky laws of such U.S. jurisdictions as the selling
Holders or underwriter(s), if any, may reasonably request in writing by the time
any Registration Statement is declared effective by the Commission, and do any
and all other acts or filings necessary or advisable to enable disposition in
such U.S. jurisdictions of the Restricted Securities covered by any Registration
Statement and to file such consents to service of process or other documents as
may be necessary in order to effect such registration or qualification;
provided, however, that the Company shall not be required to register or qualify
as a foreign corporation in any jurisdiction where it is not then so qualified
or as a dealer in securities in any jurisdiction where it would not otherwise be
required to register or qualify but for this Section 2.4, or to take any action
that would subject it to the service of process in suits or to taxation, in any
jurisdiction where it is not then so subject;
(g) in connection with any sale of Restricted Securities that will result
in such securities no longer being Restricted Securities, cooperate with the
selling Holders and the underwriter(s), if any, to facilitate the timely
preparation and delivery of certificates representing Restricted Securities to
be sold and not bearing any restrictive legends; and enable such Restricted
Securities to be in such denominations and registered in such names as the
Holders or the underwriter(s), if any, may request at least two (2) Business
Days prior to any sale of Restricted Securities made by such underwriters;
(h) use its reasonable efforts to cause the disposition of the Restricted
Securities covered by any Registration Statement to be registered with or
approved by such other U.S. governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof or the underwriter(s), if any,
to consummate the disposition of such Restricted Securities;
(i) if any fact or event contemplated by Section 2.4(b) shall exist or
have occurred, prepare a supplement or post-effective amendment to any
Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required
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document so that, as thereafter delivered to the Holders of Restricted
Securities, the Prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statement therein
not misleading;
(j) cooperate and assist in the performance of any due diligence
investigation by any underwriter (including any "qualified independent
underwriter") that is required to be retained in accordance with the rules and
regulations of the NASD, and use its reasonable efforts to cause any
Registration Statement to become effective and approved by such U.S.
governmental agencies or authorities as may be necessary to enable the Holders
selling Restricted Securities to consummate the disposition of such Restricted
Securities;
(k) otherwise use its reasonable efforts to comply with all applicable
rules and regulations of the Commission, and make generally available to its
security Holders with regard to such Registration Statement, as soon as
practicable, a consolidated earnings statement meeting the requirements of Rule
158 (which need not be audited) for the twelve-month period (i) commencing at
the end of any fiscal quarter in which Restricted Securities are sold to the
underwriter in a firm or best efforts underwritten offering or (ii) if not sold
to an underwriter in such an offering, beginning with the first month of the
Company's first fiscal quarter commencing after the effective date of any
Registration Statement;
(l) provide a CUSIP number for all Restricted Securities not later than
the effective date of any Registration Statement;
(m) use its best efforts to list, not later than the effective date of
such Registration Statement, all Restricted Securities covered by such
Registration Statement on the American Stock Exchange or any other trading
market on which any Class A Common Stock of the Company are then admitted for
trading, and
(n) provide promptly to each Holder covered by any Registration Statement
upon request each document filed with the Commission pursuant to the
requirements of Section 12 and Section 14 of the Exchange Act.
Each Holder agrees by acquisition of a Restricted Security that, upon
receipt of any notice from the Company of the existence of any fact of the kind
described in Section 2.4(b)(iv) or the commencement of a Black-Out Period, such
Holder will forthwith discontinue disposition of Restricted Securities pursuant
to any Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 2.4(i), or until it
is advised in writing, in accordance with the notice provisions of Section 4.3
herein (the "Advice"), by the Company that the use of the Prospectus may be
resumed, and has received copies of any additional or supplemental fillings that
are incorporated by reference in the Prospectus. If so directed by the Company,
each Holder will deliver to the Company all copies, other than permanent file
copies, then in such Holder's possession, of the Prospectus covering such
Restricted Securities that was current at the time of receipt of such notice.
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2.5 Preparation; Reasonable Investigation. In connection with preparation and
filing of each Registration Statement under the Securities Act, the Company will
give the Holders of Restricted Securities registered under such Registration
Statement, their underwriter, if any, and their respective counsel and
accountants, the opportunity to participate in the preparation of such
Registration Statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give each
to them access to its books and records and such opportunities to discuss the
business, finances and accounts of the Company and its subsidiaries with its
officers, directors and the independent public accountants who have certified
its financial statements as shall be necessary, in the opinion of such Holders
and such underwriters' respective counsel, to conduct a reasonable investigation
within the meaning of the Securities Act.
2.6 Certain Rights of Holders. The Company will not file any registration
statement under the Securities Act which refers to any Holder of Restricted
Securities by name or otherwise without the prior approval of such Holder, which
consent shall not be unreasonably withheld or delayed.
2.7 Registration Expenses.
(a) All expenses incident to the Company's performance of or compliance
with this Agreement will be borne by the Company, regardless of whether a
Registration Statement becomes effective, including without limitation: (i) all
registration and filing fees and expenses (including filings made with the
NASD); (ii) all reasonable fees and expenses of compliance with federal
securities and state Blue Sky or securities laws in connection with compliance
with state Blue Sky or securities laws for up to 40 states; (iii) all expenses
of printing, messenger and delivery services and telephone calls; (iv) all fees
and disbursements of counsel for the Company; and (v) all fees and disbursements
of independent certified public accountants of the Company (including the
expenses of any special audit and comfort letters required by or incident to
such performance), but excluding from this paragraph, fees and expenses of
counsel to the underwriter(s), if any, unless otherwise set forth herein.
(b) Notwithstanding the foregoing, the Company will not be responsible for
any underwriting discounts, commissions or fees attributable to the sale of
Restricted Securities or any legal fees or disbursements (other than any such
fees or disbursements relating to Blue Sky compliance or otherwise as set for
the under Section 2.7(a)) incurred by any underwriter(s) in any underwritten
offering if the underwriter(s) participates in such underwritten offering at the
request of the Holders of Restricted Securities, or any transfer taxes that may
be imposed in connection with a sale or transfer of Restricted Securities.
(c) The Company shall, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expenses of any annual
audit and the fees and expenses of any Person, including special experts,
retained by the Company.
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2.8 Indemnification; Contribution.
