SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Filed by a Party other than the Registrant |_|
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|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2)
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Interiors, Inc.
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(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
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<PAGE>
INTERIORS
320 Washington St.
Mount Vernon, New York 10553
----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held December 15, 2000
----------
To Our Stockholders:
You are cordially invited to attend the 2000 Annual Meeting of
Stockholders of Interiors, Inc. (the "Company"), which will be held at the
corporate offices of the Company, 320 Washington St., Mt Vernon, New York 10553
on Friday, December 15, 2000 at 10:00 a.m. (eastern standard time) for the
following purposes:
(1) To elect four directors to the Board of Directors for the ensuing
year;
(2) To ratify the appointment of Arthur Andersen LLP as independent
auditors for the Company for the fiscal year ending June 30, 2001;
(3) To approve a ten-for-one reverse stock split of Class A Common
Stock, Class B Common Stock and Series A Preferred Stock; and
(4) To consider and act upon such other matters as may properly come
before the meeting.
The close of business on October 27, 2000 has been fixed as the record
date for stockholders to receive notice of and to vote at the meeting or any
adjournment or postponement thereof. Holders of one-third of the outstanding
shares of the Company's Class A Common and Class B Common Stock must be present
either in person or by proxy in order for the meeting to be held. The proxy is
revocable at any time in the manner set forth in the Proxy Statement and will
not affect your right to vote in person in the event you attend the meeting.
By Order of the Board of Directors,
DAVID A. SCHWARTZ
General Counsel, Executive Vice President
& Secretary
Mount Vernon, New York
October [ ], 1999
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WHETHER YOU ATTEND THE MEETING OR NOT, YOU ARE REQUESTED TO SIGN AND DATE
THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE AT YOUR
EARLIEST CONVENIENCE.
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<PAGE>
INTERIORS, INC.
ANNUAL MEETING OF STOCKHOLDERS
December 15, 2000
---------------
PROXY STATEMENT
---------------
This Proxy Statement is furnished by Interiors, Inc. ("Interiors" or the
"Company"), a Delaware corporation with principal executive offices at 320
Washington Street, Mount Vernon, New York, 10553, in connection with the
solicitation by the Company's Board of Directors (the "Board") of proxies to be
voted at the Annual Meeting of Stockholders to be held on Friday, December 15,
2000 at 10:00 a.m. (Eastern Standard Time), or any adjournments or postponements
thereof (the "Meeting"). The Board has fixed the close of business on October
27, 2000 as the record date (the "Record Date") for determining stockholders
entitled to notice of and to vote at the Meeting. As of that date, [ ] shares of
the Company's Class A Common Stock, $.001 par value per share ("Class A
Common"), were issued and outstanding, and 2,455,000 shares of the Company's
Class B Common Stock, $.001 par value per share ("Class B Common"), were issued
and outstanding.
Any person giving a proxy has the right to revoke it before it is
exercised. It may be revoked either by filing an instrument of revocation with
the Secretary of the Company or by delivering at the Meeting a duly executed
proxy bearing a later date. It also may be revoked by attending the Meeting and
voting in person.
All expenses incurred in connection with solicitation of the enclosed
proxy will be paid by the Company. In addition to solicitation by mail,
officers, directors and regular employees of the Company, each of whom will
receive no additional compensation for his or her services, may solicit proxies
by mail, telephone, telegraph or personal call. The Company has requested
brokers and nominees who hold stock in their names to furnish this proxy
material to their customers, and the Company will reimburse such brokers and
nominees for their related out-of-pocket expenses.
The approximate date on which this Proxy Statement and the enclosed proxy
are first being sent to the Company's stockholders is on or about October [ ],
2000. A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 2000 accompanies this Proxy Statement.
Voting Rights
Each share of Class A Common issued and outstanding on the Record Date is
entitled to one vote, and each share of Class B Common issued and outstanding on
the Record Date is entitled to five votes. Neither the holders of Class A
Common, nor the holders of Class B Common, have the right to cumulate votes. An
affirmative vote of a plurality of the shares of Class A Common and Class B
Common, voting as a single class, present in person or represented by proxy at
the Meeting and entitled to vote thereon, is required for the election of
directors. Proxies will be received and tabulated by the Company's transfer
agent. Votes cast in person at the Meeting will be tabulated by an election
inspector appointed by the Company. Abstentions and "broker non-votes" are each
included in the determination of the number of shares of Class A Common and
Class B Common present and voting, with each tabulated separately. Abstentions
are counted in tabulations of the votes cast on proposals presented to the
stockholders, whereas "broker non-votes" are not counted for purposes of
determining whether a proposal has been approved. Any unmarked proxies,
including those submitted by brokers or nominees, will be voted for the
directors nominated and for all proposals submitted herewith.
<PAGE>
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
At the Meeting, it is intended that the persons named in the proxy will
vote for the election of the three nominees listed below, each director to serve
until the next annual meeting or until his or her successor is elected and
qualified. All of the nominees are now members of the Board. The persons named
in the accompanying proxy intend to vote for the election of the nominees listed
below unless authority to vote for one or more of such nominees is specifically
withheld in the proxy. If any nominee, for any reason currently unknown, cannot
be a candidate for election, proxies will be voted for the election of a
substitute recommended by the Board.
