SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 2)
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
<TABLE>
<CAPTION>
Check the appropriate box:
<S> <C>
[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 Under Rule 14a-12
</TABLE>
INTERIORS, INC.
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(Name of Registrant as Specified in Its Charter)
The Broderick Committee
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided in Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
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(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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<PAGE>
* * * * *
ATTENTION:
THIS PACKAGE CONTAINS PROXY MATERIALS
THAT ARE IN OPPOSITION TO
THE BOARD OF DIRECTORS OF INTERIORS, INC.
* * * * *
December __, 2000
Dear Fellow Stockholder:
You should have recently received proxy materials from the Board of
Directors of Interiors, Inc. that relate to its Annual Meeting of Stockholders
to be held on December 15, 2000. At that meeting, you will be asked to re-elect
the current members of the Company's Board of Directors.
We strongly believe, however, that three of these individuals - Max
Munn, Roger Lourie and Richard Josephberg - have failed in three of the past
five years to operate the Company profitably and cannot be counted on to operate
the Company profitably in the future. As a result, we oppose the re-election of
these individuals and are presenting to you three directors who are committed to
addressing the problems at Interiors. We do not oppose the re-election of James
G. Bloise, who is the fourth Board of Directors nominee.
We explain our beliefs in detail in the proxy statement that
accompanies this letter, and we request that you give our materials careful
consideration as you make your decision in electing individuals to the Company's
Board of Directors this year. We appreciate your support and ask that you return
the enclosed gold proxy card in the enclosed postage-paid envelope today. Even
if you have already voted, you can change your vote by returning this proxy card
- the last proxy card that you sign and return is the one that will be counted.
TIME IS SHORT. PLEASE SIGN, DATE AND RETURN THE ENCLOSED GOLD PROXY
CARD TODAY.
If you have any questions or need assistance in voting your shares,
please call Corporate Investor Communications, Inc. at a special toll free
number (866) 875 - 6642.
Thank you for your consideration.
The Broderick Committee
Jerry L. Bashore
Charles R. Broderick, III
William F. Carroll
Carl F. McWilliams
<PAGE>
PROXY STATEMENT
IN OPPOSITION TO
THE BOARD OF DIRECTORS
OF INTERIORS, INC.
* * * * *
Annual Meeting of Stockholders
December 15, 2000
* * * * *
INTRODUCTION
This Proxy Statement is furnished to the holders of Class A Common
Stock, par value $.001 per share ("Class A Common Stock"), and Class B Common
Stock, par value $.001 per share ("Class B Common Stock"), of Interiors, Inc., a
Delaware corporation (the "Company"), in connection with the solicitation of
proxies by a voting group known as the "Broderick Committee" that the following
four stockholders have formed:
Jerry L. Bashore
Charles R. Broderick, III
William F. Carroll
Carl F. McWilliams
This Proxy Statement is being furnished in opposition to the
solicitation of proxies by the Board of Directors of the Company in connection
with the Annual Meeting of Stockholders (the "Annual Meeting") to be held on
Friday, December 15, 2000 at 10:00 a.m., or any adjournments or postponements
thereof.
It is expected that this Proxy Statement and the enclosed proxy card
will be mailed on or about December __, 2000 to all stockholders entitled to
vote at the Annual Meeting.
We control 2,803,940 shares of Class A Common Stock, which represent
5.44% of the total shares of Class A Common Stock outstanding and entitled to
vote at the Annual Meeting. We are some of the former stockholders of Model Home
Interiors, Inc. ("MHI"), an interior merchandising company that was acquired by
the Company in February 1999 and is currently a wholly-owned subsidiary of the
Company.
At the Annual Meeting, the Company is asking stockholders to elect four
directors to the Board of Directors for the upcoming year. We believe that three
of these individuals - Max Munn, Roger Lourie and Richard Josephberg - have
failed in three of the past five years to operate the Company profitably and
cannot be counted on to operate the Company profitably in the future. We explain
<PAGE>
our reasons supporting a change in the Board of Directors of the Company in more
detail below. See "Reasons Supporting a Change in the Board of Directors of the
Company" on page 5 of this Proxy Statement.
As a result, we oppose the election of three of the individuals
nominated by the Board of Directors - Max Munn, Roger Lourie and Richard
Josephberg - and are presenting to the stockholders three individuals for
election. These individuals are Carl F. McWilliams, Charles M. Egan and Kinsey
C. Craichy. Additional information on these individuals can be found on pages 11
and 12 of this Proxy Statement. WE RECOMMEND THAT THE COMPANY'S STOCKHOLDERS
VOTE "FOR" THE NOMINEES SET FORTH ABOVE. We do not oppose the re-election of
James G. Bloise, who is the fourth Board of Directors nominee.
At the Annual Meeting, the Company is presenting two additional matters
to its stockholders. First, the Company is asking stockholders to ratify the
appointment of Arthur Andersen LLP as independent auditors for the Company for
the fiscal year ending June 30, 2001. WE ARE MAKING NO RECOMMENDATION WITH
RESPECT TO THE APPOINTMENT OF INDEPENDENT AUDITORS.
Second, the Company is asking stockholders to approve a one-for-ten
reverse stock split of Class A Common Stock and Class B Common Stock. The
Company's proxy materials present a detailed discussion of a reverse stock
split, including its advantages and disadvantages. We believe that the reverse
stock split, as the Company pointed out, may have an anti-takeover effect. For
example, the Company could issue additional shares, from the increased available
amount of authorized and unissued shares following the reverse stock split, to
management or other individuals who would side with the Board of Directors on
any matter that presented a threat to current management. New share issuances
would also be potentially dilutive to stockholders. AS A RESULT, WE OPPOSE THE
TEN-FOR-ONE REVERSE STOCK SPLIT AND RECOMMEND THAT THE COMPANY'S STOCKHOLDERS
VOTE "AGAINST" THAT MATTER.