(a) The Company agrees to indemnify and hold harmless (i) each Holder
covered by any Registration Statement, (ii) each other Person who participates
as an underwriter in the offering or sale of such securities, (iii) each person,
if any, who controls (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) any such Holder or underwriter (any of the
persons referred to in this clause (iii) being hereinafter referred to as a
"controlling person") and (iv) the respective officers, directors, partners,
employees, representatives and agents of any such Holder or underwriter or any
controlling person (any person referred to in clause (i), (ii), (iii) or (iv)
may hereinafter be referred to as an "indemnified Person"), to the fullest
extent lawful, from and against any and all losses, claims, damages,
liabilities, judgments or expenses, joint or several (or actions or proceedings,
whether commenced or threatened, in respect thereof) (collectively, "Claims"),
to which such indemnified Person may become subject under either Section 15 of
the Securities Act or Section 20 of the Exchange Act or otherwise, insofar as
such Claims arise out of or are based upon, or are caused by any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus (or any amendment or supplement thereto),
or any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, or
a violation by the Company of the Securities Act or any state securities law, or
any rule or regulation promulgated under the Securities Act or any state
securities law, or any other law applicable to the Company relating to any such
registration or qualification, except insofar as such losses, claims, damages,
liabilities, judgments or expenses of any such indemnified Person; (x) are
caused by any such untrue statement or omission or alleged untrue statement or
omission that is based upon information relating to such indemnified Person
furnished in writing to the Company by or on behalf of any of such indemnified
Person expressly for use therein; (y) with respect to the preliminary
Prospectus, result from the fact that such Holder sold Securities to a person to
whom there was not sent or given, at or prior to the written confirmation of
such sale, a copy of the Prospectus, as amended or supplemented, if the Company
shall have previously furnished copies thereof to such Holder in accordance with
this Agreement and said Prospectus, as amended or supplemented, would have
corrected such untrue statement or omission; or (z) as a result of the use by an
indemnified Person of any Prospectus when, upon receipt of a Black-Out Notice or
a notice from the Company of the existence of any fact of the kind described in
Section 2.4(b)(iv), the indemnified Person or the related Holder was not
permitted to do so. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of any indemnified Person
and shall survive the transfer of such securities by such Holder.
In case any action shall be brought or asserted against any of the
indemnified Persons with respect to which indemnity may be sought against the
Company, such indemnified Person shall promptly notify the Company and the
Company shall assume the defence thereof. Such indemnified Person 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 be at the
expense of the indemnified Person unless (i) the employment of such counsel
shall have been specifically authorized in writing by the Company, (ii) the
Company shall have failed to assume the defense and employ counsel or (iii) the
named parties to any such action (including any
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implied parties) include both the indemnified Person and the Company and the
indemnified Person shall have been advised in writing by its counsel that there
may be one or more legal defenses available to it which are different from or
additional to those available to the Company (in which case the Company shall
not have the right to assume the defense of such action on behalf of the
indemnified Person), it being understood, however, that the Company shall not,
in connection with such action or similar or related actions or proceedings
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) at any time for all the indemnified Persons,
which firm shall be (x) designated by such indemnified Persons and (y)
reasonably satisfactory to the Company. The Company shall not be liable for any
settlement of any such action or proceeding effected without the Company's prior
written consent, which consent shall not be withheld unreasonably, and the
Company agrees to indemnify and hold harmless any indemnified Person from and
against any loss, claim, damage, liability, judgment or expense by reason of any
settlement of any action effected with the written consent of the Company. The
Company shall not, without the prior written consent of each indemnified Person,
settle or compromise or consent to the entry of judgment on or otherwise seek to
terminate any pending or threatened action, claim, litigation or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not any indemnified Person is a party thereto), unless such
settlement, compromise, consent or termination includes an unconditional release
of each indemnified Person from all liability arising out of such action, claim
litigation or proceeding.
(b) Each Holder of Restricted Securities covered by any Registration
Statement agrees, severally and not jointly, to indemnify and hold harmless the
Company and its directors, officers and any person controlling (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
the Company, and the respective officers, directors, partners, employees,
representatives and agents of each person, to the same extent as the foregoing
indemnity from the Company to each of the indemnified Persons, but only (i) with
respect to actions based on information relating to such Holder furnished in
writing by or on behalf of such Holder expressly for use in any Registration
Statement or Prospectus, and (ii) to the extent of the gross proceeds, if any,
received by such Holder from the sale or other disposition of his or its
Restricted Securities covered by such Registration Statement. In case any action
or proceeding shall be brought against the Company or its directors or officers
or any such controlling person in respect of which indemnity may be sought
against a Holder of Restricted Securities covered by any Registration Statement,
such Holder shall have the rights and duties given the Company in Section 2.8(a)
(except that the Holder may but shall not be required to assume the defense
thereof), and the Company or its directors or officers or such controlling
person shall have the rights and duties given to each Holder by Section 2.8(a).
(c) If the indemnification provided for in this Section 2.8 is unavailable
to an indemnified party under Section 2.7(a) (other than by reason of exceptions
provided in those Sections) in respect of any losses, claims, damages,
liabilities, judgments or expenses referred to therein, then each applicable
indemnifying party (in the case of the Holders severally and not jointly), in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims damages,
liabilities,
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judgments or expenses (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Holder on the
other hand from sale of Restricted Securities or (ii) if such allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and such
Holder in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities, judgments or expenses, as well as any
other relevant equitable considerations. The relative fault of the Company on
the one hand and of such Holder on the other 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 or by such Holder and the parties
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid to a party as a result of
the losses, claims, damages, liabilities judgments and expenses referred to
above shall be deemed to include, subject to the limitations set forth in the
second paragraph of Section 2.8(a), any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or defending
any action or claim.
The Company and each Holder of Restricted Securities covered by any
Registration Statement agree that it would not be just and equitable if
contribution pursuant to this Section 2.8(c) were determined by pro rata
allocation (even if the Holders were treated as one entity for such purpose) or
by any other method of allocation which does not take into account the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 2.8(c) no Holder (and none of its
related indemnified Persons) shall be required to contribute, in the aggregate,
any amount in excess of the amount by which the dollar amount of proceeds
received by such Holder upon the sale of the Restricted Securities exceeds the
amount of any damages which such Holder has otherwise been required to pay by
reason of such untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentations (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.
The indemnity, and contribution provisions contained in this Section 2.8
are in addition to any liability which the indemnifying person may otherwise
have to the indemnified persons referred to above.
2.9 Participation in Underwritten Registrations. No Holder may participate in
any underwritten registration hereunder unless such Holder (a) agrees to sell
such Holder's Restricted Securities on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements and (b) completes and executes all reasonable questionnaires,
powers of attorney, indemnities, underwriting agreements, lock-up letters and
other documents required under the terms of such underwriting arrangements.
2.10 Selection of Underwriters. The Holders of Restricted Securities covered by
any Registration Statement who desire to do so may sell such Restricted
Securities in an underwritten offering. In any such underwritten offering, the
investment banker or investment bankers and
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manager or managers that will administer the offering will be selected by the
Company. Such investment bankers and managers are referred to herein as the
"underwriters".
ARTICLE 3
RULE 144
The Company hereby agrees with each Holder of Restricted Securities, for
so long as any of the Restricted Securities remain outstanding and continue to
be "restricted securities" within the meaning of Rule 144 under the Act, and
during any period in which the Company is not subject to Section 13 or 15(d) of
the Exchange Act, to make available to the Holders of Restricted Securities in
connection with any sale thereof, and to any prospective Holder of Class A
Common Stock from such Holders of Restricted Securities or beneficial owner, the
information required by Rule 144 (d)(4) under the Act in order to permit resales
of such Restricted Securities pursuant to Rule 144.
