UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. ________)*
Krause's Furniture, Inc.
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(Name of Issuer)
Common Stock, $.001 par value
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(Title Class of Securities)
000500760202
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(CUSIP Number)
Nancy E. Barton, Esq.
General Electric Capital Corporation
260 Long Ridge Road
Stamford, Connecticut 06927
(203) 357-4000
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(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
August 26, 1996
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule
13G to report the acquisition which is the subject of this
Schedule 13D, and is filing this schedule because of Rule 13d-
1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with the statement
[X]. (A fee is not required only if the reporting person: (1)
has a previous statement on file reporting beneficial ownership
of more than five percent of the class of securities described in
Item 1; and (2) has filed no amendment subsequent thereto
reporting beneficial ownership of five percent or less of such
class.) (See Rule 13d-7.)
Note: Six copies of this statement, including all exhibits,
should be filed with the Commission. See Rule 13d-1(a) for other
parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a
reporting person's initial filing on this form with respect to
the subject class of securities, and for any subsequent amendment
containing information which would alter disclosures provided in
a prior cover page.
The information required on the remainder of this cover page
shall not be deemed to be "filed" for the purpose of Section 18
of the Securities Exchange Act of 1934 ("Act") or otherwise
subject to the liabilities of that section of the Act but shall
be subject to all other provisions of the Act (however, see the
Notes).
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE
ATTESTATION.
SCHEDULE 13D
CUSIP No. 000500760202
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1 NAME OF REPORTING PERSON
General Electric Capital Corporation
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
(I.R.S. # 13-1500700)
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
See Items 4 and 5 for a description of certain (b) [ ]
agreements relating to shares of Common Stock of
Krause's Furniture, Inc.
3 SEC USE ONLY
4 SOURCE OF FUNDS*
Not Applicable
5 CHECK BOX IF DISCLOSURE IF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York
7 SOLE VOTING POWER
NUMBER OF
SHARES 6,400,000
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY
6,679,086
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
6,400,000
PERSON 10 SHARED DISPOSITIVE POWER
WITH 0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
13,079,086 (includes 6,679,086 shares as to which the Reporting
Person has shared voting power and no dispositive power)
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
69.9% (consisting of 34.2% as to which the Reporting Person has
sole voting and dispositive power and 35.7% as to which the
Reporting Person has shared voting power)
14 TYPE OF REPORTING PERSON*
CO
SCHEDULE 13D
CUSIP No. 0005007601
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1 NAME OF REPORTING PERSON
General Electric Capital Services, Inc.
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
(I.R.S. #06-1109503)
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [X]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
Not Applicable
5 CHECK BOX IF DISCLOSURE IF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
7 SOLE VOTING POWER
NUMBER OF Disclaimed. See 11 below.
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 0
EACH 9 SOLE DISPOSITIVE POWER
REPORTING Disclaimed. See 11 below.
PERSON 10 SHARED DISPOSITIVE POWER
WITH 0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
Beneficial ownership of all shares is disclaimed by
General Electric Capital Services, Inc.
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
Not Applicable. See 11 above.
14 TYPE OF REPORTING PERSON*
CO
SCHEDULE 13D
CUSIP No. 000500760202
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1 NAME OF REPORTING PERSON
General Electric Company
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
(I.R.S. # 14-0689340)
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [X]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
Not Applicable
5 CHECK BOX IF DISCLOSURE IF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York
7 SOLE VOTING POWER
NUMBER OF Disclaimed. See 11 below.
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 0
EACH 9 SOLE DISPOSITIVE POWER
REPORTING Disclaimed. See 11 below.
PERSON 10 SHARED DISPOSITIVE POWER
WITH 0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
Beneficial ownership of all shares is disclaimed by
General Electric Company
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
Not Applicable. See 11 above.
14 TYPE OF REPORTING PERSON*
CO
ITEM 1. SECURITY AND ISSUER
The title of the class of equity securities to which this
Schedule 13D (the "Schedule 13D) relates is the Common Stock,
$.001 par value per share (the "Common Stock"), of Krause's
Furniture, Inc. (the "Company"). The address of the principal
executive offices of the Company is 200 North Berry Street, Brea,
California 92621-3903.
ITEM 2. IDENTITY AND BACKGROUND
(a), (b), (c) This statement is filed by General Electric
Capital Corporation, a New York corporation ("GECC"), General
Electric Capital Services, Inc., a Delaware corporation ("GECS"),
and General Electric Company, a New York corporation ("GE").
GECC, GECS and GE are sometimes referred to herein individually
as a "Reporting Person" and collectively as the "Reporting
Persons."
GECC is a New York corporation and a wholly-owned subsidiary
of GECS and GECS is a wholly-owned subsidiary of GE. GECC,
together with its affiliates, operates primarily in the financing
industry and, to a lesser degree, in the life insurance and
property/casualty insurance industries and maintains its
principal executive offices at 260 Long Ridge Road, Stamford,
Connecticut 06927.
GECS (formerly known as General Electric Financial Services,
Inc.) is a Delaware corporation with its principal executive
offices located at 260 Long Ridge Road, Stamford, Connecticut
06927. GECS is a party to this filing solely because GECC is a
wholly-owned subsidiary of GECS.
GE is a New York corporation with its principal executive
offices located at 3135 Easton Turnpike, Fairfield, Connecticut.
GE engages in providing a wide variety of industrial, commercial
and consumer products and services. GE is a party to this filing
solely because GECC is an indirect wholly-owned subsidiary of GE.
For information with respect to the identity and background
of: (i) each director and executive officer of GECC, see
Schedule I attached hereto; (ii) each director and executive
officer of GECS, see Schedule II attached hereto; and (iii) each
director and executive officer of GE, see Schedule III attached
hereto.
This statement is being filed while GECC, GECS and GE are in
the process of verifying information required herein from their
respective directors and executive officers. If GECC, GECS or GE
obtains information which would cause a change in the information
contained herein, an amendment to this statement will be filed
setting forth such change in information.
(d), (e) During the last five years, except as disclosed on
Schedule IV, neither any Reporting Person nor, to the best
knowledge of the applicable Reporting Person, any person
identified in Schedules I through III has (i) been convicted in a
criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) been a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as
a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to, federal or state
securities laws or finding any violation with respect to such
laws.
ITEM 2(F)
To the best knowledge of the applicable Reporting Person, all
persons identified in Schedules I through III are United States
citizens, except that: Paolo Fresco, Vice Chairman of the Board
and an executive officer of GE and a director of GECC and GECS,
is an Italian citizen; Claudio X. Gonzalez, a director of GE, is
a Mexican citizen; Kaj Ahlmann, an executive officer and a
director of GECS is a Danish citizen; and Nigel Andrews, an
executive officer of GECS and a director of GECS and GECC, is a
UK citizen.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
On August 26, 1996 the Company and GECC entered into a
Securities Purchase Agreement (the "Securities Purchase
Agreement") providing for the purchase on that date by GECC of
(i) the Company's 10% Subordinated Pay-in-Kind Promissory Notes
due August 31, 2001 (the "Notes") in the aggregate principal
amount of $5,000,000, together with a Warrant (the "Warrant"),
exercisable at any time or from time to time to and including
August 31, 2006, to purchase 1,400,000 shares of Common Stock at
an exercise price of $.001 per share, for an aggregate purchase
price of $5,000,000 and (ii) 5,000,000 shares of Common Stock
(collectively with the Notes and the Warrant, the "Securities")
for an aggregate purchase price of $5,000,000. A copy of the
Securities Purchase Agreement is attached hereto as Exhibit 1.
The funds used to purchase the Securities were obtained by GECC
from working capital.
ITEM 4. PURPOSE OF TRANSACTION
(a-j) On August 26, 1996, GECC acquired the Securities
pursuant to the Securities Purchase Agreement. Concurrently with
the purchase of the Securities by GECC, (i) Philip M. Hawley and
Dr. Philip M. Hawley, Jr. (collectively, the "Hawleys") and
Alison Booth Hawley Trust I, Caitlin Hale Hawley Trust I, Maureen
Erin Hawley Trust I, Shannon Follen Hawley Trust I and Hawley
Family Trust (collectively, the "Hawley Trusts" and, together
with the Hawleys, "Hawley Group") purchased from the Company
1,000,000 shares of Common Stock for an aggregate purchase price
of $1,050,000, (ii) certain other investors, including ATCO
Holdings, Ltd., Issaac Robert Souede, Jean R. Perrette, United
Gulf Bank (B.S.C.) E.C., ATCO Development, Inc., Helopolis Inc.
Peter L. Rhulen, T. Michael Wallace, Carlton Securities N.V., G2
Investment Partners, Sidney Kimmel, Zaxis Partners, L.P., Hurly &
Co., Sanford J. Colen, Pollat, Evans & Co. Inc., C. Redington
Barrett, III, Quadra Appreciation Fund, Inc., Peter W. Branagh &
Raymond Y. branagh (TTEES for the Branagh) Revocable Trust),
Permal Noscal, Ltd., Fairmont Services Ltd., V.C. Emmanuel
Bagdjian and Gary Gladstein, purchased from the Company 3,000,000
shares of Common Stock for an aggregate purchase price of
$3,000,000, (iii) Edson Investments, Inc., Isaac R. Souede, The
Vulture Fund, Ltd., Thomas M. DeLitto, Robert G. Sharpe, ATCO
Development, Inc., Jean R. Perrette and Permal Capital
Management, Inc. exchanged an aggregate of $2,950,000 principal
amount of promissory notes of the Company, together with accrued
and unpaid interest, for $3,066,251 shares of Common Stock,
(iv) holders of 111,653 shares of Series A Preferred Stock of the
Company converted such shares into Common Stock at the conversion
ratio of 10 shares of Common Stock for each share of Series A
Preferred Stock and (v) Philip M. Hawley entered into an
employment agreement with the Company, pursuant to which, among
other things, Mr. Hawley (a) will serve as Chairman of the Board
and Chief Executive Officer of the Company and (b) received
options to purchase an aggregate of 1,234,000 shares of Common
Stock at an exercise price of $1.00 per share.
GECC has acquired the shares of Common Stock (includes shares
issuable upon exercise of the Warrant) beneficially owned by it
as an investment and in the ordinary course of business. GECC
intends to review on a continuing basis its investment in the
Company, including the Company's business, financial condition
and operating results and general market and industry conditions
and, based upon such review, may (i) exercise the Warrant in
whole or in part, or (ii) dispose of shares of Common Stock or
the Warrant, in whole or in part, in the open market, in
privately negotiated transactions or otherwise.
On August 26, 1996, the Company, GECC, Hawley Group and
certain other investors, including Permal Capital Management,
Inc., Permal Services, Inc., Permal Capital Partners, L.P.,
Permal Asset Management, Permal Special Opportunities, Ltd.,
Edson Investments, Inc., Jean R. Perrette, Isaac R. Souede,
Thomas M. DeLitto, Thomas M. & Donna S. DeLitto, United Gulf Bank
(B.S.C.) E.C., Kuwait Investment Projects, ATCO Holdings Ltd. and
ATCO Development Inc. (collectively, "Permal Group" and together
with the Company, GECC and Hawley Group, the "Stockholders")
entered into a Stockholders Agreement (the "Stockholders
Agreement"). The Stockholders Agreement provides that, subject
to certain default rights of GECC described below, the Board of
Directors of the Company (the "Board") will consist of six
members, of whom one will be designated by GECC (such person so
designated, and any successor thereto, the "GECC Designee"); one
will be designated by Permal Group (such person so designated,
and any successor thereto, the "Permal Designee"); one will be
Philip M. Hawley; and three will be selected by the vote of the
GECC Designee, the Permal Designee and Philip M. Hawley (the
"Joint Designees"). At each meeting of the stockholders of the
Company held for the purpose of electing directors, the
Stockholders (other than the Hawley Trusts) have agreed to take
such action as is necessary to cause the GECC Designee, the
Permal Designee, Philip M. Hawley and the Joint Designees (or any
successor to any such person designated in accordance with the
Stockholders Agreement) to be elected as directors (including, in
the case of GECC and Permal Group, causing their respective
designees on the Board to nominate, and recommend to the
stockholders of the Company the election of, the GECC Designee,
the Permal Designee, Philip M. Hawley and the Joint Designees to
the Board and opposing, and causing their respective designees on
the Board to oppose, any proposal to remove the GECC Designee,
the Permal Designee, Philip M. Hawley or any Joint Designee at
each meeting of the stockholders of the Company at which the
election or removal of members of the Board is on the agenda),
and to take no action which would diminish the prospects of the
GECC Designee, the Permal Designee, Philip M. Hawley or any Joint
Designee being elected to the Board or increase the prospects of
any GECC Designee, Permal Designee, Hawley or any Joint Designee
being removed from the Board.
Pursuant to the Stockholders Agreement, each of the GECC
Designee and Permal Designee will hold office until his death,
resignation or removal or until his successor has been duly
elected and qualified. If any GECC Designee ceases to serve as a
director of the Company for any reason, the vacancy resulting
thereby will be filled by another person designated by GECC. If
any Permal Designee ceases to serve as a director of the Company
for any reason, the vacancy resulting thereby will be filled by
another person designated by Permal Group. If Philip M. Hawley
ceases to serve as a director of the Company, GECC and Permal
Group have agreed to cause their respective designees on the
Board and the Joint Designees to take all necessary action to
elect a successor to Philip M. Hawley to fill the vacancy
resulting thereby. In the event that at any time there exist
vacancies on the Board such that there is either no GECC Designee
or no Permal Designee, no action may be taken by the Board until
such vacancy is filled. No GECC Designee may be removed from
office except by GECC and no Permal Designee may be removed from
office except by Permal Group. GECC has the right to remove any
GECC Designee, and Permal Group has the right to remove any
Permal Designee, with or without cause, at any time.
Subject to the approval rights of GECC described below, the
quorum required for action to be taken by the Board (other than
an adjournment of any meeting of the Board) will be the GECC
Designee, the Permal Designee and Philip M. Hawley.
Under the Stockholders Agreement, each Stockholder (other than
the Hawley Trusts) has agreed to vote all of its voting shares
and to take all other necessary or desirable actions within its
control, and the Company has agreed to take all necessary and
desirable actions within its control, to effectuate the foregoing
provisions.
The right of each of GECC and Permal Group to designate
directors pursuant to the Stockholders Agreement will continue
only for so long as GECC and its Affiliates or Permal Group, as
the case may be, beneficially owns at least 2,000,000 shares of
Common Stock.
In addition to its rights under the Stockholders Agreement,
upon the occurrence of any Event of Default (as defined in the
Securities Purchase Agreement) under the Notes, then, and in each
such case, the Board is required to take all necessary action to
increase or decrease the size of the Board and to appoint to the
Board a number of additional members (the "Additional Members")
designated by GECC that, when added to any directors then in
office designated solely by GECC, will result in directors
designated by GECC constituting a majority of the entire Board.
The holders of 66 2/3% in outstanding principal amount of the
Notes will be entitled to designate the Additional Members of the
Board of Directors, and, for so long as such Event of Default
continues, at each subsequent annual meeting the holders of 66
2/3% in outstanding principal amount of the Notes will be
entitled to propose (and the Board will be required to nominate
and recommend) persons reasonably acceptable to the Board as the
Additional Members of the Board. In the event of any vacancy
arising by reason of the resignation, death, removal or inability
to serve of any Additional Member, GECC will be entitled to
designate a successor to fill such vacancy for the remaining term
of such director. At such times as such Event of Default shall
have been cured or waived, the rights of the holders of Notes to
elect directors will terminate (and the holders of the Notes will
be required to cause such Additional Directors to resign from the
Board), subject to revesting in the event of each and every
subsequent event of the character indicated above.
In addition, under the Stockholders Agreement, each
Stockholder which is included in the Permal Group has agreed
that, at each meeting of stockholders and in each action by
written consent in lieu of a meeting, such Stockholder will vote
(or act by consent with respect to) all voting shares over which
such Stockholder has voting authority in the same manner that the
voting shares held by GECC are voted with respect to each matter
subject to the vote or consent of Stockholders of the Company.
Upon the request of GECC, each such Stockholder has agreed to
execute an irrevocable proxy authorizing designees of GECC to
vote all voting shares over which such Stockholder has voting
authority in the foregoing manner.
Pursuant to the Stockholders Agreement, for so long as GECC is
entitled to designate a GECC Designee to serve on the Board, the
approval of the GECC Designee will be required for the taking of
certain actions by the Company or its subsidiaries (except to the
extent any such action is specifically authorized under the
Stockholders Agreement, the Securities Purchase Agreement, the
Registration Rights Agreement described below or an annual
business plan previously approved by the GECC Designee),
including: (a) a merger with or into or consolidation with any
other person; (b) a voluntary liquidation, dissolution or winding
up or filing of any voluntary petition in bankruptcy;
(c) acquiring all or any substantial portion of the business or
assets of any person; (d) entering into any joint venture or
partnership or making any debt or equity investment in any
person; (e) expanding into new lines of business; (f) assigning
to any other person any rights of the Company under the
Stockholders Agreement, the Registration Rights Agreement or the
Securities Purchase Agreement; (g) any sale, lease or exchange of
assets of the Company and/or any subsidiary, except for sales of
inventory in the ordinary course of business and subleasing of
vacant retail space on arm's-length terms; (h) creating,
incurring, assuming or suffering to exist any indebtedness other
than indebtedness under the Loan and Security Agreement dated as
of January 20, 1995 between the Company and Congress Financial
Corporation (Western), as amended, and other indebtedness not to
exceed in the aggregate $100,000 at any time outstanding;
(i) mortgaging, encumbering, creating, incurring or suffering to
exist, liens on its assets (other than liens on assets under
indebtedness outstanding as of the date hereof and certain other
liens); (j) paying any dividends, or making any distribution on,
any shares of its capital stock or redeeming, repurchasing any
outstanding shares of its capital stock or any other of its
outstanding securities or indebtedness (except for indebtedness
(other than indebtedness to any Related Party (as defined in the
Stockholders Agreement), excluding indebtedness for expenses
incurred in the ordinary course of business on behalf of the
Company and its subsidiaries) to the extent it becomes due in
accordance with its terms); (k) making or committing to make
during any calendar year any capital expenditure or capital
expenditures in an amount in excess of $50,000; (l) issuing or
selling any shares of capital stock or rights, options, warrants
or other securities exercisable for, exchangeable for or
convertible into shares of capital stock of the Company or any of
its subsidiaries, other than upon the exercise of options or
warrants outstanding on the date of the Stockholders Agreement or
previously approved by the GECC Designee, or granting, amending
or terminating any stock appreciation right or other stock-based
award; (m) entering into, adopting, amending or terminating any
employment or consulting agreement, or hiring or retaining any
person who will report directly to the Chief Executive Officer or
to whom the Company will pay total compensation in excess of
$110,000 per year, or entering into, adopting, amending or
terminating any employee benefit plan, policy or arrangement,
except as required by law or generally accepted accounting
principles; (n) amending its Certificate of Incorporation or By-
laws or adopting, amending, redeeming or terminating any
shareholder rights plan or similar plan or arrangement;
(o) amending, modifying or waiving any provision of the
Stockholders Agreement, the Securities Purchase Agreement, the
Registration Rights Agreement or the agreements ancillary
thereto, or becoming a party to any agreement which by its terms
restricts the Company's or any of its subsidiaries', or any
Stockholder's, performance of the terms of any of such
agreements; (p) registering any securities under the Securities
Act or granting any registration rights therefor; (q) entering
into, amending or terminating, or waiving any material rights of
the Company and its subsidiaries under, any contract, arrangement
or transaction involving consideration in excess of $50,000 or
which is otherwise material to the Company or any of its
subsidiaries; (r) entering into, amending or terminating any
contract, arrangement or transaction with a Related Party, other
than the payment of salary and benefits pursuant to employment
arrangements entered into in the ordinary course of business in
compliance with the Stockholders Agreement; (s) entering into,
adopting, amending (whether by agreement or by conduct of the
business), except as required by law or generally accepted
accounting principles, or terminating any annual business plan;
or (t) taking any action required by law to be approved by the
Board.
The Stockholders Agreement provides that in the event that any
Stockholder intends to sell any Common Stock or Common Stock
equivalents other than pursuant to a registered public offering
and other than sales on Nasdaq or a national securities exchange
of shares which, when aggregated with all other sales by such
Stockholder and any other members of the Hawley Group (in the
case of any member of the Hawley Group) or the Permal Group (in
the case of any member of the Permal Group) from and after the
date of the Stockholders Agreement, would represent not more than
1,000,000 shares of Common Stock in the aggregate, each of the
other Stockholders (including GECC) is entitled to exercise a
right of first offer to acquire its pro rata portion of the
shares of Common Stock or Common Stock equivalents to be sold by
the selling Stockholders.
In addition, if any of the Hawley Trusts intends to sell any
Common Stock pursuant to certain shelf registration rights
granted to the Hawley Trusts, GECC and each of the other
Stockholders is entitled (if the Company declines to exercise in
whole or in part a right of first offer in favor of the Company)
to exercise a right of first offer to acquire its pro rata
portion of the shares to be sold by the selling Hawley Trust.
Under the Stockholders Agreement, if GECC or any member of
Permal Group, whether acting alone or in concert with any other
Stockholder (collectively, the "Selling Stockholders") pursuant
to a common plan, understanding or arrangement, enters into an
agreement to sell or otherwise proposes to sell to any person or
group (other than pursuant to a registered public offering), in
one transaction or a series of related transactions, any Common
Stock or Common Stock equivalents, such that immediately
following the consummation of such sale, the Selling Stockholders
would have sold to such person or group in the aggregate Common
Stock or Common Stock equivalents representing in excess of
3,000,000 shares of Common Stock or Common Stock equivalents with
respect to sales by the Hawley Trusts, then each of the other
Stockholders will have the right to participate in such sale by
selling a number of shares of Common Stock equal to such
Stockholder's "Proportionate Share", as part of the sale by the
Selling Stockholders, on the same terms as those applicable to
the sale by the Selling Stockholders. "Proportionate Share"
means, with respect to each Stockholder, a number of shares of
Common Stock which bears the same ratio to the number of shares
of Common Stock beneficially owned by such Stockholder on a fully
diluted basis as the number of shares being sold by the Selling
Stockholders bears to the number of shares of Common Stock
beneficially owned by the Selling Stockholders on a fully diluted
basis.
Pursuant to the Securities Purchase Agreement, GECC also has
rights of first offer to acquire its pro rata portion of any debt
securities, capital stock or capital stock equivalents which the
Company proposes to sell, other than pursuant to a registered
public offering.
Except as set forth above, no Reporting Person nor, to the
best knowledge of the applicable Reporting Person, any Person
identified in Schedule I through III, has any plans or proposals
which relate to or would result in the types of transactions set
forth in subparagraphs (a) through (j) of Item 4 of Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) GECC has sole voting and dispositive power with respect
to 6,400,000 shares of Common Stock (including 1,400,000 shares
issuable upon exercise of the Warrant), representing
approximately 34.2% of the outstanding shares of Common Stock
(assuming the exercise of the Warrant). In addition, by reason
of the provisions of the Stockholders Agreement pursuant to which
the members of Permal Group have agreed to vote their shares of
the Company in the same manner as GECC, GECC may be deemed to
have shared voting power with respect to an aggregate of
6,679,086 shares of Common Stock, representing approximately
35.7% of the outstanding shares of Common Stock (assuming the
exercise of the Warrant).
In addition, by reason of certain of the provisions of the
Stockholders Agreement described in Item 4, GECC may be deemed to
constitute a "group," as such term is used in Section 13(d)(3) of
the Exchange Act, with Permal Group and the Hawleys. If GECC,
Permal Group and the Hawleys were deemed to constitute a group,
the 13,661,072 shares of Common Stock beneficially owned by GECC,
Permal Group and the Hawleys in the aggregate (which includes the
6,400,000 shares of Common Stock beneficially owned by GECC, an
aggregate of 6,679,086 shares of Common Stock held by members of
Permal Group, 50,000 shares of Common Stock held by the Hawleys,
308,500 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days by Philip M. Hawley and an
aggregate of 223,486 shares issuable upon the exercise of
warrants and options exercisable within 60 days by members of
Permal Group) would represent approximately 71.0% of the shares
of Common Stock (assuming the exercise of the Warrant and all
options or warrants exercisable within 60 days by members of
Permal Group and Philip M. Hawley). GECC understands that the
Hawleys and the members of Permal Group are making separate
filings on Schedule 13D with respect to the shares of Common
Stock beneficially owned by them.
(b) The responses of each Reporting Person to Items 7
through 11 of the cover pages of this Schedule 13D relating to
beneficial ownership of the shares of Common Stock are
incorporated herein by reference.
(c) Except as set forth above, no Reporting Person nor, to
the best knowledge of the applicable Reporting Person, any person
identified in Schedule I through III, beneficially owns any
shares of Common Stock or has effected any transactions in shares
of Common Stock during the preceding 60 days.
(d) Not applicable.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS
WITH RESPECT TO SECURITIES OF THE ISSUER.
Under the Registration Rights Agreement attached as Exhibit 4
hereto, GECC (and certain other stockholders of the Company) are
entitled to request from the Company the registration under the
Securities Act of 1933, as amended, at any time after August 31,
1999 (unless (i) GECC consents to an earlier date or (ii)(a) the
offering price (net of underwriters' fees, commissions and
discounts) in such registration would provide GECC with a total
return on its investment of at least 40% per annum and (b) GECC
has the opportunity to include at least 50% of the Common Stock
held by it in such registration), of at least 1,000,000 shares of
Common Stock, up to a maximum of two such registrations in any 12-
month period.
The full texts of the Securities Purchase Agreement, the
Stockholders Agreement, the Warrant and the Registration Rights
Agreement are attached hereto as Exhibits 1 through 4 and are
incorporated herein by reference.
Except as set forth or incorporated by reference in this
Statement, none of the Reporting Persons nor, to the best
knowledge of the applicable Reporting Person, any person
identified in Schedules I through III, has any contracts,
arrangements, understandings or relationships (legal or
otherwise) with any person with respect to any securities of the
Company
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1: Securities Purchase Agreement, dated as of
August 26, 1996, between the Company and GECC.
Exhibit 2: Stockholders Agreement dated as of August 26,
1996 by and among the Company, GECC and certain
other stockholders.
Exhibit 3: Warrant dated as of August 26, 1996, issued by
the Company to GECC.
Exhibit 4: Registration Rights Agreement, dated as of
August 26, 1996, between the Company, GECC and
certain other stockholders.
Exhibit 5: Joint Filing Agreement, dated as of September 9,
1996, by and among GE, GECC and GECS.
Signature
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this
statement is true, complete and correct.
GENERAL ELECTRIC CAPITAL
CORPORATION
September 9, 1996 By: /s/ Joan C. Amble
----------------------
Name: Joan C. Amble
Title: Vice President and
Controller
GENERAL ELECTRIC CAPITAL
SERVICES, INC.
By: /s/ Joan C. Amble
----------------------
Name: Joan C. Amble
Title: Vice President and
Controller
GENERAL ELECTRIC COMPANY
By: /s/ Paul J. Licursi
----------------------
Name: Paul J. Licursi
Title: Attorney-in-Fact
Schedule I
GENERAL ELECTRIC CAPITAL CORPORATION
DIRECTORS AND EXECUTIVE OFFICERS
Present Present
Name Business Address Principal Occupation
- ----- ---------------- --------------------
Directors
- ---------
Nigel D. T. Andrews General Electric Executive Vice
Capital Corporation President, General
260 Long Ridge Road Electric Capital
Stamford, CT 06927 Corporation
Nancy E. Barton General Electric Senior Vice
Capital Corporation President, General
260 Long Ridge Road Counsel and
Stamford, CT 06927 Secretary, General
Electric Capital
Corporation
James R. Bunt General Electric Vice President and
Company Treasurer,
3135 Easton Turnpike General Electric
Fairfield, CT 06431 Company
Dennis D. Dammerman General Electric Senior Vice
Company President-Finance
3135 Easton Turnpike and Chief Financial
Fairfield, CT 06431 Officer, General
Electric Company
Paolo Fresco General Electric Vice Chairman and
Company Executive Officer,
3135 Easton Turnpike General Electric
Fairfield, CT 06431 Company
Dale F. Frey General Electric Vice President,
Investment Corporation General Electric
3003 Summer Street Company, Chairman
Stamford, CT 06904 and President,
General Electric
Investment
Corporation
GENERAL ELECTRIC CAPITAL CORPORATION
DIRECTORS AND EXECUTIVE OFFICERS
Benjamin W. General Electric Senior Vice
Heineman, Jr. Company President, General
3135 Easton Turnpike Counsel and
Fairfield, CT 06431 Secretary, General
Electric Company
Hugh J. Murphy General Electric Power Vice President,
Generation Sales General Electric
and Services Power Generation
One River Road Sales and Services
Schenectady, NY 12345
Denis J. Nayden General Electric President and Chief
Capital Corporation Operating Officer,
260 Long Ridge Road General Electric
Stamford, CT 06927 Capital Corporation
Michael A. Neal General Electric Executive Vice
Capital Corporation President, General
260 Long Ridge Road Electric Capital
Stamford, CT 06927 Corporation
James A. Parke General Electric Senior Vice
Capital Corporation President, Finance,
260 Long Ridge Road General Electric
Stamford, CT 06927 Capital Corporation
John M. Samuels General Electric Vice President and
Company Senior Counsel,
3135 Easton Turnpike Corporate Taxes,
Fairfield, CT 06431 General Electric
Company
Edward D. Stewart General Electric Executive Vice
Capital Corporation President, General
260 Long Ridge Road Electric Capital
Stamford, CT 06927 Corporation
GENERAL ELECTRIC CAPITAL CORPORATION
DIRECTORS AND EXECUTIVE OFFICERS
John F. Welch, Jr. General Electric Chairman and Chief
Company Executive Officer,
3135 Easton Turnpike General Electric
Fairfield, CT 06431 Company
Gary C. Wendt General Electric Chairman and Chief
Capital Corporation Executive Officer,
260 Long Ridge Road General Electric
Stamford, CT 06927 Capital Corporation
Officers
- ---------
Gary C. Wendt General Electric Chairman and Chief
Capital Corporation Executive Officer
260 Long Ridge Road
Stamford, CT 06927
Denis J. Nayden General Electric President and Chief
Capital Corporation Operating Officer
260 Long Ridge Road
Stamford, CT 06927
Nigel D. T. Andrews General Electric Executive Vice
Capital Corporation President
260 Long Ridge Road
Stamford, CT 06927
Michael A. Neal General Electric Executive Vice
Capital Corporation President
260 Long Ridge Road
Stamford, CT 06927
Edward D. Stewart General Electric Executive Vice
Capital Corporation President
260 Long Ridge Road
Stamford, CT 06927
GENERAL ELECTRIC CAPITAL CORPORATION
DIRECTORS AND EXECUTIVE OFFICERS
Nancy E. Barton General Electric Senior Vice
Capital Corporation President, General
260 Long Ridge Road Counsel and
Stamford, CT 06927 Secretary
James A. Colica General Electric Senior Vice
Capital Corporation President and
260 Long Ridge Road Manager, Risk
Stamford, CT 06927 Management and
Credit Policy
Michael D. Fraizer General Electric Senior Vice
Capital Corporation President,
260 Long Ridge Road Insurance/Investment
Stamford, CT 06927 Products
Robert L. Lewis General Electric Senior Vice
Capital Corporation President and
1600 Summer Street General Manager,
6th Floor Global Project &
Stamford, CT 06905 Structured Finance
James A. Parke General Electric Senior Vice
Capital Corporation President, Finance
260 Long Ridge Road
Stamford, CT 06927
Lawrence J. Toole General Electric Senior Vice
Capital Corporation President, Human
260 Long Ridge Road Resources
Stamford, CT 06927
Jeffrey S. Werner General Electric Senior Vice
Capital Corporation President,
201 High Ridge Road Corporate Treasury
Stamford, CT 06927 and Global Funding
Operation
Schedule II
GENERAL ELECTRIC CAPITAL SERVICES, INC.
DIRECTORS AND EXECUTIVE OFFICERS
Present Present
Name Business Address Principal Occupation
- ----- ---------------- --------------------
Directors
- ---------
Gary C. Wendt General Electric Chairman, President
Capital Services, and Chief Executive
Inc. Officer, General
260 Long Ridge Electric Capital
Road Services, Inc.
Stamford, CT 06927
Kaj Ahlmann Employers Executive Vice
Reinsurance Corp. President, General
5200 Metcalf Electric Capital
Overland Park, KS Services, Inc.,
66201 President and Chief
Operating Officer,
Employers Reinsurance
Corp.
Nigel D.T. Andrews General Electric Executive Vice
Capital President, General
Corporation Electric Capital
260 Long Ridge Corporation
Road
Stamford, CT 06927
James R. Bunt General Electric Vice President and
Company Treasurer, General
3135 Easton Electric Company
Turnpike
Fairfield, CT
06431
Dennis D. Dammerman General Electric Senior Vice President-
Company Finance and Chief
3135 Easton Financial Officer,
Turnpike General Electric Company
Fairfield, CT
06431
GENERAL ELECTRIC CAPITAL SERVICES, INC.