In October 2000, Seaside Partners, L.P. ("Seaside") exercised a warrant to
purchase 2,000,000 Class A Shares at $0.75 per share. The exercise price of
$1,500,000 was paid by the return to the Company of 150,000 shares of Series B
Preferred Stock, par value $.01 per share, of the Company ("Series B Preferred
Shares") held by Seaside. Seaside also converted its remaining 50,000 Series B
Preferred Shares and $213,485 in accrued dividends through October 11, 2000 into
303,610 Class A Shares at $2.35 per share. In addition, Seaside converted a
Promissory Note in the principal amount of $1,000,000 and $9,863 in accrued
interest through June 30, 2000 into 4,039,452 Class A Shares at $0.25 per share.
Until March 31, 2001, Seaside has agreed not to sell, transfer, pledge,
hypothecate or otherwise convey these Class A Shares. In addition, Seaside has
agreed to vote all 6,343,062 such shares in support of the election of the
nominees of Board of Directors as long as Seaside Partners holds these Class A
Shares.
On October 12, 2000, the Company and the former shareholders of Concepts
4, Inc. amended the terms of the purchase agreement pursuant to which the
Company acquired all of the common stock of Concepts 4. Pursuant to the amended
terms, the Company is required to pay to the former shareholders $3,387,526 in
cash before December 10, 2000. In addition, all future purchase price and
earnout obligations of the Company can be satisfied by the delivery of
promissory notes bearing interest at 8% per annum. The Company has also agreed
to maintain an escrow account containing Class A Shares in an amount sufficient
to satisfy all purchase price obligations as they become due under the terms of
the original transaction. The former shareholders have agreed to vote 7,545,876
Class A Shares held in escrow in support of the election of the nominees of
Board of Directors as long as the Company is not in default under the amended
purchase agreements.
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE NOMINEES.
Nominees for Director
The following information is furnished concerning the Company's nominees
for director. All directors hold office until their resignation, retirement,
removal, disqualification, death or until their successors have been elected and
qualified. Vacancies in the existing Board are filled by majority vote of the
remaining directors.
Name Age Position(s) Held with the Company
---- --- ---------------------------------
Max Munn 56 Chairman, President, Chief Executive
Officer and Director
Richard Josephberg 53 Director
Roger Lourie 55 Director
James G. Bloise 56 Director
2
<PAGE>
Max Munn has been a director of Interiors since March 1994 and Chairman of
the Board, President and Chief Executive Officer since September 1995. At
various times since September 1995, Mr. Munn was Chief Financial Officer of
Interiors. Mr. Munn previously held the positions of Executive Vice President,
Operations and Secretary of Interiors from February 1994 through September 1995.
Mr. Munn served as Vice President of A.P.F. Holdings, Inc. from May 1993 until
A.P.F. Holdings, Inc. merged with Interiors in March 1994. Since June 1996, Mr.
Munn has served as a director of Decor Group, Inc., an affiliate of Interiors,
and since March 1999, Mr. Munn has served as a director and an officer of CSL
Lighting Manufacturing, Inc., an affiliate of Interiors. During 1999, Mr. Munn
was a director of Photo-to-Art, Ltd ("Photo-to-Art"), a position he resigned in
October 1999. In February 2000, Photo-to-Art filed for protection under Chapter
11 of the Bankruptcy Code. In June 2000, the proceeding was converted from a
reorganization under Chapter 11 of the Bankruptcy Code to a liquidation under
Chapter 7.
Roger Lourie has served as a director of Interiors since May 1995. Since
1980, Mr. Lourie has been a General Partner of Tremont Associates, a private
equity investment fund, and since 1980 has served as President of Misty Ridge
Associates, another private equity investment fund. Mr. Lourie is also Chairman
of the Board of Pneumatic Tool, Inc., a tool manufacturer and Devon-Adair
Publishing, Inc., a book publisher. Mr. Lourie received a B.S. degree in
engineering from Rensselaer Polytechnic Institute of Technology and M.B.A. and
M.I.A. degrees from Columbia University in New York.
Richard Josephberg has served as a director of Interiors since October
1995. Since 1986, Mr. Josephberg has served as the Chairman of Josephberg Grosz
& Co., Inc., a New York-based investment banking firm specializing in providing
private institutional capital to emerging growth companies. From 1969 through
1975, Mr. Josephberg served as a consultant with Goldman Sachs & Co.
Additionally, from 1985 through 1990, Mr. Josephberg served as a member of the
New York Stock Exchange. Mr. Josephberg received a B.B.A. degree from the
University of Cincinnati, and attended the M.B.A. program at Bernard Baruch
Graduate School of Business in New York.