VOTING PROCEDURES
According to the proxy materials that the Company's Board of Directors
has distributed, the Board of Directors 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 Annual Meeting. As of that
date, 51,508,611 shares of Class A Common Stock were issued and outstanding, and
2,455,000 shares of Class B Common Stock were issued and outstanding.
Each share of Class A Common Stock issued and outstanding on the Record
Date is entitled to one vote, and each share of Class B Common Stock issued and
outstanding on the Record Date is entitled to five votes. Neither the holders of
Class A Common Stock nor the holders of Class B Common Stock have the right to
cumulate votes. An affirmative vote of a plurality of the shares of Class A
Common Stock and Class B Common Stock, voting as a single class, present in
person or represented by proxy at the Annual Meeting and entitled to vote
thereon, is required for the election of directors. The shares of Class A Common
Stock that we
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<PAGE>
control represent 4.40% of the total voting power at the Annual Meeting with
respect to the election of directors.
As mentioned above, we oppose the election of three of the individuals
nominated by the Board of Directors - Max Munn, Roger Lourie and Richard
Josephberg - and are presenting to the stockholders three individuals for
election - Carl F. McWilliams, Charles M. Egan and Kinsey C. Craichy. In
addition, we do not oppose the re-election of James G. Bloise, who is the fourth
Board of Directors nominee.
In order to support our nominees, the Company's stockholders must sign
and return the enclosed gold proxy card in the enclosed postage paid envelope as
soon as possible. Each returned proxy card should indicate approval for the
election of the three nominees that we are presenting. Please note that the
Company's Board of Directors is proposing four nominees for the four positions
of the Board of Directors for which elections are being held at the Annual
Meeting. We, however, are proposing only three nominees. If a stockholder
votes for our nominees, the stockholder will not have the opportunity to vote
for a full complement of four directors.
As a result, one position, and any other position that is not filled
with one of our nominees, will be filled by a Board of Directors nominee. There
can be no assurance that any of the Board of Directors nominees will serve on
the Board of Directors if he is elected with our three nominees. To the extent
that the Board of Directors nominee consequently resigns from the Board of
Directors, our three nominees expect to fill the resulting vacancy with an
individual who shares their views with respect to the future of the Company, as
expressed in this Proxy Statement. No current arrangement exists with respect to
filling such a vacancy.
A broker who holds shares in "street name" has the authority to vote on
certain uncontested items when it has not received instructions from the
beneficial owner. A broker, however, will not be permitted to exercise its
discretion in connection with either our nominees or the Board of Directors
nominees because it is a contested item. Where the broker has not received
instructions from the beneficial owner of the shares in a contested matter, the
inability of the broker to vote is referred to as a "broker nonvote." These
broker nonvotes will not be counted for purposes of determining the existence of
a quorum, and also will not be counted as voting for any nominees in an election
of directors. In order to avoid these broker nonvotes with respect to our
nominees, we request that all beneficial owners return the enclosed proxy card
immediately, or contact their brokers immediately and instruct them to execute
and return the gold proxy card on their behalf as soon as possible.
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 Annual Meeting a duly
executed proxy bearing a later date. It also may be revoked by attending the
Annual Meeting and voting in person. Any stockholder that completes and returns
the enclosed gold proxy card prior to the Annual Meeting will have revoked any
proxy that he or she has previously completed.
A stockholder may also abstain or (only with respect to the election of
directors) withhold his or her vote (collectively, "Abstentions") with respect
to each item submitted for stockholder approval. Abstentions will be counted for
purposes of determining the existence of a quorum. Abstentions will not be
counted as voting in favor of the relevant item.
3
<PAGE>
REASONS SUPPORTING A CHANGE IN THE
BOARD OF DIRECTORS OF THE COMPANY
We strongly believe that, during the past several years, the Board of
Directors and Max Munn, the Chairman, President and Chief Executive Officer of
the Company, have presided over a serious financial decline of the Company. With
the exception of Mr. James G. Bloise, who recently joined the Board of Directors
in September 2000, the other three directors of the Company (Messrs. Munn,
Josephberg and Lourie) have been in control of the Company for five years or
more. The Company has experienced substantial losses in three of the last five
years.
In our judgment, Messrs. Munn, Josephberg and Lourie have not
demonstrated any ability to operate the Company profitably on a sustained basis.
As described below, the Company under their leadership has experienced net
losses, cash flow and working capital deficits, impaired liquidity, loan
defaults and the delisting of the common stock from the Nasdaq SmallCap Market.
In our opinion, they have been unable to successfully integrate acquisitions,
expand product lines or enter new markets. We believe that it is imperative that
Messrs. Munn, Josephberg and Lourie step aside to permit the stockholders to
elect new leadership for the Company to prevent further erosion of stockholder
value. The directors that we have nominated to replace Messrs. Munn, Josephberg
and Lourie are committed to reviewing alternatives and implementing policies
designed to put the Company on a sound financial footing.
Financial Problems
In its financial statements filed with the Securities and Exchange
Commission ("SEC"), the Company has reported recurring losses and cash flow
deficits, negative working capital, impaired liquidity, continuing loan defaults
and an audit opinion with a "going concern" qualification. Despite all of these
problems, Mr. Munn reported in November 1999 that the Company had "turned a
corner."
Continuing Losses
Under the leadership of Messrs. Munn, Josephberg and Lourie, the
Company has sustained substantial net losses in three of the past five fiscal
years. The greatest losses have come during the past two fiscal years during
which numerous acquisitions were approved and consummated by the Board of
Directors. Of the approximately $29 million in net losses of the Company over
the past five years, approximately $26.6 million of those losses have come
during the past two years. It is our belief that these past recurring losses
indicate a lack of capacity to operate the Company profitably. And the current
fiscal year has begun with more losses. Reported results for the first quarter
of fiscal year 2001 show a net loss of $831,000.