DIRECTORS AND EXECUTIVE OFFICERS
Paolo Fresco General Electric Vice Chairman and
Company Executive Officer,
3135 Easton General Electric
Turnpike Company
Fairfield, CT
06431
Dale F. Frey General Electric Vice President,
Investment General Electric
Corporation Company, Chairman
3003 Summer Street and President,
Stamford, CT 06904 General Electric
Investment
Corporation
Benjamin W. General Electric Senior Vice President,
Heineman, Jr. Company General
3135 Easton Counsel and Secretary,
Turnpike General Electric
Fairfield, CT Company
06431
Hugh J. Murphy General Electric Vice President,
Power Generation General Electric Power
Sales and Services Generation Sales and
One River Road Services
Schenectady, NY
12345
Denis J. Nayden General Electric President and Chief
Capital Operating Officer,
Corporation General Electric
260 Long Ridge Capital Corporation
Road
Stamford, CT 06927
GENERAL ELECTRIC CAPITAL SERVICES, INC.
DIRECTORS AND EXECUTIVE OFFICERS
Michael A. Neal General Electric Executive Vice
Capital President, General
Corporation Electric Capital
260 Long Ridge Corporation
Road
Stamford, CT 06927
John M. Samuels General Electric Vice President and
Company Senior Counsel,
3135 Easton Corporate Taxes,
Turnpike General Electric
Fairfield, CT Company
06431
Edward D. Stewart General Electric Executive Vice
Capital President, General
Corporation Electric Capital
260 Long Ridge Corporation
Road
Stamford, CT 06927
John F. Welch, Jr. General Electric Chairman and Chief
Company Executive Officer,
3135 Easton General Electric
Turnpike Company
Fairfield, CT
06431
Officers
- ----------
Kaj Ahlmann Employers Executive Vice
Reinsurance Corp. President, General
5200 Metcalf Electric Capital
Overland Park, KS Services, Inc.,
66201 President and Chief
Operating Officer,
Employers Reinsurance
Corp.
GENERAL ELECTRIC CAPITAL SERVICES, INC.
DIRECTORS AND EXECUTIVE OFFICERS
Nigel D. T. Andrews General Electric Executive Vice
Capital President
Corporation See Schedule 1.
260 Long Ridge
Road
Stamford, CT 06927
Dennis J. Nayden General Electric President and Chief
Capital Operating Officer
Corporation See Schedule 1.
260 Long Ridge
Road
Stamford, CT 06927
Michael A. Neal General Electric Executive Vice
Capital President
Corporation See Schedule 1.
260 Long Ridge
Road
Stamford, CT 06927
Edward D. Stewart General Electric Executive Vice
Capital President
Corporation See Schedule 1.
260 Long Ridge
Road
Stamford, CT 06927
Nancy E. Barton General Electric Senior Vice President,
Capital General Counsel and
Corporation Secretary
260 Long Ridge See Schedule 1.
Road
Stamford, CT 06927
GENERAL ELECTRIC CAPITAL SERVICES, INC.
DIRECTORS AND EXECUTIVE OFFICERS
James A. Parke General Electric Senior Vice President,
Capital Finance
Corporation See Schedule 1.
260 Long Ridge
Road
Stamford, CT 06927
Lawrence J. Toole General Electric Senior Vice President,
Capital Human Resources
Corporation See Schedule 1.
260 Long Ridge
Road
Stamford, CT 06927
Jeffrey S. Werner General Electric Senior Vice President,
Capital Corporate Treasury and
Corporation Global Funding
201 High Ridge Operation
Road See Schedule 1.
Stamford, CT 06927
Schedule III
GENERAL ELECTRIC COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
Present Present
Name Business Address Principal Occupation
- ----- ---------------- --------------------
Directors
- ---------
D.W. Calloway Pepsico, Inc. Chairman of the
700 Anderson Hill Board, Pepsico, Inc.
Road
Purchase, NY 10577
S.S. Cathcart 222 Wisconsin Avenue Director and Retired
Suite 103 Chairman, Illinois
Lake Forest, IL Tool Works
60045
D.D. Dammerman General Electric Senior Vice
Company President-Finance and
3135 Easton Turnpike Chief Financial Officer,
Fairfield, CT 06431 General Electric
Company
P. Fresco General Electric Vice Chairman of the
Company Board and Executive
(U.S.A.) Officer, General
3 Shortlands, Electric Company
Hammersmith
London, W6 SBX,
England
C.X. Gonzalez Kimberly-Clark de Chairman of the
Mexico, Board and Chief
S.A. de C.V. Executive Officer,
Jose Luis Lagrange Kimberly-Clark de
103, Mexico, S.A. de C.V.
Tercero Piso
Colonia Los Morales
Mexico, D.F. 11510,
Mexico
R.E. Mercer General Electric Retired Chairman of
Company the Board and former
3135 Easton Turnpike Director, The
Fairfield, CT 06431 Goodyear Tire &
Rubber Company
GENERAL ELECTRIC COMPANY DIRECTORS
AND EXECUTIVE OFFICERS
G.G. Michelson Federated Department Member of the Board
Stores of Directors,
151 West 34th Street Federated Department
New York, NY 10001 Stores
J.D. Opie General Electric Vice Chairman of the
Company Board and Executive
3135 Easton Turnpike Officer, General
Fairfield, CT 06431 Electric Company
R.S. Penske Penske Corporation Chairman of the Board
13400 Outer Drive, and President, Penske
West Corporation and
Detroit, MI 48239- Detroit Diesel Corporation
4001
B.S. Prelskel Suite 3125 Former Senior Vice
60 East 42nd Street President, Motion
New York, NY 10165 Picture Association
of America
F.H.T. Rhodes Cornell University President Emeritus,
3104 Snee Building Cornell University
Ithaca, NY 14853
A.C. Sigler Champion Chairman of the
International Board, CEO and
Corporation Director, Champion
1 Champion Plaza International
Stamford, CT 06921 Corporation
D.A. Warner III J.P. Morgan & Co., Chairman of the
Inc. & Board,
Morgan Guaranty President, and Chief
Trust Co. Executive Officer,
60 Wall Street J.P. Morgan & Co.
New York, NY 10260 Incorporated and
Morgan
Guaranty Trust
Company
GENERAL ELECTRIC COMPANY DIRECTORS
AND EXECUTIVE OFFICERS
J.F. Welch, Jr. General Electric Chairman of the
Company Board and Chief
3135 Easton Turnpike Executive Officer,
Fairfield, CT 06431 General Electric
Company
GENERAL ELECTRIC COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
Executive Officers
- ------------------
J.F. Welch, Jr. General Electric Chairman of the
Company Board and Chief
3135 Easton Turnpike Executive Officer
Fairfield, CT 06431
P. Fresco General Electric Vice Chairman of the
Company Board and
(U.S.A.) Executive Officer
3 Shortlands,
Hammersmith
London, W6 SBX,
England
P.D. Ameen General Electric Vice President and
Company Comptroller
3135 Easton Turnpike
Fairfield, CT 06431
J.R. Bunt General Electric Vice President and
Company Treasurer
3135 Easton Turnpike
Fairfield, CT 06431
D.L. Calhoun General Electric Vice President -
Company GE Transportation
2901 East Lake Road Systems
Erie, PA 16531
W.J. Conaty General Electric Senior Vice
Company President - Human
3135 Easton Turnpike Resources
Fairfield, CT 06431
D.M. Cote General Electric Vice President -
Company GE Appliances
3135 Easton Turnpike
Fairfield, CT 06431
D.D. Dammerman General Electric Senior Vice
Company President -
3135 Easton Turnpike Finance and Chief
Fairfield, CT 06431 Financial Officer
GENERAL ELECTRIC COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
L.S. Edelheit General Electric Senior Vice
Company President -
P.O. Box 8 Corporate Research
Schenectady, NY and Development
12301
D.F. Frey General Electric Vice President and
Company Chairman &
3003 Summer Street President,
Stamford, CT 06905 GE Investments
Corp.
B.W. Heineman, Jr. General Electric Senior Vice
Company President -
3135 Easton Turnpike General Counsel
Fairfield, CT 06431 and Secretary
W.J. McNerney, Jr. General Electric Senior Vice
Company President -
Nela Park GE Lighting
Cleveland, OH 44122
E.F. Murphy General Electric Senior Vice
Company President -
1 Newmann Way GE Aircraft
Cincinnati, OH 05215 Engines
R.L. Nardelli General Electric Senior Vice
Company President -
1 River Road GE Power Systems
Schenectady, NY
12345
R.W. Nelson General Electric Vice President -
Company Corporate
3135 Easton Turnpike Financial Planning
Fairfield, CT 06431 and Analysis
J.D. Opie General Electric Vice Chairman of the
Company Board and
3135 Easton Turnpike Executive Officer
Fairfield, CT 06431
GENERAL ELECTRIC COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
G.M. Reiner General Electric Senior Vice
Company President - Chief
3135 Easton Turnpike Information
Fairfield, CT 06431 Officer
G.L. Rogers General Electric Senior Vice
Company President -
1 Plastics Avenue GE Plastics
Pittsfield, MA 01201
J.W. Rogers General Electric Vice President -
Company GE Motors
1635 Broadway
Fort Wayne, IN 46801
J.M. Trani General Electric Senior Vice
Company President -
P.O. Box 414 GE Medical Systems
Milwaukee, WI 53201
L.G. Trotter General Electric Vice President -
Company GE Electrical
41 Woodford Avenue Distribution and
Plainville, CT 06062 Control
Schedule IV
United States ex rel. Taxpayers Against Fraud and Chester L.
Walsh v. General Electric Company
On November 15, 1990, an action under the federal False
Claims Act 31 U.S.C. Sections 3729-32, was filed under seal
against General Electric Company ("GE") in the United States
District Court for the Southern District of Ohio. The qui tam
action, brought by an organization called Taxpayers Against Fraud
and an employee of GE's Aircraft Engines division ("GEAE"),
alleged that GEAE, in connection with its sales of F110 aircraft
engines and support equipment to Israel, made false statements to
the Israeli Ministry of Defense (MoD), causing MoD to submit
false claims to the United States Department of Defense under the
Foreign Military Sales Program. Senior GE management became
aware of possible misconduct in GEAE's Israeli F110 program in
December 1990. Before learning of the sealed qui tam suit, GE
immediately made a voluntary disclosure to the Departments of
Defense and Justice, promised full cooperation and restitution,
and began an internal investigation. In August 1991, the federal
court action was unsealed, and the Department of Justice
intervened and took over responsibility for the case.
On July 22, 1992, after GE had completed its investigation
and made a complete factual disclosure to the U.S. government as
part of settlement discussions, the United States and GE executed
a settlement agreement and filed a stipulation dismissing the
civil action. Without admitting or denying the allegations in
the complaint, GE agreed to pay $59.5 million in full settlement
of the civil fraud claims. Also on July 22, 1992, in connection
with the same matter, the United States filed a four count
information charging GE with violations of 18 U.S.C. Section 287
(submitting false claims against the United States), 18 U.S.C.
Section 1957 (engaging in monetary transactions in criminally
derived property), and 15 U.S.C. Sections 78m(b)(2)(A) and
78ff(a) (inaccurate books and records), and 18 U.S.C. Section 371
(conspiracy to defraud the United States and to commit offenses
against the United States). The same day, GE and the United
States entered a plea agreement in which GE agreed to waive
indictment, plead guilty to the information, and pay a fine of
$9.5 million. GE was that day sentenced by the federal court in
accordance with the plea agreement.
SECURITIES PURCHASE AGREEMENT
BETWEEN
KRAUSE'S FURNITURE, INC.
AND
GENERAL ELECTRIC CAPITAL CORPORATION
Dated as of August 26, 1996
TABLE OF CONTENTS
Page
1. Purchase and Sale of the Securities. 1
1.1. Authorization to Sell the Securities 1
1.2. Closing 1
1.3. Deliveries at Closing 2
1.4. Cancellation of Certain Indebtedness 3
1.5. Definitions 3
2. Representations and Warranties of the Company 3
2.1. Organization and Qualification 3
2.2. Due Authorization 4
2.3. Subsidiaries 4
2.4. SEC Reports 4
2.5. Financial Statements 5
2.6. Actions Pending; Compliance with Laws 5
2.7. Title to Properties; Insurance 6
2.8. Governmental Consents, etc. 6
2.9. Holding Company Act and Investment
Company Act 6
2.10. Taxes 6
2.11. Conflicting Agreements and Charter
Provisions 7
2.12. Capitalization 7
2.13. Issuance, Sale and Delivery of the Notes
and the Warrant 8
2.14. Issuance, Sale and Delivery of the Common
Stock 8
2.15. Registration Under Exchange Act 8
2.16. ERISA 9
2.17. Possession of Franchises, Licenses, Etc. 9
2.18. Environmental and Other Regulations 10
2.19. Patents and Trademarks 10
2.20. Material Contracts and Obligations 10
2.21. Books and Records 11
2.22. Transactions with Related Parties 11
2.23. Brokers 11
2.24. Accuracy of Information 11
2.25. Offering of Securities 12
2.26. Use of Proceeds 12
2.27. Unlawful Use of Proceeds 12
3. Representations and Warranties of the Purchaser 13
3.1. Organization and Qualification 13
3.2. Due Authorization 13
3.3. Conflicting Agreements and Other Matters 13
3.4. Acquisition for Investment 14
3.5. Brokers or Finders 14
3.6. Accredited Investor 14
4. Registration, Exchange and Transfer of Notes 14
4.1. Authorized Denominations of Notes 14
4.2. The Note Register; Persons Deemed Owners 14
4.3. Issuance of New Notes Upon Exchange or
Transfer 15
4.4. Lost, Stolen, Damaged and Destroyed Notes 15
5. Payment of Notes 15
5.1. Home Office Payment 15
5.2. Limitation on Interest 16
5.3. Interest 16
5.4. Business Day 16
6. Covenants of the Company 16
6.1. Payment of the Notes 16
6.2. Financial Covenants 17
6.3. Limitation on Senior Equity Securities 18
6.4. Merger; Purchase and Sale of Assets 18
6.5. Compliance with Laws 19
6.6. Limitation on Agreements 19
6.7. Preservation of Franchises and Existence 19
6.8. Insurance 19
6.9. Payment of Taxes and Other Charges 20
6.10. Effect of Certain Breaches 20
6.11. ERISA 21
6.12. Financial Statements and Other Reports 21
6.13. Inspection of Property 22
6.14. Rights of First Offer 23
6.15. Lost, Stolen, Damaged and Destroyed Stock
Certificates 24
6.16. Related Party Transactions 24
6.17 Operations in Accordance with Business
Plan. 24
6.18 Best Efforts to Cause the Conversion of
Preferred Stock 24
6.19. Notice of Breach 24
7. Restrictions on Transfer 25
8. Events of Default and Remedies 25
8.1. Events of Default 25
8.2. Acceleration of Maturity 27
8.3. Other Remedies 27
8.4. Conduct no Waiver; Collection Expenses 28
8.5. Annulment of Acceleration 28
8.6. Remedies Cumulative 28
8.7. Limitations 29
9. Redemption 29
9.1. Optional Redemption 29
9.2. Mandatory Redemption 29
9.3. Procedures for Partial Redemption 29
9.4. Change in Control 29
9.5. Redemption Procedures 30
10. Subordination of Notes 30
10.1. Subordination of Notes to Senior
Indebtedness 30
10.2. Proofs of Claim of Holders of Senior
Indebtedness; Voting 33
10.3. Rights of Holders of Senior Indebtedness
Unimpaired 33
10.4. Effects of Event of Default 33
10.5. Company's Obligations Unimpaired 34
10.6. Subrogation 34
11. Interpretation 34
11.1 Definitions 34
11.2. Accounting Principles 40
12. Miscellaneous 40
12.1. Payments 40
12.2. Severability 40
12.3. Specific Enforcement 40
12.4. Entire Agreement 41
12.5. Counterparts 41
12.6. Notices and other Communications 41
12.7. Amendments 42
12.8. Cooperation 42
12.9. Successors and Assigns 42
12.10.Expenses and Remedies 43
12.11.Survival of Representations and
Warranties 44
12.12.Transfer of Securities 44
12.13.Governing Law; Consent to Jurisdiction 45
12.14.Term 46
12.15.Publicity 46
12.16.Signatures 46
THIS SECURITIES PURCHASE AGREEMENT, dated as of
August 26, 1996 (this "Agreement"), between KRAUSE'S FURNITURE,
INC., a Delaware corporation (including its predecessors, the
"Company") and GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation (the "Purchaser").
WHEREAS, the Purchaser wishes to purchase from the
Company, and the Company wishes to sell to the Purchaser,
(i) 5,000,000 shares of the Company's Common Stock par value
$.001 per share (the "Common Stock"), at an aggregate purchase
price of $5,000,000, (ii) the Company's 10% Subordinated Pay-In-
Kind Notes due August 31, 2001 (including all securities issued
in exchange or replacement therefor or in respect of payments of
interest thereon, herein referred to as the "Notes",
substantially in the form set forth on Exhibit A hereto), in the
initial aggregate principal amount of $5,000,000, and (iii) in
connection with the sale of the Notes, a warrant (the "Warrant"
and, together with any warrants issued upon any division thereof,
the "Warrants") to purchase 1,400,000 shares of Common Stock,
having the terms and conditions set forth in the form of the
Warrant attached hereto as Exhibit B. The Common Stock, the
Notes and the Warrants are collectively referred to as the
"Securities".
WHEREAS, in connection with the purchase and sale of
the Securities, the Purchaser, the Company and the stockholders
listed on the signature pages thereof, will enter into a
Stockholders Agreement in substantially the form attached hereto
as Exhibit C (the "Stockholders Agreement").
WHEREAS, the Purchaser and the Company desire to
provide for such purchase and sale and to establish various
rights and obligations in connection therewith.
NOW, THEREFORE, in consideration of the premises and
the mutual covenants and agreements herein set forth, the parties
hereto agree as follows:
1. Purchase and Sale of the Securities.
1.1. Authorization to Sell the Securities. Subject to
the terms and conditions of this Agreement, the Company has duly
authorized the issuance and sale of the Securities.
1.2. Closing. The closing of the transactions
contemplated hereby (the "Closing") will take place at the
offices of Fried, Frank, Harris, Shriver & Jacobson, New York,
New York, at 9:00 a.m. on the date of this Agreement or on such
other date as shall be mutually agreed by the Company and the
Purchaser (the "Closing Date").
1.3. Deliveries at Closing. At the Closing:
(i)Stroock Stroock & Lavan and Olimpia, Whelan &
Lively, counsel to the Company, shall have delivered to the
Purchaser opinions dated the Closing Date with respect to
the matters set forth in Exhibit D hereto;
(ii) the Company shall have executed a
registration rights agreement in the form of Exhibit E
hereto (the "Registration Rights Agreement");
(iii) the Company shall have delivered to the
Purchaser the Warrant in the form of Exhibit B;
(iv) the Company shall have delivered to the
Purchaser stock certificates registered in the name of the
Purchaser representing 5,000,000 shares of Common Stock;
(v)the Company shall have delivered to the
Purchaser Notes in such denominations as the Purchaser has
requested, dated the Closing Date and registered in the name
of the Purchaser, in an initial aggregate principal amount
of $5,000,000;
(vi) the Purchaser shall have paid to the
Company $10,000,000 by wire transfer of immediately
available funds of which $5,000,000 shall represent the
purchase price for the Common Stock and $5,000,000 shall
represent the purchase price for the Notes and the Warrant;
(vii) the Company shall have delivered
evidence of cancellation of certain indebtedness of the
Company as described in Section 1.4 below;
(viii) the Company shall have delivered
evidence of the conversion to Common Stock of all shares of
the Company's Preferred Stock, par value $.001 per share
(the "Preferred Stock"), which are designated as Series A
Preferred Stock ("Series A Preferred Stock") outstanding
immediately before Closing (and all accrued but unpaid
dividends thereon) such that as of the Closing Date no
Preferred Stock will remain outstanding;
(ix) concurrently with the Closing hereunder,
Hawley Group (as set forth on Schedule 1.3A attached hereto)
shall have purchased from the Company 1,000,000 shares of
Common Stock for an aggregate purchase price of $1,000,000,
and the Other Investors (as set forth on Schedule 1.3B
attached hereto) shall have purchased from the Company
3,000,000 shares of Common Stock for an aggregate purchase
price of $3,000,000; and
(x)the employment agreement between the Company
and Philip M. Hawley, a copy which is attached as Exhibit F
hereto shall have been executed and delivered by the parties
thereto and shall be in full force and effect.
The Closing of the purchase and sale of the Securities
shall be deemed to have taken place in the State of New York.
1.4. Cancellation of Certain Indebtedness. On or
before the Closing Date, the Company shall enter into
Cancellation and Exchange Agreements with (a) Edson Investments
Inc. ("Edson"), the holder of (i) a Demand Promissory Note issued
by the Company in the aggregate principal amount of $1,500,000,
dated May 21, 1996 and (ii) a Demand Promissory Note issued by
the Company in the aggregate principal amount of $500,000, dated
July 2, 1996, and (b) each holder (together with Edson, each a
"Note Holder") of Series 1996-I or Series 1996-II Convertible
Promissory Notes, which are currently outstanding in the
aggregate principal amount of $950,000, whereby such
aforementioned indebtedness of the Company, including any accrued
and unpaid interest thereon, shall be cancelled in exchange for
shares of Common Stock. Each Note Holder shall receive the
number of shares of Common Stock equal to (x) the sum of (i) the
aggregate principal amount of indebtedness of the Company held by
such Note Holder and (ii) any accrued and unpaid interest thereon
divided by (y) the Common Stock purchase price of $1.00 per
share.
1.5. Definitions. Certain capitalized terms used in
this Agreement are defined in Section 11 hereof.
2. Representations and Warranties of the Company.
The Company represents and warrants as follows:
2.1. Organization and Qualification. Each of the
Company and its Subsidiaries is a corporation duly organized and
existing in good standing under the laws of the jurisdiction in
which it is incorporated and has the power to own its respective
property and to carry on its respective business as now being
conducted. Each of the Company and its Subsidiaries is duly
qualified as a foreign corporation to do business and in good
standing in every jurisdiction in which the nature of the
respective business conducted or property owned by it makes such
qualification necessary and where the failure so to qualify would
be material to the Company or such Subsidiary, as the case may
be.
2.2. Due Authorization. The execution and delivery of
this Agreement, the Stockholders Agreement, the Registration
Rights Agreement, the Notes and the Warrant and the issuance and
sale of the Securities by the Company and compliance by the
Company with all the provisions of this Agreement, the
Stockholders Agreement, the Registration Rights Agreement, the
Notes and the Warrant (i) are within the corporate power and
authority of the Company; (ii) do not or will not require any
approval or consent of the stockholders of the Company, other
than approvals and consents which have been duly obtained; and
(iii) have been authorized by all requisite corporate proceedings
on the part of the Company. This Agreement, the Stockholders
Agreement, the Registration Rights Agreement, the Notes and the
Warrant have been duly executed and delivered by the Company and
constitute valid and binding agreements of the Company,
enforceable in accordance with their respective terms, except
that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights, and (ii)
the remedy of specific performance and injunctive and other forms
of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor
may be brought. The Company has furnished to the Purchaser true
and correct copies of the Company's Certificate of Incorporation
and By-laws as in effect on the date of this Agreement.
2.3. Subsidiaries. The Subsidiaries of the Company,
all of which are wholly owned by the Company, together with their
jurisdiction of incorporation, are as set forth on Schedule 2.3
hereto.
2.4. SEC Reports. The Company and its predecessors
have filed all proxy statements, reports and other documents
required to be filed by it under the Securities Exchange Act of
1934, as amended, (the "Exchange Act") since December 31, 1993;
and the Company has furnished the Purchaser copies of its Annual
Report on Form 10-K for the fiscal year ended December 31, 1993,
and all proxy statements and reports under the Exchange Act filed
by the Company after such date, each as filed with the Securities
and Exchange Commission (the "Commission") (collectively, the
"SEC Reports"). Each SEC Report was in compliance with the
requirements of its respective report form and did not on the
date of filing contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading and as
of the date hereof there is no fact not disclosed in the SEC
Reports which is material to the Company.
2.5. Financial Statements. The financial statements
(including any related schedules and/or notes) included in the
SEC Reports have been prepared in accordance with generally
accepted accounting principles consistently followed (except as
indicated in the notes thereto) throughout the periods involved
and fairly present the consolidated financial condition, results
of operations, changes in stockholders' equity and cash flows of
the Company and its Subsidiaries as of the dates thereof and for
the periods ended on such dates (in each case subject, as to
interim statements, to changes resulting from year-end
adjustments, which in the aggregate will not be material in
amount or effect), and the Company and its Subsidiaries have no
material liabilities, contingent or otherwise, not reflected in
the Company's balance sheet as of January 28, 1996, included in
the SEC Reports or otherwise referred to in the SEC Reports or
otherwise disclosed to the Purchaser in writing prior to the date
of this Agreement, other than any such liabilities incurred in
the ordinary course of business since January 28, 1996. Since
January 28, 1996, the Company and its Subsidiaries have operated
their respective businesses only in the ordinary course and no
event has occurred which has or is reasonably likely to have a
material adverse effect on the business, financial condition,
operations, results of operations, assets, liabilities or
prospects of the Company or any of its Subsidiaries (a "Material
Adverse Effect"), other than changes disclosed or referred to in
the SEC Reports or otherwise disclosed to the Purchaser in
writing prior to the date of this Agreement.
2.6. Actions Pending; Compliance with Laws. There is
no action, suit, investigation or proceeding pending or, to the
knowledge of the Company, threatened by any public official or
governmental authority, against the Company or any of its
Subsidiaries or any of their respective properties or assets by
or before any court, arbitrator or governmental body, department,
commission, board, bureau, agency or instrumentality, which
questions the validity or enforceability of, or seeks to enjoin
or invalidate this Agreement, the Stockholders Agreement, the
Registration Rights Agreement or the Securities or any action
taken or to be taken pursuant hereto or thereto, or, except as
set forth in the SEC Reports or as otherwise disclosed to the
Purchaser in writing, which is reasonably likely to be material
to the Company or any of its Subsidiaries, and neither the
Company nor any of its Subsidiaries is in default in any material
respect with respect to any judgment, order, writ, injunction,
decree or award.
2.7. Title to Properties; Insurance. The Company and
each of its Subsidiaries have good and valid title to, or, in the
case of property leased by any of them as lessee, a valid and
subsisting leasehold interest in, their respective properties and
assets, free of all liens and encumbrances other than those
referred to in the financial statements of the Company (or the
notes thereto) for the year ended January 28, 1996, included in
the SEC Reports, except in each case for such defects in title
and such other liens and encumbrances which are disclosed in the
SEC Reports or which do not in the aggregate materially detract
from the value to the Company and its Subsidiaries of their
respective properties and assets. The Company and its
Subsidiaries maintain insurance in such amounts (to the extent
available in the public market), including self-insurance,
retainage and deductible arrangements, and of such a character as
is reasonable for companies engaged in the same or similar
business. All insurance policies of the Company and its
Subsidiaries are disclosed on Schedule 2.7.
2.8. Governmental Consents, etc. The Company is not
required to obtain any consent, approval or authorization of, or
to make any declaration or filing with, any governmental
authority as a condition to or in connection with the valid
execution, delivery and performance of this Agreement, the
Stockholders Agreement, and the Registration Rights Agreement,
the Notes and the Warrant and the valid offer, issue, sale or
delivery of the Securities, or the performance by the Company of
its obligations in respect thereof, except for any filings
required to effect any registration pursuant to the Registration
Rights Agreement and any filings required pursuant to state and
federal securities laws which will be timely made after the
Closing hereunder.
2.9. Holding Company Act and Investment Company Act.
Neither the Company nor any Subsidiary is: (i) a "public utility
company" or a "holding company," or an "affiliate" or a
"subsidiary company" of a "holding company," or an "affiliate" of
such a "subsidiary company," as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended, or (ii) a
"public utility," as defined in the Federal Power Act, as
amended, or (iii) an "investment company" or an "affiliated
person" thereof or an "affiliated person" of any such "affiliated
person," as such terms are defined in the Investment Company Act
of 1940, as amended.
2.10. Taxes. The Company and each of its Subsidiaries
have filed or caused to be filed all tax returns which are
required to be filed and have paid or caused to be paid all taxes
as shown on said returns and on all assessments received by them
to the extent that such taxes have become due, except taxes the
validity or amount of which is being contested in good faith by
appropriate proceedings and with respect to which adequate
reserves have been set aside. The federal income tax returns of
the Company and its Subsidiaries have been examined and reported
on by the Internal Revenue Service (or closed by applicable
statutes) and all tax liabilities including additional
assessments have been satisfied for all fiscal years prior to and
including the fiscal year ended December 31, 1993, for the
Company and its Subsidiaries and May 2, 1992 for Krause's Sofa
Factory and its Subsidiaries. The Company and its Subsidiaries
have paid or caused to be paid, or have established reserves that
the Company reasonably believes to be adequate, for all federal
income tax liabilities and state income tax liabilities
applicable to the Company or any of its Subsidiaries for all
fiscal years which have not been examined and reported on by the
taxing authorities (or closed by applicable statutes).
2.11. Conflicting Agreements and Charter Provisions.
Neither the Company nor any of its Subsidiaries is a party to any
contract or agreement or subject to any charter or bylaw
provision or judgment or decree which has or is reasonably likely
to have a Material Adverse Effect. None of (i) the execution and
delivery of this Agreement, the Shareholders Agreement, the
Registration Rights Agreement, the Notes and the Warrant and the
issuance of the Securities and (ii) the fulfillment of and
compliance with the terms and provisions hereof and thereof and
of the Securities will conflict with or result in a breach of the
terms, conditions or provisions of, or give rise to a right of
termination under, or constitute a default under, or result in
any violation of, the Certificate of Incorporation or By-laws of
the Company or any Subsidiary or any mortgage, agreement,
instrument, order, judgment, decree, statute, law, rule or
regulation to which the Company or any Subsidiary or any of their
respective properties is subject. Neither the Company nor any of
its Subsidiaries (i) is in default under any outstanding
indenture or other debt instrument or with respect to the payment
of principal of or interest on any outstanding obligation for
borrowed money, or (ii) is in default under any of their
respective contracts or agreements, or under any instrument by
which the Company or any of its Subsidiaries is bound which
default, in the case of this clause (ii), individually or in the
aggregate with all other such defaults, would be material to the
Company or any of its Subsidiaries.
2.12. Capitalization. As of the date hereof, the
authorized capital stock of the Company consists of: (a)
35,000,000 shares of Common Stock, of which 4,120,810 shares are
validly issued and outstanding, fully paid and nonassessable; (b)
warrants to purchase 185,701 shares of Common Stock which are
validly issued and outstanding, fully paid and nonassessable; (c)
options to purchase 191,614 shares of Common Stock which are
validly issued and outstanding, fully paid and nonassessable; and
(d) 666,667 shares of Preferred Stock, of which 117,694 shares of
Series A Preferred Stock are validly issued and outstanding,
fully paid and nonassessable, and no other shares of Preferred
Stock are outstanding, as of the closing, 78,749 shares of such
Series A Preferred Stock shall be converted into shares of Common
Stock. All of the outstanding shares of Common Stock have been
validly issued and are fully paid and nonassessable. No class of
capital stock of the Company is entitled to preemptive rights.
Except for the options and warrants listed above and letter
agreements providing for the grant to employees of options to
purchase 15,000 shares of Common Stock, there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or
securities or rights convertible into, shares of any class of
capital stock of the Company, or contracts, commitments,
understandings, or arrangements by which the Company is or may
become bound to issue additional shares of its capital stock or
options, warrants or rights to purchase or acquire any shares of
its capital stock. Since January 1, 1996, except for an increase
in the number of authorized shares of Common Stock from 8,333,333
shares to 35,000,000 shares, the Company has not changed the
amount of its authorized capital stock or subdivided or otherwise
changed any shares of any class of its capital stock, whether by
way of reclassification, recapitalization, stock split or
otherwise, or issued or reissued, or agreed to issue or reissue,
any of its capital stock.
2.13. Issuance, Sale and Delivery of the Notes and the
Warrant. When issued and delivered by the Company, and paid for
by the Purchaser, the Notes and the Warrant will constitute valid
and legally binding obligations of the Company enforceable
against it in accordance with their terms, except as
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
creditors' and contracting parties' rights generally and except
as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law).
2.14. Issuance, Sale and Delivery of the Common Stock.
The shares of Common Stock being issued to the Purchaser at the
Closing are duly authorized and when issued and delivered in
accordance herewith will be, validly issued, fully paid and
nonassessable. The shares of Common Stock which will be issued
upon exercise of the Warrant have been authorized and reserved
for issuance, and when issued and delivered in accordance with
the terms of the Warrant, will be validly issued, fully paid and
nonassessable.
2.15. Registration Under Exchange Act. The Company has
not registered the Notes or the Warrant as a class pursuant to
Section 12 of the Exchange Act. Neither the Notes nor the
Warrant will be registered as such class and such registration is
not required except as otherwise required by the provisions of
the Registration Rights Agreement.
2.16. ERISA. No accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, exists with respect to any Pension Plan
(as defined in Section 11) (other than a Multiemployer Plan (as
defined below)). No liability to the PBGC has been, or is
reasonably likely to be, incurred with respect to any Pension
Plan (other than a Multiemployer Plan) by the Company, any of its
Subsidiaries or any ERISA Affiliate (as defined below) which is
or would be materially adverse to the Company, its Subsidiaries
and any ERISA Affiliate. Neither the Company nor any of its
Subsidiaries and any ERISA Affiliate has incurred, or is
reasonably likely to incur, any withdrawal liability under Title
IV of ERISA with respect to any Multiemployer Plan which is or
would be materially adverse to the Company, its Subsidiaries and
its ERISA Affiliates and if the Company, its Subsidiaries and
ERISA Affiliates, were to completely withdraw as of the date
hereof from each Multiemployer Plan in which they participate,
the Company, its Subsidiaries and its ERISA Affiliates would not
incur any material withdrawal liability under Title IV of ERISA.