ARTICLE 4
MISCELLANEOUS
4.1 Entire Agreement. This Agreement, together with the Settlement Agreement,
constitutes the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior agreement and understandings, both oral
and written, between the parties with respect to the subject matter hereof.
4.2 Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders of Restricted Securities; provided, however, that this Agreement shall
not inure to the benefit of or be binding upon a successor or assign of a Holder
unless and to the extent such successor or assign acquired Restricted Securities
from such Holder at a time when such Holder could not transfer such Restricted
Securities pursuant to any Registration Statement or pursuant to Rule 144 under
the Securities Act as contemplated by clause (ii) of the definition of
Restricted Securities.
4.3 Notices. All notices and other communications given or made pursuant hereto
or pursuant to any other agreement among the parties, unless otherwise
specified, shall be in writing and shall be deemed to have been duly given or
made if sent by telecopy (with confirmation in writing), delivered personally or
by overnight courier or sent by registered or certified mail (postage prepaid,
return receipt requested) to the parties at the telecopy number, if any, or
address set forth below or at such other addresses as shall be furnished by the
parties by like notice. Notices sent by telecopier shall be effective when
receipt is acknowledged, notices delivered personally or by overnight courier
shall be effective upon receipt and notices sent by registered or certified mail
shall be effective three days after mailing:
if to a Holder: : John Corelli
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________________________________________
________________________________
and/or
Christopher Corelli
________________________________________
________________________________
if to the Company: Interiors, Inc
________________________________
Mount Vernon, New York _________________
4.4 Headings. The headings contained in this Agreement are for convenience only
and shall not affect the meaning or interpretation of this Agreement
4.5 Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original and all of which together shall
be deemed to be one and the same instrument.
- --------------------------------------------------------------------------------
4.6 Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to the
choice law provisions.
4.7 7 Specific Enforcement. Each party hereto acknowledges that the remedies at
law of the other parties for a breach or threatened breach of this Agreement
would be inadequate, and, in recognition of this fact, any party to this
Agreement, without posting any bond, and in addition to all other remedies which
may be available, shall be entitled to obtain equitable relief in the form of
specific performance, a temporary restraining order, a temporary to permanent
injunction or any other equitable remedy which may then be available.
4.8 Amendment and Waivers. The provisions of this Agreement may not be amended,
modified or supplemented, and waivers or consents to or departures from the
provisions hereof may not be given unless the Company has obtained the written
consent of Holders of a majority of the Restricted Securities.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
INTERIORS, INC.
By:
------------------------------------
Max Munn, President
THE HOLDERS
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----------------------------------------
Name: JOHN CORELLI
----------------------------------------
Name: CHRISTOPHER CORELLI
15
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement") is made and entered into this __
day of March 1999, by and between JOHN R. CORELLI [CHRISTOPHER CORELLI] (the
"Employee") and PETALS, INC., a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Employee has been employed as a senior executive officer of
the Company pursuant to the terms and conditions of an employment agreement,
dated June 22, 1993, as amended (the "Employment Agreement"); and
WHEREAS, in connection with the terms and conditions of a settlement
agreement, dated March __, 1999 (the "Settlement Agreement") by and among
Interiors, Inc., a Delaware corporation ("Interiors"), DMB Property Ventures
Limited Partnership, a Delaware limited partnership, Mark N. Sklar, Drew M.
Brown, the Bennett Dorrance Trust, the Bennett Dorrance Jr. Trust, the Ashley
Dorrance Trust, and the Dorrance 1995 Issue Trust, John R. Corelli, Christopher
Corelli and the Company and the related Interiors Purchase Agreement, Interiors
has purchased on the date hereof, 100% of the shares of capital stock of the
Company from the Majority Stockholders and the Minority Stockholders; and
WHEREAS, as part of the transactions contemplated by the Settlement
Agreement, the Employee has (a) executed and delivered to the Company a
non-competition, non-disclosure and non-solicitation agreement, dated of even
date herewith (the "Non-Competition Agreement"), and (b) tendered his
resignation as an officer, employee and member of the board of directors of the
Company; and
WHEREAS, in partial consideration of such Non-Competition Agreement and
resignation, the Company has agreed to enter into this Agreement with the
Employee.
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties contained herein and in the Settlement Agreement, the parties hereto
intending to be legally bound hereby and thereby, it is mutually agreed as
follows:
1. RESIGNATION AND TERMINATION OF EMPLOYMENT AGREEMENT.
(a) The Employee does hereby tender his resignation as an employee,
officer and director of the Company, such resignation to take effect
immediately.
(b) The Employment Agreement is hereby terminated, effective
immediately, and shall be of no further force or effect.
(c) The Employee hereby releases and discharges the Company from any and
all obligations to make any further payments to the Employee
pursuant to the Employment Agreement, whether by way of salary,
bonus or other compensation or remuneration of any kind.
2. SEVERANCE PAYMENT.
(a) The Company does hereby covenant and agree to pay to the Employee
the aggregate sum equal to one hundred (100%) percent of the balance
of the Employee's current annual base salary for the period
commencing from the date of this Agreement through and including
December 31, 1999 [as to John R. Correlli, approximately One Hundred
and Fifty ($150,000) Dollars] [as to Christopher Corelli,
approximately One Hundred and Twelve Thousand Five
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Hundred ($112,500) Dollars (the "Severance Payment"). The Severance
Payment shall be paid to the Employee in three (3) equal quarterly
installments of [as to John R. Corelli, approximately Fifty Thousand
($50,000) Dollars] [as to Christopher Corelli approximately Thirty
Seven Thousand Five Hundred ($37,500) Dollars] each, with the first
such installment payable on the date of this Agreement, the second
installment payable on June 15, 1999 and the third and final
installment payable on September 15, 1999.
(b) Each Severance Payment shall be made by the Company's forwarding (by
federal express or regular mail, postage prepaid) of its check,
payable to the order of the Employee to the following address:
John R. Corelli Christopher Corelli
_______________________ ___________________________
_______________________ ___________________________
(c) It is expressly understood and agreed that the Employee shall not be
required to render any service or perform any duty or obligation for
or on behalf of the Company in order to receive the full amount of
the aforesaid Severance Payment, save and except only the Employee's
obligation to comply with his covenants contained in the
Non-Competition Agreement. Accordingly, the Company shall
unconditionally continue to pay each of the four (4) installments
comprising the Severance Payment to the Employee or his estate,
notwithstanding the death or disability of the Employee.
(d) In the event that the Company or Interiors shall allege that the
Employee shall have breached or otherwise violated any of his
covenants and agreements contained in the Non-Competition Agreement
(a "Non-Competition Breach"), the Company shall nonetheless continue
to make each Severance Payment, as and when due hereunder; provided,
that until the issue of whether or not the Employee shall have
committed a Non-Competition Breach shall have either been (i)
settled among the parties pursuant to a written settlement
agreement, or (ii) finally determined by the arbitrator selected
pursuant to section 4(e) or if such arbitration award shall be
appealed, a final determination by a court of competent jurisdiction
from which no appeal has or can be taken (in either event, a "Final
Resolution"), the Severance Payments installments shall be delivered
in escrow to the law firm of Folkenflik & McGerity, Esqs., who shall
retain such amounts in a special interest bearing attorneys' escrow
account pending a Final Resolution and receipt of written
instructions from the parties or such court as to the disposition of
such funds, provided further that unless a demand for arbitration is
filed with JAMS Endispute or the American Arbitration Association
within seven (7) business days of the first delivery of any
Severance Payment in escrow, all such severance payments shall
immediately be released to the Employees. Any such arbitration that
is commenced shall proceed on an expedited basis.