Cash Flow Deficits and Liquidity
The Company also suffers from a severe cash flow deficit. The Company
has had negative operating cash flows for each of the last three fiscal years
and for the first quarter of the current fiscal year. This requires the Company
to borrow substantial sums of cash to fund
4
<PAGE>
operations. Borrowing by Messrs. Munn, Josephberg and Lourie to fund operations
and implement their aggressive acquisition strategy has resulted in significant
financing costs. At September 30, 2000, the Company had a total long term debt
obligation of approximately $35.1 million. The debt service on this amount is a
severe drain on the Company's cash flow. For the quarter ended September 30,
2000, interest expense increased to approximately $2.4 million. These are funds
that would otherwise be available to fund business operations in the ordinary
course.
As of June 30, 2000, more than 61% of the total additional paid-in
capital of the Company ($38.7 million of $63.3 million) had been dissipated
under the management of Messrs. Munn, Josephberg and Lourie.
Negative Working Capital and Loan Defaults
The Company is experiencing severe negative working capital primarily
due to the Company's continuing failure to meet certain requirements contained
in the Company's loan documents. At September 30, 2000, the Company had a
working capital deficit of approximately $22.4 million.
Although the Company has obtained default waivers on its bank lines of
credit and revolving loans and bank term loans, certain secured convertible
notes in the amount of approximately $15.3 million remain in default and the
acceleration of such notes could result in the acceleration of the bank debt.
The default on the secured convertible notes relates to the failure to register
with the SEC certain securities by September 30, 2000, the delisting of the
Company's securities from the Nasdaq SmallCap Market and the failure to pay
approximately $1 million in accrued interest to the noteholders.
The financial problems of the Company have resulted in a situation
where, in our opinion, it is unlikely that the Company will be able to meet its
debt service obligations, come into compliance with loan covenants and generate
sufficient cash to fund needed working capital. It is our belief that current
management has not put forth a workable plan to solve the Company's financial
problems or enhance stockholder value and should not be trusted to effect a
turnaround over the course of the next twelve months.
"Going Concern" Opinion
The culmination of these financial problems has been the Company's
receipt of a "going concern" opinion by the Company's auditors. In its audit
opinion dated October 13, 2000, Arthur Andersen LLP stated that the Company's
recurring net losses, negative operating cash flows and net working capital
deficit raised "substantial doubt about the Company's ability to continue as a
going concern." Similarly, in the Company's Annual Report on Form 10-K filed
with the SEC in October 2000, the Company states that "no assurance can be given
. . . that the Company will be able to . . . continue operations as a going
concern." In our opinion, a new management needs to be elected to cope with the
current financial situation.
5
<PAGE>
Transactions with Management and Related Parties
We believe that Messrs. Munn, Josephberg and Lourie have failed to
adequately explain how the following transactions with management and related
parties are fair to, and in the best interests of, the Company and its
stockholders, especially at a time when the Company has been experiencing the
financial difficulties described above.
o Approximately $15.3 million of the Company's debt carries an
extreme interest rate of 29%, while at the same time Laurie Munn,
wife of the Chairman, President and Chief Executive Officer of the
Company, was permitted to execute a promissory note to the Company
for over $2.5 million, a substantial portion of which, according
to the Company's definitive proxy statement for the Annual
Meeting, is not due until December 8, 2005. This note carries an
interest rate of 6.5%, well below the interest rates being paid by
the Company on its $35.1 million of debt. To make matters worse,
the Company has disclosed in its proxy statement that it is not
accruing any interest on Mrs. Munn's obligation.
o According to the Company's definitive proxy statement for the
Annual Meeting, during fiscal year 1999 the Board of Directors
approved advances of $458,000 to Max Munn at 6.5% interest. These
advances occurred at a time when the Company was experiencing
severe cash flow and liquidity problems and paying much higher
interest rates on borrowed capital. Although Mr. Munn repaid the
principal, the Company forgave the accrued interest on the
obligation at the expense of the Company and its stockholders.
o According to the Company's definitive proxy statement for the
Annual Meeting, during fiscal year 2000 the Board of Directors
once again made advances to Mr. Munn in the aggregate amount of
$283,000 at 6.5% interest. At the time, the Company was paying
interest rates on its debt obligations ranging from 8% to 29%.
However, the Company has disclosed in its SEC filings that it is
not accruing any interest on Mr. Munn's obligation. Even in the
face of persistent financial difficulties, Mr. Munn continues to
receive advances without payment of interest at the expense of the
Company and its stockholders.
o According to the Company's definitive proxy statement for the
Annual Meeting, during the past four years cash payments have been
made to Max Munn's father for "consulting services." Because we do
not have access to the Company's records, we are uncertain of the
true extent of these consulting services. In 1999 and 2000, these
payments added up to $135,000. The agreement has been extended to
June 30, 2006 in what appears to be, until the Company can explain
the value of Mr. Munn's father's services, a further cash drain at
the expense of the Company and its stockholders.
o The Company's charter authorizes the Board of Directors to issue
up to 60 million shares of Class A Common Stock and 2.5 million
shares of Class B Common Stock. The shares of Class A Common Stock
and Class B Common Stock vote together as a
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<PAGE>
single class on all matters except as otherwise required by law.
However, in terms of voting strength the shares of Class B Common
Stock are equivalent to 12.5 million shares of Class A Common
Stock because the shares of Class B Common Stock carry five votes
per share as opposed to one vote per share on the shares of Class
A Common Stock. Of the 2.5 million shares of Class B Common Stock
authorized, Messrs. Munn, Josephberg and Lourie have issued to
Laurie Munn, Mr. Munn's wife, a total of 2,455,000 shares of Class
B Common Stock representing a voting block of 12,275,000 shares in
the upcoming election of directors.
o In the event of a "change of control" of the Company, the Board of
Directors has granted a golden parachute to Max Munn that will
entitle him to receive five times his annual salary of $375,000.
This is a $1.875 million payment that the Company cannot afford.