Neither the Company nor any of its Subsidiaries has any
obligation to provide post-retirement health benefits to any
employee or former employee. No fiduciary of any employee
benefit plan (as defined in Section 3(3) of ERISA) maintained or
contributed to by the Company or any of its subsidiaries, for the
benefit of their respective employees (each an "Employee Plan")
has engaged or caused any Employee Plan to engage in any
transaction prohibited by Section 4975 of the Code or Section 406
of ERISA which is reasonably likely to subject the Company or any
Subsidiary or any entity the Company or any Subsidiary has an
obligation to indemnify to any tax or penalty imposed under
Section 4975 of the Code or Section 502 of ERISA. Each Employee
Plan has been maintained and administered in compliance with all
applicable law including ERISA and the Code in all material
respects. An "ERISA Affiliate" for purposes of this Section is
any trade or business, whether or not incorporated, which,
together with the Company, is under common control, as described
in Section 414(b) or (c) of the Code, and the term "Multiemployer
Plan" shall mean any Pension Plan which is a "multiemployer plan"
(as such term is defined in Section 4001(a)(3) of ERISA).
2.17. Possession of Franchises, Licenses, Etc. The
Company and its Subsidiaries possess all franchises,
certificates, licenses, permits and other authorizations from
governmental or political subdivisions or regulatory authorities
and all patents, trademarks, service marks, trade names,
copyrights, licenses and other rights, free from burdensome
restrictions, that are necessary in any material respect to the
Company or any of its Subsidiaries for the ownership, maintenance
and operation of their respective properties and assets, and
neither the Company nor any of its Subsidiaries is in violation
of any thereof in any material respect.
2.18. Environmental and Other Regulations. The Company
and its Subsidiaries are in compliance with all applicable
federal, state, local and foreign laws and regulations relating
to protection of the environment and human health, and are in
compliance in all material respects with all other applicable
federal, state, local and foreign laws and regulations,
including, without limitation, those relating to equal employment
opportunity and employment safety. There are no claims, notices,
civil, criminal or administrative actions, suits, hearings,
investigations, inquiries or proceedings pending or, to the best
knowledge of the Company, threatened against the Company or any
Subsidiary that are based on or related to any environmental
matters, including any disposal of hazardous substances at any
place, or the failure to have any required environmental permits,
and there are no past or present conditions that are likely to
give rise to any liability or other obligations of the Company or
any Subsidiary under any environmental laws.
2.19. Patents and Trademarks. Set forth on Schedule
2.19 is a true and complete list of all patents, patent
applications, trademarks, service marks, trademark and service
mark applications, trade names, copyrights and licenses presently
used by the Company or any Subsidiary or necessary for the
conduct of the business of the Company and its Subsidiaries as
conducted and as proposed to be conducted (the "Intellectual
Property Rights"). The Company owns, or has the right to use
under the agreements or upon the terms described on Schedule
2.19, all of the Intellectual Property Rights. To the best of
the Company's knowledge, the business conducted or proposed to be
conducted by the Company and its Subsidiaries does not infringe
or violate any of the patents, trademarks, service marks, trade
names, copyrights, licenses, trade secrets or other proprietary
rights of any other person or entity. Except as set forth on
Schedule 2.19, to the Company's knowledge, no other Person has
any right to or interest in any inventions, improvements,
discoveries or other confidential information utilized by the
Company or any Subsidiary in its business.
2.20. Material Contracts and Obligations. Schedule
2.20 sets forth a list of the following agreements or commitments
of any nature to which the Company or any Subsidiary is a party
or by which it is bound: (a) any agreement relating to the
Intellectual Property Rights, (b) all employment and consulting
agreements, and all employee benefit, bonus, pension, profit-
sharing, stock option, stock purchase and similar plans and
arrangements, (c) all manufacturing, distributor and sales
representative agreements and all agreements with suppliers or
vendors, (d) all agreements or commitments which restrict the
ability of the Company or any Subsidiary or Affiliate to engage
in any business or line of business in any location, (e) all
agreements or commitments relating to Indebtedness or Guarantees
of the Company or any Subsidiary and (f) any other agreement or
commitment which requires future payments by or to the Company or
any Subsidiary in excess of $50,000 or which is otherwise
material to the Company or any of its Subsidiaries. The Company
has delivered or made available to the Purchaser copies of all of
the foregoing agreements and commitments. All of such agreements
and commitments are valid, binding and in full force and effect,
except that, with respect to parties to such agreements and
commitments other than the Company and its Subsidiaries, this
representation is made only to the best knowledge of the Company.
2.21. Books and Records. All the books, records and
accounts of the Company and its Subsidiaries are in all material
respects true and complete, are maintained in accordance with
good business practice and all laws applicable to its business,
and accurately present and reflect in all material respects all
of the transactions therein described. The Company has
previously delivered to the Purchaser true and complete texts of
all of the minutes relating to meetings of the stockholders,
board of directors and committees of the board of directors of
the Company and each Subsidiary for the past five years.
2.22. Transactions with Related Parties. Schedule 2.22
sets forth a true and complete list of the amounts and other
essential terms of any contract, arrangement or transaction
currently in effect or effected during the past five years
between the Company or any Subsidiary and any Related Party,
other than (i) arrangements for the payment of salary, including
bonuses, for services rendered to the Company, which arrangements
have previously been disclosed to the Purchaser, (ii) other
arrangements with any such person which in the aggregate do not
involve more than $10,000 or (iii) as previously disclosed in the
SEC Reports.
2.23. Brokers. Neither the Company nor any Subsidiary
has engaged any finder, broker or investment adviser, and has no
obligation to pay any fees, in connection with the transactions
contemplated hereby.
2.24. Accuracy of Information. None of the
representations and warranties of the Company contained herein or
the information, documents or other materials (other than
projections) which have been furnished in writing by the Company
or any of its representatives to the Purchaser in connection with
the transactions contemplated by this Agreement contains any
material misstatement of fact, or omits any material fact
required to be stated herein or therein or necessary to make the
statements herein and therein not misleading. All projections
furnished in writing by the Company (i) have been prepared by
management of the Company after a careful analysis of all
material data, (ii) are based on reasonable assumptions by
management of the Company and (iii) represent the best estimate
by management of the Company, based upon current reasonable
assumptions, as to the financial performance of the Company and
its Subsidiaries for the periods indicated, but do not represent
any guarantee or assurance of the future financial results of the
Company and its Subsidiaries.
2.25. Offering of Securities. Neither the Company nor
any Person acting on its behalf has offered any of the Securities
or any similar securities of the Company for sale to, solicited
any offers to buy any of the Securities or any similar securities
of the Company from or otherwise approached or negotiated with
respect to the Company with any Person other than the Purchaser
and other "Accredited Investors" (as defined in Rule 501(a) under
the Securities Act). Neither the Company nor any Person acting
on its behalf has taken or will take any action (including,
without limitation, any offering of any securities of the Company
under circumstances which would require the integration of such
offering with the offering of any of the Securities under the
Securities Act and the rules and regulations of the Commission
thereunder) which could reasonably be expected to subject the
offering, issuance or sale of any of the Securities to the
registration requirements of Section 5 of the Securities Act.
2.26. Use of Proceeds. The proceeds of the sale of the
Securities will be used by the Company for the purpose of debt
reduction and for general corporate purposes.
2.27. Unlawful Use of Proceeds. (a) The Company will
not use any proceeds from the sale of the Notes to purchase or
carry any "Security", as defined in Section 3(a)(10) of the
Exchange Act, or for any other purpose which would result in any
transaction contemplated by this Agreement constituting a
"purpose credit" within the meaning of Regulation G issued by the
Board of Governors of the Federal Reserve System (12 CFR Part
207), or which would involve a violation of Section 7 of the
Exchange Act or Regulation T, U or X of said Board of Governors
(12 CFR Parts 220, 221 and 224, respectively).
(b)The Company does not intend to apply and will
not apply any part of the proceeds of the sale of the Notes in
any manner which is unlawful or which would involve a violation
of any regulation of the United States Treasury Department,
including, without limitation, the Foreign Assets Control
Regulations, the Transactions Control Regulations, the Cuban
Assets Control Regulations, the Foreign Funds Control
Regulations, the Iranian Assets Control Regulations, the Iraqi
Transactions Regulations, the Nicaraguan Trade Control
Regulations, the South African Transactions Regulations and the
Libyan Sanctions Regulations.
3. Representations and Warranties of the Purchaser.
The Purchaser represents and warrants as follows:
3.1. Organization and Qualification. The Purchaser is
a corporation duly organized and existing in good standing under
the laws of the jurisdiction of its formation and has the power
to own its respective property and to carry on its respective
business as now being conducted. The Purchaser is duly qualified
to do business and in good standing in every jurisdiction in
which the nature of the respective business conducted or property
owned by it makes such qualification necessary, except where the
failure to so qualify would not prevent consummation of the
transactions contemplated hereby or have a material adverse
effect on the Purchaser's ability to perform its obligations
hereunder.
3.2. Due Authorization. The Purchaser has all right,
power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by the Purchaser and the
consummation by the Purchaser of the transactions contemplated
hereby have been duly authorized by all necessary action on
behalf of the Purchaser. This Agreement has been duly executed
and delivered by the Purchaser and constitutes a valid and
binding agreement of the Purchaser enforceable in accordance with
its terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors,
rights, and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
3.3. Conflicting Agreements and Other Matters.
Neither the execution and delivery of this Agreement nor the
performance by the Purchaser of its obligations hereunder will
conflict with, result in a breach of the terms, conditions or
provisions of, constitute a default under, or require any
consent, approval or other action by or any notice to or filing
with any court or administrative or governmental body pursuant
to, the organizational documents or agreements of the Purchaser
or any mortgage, agreement, instrument, order, judgment, decree,
statute, law, rule or regulation to which the Purchaser or any of
its respective properties are subject.
3.4. Acquisition for Investment. The Purchaser is
acquiring the Securities being purchased by it for its own
account for the purpose of investment and not with a view to or
for sale in connection with any distribution thereof, and the
Purchaser has no present intention or plan to effect any
distribution thereof. The Purchaser acknowledges that the
Securities have not been registered under the Securities Act and
may be sold or disposed of in the absence of such registration
only pursuant to an exemption from such registration.
3.5. Brokers or Finders. No agent, broker, investment
banker or other firm or Person, including any of the foregoing
that is an Affiliate of the Purchaser, is or will be entitled to
any broker's fee or any other commission or similar fee from the
Purchaser in connection with any of the transactions contemplated
by this Agreement that the Company will be responsible for
pursuant to Section 12.10.
3.6. Accredited Investor. The Purchaser is an
"accredited investor" within the meaning of Rule 501 promulgated
under the Securities Act.
4. Registration, Exchange and Transfer of Notes.
4.1. Authorized Denominations of Notes. The Notes are
issuable only as fully registered Notes in denominations of at
least $100,000 and any integral multiple thereof; provided, that
Additional Notes (as defined below) may be issued in fractional
denominations as provided herein.
4.2. The Note Register; Persons Deemed Owners. The
Company shall maintain, at its office designated for notices in
accordance with Section 12.6, a register for the Notes (the "Note
Register"), in which the Company shall record the name and
address of the person in whose name each Note has been issued and
the name and address of each transferee and prior owner of each
Note. The Company may deem and treat the person in whose name a
Note is so registered as the holder and owner thereof for all
purposes and shall not be affected by any notice to the contrary,
until due presentment of such Note for registration of transfer
as provided in this Article 4.
4.3. Issuance of New Notes Upon Exchange or Transfer.
Upon surrender for exchange or registration of transfer of any
Note at the office of the Company designated for notices in
accordance with Section 12.6, the Company shall execute and
deliver, at its expense, one or more new Notes of any authorized
denominations requested by the holder of the surrendered Note,
each dated the date to which interest has been paid on the Note
so surrendered (or, if no interest has been paid, the date of
such surrendered Note), but in the same aggregate unpaid
principal amount as such surrendered Note, and registered in the
name of such person or persons as shall be designated in writing
by such holder. Every Note surrendered for registration of
transfer shall be duly endorsed, or be accompanied by a written
instrument of transfer duly executed, by the holder of such Note
or by his attorney duly authorized in writing. The Company may
also condition the issuance of any new Note or Notes in
connection with a transfer by any person on the payment of a sum
sufficient to cover any stamp tax or other governmental charge
imposed in respect of such transfer.
4.4. Lost, Stolen, Damaged and Destroyed Notes. At
the request of any Purchaser, the Company will issue, at its
expense, in replacement of any Note or Notes lost, stolen,
damaged or destroyed, upon surrender of the mutilated portions
thereof, if any, a new Note or Notes of the same denominations
and of the same unpaid principal amounts and otherwise of the
same tenor as the Note or Notes so lost, stolen, damaged or
destroyed.
5. Payment of Notes.
5.1. Home Office Payment. The Company will pay to the
Purchaser or any transferee thereof all sums becoming due on the
Notes (including all sums which become due on the Notes at the
maturity thereof) at the address specified by the Purchaser for
such purpose in Schedule 5.1 hereto, or at the address specified
by such transferee, by wire transfer of immediately available
funds, or at such other address or by such other method as a
Purchaser or transferee shall have designated by notice to the
Company, without presentment for notation of payment and without
surrender. Before selling or otherwise transferring any Note,
the Purchaser or transferee will make a notation thereon of the
aggregate amount of all payments of principal, if any,
theretofore made, and of the date to which interest has been
paid.
5.2. Limitation on Interest. No provision of this
Agreement or of any Note shall require the payment or permit the
collection of interest in excess of the maximum rate which is
permitted by law. If any such excess interest is provided for
herein or in any Note, or shall be adjudicated to be so provided
for, then the Company shall not be obligated to pay such interest
in excess of the maximum rate permitted by law, and the right to
demand payment of any such excess interest is hereby waived, any
other provisions in this Agreement or in any Note to the contrary
notwithstanding.
5.3. Interest. (a) Interest on the unpaid principal
balance of each Note shall be payable at a rate per annum
(computed on the basis of a 360-day year of twelve 30-day months)
of 10.00%, due and payable (i) quarterly, on each November 30,
February 28, May 31 and August 31 (each, a "Payment Date") after
the date of the Notes commencing with November 30, 1996 and (ii)
on the date of any prepayment, on the amount prepaid, until the
Notes have been paid in full.
(b)Accrued interest on each Note is required to
be paid in cash (in accordance with Section 5.1 herein) on each
Payment Date after August 31, 1998. On each Payment Date prior
to and including August 31, 1998, in lieu of payment of interest
in cash, the Company shall pay all interest in additional notes
(the "Additional Notes"), which shall be dated the applicable
Payment Date, shall bear interest from and after such date, shall
mature on August 31, 2001 and shall be governed by, and subject
to the terms, provisions and conditions of, this Agreement,
except that interest shall accrue on each Additional Note from
the date of such Additional Note.
5.4. Business Day. Any payments in respect of any
Note which are required under this Agreement to be made on a day
which is not a Business Day shall be made on the next succeeding
Business Day.
6. Covenants of the Company. From the date hereof
and as long as any of the Notes remain outstanding:
6.1. Payment of the Notes. The Company shall pay the
principal of and interest on the Notes (including Additional
Notes) on the dates and in the manner provided in this Agreement
and the Notes.
6.2. Financial Covenants. (a) The Company will not
permit its Consolidated Net Worth at any time to be less than the
amounts set forth below for the fiscal years indicated:
1996 $15,500,000
1997 $14,000,000
1998 $14,500,000
1999 $17,000,000
2000 $24,000,000
2001 $35,500,000
(b)The Company will not incur, create, assume or
permit to exist any Indebtedness if such Indebtedness would
result in a ratio of Consolidated Total Indebtedness to
Consolidated Net Worth of more than the amounts set forth below
for the fiscal years indicated:
1996 No greater than 1.0
1997 No greater than 1.0
1998 No greater than .80
1999 No greater than .60
2000 No greater than .35
(c)The Company will not permit its Fixed Charge
Ratio to be less than the amounts set forth below for the fiscal
years indicated:
1996 No less than .40
1997 No less than .70
1998 No less than 1.0
1999 No less than 1.3
2000 No less than 1.6
(d)The Company and its Subsidiaries will not
make capital expenditures in excess of the amounts set forth
below for the fiscal years indicated:
1996 $3,000,000
1997 $7,500,000
1998 $7,000,000
1999 $4,000,000
2000 $4,000,000
Any amount not spent in any one fiscal year may be
spent in a succeeding fiscal year, subject to the Company's
annual business plan.
6.3. Limitation on Senior Equity Securities. The
Company will not issue any equity securities or any rights,
options, warrants or other securities which are exercisable for,
exchangeable for or convertible into shares of any class of
capital stock ranking senior as to dividends or upon liquidation
to the Common Stock.
6.4. Merger; Purchase and Sale of Assets. (a) The
Company will not merge with or into or consolidate with any other
Person unless the Company is the continuing or surviving entity
and the shares of Common Stock then outstanding remain unchanged
and outstanding and represent at least a majority of the Voting
Securities of the surviving corporation, and immediately after
the consummation of such merger or consolidation the surviving
corporation would not be in violation of any covenant set forth
in Section 6.2 hereof.
(b)The Company will not, and will not permit any
Subsidiary to, in any transaction or series of transactions,
sell, lease or exchange any assets of the Company and/or any
Subsidiary representing in the aggregate more than 10% of the
Company's Consolidated Net Worth, except for sales of inventory
in the ordinary course of business and except for subleasing of
vacant retail space on arm's-length terms.
(c)The Company will not, and will not permit any
Subsidiary to, in any transaction or series of transactions,
acquire (including pursuant to a merger or consolidation) all or
any substantial portion of the business or assets of any Person
(except for acquisitions in any fiscal year involving aggregate
consideration of less than 10% of the Company's Consolidated Net
Worth as of the commencement of such fiscal year) unless (i) such
transaction or series of transactions has been approved by the
Board of Directors of the Company and (ii) after giving effect to
such transaction or series of transactions, the Company would be
in compliance with the covenants set forth Section 6.2 hereof.
6.5. Compliance with Laws. The Company will, and will
cause each Subsidiary to, comply with all applicable statutes,
rules, regulations and orders of all governmental authorities,
with respect to the conduct of its business and the ownership of
its properties, including without limitation, those relating to
protection of the environment and human health, equal employment
opportunity, employee safety, ERISA and international trade laws
and regulations, and apply for obtain and maintain all permits
necessary for the conduct of its business and the ownership of
its properties.
6.6. Limitation on Agreements. Except for the
provisions of any Senior Indebtedness, the Company will not, and
will not permit any Subsidiary to, enter into any agreement, or
any amendment, modification, extension or supplement to any
existing agreement, which contractually prohibits the Company
from paying interest on the Notes or redeeming the Notes.
6.7. Preservation of Franchises and Existence. The
Company will (i) maintain its corporate existence, rights and
franchises in full force and effect, and (ii) cause the
Subsidiaries to maintain their respective corporate existences,
rights and franchises in full force and effect, provided that
nothing in this Section 6.7 shall prevent the Company or any
Subsidiary from discontinuing its operations in any particular
state or at any particular location or locations within the
state, or prevent the corporate existence, rights and franchises
of any Subsidiary from being terminated if, in the opinion of the
Board of Directors of the Company, the preservation thereof is no
longer desirable in the conduct of the business of the Company
and its Subsidiaries and the loss thereof is not disadvantageous
in any material respect to the holders of Securities.
6.8. Insurance. The Company will, and will cause each
of the Subsidiaries to maintain, with insurers believed by the
Company to be responsible, such insurance, in such amounts and of
such types as are customarily carried under similar circumstances
by companies engaged in the same or a similar business or having
similar properties similarly situated.
6.9. Payment of Taxes and Other Charges. The Company
will pay or discharge, and will cause each of the Subsidiaries to
pay or discharge, before the same shall become delinquent, (i)
all taxes, assessments and other governmental charges or levies
imposed upon it or any of its properties or income (including,
without limitation, such as may arise under Section 4062, 4063,
or 4064 of ERISA or any similar provision of law), and (ii) all
claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like persons which, in the case
of either clause (i) or clause (ii), if unpaid, might result in
the creation of a material lien upon any of its properties,
provided, however, that the Company shall not be required to pay
or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or
validity is being contested in good faith pursuant to appropriate
proceedings.
6.10. Effect of Certain Breaches. In addition to the
rights of the Purchaser under the Stockholders Agreement, upon
the occurrence of any Event of Default under the Notes, then, and
in each such case, the Board of Directors of the Company shall
take all necessary action to increase or decrease the size of the
Board of Directors and to appoint to the Board of Directors a
number of additional members (the "Additional Members")
designated by the Purchaser that, when added to any directors
then in office designated solely by the Purchaser, will result in
directors designated by the Purchaser constituting a majority of
the entire Board of Directors. The holders of 66 2/3% in
outstanding principal amount of the Notes shall be entitled to
designate the Additional Members of the Board of Directors, and,
for so long as such breach or Event of Default continues, at each
subsequent annual meeting the holders of 66 2/3% in outstanding
principal amount of the Notes shall be entitled to propose (and
the Board of Directors shall nominate and recommend) persons
reasonably acceptable to the Board of Directors as the Additional
Members of the Board of Directors of the Company. In the event
of any vacancy arising by reason of the resignation, death,
removal or inability to serve of any Additional Member, the
Purchaser shall be entitled to designate a successor to fill such
vacancy for the remaining term of such director. At such times
as such Event of Default shall have been cured or waived, the
rights of the holders of Notes under this Section 6.10 shall
terminate (and the holders of the Notes shall cause such
Additional Directors to resign from the Board of Directors of the
Company), subject to revesting in the event of each and every
subsequent event of the character indicated above.
6.11. ERISA. Neither the Company nor any Subsidiary
shall incur any material liability with respect to retiree
medical or death benefits or unfunded benefits payable after
termination of employment. All employee benefit plans and
arrangements maintained or contributed to by the Company, any
Subsidiary or any ERISA Affiliate shall be maintained in
compliance in all material respects with all applicable law,
including any reporting requirements. With respect to any plan
maintained by or contributed to by the Company or any Subsidiary,
neither the Company nor any Subsidiary will fail to make any
contribution due from it under the terms of such plan or as
required by law. Neither the Company nor any ERISA Affiliate
will permit a Pension Plan to incur an accumulated funding
deficiency (as such term is defined in Section 302 of ERISA or
Section 412 of the Code), whether or not waived, cause a lien or
a security interest to attach to any asset of the Company or any
Subsidiary for the benefit of any Plan, or incur any liability
which would be material to the Company or any of its Subsidiaries
under Title IV of ERISA, including withdrawal liability (other
than the payment of premiums, none of which are overdue).
Neither the Company nor any Subsidiary, nor any other Person
including any fiduciary, will engage in any transaction
prohibited by Section 406 of ERISA or Section 4975 of the Code
which is reasonably likely to subject the Company, any Subsidiary
or any entity that the Company or any Subsidiary has an
obligation to indemnify to any tax or penalty imposed under
Section 4975 of the Code or Section 502 of ERISA.
6.12. Financial Statements and Other Reports.
(i)The Company will, as soon as practicable and
in any event within 60 days after the end of each quarterly
period (other than the last quarterly period) in each fiscal
year, furnish to the Purchaser statements of consolidated
net income and cash flows and a statement of changes in
consolidated stockholders' equity of the Company and its
Subsidiaries for the period from the beginning of the then
current fiscal year to the end of such quarterly period, and
a consolidated balance sheet of the Company and its
Subsidiaries as of the end of such quarterly period, setting
forth in each case in comparative form figures for the
corresponding period or date in the preceding fiscal year,
all in reasonable detail and certified by an authorized
financial officer of the Company, subject to changes
resulting from year-end adjustments; provided, however, that
delivery pursuant to clause (iii) below of a copy of the
Quarterly Report on Form 10-Q of the Company for such
quarterly period filed with the Commission shall be deemed
to satisfy the requirements of this clause (i);
(ii) it will, as soon as practicable and in
any event within 100 days after the end of each fiscal year,
furnish to the Purchaser statements of consolidated net
income and cash flows and a statement of changes in
consolidated stockholders' equity of the Company and its
Subsidiaries for such year, and a consolidated balance sheet
of the Company and its Subsidiaries as of the end of such
year, setting forth in each case in comparative form the
corresponding figures from the preceding fiscal year, all in
reasonable detail and examined and reported on by
independent public accountants of recognized national
standing selected by the Company; provided, however, that
delivery pursuant to clause (iii) below of a copy of the
Annual Report on Form 10-K of the Company for such fiscal
year filed with the Commission shall be deemed to satisfy
the requirements of this clause (ii);
(iii) it will, promptly upon transmission
thereof, furnish to the Purchaser copies of all such
financial statements, proxy statements, notices and reports
as it shall send to its stockholders and copies of all such
registration statements (without exhibits), other than
registration statements relating to employee benefit or
dividend reinvestment plans, and all such regular and
periodic reports as it shall file with the Commission;
(iv) it will, promptly after such package
becomes available, furnish to the Purchaser copies of all
financial reporting packages prepared for management of the
Company; and
(v)it will promptly furnish to the Purchaser
copies of any compliance certificates furnished to lenders
in respect of Indebtedness of the Company and its
Subsidiaries and, with reasonable promptness, furnish to the
Purchaser such other financial and other data of the Company
and its Subsidiaries as the Purchaser may reasonably
request, including, but not limited to, operating financial
information for each retail store owned or operated by the
Company or any of its Subsidiaries.
Together with each delivery of financial statements
required by clauses (i) and (ii) above, the Company will deliver
to the Purchaser a certificate of the Chief Financial Officer,
Treasurer or other financial officer of the Company regarding
compliance by the Company with the covenants set forth in
Section 6.2.
6.13. Inspection of Property. The Company will permit
representatives of the Purchaser to visit and inspect, at the
Purchaser's expense, any of the properties of the Company and its
Subsidiaries, to examine the corporate books and make copies or
extracts therefrom and to discuss the affairs, finances and
accounts of the Company and its Subsidiaries with the principal
officers of the Company, all at such reasonable times, upon
reasonable notice and as often as the Purchaser may reasonably
request.
6.14. Rights of First Offer. In the event that the
Company intends to sell any debt securities or any shares of
capital stock or securities convertible into, exchangeable for or
exercisable for debt securities or shares of capital stock of the
Company, other than pursuant to a registered public offering:
(i)the Company shall give the Purchaser written
notice of its intent to sell such securities, specifying the
number thereof to be sold and the minimum price and terms
and conditions of such sale and offering to sell to the
Purchaser (or its designee), at such minimum price and on
such terms and conditions (to the extent reasonably
applicable to the Purchaser), a percentage of such
securities equal to the percentage equity interest in the
Company represented by the shares of Common Stock and
Warrants then owned by the Purchaser (and its Affiliates),
after giving effect to the conversion or exercise of all
outstanding securities of the Company which are then
convertible into or exercisable for equity securities, the
conversion or exercise price of which is less than the
Current Market Price;
(ii) if the Purchaser (or its designee) shall
not, within 30 days after receipt of the notice given
pursuant to clause (i) above accept such offer in writing
with respect to the securities specified in such notice,
then the Company shall be free to sell such securities at a
price equal to or above the minimum price and on other terms
and conditions no less favorable to the Company than those
specified in such notice, at any time within 120 days of the
expiration of such 30-day period;
(iii) if the Company shall not have
consummated the proposed sale within 120 days after the
expiration of the 30-day period referred to in clause (ii)
above, then the Company may not thereafter sell such
securities without complying with the provisions of this
Section 6.14; and
(iv) if the Purchaser (or its designee) shall
accept such offer within 30 days after the notice given
pursuant to clause (i) above, then the Purchaser (or its
designee) shall purchase the securities specified in such
notice as promptly as is reasonably practicable, but within
no more than 60 days thereafter.
6.15. Lost, Stolen, Damaged and Destroyed Stock
Certificates. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of any
certificate for shares of Common Stock and in the case of loss,
theft or destruction, upon delivery of an indemnity satisfactory
to the Company (which, in the case of the Purchaser, may be an
undertaking by the Purchaser so to indemnify the Company), or, in
the case of mutilation, upon surrender and cancellation thereof,
the Company will issue a new certificate of like tenor for a
number of shares of Common Stock equal to the number of shares of
such stock represented by the certificate lost, stolen, destroyed
or mutilated.
6.16. Related Party Transactions. The Company shall
not, directly or indirectly, and shall not permit any of its
Subsidiaries to, directly or indirectly, enter into, amend or
terminate any contract, arrangement or transaction with a Related
Party, other than the payment of salary and benefits pursuant to
employment agreements entered into in the ordinary course of
business.
6.17 Operations in Accordance with Business Plan. The
business and operations of the Company and its Subsidiaries shall
be conducted in all material respects in accordance with the
Company's annual business plan as approved by the Board of
Directors including the GECC Designee (as defined in the
Stockholders Agreement), except for such changes which shall have
been approved in accordance with Section 2.2(u) of the
Stockholders Agreement.
6.18 Best Efforts to Cause the Conversion of Preferred
Stock
The Company covenants and agrees to use its reasonable
best efforts following the Closing to cause the remaining
outstanding shares of such Series A Preferred Stock to be
converted into shares of Common Stock.
6.19. Notice of Breach. As promptly as practicable,
and in any event not later than ten Business Days after senior
management of the Company becomes aware of any breach by the
Company of any provision of this Agreement, including, without
limitation, this Article 6, the Company shall provide the
Purchaser with written notice specifying the nature of such
breach and any actions proposed to be taken by the Company to
cure such breach.
7. Restrictions on Transfer. The Purchaser and its
Affiliates will not, directly or indirectly, sell, transfer,
pledge, encumber or otherwise dispose of (collectively, a
"Transfer") any of the Securities, except for: (a) Transfers to
or between Affiliates who agree to be bound by the provisions of
this Agreement; (b) Transfers of Securities pursuant to the
exercise of the registration rights set forth in the Registration
Rights Agreement; or (c) Transfers which comply with the
provisions of the Securities Act. The Company may require, in
connection with any Transfer pursuant to the preceding clause
(c), an opinion of counsel to the Purchase that such Transfer
complies with the provisions of the Securities Act.
8. Events of Default and Remedies.
8.1. Events of Default. Each of the following shall
constitute an Event of Default with respect to the Notes
(including any Additional Notes) under this Agreement:
(a) Nonpayment of Principal of the Notes. If the
Company fails to pay the principal of, interest on or any
other sum, if any, due on any Note, within five days after
the same becomes due and payable, whether at the maturity
thereof, on a dated fixed for a redemption, or otherwise; or
(b) Voluntary Bankruptcy and Insolvency Proceedings.
If the Company or any Subsidiary shall file a petition in
bankruptcy or for reorganization or for an arrangement or
any composition, readjustment, liquidation, dissolution or
similar relief pursuant to the Federal Bankruptcy Code of
1978, as amended, or under any similar present or future
federal law or the law of any other jurisdiction or shall be
adjudicated a bankrupt or become insolvent, or consent to
the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or
other similar official) of the Company or such Subsidiary or
for all or any substantial part of its respective property,
or, the Company or any Subsidiary shall make an assignment
for the benefit of its creditors, or shall admit in writing
its inability to pay its debts generally as they become due,
or shall take any corporate action, as the case may be, in
furtherance of any of the foregoing; or
(c) Adjudication of Bankruptcy. If a petition or
answer shall be filed proposing the adjudication of the
Company or any Subsidiary as a bankrupt or its
reorganization or arrangement, or any composition,
readjustment, liquidation, dissolution or similar relief
with respect to it pursuant to the Federal Bankruptcy Code
of 1978, as amended, or under any similar present or future
federal law or the law of any other jurisdiction applicable
to the Company or such Subsidiary, and the Company or any
Subsidiary shall consent to or acquiesce in the filing
thereof, or such petition or answer shall not be discharged
or denied within 60 days after the filing thereof; or
(d) Receivership or Sequestration. If a decree or
order is rendered by a court having jurisdiction (i) for the
appointment of a receiver or custodian or liquidator or
trustee or sequestrator or assignee (or similar official) in
bankruptcy or insolvency of the Company or any Subsidiary or
of all or a substantial part of its property, or for the
winding-up or liquidation of its affairs, and such decree or
order shall have remained in force undischarged and unstayed
for a period of 60 days, or (ii) for the sequestration or
attachment of any property of the Company or any Subsidiary
without its return to the possession of the Company or such
Subsidiary or its release from such sequestration or
attachment within 60 days thereafter; or
(e) Acceleration of Other Indebtedness. If default
shall be made with respect to any Indebtedness of the
Company (other than the Notes) with the result that
Indebtedness in an aggregate amount of $100,000 or more has
been accelerated so that the same has become due and payable
prior to the date on which the same would otherwise have
become due and payable, provided that such acceleration is
not rescinded within 10 days after the declaration thereof;
or
(f) Judgment Default. A judgment or order for the
payment of money in excess of $100,000 shall be entered
against the Company or any Subsidiary by any court, and
either (i) such judgment or order shall continue
undischarged and unstayed for a period of 60 days or (ii)
enforcement proceedings shall have been commenced upon such
judgment or order; or
(g) Covenant Defaults. The Company shall have
breached in any material respect any of the covenants set
forth in this Agreement and such breach continues for 30
days after notice in writing by the holders to the Company;
or
(h) Untrue or Incorrect Representation or Warranty.