James G. Bloise has served as a director of Interiors since September
2000. From 1996 until April 2000, Mr. Bloise was Chief Operating Officer of the
Calvin Klein Jeanswear division of Warnaco Group, Inc. Prior to that Mr. Bloise
served as Senior Vice President of Operations of The Leslie Fay Companies, Inc.,
Vice President-International for Federated Department Stores, Executive Vice
President of Allied Stores Corp, and Vice President and Corporate Controller of
Mast Industries, a subsidiary of The Limited, Inc. Mr. Bloise has a Bachelor of
Science in Accounting from St. Bonaventure University and was Honorably
Discharged from the U.S. Marine Corp. in 1968.
Committees and Compensation of the Board
The Company has a standing Audit Committee and Compensation Committee.
During the Company's last fiscal year, the Board held six meetings, and each
director attended at least 75% of all Board meetings and meetings of Committees
on which he served.
Audit Committee
The Audit Committee, consisting of Messrs. Lourie and Josephberg, met
twice during the last fiscal year. The Audit Committee makes recommendations
concerning the engagement of the Company's independent auditors, consults with
the independent auditors concerning the audit plan and reviews the comments and
recommendations resulting from the auditors' report and management letter.
Compensation Committee
The Compensation Committee, consisting of Messrs. Lourie and Josephberg,
met once during the last fiscal year. The Compensation Committee reviews and
approves executive salaries and administers bonus, incentive compensation and
stock option plans of the Company. The Compensation
3
<PAGE>
Committee advises and consults with management regarding other benefits and
significant compensation policies and practices of the Company.
Director's Compensation
Directors receive annual cash compensation of $30,000, paid quarterly, for
their services to the Company as directors, and are reimbursed for any expenses
actually incurred in connection with attending meetings of the Board. In
addition, the Company's 1994 Director Stock Option and Appreciation Rights Plan
provides for an annual grant of options to each director to purchase 10,000
shares of the Company's Class A Common at fair market value at date of grant.
Options are granted to directors as of the second Monday in May of each year.
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of October [ ], 2000, certain
information as of the date thereof with respect to: (i) all persons known by the
Company to be the beneficial owner of more than 5% of the shares of Class A
Common or the Class B Common, (ii) all directors and nominees for director,
(iii) each executive officer named below (the "Named Officers") and (iv) all
directors and executive officers as a group. The business address of each of the
Company's directors and the Named Officers is the Company's address unless
otherwise stated in the table below.
<TABLE>
<CAPTION>
Name and Address of
Beneficial Owner Title of Class Number of Shares Percent of Class (a) (b)
---------------- -------------- ---------------- ------------------------
<S> <C> <C> <C>
Max Munn Class A Common 29,750(c) *
Class B Common 2,455,000(c) 100%
Laurie Munn Class A Common 29,750 *
14 Tomkins Avenue Class B Common 2,455,000 100%
Hastings, NY 10706
Richard P. Belenski Class A Common 263,025(d) *
Class B Common -- 0%
Todd Langner** Class A Common 58,820(e) *
Class B Common -- 0%
James McCorry Class A Common 297,774(f) *
Class B Common -- 0%
Roger Lourie Class A Common 40,000 *
Class B Common -- 0%
Richard Josephberg Class A Common 223,633(g) *
Class B Common -- 0%
James Webster Class A Common 100,000(h) *
Class B Common -- 0%
James G. Bloise Class A Common -- 0%
Class B Common -- 0%
All Executive Officers and Class A Common 913,002 2.8%
Directors as a Group Class B Common 2,455,000 100%
(9 persons) (h)
</TABLE>
----------------------
* Less than 1%
** Mr. Langner resigned from the Company in September 2000.
(a) Information with respect to beneficial ownership is based upon the
Company's stock records and data supplied to the Company by the holders.
(b) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission, and includes generally voting power
and/or investment power with respect to securities. Shares of common stock
subject to options, warrants or convertible securities (including, without
limitation, shares of Class B Common) exercisable within 60 days are
deemed outstanding for computing the percentage of the person holding such
options or warrants
5
<PAGE>
but are not deemed outstanding for computing the percentage of any other
person. Except as indicated by footnote, and subject to joint ownership
with spouses and community property laws where applicable, the persons
named in the table above have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by them.
(c) Includes 29,750 shares of Class A Common and 2,455,000 Class B Common held
by Laurie Munn, Mr. Munn's wife. Mr. Munn disclaims beneficial ownership
of such shares.
(d) Includes options to purchase 263,025 shares Class A Common.
(e) Includes options to purchase 20,000 shares of Class A Common.
(f) Includes options to purchase 200,000 shares of Class A Common.
(g) Includes 8,200 shares of Class A Common held by Mr. Josephberg's wife, as
custodian for his daughter, 8,625 shares of Class A Common held by his
son, 8,575 shares of Class A Common held by his daughter, 50,333 shares
Class A Common held by JG Partners, LP, which is owned 1% by Mr.
Josephberg, and 99% by his family, and 12,900 shares of Class A Common and
warrants to purchase 135,000 shares of Class A Common held by JG Capital,
Inc., which is 100% owned by JG Partners, LP. Mr. Josephberg disclaims
beneficial ownership of all securities reported herein.
(h) Includes options to purchase 100,000 shares of Class A Common.
(i) Includes options and warrants to purchase 718,025 shares of Class A
Common.