He also will be entitled upon a change of control to receive
shares of stock equal to all outstanding options previously
granted to him. This is without payment for those shares. Through
the last fiscal year, Mr. Munn had been granted options for the
purchase of 2.5 million shares of common stock all of which remain
outstanding. As a result, Mr. Munn has ensured that the
stockholders will suffer additional dilution upon a change of
control and that any such event will benefit him personally as
well as increase his post change of control voting strength on all
corporate matters. If our nominees for director are successful, it
may be deemed to be a "change in control" under Max Munn's
Employment Agreement dated November 1, 1998. If successful in the
election, however, we intend to challenge Mr. Munn's right to
receive any cash payments or shares of stock under this
arrangement. We can give no assurances that we would be successful
in any such challenge.
Prior Business History of Max Munn
We are concerned about Mr. Munn's ability to profitably run a business.
Although we do not profess to have knowledge of Mr. Munn's complete business
history, we are aware that Mr. Munn in the past has been involved in more than
one business that has experienced financial difficulties, as follows:
o Mr. Munn has served as Chairman of the Board of Decor Group, Inc.
from June 1996 to the present. That company went public in
November 1996 and reported in its filings with the SEC a net loss
for every year since then until it terminated its reporting
obligations in March 2000. As of December 1, 2000, the stock,
which had an initial offering price of $10.00 in 1996, was trading
at under $0.01 per share, resulting in substantial losses to
stockholders.
o Mr. Munn served as President and Chief Executive Officer of
Collectors' Guild International, Inc. from 1980 to 1990. In June
1990, Collectors' Guild International, Inc. filed for bankruptcy
and was subsequently liquidated.
o Mr. Munn served as a director of Photo-to-Art, Inc. until late
1999. Photo-to-Art, Inc. filed for reorganization under Chapter 11
of the Bankruptcy Code in February 2000,
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but the case was subsequently converted to a Chapter 7 liquidation
proceeding in June 2000.
o Mr. Munn has served as a director of CSL Lighting Manufacturing,
Inc. from March 1990 to the present. That company reported in its
filings with the SEC a net loss of at least $2.3 million for each
year from 1995 to 1998 (it terminated its reporting obligations
prior to filing information with the SEC for the 1999 fiscal year
following the acquisition by the Company of 51% of CSL Lighting
Manufacturing, Inc. in March 1999). As of December 1, 2000, the
company's stock price had declined from over $0.50 per share to
approximately $0.03 per share in less than two years.
Based on our knowledge of Mr. Munn's previous business history, we
believe that the stockholders of the Company should be concerned about Mr.
Munn's ability to correct the Company's financial problems. In our judgment, if
a change in the Board of Directors does not occur soon, then based on the
experience of the past five years we believe that the Company's financial
condition will continue to deteriorate and the stockholders will risk losing all
or substantially all of their investment in the Company. The shares of Class A
Common Stock have already lost over 90% of their value in the past two years.
Operational Problems
In addition to our concerns about their past inability to reverse the
financial decline of the Company, we believe that Messrs. Munn, Josephberg and
Lourie have been unable to successfully implement the business plan of the
Company. Although we believe that the Company's business strategy can ultimately
be successful, we do not believe that Messrs. Munn, Josephberg and Lourie have
demonstrated the ability to achieve success with that strategy. We base our
opinion on the poor financial performance of the Company as described above as
well as disclosures made by the Company in its Annual Report on Form 10-K for
the fiscal year ended June 30, 2000 (the "Form 10-K"), as follows:
The Company's strategic objective since 1998 has been to
become the premier, national single-source provider of
decorative accessories to the home furnishings industry.
Key elements of the Company's strategy to accomplish
this objective have been to (i) acquire independent
manufacturers of decorative accessories; (ii) integrate
the operations of its operating divisions and capture
economies of scale; (iii) expand the Company's product
lines through acquisition and internal growth; and (iv)
expand into new markets. Although the Company
successfully acquired nine business units since March
1998, it has experienced difficulty in accomplishing the
other key elements of its expansion strategy.
Accordingly, the Company has incurred significant net
losses for the fiscal years ended June 30, 2000 and
1999. Subject to improvement in the Company's financial
condition and results of operation in future periods,
the Company will seek to continue its
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acquisition and expansion strategy. (Page 2 of the Form
10-K.) (Emphasis added.)
In our opinion, the foregoing disclosure describes a situation in which
management itself believes that, of the four "key elements" of the Company's
strategy, it has only accomplished the first element by acquiring nine business
units since March 1998. We agree with the disclosure that the Company has
"experienced difficulty in accomplishing the other key elements of its expansion
strategy" under the leadership of Messrs. Munn, Josephberg and Lourie and that
"[a]ccordingly, the Company has incurred significant net losses" for the past
two fiscal years. We view this as an admission by Messrs. Munn, Josephberg and
Lourie that they have been unable to accomplish three out of the four key
elements of the Company's business plan.
In the foregoing excerpt from the Form 10-K, Messrs. Munn, Josephberg
and Lourie claim to have "successfully" acquired nine business units since March
1998. In describing the integration of operations and capturing of economies of
scale as the second key element of the Company's strategy, the Form 10-K
provides the following disclosure:
To support the growth of its business, the Company is
attempting to implement a program designed to maximize
operating efficiencies by reducing manufacturing costs,
increasing inventory turnover and enhancing its
management information systems. . . . To date, the
Company has had only limited success in being able to
integrate its management information systems. This
situation has created difficulty for the Company's
management and its ability to manage a diverse group of
geographically dispersed business units. (Pages 2 and 3
of the Form 10-K.) (Emphasis added.)
We agree with the statements in the Form 10-K that the Company has
"experienced difficulty" and met with "limited success" in implementing the key
elements of the Company's business strategy. In our view, it is time for a
change in the direction and leadership of the Company.