Any of the representations and warranties of or with respect
to the Company or any Subsidiary contained in Article 2
hereof shall have been untrue in any material respect on or
as of the date made and the facts or circumstances to which
such representation or warranty relates shall not have been
subsequently corrected to make such representation or
warranty no longer incorrect.
8.2. Acceleration of Maturity. If any Event of
Default shall have occurred and be continuing, the holders of 66
2/3% of the outstanding principal amount of Notes may, by notice
to the Company, declare the entire outstanding principal balance
of the Notes, and all accrued and unpaid interest thereon, to be
due and payable immediately, and upon any such declaration the
entire outstanding principal balance of the Notes, and said
accrued and unpaid interest shall become and be immediately due
and payable, without presentment, demand, protest or other notice
whatsoever, all of which are hereby expressly waived, anything in
the Notes or in this Agreement to the contrary notwithstanding;
provided that if an Event of Default under clause (b), (c), or
(d) of Section 8.1 with respect to the Company shall have
occurred, the outstanding principal amount of all of the Notes,
and all accrued and unpaid interest thereon, shall immediately
become due and payable, without any declaration and without
presentment, demand, protest or other notice whatsoever, all of
which are hereby expressly waived, anything in the Notes or this
Agreement to the contrary notwithstanding; and provided, further,
that if an Event of Default under clause (a) of Section 8.1 shall
have occurred and be continuing with respect to any Note, any
holder of one or more Notes in an aggregate outstanding principal
amount of at least $500,000 may, by notice to the Company,
declare the entire outstanding principal of such Notes and all
accrued and unpaid interest thereon, to be due and payable
immediately, and upon any such declaration the entire outstanding
principal of such Notes and said accrued and unpaid interest
shall become and be immediately due and payable, without
presentment, demand, protest or other notice whatsoever, all of
which are hereby expressly waived, anything in such Notes or in
this Agreement to the contrary notwithstanding.
8.3. Other Remedies. If any Event of Default shall
have occurred and be continuing, from and including the date of
such Event of Default to but not including the date such Event of
Default is cured or waived, any holder may enforce its rights by
suit in equity, by action at law, or by any other appropriate
proceedings, whether for the specific performance (to the extent
permitted by law) of any covenant or agreement contained in this
Agreement or the Notes or in aid of the exercise of any power
granted in this Agreement or the Notes, and any holder may
enforce the payment of any Note held by such holder and any of
its other legal or equitable rights. During the continuance of
any Event of Default, the Company shall pay interest on the
outstanding principal of the Notes and (to the extent legally
enforceable) on any overdue installment of interest, at the rate
of 12.00% per annum, until such overdue amount is paid or until
such Event of Default is cured or waived.
8.4. Conduct no Waiver; Collection Expenses. No
course of dealing on the part of any holder, nor any delay or
failure on the part of any holder to exercise any of its rights,
shall operate as a waiver of such right or otherwise prejudice
such holder's rights, powers and remedies. If the Company fails
to pay, when due, the principal or the premium, if any, or the
interest on any Note, the Company will pay to each holder, to the
extent permitted by law, on demand, all costs and expenses
incurred by such holder in the collection of any amount due in
respect of any Note hereunder, including reasonable legal fees
incurred by such holder in enforcing its rights hereunder.
8.5. Annulment of Acceleration. If a declaration is
made in accordance with Section 8.2, then and in every such case,
the holders of at least 66 2/3% of the outstanding principal
amount of the Notes may, by an instrument delivered to the
Company, annul such declaration and the consequences thereof,
provided that at the time such declaration is annulled:
(a) no judgment or decree has been entered for the
payment of any monies due on the Notes or pursuant to this
Agreement;
(b) all arrears of interest on the Notes and all
other sums payable on the Notes and pursuant to this
Agreement (except any principal of or interest on the Notes
which has become due and payable by reason of such
declaration) shall have been duly paid; and
(c) every other Event of Default shall have been duly
waived or otherwise made good or cured;
provided, however, that only the Purchaser or an Affiliate of the
Purchaser (but not any transferee thereof other than an Affiliate
of the Purchaser) of the Note or Notes making the declaration
permitted by the last proviso of Section 8.2 may annul such
declaration; and provided, further, that no such annulment shall
extend to or affect any subsequent Event of Default or impair any
right consequent thereon.
8.6. Remedies Cumulative. No right or remedy
conferred upon or reserved to the holders of Notes under this
Agreement is intended to be exclusive of any other right or
remedy, and every right and remedy shall be cumulative and in
addition to every other right and remedy given hereunder or now
and hereafter existing under applicable law. Every right and
remedy given by this Agreement or by applicable law to the
holders of Notes may be exercised from time to time and as often
as may be deemed expedient by the holders.
8.7. Limitations. Notwithstanding the foregoing
provisions of this Article 8, the exercise of remedies by holders
of Notes is subject to the provisions of Article 10 hereof.
9. Redemption.
9.1. Optional Redemption. The Company shall have the
right, at its sole option and election made in accordance with
Section 9.5 to redeem the Notes, including any Additional Notes,
in whole or in part, in integral multiples of not less than
$250,000 at any time and from time to time, plus an amount equal
to all accrued and unpaid interest to and including the date of
redemption, in cash. Any such redemption shall reduce the
Company's obligation under Section 9.2, beginning with the next
succeeding Redemption Date (as defined in Section 9.2).
9.2. Mandatory Redemption. The Company shall on
February 28 and on August 31, in each year commencing with the
year 1999 and ending in the year 2001 (each a "Redemption Date"),
redeem Notes in the aggregate outstanding principal amount of
$1,015,335.75, at a redemption price equal to 100% of the
principal amount of the Notes to be redeemed, together with
accrued and unpaid interest on such Notes to and including such
Redemption Date.
9.3. Procedures for Partial Redemption. If less than
all Notes at the time outstanding are to be redeemed, the
aggregate principal amount to be redeemed shall be prorated among
the outstanding Notes; provided, however, that in the event that
the aggregate principal balance of the Notes then outstanding is
$1,015,335.75 or less, the Company shall be required to redeem
all of such outstanding Notes if it elects to redeem any such
Notes.
9.4. Change in Control. In the event that there
occurs a Change in Control, any record holder of Notes, in
accordance with the procedures set forth in Section 9.5(b), may
require the Company to redeem any or all of the Notes held by
such holder for, at such holder's option, an amount equal to
principal amount of such Notes, plus all accrued and unpaid
interest on the Notes being redeemed to and including the date of
redemption, in cash.
9.5. Redemption Procedures. (a) Notice of any
redemption of Notes pursuant to Section 9.1 or 9.2 shall be
mailed at least 30 but not more than 60 days prior to the date
fixed for redemption to each holder of Notes to be redeemed, at
such holder's address as it appears in the Note Register. In
order to facilitate the redemption of Notes, the Board of
Directors may fix a record date for the determination of Notes to
be redeemed.
(b)Promptly following a Change in Control (but
in no event more than five Business Days thereafter), the Company
shall mail to each holder of Notes, at such holder's address as
it appears on the transfer books of the Company, notice of such
Change in Control, which notice shall set forth each holder's
right to require the Company to redeem any or all Notes held by
it. The Company shall thereafter during a period of 90 days from
the date of such notice (or the date the Company was required to
give such notice) redeem any Notes, in whole or in part, at the
option of the holder, upon at least five days' written notice to
the Company by such holder specifying (i) the principal amount of
Notes to be redeemed and (ii) the redemption date.
(c)On the date of any redemption being made
pursuant to Section 9.1, 9.2 or 9.4 which is specified in a
notice given pursuant to this Section 9.5, the Company shall wire
transfer to such holder the redemption price for the principal
amount of notes so redeemed, together with an amount equal to all
accrued and unpaid interest thereon to the date of redemption.
10. Subordination of Notes.
10.1. Subordination of Notes to Senior Indebtedness.
The Indebtedness evidenced by the Notes and all renewals and
extensions thereof (collectively called the "Junior
Indebtedness") shall at all times be wholly subordinate and
junior in right of payment to any and all Senior Indebtedness of
the Company (including any claims by the holders of such Senior
Indebtedness for interest accruing after any assignment for the
benefit of creditors by the Company or the institution by or
against the Company of any proceedings under the Bankruptcy Code
or any law for the relief of or relating to debtors, or any other
claim by such holders for any such interest which would have
accrued in the absence of such assignment or the institution of
such proceedings) in the manner and with the force and effect
hereafter set forth:
(a) In the event of any liquidation, dissolution or
winding up of the Company, or of any execution, sale,
receivership, insolvency, bankruptcy, liquidation,
readjustment, reorganization or other similar proceeding
relative to the Company or its property, all sums owing on
all Senior Indebtedness of the Company (including cash
collateral and amounts not yet due and payable) shall first
be paid in full before any payment is made upon the Junior
Indebtedness; and in any such event any payment or
distribution of any kind or character, whether in cash,
property, or securities which shall be made upon or in
respect of the Junior Indebtedness shall be paid over to the
holders of the Senior Indebtedness of the Company, pro rata,
for application in payment thereof unless and until such
Senior Indebtedness shall have been paid or satisfied in
full.
In case of any assignment for the benefit of creditors by
the Company or in case any proceedings under the Bankruptcy
Code or any other law for the relief of or relating to
debtors are instituted by or against the Company, or in case
of the appointment of any receiver for the Company's
business or assets, or in case of any dissolution or winding
up of the affairs of the Company, the Company and any
assignee, trustee in bankruptcy, receiver, debtor in
possession or other person or persons in charge are hereby
directed to pay to the holders of the Senior Indebtedness of
the Company the full amount of such holders' claims against
the Company (including interest to the date of payment)
before making any payments to the holders of Junior
Indebtedness, and insofar as may be necessary for that
purpose, the Purchaser hereby assigns and transfers to the
holders of Senior Indebtedness of the Company all rights to
any payments, dividends or other distributions.
The Purchaser agrees not to file or join in any petition to
commence any proceeding under the Bankruptcy Code (or other
law for the relief of or relating to debtors) so long as any
Senior Indebtedness of the Company is outstanding.
(b) In the event that all or any part of the Junior
Indebtedness is declared or becomes due and payable because
of the occurrence of any Event of Default or otherwise than
at the option of the Company (other than pursuant to its
terms at its final maturity), under circumstances when the
foregoing clause (a) shall not be applicable, the holders of
the Junior Indebtedness shall be entitled to payments only
after there shall first have been paid in full all Senior
Indebtedness of the Company or payment shall have been
provided therefor in a manner satisfactory to the holders of
such Senior Indebtedness.
(c) Upon the occurrence of an event which is, or with
the lapse of time or notice or both would be, an event which
gives any holder of any Senior Indebtedness of the Company
the right to demand payment, cash collateral, accelerate the
maturity, or terminate any commitment to further extend
credit, no payment shall be made on any Junior Indebtedness
if either:
(i) notice of such default in writing or by
telegram has been given to the Company by any holder of
any Senior Indebtedness of the Company, provided that
judicial proceedings shall be commenced with respect to
such default (x) within 180 days thereafter if such
default consists of the nonpayment of principal,
interest, or any other sum due on such Senior
Indebtedness, or (y) within 180 days after the earlier
of (i) the giving of such notice or (ii) the date on
which such holder is entitled to institute judicial
proceedings, or
(ii) judicial proceedings shall be pending in
respect of such default.
The holder of any portion of Senior Indebtedness of the
Company shall not be entitled to give notice pursuant to
this clause (c) more than once with respect to any default
which was specified in such notice and which has continued
without interruption since the date such notice was given,
nor shall such holder be entitled to give a separate notice
with respect to any default not so specified which (to the
knowledge of the holder giving notice) was existing on the
date such notice was given pursuant to this clause (c) and
which has continued without interruption from the date such
notice was given. Upon receipt of any notice from any
holder of any Senior Indebtedness pursuant to this clause
(c), the Company shall forthwith send a copy thereof to each
holder of Junior Indebtedness and each holder of its Senior
Indebtedness at the time outstanding.
(d) All payments, cash, or noncash distributions made
to the holders of Junior Indebtedness which should have been
made to the holders of Senior Indebtedness of the Company
shall be received and held by the former in trust for the
benefit of the latter, and the holders of Junior
Indebtedness shall forthwith remit such payments, cash, or
noncash distributions to the holders of the Senior
Indebtedness of the Company, pro rata, in the form in which
it was received, together with such endorsements or
documents as may be necessary to effectively negotiate or
transfer the same to the holders of the Senior Indebtedness
of the Company.
(e) Each holder of Senior Indebtedness of the Company
is hereby authorized by the Purchaser to:
(i) renew, compromise, extend, accelerate or
otherwise change the time of payment, or any other
terms, of any Senior Indebtedness of the Company held
by such holder;
(ii) increase or decrease the rate of interest
payable thereon or any part thereof;
(iii) exchange, enforce, waive or release any
security therefor;
(iv) apply such security and direct the order or
manner of sale thereof in such manner as such holder
may at its discretion determine; and/or
(v) release the Company or any guarantor of any
Senior Indebtedness of the Company from liability; all
without notice to the Purchaser and any holder of
Junior Indebtedness and without affecting the
subordination provided by this Agreement.
10.2. Proofs of Claim of Holders of Senior
Indebtedness; Voting. The Purchaser undertakes and agrees for
the benefit of each holder of Senior Indebtedness of the Company
to execute, verify, deliver and file any proofs of claim relating
to the Junior Indebtedness which any holder of such Senior
Indebtedness may at any time require in order to prove and
realize upon any rights or claims pertaining to the Junior
Indebtedness and to effectuate the full benefit of the
subordination contained herein. Upon failure of the Purchaser to
file the required proof or proofs of claim prior to 30 days
before the expiration of the time to file claims in such
proceeding, each holder of Senior Indebtedness of the Company is
hereby irrevocably appointed by the Purchaser to be the
Purchaser's agent to file the appropriate claim or claims and if
such holder of Senior Indebtedness elects at its sole discretion
to file such claim or claims (i) to accept or reject any plan of
reorganization or arrangement on behalf of the Purchaser, and
(ii) to otherwise vote the Purchaser's claim in respect of the
Junior Indebtedness in any manner deemed appropriate for the
benefit and protection of the holders of the Senior Indebtedness
of the Company.
10.3. Rights of Holders of Senior Indebtedness
Unimpaired. No right of any holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time or in
any way be affected or impaired by any failure to act on the part
of the Company or the holders of Senior Indebtedness, or by any
noncompliance by the Company with any of the terms, provisions
and covenants of this Agreement, regardless of any knowledge
thereof that any such holder of Senior Indebtedness may have or
be otherwise charged with.
10.4. Effects of Event of Default. The Company agrees,
for the benefit of the holders of Senior Indebtedness, that in
the event that a Note is declared due and payable before its
maturity because of the occurrence of an Event of Default, (i)
the Company will give prompt notice in writing of such happening
to the holders of Senior Indebtedness and (ii) all Senior
Indebtedness shall forthwith become immediately due and payable
upon demand, regardless of the expressed maturity thereof.
10.5. Company's Obligations Unimpaired. The provisions
of this Article 10 are solely for the purpose of defining the
relative rights of the holders of Senior Indebtedness on the one
hand, and the Purchaser on the other hand, and nothing herein
shall impair, as between the Company and the Purchaser, the
obligation of the Company which is unconditional and absolute, to
pay the principal, premium, if any, and interest on the Notes in
accordance with this Agreement and the terms of the Notes, nor
shall anything herein prevent the Purchaser from exercising all
remedies otherwise permitted by applicable law or under this
Agreement or the Notes upon the occurrence of an Event of
Default, subject to the rights of the holders of Senior
Indebtedness as herein provided for.
10.6. Subrogation. Subject to the payment in full of
Senior Indebtedness, holders of the Notes shall be subrogated to
the rights of the holders of Senior Indebtedness to receive
payments or distributions of cash, property or securities made on
the Senior Indebtedness until the Notes shall be paid in full;
and, for the purposes of such subrogation, payments or
distributions to the holders of Senior Indebtedness of any cash,
property or securities to which any holder of Notes would be
entitled except for the provisions of this Agreement shall, as
between the Company and its creditors other than the holders of
Senior Indebtedness and holders of the Notes, be deemed to be a
payment by the Company to or on account of the Notes, it being
understood that the provisions of this Agreement are and are
intended solely for the purpose of defining the relative rights
of the holders of the Notes on the one hand, and the holders of
Senior Indebtedness, on the other hand. The purpose of this
Section 10.6 is to grant to holders of the Notes the same rights
against the Company with respect to the aggregate amount of such
payments or distributions as the holders of Senior Indebtedness
would have against the Company if such aggregate amount were
considered overdue Senior Indebtedness.
11. Interpretation.
11.1 Definitions.
"Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act.
"beneficially own" with respect to any securities shall
mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Exchange Act),
including pursuant to any agreement, arrangement or
understanding, whether or not in writing.
"Business Day" shall mean any day other than a
Saturday, Sunday, or a day on which banking institutions in the
State of New York are authorized or obligated by law or executive
order to close.
"Capitalized Lease" shall mean, with respect to any
person, any lease or any other agreement for the use of property
which, in accordance with generally accepted accounting
principals, should be capitalized on the lessee's or user's
balance sheet.
"Capitalized Lease Obligation" of any person shall mean
and include, as of any date as of which the amount thereof is to
be determined, the amount of the liability capitalized or
disclosed (or which should be disclosed) in a balance sheet of
such person in respect of a Capitalized Lease of such person.
"Change in Control" shall mean:
(a)the acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of
more than 30% of the combined voting power of the then
outstanding Voting Securities of the Company entitled to
vote generally in the election of directors, but excluding,
for this purpose, any such acquisition by (i) the Company or
any of its subsidiaries, (ii) any employee benefit plan (or
related trust) of the Company or its subsidiaries, (iii) any
corporation with respect to which, following such
acquisition, a majority of the combined voting power of the
then outstanding Voting Securities of such corporation
entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by
individuals and entities who were the beneficial owners of
voting securities of the Company immediately prior to such
acquisition in substantially the same proportion as their
ownership, immediately prior to such acquisition, of the
combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors or (iv) GECC or an Affiliate of GECC;
or
(b)a reorganization, merger or consolidation, in
each case, with respect to which all or substantially all
the individuals and entities who were the respective
beneficial owners of the voting securities of the Company
immediately prior to such reorganization, merger or
consolidation do not, following such reorganization, merger
or consolidation beneficially own, directly or indirectly,
more than 50% of the combined voting power of the then
outstanding voting securities entitled to vote generally in
the election of directors of the corporation resulting from
such reorganization, merger or consolidation; or
(c)the sale or other disposition of a majority
or more of the consolidated assets or property of the
Company and its Subsidiaries in one transaction or series of
related transactions,
provided, however, that a "Change of Control" as defined in
either (b) or (c) above shall not include any transaction
between GECC or any Affiliate of GECC and the Company.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Consolidated" or "consolidated", when used with
reference to any financial term in this Agreement (but not when
used with respect to any tax return or tax liability), shall mean
the aggregate for two or more persons of the amounts signified by
such term for all such persons, with inter-company items
eliminated and, with respect to earnings, after eliminating the
portion of earnings properly attributable to minority interests,
if any, in the capital stock of any such person or attributable
to shares of preferred stock of any such person not owned by any
other such person.
"Consolidated Net Worth" shall mean the consolidated
stockholders' equity of the Company and its Subsidiaries
determined in accordance with generally accepted accounting
principles consistently applied (it being understood that the
Notes and any other Subordinated Indebtedness which is not
subordinated to the Notes shall not be treated as equity for this
purpose).
"Consolidated Total Indebtedness" shall mean
consolidated Indebtedness of the Company and its Subsidiaries,
determined in accordance with generally accepted accounting
principles consistently applied.
"Current Market Price", when used with reference to
shares of Common Stock or other securities for any given date,
shall mean the closing price per share of Common Stock or such
other securities on such date and, when used with reference to
shares of Common Stock or other securities for any period, shall
mean the average of the daily closing prices per share of Common
Stock or such other securities for such period. The closing
price for each day shall be the last quoted sale price or, if not
so quoted, the average of the high bid and low asked prices in
the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotation
System or such other system then in use, or, if on any such date
the Common Stock or such other securities are not quoted by any
such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a
market in the Common Stock or such other securities selected by
the Board of Directors of the Company. If the Common Stock is
listed or admitted to trading on a national securities exchange,
the closing price shall be the last sale price, regular way, or,
in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading
on the New York Stock Exchange or, if the Common Stock or such
other securities are not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Common
Stock or such other securities are listed or admitted to trading.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
"Event of Default" shall mean each of the happenings or
circumstances enumerated in Section 8.1.
"Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, or any successor Federal statute, and the
rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time. Reference to a particular
section of the Securities Exchange Act of 1934, as amended, shall
include reference to the comparable section, if any, of any such
successor Federal statute.
"Fixed Charge Ratio" shall mean the ratio of (a) the
sum of earnings before taxes, depreciation and amortization plus
current operating lease expense plus interest expense to (b)
interest expense plus current operating lease expense of the
Company and its Subsidiaries on a consolidated basis determined
in accordance with generally accepted accounting principles
consistently applied, as measured at the last day of the most
recently completed fiscal quarter.
"Guarantee" by any Person shall mean all obligations
(other than endorsements in the ordinary course of business of
negotiable instruments for deposit or collection) of any Person
guaranteeing, or in effect guaranteeing, any Indebtedness,
dividend or other obligation of any other Person (the "primary
obligor") in any manner, whether directly or indirectly,
including, without limitation, all obligations incurred through
an agreement, contingent or otherwise, by such Person: (i) to
purchase such Indebtedness or obligation or any property or
assets constituting security therefor, (ii) to advance or supply
funds (x) for the purchase or payment of such Indebtedness or
obligation, (y) to maintain working capital or other balance
sheet condition or otherwise to advance or make available funds
for the purchase or payment of such Indebtedness or obligation,
(iii) to lease property or to purchase securities or other
property or services primarily for the purpose of assuring the
owner of such Indebtedness or obligation of the ability of the
primary obligor to make payment of such Indebtedness or
obligation, or (iv) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in
respect thereof. For the purposes of any computations made under
this Agreement, a Guarantee in respect of any Indebtedness for
borrowed money shall be deemed to be Indebtedness equal to the
principal amount of the Indebtedness for borrowed money which has
been guaranteed, and a Guarantee in respect of any other
obligation or liability or any dividend shall be deemed to be
Indebtedness equal to the maximum aggregate amount of such
obligation, liability or dividend.
"Indebtedness" shall mean, with respect to any person,
(i) all obligations of such person for borrowed money, or with
respect to deposits or advances of any kind, (ii) all obligations
of such person evidenced by bonds, debentures, notes or similar
instruments, (iii) all obligations of such person under
conditional sale or other title retention agreements relating to
property purchased by such person, (iv) all obligations of such
person issued or assumed as the deferred purchase price of
property or services (other than accounts payable to suppliers
and similar accrued liabilities incurred in the ordinary course
of business and paid in a manner consistent with industry
practice), (v) all Indebtedness of others secured by (or for
which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any lien or security
interest on property owned or acquired by such person whether or
not the obligations secured thereby have been assumed, but only
to the extent of such security, if such obligations have not been
assumed, (vi) all Capitalized Lease Obligations of such person,
(vii) all Guarantees of such person, (viii) all obligations
(including but not limited to reimbursement obligations) relating
to the issuance of letters of credit for the account of such
person, (ix) all obligations arising out of foreign exchange
contracts, and (x) all obligations arising out of interest rate
and currency swap agreements, cap, floor and collar agreements,
interest rate insurance, currency spot and forward contracts and
other agreements or arrangements designed to provide protection
against fluctuations in interest or currency exchange rates.
"outstanding" shall mean when used with reference to
the Notes at a particular time, all Notes theretofore issued as
provided in this Agreement, except (i) Notes theretofore reported
as lost, stolen, damaged or destroyed, or surrendered for
transfer, exchange or replacement, in respect to which
replacement Notes have been issued, (ii) Notes theretofore paid
in full, and (iii) Notes theretofore canceled by the Company,
except that, for the purpose of determining whether holders of
the requisite principal amount of Notes have made or concurred in
any waiver, consent, approval, notice or other communication
under this Agreement, Notes registered in the name of, or owned
beneficially by, the Company or any Subsidiary of any thereof,
shall not be deemed to be outstanding.
"PBGC" shall mean the Pension Benefit Guaranty
Corporation, or any successor thereto.
"Pension Plan" shall mean any multiemployer plan or
single employer plan, as defined in Section 4001 of ERISA, that
is subject to Title IV of ERISA, that the Company, any Subsidiary
or any ERISA Affiliate maintains or is or ever has been obligated
to contribute to for the benefit of employees or former employees
of the Company, any Subsidiary or any ERISA Affiliate.
"Person" shall mean any individual, firm, corporation,
partnership or other entity, and shall include any successor (by
merger or otherwise) of such entity.
"Related Party" shall mean any officer, director or
beneficial holder of 3% or more of the outstanding shares of
capital stock of the Company or any Subsidiary, any spouse,
former spouse, child, parent, parent of a spouse, sibling or
grandchild of any such officer, director or beneficial holder of
the Company or any Subsidiary, and any Affiliate or Associate of
any of the foregoing persons.
"Securities Act" shall mean the Securities Act of 1933,
as amended, or any successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall
be in effect at the time.
"Senior Indebtedness" shall mean and include, as of any
date as of which the amount thereof is to be determined, the
principal of and premium, if any, and interest due on any
Indebtedness under the Loan and Security Agreement dated as of
January 20, 1995 and as amended on May 10, 1996, between Congress
Financial Corporation (Western) as lender and Krause's Sofa
Factory, a California corporation, and its wholly owned
subsidiary, Castro Convertible Corporation, a New York
corporation, as borrowers (with the Company as Guarantor pursuant
to a Guarantee signed by the Company on January 20, 1995), and
any refinancing, refunding, replacement or extension thereof.
"Subordinated Indebtedness" shall mean all Indebtedness
which is by its terms subordinated to Senior Indebtedness.
"Subsidiary" of any Person means any corporation or
other entity of which a majority of the voting power or the
Voting Securities or equity interest is owned, directly or
indirectly, by such Person.
"Voting Securities" of any Person shall mean at any
time shares of any class of capital stock of such Person which
are then entitled to vote generally in the election of directors.
11.2. Accounting Principles. The character or amount
of any asset, liability, capital account or reserve and of any
item of income or expense required to be determined pursuant to
this Agreement, and any consolidation or other accounting
computation required to be made pursuant to this Agreement, and
the construction of any definition in this Agreement containing a
financial term, shall be determined or made, as the case may be,
in accordance with generally accepted accounting principles, to
the extent applicable, unless such principles are inconsistent
with the express requirements of this Agreement. References in
this Agreement to a fiscal year refer to the period ending on the
last Sunday of January of the following calendar year as
determined by the 52/53 retail fiscal year. (For example, 1996
fiscal year refers to the fiscal year ending January 26, 1997.)
12. Miscellaneous.
12.1. Payments. The Company agrees that, so long as
the Purchaser shall hold any Securities, the Company will make
all cash interest or dividend payments thereon in immediately
available funds in such manner as the Purchaser may reasonably
request in writing.
12.2. Severability. If any term, provision, covenant
or restriction of this Agreement or any exhibit hereto is held by
a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants
and restrictions of this Agreement and such exhibits shall remain
in full force and effect and shall in no way be affected,
impaired or invalidated. It is hereby stipulated and declared to
be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without
including any of such which may be hereafter declared invalid,
void or unenforceable.
12.3. Specific Enforcement. The Purchaser, on the one
hand, and the Company, on the other, acknowledge and agree that
irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an
injunction to prevent breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state thereof
having jurisdiction, this being in addition to any other remedy
to which they may be entitled at law or equity.
12.4. Entire Agreement. This Agreement (including the
documents set forth in the exhibits hereto) contains the entire
understanding of the parties with respect to the transactions
contemplated hereby.
12.5. Counterparts. This Agreement may be executed in
one or more counterparts, all of which shall be considered one
and the same agreement, and shall become effective when one or
more of the counterparts have been signed by each party and
delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
12.6. Notices and other Communications. All notices,
consents, requests, instructions, approvals, financial
statements, proxy statements, reports and other communications
provided for herein shall be in writing and shall be delivered
personally, by telecopy or sent by prepaid overnight courier
service, to:
THE COMPANY:
Krause's Furniture, Inc.
200 North Berry Street
Brea, CA 92621-3903
Attention: Philip M. Hawley
With a copy to:
Judith Lasker
Krause's Furniture, Inc.
200 North Berry Street
Brea, CA 92621-3903
and
David Kaufman, Esq.
Stroock, Stroock & Lavan
Seven Hanover Square
New York, New York 10004
THE PURCHASER:
General Electric Capital Corporation
Equity Capital Group
260 Long Ridge Road
Stamford, CT 06927
Attention: Jeffrey H. Coats and
Attention: Counsel
With a copy to:
Warren de Wied, Esq.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
or to such other address as any party may, from time to time,
designate in a written notice given in a like manner.
12.7. Amendments. This Agreement may be amended as to
the Purchaser and their successors and assigns, and the Company
may take any action herein prohibited, or omit to perform any act
required to be performed by it, if the Company shall obtain the
written consent of the Purchaser and/or such successors and
assigns who are the registered holders of not less than 66 2/3%
of the outstanding principal amount of the Notes, including the
Additional Notes, then held by the Purchaser and their successors
or assigns. This Agreement may not be waived, changed, modified,
or discharged orally, but only by an agreement in writing signed
by the party or parties against whom enforcement of any waiver,
change, modification or discharge is sought or by parties with
the right to consent to such waiver, change, modification or
discharge on behalf of such party.
12.8. Cooperation. The Purchaser and the Company agree
to take, or cause to be taken, all such further or other actions
as shall reasonably be necessary to make effective and consummate
the transactions contemplated by this Agreement.
12.9. Successors and Assigns. All covenants and
agreements contained herein shall bind and inure to the benefit
of the parties hereto and their respective successors and
assigns. This Agreement may be assigned by the Purchaser to any
transferee of any Securities. This Agreement may not be assigned
by the Company.
12.10. Expenses and Remedies. (a) The Company
agrees to pay the Purchaser for all reasonable outside legal and
consulting fees of the Purchaser in connection with this
Agreement and the consummation of all transactions contemplated
hereby, and all costs and expenses relating to any future
amendment or supplement to this Agreement or any of the
Securities (or any proposal by the Company for such amendment or
supplement) whether or not consummated or any waiver or consent
with respect thereto (or any proposal for such waiver or consent)
whether or not consummated, and all costs and expenses of the
Purchaser relating to the enforcement of this Agreement, the
Registration Rights Agreement, the Warrant or the Notes or any of
the Securities.
(b)The Company further agrees to indemnify and
save harmless the Purchaser and its officers, directors,
partners, employees, trustees and agents, each person who
controls the Purchaser within the meaning of the Securities Act
or the Exchange Act, from and against any and all costs,
expenses, damages or other liabilities resulting from any breach
of this Agreement by the Company or any legal, administrative or
other proceedings arising out of the transactions contemplated
hereby (other than such costs, expenses, damages or other
liabilities resulting, directly or indirectly, (i) from the
breach by the Purchaser of any of its agreements contained
herein, (ii) from the gross negligence or willful misconduct of
the Purchaser or any of its officers, directors, partners,
employees or agents, or any person who controls the Purchaser
within the meaning of the Securities Act or the Exchange Act or
(iii) from an ERISA violation resulting from any action or
inaction by the Purchaser, other than an ERISA violation
resulting from a breach by the Company of this Agreement);
provided, however, that, if and to the extent that such
indemnification is unenforceable for any reason, the Company
shall make the maximum contribution to the payment and
satisfaction of such indemnified liability which shall be
permissible under applicable laws.
(c)The indemnified party under this Section
12.10 will, promptly after the receipt of notice of the
commencement of any action against such indemnified party in
respect of which indemnity may be sought from the Company on
account of an indemnity agreement contained in this Section
12.10, notify the Company in writing of the commencement thereof.
The omission of any indemnified party so to notify the Company of
any such action shall not relieve the Company from any liability
which it may have to such indemnified party except to the extent
the Company shall have been prejudiced by the omission of such
indemnified party so to notify the Company, pursuant to this
Section 12.10. In case any such action shall be brought against
any indemnified party and it shall notify the Company of the
commencement thereof, the Company shall be entitled to
participate therein and, to the extent that it may wish, to
assume the defense thereof, with counsel reasonably satisfactory
to such indemnified party, and after notice from the Company to
such indemnified party of its election so to assume the defense
thereof, the Company will not be liable to such indemnified party
under this Section 12.10 for any legal or other expense
subsequently incurred by such indemnified party in connection
with the defense thereof nor for any settlement thereof entered
into without the consent of the Company; provided, however, that
(i) if the Company shall elect not to assume the defense of such
claim or action or (ii) if the indemnified party reasonably
determines (x) that there may be a conflict between the positions
of the Company and of the indemnified party in defending such
claim or action or (y) that there may be legal defenses available
to such indemnified party different from or in addition to those
available to the Company, then separate counsel for the
indemnified party shall be entitled to participate in and conduct
the defense, in the case of (i) and (ii)(x), or such different
defenses, in the case of (ii)(y), and the Company shall be liable
for any reasonable legal or other expenses incurred by the
indemnified party in connection with the defense.
12.11. Survival of Representations and Warranties.
All representations and warranties contained herein or made in
writing by any party in connection herewith shall survive the
execution and delivery of this Agreement and the issuance and
delivery of the Securities, regardless of any investigation made
by or on behalf of any party.