Laurie Munn has pledged all of shares of Class B Common held by her as
security for the Company's obligations, approximately $2.0 million, owed to
Donald Landis ("Landis"). In the event of a default by the Company, such lender
is entitled to foreclose on the shares of Class B Common. Such event may result
in a change of control of the Company.
There are no material proceedings to which any director, officer or
affiliate of the Company, any owner of record or beneficially of more than five
percent of any class of voting securities of the Company, or any associate of
any such director, officer, affiliate of the Company or security holder is a
party adverse to the Company or any of its subsidiaries or has a material
interest adverse the Company or any of its subsidiaries.
6
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth below information concerning the annual and
long-term compensation for services in all capacities to the Company during the
fiscal years ended June 30, 2000. 1999 and 1998 of the Named Officers.
Summary Compensation Table(a)
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation (b)
Securities All other
Name and Underlying Compensation
Principal Position Year Salary ($) Bonus($) Options (#) ($)
------------------ ---- ---------- -------- ----------- ---
<S> <C> <C> <C> <C> <C>
Max Munn 2000 375,000 113,250 10,096(d)
Chief Executive 1999 220,231 -- 3,250,000(c)
Officer and President 1998 150,000 -- -- --
Richard Belenski 2000 243,700 70,000
Executive Vice 1999 121,154 363,025 65,000(g)
President
James Webster 2000 150,000 400,000 100,000
Chief Executive 1999 150,000 300,000
Officer of Stylecraft 1998 300,000
James McCorry 2000 207,692 --
President of 1999 184,615 75,000(e) 300,000 --
Habitat Solutions, Inc. 1998 83,333 75,000(e)
Todd Langner* 2000 200,000 25,000
Executive Vice 1999 166,266 50,000 100,000 78,750(f)
President
</TABLE>
* Mr. Langner resigned from the Company in September 2000.
(a) Does not include perquisites and other personal benefits, securities or
property, unless the aggregate amount of such compensation exceeds the
lesser of $50,000 or 10% of the named executive officer's salary and bonus
compensation.
(b) The salary and bonus amounts in the table are for the periods July 1
through June 30, 2000, 1999 and 1998.
(c) Includes options to purchase 2,500,000 shares of Class A Common and
250,000 shares of Series A Preferred Stock, par value $.01 per share
("Series A Preferred") (each of which is convertible into three shares of
Class A Common).
(d) The executive is entitled to receive five time his annual salary and a
number of shares equal to all outstanding options previously granted to
the executive upon a "change of control" of the Company.
(e) The executive received 44,341 and 53,343 shares of Class A Common in
fiscal 1999 and fiscal 2000, respectively, each issuance having a fair
market value of $75,000 on the date of issuance.
(f) Includes 38,820 shares of Class A Common and $53,750 paid as a signing
bonus.
(g) Includes options to purchase 63,025 shares of Class A Common at and
exercise price of $.001 issued as a signing bonus.
7
<PAGE>
Stock Options
The following tables set forth information concerning the grant of stock
options to each of the Named Officers in fiscal year 2000.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
Percent of
Total
Number of Options
Securities Granted to Exercise Market Potential Realizable Value at Assumed
Underlying Employees or Base Price on Annual Rates of Stock Price
Options in Fiscal Price Date of Expiration Appreciation for Option Term
Name Granted Year 2000 ($/sh) Grant Date 0% 5% 10%
---- ------- --------- ------ ----- ---- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Max Munn -- -- -- -- -- -- -- --
Richard Belenski -- -- -- -- -- -- -- --
James Webster 100,000(a) 20 1.00 1/1/05 -- -- --
James McCorry -- -- -- -- -- -- -- --
Todd Langner -- -- -- -- -- -- -- --
</TABLE>
----------------
* less than 1%
(a) The options are immediately exercisable.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Options at Value of Unexercisable In-the-Money Options at
Name Fiscal Year-End (#) Exercisable/Unexercisable Fiscal Year-End ($) Exercisable/Unexercisable
---- --------------------------------------------- ---------------------------------------------
<S> <C> <C>
Max Munn 0/2,500,000 0/0
0/250,000 0/0
James McCorry 200,000/100,000 0/0
Todd Langner 20,000/80,000 0/0
Richard Belenski 263,025/100,000 47,269/0
James Webster 100,000/100,000 0/0
</TABLE>
Compensation Committee Interlocks and Insider Participation
The Compensation Committee currently consists of Messrs. Josephberg and
Lourie. No member of the Compensation Committee was an officer or employee of
the Company or any of its subsidiaries during fiscal year 1999. None of the
executive officers of the Company has served on the board of directors or on the
compensation committee of any other entity, any of whose officers served either
on the Board of Directors or on the Compensation Committee of the Company.
8
<PAGE>
COMPENSATION COMMITTEE'S REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board establishes and administers
compensation policies applicable to the Company's executive officers. The key
objective in setting such policies is to develop a program designed to attract
and retain executives critical to the success of the Company and to reward and
motivate these executives for performance which enhances the profitability of
the Company and creates value for its shareholders.