Delisting of Securities
On October 11, 2000, the Company's securities were delisted from the
Nasdaq SmallCap Market because of the Company's failure to maintain certain
asset and bid price requirements. The delisting of the Company's securities was
a direct result of the poor financial performance of the Company that has led to
a common stock price of $0.15 as of December 1, 2000 and a dwindling amount of
net tangible assets. The failure of Messrs. Munn, Josephberg and Lourie to
maintain Nasdaq's minimum listing requirements so as to prevent the Nasdaq
action delisting the Company's securities has adversely affected the market
value and liquidity of the Company's securities. In addition, the Company's
securities are subject to the "penny stock" rules which may restrict the ability
of broker dealers to sell the securities and may adversely affect the
marketability of the Company's securities.
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We Believe It's Time for a Change in the Management and Direction of the Company
Messrs. Munn, Josephberg and Lourie have had control of the policies
and direction of the Company for the past five years. Based on the poor
financial performance of the Company during those years, it is our opinion that
Messrs. Munn, Josephberg and Lourie simply do not have the ability to operate
the Company profitably on a sustained basis or to reverse the Company's severe
financial decline.
We believe that our nominees for election as directors represent a
fresh start for the Company. In our opinion, the nominee directors have the
ability, based on their past management and business experience, to successfully
integrate the Company's acquisitions, to achieve economies of scale, to expand
products and markets and to implement the strategic mission of the Company. We
expect that, upon election to the Board of Directors, our nominees initially
will seek to put the Company on a sound financial footing, maximize the earnings
potential of existing subsidiaries and regain the confidence of the Company's
customers, creditors and investors. However, no assurances can be given that our
nominees will be successful in their efforts to increase the profitability of
the Company or enhance stockholder value.
In addition, the nominees expect to evaluate unprofitable businesses to
determine whether a sale or other disposition of such businesses would be
feasible and in the best interests of the Company and its stockholders. At the
present time, neither we nor the nominees have performed any analyses with
respect to the sale or other disposition of any such businesses and no decisions
or recommendations have been made as to such matters. In the event that such a
sale or disposition were to occur, the stockholders of the Company may not be
afforded a separate opportunity to vote on any such sale or disposition. No
assurances can be given that an opportunity to sell or dispose of an
unprofitable business will arise in the future or that any such opportunity will
be at a price or on terms favorable to the Company and its stockholders.
The foregoing is a summary of the present plans and intentions of the
nominees with respect to the Company. Upon election, however, the nominees will
be subject to fiduciary duties to the stockholders, and the foregoing plans and
intentions could change based on the facts and circumstances presented to the
nominees as directors.
IT IS IMPORTANT THAT YOUR VOTE BE COUNTED. PLEASE VOTE NOW FOR THE
PROPOSED SLATE OF DIRECTORS NOMINATED BY US. YOUR VOTE IS CRITICAL TO THE
CONTINUED VIABILITY AND SUCCESS OF THE COMPANY.
ELECTION OF DIRECTORS
Four directors will be elected at the Annual Meeting. We oppose the
election of three of the individuals nominated by the Board of Directors - Max
Munn, Roger Lourie and Richard Josephberg - and are presenting to the
stockholders three individuals for election - Carl F.
10
<PAGE>
McWilliams, Charles M. Egan and Kinsey C. Craichy. In addition, we do not oppose
the re-election of James G. Bloise, who is the fourth Board of Directors
nominee.
As mentioned above, the election of each nominee for director requires
the affirmative vote of a plurality of the shares of Class A Common Stock and
Class B Common Stock, voting as a single class, present in person or represented
by proxy at the Annual Meeting and entitled to vote thereon. If the proxy is
executed in such manner as not to withhold authority for the election of any or
all of the nominees for directors, then the persons named in the proxy will vote
the shares represented by the proxy for the election of the three nominees named
below. Because we are only presenting three nominees to the Company's
stockholders, the returned proxy card will also grant the authority to vote for
a fourth nominee, who will have been presented by the Company's Board of
Directors. If the proxy indicates that the stockholder wishes to withhold a vote
from one or more nominees for director, such instructions will be followed by
the persons named in the proxy.
Each of our nominees has consented to being named in this Proxy
Statement and has agreed to serve if elected. We have no reason to believe that
any of the nominees will be unable or unwilling to serve. There are no current
arrangements between any nominee and any other person pursuant to which a
nominee was selected.
The following biographical information discloses each nominee's age and
business experience:
Kinsey C. Craichy (age 37). Mr. Craichy has served as Chairman and
Chief Executive Officer of VitalCast.com, Inc. ("VitalCast"), an Internet health
company, since June 1999. Mr. Craichy conceived and founded VitalCast, a
Web-based and multi-media site dedicated to Integrative and Alternative Medicine
in January 1999. From October 1991 to September 1996, Mr. Craichy served as
President and Chief Executive Officer of Arzco Medical Systems, Inc., now known
as CardioCommand, Inc. ("CardioCommand"), a medical device company. In 1991,
CardioCommand was subject to stockholder lawsuits and was considering commencing
bankruptcy proceedings. By 1996, Mr. Craichy had restructured the company by
hiring management experienced in the industry, raising capital for future growth
and coordinating acquisitions of certain of CardioCommand's competitors. Mr.
Craichy also served as Chairman of CardioCommand from October 1991 to December
1998, and continues to serve as a Director of CardioCommand. Since 1987, Mr.
Craichy has also been President of KCC International, Inc., a corporate finance
and strategic consulting firm. Mr. Craichy has many years of corporate
development experience with small to medium sized public and private companies,
serving in various capacities as Founder, CEO, Director, investor, strategist
and consultant, and currently serves as Chairman of the Tampa Bay Chapter of the
Council of Growing Companies, a national CEO organization.