12.12. Transfer of Securities. (a) The Purchaser
understands and agrees that the Securities have not been
registered under the Securities Act or the securities laws of any
state and that they may be sold or otherwise disposed of only in
one or more transactions registered under the Securities Act and,
where applicable, such laws or transactions as to which an
exemption from the registration requirements of the Securities
Act and, where applicable, such laws are available. The
Purchaser acknowledges that, except as provided in the
Registration Rights Agreement, the Purchaser has no right to
require the Company to register the Securities. The Purchaser
understands and agrees that each Note or certificate representing
the Securities shall bear legends substantially in the form as
follows:
"[THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE] [THIS NOTE HAS] NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH LAWS."
"THE TRANSFER OF [THE SECURITIES REPRESENTED BY
THIS CERTIFICATE] [THIS NOTE] IS RESTRICTED BY AN
AGREEMENT ON FILE AT THE OFFICES OF THE CORPORATION."
"IN ADDITION TO THE RESTRICTIONS SET FORTH IN THE
SECURITIES PURCHASE AGREEMENT BETWEEN KRAUSE'S
FURNITURE, INC. AND GENERAL ELECTRIC CAPITAL
CORPORATION, THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO THE RESTRICTIONS SET FORTH
IN THE STOCKHOLDERS AGREEMENT BY AND AMONG KRAUSE'S
FURNITURE, INC. AND THE STOCKHOLDERS PARTIES THERETO, A
COPY OF WHICH IS ON FILE IN THE OFFICES OF THE
CORPORATION."
12.13. Governing Law; Consent to Jurisdiction. THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND
OF THE UNITED STATES OF AMERICA, IN EACH CASE LOCATED IN THE
COUNTY OF NEW YORK, FOR ANY ACTION, PROCEEDING OR INVESTIGATION
IN ANY COURT OR BEFORE ANY GOVERNMENTAL AUTHORITY ("LITIGATION")
ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY (AND AGREES NOT TO COMMENCE ANY LITIGATION
RELATING THERETO EXCEPT IN SUCH COURTS), AND FURTHER AGREES THAT
SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR DOCUMENT BY U.S.
REGISTERED MAIL TO ITS RESPECTIVE ADDRESS SET FORTH IN THIS
AGREEMENT SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY
LITIGATION BROUGHT AGAINST IT IN ANY SUCH COURT. EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
OBJECTION TO THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN THE
COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES OF AMERICA,
IN EACH CASE LOCATED IN THE COUNTY OF NEW YORK, AND HEREBY
FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO
PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH LITIGATION BROUGHT
IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
EACH OF THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL
RIGHTS TO TRIAL BY JURY IN CONNECTION WITH ANY LITIGATION ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
12.14. Term. This Agreement shall terminate on
August 31, 2001, except that Section 12.10 shall survive the
termination of this Agreement.
12.15. Publicity. Each of the parties hereto agrees
that it will make no statement regarding the transactions
contemplated hereby which is inconsistent with the press release
agreed to by the parties hereto. Notwithstanding the foregoing,
each of the parties hereto may, in documents required to be filed
by it with the Commission or other regulatory bodies, make such
statements with respect to the transactions contemplated hereby
as each may be advised is legally necessary upon advice of its
counsel.
12.16. Signatures. This Agreement shall be
effective upon delivery of original signature pages or facsimile
copies thereof executed by each of the parties hereto.
IN WITNESS WHEREOF, the Company and the Purchaser have
caused this Agreement to be executed and delivered by their
respective officers thereunto duly authorized.
KRAUSE'S FURNITURE, INC.
By:________________________________________
Name:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By:________________________________________
Name: Jeffrey H. Coats
Title: Managing Director/
Department Operations Manager
SCHEDULE 1.3A
HAWLEY GROUP includes:
Shares of
Common Stock
Hawley Group Purchased
Allison Booth Hawley Trust 112,500
Caitlin Hale Hawley Trust I 112,500
Maureen Erin Hawley Trust I 112,500
Shannon Follen Hawley Trust I 112,500
Hawley Family Trust 500,000
Dr. Philip M. Hawley, Jr. 20,000
Philip M. Hawley 30,000
TOTAL 1,000,000
SCHEDULE 1.3B
OTHER INVESTORS include:
Shares of
Common Stock
Other Investors Purchased
ATCO Holdings, Ltd. 400,000
Isaac Robert Souede 250,000
Jean R. Perrette 250,000
United Gulf Bank (B.S.C.)E.C. 225,000
ATCO Development, Inc. 100,000
Thomas M. DeLitto 25,000
Helopolis Inc. 100,000
Peter L. Rhulen 100,000
T. Michael Wallace 100,000
Carlton Securities N.V. 100,000
G[2] Investment Partners 60,000
Sidney Kimmel 50,000
Zaxis Partners, L.P. 40,000
Hurly & Co. 35,000
Sanford J. Colen 20,000
Pollat, Evans & Co. Inc. 15,000
C. Redington Barrett, III 5,000
Quadra Appreciation Fund, Inc. 5,000
Peter W. Branagh & Ramona Y.
Branagh 5,000
TTEES for the Branagh
Revocable Trust
Permal Noscal, Ltd. 405,000
Fairmont Services Ltd. 400,000
Emmanuel Bagdjian 210,000
Gary Gladstein 100,000
TOTAL 3,000,000
STOCKHOLDERS AGREEMENT
by and among
KRAUSE'S FURNITURE, INC.
and
THE STOCKHOLDERS LISTED ON
THE SIGNATURE PAGES HEREOF
Dated as of August 26, 1996
TABLE OF CONTENTS
Page
Section 1. Definitions 1
Section 2. Corporate Governance 6
2.1. Board of Directors. 6
2.2 Certain Actions Requiring Consent of GECC
Designee. 8
2.3. Management. 10
2.4. Directors' Indemnification 11
2.5. Expenses 12
2.6. Cooperation 12
2.7. Voting 12
Section 3. Restrictions on Transfers of Stock 12
Section 4. Rights of First Offer 13
Section 4A. Hawley Trust Stock Rights of First Offer 14
Section 5. Tag-Along Rights 16
Section 6. Conflicting Agreements. 16
Section 7. Legend 17
Section 8. Representations and Warranties 18
Section 9. Duration of Agreement 19
Section 10. Further Assurances 19
Section 11. Amendment and Waiver 19
Section 12. Severability 20
Section 13. Entire Agreement 20
Section 14. Successors and Assigns 20
Section 15. Counterparts 20
Section 16. Remedies 20
Section 17. Notices and Other Communications 20
Section 18. Governing Law; Consent to Jurisdiction 21
Section 19. Descriptive Headings 22
Section 20. Construction 22
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this "Agreement") is made
as of August 26, 1996 by and among KRAUSE'S FURNITURE, INC., a
Delaware corporation (the "Company") and each of the stockholders
of the Company listed on the signature pages hereof (each, a
"Stockholder" and collectively, the "Stockholders").
W I T N E S S E T H :
WHEREAS, pursuant to a Securities Purchase Agreement
between the Company and General Electric Capital Corporation
("GECC") dated the date hereof (the "Securities Purchase
Agreement"), GECC is purchasing from the Company 5,000,000 shares
of the Company's Common Stock, par value $.001 per share (the
"Common Stock"), for an aggregate purchase price of $5,000,000,
the Company's 10% Subordinated Pay-in-Kind Notes due August 31,
2001, as described in the Securities Purchase Agreement (the
"Notes"), in the initial principal amount of $5,000,000, and, in
connection with the Notes, a warrant (the "Warrant") to purchase
1,400,000 shares of Common Stock;
WHEREAS, concurrently with such purchase by GECC, (i)
Hawley Group is purchasing 1,000,000 shares of Common Stock for
an aggregate purchase price of $1,000,000, (ii) Other Investors
are purchasing 3,000,000 shares of Common Stock for an aggregate
purchase price of $3,000,000 and (iii) Edson Investments Inc.
("Edson") and certain other holders of indebtedness of the
Company are exchanging such indebtedness for shares of Common
Stock, as more fully described in the Securities Purchase
Agreement;
WHEREAS, it is a condition to the consummation of the
foregoing transactions that the parties hereto enter into this
Stockholders Agreement, and the parties hereto deem it to be in
their best interests to enter into this Agreement establishing
and setting forth their agreement with respect to certain rights
and obligations associated with ownership of shares of capital
stock of the Company.
NOW, THEREFORE, in consideration of the premises and of
the mutual covenants and obligations hereinafter set forth, the
parties hereto hereby agree as follows:
Section 1. Definitions. As used herein, the
following terms shall have the following meanings (capitalized
terms used herein and not defined herein shall have the meanings
assigned to such terms in the Securities Purchase Agreement):
"Affiliate" and "Associate" have the meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act.
"beneficially own" with respect to any securities shall
mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Exchange Act),
including pursuant to any agreement, arrangement or
understanding, whether or not in writing.
"Board" has the meaning assigned to it in Section 2.1.
"By-laws" means the By-laws of the Company as in effect
on the date hereof, as they may be amended from time to time
hereafter.
"Capitalized Lease" shall mean, with respect to any
person, any lease or any other agreement for the use of property
which, in accordance with generally accepted accounting
principals, should be capitalized on the lessee's or user's
balance sheet.
"Capitalized Lease Obligation" of any person shall mean
and include, as of any date as of which the amount thereof is to
be determined, the amount of the liability capitalized or
disclosed (or which should be disclosed) in a balance sheet of
such person in respect of a Capitalized Lease of such person.
"Certificate" means the Certificate of Incorporation of
the Company as in effect on the date stated hereof, as it may be
amended from time to time hereafter.
"Common Stock Equivalents" means rights, options,
scrip, warrants or other securities convertible into, or
exchangeable or exercisable for, shares of Common Stock.
"Company" has the meaning assigned to it in the first
paragraph hereof.
"Current Market Price", when used with reference to
shares of Common Stock for any given date, shall mean the closing
price per share of Common Stock on such date. The closing price
for each day shall be the last quoted sale price or, if not so
quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System or such
other system then in use, or, if on any such date the Common
Stock or such other securities are not quoted by any such
organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the
Common Stock or such other securities selected by the Board of
Directors of the Company. If the Common Stock is listed or
admitted to trading on a national securities exchange, the
closing price shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading
on the New York Stock Exchange or, if the Common Stock or such
other securities are not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Common
Stock or such other securities are listed or admitted to trading.
"Employment Agreement" shall mean the Employment
Agreement dated as of the date hereof between the Company and
Philip M. Hawley ("Hawley").
"Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, or any successor Federal statute, and the
rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time. Reference to a particular
section of the Securities Exchange Act of 1934, as amended, shall
include reference to the comparable section, if any, of any such
successor Federal statute.
"Fully Diluted" shall mean, when used with reference to
the Common Stock, at any date as of which the number of shares
thereof is to be determined, (i) all shares of Common Stock
outstanding at such date and (ii) all shares of Common Stock
issuable in respect of vested options or warrants to purchase, or
securities convertible into, exercisable for or exchangeable for,
shares of Common Stock outstanding on such date, the conversion,
exercise or exchange price of which is less than the Current
Market Price.
"Group" has the meaning assigned such term for purposes
of Rule 13d-5 under the Exchange Act.
"Guarantee" by any Person shall mean all obligations
(other than endorsements in the ordinary course of business of
negotiable instruments for deposit or collection) of any Person
guaranteeing, or in effect guaranteeing, any Indebtedness,
dividend or other obligation of any other Person (the "primary
obligor") in any manner, whether directly or indirectly,
including, without limitation, all obligations incurred through
an agreement, contingent or otherwise, by such Person: (i) to
purchase such Indebtedness or obligation or any property or
assets constituting security therefor, (ii) to advance or supply
funds (x) for the purchase or payment of such Indebtedness or
obligation, (y) to maintain working capital or other balance
sheet condition or otherwise to advance or make available funds
for the purchase or payment of such Indebtedness or obligation,
(iii) to lease property or to purchase securities or other
property or services primarily for the purpose of assuring the
owner of such Indebtedness or obligation of the ability of the
primary obligor to make payment of such Indebtedness or
obligation, or (iv) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in
respect thereof. For the purposes of any computations made under
this Agreement, a Guarantee in respect of any Indebtedness for
borrowed money shall be deemed to be Indebtedness equal to the
principal amount of the Indebtedness for borrowed money which has
been guaranteed, and a Guarantee in respect of any other
obligation or liability or any dividend shall be deemed to be
Indebtedness equal to the maximum aggregate amount of such
obligation, liability or dividend.
"Hawley Group" shall mean those Persons listed on
Schedule A attached hereto.
"Hawley Trusts" shall mean the Hawley Group other than
Philip M. Hawley and Dr. Philip M. Hawley, Jr.
"Indebtedness" shall mean, with respect to any person,
(i) all obligations of such person for borrowed money, or with
respect to deposits or advances of any kind, (ii) all obligations
of such person evidenced by bonds, debentures, notes or similar
instruments, (iii) all obligations of such person under
conditional sale or other title retention agreements relating to
property purchased by such person, (iv) all obligations of such
person issued or assumed as the deferred purchase price of
property or services (other than accounts payable to suppliers
and similar accrued liabilities incurred in the ordinary course
of business and paid in a manner consistent with industry
practice), (v) all Indebtedness of others secured by (or for
which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any lien or security
interest on property owned or acquired by such person whether or
not the obligations secured thereby have been assumed, but only
to the extent of such security, if such obligations have not been
assumed, (vi) all Capitalized Lease Obligations of such person,
(vii) all Guarantees of such person, (viii) all obligations
(including but not limited to reimbursement obligations) relating
to the issuance of letters of credit for the account of such
person, (ix) all obligations arising out of foreign exchange
contracts, and (x) all obligations arising out of interest rate
and currency swap agreements, cap, floor and collar agreements,
interest rate insurance, currency spot and forward contracts and
other agreements or arrangements designed to provide protection
against fluctuations in interest or currency exchange rates.
"Other Investors" shall mean those Persons listed on
Schedule B attched hereto.
"Permal Group" shall mean those Persons listed on
Schedule C attached hereto.
"Permitted Transfer" shall mean any Transfer (i) by an
individual Stockholder to such Stockholder's spouse, former
spouse, child, parent, parent of a spouse, sibling or grandchild
(collectively, "Relatives") or to or among a trust of which there
are no principal beneficiaries other than one or more Relatives
of such Stockholder; (ii) from a Relative of an individual
Stockholder to another Relative of that individual Stockholder or
to that individual Stockholder; (iii) by any Stockholder to any
of its Affiliates or partners; or (iv) by an Individual
Stockholder pursuant to laws of descent or survivorship.
"Person" means any individual, corporation, limited
liability company, limited or general partnership, joint venture,
association, joint-stock company, trust, unincorporated
organization or government or any agency or political
subdivisions thereof.
"Registration Rights Agreement" means the Registration
Rights Agreement, dated as of the date hereof, between the
Company and the stockholders listed on the signature page thereto
as it may be amended from time to time.
"Related Party" shall mean any officer, director or
beneficial holder of 3% or more of the outstanding shares of
capital stock of the Company or any Subsidiary, any Relative of
any such officer, director or beneficial holder of the Company or
any Subsidiary, and any Affiliate or Associate of any of the
foregoing persons.
"Securities Act" shall mean the Securities Act of 1933,
as amended, or any successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall
be in effect at the time.
"Sell" as to any Stock, shall mean to sell, or in any
other way directly or indirectly transfer (including by operation
of law, by merger or consolidation, or sale of securities of a
holding company), assign, distribute or otherwise dispose of,
such Stock in a bona fide transaction for value; and the terms
"Sale" and "Sold" shall have meanings correlative to the
foregoing. A Permitted Transfer shall not constitute a Sale for
purposes of this Agreement.
"Stock" means (i) any shares of Common Stock and (ii)
any Common Stock Equivalents (including, without limitation, the
Common Stock issuable upon conversion, exercise or exchange
thereof), in each case, whether owned on the date hereof or
acquired hereafter.
"Stockholder" and "Stockholders" have the meanings
assigned to such terms in the first paragraph hereof; provided
that any transferee of Stock pursuant to a Permitted Transfer
shall be treated as a Stockholder for purposes of this Agreement
and shall be entitled to the benefits of, and shall be bound by,
the provisions of this Agreement.
"Stockholder's Group" shall mean, with respect to any
Stockholder who is a member of the Hawley Group or the Permal
Group, either the Hawley Group or the Permal Group, as the case
may be.
"Subsidiary" means with respect to any Person, (i) any
corporation, partnership or other entity of which shares of
capital stock or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other
similar managing body of such corporation, partnership or other
entity are at the time owned by such Person, or (ii) the
management of which is otherwise controlled, directly or
indirectly, through one or more intermediaries by such Person.
"Transfer" as to any Stock, means to Sell, or in any
other way directly or indirectly transfer, assign, distribute,
pledge, encumber or otherwise dispose of, either voluntarily or
involuntarily, and whether or not for value.
"Voting Shares" means shares of any class of capital
stock of the Company the holders of which are generally entitled
to vote in the election of members of the Board.
Section 2. Corporate Governance.
2.1. Board of Directors.
(a) Members. Subject to the provisions of Section
6.10 of the Securities Purchase Agreement, the Board of Directors
of the Company (the "Board") shall consist of six members, of
whom one shall be designated by GECC (such person so designated,
and any successor thereto, being referred to herein as the "GECC
Designee"); one shall be designated by Permal Group (such person
so designated, and any successor thereto, being referred to
herein as the "Permal Designee"); one shall be Hawley; and three
shall be selected by the vote of the GECC Designee, the Permal
Designee and Hawley (the "Joint Designees"). At each meeting of
the stockholders of the Company held for the purpose of electing
directors, the Stockholders (other than the Hawley Trusts) shall
take such action as shall be necessary to cause the GECC
Designee, the Permal Designee, Hawley and the Joint Designees (or
any successor to any such person designated in accordance with
paragraph (b) of this Section) to be elected as directors
(including, in the case of GECC and Permal Group, causing their
respective designees on the Board to nominate, and recommend to
the stockholders of the Company the election of, the GECC
Designee, the Permal Designee, Hawley and the Joint Designees to
the Board and opposing, and causing their respective designees on
the Board to oppose, any proposal to remove GECC Designee, Permal
Designee, Hawley or any Joint Designee at each meeting of the
stockholders of the Company at which the election or removal of
members of the Board is on the agenda), and shall take no action
which would diminish the prospects of the GECC Designee, the
Permal Designee, Hawley or any Joint Designee being elected to
the Board or increase the prospects of any GECC Designee, Permal
Designee, Hawley or any Joint Designee being removed from the
Board. The Company shall take all necessary action to reduce the
size of the Board to the extent required by the first sentence of
this paragraph and shall cause the current members of the Board
to resign from office as necessary to implement the provisions of
the first sentence of this paragraph.
(b) Vacancies. Each of the GECC Designee and Permal
Designee shall hold office until his death, resignation or
removal or until his successor shall have been duly elected and
qualified. If any GECC Designee shall cease to serve as a
director of the Company for any reason, the vacancy resulting
thereby shall be filled by another person designated by GECC. If
any Permal Designee shall cease to serve as a director of the
Company for any reason, the vacancy resulting thereby shall be
filled by another person designated by Permal Group. If Hawley
shall cease to serve as a director of the Company, GECC and
Permal Group shall cause their respective designees on the Board
and the Joint Designees to take all necessary action to elect a
successor to Hawley to fill the vacancy resulting thereby. In
the event that at any time there exist vacancies on the Board
such that there is either no GECC Designee or no Permal Designee,
no action may be taken by the Board until such vacancy is filled.
GECC and Permal Group agree to use their best efforts to
designate successors to fill any such vacancies as promptly as
practicable.
(c) Removal. No GECC Designee may be removed from
office except by GECC and no Permal Designee may be removed from
office except by Permal Group. GECC shall have the right to
remove any GECC Designee, and Permal Group shall have the right
to remove any Permal Designee, with or without cause, at any
time.
(d) Quorum Requirements. Subject to Section 2.2, the
quorum which shall be required for action to be taken by the
Board (other than an adjournment of any meeting of the Board)
shall be the GECC Designee, the Permal Designee and Hawley.
Directors participating by telephone conference in any meeting of
the Board shall be considered in determining whether a quorum of
directors is present.
(e) Committees. The Company shall cause the GECC
Designee and the Permal Designee to be appointed to each of the
committees of the Board as may be requested at any time or from
time to time by GECC or Permal Group, as the case may be.
(f) Chairman of the Board. Hawley shall serve as
Chairman of the Board for as long as he is Chief Executive
Officer. GECC and Permal Group presently intend to continue to
nominate Hawley to serve as a director and Chairman of the Board
after Hawley retires as Chief Executive Officer, provided that
Hawley shall not be obligated to accept such nomination.
(g) Board and Committee Meetings. The Company shall
hold regular meetings of its Board on at least a quarterly basis.
The Company agrees, and shall cause its By-laws to be amended to
the extent necessary to provide, that the GECC Designee shall
have the right, upon reasonable notice, to call meetings of the
Board and of each committee of the Board on which he or she is a
member.
(h) Duration. The right of each of GECC and Permal
Group to designate directors pursuant to this Section shall
continue only for so long as GECC and its Affiliates or Permal
Group, as the case may be, beneficially owns at least 2,000,000
shares of Common Stock.
2.2 Certain Actions Requiring Consent of GECC
Designee. Notwithstanding any other provision of this Agreement,
for so long as GECC is entitled to designate a GECC Designee to
serve on the Board, without the approval, at a meeting of the
Board or a committee thereof duly called and held, of the GECC
Designee, the Company shall not, directly or indirectly, and
shall not permit any of its Subsidiaries to, directly or
indirectly, take any of the following actions (except to the
extent any such action is specifically authorized under this
Agreement, the Securities Purchase Agreement, the Registration
Rights Agreement or an annual business plan previously approved
by the GECC Designee in accordance with this Section):
(a) merge with or into or consolidate with any other
Person;
(b) voluntarily liquidate, dissolve or wind up or file
any voluntary petition in bankruptcy or for receivership or make
any assignment for the benefit of creditors;
(c) in any transaction or series of transactions,
acquire (including pursuant to a merger or consolidation) all or
any substantial portion of the business or assets of any Person;
(d) enter or commit to enter into any joint venture or
partnership or establish any non-wholly-owned subsidiaries or
otherwise make any debt or equity investment in any Person (other
than extensions of credit in the ordinary course of business);
(e) expand into new lines of business (it being
understood that "new lines of business" do not include the
conduct in additional states in the United States of the business
conducted by the Company and its Subsidiaries as of the date of
this Agreement);
(f) assign to any other Person any rights of the
Company under this Agreement, the Registration Rights Agreement
or the Securities Purchase Agreement;
(g) in any transaction or series of transactions,
sell, lease or exchange any assets of the Company and/or any
Subsidiary, except for sales of inventory in the ordinary course
of business and subleasing of vacant retail space on arm's-length
terms;
(h) adopt or change any material accounting policy of
the Company or any of its Subsidiaries, except as required by
generally accepted accounting principles;
(i) create, incur, assume or suffer to exist any
Indebtedness other than Indebtedness under the Loan and Security
Agreement dated as of January 20, 1995 between the Company and
Congress Financial Corporation (Western), as amended to the date
of this Agreement, including premium (if any), and interest
thereon, and other Indebtedness not to exceed in the aggregate
$100,000 at any time outstanding;
(j) mortgage, encumber, create, incur or suffer to
exist, liens on its assets (other than liens on assets under
Indebtedness outstanding as of the date hereof and materialmen's,
mechanics' and other similar liens arising for work performed in
the ordinary course of business which are not overdue for more
than 30 days);
(k) pay, declare or set aside any sums for the payment
of, any dividends, or make any distribution on, any shares of its
capital stock or redeem, repurchase or otherwise acquire any
outstanding shares of its capital stock or any other of its
outstanding securities or Indebtedness (except for Indebtedness
(other than indebtedness to any Related Party, excluding
indebtedness for expenses incurred in the ordinary course of
business on behalf of the Company and its Subsidiaries) to the
extent it becomes due in accordance with its terms);
(l) make or commit to make (with respect to the
Company and all of its Subsidiaries taken together) during any
calendar year any capital expenditure or capital expenditures in
an amount in excess of $50,000;
(m) issue or sell any shares of capital stock or
rights, options, warrants or other securities exercisable for,
exchangeable for or convertible into shares of capital stock of
the Company or any of the Company's Subsidiaries, other than upon
the exercise of options or warrants outstanding on the date of
this Agreement or previously approved in accordance with this
Section, or grant, amend or terminate any stock appreciation
right or other stock-based award;
(n) enter into, adopt, amend or terminate any
employment or consulting agreement, or hire or retain any person
who will report directly to the Chief Executive Officer or to
whom the Company shall pay total compensation (including, without
limitation, compensation in the form of benefits) in excess of
$110,000 per year, or enter into, adopt, amend or terminate any
employee benefit plan, policy or arrangement, except as required
by law or generally accepted accounting principles;
(o) amend its Certificate or By-laws, including,
without limitation, any change in the number of directors
comprising its Board of Directors, or adopt, amend, redeem or
terminate any shareholder rights plan or similar plan or
arrangement;
(p) amend, modify or waive any provision of this
Agreement, the Securities Purchase Agreement, the Registration
Rights Agreement or the agreements ancillary thereto, or become a
party to any agreement which by its terms restricts the Company's
or any of its Subsidiaries', or any Stockholder's, performance of
the terms of any of such agreements;
(q) change its independent certified accountants or
actuaries;
(r) register any securities under the Securities Act
or grant any registration rights therefor;
(s) enter into, amend or terminate, or waive any
material rights of the Company and its Subsidiaries under, any
contract, arrangement or transaction involving consideration in
excess of $50,000 or which is otherwise material to the Company
or any of its Subsidiaries;
(t) enter into, amend or terminate any contract,
arrangement or transaction with a Related Party, other than the
payment of salary and benefits pursuant to employment
arrangements entered into in the ordinary course of business in
compliance with this Agreement;
(u) enter into, adopt, amend (whether by agreement or
by conduct of the business), except as required by law or
generally accepted accounting principles, or terminate any annual
business plan;
(v) take any action required by law to be approved by
the Board; or
(w) agree or otherwise commit to take any of the
actions set forth in the foregoing subparagraphs (a) through (v).
2.3. Management.
(a) Chief Executive Officer. Subject to the
provisions of this Agreement and the Employment Agreement, Hawley
shall be the Chief Executive Officer of the Company. In the
event of the death, resignation, removal or other termination of
Hawley's services as Chief Executive Officer, any successor Chief
Executive Officer (and any successor(s) thereto) shall be
selected by GECC.
(b) Appointment of Management. Subject to Section 2.2
hereof, all members of management of the Company (other than the
Chief Executive Officer) shall be designated by, their
compensation shall be determined by, and they may be removed,
promoted or demoted by, the Chief Executive Officer of the
Company; provided, however, that the designation of, setting of
compensation for, or removal, promotion or demotion of, any
person who will report directly to the Chief Executive Officer or
earn total compensation (including benefits) from the Company and
its Subsidiaries of $110,000 or more per year shall be subject to
the prior approval of the Board.
2.4. Directors' Indemnification.
(a) The Company shall obtain and cause to be
maintained in effect, with financially sound insurers, a policy
of directors' and officers' liability insurance covering the GECC
Designee, the Permal Designee, Hawley and the Joint Designees
(and their respective successors) in an amount of at least
$15,000,000 or such other amount the Board shall specify (as such
amount shall be increased from time to time at the request of
GECC).
(b) The Certificate, By-laws and other organizational
documents of the Company and each of its Subsidiaries shall at
all times, to the fullest extent permitted by law, provide for
indemnification of, advancement of expenses to, and limitation of
the personal liability of, the members of the Board and the
members of the boards of directors or other similar managing
bodies of each of the Company's Subsidiaries and such other
persons, if any, who, pursuant to a provision of such
Certificates, By-laws or other organizational documents, exercise
or perform any of the powers or duties otherwise conferred or
imposed upon members of the Board or the boards of directors or
other similar managing bodies of each of the Company's
Subsidiaries. Such provisions may not be amended, repealed or
otherwise modified in any manner adverse to any member of the
Board or any member of the boards of directors or other similar
managing bodies of any of the Company's Subsidiaries, until at
least six years following the termination of this Agreement.
(c) Each of the GECC Designee, the Permal Designee,
Hawley and the Joint Designees is intended to be a third-party
beneficiary of the obligations of the Company pursuant to this
Section 2.4, and the obligations of the Company pursuant to this
Section 2.4 shall be enforceable by the GECC Designee, the Permal
Designee, Hawley and the Joint Designees.
2.5. Expenses. The Company shall pay the reasonable
out-of-pocket expenses incurred by each of the GECC Designee, the
Permal Designee and the Joint Designees in connection with
performing his or her duties, including without limitation the
reasonable out-of-pocket expenses incurred by such person
attending meetings of the Board or any committee thereof or
meetings of any board of directors or other similar managing body
(and any committee thereof) of any Subsidiary of the Company.
2.6. Cooperation. Each Stockholder (other than the
Hawley Trusts) shall vote all of its Voting Shares and shall take
all other necessary or desirable actions within its control
(including, without limitation, attending all meetings in person
or by proxy for purposes of obtaining a quorum, executing all
written consents in lieu of meetings and voting to remove members
of the Board, as applicable), and the Company shall take all
necessary and desirable actions within its control (including,
without limitation, calling special Board and stockholder
meetings and voting to remove members of the Board, as
applicable), to effectuate the provisions of Section 2.1.
2.7. Voting. Each Stockholder which is included in the
Permal Group agrees that, at each meeting of stockholders and in
each action by written consent in lieu of a meeting, such
Stockholder shall vote (or act by consent with respect to) all
Voting Shares over which such Stockholder has voting authority in
the same manner that the Voting Shares held by GECC are voted
with respect to each matter subject to the vote or consent of
Stockholders of the Company. GECC shall provide each such
Stockholder with reasonable advance notice in order for such
Stockholder to comply with its obligations under this Section
2.7. Upon the request of GECC, such Stockholder shall execute an
irrevocable proxy authorizing designees of GECC to vote all
Voting Shares over which such Stockholder has voting authority in
the manner prescribed in this Section. The provisions of this
Section 2.7 shall be amended to the satisfacton of GECC such
that, not withstanding anything in this Agreement to the
contrary, GECC shall have only such voting rights set forth in
this Section 2.7 with respect to Voting Shares owned by each
Stockholder in the Permal Group only to the extent that such
voting rights do not cause GECC and the Company to be considered
members of a "controlled group of corporations" or "under common
control" within the meaning of Sections 414(b) or (c) of the
Code, or to be considered under "common control" within the
meaning of Section 4001(a)(14) of ERISA.
Section 3. Restrictions on Transfers of Stock.
(a) Notwithstanding anything to the contrary contained
herein, no Stockholder shall Transfer any Stock, except for Sales
and Permitted Transfers. The Company shall not reflect on its
books any Sale of Stock, unless (a) the Sale is pursuant to an
effective registration statement under the Securities Act and
under any applicable state securities or blue sky laws, or (b)
the Selling Stockholder shall have furnished the Company with
evidence reasonably satisfactory to the Company that no such
registration is required because of the availability of an
exemption from registration under the Securities Act and under
applicable state securities or blue sky laws. A written opinion
of counsel of recognized standing to the effect set forth in
clause (b) of the preceding sentence shall satisfy the
requirements of such clause.
(b) Any Transfer or attempted Transfer of Stock in
violation of any provision of this Agreement shall be void, and
the Company shall not record such Transfer on its books or treat
any purported transferee of such Stock as the owner of such Stock
for any purpose.
Section 4. Rights of First Offer. In the event
that any Stockholder intends to Sell any Stock other than
pursuant to a registered public offering and other than Sales on
Nasdaq or a national securities exchange of shares which, when
aggregated with all other Sales by such Stockholder and any other
members of such Stockholder Group from and after the date of this
Agreement, would represent not more than 1,000,000 shares of
Common Stock in the aggregate:
(i) the Stockholder intending to Transfer
such Stock (the "Proposing Seller") shall give each
other Stockholder (each an "Offeree") written notice of
its intent to Sell such Stock, specifying the number of
securities to be sold and the minimum price and terms
and conditions of such sale and offering to Sell to
such Offeree, at such minimum price and on such terms
and conditions, its pro rata share of such Stock (based
on the number of shares of Common Stock beneficially
owned by each Offeree on a Fully Diluted basis);
provided that any Offeree may, by written notice to the
Proposing Seller, elect to purchase, in addition to its
pro rata share of such Stock, all or any portion of the
Stock (if any) with respect to which any other Offeree
fails to exercise its right of first offer under this
Section 4, and such additional Stock shall be pro-rated
among such Offerees in the manner described above to
the extent such additional Stock is oversubscribed;
(ii) if any Offeree shall not, within 15 days
after receipt of the notice given pursuant to clause
(i) above, accept such offer in writing with respect to
the Stock specified in such notice, then the Proposing
Seller shall be free to sell the Stock specified in the
notice to such Offeree (but only those securities
covered by the notice of intention to sell which no
other Offeree shall have agreed to purchase) at a price
equal to or above the minimum price and on other terms
and conditions no less favorable to the Proposing
Seller than those specified in such notice, at any time
within 90 days of the expiration of such 15-day period;
(iii) if the Proposing Seller shall not
have consummated the proposed Transfer within 90 days
after the expiration of the 15-day period referred to
in clause (ii) above, then the Proposing Seller may not
thereafter Transfer such Stock without complying with
the provisions of this Section 4; and
(iv) if any Offeree shall accept such offer
within 15 days after the notice given pursuant to
clause (i) above, then such Offeree shall purchase the
Stock specified in such notice as promptly as is
reasonably practicable, but in any event within 45 days
after the notice given pursuant to clause (i) above or
such later date as the Proposing Seller may designate
within the 90-day period referred to in clause (iii)
above.
