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. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
<TABLE>
<CAPTION>
<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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<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 to fulfill their
corporate and fiduciary responsibility to the Company. As a result, we are
opposing the re-election of these individuals and are presenting to you three
directors who are committed, on behalf of and in the best interests of all
stockholders, to addressing the problems at Interiors. We are not opposing 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 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"), a 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 to fulfill their corporate and fiduciary responsibility to the Company.
This failure centers primarily on the following problems:
<PAGE>
o Financial Mismanagement. These individuals have driven the Company
to the brink of financial ruin. The Company has recurring losses
and cash flow deficits, negative working capital, impaired
liquidity, continuing loan defaults and an audit opinion with a
"going concern" qualification.
o Questionable Loans and Cash Payments. The Company has made loans
and cash payments to Mr. Munn's relatives at a time when we
believe these individuals should have been conserving available
cash to fund operations and avoid additional interest expense
associated with increased borrowing.
o Management Entrenchment. As the Company's financial situation has
declined, these individuals have apparently sought to avoid any
threat to their positions as directors of the Company. The Board
of Directors has taken a number of actions that have an
anti-takeover purpose or effect and result in the potential (if
not actual) entrenchment of management to the detriment of
stockholders.
o Prior Business History of Max Munn. Max Munn, at age 56, has
repeatedly failed in his efforts to profitably run a business. Mr.
Munn's business history has been one of failure and significant
losses to investing stockholders.
o Operational Mismanagement. Based on the financial performance of
the Company, we believe that these individuals have utterly failed
in their attempts to successfully implement the business plan of
the Company. The Company has failed to successfully integrate
recent acquisitions, and these individuals have failed to achieve
their stated strategic mission of becoming the "leading single
source provider of decorative accessories for the home."
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. WE RECOMMEND THAT THE COMPANY'S STOCKHOLDERS VOTE "FOR" THE NOMINEES SET
FORTH ABOVE. We are not opposing 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, has an anti-takeover effect that could
result in the potential (if not actual) entrenchment of management to the
detriment of stockholders, a concept that we explain in more detail below. 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.
2
<PAGE>
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 control represents 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 are not opposing 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. 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. There can be no assurance that
any of the Company's nominees will serve on the Board of Directors if he is
elected with any of our nominees.
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.
3
<PAGE>
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.
REASONS SUPPORTING A CHANGE IN THE
BOARD OF DIRECTORS OF THE COMPANY
During the past several years, the performance of the Board of
Directors and of Max Munn, the Chairman, President and Chief Executive Officer
of the Company, has been devastating to the Company, its financial position and
its business prospects. With the exception of Mr. James G. Bloise, who recently
joined the Board of Directors in September 2000, each of 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 four of the last five years.
In our opinion, Messrs. Munn, Josephberg and Lourie have been unable to
operate the Company successfully. The legacy of these three directors has been
one of failure. They have presided over net losses, cash flow and working
capital deficits, impaired liquidity, loan defaults, numerous questionable
related party transactions, management entrenchment and the delisting of the
common stock from the Nasdaq SmallCap Market. They have been unable to 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 alternate slate of directors nominated to replace
Messrs. Munn, Josephberg and Lourie will implement changes designed to (i) put
the Company on a sound financial footing, (ii) sell or liquidate unprofitable
businesses, (iii) properly integrate existing businesses and (iv) implement
policies designed to increase the profitability of economically successful
business units.
Financial Mismanagement
Messrs. Munn, Josephberg and Lourie have driven the Company to the
brink of financial ruin. In its filings 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. Questionable loans
and cash payments have been made to the relatives of Mr. Munn. Despite all of
these problems, Mr. Munn consistently reports that the Company has "turned the
corner."
4
<PAGE>
Continuing Losses
Under the leadership of Messrs. Munn, Josephberg and Lourie, the
Company has sustained substantial net losses in four 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 $32 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. The Company in its most recent Annual Report on Form
10-K has admitted that Messrs. Munn, Josephberg and Lourie have been unable to
successfully integrate business acquisitions into the Company and the 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 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) has 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.
5
<PAGE>
The financial mismanagement of Messrs. Munn, Josephberg and Lourie has
resulted in a situation where 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. 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 five years of financial mismanagement by Messrs.
Munn, Josephberg and Lourie 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, it is
stated by the Company that "no assurance can be given... that the Company will
be able to continue operations as a going concern." It is clear that Messrs.
Munn, Josephberg and Lourie are unable to cope with the current financial
situation brought about by their own mismanagement.