Charles M. Egan (age 64). Mr. Egan is Vice Chairman and Director of
Cort Business Services Corporation ("CORT"), a national furniture rental
company. He had served as Chairman and Director of CORT from September 1993
until March 2000, having been with CORT since the acquisition of General
Furniture Leasing Company in September 1993. Mr. Egan joined General Furniture
Leasing Company in 1989 and became its President and Chief
11
<PAGE>
Executive Officer in 1992. From 1985 to 1989, Mr. Egan was Executive Vice
President of Mohasco Corporation, and was responsible for its furniture
manufacturing companies. Mr. Egan was President of CORT from 1980 to 1985. A
national company with sales of approximately $350 million, CORT became a part of
Berkshire Hathaway, Inc. in the first quarter of 2000.
Carl F. McWilliams (age 41). Mr. McWilliams has served as President of
MHI, an interior merchandising company providing sale and lease packages of
model furnishings to builders and developers, since 1995. Mr. McWilliams served
as Controller of MHI from 1983 to 1986, and as Vice President of MHI from 1986
to 1995. MHI is a wholly-owned subsidiary of the Company, which acquired MHI in
February 1999. In business since 1980, MHI realizes sales of approximately $13
million from its operations in the United States, east of the Mississippi River.
WE RECOMMEND THAT THE COMPANY'S STOCKHOLDERS VOTE FOR THE NOMINEES SET
FORTH ABOVE.
None of these nominees is a current director or executive officer of
the Company, and no family relationships exist between any of our nominees and
any of the Company's directors or executive officers.
According to the Company's filings with the SEC, 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 of Directors. 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 Class A
Common Stock at fair market value at date of grant. Options are granted to
directors as of the second Monday in May of each year.
12
<PAGE>
CERTAIN INFORMATION WITH RESPECT TO
THE BRODERICK COMMITTEE AND THE NOMINEES
The Broderick Committee
The following table sets forth certain information with respect to each
of us.
<TABLE>
<CAPTION>
Name Occupation Business Address
---- ---------- ----------------
<S> <C> <C>
Jerry L. Bashore Vice President - Sales 10120 Bacon Drive
Model Home Interiors, Inc. Beltsville, Maryland 20705
Charles R. Broderick, III President 2920 Dede Road
The Bees Distributing Co. Firksburg, Maryland 21048
(wholesale beer distribution)
William F. Carroll Executive Vice President 10120 Bacon Drive
Model Home Interiors, Inc. Beltsville, Maryland 20705
Carl F. McWilliams President 10120 Bacon Drive
Model Home Interiors, Inc. Beltsville, Maryland 20705
</TABLE>
Charles R. Broderick, III and Carl F. McWilliams are brothers-in-law.
Voting Agreement and Security Ownership
On November 22, 2000, each of us entered into a Voting Agreement (the
"Voting Agreement") with respect to the shares of Class A Common Stock that we
own. Under the Voting Agreement, we agreed to vote our shares at the Annual
Meeting in favor of our three nominees, as described above, and in the same
manner with respect to any extraordinary corporate transaction, any change in
the management or Board of Directors of the Company, any material change in the
present capitalization or dividend policy of the Company, any amendment to the
Company's Articles of Incorporation or Bylaws or other proposal or transaction
that changes in any manner the voting rights of any class of the Company's
capital stock and any other material change in the Company's corporate structure
or business.
The following table sets forth, as of the Record Date, certain
information with respect to beneficial ownership of shares of Class A Common
Stock by each of us and by each of our nominees to the Board of Directors.
Beneficial ownership includes shares, if any, held in the name of the spouse,
minor children or other relatives of a director living in such person's home, as
well as shares, if any, held in the name of another person under an arrangement
whereby the director or executive officer can vest title in himself at once or
at some future time. Unless otherwise indicated, we hold all shares disclosed in
the table in our own names. We do not own shares of any other class of the
Company's equity.
13
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of
Name Beneficial Ownership Percent of Class (%)
---- -------------------- --------------------
<S> <C> <C>
Jerry L. Bashore 700,695 1.36
Charles R. Broderick, III 700,695 1.36
William F. Carroll 700,695 1.36
Carl F. McWilliams* 701,855 (1) 1.36
The Broderick Committee as a
group (four persons) 2,803,940 5.44
Kinsey C. Craichy* (2) 75,000 **
Charles M. Egan* (3) -- --
</TABLE>
_______________________
* Nominee to the Board of Directors.
** Percentage of ownership is less than one percent of the outstanding shares
of Class A Common Stock.
(1) Amount disclosed includes 1,160 shares of Class A Common Stock beneficially
owned by Mr. McWilliams' spouse through her broker. Mr. McWilliams disclaims
any beneficial ownership with respect to these 1,160 shares, which are not
subject to the Voting Agreement.
(2) Mr. Craichy's business address is P.O. Box 1038, Tampa, Florida 33601.
(3) Mr. Egan's business address is 11250 Waples Mill Lane, Suite 500, Fairfax,
Virginia 22030.
Acquisition of Model Home Interiors, Inc. by the Company
As disclosed above, each of us is a former stockholder of MHI,
including Carl F. McWilliams, who is being presented as a nominee to the Board
of Directors at the Annual Meeting and is currently President of MHI. As former
stockholders of MHI, each of us has received, and is entitled to receive in the
future, payments from the Company in connection with the Company's acquisition
of MHI, as described below.
On February 26, 1999, the Company acquired MHI pursuant to an Agreement
and Plan of Merger (the "Merger Agreement") dated December 31, 1998 by and among
the Company, MHI Acquisition Corp. and MHI. The purchase price that the Company
paid to the former stockholders of MHI consisted of (a) $2,000,000 in cash
payable at closing, (b) promissory notes of the Company in the aggregate
principal amount of $230,766 delivered at closing to extinguish obligations of
MHI to certain of its former stockholders and (c) shares of Class A Common Stock
with a fair market value of $2,300,000 payable on the 18th month anniversary of
the closing, as described below. Each of us received his pro rata portion of
cash at closing.