Section 4A. Hawley Trust Stock Rights of First
Offer. If any of the Hawley Trusts intends to Sell any Stock
covered by a Shelf Registration Statement (as defined in the
Registration Rights Agreement):
(i) the Hawley Trust intending to Transfer
such Stock (the "Hawley Trust Seller") shall give the
Company and GECC written notice (the "Hawley Trust
Seller Notice") of its intent to Sell such Stock,
specifying the number of securities to be sold and the
minimum price and terms and conditions of such sale,
and offering to Sell to the Company and GECC, at such
minimum price and on such terms and conditions. The
Company shall provide a copy of any Hawley Trust Seller
Notice to each Stockholder within two days after
receipt by it of the Hawley Trust Seller Notice. The
Company shall have the right to purchase all or any
part of such Stock by giving a written notice to the
Hawley Trust Seller and GECC within two days after
receipt by it of the Hawley Trust Seller Notice,
specifying the number of shares of such Stock to be so
purchased by the Company;
(ii) if the Company elects to purchase none
of, or less than all, the Stock that is the subject of
the proposed Transfer by the Hawley Trust Seller, then
GECC shall have the right to purchase any or all of the
available Stock by giving a written notice to the
Hawley Trust Seller and the Company within seven days
after receipt by it of the Hawley Trust Seller Notice
(the "Notice Period"); provided that any other
Stockholder (each, an "Electing Stockholder") may, by
written notice to GECC prior to the expiration of the
Notice Period elect to purchase its pro rata share of
the available Stock, and any such Electing Stockholder
may elect to purchase, in addition to its pro rata
share of the available Stock, all or any portion of the
Stock (if any) with respect to which GECC or any other
Stockholder fails to exercise its right under this
Section 4A, and such additional Stock shall be pro-
rated among such Electing Stockholders in the manner
described above to the extent such additional Stock is
oversubscribed;
(iii) GECC shall act as agent for the
Electing Stockholders in connection with any exercise
by an Electing Stockholder of its rights under this
Section and the Hawley Trust Seller shall not be
obligated to deal with any Stockholder other than GECC
in connection with any purchase and sale under this
Section 4A; provided that GECC shall have no liability
to the Hawley Trust Seller if GECC fails to purchase
any Stock which GECC disclosed in writing to the Hawley
Trust Seller at the time of delivery of GECC's election
to purchase was being purchased by GECC solely as agent
for one or more Electing Stockholders; and GECC shall
have no liability to any other Stockholder for any act
or omission by GECC under this Section 4A;
(iv) if the Company and GECC fail to elect to
purchase all the Stock specified in the Hawley Trust
Seller Notice, then the Hawley Trust Seller shall be
free to sell, pursuant to a Shelf Registration
Statement, the portion of such Stock as to which no
election to purchase has been made by the Company or
GECC at a price equal to or above the minimum price and
on other terms and conditions no less favorable to the
Hawley Trust Seller than those specified in the Hawley
Trust Seller Notice, at any time within 90 days of the
expiration of the seven-day period referred to in
clause (ii) above;
(v) if the Hawley Trust Seller shall not
have consummated the proposed Transfer within 90 days
after the expiration of the seven-day period referred
to in clause (ii) above, then the Hawley Trust Seller
may not thereafter Transfer such Stock without
complying with the provisions of this Section 4A;
(vi) if the Company or GECC shall elect to
purchase any Stock pursuant to clause (i) or clause
(ii) above, then the Company or, subject to clause
(iii) above, GECC shall purchase such Stock within 10
days after receipt by it of the Hawley Trust Seller
Notice or at the earliest practicable date after
receipt of any required regulatory approvals, whichever
is later, or such later date as the Hawley Trust Seller
may designate within the 90-day period referred to in
clause (iv) above; and
(vii) any Electing Stockholder shall
provide to GECC all funds required, and shall execute
and deliver to GECC all documents reasonably requested
by GECC, in connection with the purchase by GECC of any
Stock as agent for such Electing Stockholder, and GECC
shall deliver certificates representing the Stock
acquired by such Electing Stockholder to such
Stockholder promptly following the consummation of any
purchase under this Section 4A and the satisfaction by
such Electing Stockholder of his obligations under this
clause (vii).
Section 5. Tag-Along Rights.
(a) If GECC or any member of Permal Group, whether
acting alone or in concert with any other Stockholder
(collectively, the "Selling Stockholders") pursuant to a common
plan, understanding or arrangement, shall enter into an agreement
to Sell or otherwise propose to Sell to any Person or Group
(other than pursuant to a registered public offering) (such
Person or Group, the "Tag-Along Transferee"), in one transaction
or a series of related transactions, any Stock, such that
immediately following the consummation of such Sale, the Selling
Stockholders would have Sold to such Person or Group in the
aggregate Stock representing in excess of 3,000,000 shares of
Stock (a "Tag-Along Sale") (such number of shares of Stock being
referred to herein as the "Tag-Along Number"), then each of the
other Stockholders (each a "Tag-Along Offeree") shall have the
right to participate in such Tag-Along Sale by selling a number
of shares of Common Stock equal to such Stockholder's
Proportionate Share, as part of the Tag-Along Sale by the Selling
Stockholders, on the same terms as those applicable to the Tag-
Along Sale (except that, if the Tag-Along Sale involves Common
Stock Equivalents, the economic terms of such Sale shall be
appropriately adjusted to reflect that the Tag-Along Offerees are
selling Common Stock). "Proportionate Share" means, with respect
to each Stockholder, a number of shares of Common Stock which
bears the same ratio to the number of shares of Common Stock
beneficially owned by such Stockholder on a Fully Diluted basis
as the Tag-Along Number bears to the number of shares of Common
Stock beneficially owned by the Selling Stockholders on a Fully
Diluted basis.
(b) The Selling Stockholders shall provide to each Tag-
Along Offeree written notice of any Tag-Along Sale (the "Tag-
Along Notice"), not more than 45 and not less than 15 days prior
to the Tag-Along Sale, setting forth the terms of the Tag-Along
Sale and specifically identifying the Tag-Along Transferee of the
Stock, and shall give each Tag-Along Offeree at least 10 days
after delivery of the Tag-Along Notice within which to exercise
its rights contained in this Section 5, by written notice thereof
to the Selling Stockholder.
Section 6. Conflicting Agreements. Each
Stockholder represents and warrants that such Stockholder has not
granted and is not a party to any proxy, voting trust or other
agreement which is inconsistent with or conflicts with any
provision of this Agreement, and no holder of Stock shall grant
any proxy or become party to any voting trust or other agreement
which is inconsistent with or conflicts with any provision of
this Agreement.
Section 7. Legend.
(a) Each Stockholder and the Company shall take all
such action necessary (including exchanging with the Company
certificates representing shares of Stock issued prior to the
date hereof) to cause each certificate representing outstanding
shares of Stock (other than shares which have been registered
under the Securities Act, to which the first paragraph of such
legends shall not apply) to bear legends substantially in the
form as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH
LAWS."
"THE TRANSFER OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE IS RESTRICTED BY AN AGREEMENT ON
FILE AT THE OFFICES OF THE CORPORATION."
"IN ADDITION TO THE RESTRICTIONS SET FORTH IN THE
SECURITIES PURCHASE AGREEMENT BETWEEN KRAUSE'S
FURNITURE, INC. AND GENERAL ELECTRIC CAPITAL
CORPORATION, THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO THE RESTRICTIONS SET
FORTH IN THE STOCKHOLDERS AGREEMENT BY AND AMONG
KRAUSE'S FURNITURE, INC. AND THE STOCKHOLDERS
PARTIES THERETO, A COPY OF WHICH IS ON FILE IN THE
OFFICES OF THE CORPORATION."
(b) The requirement that the above securities legend
be placed upon certificates evidencing any shares of Stock shall
cease and terminate upon the earliest of the following events:
(i) when such shares are transferred in an underwritten public
offering, (ii) when such shares are transferred pursuant to Rule
144 under the Securities Act or (iii) when such shares are
transferred in any other transaction if the seller delivers to
the Company an opinion of its counsel, which counsel and opinion
shall be reasonably satisfactory to the Company, or a "no-action"
letter from the staff of the Securities and Exchange Commission,
in either case to the effect that such legend is no longer
necessary in order to protect the Company against a violation by
it of the Securities Act upon any sale or other disposition of
such shares without registration thereunder. The requirement
that the above legend regarding this Agreement be placed upon
certificates evidencing shares of Stock shall cease and terminate
upon the sale of such shares, other than pursuant to a Permitted
Transfer. Upon the consummation of any event requiring the
removal of a legend hereunder, the Company, upon the surrender of
certificates containing such legend, shall, at its own expense,
deliver to the holder of any such shares as to which the
requirement for such legend shall have terminated, one or more
new certificates evidencing such shares not bearing such legend.
Section 8. Representations and Warranties.
(a) Each party hereto represents and warrants to the
other parties hereto as follows:
(i) It has full power and authority to execute,
deliver and perform its obligations under this
Agreement.
(ii) This Agreement has been duly and validly
authorized, executed and delivered by it, and
constitutes a valid and binding obligation of it,
enforceable against it in accordance with its terms
except to the extent that enforceability may be limited
by bankruptcy, insolvency or other similar laws
affecting creditors' rights generally.
(iii) The execution, delivery and performance of this
Agreement by it does not (x) violate, conflict with, or
constitute a breach of or default under its
organizational documents, if any, or any agreement to
which it is a party or by which it is bound or (y)
violate any law, regulation, order, writ, judgment,
injunction or decree applicable to it.
(iv) No consent or approval of, or filing with, any
governmental or regulatory body is required to be
obtained or made by it in connection with the
transactions contemplated hereby.
(v) It is not a party to any agreement which is
inconsistent with the rights of any party hereunder or
otherwise conflicts with the provisions hereof.
(b) Each Stockholder severally represents and warrants
to GECC with respect only to itself and not any other Stockholder
as follows:
(i) Schedule 8(b) hereto sets forth a list of all
securities of the Company (including, without
limitation, shares of capital stock, convertible
securities, debentures, etc.) held of record or
beneficially owned by it immediately after the date
hereof.
(ii) Except as set forth on Schedule 8(b) hereto and
other than this Agreement and the Registration Rights
Agreement, it is not a party to any contract or
agreement, written or oral, with respect to the voting
or transfer of securities of the Company (including,
without limitation, any voting agreement, voting trust,
stockholder's agreement, registration rights agreement,
etc.).
Section 9. Duration of Agreement. Subject to the
last sentence of this Section, the rights and obligations of a
Stockholder under this Agreement shall terminate at such time as
such Stockholder no longer is the beneficial owner of any shares
of Stock. This Agreement shall terminate at such time as GECC no
longer is the beneficial owner of 2,000,000 or more of the
outstanding shares of Common Stock, or at such earlier time as
may be agreed by GECC and Permal Group. This Agreement (other
than Section 4A), shall terminate as to any member of the Hawley
Group on the later of (i) six months after Hawley ceases to be a
director of the Company and (ii) August 31, 1999.
Section 10. Further Assurances. At any time or from
time to time after the date hereof, the parties agree to
cooperate with each other, and at the request of any other party,
to execute and deliver any further instruments or documents and
to take all such further action as the other party may reasonably
request in order to evidence or effectuate the consummation of
the transactions contemplated hereby and to otherwise carry out
the intent of the parties hereunder.
Section 11. Amendment and Waiver. Except as
otherwise provided herein, no modification, amendment or waiver
of any provision of this Agreement shall be effective against the
Company or any Stockholder unless such modification, amendment or
waiver is approved in writing by the Company, Stockholders
holding at least a majority of the Common Stock, and, so long as
it holds any shares of Stock, by GECC. The failure of any party
to enforce any of the provisions of this Agreement shall in no
way be construed as a waiver of such provisions and shall not
affect the right of such party thereafter to enforce each and
every provision of this Agreement in accordance with its terms.
Section 12. Severability. Whenever possible, each
provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in
any jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision or any other jurisdiction,
but this Agreement shall be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable
provision had never been contained herein.
Section 13. Entire Agreement. Except as otherwise
expressly set forth herein, this document and the other documents
dated the date hereof executed in connection herewith embody the
complete agreement and understanding among the parties hereto
with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations
by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.
Section 14. Successors and Assigns. Except as
otherwise provided herein, this Agreement shall bind and inure to
the benefit of and be enforceable by the Company and its
successors and assigns and each Stockholder and their respective
successors, assigns, heirs and personal representatives, so long
as they hold Stock. Except pursuant to a Permitted Transfer (in
which case the transferee shall be entitled to exercise all
rights, and shall be bound by all obligations, of a Stockholder
under this Agreement), no Stockholder shall have the right to
assign its rights and obligations under this Agreement.
Section 15. Counterparts. This Agreement may be
executed in separate counterparts each of which shall be an
original and all of which taken together shall constitute one and
the same agreement.
Section 16. Remedies. Each Stockholder shall be
entitled to enforce its rights under this Agreement specifically
to recover damages by reason of any breach of any provision of
this Agreement and to exercise all other rights existing in their
favor. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that each party may in its sole
discretion apply to any court of law or equity of competent
jurisdiction for specific performance and/or injunctive relief
(without posting a bond or other security) in order to enforce or
prevent any violation of the provisions of this Agreement.
Section 17. Notices and Other Communications. All
notices, consents, requests, instructions, approvals, financial
statements, proxy statements, reports and other communications
provided for herein shall be in writing and shall be delivered
personally, by telecopy or sent by prepaid overnight courier
service, to the Company and to each Stockholder as set forth
below and to any subsequent holder of Stock subject to this
Agreement at such address as indicated by the Company's records,
or at such address or to the attention of such other person as
the recipient party has specified by prior written notice to the
sending party:
THE COMPANY:
Krause's Furniture, Inc.
200 North Berry Street
Brea, CA 92621-3903
Attention: Philip M. Hawley
With a copy to:
Krause's Furniture, Inc.
200 North Berry Street
Brea, CA 92621-3903
Attention: Judith Lasker
With copies to:
Warren de Wied, Esq.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
and
David Kaufman, Esq.
Stroock Stroock & Lavan
7 Hanover Square
New York, New York 10004
STOCKHOLDERS:
To each Stockholder at the address
for such Stockholder set forth on
Schedule 17 attached hereto.
Section 18. Governing Law; Consent to Jurisdiction.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO
THE PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND
OF THE UNITED STATES OF AMERICA, IN EACH CASE LOCATED IN THE
COUNTY OF NEW YORK, FOR ANY ACTION, PROCEEDING OR INVESTIGATION
IN ANY COURT OR BEFORE ANY GOVERNMENTAL AUTHORITY ("LITIGATION")
ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY (AND AGREES NOT TO COMMENCE ANY LITIGATION
RELATING THERETO EXCEPT IN SUCH COURTS), AND FURTHER AGREES THAT
SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR DOCUMENT BY U.S.
REGISTERED MAIL TO ITS RESPECTIVE ADDRESS SET FORTH IN THIS
AGREEMENT SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY
LITIGATION BROUGHT AGAINST IT IN ANY SUCH COURT. EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
OBJECTION TO THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN THE
COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES OF AMERICA,
IN EACH CASE LOCATED IN THE COUNTY OF NEW YORK, AND HEREBY
FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO
PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH LITIGATION BROUGHT
IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
EACH OF THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL
RIGHTS TO TRIAL BY JURY IN CONNECTION WITH ANY LITIGATION ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
Section 19. Descriptive Headings. The descriptive
headings of this Agreement are inserted for convenience only and
do not constitute a part of this Agreement.
Section 20. Construction. Where specific language
is used to clarify by example a general statement contained
herein, such specific language shall not be deemed to modify,
limit or restrict in any manner the construction of the general
statement to which it relates. The language used in this
Agreement shall be deemed to be the language chosen by the
parties hereto to express their mutual intent, and no rule of
strict construction shall be applied against any party.
IN WITNESS WHEREOF, the parties hereto have executed
this Stockholders Agreement on the day and year first above
written.
KRAUSE'S FURNITURE, INC.
By:_____________________________________
Name:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By:_____________________________________
Name: Jeffrey H. Coats
Title:Managing Director/
Department Operations Manager
IN WITNESS WHEREOF, the parties hereto have executed
this Stockholders Agreement on the day and year first above
written.
By: _____________________________________
SCHEDULE A
HAWLEY GROUP consists of:
Allison Booth Hawley Trust I
Caitlin Hale Hawley Trust I
Maureen Erin Hawley Trust I
Shannon Follen Hawley Trust I
Hawley Family Trust
Dr. Philip M. Hawley, Jr.
Philip M. Hawley
SCHEDULE B
OTHER INVESTORS consists of:
Shares of
Common Stock
Other Investors Purchased
ATCO Holdings, Ltd. 400,000
Isaac Robert Souede 250,000
Jean R. Perrette 250,000
United Gulf Bank (B.S.C.)E.C. 225,000
ATCO Development, Inc. 100,000
Thomas M. DeLitto 25,000
Helopolis Inc. 100,000
Peter L. Rhulen 100,000
T. Michael Wallace 100,000
Carlton Securities N.V. 100,000
G Investment Partners 60,000
Sidney Kimmel 50,000
Zaxis Partners, L.P. 40,000
Hurly & Co. 35,000
Sanford J. Colen 20,000
Pollat, Evans & Co. Inc. 15,000
C. Redington Barrett, III 5,000
Quadra Appreciation Fund, Inc. 5,000
Peter w. Branagh & Ramona Y.
Branagh 5,000
TTEES for the Branagh
Revocable Trust
Permal Noscal, Ltd. 405,000
Fairmont Services Ltd. 400,000
Emmanuel Bagdjian 210,000
Gary Gladstein 100,000
TOTAL 3,000,000
SCHEDULE C
PERMAL GROUP consists of:
Permal Capital Management, Inc.
Permal Services, Inc.
Permal Capital Partners, L.P.
Permal Asset Management
Permal Special Opportunities, Ltd.
Edson Investments, Inc.
Jean R. Perrette
Isaac Robert Souede
Thomas M. DeLitto
Thomas M. & Donna S. DeLitto
United Gulf Bank (B.S.C.) E.C.
Kuwait Investment Projects
ATCO Holdings Ltd.
ATCO Development, Inc.
WARRANT
To Purchase Shares of Common Stock of
KRAUSE'S FURNITURE, INC.
No. of Shares of Common Stock: 1,400,000
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND
REGULATIONS THEREUNDER OR THE PROVISIONS OF THIS WARRANT.
No. of Shares of Common Stock: 1,400,000
WARRANT
To Purchase Shares of Common Stock of
KRAUSE'S FURNITURE, INC.
THIS IS TO CERTIFY THAT GENERAL ELECTRIC CAPITAL
CORPORATION, or registered assigns, is entitled, at any time
prior to the Expiration Date (as hereinafter defined), to
purchase from KRAUSE'S FURNITURE, INC., a Delaware corporation
(the "Company"), 1,400,000 shares of Common Stock (as hereinafter
defined and subject to adjustment as provided herein), in whole
or in part, at a purchase price of $.001 per share, all on the
terms and conditions and pursuant to the provisions hereinafter
set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the
respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all
shares of Common Stock issued by the Company after the Closing
Date, other than Warrant Stock.
"Business Day" shall mean any day that is not a
Saturday or Sunday or a day on which banks are required or
permitted to be closed in the State of New York.
"Closing Date" shall mean August 26, 1996.
"Commission" shall mean the Securities and Exchange
Commission or any other federal agency then administering the
Securities Act and other federal securities laws.
"Common Stock" shall mean (except where the context
otherwise indicates) the Common Stock, $.001 par value, of the
Company as constituted on the Closing Date, and any capital stock
into which such Common Stock may thereafter be changed, and shall
also include (i) capital stock of the Company of any other class
(regardless of how denominated) issued to the holders of shares
of Common Stock upon any reclassification thereof which is not
preferred as to dividends or assets over any other class of stock
of the Company and which is not subject to redemption and (ii)
shares of common stock of any successor or acquiring corporation
(as defined in Section 4.8) received by or distributed to the
holders of Common Stock of the Company in the circumstances
contemplated by Section 4.8.
"Convertible Securities" shall mean evidences of
indebtedness, shares of stock or other securities which are
convertible into or exchangeable or exercisable, with or without
payment of additional consideration in cash or property, for
Additional Shares of Common Stock, either immediately or upon the
occurrence of a specified date or a specified event.
"Current Market Price" shall mean, in respect of any
share of Common Stock on any date herein specified, the closing
price per share of Common Stock on such date and, when used with
reference to shares of Common Stock for any period, shall mean
the average of the daily closing prices per share of Common Stock
for such period. The closing price for each day shall be the
last quoted sale price or, if not so quoted, the average of the
high bid and low asked prices in the over-the-counter market, as
reported by the National Association of Securities Dealers, Inc.,
Automated Quotation System or such other system then in use, or,
if on any such date the Common Stock or such other securities are
not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker
making a market in the Common Stock selected by the Board of
Directors of the Company. If the Common Stock is listed or
admitted to trading on a national securities exchange, the
closing price shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading
on the New York Stock Exchange or, if the Common Stock is not
listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal
national securities exchange on which the Common Stock is listed
or admitted to trading.
"Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, or any successor federal statute, and the
rules and regulations of the Commission thereunder, all as the
same shall be in effect from time to time. Reference to a
particular section of the Exchange Act shall include reference to
the comparable section, if any, of such successor federal
statute.
"Expiration Date" shall mean August 31, 2006.
"Holder" shall mean the Person in whose name this
Warrant is registered on the books of the Company maintained for
such purpose. "Holders" shall mean, collectively, each Holder of
a Warrant, in the event of any division of this Warrant.
"Majority Holders" shall mean the holders of Warrants
exercisable for in excess of 50% of the aggregate number of
shares of Warrant Stock then purchasable upon exercise of all
Warrants.
"Other Property" shall have the meaning set forth in
Section 4.8.
"Outstanding" shall mean, when used with reference to
Common Stock, at any date as of which the number of shares
thereof is to be determined, all issued shares of Common Stock,
except shares then owned or held by or for the account of the
Company or any subsidiary thereof, and shall include all shares
issuable in respect of outstanding scrip or any certificates
representing fractional interests in shares of Common Stock. For
the purposes of Sections 4.3, 4.4, 4.5, 4.6 and 4.7, Common Stock
Outstanding shall include all shares of Common Stock issuable in
respect of options or warrants to purchase, or securities
convertible into, shares of Common Stock, the exercise or
conversion price of which is less than the Current Market Price
as of any date on which the number of shares of Common Stock
Outstanding is to be determined.
"Permitted Issuances" shall mean issuances of shares of
Common Stock upon exercise of the warrants and options listed on
Schedule 1.
"Person" shall mean any individual, firm, corporation,
partnership or other entity, and shall include any successor by
merger or otherwise of such entity.
"Restricted Common Stock" shall mean shares of Common
Stock which are, or which upon their issuance on the exercise of
this Warrant would be, evidenced by a certificate bearing the
restrictive legend set forth in Section 9.1(a).
"Securities Act" shall mean the Securities Act of 1933,
as amended, or any similar federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall
be in effect at the time.
"Transfer" shall mean any disposition of any Warrant or
Warrant Stock or of any interest in either thereof, which would
constitute a sale thereof within the meaning of the Securities
Act.
"Transfer Notice" shall have the meaning set forth in
Section 9.2.
"Warrants" shall mean this Warrant and all warrants
issued upon transfer, division or combination of, or in
substitution for, any thereof. All Warrants shall at all times be
identical as to terms and conditions and date, except as to the
number of shares of Common Stock for which they may be exercised.
"Warrant Price" shall mean $.001 per share of Common
Stock.
"Warrant Stock" shall mean the shares of Common Stock
purchased by the holders of the Warrants upon the exercise
thereof.
2. EXERCISE OF WARRANT
2.1. Manner of Exercise. At any time or from time to
time from and after the Closing Date and until 5:00 P.M., New
York time, on the Expiration Date, Holder may exercise this
Warrant, on any Business Day, for all or any part of the number
of shares of Common Stock purchasable hereunder.
In order to exercise this Warrant, in whole or in part,
Holder shall deliver to the Company at its principal office at
200 North Berry Street, Brea, CA 92621-3903 (i) a written notice
of Holder's election to exercise this Warrant, which notice shall
specify the number of shares of Common Stock to be purchased,
(ii) payment of the Warrant Price and (iii) this Warrant. Such
notice shall be substantially in the form appearing at the end of
this Warrant as Exhibit A, duly executed by Holder. Upon receipt
of the items specified in the second preceding sentence, the
Company shall execute or cause to be executed and deliver or
cause to be delivered to Holder a certificate or certificates
representing the aggregate number of full shares of Common Stock
issuable upon such exercise, together with cash in lieu of any
fraction of a share, as hereinafter provided. The stock
certificate or certificates so delivered shall be in such
denomination or denominations as Holder shall request in the
notice and shall be registered in the name of Holder or, subject
to Section 9, such other name as shall be designated in the
notice. This Warrant shall be deemed to have been exercised and
such certificate or certificates shall be deemed to have been
issued, and Holder or any other Person so designated shall be
deemed to have become a holder of record of such shares for all
purposes, as of the date the notice, together with the Warrant
Price and this Warrant, are received by the Company as described
above. If this Warrant shall have been exercised in part, the
Company shall, at the time of delivery of the certificate or
certificates representing Warrant Stock, deliver to Holder a new
Warrant evidencing the right of Holder to purchase the
unpurchased shares of Common Stock called for by this Warrant,
which new Warrant shall in all other respects be identical with
this Warrant, or, at the request of Holder, appropriate notation
may be made on this Warrant and the same returned to Holder.
Payment of the Warrant Price shall be made by certified
or official bank check.
2.2. Payment of Taxes. All shares of Common Stock
issuable upon the exercise of this Warrant shall be validly
issued, fully paid and nonassessable and without any preemptive
rights. The Company shall pay all expenses in connection with,
and all taxes and other governmental charges that may be imposed
with respect to, the issue or delivery thereof.
2.3. Fractional Shares. The Company shall not be
required to issue a fractional share of Common Stock upon
exercise of this Warrant. As to any fraction of a share which
Holder would otherwise be entitled to purchase upon such
exercise, the Company shall pay a cash adjustment in respect of
such fraction in an amount equal to the same fraction of the
Current Market Price per share of Common Stock on the date of
exercise.
3. TRANSFER, DIVISION AND COMBINATION
3.1. Transfer. Subject to compliance with Section 9,
transfer of this Warrant and all rights hereunder, in whole or in
part, shall be registered on the books of the Company to be
maintained for such purpose, upon surrender of this Warrant at
the principal office of the Company referred to in Section 2.1,
together with a written assignment of this Warrant substantially
in the form of Exhibit B hereto duly executed by Holder and funds
sufficient to pay any transfer taxes payable upon the making of
such transfer. Upon such surrender and, if required, such
payment, the Company shall, subject to Section 9, execute and
deliver a new Warrant or Warrants in the name of the assignee or
assignees and in the denomination specified in such instrument of
assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be canceled. A Warrant, if properly
assigned in compliance with Section 9, may be exercised by a new
Holder for the purchase of shares of Common Stock without having
a new Warrant issued.
3.2. Division and Combination. Subject to Section 9,
this Warrant may be divided into multiple Warrants or combined
with other Warrants upon presentation hereof at the aforesaid
office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are
to be issued, signed by Holder. Subject to compliance with
Section 3.1 and with Section 9, as to any transfer which may be
involved in such division or combination, the Company shall
execute and deliver a new Warrant or Warrants in exchange for the
Warrant or Warrants to be divided or combined in accordance with
such notice.
3.3. Expenses. The Company shall prepare, issue and
deliver at its own expense (other than transfer taxes) the new
Warrant or Warrants under this Section 3.
3.4. Maintenance of Books. The Company agrees to
maintain, at its aforesaid office, books for the registration and
the registration of transfer of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this
Warrant is exercisable and/or the price at which such shares may
be purchased upon exercise of this Warrant, shall be subject to
adjustment from time to time as set forth in this Section 4. The
Company shall give each Holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at
the time of such event.
4.1. Stock Dividends, Subdivisions and Combinations.
If at any time the Company shall:
(a) take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend
payable in, or other distribution of, Additional Shares of
Common Stock,
(b) subdivide its outstanding shares of Common Stock
into a larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock
into a smaller number of shares of Common Stock,
then the number of shares of Common Stock for which this Warrant
is exercisable immediately after the occurrence of any such event
shall be adjusted to equal the number of shares of Common Stock
which a record holder of the same number of shares of Common
Stock for which this Warrant is exercisable immediately prior to
the occurrence of such event would own or be entitled to receive
after the happening of such event.
4.2. Certain Other Distributions. If at any time the
Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive any dividend or
other distribution of:
(a) cash,
(b) any evidences of its indebtedness, any shares of
its stock or any other securities or property of any nature
whatsoever (other than cash, Convertible Securities or
Additional Shares of Common Stock), or
(c) any warrants or other rights to subscribe for or
purchase any evidences of its indebtedness, any shares of
its stock or any other securities or property of any nature
whatsoever (other than cash, Convertible Securities or
Additional Shares of Common Stock),
then the number of shares of Common Stock for which this Warrant
is exercisable shall be adjusted to equal the product of the
number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such adjustment multiplied by a
fraction (A) the numerator of which shall be the Current Market
Price per share of Common Stock at the date of taking such record
and (B) the denominator of which shall be such Current Market
Price per share of Common Stock minus the amount allocable to one
share of Common Stock of any such cash so distributable and of
the fair value (as determined in good faith by the Board of
Directors of the Company and supported by an opinion from an
investment banking firm of recognized national standing
acceptable to the Majority Holders) of any and all such evidences
of indebtedness, shares of stock, other securities or property or
warrants or other subscription or purchase rights so
distributable. A reclassification of the Common Stock (other
than a change in par value, or from par value to no par value or
from no par value to par value) into shares of Common Stock and
shares of any other class of stock shall be deemed a distribution
by the Company to the holders of its Common Stock of such shares
of such other class of stock within the meaning of this Section
4.2 and, if the outstanding shares of Common Stock shall be
changed into a larger or smaller number of shares of Common Stock
as a part of such reclassification, such change shall be deemed a
subdivision or combination, as the case may be, of the
outstanding shares of Common Stock within the meaning of Section
4.1.
4.3 Issuance of Additional Shares of Common Stock
(a) If at any time the Company shall (except as
hereinafter provided) issue or sell any Additional Shares of
Common Stock, other than Permitted Issuances, for consideration
in an amount per Additional Share of Common Stock less than the
Current Market Price, then the number of shares of Common Stock
for which this Warrant is exercisable shall be adjusted to equal
the product obtained by multiplying the number of shares of
Common Stock for which this Warrant is exercisable immediately
prior to such issue or sale by a fraction (A) the numerator of
which shall be the number of shares of Common Stock Outstanding
immediately after such issue or sale, and (B) the denominator of
which shall be the number of shares of Common Stock Outstanding
immediately prior to such issue or sale plus the number of shares
which the aggregate offering price of the total number of such
Additional Shares of Common Stock would purchase at the then
Current Market Price.
(b) The provisions of paragraph (a) of this Section
4.3 shall not apply to any issuance of Additional Shares of
Common Stock for which an adjustment is provided under Section
4.1 or 4.2. No adjustment of the number of shares of Common
Stock for which this Warrant shall be exercisable shall be made
under paragraph (a) of this Section 4.3 upon the issuance of any
Additional Shares of Common Stock which are issued pursuant to
the exercise of any warrants or other subscription or purchase
rights or pursuant to the exercise of any conversion or exchange
rights in any Convertible Securities, if any such adjustment
shall previously have been made upon the issuance of such
warrants or other rights or upon the issuance of such Convertible
Securities (or upon the issuance of any warrant or other rights
therefor) pursuant to Section 4.4 or Section 4.5 herein.
4.4. Issuance of Warrants or Other Rights. If at any
time the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a distribution
of, or shall in any manner (whether directly or by assumption in
a merger in which the Company is the surviving corporation) issue
or sell, any warrants or other rights to subscribe for or
purchase any Additional Shares of Common Stock or any Convertible
Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the price per share
for which Common Stock is issuable upon the exercise of such
Warrants or other rights or upon conversion or exchange of such
Convertible Securities shall be less than the Current Market
Price in effect immediately prior to the time of such issue or
sale, then the number of shares for which this Warrant is
exercisable shall be adjusted as provided in Section 4.3 on the
basis that the maximum number of Additional Shares of Common
Stock issuable pursuant to all such warrants or other rights or
necessary to effect the conversion or exchange of all such
Convertible Securities shall be deemed to have been issued and
outstanding and the Company shall have received all of the
consideration payable therefor, if any, as of the date of the
actual issuance of the number of shares for which this Warrant is
exercisable and such warrants or other rights. No further
adjustments shall be made upon the actual issue of such Common
Stock or of such Convertible Securities upon exercise of such
warrants or other rights or upon the actual issue of such Common
Stock upon such conversion or exchange of such Convertible
Securities. Notwithstanding the foregoing, no adjustment shall
be required under this Section 4.4 solely by reason of the
issuance of stock purchase rights under a stockholder rights plan
of the Company, provided that the adjustments required by this
Section 4.4 shall be made if any "flip-in" or "flip-over" event
shall occur under such stockholder rights plan.