3. GUARANTY. By its execution of this Agreement, Interiors does hereby
unconditionally and irrevocably guaranty all of the Severance Payment
obligations of the Company, when due, hereunder.
4. MISCELLANEOUS.
(a) This Agreement and all covenants, agreements, representations and
warranties made herein and therein shall survive the date hereof.
Whenever in this Agreement any of the parties hereto is referred to,
such reference shall be deemed to include the successors and
permitted assigns of such party; and all covenants, promises and
agreements in this Agreement contained, by or on behalf of any one
party hereto shall inure to the benefit of and be binding upon the
successors and assigns of such party.
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(b) This Agreement and the Exhibits shall (irrespective of where same
are executed and delivered) be governed by and construed in
accordance with the laws of the State of New York (without giving
effect to principles of conflicts of laws).
(c) No amendment or modification of this Agreement or any Exhibit hereto
shall be deemed to be effective unless contained in a writing
executed by all relevant parties hereto or thereto.
(d) All notices, requests, demands and other communications under or in
respect of this Agreement or any transactions hereunder shall be in
writing (which may include telegraphic or telecopied communication)
and shall be personally delivered or mailed (by prepaid registered
or certified mail, return receipt requested), sent by prepaid
recognized overnight courier service, or telegraphed or telecopied
by facsimile transmission to the applicable party at its address or
telecopier number indicated in Exhibit A annexed hereto and made a
part hereof. Such addresses may be changed at any time by written
notice given by a party hereto in the manner provided in this
Section 4(d). All such notices, requests, demands and other
communications shall be deemed given when personally delivered or
when deposited in the mails with postage prepaid (by registered or
certified mail, return receipt requested) or delivered to the
telegraph company or overnight courier service, addressed as
aforesaid, or when submitted by facsimile transmission to a
telecopier number designated by such addressee. No other method of
written notice is precluded.
(e) All disputes relating to or arising out of this Agreement or the
interpretation or application of this Agreement shall be resolved by
final and binding arbitration before an arbitrator selected by the
Company from among the list of arbitrators set forth on Exhibit A.
Any arbitration before the selected arbitrator shall be
administrated by JAMS Endispute or the American Arbitration
Association in New York. If such arbitration shall be commenced by
The Company it shall, with its demand for arbitration, select the
arbitrator and two alternatives in its demand. If such arbitration
shall be commenced by either Employee, then the Company shall select
an arbitrator and two alternatives within 5 days of being served
with a copy of the demand for arbitration. Each of the parties
hereto do hereby consent to the jurisdiction of the courts of the
State of New York and the United States District Court for the
Southern District of New York, as well as to the jurisdiction of all
courts from which an appeal may be taken from such courts, for the
purpose of enforcing the award of the arbitrator, or any suit,
action or other proceeding arising out of or with respect to this
Agreement, or any of the transactions contemplated hereby or
thereby. The parties hereto hereby expressly waive any and all
objections which any of them may have as to venue in any of such
courts, and also waives trial by jury in any such suit, action or
proceeding.
(f) If any provision of this Agreement is held invalid or unenforceable,
either in its entirety or by virtue of its scope or application to
given circumstances, such provision shall thereupon be deemed
modified only to the extent necessary to render same valid, or not
applicable to given circumstances, or excised from this Agreement,
as the situation may require, and this Agreement shall be construed
and enforced as if such provision had been included herein as so
modified in scope or application, or had not been included herein,
as the case may be.
(g) The Article and Section headings in this Agreement are included
herein for convenience of reference only, and shall not affect the
construction or interpretation of any provision of this Agreement.
(h) This Agreement, the Exhibits hereto and the Interiors Purchase
Agreement constitute the sole and entire agreement and understanding
between the parties hereto as to the subject matter hereof, and
supersede all prior discussions, agreements and understandings of
every kind and nature between the parties as to such subject matter.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers on the date set forth below, but
all as of the day and year first above written.
PETALS, INC.
By:
------------------------------------
Max Munn, President
INTERIORS, INC.
By:
------------------------------------
Max Munn, President
----------------------------------------
___________ CORELLI
4
NON-COMPETITION, NON-DISCLOSURE
AND NON-SOLICITATION AGREEMENT
This Non-Competition, Non-Disclosure and Non-Solicitation Agreement
("Agreement") is entered into this ____ day of March 1998, by and among PETALS,
INC., a Delaware corporation (the "Company") and _____________ CORELLI
("Corelli"), residing at ____________________.
W I T N E S S E T H :
WHEREAS, prior to the date hereof, Corelli and certain members of his
family were the owners of twenty eight (28%) of the issued and outstanding
shares of capital stock of the Company;
WHEREAS, pursuant to the provisions of a settlement agreement, dated March
__, 1999 (the "Settlement Agreement") by and among Interiors, Inc., a Delaware
corporation ("Interiors"), DMB Property Ventures Limited Partnership, a Delaware
limited partnership, Mark N. Sklar, Drew M. Brown, the Bennett Dorrance Trust,
the Bennett Dorrance Jr. Trust, the Ashley Dorrance Trust, and the Dorrance 1995
Issue Trust, John R. Corelli, Christopher Corelli and the Company and the
related "Interiors Purchase Agreement" (as defined in the Settlement Agreement),
Interiors has purchased on the date hereof, 100% of the shares of capital stock
of the Company from the "Majority Stockholders" and the "Minority Stockholders"
(as those terms are defined in the Settlement Agreement); and
WHEREAS, as part of the transactions contemplated by the Settlement
Agreement, Corelli has (a) sold to the Company, and the Company has purchased
and paid Corelli for, all of his shares of capital stock of the Company, and (b)
received from the Company and Interiors a severance agreement, dated of even
date herewith (the "Severance Agreement") in connection with his resignation as
an officer, employee and member of the board of directors of the Company; and
WHEREAS, in consideration of the payments made to Corelli under the
Settlement Agreement and to be made to Corelli under the Severance Agreement,
Corelli has agreed to enter into this Agreement with the Company.