To achieve these objectives, the Compensation Committee has developed a
competitive, market driven, base salary program coupled with a long-term
incentive program consisting of incentive, non-qualified and performance based
stock options with extended vesting periods. The Compensation Committee may also
award discretionary cash bonuses. Base salaries, prior to incentive awards, for
executive officers are fixed at levels believed to be within a competitive range
for comparable positions in comparable companies.
The base salary levels for all of the Named Executives were established by
the Compensation Committee, except for Todd Langner and James Webster. Mr.
Langner's and Mr. Webster's salaries were determined by the entire Board at the
time of the Company's acquisitions of Troy Lighting, Inc. and Stylecraft Lamps,
Inc., respectively. The Compensation Committee believes that the salary levels
of the Named Officers, including Mr. Langner and Mr. Webster, are consistent
with its policies for determining base salary levels. The base salaries and
stock option grants to all other executive officers of the Company were
determined in accordance with the Compensation Committee's policies.
Report submitted by the Compensation Committee:
Richard Josephberg, Chairman
Roger Lourie,
REPORT OF AUDIT COMMITTEE
To the Board of Directors of Interiors, Inc.:
We have reviewed and discussed with management the Company's audited financial
statements as of and for the year ended June 30, 2000.
We have discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61, Communication with Audit
Committees, as amended, by the Auditing Standards Board of the American
Institute of Certified Public Accountants.
We have received and reviewed the written disclosure and the letter from the
independent auditors required by Independence Standard No. 1, Independence
Discussions with Audit Committees, as amended, by the Independence Standards
Board, and have discussed with the auditors' independence.
Based on the reviews and discussions referred to above, we recommend to the
Board of Directors that the financial statements referred to above be included
in the Company's Annual Report on Form 10K for the year ended June 30, 2000.
Report submitted by the Audit Committee:
Richard Josephberg, Chairman
Roger Lourie
9
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From time to time, the Company has entered into transactions with parties
related to the Company. The Company believes that all transactions with related
parties were entered into on terms no more or less favorable to the Company than
could have been obtained from unrelated third parties.
From time to time, the Company has entered into transactions with parties
related to the Company. As of June 30, 2000 and 1999, the Company had no
investments in affiliates.
During fiscal year 1999, the Company generated management fees in the
amount of $115,000 in connection with the provision of management services to
Decor Group, Inc., a publicly-held affiliate ("Decor") which the Company began
consolidating in its financial statements in October 1999 (Note 3). The Company
owns 83,333 shares of Series A Non-Voting Convertible Preferred Stock, 6,666,667
shares of Series B Non-Convertible Voting Preferred Stock and 18,311 shares of
Series C Non-Voting Convertible Preferred Stock of Decor. Such ownership amounts
to approximately 78% of the voting securities of Decor. Mr. Munn is a director
of Decor. In fiscal 1999, the Company entered into an agreement, which was
subsequently terminated, to acquire Decor. In connection with such potential
acquisition, the Company capitalized costs of investment banking services in the
amount of $725,000 during fiscal 1998 based on the fair value of the trading
securities received, 100,000 Class A Shares and 100,000 Series A Preferred
Shares, as direct consulting fees. During the third quarter of fiscal 1999, the
Company recorded an impairment loss of its entire investment, approximately
$3,300,000 in Decor because the Company believed that based on Decor's financial
condition its investment had been permanently impaired. The Company had
established reserves for the uncollectibility of its entire receivable,
approximately $1,000,000 owed to the Company by Decor and the possibility that
the Company would be required to pay up to $300,000 pursuant to its guaranty of
approximately $580,000 of indebtedness of Decor owed to Austin Financial. For
the fiscal years 2000, 1999 and 1998, the Company recognized consulting and
management fee income of $0, $115,000 and $70,000, respectively. The 1999 and
1998 management fee income and resulting receivable were written off during 1999
as discussed above.
During fiscal year 1999, the Company loaned $275,000 to Photo-to-Art, Ltd.
("Photo-to-Art"). In addition, the Company was paid $76,000 from Photo-to-Art in
connection with the sublease of certain space in the Company's facility located
in Mount Vernon and $216,000 for the purchase of merchandise. The Company owns
270,000 shares, or approximately 0.5%, of the common stock of Photo-to-Art and
warrants to purchase 120,000 common shares of Photo-to-Art at $4.50 per share.
As of June 30, 1999, Photo-to-Art owed the Company $325,000 for which a $250,000
reserve had been established. Mr. Munn, the Company's Chairman, President and
Chief Executive Officer, had personally guaranteed debt of Photo-to-Art owed to
a third party in the amount of approximately $180,000. The Company acquired
$28,000 of such debt. Photo-to-Art is currently being liquidated under Chapter 7
of the Bankruptcy Code. During fiscal 2000, the Company wrote off its remaining
receivable from Photo-to-Art recognizing an additional loss of $75,000.
During fiscal years 1999 and 1998, the Company earned $442,000 and
$335,000 of management fees from entities that were subsequently acquired.