4.5. Issuance of Convertible Securities. If at any
time the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a distribution
of, or shall in any manner (whether directly or by assumption in
a merger in which the Company is the surviving corporation) issue
or sell, any Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately exercisable, and
the price per share for which Common Stock is issuable upon such
conversion or exchange shall be less than the Current Market
Price in effect immediately prior to the time of such issue or
sale, then the number of shares for which this Warrant is
exercisable shall be adjusted as provided in Section 4.3 on the
basis that the maximum number of Additional Shares of Common
Stock necessary to effect the conversion or exchange of all such
Convertible Securities shall be deemed to have been issued and
outstanding and the Company shall have received all of the
consideration payable therefor, if any, as of the date of actual
issuance of such Convertible Securities. No adjustment of the
number of shares for which this Warrant is exercisable shall be
made under this Section 4.5 upon the issuance of any Convertible
Securities which are issued pursuant to the exercise of any
warrants or other subscription or purchase rights therefor, if
any such adjustment shall previously have been made upon the
issuance of such warrants or other rights pursuant to Section
4.4. No further adjustments of the number of shares for which
this Warrant is exercisable shall be made upon the actual issue
of such Common Stock upon conversion or exchange of such
Convertible Securities and, if any issue or sale of such
Convertible Securities is made upon exercise of any warrant or
other right to subscribe for or to purchase any such Convertible
Securities for which adjustments of the number of shares for
which this Warrant is exercisable have been or are to be made
pursuant to other provisions of this Section 4, no further
adjustments of the number of shares for which this Warrant is
exercisable shall be made by reason of such issue or sale.
4.6. Superseding Adjustment. If, at any time after any
adjustment of the number of shares of Common Stock for which this
Warrant is exercisable shall have been made pursuant to Section
4.4 or Section 4.5 as the result of any issuance of warrants,
rights or Convertible Securities,
(a) such warrants or rights, or the right of
conversion or exchange in such other Convertible Securities,
shall expire, and all or a portion of such warrants or
rights, or the right of conversion or exchange with respect
to all or a portion of such other Convertible Securities, as
the case may be, shall not have been exercised, or
(b) the consideration per share for which shares of
Common Stock are issuable pursuant to such warrants or
rights, or the terms of such other Convertible Securities,
shall be increased solely by virtue of provisions therein
contained for an automatic increase in such consideration
per share upon the occurrence of a specified date or event,
then for each outstanding Warrant such previous adjustment shall
be rescinded and annulled and the Additional Shares of Common
Stock which were deemed to have been issued by virtue of the
computation made in connection with the adjustment so rescinded
and annulled shall no longer be deemed to have been issued by
virtue of such computation. Thereupon, a recomputation shall be
made of the effect of such rights or options or other Convertible
Securities on the basis of
(c) treating the number of Additional Shares of Common
Stock or other property, if any, theretofore actually issued
or issuable pursuant to the previous exercise of any such
warrants or rights or any such right of conversion or
exchange, as having been issued on the date or dates of any
such exercise and for the consideration actually received
and receivable therefor, and
(d) treating any such warrants or rights or any such
other Convertible Securities which then remain outstanding
as having been granted or issued immediately after the time
of such increase of the consideration per share for which
shares of Common Stock or other property are issuable under
such warrants or rights or other Convertible Securities;
whereupon a new adjustment of the number of shares of Common
Stock for which this Warrant is exercisable shall be made,
which new adjustment shall supersede the previous adjustment
so rescinded and annulled.
4.7. Other Provisions Applicable to Adjustments under
this Section. The following provisions shall be applicable to
the making of adjustments of the number of shares of Common Stock
for which this Warrant is exercisable provided for in this
Section 4:
(a) Computation of Consideration. To the extent that
any Additional Shares of Common Stock or any Convertible
Securities or any warrants or other rights to subscribe for
or purchase any Additional Shares of Common Stock or any
Convertible Securities shall be issued for cash
consideration, the consideration received by the Company
therefor shall be the amount of the cash received by the
Company therefor, or, if such Additional Shares of Common
Stock or Convertible Securities are offered by the Company
for subscription, the subscription price, or, if such
Additional Shares of Common Stock or Convertible Securities
are sold to underwriters or dealers for public offering
without a subscription offering, the public offering price
(in any such case subtracting any amounts paid or receivable
for accrued interest or accrued dividends and without taking
into account any compensation, discounts or expenses paid or
incurred by the Company for and in the underwriting of, or
otherwise in connection with, the issuance thereof). To the
extent that such issuance shall be for a consideration other
than cash, then, except as herein otherwise expressly
provided, the amount of such consideration shall be deemed
to be the fair value of such consideration at the time of
such issuance as determined in good faith by the Board of
Directors of the Company. In case any Additional Shares of
Common Stock or any Convertible Securities or any warrants
or other rights to subscribe for or purchase such Additional
Shares of Common Stock or Convertible Securities shall be
issued in connection with any merger in which the Company
issues any securities, the amount of consideration therefor
shall be deemed to be the fair value, as determined in good
faith by the Board of Directors of the Company, of such
portion of the assets and business of the nonsurviving
corporation as such Board in good faith shall determine to
be attributable to such Additional Shares of Common Stock,
Convertible Securities, warrants or other rights, as the
case may be. The consideration for any Additional Shares of
Common Stock issuable pursuant to any warrants or other
rights to subscribe for or purchase the same shall be the
consideration received by the Company for issuing such
warrants or other rights plus the additional consideration
payable to the Company upon exercise of such warrants or
other rights. The consideration for any Additional Shares
of Common Stock issuable pursuant to the terms of any
Convertible Securities shall be the consideration received
by the Company for issuing warrants or other rights to
subscribe for or purchase such Convertible Securities, plus
the consideration paid or payable to the Company in respect
of the subscription for or purchase of such Convertible
Securities, plus the additional consideration, if any,
payable to the Company upon the exercise of the right of
conversion or exchange in such Convertible Securities. In
case of the issuance at any time of any Additional Shares of
Common Stock or Convertible Securities in payment or
satisfaction of any dividends upon any class of stock other
than Common Stock, the Company shall be deemed to have
received for such Additional Shares of Common Stock or
Convertible Securities a consideration equal to the amount
of such dividend so paid or satisfied.
(b) When Adjustments to Be Made. The adjustments
required by this Section 4 shall be made whenever and as
often as any specified event requiring an adjustment shall
occur, except that any adjustment of the number of shares of
Common Stock for which this Warrant is exercisable that
would otherwise be required may be postponed (except in the
case of a subdivision or combination of shares of the Common
Stock, as provided for in Section 4.1) up to, but not beyond
the date of exercise if such adjustment either by itself or
with other adjustments not previously results in an increase
or decrease of less than 1% of the shares of Common Stock
for which this Warrant is exercisable immediately prior to
the making of such adjustment. Any adjustment representing
a change of less than such minimum amount (except as
aforesaid) which is postponed shall be carried forward and
made as soon as such adjustment, together with other
adjustments required by this Section 4 and not previously
made, would result in a minimum adjustment or on the date of
exercise. For the purpose of any adjustment, any specified
event shall be deemed to have occurred at the close of
business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments
under this Section 4, fractional interests in Common Stock
shall be taken into account to the nearest 1/100th of a
share.
(d) When Adjustment Not Required. If the Company
shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend or
distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders
thereof, legally abandon its plan to pay or deliver such
dividend, distribution, subscription or purchase rights,
then thereafter no adjustment shall be required by reason of
the taking of such record and any such adjustment previously
made in respect thereof shall be rescinded and annulled.
(e) Escrow of Warrant Stock. If after any property
becomes distributable pursuant to this Section 4 by reason
of the taking of any record of the holders of Common Stock,
but prior to the occurrence of the event for which such
record is taken, Holder exercises this Warrant, any
Additional Shares of Common Stock issuable upon exercise by
reason of such adjustment shall be deemed the last shares of
Common Stock for which this Warrant is exercised
(notwithstanding any other provision to the contrary herein)
and such shares or other property shall be held in escrow
for Holder by the Company to be issued to Holder when and to
the extent that the event actually takes place, upon payment
of the Warrant Price. Notwithstanding any other provision
to the contrary herein, if the event for which such record
was taken fails to occur or is rescinded, then such escrowed
shares shall be canceled by the Company and escrowed
property returned.
4.8. Reorganization, Reclassification, Merger,
Consolidation or Disposition of Assets. In case the Company
shall reorganize its capital, reclassify its capital stock,
consolidate or merge with or into another corporation (where the
Company is not the surviving corporation or where there is a
change in or distribution with respect to the Common Stock of the
Company), or sell, transfer or otherwise dispose of all or
substantially all its property, assets or business to another
corporation and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets,
shares of common stock of the successor or acquiring corporation,
or any cash, shares of stock or other securities or property of
any nature whatsoever (including warrants or other subscription
or purchase rights) in addition to or in lieu of common stock of
the successor or acquiring corporation ("Other Property"), are to
be received by or distributed to the holders of Common Stock of
the Company, then Holder shall have the right thereafter to
receive, upon exercise of this Warrant and payment of the Warrant
Price, the number of shares of common stock of the successor or
acquiring corporation or of the Company, if it is the surviving
corporation, and Other Property receivable upon or as a result of
such reorganization, reclassification, merger, consolidation or
disposition of assets by a holder of the number of shares of
Common Stock for which this Warrant is exercisable immediately
prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets,
the successor or acquiring corporation (if other than the
Company) shall expressly assume the due and punctual observance
and performance of each and every covenant and condition of this
Warrant to be performed and observed by the Company and all the
obligations and liabilities hereunder, subject to such
modifications as may be deemed appropriate (as determined by
resolution of the Board of Directors of the Company) in order to
provide for adjustments of shares of the Common Stock for which
this Warrant is exercisable which shall be as nearly equivalent
as practicable to the adjustments provided for in this Section 4.
For purposes of this Section 4.8, "common stock of the successor
or acquiring corporation" shall include stock of such corporation
of any class which is not preferred as to dividends or assets
over any other class of stock of such corporation and which is
not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the
happening of a specified event and any warrants or other rights
to subscribe for or purchase any such stock. The foregoing
provisions of this Section 4.8 shall similarly apply to
successive reorganizations, reclassifications, mergers,
consolidations or disposition of assets.
4.9. Other Action Affecting Common Stock. In case at
any time or from time to time the Company shall take any action
in respect of its Common Stock, other than any action described
in this Section 4, then, unless such action will not have a
materially adverse effect upon the rights of the Holders, the
number of shares of Common Stock or other stock for which this
Warrant is exercisable shall be adjusted in such manner as may be
equitable in the circumstances.
5. NOTICES TO WARRANT HOLDERS
5.1. Notice of Adjustments. Whenever the number of
shares of Common Stock for which this Warrant is exercisable
shall be adjusted pursuant to Section 4, the Company shall
forthwith prepare a certificate to be executed by the chief
financial officer of the Company setting forth, in reasonable
detail, the event requiring the adjustment and the method by
which such adjustment was calculated (including a description of
the basis on which the Board of Directors of the Company
determined the fair value of any evidences of indebtedness,
shares of stock, other securities or property or warrants or
other subscription or purchase rights referred to in Section 4.2
or 4.7(a)), specifying the number of shares of Common Stock for
which this Warrant is exercisable and (if such adjustment was
made pursuant to Section 4.8) describing the number and kind of
any other shares of stock or Other Property for which this
Warrant is exercisable, after giving effect to such adjustment.
The Company shall promptly cause a signed copy of such
certificate to be delivered to each Holder in accordance with
Section 13.2. The Company shall keep at its principal office
copies of all such certificates and cause the same to be
available for inspection at said office during normal business
hours by any Holder or any prospective purchaser of a Warrant
designated by a Holder thereof.
5.2. Notice of Corporate Action. If at any time
(a) the Company shall take a record of the holders of
its Common Stock for the purpose of entitling them to
receive a dividend (other than a cash dividend payable out
of earnings or earned surplus legally available for the
payment of dividends under the laws of the jurisdiction of
incorporation of the Company) or other distribution, or any
right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) there shall be any capital reorganization of the
Company, any reclassification or recapitalization of the
capital stock of the Company or any consolidation or merger
of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets
or business of the Company to, another corporation, or
(c) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to
Holder (i) at least 20 days' prior written notice of the date on
which a record date shall be selected for such dividend,
distribution or right or for determining rights to vote in
respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution,
liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up, at
least 20 days' prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing
clause also shall specify (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or
right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the
amount and character thereof, and (ii) the date on which any such
reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up is
to take place and the time, if any such time is to be fixed, as
of which the holders of Common Stock shall be entitled to
exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification,
merger, consolidation, sale, transfer, disposition, dissolution,
liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to Holder at the last address of
Holder appearing on the books of the Company and delivered in
accordance with Section 13.2.
6. RIGHTS OF HOLDERS
6.1 No Impairment. The Company shall not by any
action, including, without limitation, amending its Certificate
of Incorporation or comparable governing instruments or through
any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to
protect the rights of Holder against impairment. Without
limiting the generality of the foregoing, the Company will (a)
not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such
increase in par value, (b) take all such action as may be
necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common
Stock upon the exercise of this Warrant, and (c) use its best
efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof as
may be necessary to enable the Company to perform its obligations
under this Warrant.
Upon the request of Holder, the Company will at any
time during the period this Warrant is outstanding acknowledge in
writing, in form reasonably satisfactory to Holder, the
continuing validity of this Warrant and the obligations of the
Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION
WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY
From and after the Closing Date, the Company shall at
all times reserve and keep available for issue upon the exercise
of Warrants such number of its authorized but unissued shares of
Common Stock as will be sufficient to permit the exercise in full
of all outstanding Warrants. All shares of Common Stock which
shall be so issuable, when issued upon exercise of any Warrant
and payment therefor in accordance with the terms of such
Warrant, shall be duly and validly issued and fully paid and
nonassessable, and not subject to preemptive rights.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by
the Company to the holders of its Common Stock with respect to
which any provision of Section 4 refers to the taking of a record
of such holders, the Company will in each such case take such a
record and will take such record as of the close of business on a
Business Day. The Company will not at any time, except upon
dissolution, liquidation or winding up of the Company, close its
stock transfer books or Warrant transfer books so as to result in
preventing or delaying the exercise or transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be
transferred, hypothecated or assigned before satisfaction of the
conditions specified in this Section 9, which conditions are
intended to ensure compliance with the provisions of the
Securities Act with respect to the Transfer of any Warrant or any
Warrant Stock. Holder, by acceptance of this Warrant, agrees to
be bound by the provisions of this Section 9.
9.1. Restrictive Legend. Except as otherwise provided
in this Section 9, each Warrant and each certificate for Warrant
Stock initially issued upon the exercise of a Warrant, and each
certificate for Warrant Stock issued to any subsequent transferee
of any such certificate, shall be stamped or otherwise imprinted
with a legend in substantially the following form:
"[This Warrant and the securities
represented hereby] [The securities
represented by this Certificate] have
not been registered under the Securities
Act of 1933, as amended, and may not be
transferred in violation of such Act,
the rules and regulations thereunder or
the provisions of [this Warrant] [that
certain Warrant dated August 26, 1996, a
copy of which is on file at the
principal office of Krause's Furniture,
Inc.]."
9.2. Notice of Proposed Transfers; Requests for
Registration. Prior to any Transfer or attempted Transfer of any
Warrants or any shares of Restricted Common Stock, the holder of
such Warrants or Restricted Common Stock shall give ten days'
prior written notice (a "Transfer Notice") to the Company of such
holder's intention to effect such Transfer, describing the manner
and circumstances of the proposed Transfer, and obtain from
counsel to such holder who shall be reasonably satisfactory to
the Company, an opinion that the proposed Transfer of such
Warrants or such Restricted Common Stock may be effected without
registration under the Securities Act. After receipt of the
Transfer Notice and opinion, the Company shall, within five days
thereof, notify the holder of such Warrants or such Restricted
Common Stock as to whether such opinion is reasonably
satisfactory and, if so, such holder shall thereupon be entitled
to Transfer such Warrants or such Restricted Common Stock, in
accordance with the terms of the Transfer Notice. Each
certificate, if any, evidencing such shares of Restricted Common
Stock issued upon such Transfer and each Warrant issued upon such
Transfer shall bear the restrictive legend set forth in Section
9.1, unless in the opinion of such counsel such legend is not
required in order to ensure compliance with the Securities Act.
The holder of the Warrants or the Restricted Common Stock, as the
case may be, giving the Transfer Notice shall not be entitled to
Transfer such Warrants or such Restricted Common Stock until
receipt of notice from the Company under this Section 9.2 that
such opinion is reasonably satisfactory.
9.3. Registration Rights. The holders of Warrants and
Warrant Stock shall have the registration rights set forth in the
Registration Rights Agreement.
9.4. Termination of Restrictions. Notwithstanding the
foregoing provisions of this Section 9, the restrictions imposed
by this Section upon the transferability of the Warrants, the
Warrant Stock and the Restricted Common Stock and the legend
requirements of Section 9.1 shall terminate as to any particular
Warrant or share of Warrant Stock or Restricted Common Stock (i)
when and so long as such security shall have been effectively
registered under the Securities Act and disposed of pursuant
thereto or (ii) when the Company shall have received an opinion
of counsel reasonably satisfactory to it that such shares may be
transferred without registration thereof under the Securities
Act.
10. SUPPLYING INFORMATION
The Company shall cooperate with each Holder of a
Warrant and each holder of Restricted Common Stock in supplying
such information as may be reasonably necessary for such holder
to complete and file any reports or forms presently or hereafter
required by the Commission as a condition to the availability of
an exemption from the Securities Act for the sale of any Warrant
or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from any Holder of evidence
reasonably satisfactory to it of the ownership of and the loss,
theft, destruction or mutilation of this Warrant and indemnity
reasonably satisfactory to it (it being understood that the
written agreement of GE Capital shall be sufficient indemnity),
and in case of mutilation upon surrender and cancellation hereof,
the Company will execute and deliver in lieu hereof a new Warrant
of like tenor to such Holder; provided, in the case of
mutilation, no indemnity shall be required if this Warrant in
identifiable form is surrendered to the Company for cancellation.
12. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative
action by Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of Holder hereof,
shall give rise to any liability of such Holder for the purchase
price of any Common Stock or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors
of the Company.
13. MISCELLANEOUS
13.1. Nonwaiver and Expenses. No course of dealing
or any delay or failure to exercise any right hereunder on the
part of Holder shall operate as a waiver of such right or
otherwise prejudice Holder's rights, powers or remedies. If the
Company fails to make, when due, any payments provided for
hereunder, or fails to comply with any other provision of this
Warrant, the Company shall pay to Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not
limited to, reasonable attorneys' fees, including those of
appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its
rights, powers or remedies hereunder.
13.2. Notice Generally. Any notice, demand,
request, consent, approval, declaration, delivery or other
communication hereunder to be made pursuant to the provisions of
this Warrant shall be sufficiently given or made if in writing
and either delivered in person with receipt acknowledged or sent
by registered or certified mail, return receipt requested,
postage prepaid, or by telecopy and confirmed by telecopy
answerback, addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at
its last known address appearing on the books of the Company
maintained for such purpose.
(b) If to the Company at
200 North Berry Street
Brea, CA 92621-3903
Attention: Philip M. Hawley
Telecopy Number: (714) 990-3561
or at such other address as may be substituted by notice given as
herein provided. The giving of any notice required hereunder may
be waived in writing by the party entitled to receive such
notice. Every notice, demand, request, consent, approval,
declaration, delivery or other communication hereunder shall be
deemed to have been duly given or served on the date on which
personally delivered, with receipt acknowledged, telecopied and
confirmed by telecopy answerback, or three (3) Business Days
after the same shall have been deposited in the United States
mail. Failure or delay in delivering copies of any notice,
demand, request, approval, declaration, delivery or other
communication to the person designated above to receive a copy
shall in no way adversely affect the effectiveness of such
notice, demand, request, approval, declaration, delivery or other
communication.
13.3. Remedies. Each holder of Warrant and Warrant
Stock, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled
to specific performance of its rights under of this Warrant. The
Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of
the provisions of this Warrant and hereby agrees to waive the
defense in any action for specific performance that a remedy at
law would be adequate.
13.4. Successors and Assigns. Subject to the
provisions of Sections 3.1, this Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the
successors of the Company and the successors and assigns of
Holder. The provisions of this Warrant are intended to be for
the benefit of all Holders from time to time of this Warrant and,
with respect to Section 9 hereof, holders of Warrant Stock, and
shall be enforceable by any such Holder or holder of Warrant
Stock.
13.5. Amendment. This Warrant and all other
Warrants may be modified or amended or the provisions hereof
waived with the written consent of the Company and the Majority
Holders, provided that no such Warrant may be modified or amended
to reduce the number of shares of Common Stock for which such
Warrant is exercisable or to increase the price at which such
shares may be purchased upon exercise of such Warrant (before
giving effect to any adjustment as provided therein) without the
prior written consent of the Holder thereof, provided however,
that the foregoing shall not limit the operation of Section 4.6.
13.6. Severability. Wherever possible, each
provision of this Warrant shall be interpreted in such manner as
to be effective and valid under applicable law, but if any
provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this
Warrant.
13.7. Headings. The headings used in this Warrant
are for the convenience of reference only and shall not, for any
purpose, be deemed a part of this Warrant.
13.8. Governing Law. THIS WARRANT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW.
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF
THE STATE OF NEW YORK AND OF THE UNITED STATES OF AMERICA, IN
EACH CASE LOCATED IN THE COUNTY OF NEW YORK, FOR ANY ACTION,
PROCEEDING OR INVESTIGATION IN ANY COURT OR BEFORE ANY
GOVERNMENTAL AUTHORITY ("LITIGATION") ARISING OUT OF OR RELATING
TO THIS WARRANT AND THE TRANSACTIONS CONTEMPLATED HEREBY (AND
AGREES NOT TO COMMENCE ANY LITIGATION RELATING THERETO EXCEPT IN
SUCH COURTS), AND FURTHER AGREES THAT SERVICE OF ANY PROCESS,
SUMMONS, NOTICE OR DOCUMENT BY U.S. REGISTERED MAIL TO ITS
RESPECTIVE ADDRESS SET FORTH IN THIS WARRANT SHALL BE EFFECTIVE
SERVICE OF PROCESS FOR ANY LITIGATION BROUGHT AGAINST IT IN ANY
SUCH COURT. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF
ANY LITIGATION ARISING OUT OF THIS WARRANT OR THE TRANSACTIONS
CONTEMPLATED HEREBY IN THE COURTS OF THE STATE OF NEW YORK OR THE
UNITED STATES OF AMERICA, IN EACH CASE LOCATED IN THE COUNTY OF
NEW YORK, AND HEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY
WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT
ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM. EACH OF THE PARTIES IRREVOCABLY AND
UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY AND ALL RIGHTS TO TRIAL BY JURY IN CONNECTION
WITH ANY LITIGATION ARISING OUT OF OR RELATING TO THIS WARRANT OR
THE TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the Company has caused this Warrant
to be duly executed and its corporate seal to be impressed hereon
and attested by its Secretary or an Assistant Secretary.
Dated: August 26, 1996
KRAUSE'S FURNITURE, INC.
By: _______________________
Name:
Title:
Attest:
By:
Name:
Title:
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant
irrevocably exercises this Warrant for the purchase of _____
Shares of Common Stock of KRAUSE'S FURNITURE, INC. and herewith
makes payment therefor, all at the price and on the terms and
conditions specified in this Warrant and requests that
certificates for the shares of Common Stock hereby purchased (and
any securities or other property issuable upon such exercise) be
issued in the name of and delivered to _____________ whose
address is ________________ and, if such shares of Common Stock
shall not include all of the shares of Common Stock issuable as
provided in this Warrant, that a new Warrant of like tenor and
date for the balance of the shares of Common Stock issuable
hereunder be delivered to the undersigned.
_______________________________________
(Name of Registered Owner)
_______________________________________
(Signature of Registered Owner)
_______________________________________
(Street Address)
_______________________________________
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with
the name as written upon the face of the within Warrant
in every particular, without alteration or enlargement
or any change whatsoever.
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of
this Warrant hereby sells, assigns and transfers unto the
Assignee named below all of the rights of the undersigned under
this Warrant, with respect to the number of shares of Common
Stock set forth below:
Name and Address of Assignee No. of Shares of Common Stock
and does hereby irrevocably constitute and appoint
________________ attorney-in-fact to register such transfer on
the books of KRAUSE'S FURNITURE, INC. maintained for the purpose,
with full power of substitution in the premises.
Dated:_______________ Print Name:______________________
Signature:_______________________
Witness:_________________________
NOTICE: The signature on this assignment must correspond with
the name as written upon the face of the within Warrant
in every particular, without alteration or enlargement
or any change whatsoever.
TABLE OF CONTENTS
Section Page
1. DEFINITIONS 1
2. EXERCISE OF WARRANT 4
2.1. Manner of Exercise 4
2.2. Payment of Taxes 5
2.3. Fractional Shares 5
3. TRANSFER, DIVISION AND COMBINATION 5
3.1. Transfer 5
3.2. Division and Combination 5
3.3. Expenses 6
3.4. Maintenance of Books 6
4. ADJUSTMENTS 6
4.1. Stock Dividends, Subdivisions and Combinations 6
4.2. Certain Other Distributions 6
4.3 Issuance of Additional Shares of Common Stock 7
4.4. Issuance of Warrants or Other Rights 8
4.5. Issuance of Convertible Securities 9
4.6. Superseding Adjustment 9
4.7. Other Provisions Applicable to Adjustments under
this Section 10
4.8. Reorganization, Reclassification, Merger,
Consolidation or Disposition of Assets 12
4.9. Other Action Affecting Common Stock 13
5. NOTICES TO WARRANT HOLDERS 14
5.1. Notice of Adjustment 14
5.2. Notice of Corporate Action 14
6. RIGHTS OF HOLDERS 15
6.1. No Impairment 15
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK;
REGISTRATION WITH APPROVAL OF ANY GOVERNMENTAL
AUTHORITY 16
8. TAKING OF RECORD: STOCK AND WARRANT TRANSFER BOOKS 16
9. RESTRICTIONS ON TRANSFERABILITY 16
9.1. Restrictive Legend 16
9.2. Notice of Proposed Transfers; Requests for
Registration 17
9.3. Registration Rights 17
9.4. Termination of Restrictions 17
10. SUPPLYING INFORMATION 18
11. LOSS OR MUTILATION 18
12. LIMITATION OF LIABILITY 18
13. MISCELLANEOUS 18
13.1. Nonwaiver and Expenses 18
13.2. Notice Generally 19
13.3. Remedies 19
13.4. Successors and Assigns 19
13.5. Amendment 20
13.6. Severability 20
13.7. Headings 20
13.8. Governing Law 20
SIGNATURES 21
EXHIBITS 22
Exhibit A - Subscription Form 22
Exhibit B - Assignment Form 23
REGISTRATION RIGHTS AGREEMENT
between
KRAUSE'S FURNITURE, INC.
and
THE STOCKHOLDERS LISTED ON THE SIGNATURE PAGES HEREOF
Dated as of August 26, 1996
REGISTRATION RIGHTS AGREEMENT, dated as of August 26, 1996,
between KRAUSE'S FURNITURE, INC, a Delaware corporation (the
"Company"), and each of the stockholders of the Company listed on
the signature pages hereof (the "Investors").
l. Background. Pursuant to a Securities Purchase
Agreement between the Company and General Electric Capital
Corporation ("GECC") dated the date hereof (the "Securities
Purchase Agreement"), GECC is purchasing from the Company
5,000,000 shares of the Company's Common Stock, par value $.001
per share (the "Common Stock"), for an aggregate purchase price
of $5,000,000, the Company's 10% Subordinated Pay-in-Kind Notes
due August 31, 2001, as described in the Securities Purchase
Agreement (the "Notes"), in the initial principal amount of
$5,000,000, and, in connection with the Notes, a warrant (the
"Warrant") to purchase 1,400,000 shares of Common Stock.
Concurrently with such purchase by GECC, (i) the Hawley Group (as
defined herein) is purchasing 1,000,000 shares of Common Stock
for an aggregate purchase price of $1,000,000, (ii) certain other
investors are purchasing 3,000,000 shares of Common Stock for an
aggregate purchase price of $3,000,000 and (iii) Edson
Investments Inc. and certain other holders of indebtedness of the
Company are exchanging such indebtedness for shares of Common
Stock, as more fully described in the Securities Purchase
Agreement.
2. Registration Under Securities Act, etc.
2.1. Registration on Request.
(a) Request. Subject to Section 2.8 hereof, at
any time and from time to time upon the written request of
holders of Registrable Securities (the "Initiating Holders")
representing not less than the Required Number of Shares
that the Company effect the registration under the
Securities Act (other than a Shelf Registration Statement)
of all or part of such Initiating Holders' Registrable
Securities (provided that in no event shall the Company be
obligated to register less than the Required Number of
Shares pursuant to such request), the Company will promptly
give written notice of such requested registration to all
registered holders of Registrable Securities, and thereupon
the Company will use its best efforts to effect the
registration under the Securities Act of
(i) the Registrable Securities
(representing not less than the Required Number of
Shares) which the Company has been so requested to
register by such Initiating Holders, and
(ii) all other Registrable Securities
which the Company has been requested to register by the
holders thereof (such holders together with the
Initiating Holders are hereinafter referred to as the
"Selling Holders") by written request given to the
Company within 20 days after the giving of such written
notice by the Company, all to the extent requisite to
permit the disposition of the Registrable Securities so
to be registered.
(b) Registration of Other Securities. Whenever
the Company shall effect a registration pursuant to this
Section 2.1 in connection with an underwritten offering by
one or more Selling Holders of Registrable Securities, no
securities other than Registrable Securities shall be
included among the securities covered by such registration
unless (a) the managing underwriter of such offering shall
have advised each Selling Holder of Registrable Securities
to be covered by such registration in writing that the
inclusion of such other securities would not adversely
affect such offering or (b) the Selling Holders of not less
than a majority of all Registrable Securities to be covered
by such registration shall have consented in writing to the
inclusion of such other securities.
(c) Registration Statement Form. Registrations
under this Section 2.1 shall be on such appropriate
registration form of the Commission as shall be selected by
the Company.
(d) Expenses. The Company will pay the
Registration Expenses in connection with any registration
requested pursuant to this Section 2.1.
(e) Effective Registration Statement. A
registration requested pursuant to this Section 2.1 shall
not be deemed to have been effected (i) unless a
registration statement with respect thereto has become
effective, (ii) if after it has become effective, such
registration is interfered with by any stop order,
injunction or other order or requirement of the Commission
or other governmental agency or court for any reason not
attributable to the Selling Holders and has not thereafter
become effective, or (iii) if the conditions to closing
specified in the underwriting agreement, if any, entered
into in connection with such registration are not satisfied
or waived, other than by reason of a failure on the part of
the Selling Holders.
(f) Selection of Underwriters. The underwriter
or underwriters of each underwritten offering of the
Registrable Securities so to be registered shall be selected
by the mutual agreement of the Company and the Selling
Holders of a majority of the Registrable Securities so to be
registered.
(g) Priority in Requested Registration. If the
managing underwriter of any underwritten offering shall
advise the Company in writing (with a copy to each Selling
Holder of Registrable Securities requesting registration)
that, in its opinion, the number of securities requested to
be included in such registration exceeds the number which
can be sold in such offering within a price range acceptable
to the Selling Holders of a majority of the Registrable
Securities requested to be included in such registration,
the Company will include in such registration, to the extent
of the number which the Company is so advised can be sold in
such offering, Registrable Securities requested to be
included in such registration, pro rata among the Selling
Holders requesting such registration on the basis of the
percentage of the Registrable Securities of such Selling
Holders requested so to be registered. In connection with
any such registration to which this Section 2.1(g) is
applicable, no securities other than Registrable Securities
shall be covered by such registration.
(h) Limitations on Registration on Request.
Notwithstanding anything in this Section 2.1 to the
contrary, in no event will the Company be required to
effect, in the aggregate pursuant to this Section 2.1,
without regard to the holder of Registrable Securities
making such request, more than two registrations during any
twelve month period.
2.2. Incidental Registration.
(a) Right to Include Registrable Securities. If
the Company proposes at any time to register any of its
securities under the Securities Act (other than a Shelf
Registration Statement) by registration on Forms S-1, S-2 or
S-3 or any successor or similar form(s) (except
registrations on such Forms or similar form(s) solely for
registration of securities in connection with an employee
benefit plan or dividend reinvestment plan or a merger,
reorganization, or consolidation), whether or not for sale
for its own account, it will, subject to Section 2.8 hereof,
each such time give prompt written notice to all registered
holders of Registrable Securities of its intention to do so
and of such holders' rights under this Section 2.2. Upon
the written request of any such holder (a "Requesting
Holder") made as promptly as practicable and in any event
within 20 days after the receipt of any such notice (10 days
if the Company states in such written notice or gives
telephonic notice to all registered holders of Registrable
Securities, with written confirmation to follow promptly
thereafter, that (i) such registration will be on Form S-3
and (ii) such shorter period of time is required because of
a planned filing date) (which request shall specify the
Registrable Securities intended to be disposed of by such
Requesting Holder), the Company will, subject to Section 2.8
hereof, use its best efforts to effect the registration
under the Securities Act of all Registrable Securities which
the Company has been so requested to register by the
Requesting Holders thereof; provided, however, that if, at
any time after giving written notice of its intention to
register any securities and prior to the effective date of
the registration statement filed in connection with such
registration, the Company shall determine for any reason not
to register or to delay registration of such securities, the
Company may, at its election, give written notice of such
determination to each Requesting Holder of Registrable
Securities and (i) in the case of a determination not to
register, shall be relieved of its obligation to register
any Registrable Securities in connection with such
registration (but not from any obligation of the Company to
pay the Registration Expenses in connection therewith),
without prejudice, however, to the rights of any holder or
holders of Registrable Securities entitled to do so to
request that such registration be effected as a registration
under Section 2.1 and (ii) in the case of a determination to
delay registering, shall be permitted to delay registering
any Registrable Securities, for the same period as the delay
in registering such other securities. No registration
effected under this Section 2.2 shall relieve the Company of
its obligation to effect any registration upon request under
Section 2.1. The Company will pay all Registration Expenses
in connection with registration of Registrable Securities
requested pursuant to this Section 2.2.