NOW THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties contained in the Settlement Agreement
and those contained herein, and for other good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
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ARTICLE I
Covenants of Corelli
1.1. Non-Competition.
For a period equal to the earlier of (i) two (2) years from and after the
date of this Agreement, or a (ii) occurrence and continuation of a "Default
Event" (as defined in Section 1.4 below), Corelli hereby covenants and agrees
that he shall not:
(a) enter, directly or indirectly, into the employ of or render directly
or indirectly, any services to any person, firm or corporation (i) that owns or
operates a direct mail retail catalog business that sells in North America (A) a
substantial number of items consisting of artificial flowers, plants or trees,
(B) a commercially recognized line of products or product category ("Products")
from which the Company derived 10% or more of its net sales during the twelve
(12) months ending on the date of this Agreement and during the twelve (12)
months ending on the date such person, firm or corporation with which you are
involved purposes to sell such Products, or (C) any Products actively under
consideration to be sold by the Company at any time during the three (3) months
prior to the date of this Agreement and reasonably anticipated by the Company at
that time to become Products from which the Company will derive 10% or more of
its net sales during the twelve (12) moth period after such Products are first
sold by the Company through its catalog or retail stores, if such Products are
being sold by the Company at the time such person, firm or corporation with
which Corelli is involved proposes to sell such Products, or (ii) that is
engaged in the sale of any of the Products identified in subclauses (A), (B) and
(C) above, through its own retail stores located within the commercially
recognized marketing areas in which the Company has, as at the date of this
Agreement, either an existing retail store or a complete detailed marketing plan
approved by the Board of Directors which includes a plan to open a retail store
in such marketing area;
(b) engage, directly or indirectly, in any such business for Corelli's own
account; or
(c) become interested, directly or indirectly, in any such business as a
general partner, shareholder, director, officer, principal, agent, employee,
trustee, consultant, advisor, or in any other relationship or capacity.
Nothing contained in this Section 1.1 shall preclude Corelli from owning as an
investment, publicly traded securities of any corporation so long as such
securities do not, in the aggregate, constitute more than one (1%) percent of
any class of outstanding securities of such corporation.
1.2 Non-Solicitation. For a period equal to the earlier to occur of (i) two (2)
years from and after the date of this Agreement, or a (ii) "Default Event" (as
defined in Section 1.4 below), Corelli shall not, directly or indirectly, employ
or attempt to employ any individual employed by the Company during the term of
Corelli's employment agreement
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with the Company (from July 22, 1993 to the date this Agreement), other than
John R. Corelli or Christopher Corelli (as applicable) or other members of
Corelli's "immediate family" (defined as Corelli's parents, children, siblings
or the spouses of any of the defined family members) who have not been employed
by the Company for at least six months prior to the date hereof.
1.3 Confidential and Proprietary Information.
(a) Corelli hereby agrees that he will not, at any time after the date of
this Agreement disclose, communicate or divulge to any person (other than to
officers or employees of the Company whose duties require such knowledge or to
officers or employees of other entities if the purpose of such disclosure is to
further the Company's business with such entities and is reasonably required
therefor) or use for your personal benefit or the benefit of anyone other than
the Company, any trade secrets, sales or marketing plans, customer lists or
other similar confidential information employed in or proposed to be employed in
the Company's business which come to or came to Corelli's knowledge during the
course of or by reason of his prior employment by the Company and which is not
otherwise in the public domain.
(b) Corelli shall promptly deliver to the Company all memoranda, records,
reports, and other documents, including without limitation all customer lists
and catalog files, and all copies thereof, relating to the Company's business,
which you may then possess or have under your control, and Corelli agrees not to
remove from the premises of the Company any of the foregoing.
1.4 Default Event. As used in this Agreement, the term "Default Event" shall
mean the failure or refusal of either the Company or Interiors to pay, within
ten (10) days after the same shall become due and payable, either (a) the three
(3) installments constituting the "Severance Payment," as provided in the
Severance Agreement between the Company and Corelli, or (b) the monthly
installments of the Fixed Rent provided in Article 3 of the lease dated as of
June 22, 1993, as amended, by and between Cafco LP, as landlord, and the
Company, as tenant (the "Lease").
1.5 Equitable Relief. Corelli acknowledges and agrees that:
(a) the provisions of this Agreement are essential to the Company and
Interiors and Corelli is entering into the foregoing covenants to assure
Interiors of the transfer of the goodwill of the Company, and in order to induce
Interiors to consummate the transactions contemplated by the Settlement
Agreement and the Interiors Purchase Agreement
(b) Interiors would not consummate the transactions contemplated by the
Settlement Agreement (including payment of the purchase price for the shares of
Corelli's stock in the Company) if Corelli did not agree to the covenant not to
compete and confidentiality covenants contained in this Agreement;
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(c) that any damages that would be sustained by the Company and/or
Interiors as a result of a breach of the covenant not to compete and
confidentiality covenants cannot be adequately remedied by damages, and
(d) in addition to any other remedy it or they may have under this
Agreement or at law, either or both of the Company and Interiors shall be
entitled to seek and obtain injunctive and/or other equitable relief to prevent
or curtail any actual or threatened breach of this Agreement.
ARTICLE II
Miscellaneous
2.1 Validity.
(a) The covenants of Corelli contained in this Agreement shall be
construed as an agreement of Corelli independent of any other provisions
contained in any other agreement or instrument to which Corelli may be a party,
including without limitation, the Settlement Agreement and any severance
agreement between the Company and Corelli.
(b) All parties hereto hereby expressly agree that it is not the intention
of any party to violate any public policy, statutory or common law, and that if
any sentence, paragraph, clause or combination of the same of this Agreement
shall violate the laws of any State or other jurisdiction where applicable, such
sentence, paragraph, clause or combination of the same shall be void in the
jurisdictions where it is unlawful, and the remainder of such paragraph and this
Agreement shall remain binding on the parties hereto. It is the intention of all
parties to make the covenants contained in this Agreement binding only to the
extent that it may be lawfully done under existing applicable laws. If the scope
of any covenant is too broad to permit enforcement of such covenant to its full
extent then such covenant shall be enforced to the maximum extent permitted by
law, and Corelli hereby agrees that such scope may be so judicially modified and
that as so modified the covenant shall be as fully enforceable as if set forth
herein by the parties themselves in the modified form.
2.2 Benefit of Agreement. This Agreement shall inure to the benefit of and be
binding upon the Company and Interiors and their successors and assigns,
including, without limitation, any corporation or person which may acquire all
or substantially all of Interior's or the Company's assets or business, or with
or into which Interiors or the Company may be consolidated or merged. This
Agreement shall also inure to the benefit of, and be enforceable by Corelli and
his personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees.
2.3 Notices. Any notice required or permitted hereunder shall be in writing and
shall be sufficiently given if personally delivered or if sent by telegram,
facsimile or telex or by
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registered or certified mail, postage prepaid, with return receipt requested, or
by a nationally recognized overnight courier service to the respective party
addressed:
(i) in the case of the Company, to the principal business office of
the Company, or to such other address and/or to the attention of such other
person as the Company shall designate by written notice to Principal; and
(ii) in the case of Corelli to such address as set forth above or to
such other address as Corelli shall designate by written notice to the Company.
Any notice given hereunder shall be deemed to have been given at the time of
receipt thereof by the person to whom such notice is given.
(iii) any notice required to be given to the Company hereunder must
also be simultaneously given to and received by Interiors at:
Interiors, Inc.
320 Washington Boulevard
Mt. Vernon, New York 10553
Attn: President
for said notice to be effective hereunder.