During fiscal year 1999, the Company issued 375,000 Class B Shares to
Laurie Munn, wife of the Company's Chief Executive Officer, in consideration for
her personal guarantee of $5,300,000 of the Company's obligations in connection
with its acquisitions of Windsor and Troy. In addition, the Company issued
1,350,000 Class B Shares to Ms. Munn upon the exercise of an option. The
exercise price for the option was $1,350 in cash and a promissory note in the
amount of $1,606,000. The note bears interest at a rate of 6.5% per annum and
matures on December 8, 2005. As of June 30, 1999, Ms. Munn owes the Company
$2,555,000 principal amount all of which is secured by a lien on 2,455,000 Class
B Shares, and Ms Munn guarantees debt of the Company in the amount of
$2,400,000. The Company is not accruing any interest on this obligation.
During fiscal years 2000 and 1999, the Company paid Morris Munn, father of
the Company's
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Chairman, President and Chief Executive Officer, $71,000 and $64,000,
respectively, for consulting services pursuant to a five-year agreement
commencing June 30, 1996. The agreement has been extended for a period of five
years until June 30, 2006. In June 1999, Decor paid Morris Munn $152,000 in
settlement of a consolidated arbitration proceedings and other litigation
involving Decor, Interiors, Max Munn, Laurie Munn, Morris Munn and Ann Stevens,
sister of Max Munn.
During fiscal year 1999, 3,750,000 Class A Shares were transferred out of
escrow to an accredited investor as collateral for the $500,000 paid to Ann
Stevens, sister of Max Munn, the Company's Chairman, President and Chief
Executive Officer, as part of the Company's settlement agreement related to an
employment agreement with Stevens. Of these shares, 1,250,000 Class A Shares
were converted from Class B Shares previously held in escrow and 2,500,000 Class
A Shares were issued out of such escrow. Total proceeds resulting from the
transfer was $3,975,000, of which $3,700,000 was paid in cash and $275,000 was
paid by satisfying a promissory note. In addition, the Company retired
10,000,000 Class A Shares previously held in such escrow.
In connection with certain investment banking services provided during
fiscal year 1999 by Josephberg Grosz, an affiliate of Richard Josephberg, a
director of the Company, the Company issued (a) a four-year warrant to purchase
135,000 Class A Shares at $1.75 per share, 4,650 Class A Shares and $30,000 cash
to JG Capital, Inc., (b) 15,000 Class A Shares to JG Partners, LP (c) 5,350
Class A Shares to various designees named by Richard Josephberg. The shares were
valued at the fair market value on the date of issuance.
During fiscal year 1999, the Company made advances aggregating $458,000 at
6.5% interest to Mr. Munn, the Company's Chairman, President and Chief Executive
Officer. In September 1999, this entire amount was repaid to the Company and the
Company forgave all related interest. Subsequently, the Company made advances
aggregating $283,000 at 6.5% interest during fiscal year 2000, which were
outstanding as of June 30, 2000. The Company is not accruing any interest on
this obligation.
The Company will not permit loans or other transactions among the Company
and the officers, directors, principal shareholders, or affiliates of any of
them for other than bona fide business purposes or on terms no less favorable
than could be obtained from third parties, unless approved by a majority of the
disinterested directors and the independent directors, if any, of the Company.
Mr. Munn may be deemed to be a "parent" or "promoter" of the Company, as
that term is defined in the Securities Act.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors, and persons who beneficially own more
than ten percent of the Class A Shares ("Section 16 Participants"), to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Based solely on a review of such forms furnished to the Company and
certain representations from the Section 16 Participants, the Company believes
that all Section 16(a) filing requirements were complied with on a timely basis,
except for Robert J. Conologue and James G. Bloise, who filed their initial
reports late.
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APPOINTMENT OF AUDITORS
(PROPOSAL NO. 2)
The firm of Arthur Andersen LLP, independent auditors, has been the
Company's independent auditors since October 9, 1990 and has been selected by
the Board to serve as its independent auditors for the fiscal year ending June
30, 2001.
The independent auditors meet periodically with the Audit Committee of the
Board. The members of the Audit Committee are Richard Josephberg and Roger
Lourie.
Professional services performed by Arthur Andersen LLP for the fiscal year
ended June 30, 2000 consisted of an audit of the financial statements of the
Company, consultation on interim financial information, services related to
filings with the Securities and Exchange Commission, meetings with the Company's
Audit Committee, and consultation on various matters relating to accounting and
financial reporting.
The Audit Committee approved in advance or ratified each of the major
professional services provided by Arthur Andersen LLP and considered the
possible effect of each such service on the independence of that firm.
Representatives of Arthur Andersen LLP are expected to be present at the
meeting with the opportunity to make a statement, if they desire, and will be
available to respond to appropriate questions during the Meeting.
THE BOARD RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF AUDITORS
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APPROVAL OF A ONE FOR TEN REVERSE STOCK SPLIT OF THE
COMPANY'S OUTSTANDING COMMON STOCK WITHOUT ANY DECREASE
IN THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
(PROPOSAL NO. 3)
The Company's Board of Directors has unanimously approved and recommended
that the stockholders of the Company approve an amendment to the Company's
Certificate of Incorporation (the "Certificate of Incorporation"), to effect a
one for ten reverse stock split of the Company's outstanding shares of Class A
Common and Class B Common (together, "Common Stock") and Series A Preferred
Stock without reducing the Company's authorized shares of Common Stock or Series
A Preferred Stock (the "Reverse Split Amendment") in the form attached hereto as
Exhibit A.