Pursuant to the Merger Agreement, the Company also agreed to issue to
the former stockholders of MHI shares of Class A Common Stock with a maximum
fair market value of $2,000,000 (the "Earnout Shares") upon the attainment of
certain earnings goals by MHI. The amount of Earnout Shares, if any, issued to
the former stockholders of MHI is being determined
14
<PAGE>
by the earnings of MHI for the fiscal years ending on December 31, 1999, 2000
and 2001. The Earnout Shares would be held in escrow together with the shares of
Class A Common Stock that would be payable on the 18th month anniversary of the
closing.
At the time of closing, the Company deposited into escrow 1,056,342
shares of Class A Common Stock to secure the Company's obligation to deliver the
shares of Class A Common Stock payable on the 18th month anniversary of the
closing and to secure payment of the promissory notes. If the value of the
shares of Class A Common Stock held in escrow were to fall below $1,840,000
based on any 10 day-average of the closing sales price for such shares, the
Company would be required to deposit additional shares into the escrow.
Accordingly, on October 26, 1999, August 5, 2000, and August 25, 2000, the
Company deposited 665,000, 968,271 and 2,162,837 additional shares of Class A
Common Stock, respectively, into escrow.
During the first year following the acquisition of MHI, MHI achieved
certain earnings threshold criteria established at the time of the transaction.
Accordingly, on March 21, 2000, the Company released 763,561 Earnout Shares
valued at $644,000 (based on a price of $0.84373 per share as of December 31,
1999), to the former stockholders of MHI. We acquired shares of Class A Common
Stock at that time as follows:
Name Number of Shares
---- ----------------
Jerry L. Bashore 95,445
Charles R. Broderick, III 95,445
William F. Carroll 95,445
Carl F. McWilliams 95,445
Based on the 10 day-average of the closing price of shares of Class A
Common Stock on August 28, 2000, the former stockholders of MHI were entitled to
4,842,003 shares of Class A Common Stock on the 18th month anniversary of the
closing. On August 28, 2000, there were currently only 4,088,889 such shares
being held in escrow to satisfy the Company's obligation.
Due to a decrease in the price of the shares of Class A Common Stock,
on September 15, 2000, the Company deposited 753,114 shares of Class A Common
Stock into the escrow account. On October 27, 2000, the Company released an
aggregate of 4,842,003 shares of Class A Common Stock (based on a price of $0.22
per share as of October 31, 2000) from the escrow as the payment of shares of
Class A Common Stock on the 18th month anniversary of the closing. We acquired
shares of Class A Common Stock at that time as follows:
Name Number of Shares
---- ----------------
Jerry L. Bashore 605,250
Charles R. Broderick, III 605,250
William F. Carroll 605,250
Carl F. McWilliams 605,250
15
<PAGE>
On November 3, 2000, the Company deposited an additional 2,419,100
shares of Class A Common Stock into the escrow account to secure future earnout
obligations owed to the former stockholders of MHI. Pursuant to the terms of the
escrow agreement, Mr. McWilliams, as the representative of all individuals who
are eligible to receive the Earnout Shares, has the authority to vote all such
additional shares of Class A Common Stock, but has no other power with respect
to such shares. While we expect to receive Earnout Shares in the future, there
is no certainty at this time as to the exact number of shares, if any, that the
Company will distribute to us, as determined by the earnings of MHI for the
fiscal years ending December 31, 2000 and 2001.
Employment Agreements
As a condition to the obligations of MHI under the Merger Agreement,
each of Jerry L. Bashore, William F. Carroll, and Carl F. McWilliams entered
into employment agreements with MHI as of February 26, 1999.
Mr. Bashore's employment agreement provides for him to serve as Vice
President - Sales of MHI and provides for an annual base salary of $40,000 and
payment of commissions. He received $58,651 in commissions for 1999 and expects
to receive approximately $90,000 in commissions for 2000. Mr. Bashore's
employment agreement also provides for an annual bonus based on MHI's annual net
income, plus federal and state income tax expense and interest expense and less
any interest income. The bonus payment, which is payable in cash or in shares of
Class A Common Stock, is equal to two percent of such net income amount, if
total salary and commissions for the year are less than $85,000, or one percent
of such net income amount, if total salary and commissions for the year are
greater than or equal to $85,000 and less than or equal to $100,000. He is not
entitled to a bonus if total salary and commissions for the year are greater
than $100,000. Mr. Bashore did not receive a bonus for 1999 and does not expect
to receive a bonus for 2000.
Mr. Carroll's employment agreement provides for him to serve as
Executive Vice President of MHI and provides for a base salary of $76,000 and
payment of commissions. He received $15,157 in commissions for 1999 and expects
to receive approximately $40,000 in commissions for 2000. Mr. Carroll's
employment agreement also provides for an annual bonus on the same terms as Mr.
Bashore's employment agreement. Mr. Carroll received a bonus of $11,126 for
1999, but does not expect to receive a bonus for 2000.
Mr. McWilliams' employment agreement provides for him to serve as
President of MHI and provides for a base salary of $78,000. Mr. McWilliams'
employment agreement also provides for an annual bonus based on MHI's annual net
income, plus federal and state income tax expense and interest expense and less
any interest income. The bonus payment, which is payable in cash or in shares of
Class A Common Stock, is equal to two percent of such net income amount. Mr.
McWilliams received a bonus of $22,812 for 1999 and expects to receive a bonus
of approximately $40,000 for 2000.
All of the employment agreements described above have the following
terms and conditions. Each agreement is for a term of three years. The Company
may terminate the agreement with or without cause. If the employee is terminated
without cause, the employee will
16
<PAGE>
be entitled to receive severance pay equal to the employee's annual salary in
effect at the time for the lesser of the remaining term of the agreement or one
year. If the employee is terminated for any other reason, the employee will be
entitled to receive his salary through the date of termination.
The employment agreements also contain certain nondisclosure,
nonsolicitation and noncompetition provisions. Each employee has agreed not to
disclose any confidential information relating to MHI's business. In addition,
each employee has agreed not to solicit any of MHI's customers or hire any of
its employees during the term of the agreement and for a period of three years
thereafter. Finally, each employee has agreed not to compete in any manner with
MHI during the term of the agreement and for a period ranging from one to three
years thereafter.