2.4 Entire Agreement; Amendment. This Agreement contains the entire agreement of
the parties hereto with respect to the subject matter hereof and supersedes any
and all prior agreements and understandings, whether written or oral, between
the parties hereto or their Affiliates.
2.5 Definitions. Unless otherwise separately defined herein, all capitalized
terms used in this Non-Competition Agreement shall have the same meaning as is
defined in the Settlement Agreement.
2.6 Headings. The Article and Section headings 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.
2.7 Resolution of Disputes. All disputes relating to or arising out of this
Agreement or the interpretation or application of this Agreement shall be
resolved by final and binding arbitration before an arbitrator selected by the
Company from among the list of arbitrators set forth on Exhibit A. Any
arbitration before the selected arbitrator shall be administrated by JAMS
Endispute or the American Arbitration Association in New York. If such
arbitration shall be commenced by The Company it shall, with its demand for
arbitration, select the arbitrator and two alternatives in its demand. If such
arbitration shall be commenced by either Employee, then the Company shall select
an arbitrator and two alternatives within 5 days of being served with a copy of
the demand for arbitration. Each of the parties hereto do hereby consent to the
jurisdiction of the courts of the State
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of New York and the United States District Court for the Southern District of
New York, as well as to the jurisdiction of all courts from which an appeal may
be taken from such courts, for the purpose of enforcing the award of the
arbitrator, or any suit, action or other proceeding arising out of or with
respect to this Agreement, or any of the transactions contemplated hereby or
thereby. The parties hereto hereby expressly waive any and all objections which
any of them may have as to venue in any of such courts, and also waives trial by
jury in any such suit, action or proceeding. If any proceeding is brought by a
party to this Agreement or its successors or assigns for the enforcement of this
Agreement, or as a result of any alleged dispute, breach, default or
misrepresentation by any other party of any of the provisions of the Agreement,
the party which is successful in such proceeding shall be entitled to recover
its reasonable attorneys' fees and other costs incurred in pursuing such
proceeding, in addition to such other relief to which it may be entitled.
2.8 Governing Law. This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of New York without reference to the
principles of conflict of laws.
2.9 Venue; Waiver of Trial by Jury. Each of the parties consents and submits to
the jurisdiction of the state and federal courts located in the States of New
York in connection with any suits or other actions arising between the parties
under this Agreement, and consents and waives any objections to the venue of
such action or proceeding in the state or federal courts located in New York,
and hereby waives trial by jury in any such action or proceeding.
2.10 Survivorship. The respective rights and obligations of the parties under
this Agreement shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
2.11 Validity. The invalidity or unenforceability of any provision or provisions
of this Agreement shall not affect the validity or enforceability of any other
provision or provisions of this Agreement, which shall remain in full force and
effect.
2.12 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
6
<PAGE>
IN WITNESS WHEREOF, Interiors, the Company and Corelli have each duly
executed this Agreement as of the date first above written.
PETALS, INC.
By:
------------------------------------
Max Munn, President
CORELLI:
----------------------------------------
___________ CORELLI
7
GENERAL RELEASE
TO ALL TO WHOM THESE PRESENTS SHALL COME OR MAY CONCERN, KNOW THAT JOHN R
CORELLI AND CHRISTOPHER CORELLI (collectively, the "Releasors"), in
consideration of the sum of One Dollar ($1.00) and other good and valuable
consideration receipt whereof is hereby acknowledged by each of the Releasors,
for itself, its administrators, successors and assigns, and each of their
respective heirs, executors, administrators, legal representatives, successors
and assigns (the "Releasing Parties") releases and discharges INTERIORS, INC.,
DMB PROPERTY VENTURES LIMITED PARTNERSHIP, MARK N. SKLAR, DREW M. BROWN, THE
BENNETT DORRANCE TRUST, THE BENNETT DORRANCE JR. TRUST, THE ASHLEY DORRANCE
TRUST, THE DORRANCE 1995 ISSUE TRUST, DECOR GROUP, INC., MAX MUNN, RICHARD
BELINKSI and PETALS, INC. (collectively, the "Releasees"), Releasees' related or
affiliated corporations, administrators, legal representatives, officers,
directors, employees, partners, agents, attorneys, subsidiaries, affiliates,
divisions, parents, predecessors, successors and assigns (collectively, the
"Released Parties") from any and all actions, causes of action, suits, debts,
dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants,
contracts, controversies, agreements, promises, variances, trespasses, damages,
judgments, extents, executions, claims and demands whatsoever, in law, admiralty
or equity, whether known or unknown, foreseen or unforeseen, which against the
Releasees or any one or more of the Released Parties the Releasors or any of the
Releasing Parties ever had, now have or hereafter can, shall or may have for,
upon or by reason of any matter, cause or thing whatsoever from the beginning of
the world to the day of the date of this Release (collectively, the "Released
<PAGE>
Claims"). Notwithstanding the foregoing, the Released Claims shall not include
any obligations or liabilities of Petals, Inc. or Interiors, Inc. from and after
the date of this Agreement under that certain settlement agreement among the
Releasors, Interiors, Inc. and Petals, Inc., dated March __, 1999 and all
exhibits thereto, including without limitation the Non-Competition Agreement,
the Registration Rights Agreement all dated of even date herewith (collectively,
the "Settlement Agreements").
The words "Releasor" and "Releasee" include all releasors and releasees
under this Release.
This Release may not be changed orally.
This Release shall be construed according to the laws of the State of New
York.
IN WITNESS WHEREOF, the Releasor has hereunto executed this Release on
_____________________, 1999.
JOHN CORELLI
-------------------------------------
CHRISTOPHER R. CORELLI
-------------------------------------
-2-
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF _______________ )
On this _____ day of ______________, 1999, before me personally came
John Corelli, to me known, and known to me to be the individual described in,
and who executed the foregoing Release, and duly acknowledged to me that he
executed the same.
----------------------------------------
NOTARY PUBLIC
----------------------------------------
(TYPE OR PRINT NAME)
-3-
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF _______________ )
On this _____ day of ______________, 1999, before me personally came
Christopher Corelli, to me known, and known to me to be the individual described
in, and who executed the foregoing Release, and duly acknowledged to me that he
executed the same.