Questionable Loans and Cash Payments
While the Company's financial situation continued to worsen, Messrs.
Munn, Josephberg and Lourie participated in the following activities:
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, owes the Company over $2.5 million which has not been
repaid. A substantial portion of Mrs. Munn's debt to the Company
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 is not accruing any interest on Mrs.
Munn's obligation.
o In fiscal year 1999, the Board of Directors approved advances of
$458,000 to Max Munn at 6.5% interest 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 to the benefit of Mr. Munn and to the
expense of the stockholders.
o 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 interest
rate is a sham because the Company is not accruing any interest on
Mr. Munn's obligation. Even in the face of persistent financial
difficulties, Mr.
6
<PAGE>
Munn continues to engage in self-dealing transactions at the
expense of the stockholders.
o During the past four years, cash payments have been made to Max
Munn's father for so-called "consulting services." In 1999 and
2000, these payments added up to $135,000. The agreement has been
extended to June 30, 2006 as a further cash drain at the expense
of the Company and its stockholders.
Mr. Munn apparently believes that he and his family are entitled to
benefit economically at the expense of the Company's stockholders. These loans
and payments were made at a time when Messrs. Munn, Josephberg and Lourie should
have been conserving available cash to fund operations and avoid additional
interest expense associated with increased borrowing. Each director has a duty
to refrain from engaging in self-dealing and self-interested transactions that
are detrimental to the Company and Mr. Munn has failed to adequately explain how
his actions are in the best interests of the Company or its stockholders.
Management Entrenchment
As the Company's financial situation has declined, Messrs. Munn,
Josephberg and Lourie have sought to avoid any threat to their positions as
directors of the Company. The following actions of the Board of Directors have
an anti-takeover purpose or effect and result in the potential (if not actual)
entrenchment of management to the detriment of stockholders.
Class B Common Stock
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 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.
Although you as stockholders have paid in full for your stock and have
capital at risk in this election, Laurie Munn and Max Munn have not paid for the
shares of Class B Common Stock issued to Laurie Munn. Not only do Laurie Munn
and Max Munn get five votes counted for every one of your votes, the
stockholders are prevented from taking certain actions under Delaware law (such
as acting by consent) unless the stockholders receive a supermajority vote of
75% of each class of common stock, effectively giving Laurie Munn and Max Munn
the ability to block any proposal that would challenge corporate control. A
separate class of common stock that is tightly controlled by family members is a
classic device to entrench management. These shares of Class B Common Stock are
not fully paid and votes relating to these shares should not count in the
election of directors.
7
<PAGE>
Rights Plan
In January 2000, Messrs. Munn, Josephberg and Lourie adopted a Rights
Plan pursuant to which the Company made a dividend to holders of common stock of
one right for each outstanding share of common stock. The rights, which are
designed to deter a takeover of the Company, become exercisable when a party
acquires 10% or more of the Company's voting stock or announces an offer to
acquire 30% or more of such stock.. Although in the right hands a Rights Plan
can be a useful tool to force potential corporate raiders to negotiate with the
Board of Directors, it also can be used improperly to insulate management from a
challenge by the Company's stockholders for corporate control.
Voting Arrangements
The Company has entered into voting arrangements with the holders of
large blocks of the Company's common stock. Seaside Partners, L.P., the holder
of 6,343,062 shares of Class A Common Stock, and the former stockholders of
Concepts 4, Inc., the holder of 7,545,876 shares of Class A Common Stock, have
agreed to vote all of their respective shares for the election of the nominees
of the Board of Directors at the meeting on December 15, 2000. This represents
13,888,938 votes for Messrs. Munn, Josephberg and Lourie and was done to reduce
any threat to their control of the Company.
Max Munn's Compensation Arrangements
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 slate of directors is 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 would challenge Mr. Munn's
right to receive any cash payments or shares of stock under this arrangement.
Prior Business History of Max Munn
Max Munn, at age 56, has repeatedly failed in his efforts to profitably
run a business. As described below, Mr. Munn's business history has been one of
failure and significant losses to investing stockholders.
8
<PAGE>
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 at an offering price of $10 per share. As of
November 16, 2000, the stock 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, 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. As of November 14, 2000, the
company's stock price had declined from our $0.50 per share to
approximately $0.03 per share in less than two years.
We, the stockholders of the Company, must act now to remove Mr. Munn
from office so that the Company does not join Mr. Munn's list of business
failures. Based on Mr. Munn's previous business history, the stockholders of the
Company should be concerned that if Messrs. Munn, Josephberg and Lourie remain
as directors, 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. The stockholders cannot allow this to
continue.