If this proposal is approved by stockholders, the Reverse Split Amendment
would become effective on any date (the "Effective Date") selected by the Board
of Directors on or prior to the Company's next Annual Meeting of Stockholders.
If the Reverse Split Amendment is not effected by such date, the Board will take
action to abandon the Reverse Split Amendment and, if necessary, again seek
stockholder approval.
Purposes of the Reverse Split Amendment
The Board of Directors believes the Reverse Stock Split is desirable for
several reasons. The Reverse Stock Split should enhance the acceptability of the
Common Stock by the financial community and the investing public. The reduction
in the number of issued and outstanding shares of Common Stock caused by the
Reverse Split Amendment is anticipated initially to increase proportionally the
per share market price of the Common Stock. The Board of Directors also believes
that the proposed Reverse Split Amendment may result in a broader market for the
Common Stock than that which currently exists. The expected increase price level
may encourage interest and trading in the Common Stock and possibly promote
greater liquidity for the Company's shareholders, although such liquidity could
be adversely affected by the reduced number of shares of Common Stock
outstanding after the Effective Date. Additionally, a variety of brokerage house
policies and practices tend to discourage individual brokers within those firms
from dealing with lower priced stocks. Some of the policies and practices
pertain to the payment of broker's commissions and to time consuming procedures
that function to make the handling of lower priced stocks economically
unattractive to brokers. In addition, the structure of trading commissions also
tends to have an adverse impact upon holders of lower priced stock because the
brokerage commission on a sale of lower priced stock generally represents a
higher percentage of the sales price than the commission on a relatively higher
priced issue. The proposed Reverse Split Amendment could result in a price level
for the Common Stock that will reduce, to some extent, the effect of the
above-referenced policies and practices of brokerage firms and diminish the
adverse impact of trading commissions on the market for the Common Stock. Any
reduction in brokerage commissions resulting from the Reverse Split Amendment
may be offset, however, in whole or in part, by increased brokerage commissions
required to be paid by shareholders selling "odd lots" created by such Reverse
Split Amendment.
Advantages
The increase in the portion of authorized shares that would be unissued
after the reverse stock split (the "Increased Available Portion of Shares")
could be used for any proper corporate purpose approved by the Board of
Directors of the Company. The Increased Available Portion of Shares will provide
the Company with additional flexibility to issue additional shares in connection
with future financings.
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Disadvantages
Because the Reverse Split Amendment will result in the Increased Available
Portion of Shares, it may be construed as having an anti-takeover effect,
although neither the Board of Directors nor the management of the Company views
this proposal in that perspective. However, the Company could use the Increased
Available Portion of Shares to frustrate persons seeking to effect a takeover or
otherwise gain control of the Company by, for example, privately placing shares
with purchasers who might side with the Board of Directors in opposing a hostile
takeover bid. In addition, shares of Common Stock may be issued in the event
that the rights issued in connection with the Company's Stockholder Rights Plan
are exercised. Shares of Common Stock could also be issued to a holder that
would thereafter have sufficient voting power to assure that any proposal to
amend or repeal the By-Laws or certain provisions of the Certificate of
Incorporation would not receive the requisite vote. Such uses of the Common
Stock could render more difficult, or discourage, an attempt to acquire control
of the Company, if such transaction were opposed by the Board of Directors.
Further, the Increased Available Portion of Shares not otherwise required to
meet the Company's obligations under its Certificate of Incorporation could be
issued by the Company without further stockholder approval, which could result
in further dilution to the holders of Common Stock.
Required Vote
In order to be adopted, this proposal must receive the affirmative vote of
the holders of a majority of the outstanding shares of Common Stock.
Exchange of Stock Certificates
If the Reverse Split Amendment is approved by the Company's stockholders,
the Company will instruct its transfer agent to act as its exchange agent (the
"Exchange Agent") and to act for holders of Common Stock in implementing the
exchange of their certificates.
Commencing on the effective date of the Reverse Split Amendment (the
"Effective Date"), stockholders will be notified and requested to surrender
their certificates representing shares of Common Stock to the Exchange Agent in
exchange for certificates representing post-reverse split Common Stock. One
share of new Common Stock will be issued in exchange for each ten presently
issued and outstanding shares of Common Stock. Beginning on the Effective Date,
each certificate representing shares of the Company's Common Stock will be
deemed for all corporate purposes to evidence ownership of shares of
post-reverse split Common Stock.
Liquidation of Fractional Shares
Fractional certificates will not be issued in connection with the reverse
stock split. Fractional shares will be rounded up to the nearest whole number.
As a result of the reverse stock split, stockholders who now own "round lots"
may hold "odd lots" and, as a result, may be subject to increased transaction
costs on the sale of their Common Stock.