----------------------------------------
NOTARY PUBLIC
----------------------------------------
(TYPE OR PRINT NAME)
-4-
GENERAL RELEASE
TO ALL TO WHOM THESE PRESENTS SHALL COME OR MAY CONCERN, KNOW THAT
INTERIORS, INC., DMB PROPERTY VENTURES LIMITED PARTNERSHIP, MARK N. SKLAR, DREW
M. BROWN, THE BENNETT DORRANCE TRUST, THE BENNETT DORRANCE JR. TRUST, THE ASHLEY
DORRANCE TRUST, THE DORRANCE 1995 ISSUE TRUST, DECOR GROUP, INC., MAX MUNN,
RICHARD BELINSKI and PETALS, INC. (collectively, the "Releasors"), in
consideration of the sum of One Dollar ($1.00) and other good and valuable
consideration receipt whereof is hereby acknowledged by each of the Releasors,
for itself, its administrators, successors and assigns, and each of their
respective heirs, executors, administrators, legal representatives, successors
and assigns (collectively, the "Releasing Parties") releases and discharges JOHN
R. CORELLI AND CHRISTOPHER CORELLI (collectively, the "Releasees"), Releasees'
legal representatives, agents, attorneys, successors and assigns (the "Released
Parties") from any and all actions, causes of action, suits, debts, dues, sums
of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts,
controversies, agreements, promises, variances, trespasses, damages, judgments,
extents, executions, claims and demands whatsoever, in law, admiralty or equity,
whether known or unknown, foreseen or unforeseen, which against the Releasees or
any one or more of the Released Parties the Releasors or any of the Releasing
Parties ever had, now have or hereafter can, shall or may have for, upon or by
reason of any matter, cause or thing whatsoever from the beginning of the world
to the day of the date of this Release (collectively, the "Released Claims").
Notwithstanding the foregoing, the Released Claims shall not include any
obligations or liabilities of the Released Parties from and after the date of
this Agreement
<PAGE>
under that certain settlement agreement among the Releasees, Interiors, Inc. and
Petals, Inc., dated March __, 1999 and all exhibits thereto, including without
limitation the Non-Competition Agreement, the Registration Rights Agreement all
dated of even date herewith (collectively, the "Settlement Agreements").
The words "Releasor" and "Releasee" include all releasors and releasees
under this Release.
This Release may not be changed orally.
This Release shall be construed according to the laws of the State of New
York.
IN WITNESS WHEREOF, the Releasor has hereunto executed this Release on
_____________________, 1999.
INTERIORS, INC.
By:
------------------------------------
Name:
Title:
DMB PROPERTY VENTURES LIMITED PARTNERSHIP
By:
------------------------------------
Name:
Title:
MARK N. SKLAR
----------------------------------------
DREW M. BROWN
-2-
<PAGE>
-------------------------------------
THE BENNETT DORRANCE TRUST
By:
------------------------------------
Name:
Title:
THE BENNETT DORRANCE JR. TRUST
By:
------------------------------------
Name:
Title:
THE ASHLEY DORRANCE TRUST
By:
------------------------------------
Name:
Title:
THE DORRANCE 1995 ISSUE TRUST
By:
------------------------------------
Name:
Title:
DECOR GROUP, INC.
By:
------------------------------------
Name:
Title:
----------------------------------------
MAX MUNN
----------------------------------------
RICHARD BELINSKI
PETALS, INC.
By:
------------------------------------
Name:
Title:
-3-
INTERIORS, INC.
CONVERTIBLE DEBENTURE
$2,000,000.00 March 23, 1999
Interiors, Inc., a Delaware corporation (the "Company"), for value
received, hereby promises to pay to DMB Property Ventures Limited Partnership, a
Delaware limited partnership (the "Holder"), or to Holder's order, at 4201 North
24th Street, Phoenix, Arizona 85016, or at such other location as the Holder
hereof shall notify the Company, on or before March 22, 2001, in lawful money of
the United States of America, the principal sum of Two Million Dollars
($2,000,000.00), together with interest on the unpaid principal balance hereof
(computed on the basis of a 365-day year and charged for the actual number of
days elapsed) from the date hereof at the rate of ten percent (10%) per annum
(the "Stated Interest"), payable as follows:
1. On each June 30, September 30, December 31, and March 31, beginning
June 30, 1999, the Company shall pay to the Holder hereof, in cash, an amount
equal to Stated Interest then accrued on the outstanding principal balance
hereof.
2. The entire outstanding principal balance of this Convertible Debenture,
and all accrued and unpaid Stated Interest, shall be due and payable in full on
March 23, 2001 (the "Maturity Date"); however, the Company shall have the right,
at any time prior to the Maturity Date or within 30 days of receipt of the
Conversion Notice (as hereinafter defined), to purchase this Convertible
Debenture from the Holder for the amount of $4,500,000 plus accrued and unpaid
interest.
A. Security/Prepayment
This Convertible Debenture is unsecured. This Convertible Debenture may be
prepaid in whole or in part at any time without premium or penalty. Any
prepayments shall be applied first, to accrued and unpaid Stated Interest, and
then to the principal balance of this Convertible Debenture.
B. Conversion Rights
1. Conversion Price: The Holder of this Convertible Debenture shall
have the right at such Holder's option, at any time after the date hereof and
until the maturity date of this Convertible Debenture, by written notice (the
"Conversion Notice") to the Company, to convert the principal balance of this
Convertible Debenture and accrued but unpaid Stated Interest into fully paid and
nonassessable shares of Class A Common Stock of the Company, $.001 par value
(the "Common Stock") (calculated to the nearest share) at the price of $2.00 per
share (the "Conversion Price"), subject to adjustment as provided in Section B.2
below.
The Company is not required to issue fractional shares upon any such
conversion, but may make adjustment therefor in cash, the amount of which, at
the option of the Holder, may be applied toward the purchase of an additional
share of Common Stock at the Conversion Price.
<PAGE>
Within three business days after receipt of the Conversion Notice, the Company
shall issue and shall deliver to the Holder or its written order, a certificate
or certificates for the number of shares of Common Stock issuable upon the
conversion of this Convertible Debenture in accordance with the provisions of
this Section B, together with cash in respect of any fractional interest in a
share of Common Stock issuable upon such conversion. Such conversion shall be
deemed to have been effected on the date on which the Conversion Notice shall
have been delivered to the Company, and the person or persons in whose name or
names any certificate or certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become on said date the
holder or holders of record for the shares of Common Stock represented thereby.
2. Adjustments to Conversion Price:
(a) Definitions. As used in this Section B.2, the following
terms have the meanings indicated:
"Conversion Price" shall mean initially $2.00 and shall be
adjusted from time to time pursuant to this Section B.2.
"Conversion Ratio" shall mean the ratio, as calculated as of
any particular time, equal to $2.00 divided by the then applicable Conversion
Price.
(b) Adjustments for Stock Dividends, Etc. In the event the
Company at any time or from time to time after the issuance of this Convertible
Debenture shall declare or pay any dividend on the Common Stock payable in
Common Stock, or effect a subdivision or combination of the outstanding shares
of Common Stock, then and in any such event, the Conversion Price shall be
adjusted by multiplying the Conversion Price prior to the adjustment by the
number of shares of Common Stock outstanding immediately prior to the effective
time of such event and dividing the result by the number of shares of Common
Stock outstanding immediately after the effective time of such event, effective
in the case of a dividend, immediately after the close of business on the record
date for the determination of holders of Common Stock entitled to receive such
dividend, or in the case of a subdivision or combination, at the close of
business immediately prior to the date upon which such corporate action becomes
effective.