Operational Mismanagement
In addition to the devastating financial mismanagement of the Company,
Messrs. Munn, Josephberg and Lourie have utterly failed in their attempts to
successfully implement the business plan of the Company. Although we believe
that the Company's business model can ultimately be successful, we do not
believe that Messrs. Munn, Josephberg and Lourie have the ability to achieve
success with that business model. The Company has failed to successfully
integrate recent acquisitions and the Messrs. Munn, Josephberg and Lourie have
failed to achieve their stated strategic mission of becoming the "leading single
source provider of decorative accessories for the home."
Failure to Successfully Integrate Acquisitions
The most damaging failure of Messrs. Munn, Josephberg and Lourie has
been their admitted inability to integrate effectively the various acquisitions
of accessory manufacturers that have been made by the Company since 1998. In the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2000,
Messrs. Munn, Josephberg and Lourie admitted that although it had acquired nine
businesses since March 1998, it had "experienced difficulty" in integrating the
operations of its operating divisions and capturing economies of scale. As a
result
9
<PAGE>
of this failure, Messrs. Munn, Josephberg and Lourie turned formerly profitable
businesses into businesses that were generating losses.
Acquisitions Inconsistent With Stated Business Plan
Although certain acquisitions were made in furtherance of the Company's
business strategy, Messrs. Munn, Josephberg and Lourie made a number of
investments in businesses that did not contribute to the execution of the
strategic vision of the Company. The Company's investments in Focus Line, CSL
Lighting Manufacturing, Inc. and Photo-to-Art, Inc. were all failures, in each
case diverting precious resources away from the Company's core business and
deviating from the Company's business plan.
Failure to Expand Product Lines and Markets
In the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 2000, Messrs. Munn, Josephberg and Lourie also admitted that the
Company had "experienced difficulty" in expanding the Company's product lines
through acquisition and internal growth, and expanding into new markets. The
expansion of the Company's product line and expansion into new markets are key
components of the Company's business plan that Messrs. Munn, Josephberg and
Lourie are unable to accomplish. As a result of their own admitted failures, the
Company incurred substantial net losses during 1999 and 2000 of more than $26
million.
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 November 21, 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.
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. Not only have they not
been able to successfully implement the strategic plan of the Company, Messrs.
Munn, Josephberg and Lourie have taken the Company to the brink of financial
ruin. Current management simply does not have the financial and operational
ability to effect a turn around in the Company before it is too late.
The proposed slate of directors represent a fresh start for the
Company. The proposed directors bring substantial experience and integrity to
the Company. The proposed directors have the management and business experience
to integrate acquisitions, to achieve economies of
10
<PAGE>
scale, to expand products and markets and to implement the strategic mission of
the Company. The proposed slate of directors will seek to put the Company on a
sound financial footing, sell or liquidate unprofitable businesses, properly
integrate existing businesses, maximize the earnings of profitable units and
regain the confidence of the Company's customers and trade creditors and the
market.
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. McWilliams, Charles M.
Egan and Kinsey C. Craichy. In addition, we are not opposing 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, and during
this time was responsible for a turnaround of the company. 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
11
<PAGE>
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 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 among any of the nominees
directors or between any of the directors and executive officers of the Company.
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 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.
14
<PAGE>
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
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
15
<PAGE>
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 a base salary of $40,000 and payment
of commissions. 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. Mr. McWilliams' employment agreement provides for him to
serve as President of MHI and provides for a base salary of $78,000. All
employment agreements provide for annual bonuses of up to two percent, based on
the level of commission payments, of MHI's annual net income. These bonuses are
payable in cash or in shares of Class A Common Stock.
The employment agreements 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 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
16
<PAGE>
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 possess discretionary authority to vote in accordance
with their best judgment with respect to such other matters.
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
17
<PAGE>
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
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 four 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 McWilliams
The proxies named herein also intend to use this proxy to vote for a
fourth person that has been nominated by the Board of Directors of
Interiors, Inc. The proxies named herein are not seeking authority
to vote for and will not exercise any such authority with respect to
Max Munn, Roger Lourie or Richard Josephberg. The proxy materials
dated November 3, 2000 from Interiors, Inc. contain information with
respect to the nominees of the Board of Directors of Interiors, Inc.
To withhold authority to vote for any individual nominee listed
above or for any nominee of the Board of Directors of Interiors,
Inc., write that nominee's name on the space provided below:
____________________________________________
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
<PAGE>
4. In their discretion, the proxies are authorized to vote upon any
other business 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