ADDITIONAL INFORMATION
We have retained Corporate Investor Communications, Inc. ("CIC") for
solicitation and advisory services in connection with this solicitation. Under
the agreement with CIC, CIC will receive a fee of at least $45,000, plus
reimbursement for its reasonable out-of-pocket expenses. We have agreed to
indemnify CIC against certain liabilities and expenses. CIC may employ up to 25
people in connection with the solicitation of proxies for the Annual Meeting.
Proxies will be solicited by mail, courier services, Internet, advertising,
telephone or telecopier or in person. We also intend, without compensation, to
solicit proxies by telephone, by mail, or in person.
We are bearing the costs of this solicitation. The total expenditures
to date in preparation for the solicitation of stockholders are approximately
$50,000. The total expenditures for this solicitation are expected to be
approximately $250,000. To the extent permitted by applicable law, we intend to
seek reimbursement from the Company for reasonable expenses in connection with
this solicitation, but do not expect to submit the matter to a vote of
stockholders, unless required by law.
The Company's main offices are located at 320 Washington Street, Mount
Vernon, New York 10553. We refer you to the Company's proxy materials, which you
should have received, for additional information concerning the Company's stock,
beneficial ownership of the stock by, and other information concerning, the
Company's Board of Directors and management, the principal holders of the stock
and the procedures for submitting stockholder proposals for consideration at the
Company's 2001 Annual Meeting. You can also access the Company's proxy materials
through the SEC's Internet site at www.sec.gov, which contains reports, proxy
and information statements and other information regarding publicly reporting
companies, including the Company.
We are not aware of any matters other than those described in this
Proxy Statement that may be presented for action at the Annual Meeting. However,
if other matters do properly come before the Annual Meeting, the persons named
in the enclosed proxy card may possess discretionary authority to vote in
accordance with their best judgment with respect to such other matters.
17
<PAGE>
TIME IS SHORT. PLEASE SIGN, DATE AND RETURN THE ENCLOSED GOLD PROXY
CARD IN THE ENCLOSED POSTAGE PAID ENVELOPE TODAY. WE RECOMMEND THAT THE
COMPANY'S STOCKHOLDERS VOTE FOR THE NOMINEES SET FORTH IN THE ENCLOSED GOLD
PROXY CARD.
If you have any questions or need assistance in voting your shares,
please call Corporate Investor Communications, Inc. at a special toll free
number (866) 875 - 6642.
December __, 2000 The Broderick Committee
Jerry L. Bashore
Charles R. Broderick, III
William F. Carroll
Carl F. McWilliams
18
<PAGE>
[PRELIMINARY FORM OF PROXY]
INTERIORS, INC.
PROXY SOLICITED ON BEHALF OF THE BRODERICK COMMITTEE
The undersigned hereby (i) revokes any and all prior proxies in
connection with or related to the matters set forth below and (ii) appoints
Charles R. Broderick, III and Carl McWilliams, jointly and severally, proxies,
with full power to act alone, and with full power of substitution, to represent
the undersigned and to vote, as designated below and upon any and all other
matters, for which the discretionary authority of the proxies is permitted, that
may properly be brought before the Annual Meeting of Stockholders of Interiors,
Inc. to be held on December 15, 2000 or at any adjournment or postponement
thereof (the "Annual Meeting"), all shares of Class A Common Stock of Interiors,
Inc. that the undersigned would be entitled to vote at the Annual Meeting, for
the following purposes:
1. To elect as directors three persons as set forth below.
<TABLE>
<CAPTION>
<S> <C>
( ) FOR the three nominees proposed by ( ) WITHHOLD AUTHORITY to vote
The Broderick Committee listed for the three nominees listed below
below (except as written on the line
below)
</TABLE>
Kinsey C. Craichy
Charles M. Egan
Carl F. McWilliams
_____________________________________________
NOTE: The Board of Directors of Interiors, Inc. is proposing
four nominees for the four positions of the Board of
Directors for which elections are being held at the Annual
Meeting. The Broderick Committee, however, is proposing
only three nominees. If the undersigned votes for The
Broderick Committee's nominees, the undersigned will not
have the opportunity to vote for a full complement of four
directors.
As a result, one position, and any other position that is
not filled with one of The Broderick Committee's nominees,
will be filled by a Board of Directors nominee. There can
be no assurance that any of the Board of Directors
nominees will serve on the Board of Directors if he is
elected with The Broderick Committee's three nominees. To
the extent that the Board of Directors nominee
consequently resigns from the Board of Directors, the
three Broderick Committee nominees expect to fill the
resulting vacancy with an individual who shares their
views with respect to the future of Interiors, Inc., as
expressed in the Proxy Statement that accompanies this
Proxy. No current arrangement exists with respect to
filling such a vacancy.
<PAGE>
2. To ratify the appointment of Arthur Andersen LLP as independent
auditors for Interiors, Inc.
( ) FOR ( ) AGAINST ( ) ABSTAIN
3. To approve a one-for-ten reverse stock split of the outstanding
common stock of Interiors, Inc. without any decrease in the
number of authorized shares of common stock.
( ) FOR ( ) AGAINST ( ) ABSTAIN
4. The proxies are authorized to vote upon any other business, for
which the discretionary authority of the proxies is permitted,
that may properly come before the meeting, or any adjournment
thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED (1) FOR ALL THREE NOMINEES LISTED IN ITEM 1 AND A FOURTH NOMINEE, (2)
ABSTAIN FROM ITEM 2, AND (3) AGAINST ITEM 3.
____________________________________ ____________________________________
Printed Name Signature
____________________________________
Signature
[INSERT LABEL] Dated: ___/___/00
(If signing as Attorney,
Administrator, Executor, Guardian or
Trustee, please add your title as
such.)
PLEASE MARK, SIGN, DATE AND RETURN PROMPTLY