(c) Adjustments for Reorganizations, Reclassifications or
Similar Events. Upon any capital reorganization, reclassification or similar
event in which the Common Stock shall be changed into the same or a different
number of shares of any other class or classes of stock or other securities or
property, then this Convertible Debenture shall thereafter be convertible into
the number of shares of stock or other securities or property to which a holder
of the number of shares of Common Stock of the Company deliverable upon
conversion of this Convertible Debenture shall have been entitled upon such
reorganization, reclassification or other event.
(d) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section B.2,
the Company at
<PAGE>
its expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to the Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon the written request
at any time by the Holder, furnish or cause to be furnished to such Holder a
like certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price at the time in effect for this Convertible Debenture, and (iii)
the number of shares of Common Stock and the amount, if any, of other property
which at the time would be received upon the conversion of this Convertible
Debenture.
3. Available Common Stock: The Company covenants that it will at all
times reserve and keep available out of its authorized but unissued Common Stock
solely for the purpose of issue upon conversion of this Convertible Debenture as
herein provided, such number of shares of Common Stock as shall then be issuable
upon the conversion of this Convertible Debenture. The Company covenants that
all shares of Common Stock which shall be so issuable shall, when issued upon
such conversion, be duly and validly issued, fully paid and nonassessable and
registered under the Securities Act of 1933, as amended. The issuance of
certificates for Common Stock upon the conversion of this Convertible Debenture
shall be made without cost or charge to the Holder hereof, and such certificates
shall be issued in the name of such Holder or such Holder's designees.
C. Transfer
This Convertible Debenture is transferable by the registered holder hereof
in person or by its attorney duly authorized in writing at the principal office
of the Company, or at such other location as the Company shall notify the
registered holder hereof.
D. Defaults
If any Event of Default (as defined below) occurs for any reason
whatsoever, and whether such occurrence shall be voluntary or involuntary or
effected by operation of law or otherwise, the Holder may, by notice to the
Company, either (i) declare the principal of and accrued and unpaid Stated
Interest on the Convertible Debenture then outstanding to be immediately due and
payable and pursue all remedies against the Company at law, in equity or
pursuant to that certain Purchase Agreement dated as of December 11, 1998 (the
'Purchase Agreement"), by and among the Company, the Holder and others, or (ii)
immediately convert the Convertible Debenture into shares of Common Stock of the
Company as of the last day of the month preceding the date of occurrence of the
Event of Default. From and after an Event of Default, the unpaid principal
balance and all accrued but unpaid Stated Interest shall thereafter bear
interest at the rate of fifteen percent (15 %) per annum until paid in full. For
purposes of this Convertible Debenture, the following shall constitute Events of
Default:
1. Failure of the Company to pay the principal of the Convertible
Debenture when and as the same shall become due and payable, whether at maturity
or otherwise as herein provided, and such default continues for a period of five
days;
<PAGE>
2. Failure of the Company to pay an installment of Stated Interest
upon the Convertible Debenture when and as the same shall become due and
payable, and such default continues for a period of five days;
3. Failure by the Company to comply in all material respects with
any of the other agreements or covenants contained in this Convertible Debenture
or the Purchase Agreement, and such failure continues for a period of ten days
after written notice has been given by the holder hereof to the Company;
4. The adjudication of the Company as an insolvent or bankrupt by
any court of competent jurisdiction;
5. The entry of an order approving a petition seeking reorganization
of the Company under the federal bankruptcy laws or any other applicable law or
statute of the United States of America or any State thereof;
6. The appointment of a trustee or receiver of the Company or any or
all of its material assets;
7. The filing by the Company of a voluntary petition in bankruptcy;
the consenting by the Company to the appointment of a receiver or trustee for
any or all its material assets; the filing by the Company of a petition or
answer seeking reorganization under the federal bankruptcy laws or any other
applicable law or statue of the United States of America or any State thereof;
or the filing by the Company of a petition to take advantage of any insolvency
act;
8. The failure of the Company generally to pay its material debts as
they become due, excluding debts that the Company is contesting in good faith;
9. The making by the Company of a general assignment for the benefit
of its creditors; and
10. Any material representation or warranty of the Company contained
in the Purchase Agreement, this Convertible Debenture or in any certificate,
statement or other writing furnished in connection therewith or pursuant thereto
shall prove to be materially false or inaccurate or to have been materially
false or inaccurate on the date as of which such representation or warranty was
made, and shall materially and adversely affect the business, prospects,
financial condition or results of operations of the Company.
E. Miscellaneous
The undersigned hereby waives diligence, demand, presentment for payment,
notice of nonpayment, protest and notice of protest, and expressly agrees that
this Convertible Debenture, or any payment hereunder, may be extended from time
to time, all without in any way affecting the liability of the undersigned. The
right to plead any and all statutes of limitations as a defense to any demand on
this Convertible Debenture or to any agreement to pay the same is expressly
waived to the extent permitted by law. In the event of default in any payment,
the undersigned
<PAGE>
shall pay all costs and expenses of collection, including reasonable attorneys'
fees. Time is of the essence in the performance of all obligations hereunder.
The Company agrees to pay an effective rate of interest which is the rate
provided for in this Convertible Debenture. Notwithstanding any provision herein
or in any instrument now or hereafter securing this Convertible Debenture, the
total liability for payments of interest and in the nature of interest shall not
exceed the limits imposed by the usury laws of the State of Arizona. If the
Holder receives as interest an amount which would exceed such limits, such
amount which would be excessive interest shall be applied to the reduction of
the unpaid principal balance and not to the payment of interest, and if a
surplus remains after full payment of principal and lawful interest, the surplus
shall be remitted to the Company by the Holder and the Company hereby agrees to
accept such remittance.
The relationship of the Company and the Holder is one of debtor and
creditor, and the parties acknowledge that it is not now, nor has it ever been,
their intent to be partners or joint venturers.
This Convertible Debenture shall be governed by and construed in
accordance with Delaware law.
IN WITNESS WHEREOF, the Company has caused this Convertible Debenture to
be signed in its name by its President, and attested by its Secretary, on the
date first above written.
INTERIORS, INC.
By:
-----------------------------
Max Munn, President
Attest:
- ------------------------------------
Secretary
[LETTERHEAD OF KELLOGG & ANDELSON]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated May 22, 1998,
included in Interiors, Inc.'s Amendment No. 1 to Form S-3, as filed with the
Commission on August 13, 1999, and to all references to our Firm included in
this registration statement on Form S-3 registering 14,170,878 shares of Class A
Common Stock.
/s/ KELLOGG & Andelson
Kellogg & Andelson
Sherman Oaks, California
August 11, 1999
[LETTERHEAD OF RBG & CO.]
Consent of Independent Public Accountants]
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated February 27, 1998
on Windsor Art, Inc., for the years ended December 31, 1997 and 1996, included
in Interiors, Inc.'s Current Report on Form 8-K, as filed with the Commission
on August 10, 1998, and as amended by Interiors, Inc.'s Current Report on Form
8K/A on October 9, 1998, and to all references to our Firm included in this
registration statement on Form S-3 as amended, registering 14,170,878 shares of
Class A Common Stock.
/s/ Rubin Brown Gornstein & Co. LLP
St. Louis Missouri
August 12, 1999