Federal Income Tax Consequences
The reverse stock split should not result in the recognition of gain or
loss. The holding period of the shares of post-split Common Stock will include
the stockholder's respective holding periods for the shares of pre-reverse split
Common Stock exchanged therefor, provided that the shares of Common Stock were
held as a capital asset. The adjusted basis of the shares of post-reverse split
Common Stock will be the same as the adjusted basis of the Common Stock
exchanged therefor.
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Although not free from doubt, the above treatment should also apply with
respect to additional shares received for fractional shares. However, it is
possible that the receipt of additional shares could be wholly or partly
taxable. Holders should consult with their own tax advisors.
No Dissenter's Rights
Under Delaware law, stockholders are not entitled to dissenter's rights of
appraisal with respect to the reverse stock split.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE REVERSE STOCK
SPLIT.
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PERFORMANCE GRAPH
The following performance graph compares the cumulative total
shareholder return on the Company's Class A Shares against the cumulative total
return of the Russell 2000 Index and the MG Home Furnishings/Fixtures Index from
July 1, 1995 through June 30, 2000. The graph assumes an investment of $100 in
Class A Shares and in each index on July 1, 1995, and that all dividends were
reinvested.
[The following table was depicted as a mountain graph in the printed material.]
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG INTERIORS, INC.,
RUSSELL 2000 INDEX AND MG HOME FURNISHINGS/FIXTURES INDEX
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
INTERIORS, INC 100.00 242.86 69.65 114.29 60.71 41.07
MG GROUP INDEX 100.00 129.33 181.62 218.71 222.50 141.15
RUSSELL 2000 INDEX 100.00 124.01 144.25 168.03 168.95 190.65
ASSUMES $100 INVESTED ON JULY 1, 1995
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING JUNE 30, 2000
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OTHER MATTERS
Management knows of no other business to be presented at the Meeting. If
other matters do properly come before the meeting, or any adjournments or
postponements thereof, it is the intention of the persons named in the proxy to
vote on such matters according to their best judgment.
STOCKHOLDER PROPOSALS
Proposals by stockholders to be presented at the Company's 2001 annual
meeting must be received by the Company no later than 120 days prior to December
15, 2001, in order to be considered for inclusion in the Company's proxy
statement and form of proxy for such meeting.
STOCKHOLDER INFORMATION
ANY PERSON FROM WHOM PROXIES FOR THE MEETING ARE SOLICITED MAY OBTAIN, IF
NOT ALREADY RECEIVED, FROM THE COMPANY, WITHOUT CHARGE, A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE 2000 FISCAL YEAR BY WRITTEN REQUEST ADDRESSED
TO THE COMPANY, 320 WASHINGTON STREET, MT. VERNON, NEW YORK, 10553, ATTENTION:
SECRETARY. THE ANNUAL REPORT ON FORM 10-K IS NOT SOLICITING MATERIAL AND IS NOT
INCORPORATED IN THIS DOCUMENT BY REFERENCE.
By Order of the Board of Directors,
DAVID A. SCHWARTZ
General Counsel, Executive Vice President
& Secretary
Dated: October [ ], 2000
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INTERIORS, INC.
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 15, 1999
Max Munn, Robert Conologue and David A. Schwartz, and each of them, with
full power of substitution, are hereby authorized to represent and to vote the
shares of Class A Common Stock, $.001 par value, and Class B Common Stock, $.001
par value, of Interiors, Inc. held of record by the undersigned on October 27,
2000, as directed and, in their discretion, on all other matters which may
properly come before the Annual Meeting of Stockholders to be held on December
15, 2000 and at any adjournment or postponement thereof, as if the undersigned
were present and voting at the meeting.
Whether or not you expect to attend the meeting, you are urged to execute
and return this proxy, which may be revoked by you at any time prior to its use.
The shares represented by this proxy will be voted as directed by the
stockholder. Where no direction is given when the duly executed proxy is
returned, such shares will be voted FOR all proposals.
The Board of Directors recommends a vote FOR each of the nominees named in
Proposal No. 1 and FOR Proposal No. 2 and Proposal No, 3.
PROPOSAL NO. 1:
ELECTION OF DIRECTORS: 1) Max Munn, 2) Roger Lourie, 3) Richard Josephberg and
4) James G. Bloise
|_| For All Nominees |_| Withhold All Nominees
To withhold authority to vote for any individual nominee(s), write the
nominee's names on the space(s) provided below:
--------------------------------------------------------------------------------
PROPOSAL NO. 2:
RATIFICATION OF APPOINTMENT FOR |_| AGAINST |_| ABSTAIN |_|
OF ARTHUR ANDERSEN LLP AS
INDEPENDENT AUDITORS.
--------------------------------------------------------------------------------
PROPOSAL NO. 3:
APPROVAL OF ONE FOR TEN FOR |_| AGAINST |_| ABSTAIN |_|
REVERSE STOCK SPLIT OF THE
COMPANY'S OUTSTANDING COMMON
STOCK AND PREFERRED WITHOUT ANY
DECREASE IN THE NUMBER OF AUTHORIZED
SHARES OF COMMON OR PREFERRED STOCK
Dated___________________, 2000 ____________________________________
Signature
Dated___________________, 2000 ____________________________________
Signature if held jointly
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