(b) Priority in Incidental Registrations. If the
managing underwriter of any underwritten offering shall
inform the Company (or, in the case of a secondary offering,
the selling stockholders initiating such offering) of its
belief that the number or type of Registrable Securities
requested to be included in such registration would
materially adversely affect such offering, then the Company
will include in such registration, to the extent of the
number and type which the Company is (or the selling
stockholders initiating such offering are) so advised can be
sold in (or during the time of) such offering, first, all
securities proposed by the Company (or, in the case of a
secondary offering, the selling stockholders initiating such
offering) to be sold for its (or their) own account, and
second, such Registrable Securities and any other securities
of the Company requested to be included in such
registration, pro rata among all such holders on the basis
of the estimated gross proceeds of the securities of such
holders requested to be so included.
(c) Selection of Managing Underwriter. The managing
underwriter of any underwritten offering pursuant to this
Section 2.2 shall be selected by the Company at its sole
discretion.
2.3. Registration Procedures. If and whenever the
Company is required to use its best efforts to effect the
registration of any Registrable Securities under the Securities
Act as provided in Section 2.1, 2.2 or 2.9, the Company will as
expeditiously as possible:
(i) in the case of a registration
pursuant to Section 2.1 or 2.2, prepare and (as soon as
practicable, and in any event within 75 days in the
case of Forms S-1 or S-2 and 30 days in the case of a
registration requested on Form S-3 after the end of the
period within which requests for registration may be
given to the Company) file with the Commission the
requisite registration statement to effect such
registration and thereafter use its best efforts to
cause such registration statement to become effective;
provided, however, that the Company may discontinue any
registration of its securities which are not
Registrable Securities (and, under the circumstances
specified in Section 2.2(a), its securities which are
Registrable Securities) at any time prior to the
effective date of the registration statement relating
thereto;
(ii) prepare and file with the
Commission such amendments and supplements to such
registration statement and the prospectus used in
connection therewith as may be necessary to keep such
registration statement effective and to comply with the
provisions of the Securities Act with respect to the
disposition of all Registrable Securities covered by
such registration statement for such period as shall be
required for the disposition of all of such Registrable
Securities, provided, that in the case of a
registration pursuant to Section 2.1 or 2.2, such
period need not exceed 90 days;
(iii) furnish to each seller of
Registrable Securities covered by such registration
statement, such number of conformed copies of such
registration statement and of each such amendment and
supplement thereto (in each case including all
exhibits), such number of copies of the prospectus
contained in such registration statement (including
each preliminary prospectus and any summary prospectus)
and any other prospectus filed under Rule 424 under the
Securities Act, in conformity with the requirements of
the Securities Act, and such other documents, as such
seller may reasonably request;
(iv) use its best efforts (x) to
register or qualify all Registrable Securities and
other securities covered by such registration statement
under such other securities or blue sky laws of such
States of the United States of America where an
exemption is not available and as the sellers of
Registrable Securities covered by such registration
statement shall reasonably request, (y) to keep such
registration or qualification in effect for so long as
such registration statement remains in effect, and (z)
to take any other action which may be reasonably
necessary or advisable to enable such sellers to
consummate the disposition in such jurisdictions of the
securities to be sold by such sellers, except that the
Company shall not for any such purpose be required to
qualify generally to do business as a foreign
corporation in any jurisdiction wherein it would not
but for the requirements of this subdivision (iv) be
obligated to be so qualified or to consent to general
service of process in any such jurisdiction;
(v) use its best efforts to cause all
Registrable Securities covered by such registration
statement to be registered with or approved by such
other federal or state governmental agencies or
authorities as may be necessary in the opinion of
counsel to the Company and counsel to the seller or
sellers thereof to consummate the disposition of such
Registrable Securities;
(vi) in the case of a registration
pursuant to Section 2.1 or 2.2, furnish to each seller
of Registrable Securities a signed counterpart of
(x) an opinion of counsel for
the Company, and
(y) a "comfort" letter signed
by the independent public accountants who have
certified the Company's financial statements
included or incorporated by reference in such
registration statement covering substantially the
same matters with respect to such registration
statement (and the prospectus included therein)
and, in the case of the accountant's comfort
letter, with respect to events subsequent to the
date of such financial statements, as are
customarily covered in opinions of issuer's
counsel and in accountant's comfort letters
delivered to the underwriters in underwritten
public offerings of securities (and dated the
dates such opinions and comfort letters are
customarily dated) and, in the case of the
accountant's comfort letter, such other financial
matters, and in the case of the legal opinion,
such other legal matters, as the sellers of a
majority of the Registrable Securities covered by
such registration statement, or the underwriters,
may reasonably request;
(vii) notify each seller of
Registrable Securities covered by such registration
statement at any time when a prospectus relating
thereto is required to be delivered under the
Securities Act, upon discovery that, or upon the
happening of any event as a result of which, in the
judgment of the Company, the prospectus included in
such registration statement, as then in effect,
includes an untrue statement of a material fact or
omits to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading, in the light of the circumstances under
which they were made, and at the request of any such
seller promptly prepare and furnish to it a reasonable
number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, in the
judgment of the Company, as thereafter delivered to the
purchasers of such securities, such prospectus shall
not include an untrue statement of a material fact or
omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading in the light of the circumstances under
which they were made;
(viii) otherwise use its best efforts
to comply with all applicable rules and regulations of
the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve
months, but not more than eighteen months, beginning
with the first full calendar month after the effective
date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a)
of the Securities Act and Rule 158 promulgated
thereunder, and promptly furnish to each such seller of
Registrable Securities a copy of any amendment or
supplement to such registration statement or
prospectus;
(ix) provide and cause to be maintained
a transfer agent and registrar (which, in each case,
may be the Company) for all Registrable Securities
covered by such registration statement from and after a
date not later than the effective date of such
registration; and
(x) use its best efforts to list all
Registrable Securities covered by such registration
statement on any national securities exchange or
national quotations system on which Registrable
Securities of the same class covered by such
registration statement are then listed.
The Company may require each seller of Registrable
Securities as to which any registration is being effected to
furnish the Company in writing as promptly as reasonably
practicable such information regarding such seller and the
distribution of such securities as the Company may from time to
time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition
of such Registrable Securities that upon receipt of any notice
from the Company of the happening of any event of the kind
described in subdivision (vii) of this Section 2.3, such holder
will forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement
relating to such Registrable Securities until such holder's
receipt of the copies of the supplemented or amended prospectus
contemplated by subdivision (vii) of this Section 2.3 and, if so
directed by the Company, will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies,
then in such holder's possession, of the prospectus relating to
such Registrable Securities current at the time of receipt of
such notice.
2.4. Underwritten Offerings.
(a) Requested Underwritten Offerings. If
requested by the underwriters for any underwritten offering
by holders of Registrable Securities pursuant to a
registration requested under Section 2.1, the Company will
enter into an underwriting agreement with such underwriters
for such offering, such agreement to be reasonably
satisfactory in substance and form to the Company, each such
holder and the underwriters and to contain such
representations and warranties by the Company and such other
terms as are generally prevailing in agreements of that
type, including, without limitation, indemnities to the
effect and to the extent provided in Section 2.7. The
holders of the Registrable Securities proposed to be
distributed by such underwriters will cooperate with the
Company in the negotiation of the underwriting agreement and
will give consideration to the reasonable suggestions of the
Company regarding the form thereof. Such holders of
Registrable Securities to be distributed by such
underwriters shall be parties to such underwriting agreement
and may, at their option, require that any or all of the
representations and warranties by, and the other agreements
on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of
such holders of Registrable Securities and that any or all
of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions
precedent to the obligations of such holders of Registrable
Securities. Any such holder of Registrable Securities shall
not be required to make any representations or warranties to
or agreements with the Company or the underwriters other
than representations, warranties or agreements regarding
such holder, such holder's Registrable Securities, such
holder's intended method of distribution and any other
representations required by law.
(b) Incidental Underwritten Offerings. If the
Company proposes to register any of its securities under the
Securities Act as contemplated by Section 2.2 and such
securities are to be distributed by or through one or more
underwriters, the Company will, subject to Section 2.8
hereof, if requested by any Requesting Holder of Registrable
Securities arrange for such underwriters to include all the
Registrable Securities to be offered and sold by such
Requesting Holder among the securities of the Company to be
distributed by such underwriters. The holders of
Registrable Securities to be distributed by such
underwriters shall be parties to the underwriting agreement
between the Company and such underwriters and may, at their
option, require that any or all of the representations and
warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall
also be made to and for the benefit of such holders of
Registrable Securities and that any or all of the conditions
precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the
obligations of such holders of Registrable Securities. Any
such Requesting Holder of Registrable Securities shall not
be required to make any representations or warranties to or
agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such
Requesting Holder, such Requesting
Holder's Registrable Securities and such Requesting Holder's
intended method of distribution or any other representations
required by law. Notwithstanding the foregoing provisions
of this Section 2.4(b), the Company need not include any
Registrable Securities of any such Requesting Holder in an
underwritten offering of the Company's securities if the
inclusion of such Requesting Holder's securities, in the
opinion of the managing underwriter for such offering by the
Company, might adversely affect such offering by the
Company.
(c) Holdback Agreements. (i) In the case of any
underwritten public offering by the Company of shares of
Common Stock, each holder of Registrable Securities agrees
not to effect any disposition (other than a disposition of
Registrable Securities under such underwritten public
offering or a bona fide pledge or a disposition to an
Affiliate of such holder who agrees to be bound by the
provisions of this paragraph) (a "Disposition") of any
Registrable Securities, and not to effect any such
Disposition of any other equity security of the Company or
of any security convertible into or exchangeable or
exercisable for any equity security of the Company (in each
case, other than as part of such underwritten public
offering) during the 15 days prior to, and during the 90-day
period (or such longer period as may be reasonably requested
by the underwriter of such offering) beginning on, the
effective date of such registration statement (except as
apart of such registration), provided that each holder of
Registrable Securities has received written notice of such
registration at least 15 days prior to such effective date.
(ii) If any registration of Registrable Securities
shall be in connection with an underwritten public offering,
the Company agrees (i) not to effect any public sale or
distribution of any of its equity securities or of any
security convertible into or exchangeable or exercisable for
any equity security of the Company (other than any such sale
or distribution of such securities in connection with any
merger or consolidation by the Company or any subsidiary of
the Company of the capital stock or substantially all the
assets of any other person or in connection with an employee
stock option or other benefit plan) during the 90 days prior
to, and during the 180-day period beginning on, the
effective date of such registration statement (except as
part of such registration) and (ii) that any agreement
entered into after the date of this Agreement pursuant to
which the Company issues or agrees to issue any privately
placed equity securities shall contain a provision under
which holders of such securities agree not to effect any
Disposition of any such securities during the period
referred to in the foregoing clause (i) (except as part of
such registration, if permitted).
2.5. Preparation: Reasonable Investigation. In
connection with the preparation and filing of each registration
statement under the Securities Act pursuant to this Agreement,
the Company will give the holders of Registrable Securities
registered under such registration statement, their underwriters,
if any, and their respective counsel and accountants the
opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed
with the Commission, and, to the extent practicable, each
amendment thereof or supplement thereto, and give each of them
such access to its books and records (to the extent customarily
given to underwriters of the Company's securities) and such
opportunities to discuss the business of the Company with its
officers and the independent public accountants who have
certified its financial statements as shall be necessary, in the
opinion of such holders' and such underwriters' respective
counsel, to conduct a reasonable investigation within the meaning
of the Securities Act.
2.6. Limitations, Conditions and Qualifications to
Obligations under Registration Covenants. The obligation of the
Company to use its best efforts to cause the Registrable
Securities to be registered under the Securities Act is subject
to the following limitations, conditions and qualifications.
(a) The Company shall be entitled to postpone for
a reasonable period of time (but not exceeding 180 days, in
the case of a registration pursuant to Section 2.1 or 2.2,
and 30 days in the case of a registration pursuant to
Section 2.9) the filing of any registration statement
otherwise required to be prepared and filed by it pursuant
to Section 2.1, if the Company determines, in its reasonable
judgment, that such registration and offering (i) would
interfere with any financing, acquisition, merger,
consolidation, material joint venture, corporate
reorganization or other material transaction involving the
Company or any of its Affiliates, or (ii) would require
premature disclosure of any of the foregoing transactions
(or of the existence of negotiations, discussions or pending
proposals with respect thereto) or of any pending or
threatened litigation, claim, assessment or governmental
investigation which would be material to the Company, and
promptly gives the holders of Registrable Securities
requesting registration thereof pursuant to Section 2.1
written notice of such delay. If the Company shall so
postpone the filing of a registration statement, such
holders of Registrable Securities requesting registration
thereof pursuant to Section 2.1 shall have the right to
withdraw the request for registration by giving written
notice to the Company within 30 days after receipt of the
notice of postponement and, in the event of such withdrawal,
such request shall not be counted for purposes of the
requests for registration to which holders of Registrable
Securities are entitled pursuant to Section 2.1 hereof.
(b) The Company shall not be obligated to
effect the registration of Registrable Securities of any
holder pursuant to Section 2.1, 2.2 or 2.9 unless such
holder consents to reasonable conditions imposed by the
Company, including without limitation:
(i) conditions prohibiting the sale of shares by
such holder until the registration shall have been effective
for a specified period of time;
(ii) conditions requiring such holder to comply
with all prospectus delivery requirements of the Securities
Act and with all anti-stabilization, anti-manipulation and
similar provisions of Section 10 of the Exchange Act and any
rules issued thereunder by the Commission, and to furnish to
the Company information about sales made in such public
offering;
(iii) conditions prohibiting such holder from
effecting sale of shares upon receipt of telegraphic or
written notice from the Company (until further notice) given
to permit the Company to correct or update a registration
statement or prospectus; and
(iv) conditions requiring that at the end of the
period during which the Company is obligated to keep the
registration statement effective under Section 2.3(ii) or
2.9(c), such holder shall discontinue sales of shares
pursuant to such registration statement upon receipt of
notice from the Company of its intention to remove from
registration the shares covered by such registration
statement that remain unsold, and requiring such holder to
notify the Company of the number of Registrable Securities
registered that remain unsold promptly upon receipt of
notice from the Company.
(c) Holders of Registrable Securities shall use
their reasonable best efforts to effect as wide a
distribution of such Registrable Securities as reasonably
practicable, and in no event shall any sale of Registrable
Securities be made knowingly to (i) any Person (including
its Affiliates) or (ii) any Persons or entities which are to
the knowledge of such holders (or to the knowledge of any
underwriter for such holders) part of any "group" within the
meaning of Regulation 13D of the Exchange Act which includes
such purchaser or any of its Affiliates that, after giving
effect to such sale, would beneficially own securities
representing more than 5% of the aggregate voting power of
all outstanding voting securities of the Company. The
holders of such Registrable Securities shall secure the
agreement of their underwriter or underwriters, if any, for
such offering to comply with the foregoing.
2.7. Indemnification.
(a) Indemnification by the Company. In the event
of any registration of any securities of the Company under
the Securities Act, the Company will, and hereby does,
indemnify and hold harmless, in the case of any registration
statement filed pursuant to Section 2.1, 2.2 or 2.9, each
seller of any Registrable Securities covered by such
registration statement, its directors, officers, partners,
agents and Affiliates and each other Person who participates
as an underwriter in the offering or sale of such securities
and each other Person, if any, who controls such seller or
any such underwriter within the meaning of the Securities
Act, insofar as losses, claims, damages or liabilities (or
actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in any registration statement under which such
securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement
thereto, or any omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein in light of the
circumstances in which they were made not misleading, and
the Company will reimburse such seller and each such
director, officer, partner, agent or affiliate, underwriter
and controlling Person for any legal or any other expenses
reasonably incurred by them in connection with investigating
or defending any such loss, claim, liability, action or
proceeding; provided, that the Company shall not be liable
in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged
omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to the Company
through an instrument executed by or on behalf of such
seller or underwriter, as the case may be, specifically
stating that it is for use in the preparation thereof; and
provided, further, that the Company shall not be liable to
any Person who participates as an underwriter in the
offering or sale of Registrable Securities or any other
Person, if any, who controls such underwriter within the
meaning of the Securities Act, in any such case to the
extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises
out of such Person's failure to send or give a copy of the
final prospectus, as the same may be then supplemented or
amended, to the Person asserting an untrue statement or
alleged untrue statement or omission or alleged omission at
or prior to the written confirmation of the sale of
Registrable Securities to such Person if such statement or
omission was corrected in such final prospectus so long as
such final prospectus, and any amendments or supplements
thereto, have been furnished to such underwriter. Such
indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of such seller or
any such director, officer, partner, agent or affiliate or
controlling Person and shall survive the transfer of such
securities by such seller.
(b) Indemnification by the Sellers. As a
condition to including any Registrable Securities in any
registration statement, the Company shall have received an
undertaking satisfactory to it from the prospective seller
of such Registrable Securities, to indemnify and hold
harmless (in the same manner and to the same extent as set
forth in subdivision (a) of this Section 2.7) the Company,
and each director of the Company, each officer of the
Company and each other Person, if any, who controls the
Company within the meaning of the Securities Act, with
respect to any statement or alleged statement in or omission
or alleged omission from such registration statement, any
preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement
thereto, if such statement or alleged statement or omission
or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company
through an instrument duly executed by such seller
specifically stating that it is for use in the preparation
of such registration statement, preliminary prospectus,
final prospectus, summary prospectus, amendment or
supplement; provided, however, that the liability of such
indemnifying party under this Section 2.7(b) shall be
limited to the amount of proceeds received by such
indemnifying party in the offering giving rise to such
liability. Such indemnity shall remain in full force and
effect, regardless of any investigation made by or on behalf
of the Company or any such director, officer or controlling
Person and shall survive the transfer of such securities by
such seller.
(c) Notices of Claims, etc. Promptly after
receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim
referred to in the preceding subdivisions of this Section
2.7, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such
action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall
not relieve the indemnifying party of its obligations under
the preceding subdivisions of this Section 2.7, except to
the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in
such indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties
is reasonably likely to exist in respect of such claim, the
indemnifying party shall be entitled to participate in and,
to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it
may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other
expenses subsequently incurred by the latter in connection
with the defense thereof other than reasonable costs of
investigation unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and
indemnifying parties arises in respect of such claim after
the assumption of the defense thereof and the indemnified
party notifies the indemnifying party of such indemnified
party's judgment and the basis therefor. No indemnifying
party shall be liable for any settlement of any action or
proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No indemnifying
party shall, without the consent of the indemnified party,
consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect
of such claim or litigation.
(d) Contribution. If the indemnification
provided for in this Section 2.7 shall for any reason be
held by a court to be unavailable to an indemnified party
under subparagraph (a) or (b) hereof in respect of any loss,
claim, damage or liability, or any action in respect
thereof, then, in lieu of the amount paid or payable under
subparagraph (a) or (b) hereof, the indemnified party and
the indemnifying party under subparagraph (a) or (b) hereof
shall contribute to the aggregate losses, claims, damages
and liabilities (including legal or other expenses
reasonably incurred in connection with investigating the
same), (i) in such proportion as is appropriate to reflect
the relative fault of the Company and the prospective
sellers of Registrable Securities covered by the
registration statement which resulted in such loss, claims,
damage or liability, or action in respect thereof, with
respect to the statements or omissions which resulted in
such loss, claim, damage or liability, or action in respect
thereof, as well as any other relevant equitable
considerations or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such
proportion as shall be appropriate to reflect the relative
benefits received by the Company and such prospective
sellers from the offering of the securities covered by such
registration statement. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent
misrepresentation. Such prospective sellers' obligations to
contribute as provided in this subparagraph (d) are several
in proportion to the relative value of their respective
Registrable Securities covered by such registration
statement and not joint. In addition, no Person shall be
obligated to contribute hereunder any amounts in payment for
any settlement of any action or claim effected without such
Person's consent, which consent shall not be unreasonably
withheld.
(e) Other Indemnification. Indemnification and
contribution similar to that specified in the preceding
subdivisions of this Section 2.7 (with appropriate
modifications) shall be given by the Company and each seller
of Registrable Securities with respect to any required
registration or other qualification of securities under any
federal or state law or regulation of any governmental
authority other than the Securities Act.
(f) Indemnification Payments. The
indemnification and contribution required by this Section
2.7 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and
when bills are received or expense, loss, damage or
liability is incurred. In any case in which it shall be
judicially determined that a party is not entitled to
indemnification or contribution, any payments previously
received by such party hereunder shall be promptly
reimbursed.
2.8. Limitations on Registrations of Registrable
Securities.
(a) The Company shall not be required to effect
any registration of Registrable Securities pursuant to Section
2.1 prior to August 31, 1999 unless either (i) GECC shall have
consented thereto in writing or (ii) (x) the offering price (net
of underwriters' fees, commissions and discounts) pursuant to
such registration results in a Total Return on Investment of at
least 40% per annum and (y) GECC is given the opportunity to
include at least 50% of the Registrable Securities held by it in
such registration. GECC shall have the right to require the
withdrawal of any previously filed registration statement if it
determines that the foregoing conditions will not be met.
(b) The Company shall not be required to effect
any registration of Registrable Securities pursuant to Section
2.1, 2.2 or 2.9 hereof if it shall deliver to the holder or
holders requesting such registration an opinion of counsel (which
opinion and counsel shall be reasonably satisfactory to such
holder or holders) to the effect that all Registrable Securities
held by such holder may than be sold in the public market without
registration under the Securities Act and any applicable state
securities laws.
2.9 Shelf Registration Statements. (a) Within 120
days following the date hereof, the Company shall file with the
Commission and shall use its best efforts to cause to be declared
effective within 180 days from the date hereof, Shelf
Registration Statement No. 1, relating to the offer and sale of
50% of the Registrable Securities owned by the Hawley Trusts from
time to time in accordance with the methods of distribution
elected by them and set forth in Shelf Registration Statement
No. 1.
(b) Within 215 days following the date Shelf
Registration Statement No. 1 is first declared effective by the
Commission, the Company shall file with the Commission and shall
use its best efforts to cause to be declared effective within 275
days following the effective date of Shelf Registration Statement
No. 1, Shelf Registration Statement No. 2, relating to the offer
and sale of the remaining 50% of the Registrable Securities owned
by the Hawley Trusts from time to time in accordance with the
methods of distribution elected by them and set forth in Shelf
Registration Statement No. 2.
(c) The Company will use its best efforts to keep
each Shelf Registration Statement continuously effective in order
to permit the prospectus forming part thereof to be usable by the
Hawley Trusts for a period of three years from the date such
Shelf Registration Statement is first declared effective by the
Commission, or for such shorter period that will terminate when
all Registrable Securities covered by such Shelf Registration
Statement have been sold pursuant to thereto or cease to be
outstanding or otherwise to be Registrable Securities.
(d) Whenever the Company shall effect a Shelf
Registration Statement pursuant to this Section 2.9, no other
securities shall be included among the securities covered by such
Shelf Registration Statement.
(e) The Company will pay the Registration
Expenses in connection with any Shelf Registration Statement
pursuant to this Section 2.9.
(f) At the discretion of Permal Group, either
Shelf Registration Statement may include Stock purchased by the
Specified Investors (as defined below); provided that the number
of Registrable Securities purchased by the Specified Investors
after the date hereof shall not exceed 1,500,000 in the aggregate
and no Registrable Securities may be purchased by the Specified
Investors after September 30, 1996. For purposes hereof, the
"Specified Investors" shall mean all of the Investors except for
the Permal Group, GECC and the Hawley Group.
3. Definitions. As used herein, unless the context
otherwise requires, the following terms have the following
respective meanings (capitalized terms used but not defined
herein having the meanings set forth in the Stockholders
Agreement):
"Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the
Exchange Act.
"Commission" means the Securities and Exchange Commission or
any other federal agency at the time administering the Securities
Act.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall
be in effect at the time. Reference to a particular section of
the Securities Exchange Act of 1934, as amended, shall include a
reference to the comparable section, if any, of any such similar
Federal statute.
"Hawley Group" shall mean those Persons listed on Schedule A
attached hereto.
"Hawley Trusts" shall mean the Hawley Group other than
Philip M. Hawley and Philip M. Hawley, Jr.
"Holder" of Common Stock or Registrable Securities means any
holder of such stock or of Warrants exercisable for such stock.
"Person" means a corporation, an association, a partnership,
an organization, a business, an individual, a governmental or
political subdivision thereof or a governmental agency.
"Registration Expenses" means all expenses incident to the
Company's performance of or compliance with Section 2, including,
without limitation, all registration, filing and NASD fees, all
listing fees, all fees and expenses of complying with securities
or blue sky laws (including, without limitation, reasonable fees
and disbursements of counsel for the underwriters in connection
with blue sky qualifications of the Registrable Securities), all
word processing, duplicating and printing expenses, messenger and
delivery expenses, the fees and disbursements of counsel for the
Company and of its independent public accountants, including the
expenses of "cold comfort" letters required by or incident to
such performance and compliance, any fees and disbursements of
underwriters (including, without limitation, fees and expenses of
counsel to the underwriters) customarily paid by issuers or
sellers of securities and the reasonable fees and expenses of one
counsel to the Selling Holders (selected by Selling Holders
representing at least a majority of the Registrable Securities
covered by such registration); provided, however, that
Registration Expenses shall exclude, and the sellers of the
Registrable Securities being registered shall pay, underwriters'
fees and underwriting discounts and commissions and transfer
taxes in respect of the Registrable Securities being registered.
"Registrable Securities" means (i) the shares of Common
Stock (or other securities) held by the Investors or issuable or
issued upon exercise of any warrants to purchase Common Stock and
(ii) any securities of the Company issuable or issued with
respect to the Common Stock and/or warrants (or other securities)
referred to in clause (i) by way of a merger, consolidation,
stock split, stock dividend, recapitalization of the Company or
similar transaction. As to any particular Registrable
Securities, once issued such securities shall cease to be
Registrable Securities when (a) a registration statement with
respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have
been disposed of in accordance with such registration statement,
(b) they shall have been sold as permitted by, and in compliance
with, Rule 144 (or successor provision) promulgated under the
Securities Act, (c) they shall have been otherwise transferred,
new certificates for them not bearing a legend restricting
further transfer under the Securities Act shall have been
delivered by the Company and subsequent public distribution of
them shall not require registration of them under the Securities
Act, or (d) they shall have ceased to be outstanding.
"Required Number of Shares" means shares of Common Stock
representing a total of 1,000,000 shares of Common Stock, subject
to adjustment as provided in Section 12.
"Securities Act" means the Securities Act of 1933, or any
similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the
time. References to a particular section of the Securities Act
of 1933 shall include a reference to the comparable section, if
any, of any such similar federal statute.
"Shelf Registration Statement" means either
Shelf Registration Statement No. 1 or
Shelf Registration Statement No. 2.
"Shelf Registration Statement No. 1" shall mean a "shelf"
registration statement of the Company pursuant to Section 2.9,
which covers 50% of the Registrable Securities owned by the
Hawley Trusts on an appropriate form under Rule 415 under the
Securities Act, or any similar rule that may be adopted by the
Commission, and all amendments and supplements to such
registration statement, including post-effective amendments, in
each case including the prospectus contained therein, all
exhibits thereto and all material incorporated by reference
therein.
"Shelf Registration Statement No. 2" shall mean, at the
Company's election either: (i) a "shelf" registration statement
of the Company pursuant to Section 2.9, which covers the
remaining 50% of the Registrable Securities owned by the Hawley
Trusts on an appropriate form under Rule 415 under the Securities
Act, or any similar rule that may be adopted by the Commission,
and all amendments and supplements to such registration
statement, including post-effective amendments, in each case
including the prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein; or (ii) an
amendment to Shelf Registration Statement No. 1 to cover the
remaining 50% of the Registrable Securities owned by the Hawley
Trusts.
"Stockholders Agreement" shall mean the Stockholders
Agreement dated the date hereof between the Company and the
Investors.
"Total Return on Investment" shall mean, as of any date, the
compound annual return from the Closing Date to such date on the
shares of Common Stock purchased by GECC on the Closing Date,
based upon the sum of (i) all dividends and distributions (if
any) (other than dividends or distributions paid in shares of
Common Stock pro rata to all holders of Common Stock) with
respect to, and proceeds (if any) of sales of, Common Stock
actually paid prior to such date, and (ii) the proceeds which
would be received by GECC from the sale of Common Stock at the
proposed public offering price on such date. In calculating
Total Return on Investment, (x) any dividend or distribution of a
publicly traded security shall be valued based upon the average
closing price of such security for the 20 consecutive trading
days ending on the date of such dividend or distribution and (y)
any dividend or distribution of property other than cash or
publicly traded securities shall be valued at its fair market
value as of the date of such dividend or distribution, as
determined by a nationally recognized independent investment
banking or valuation firm selected by mutual agreement between
the Company and GECC.
4. Rule 144. The Company shall take all actions
reasonably necessary to enable holders of Common Stock to sell
such securities without registration under the Securities Act
within the limitation of the exemptions provided by (a) Rule 144
under the Securities Act, as such Rule may be amended from time
to time, or (b) any similar rule or regulation hereafter adopted
by the Commission including, without limiting the generality of
the foregoing, filing on a timely basis all reports required to
be filed by the Exchange Act. Upon the request of any holder of
Common Stock, the Company will deliver to such holder a written
statement as to whether it has complied with such requirements.
5. Amendments and Waivers. This Agreement may be amended
with the consent of the Company and the Company may take any
action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have
obtained the written consent to such amendment, action or
omission to act, of the holders of at least a majority of the
Registrable Securities and GECC so long as GECC beneficially owns
at least 2,000,000 shares of Common Stock; provided; however;
that, in the case of any amendment to the provisions of Section
2.9, the written consent of the Hawley Trusts also shall be
obtained. Each beneficial owner of any Registrable Securities at
the time or thereafter outstanding shall be bound by any consent
authorized by this Section 5, whether or not such Registrable
Securities shall have been marked to indicate such consent.
6. Nominees for Beneficial Owners. In the event that any
Registrable Securities are held by a nominee for the beneficial
owner thereof, the beneficial owner thereof may, at its election
in writing delivered to the Company, be treated as the holder of
such Registrable Securities for purposes of any request or other
action by any holder or holders of Registrable Securities
pursuant to this Agreement or any determination of any number or
percentage of Registrable Securities held by any holder or
holders of Registrable Securities contemplated by this Agreement.
If the beneficial owner of any Registrable Securities so elects,
the Company may require assurances reasonably satisfactory to it
of such owner's beneficial ownership of such Registrable
Securities.
7. Notices All communications provided for hereunder
shall be sent by courier or other overnight delivery service,
shall be effective upon receipt, and shall be addressed as
follows:
(a) if to an Investor, at such address as the
Investor shall have furnished to the Company in writing;
(b) if to any other holder of Registrable
Securities, at the address that such holder shall have
furnished to the Company in writing, or, until any such
other holder so furnishes to the Company an address, then to
and at the address of the last holder of such Registrable
Securities who has furnished an address to the Company; or
(c) if to the Company, addressed to it at
Krause's Furniture, Inc.
200 North Berry Street
Brea, CA 92621-3903
or at such other address as the Company shall have furnished
to each holder of Registrable Securities at the time
outstanding.
8. Assignment; Calculation of Interests in Registrable
Securities.
(a) This Agreement shall be binding upon and inure the
benefit of and be enforceable by the parties hereto and, with
respect to the Company, its respective successors and assigns
and, with respect to the Investors, any beneficial owner of any
Registrable Securities, subject to the provisions respecting the
minimum number or proportion of shares of Registrable Securities
required in order to be entitled to certain rights, or take
certain actions, contained herein; provided, however, that the
provisions of Section 2.9 hereof (i) are personal to the Hawley
Trusts, (ii) may not be assigned by the Hawley Trusts, (iii) upon
the sale, transfer or other disposition of any particular
Registrable Securities owned by the Hawley Trusts, shall cease to
apply to such particular Registrable Securities, and (iv) shall
not inure to the benefit of and shall not be enforceable by any
person or entity other than the Hawley Trusts.
(b) For purposes of this Agreement, all references to
a proportion of the Registrable Securities shall be calculated
based upon the number of Registrable Securities participating in
a registration hereunder, except that for the purposes of
Section 5 Registrable Securities shall be calculated on a Fully
Diluted basis.
9. Descriptive Headings. The descriptive headings of the
several sections and paragraphs of this Agreement are inserted
for reference only and shall not limit or otherwise affect the
meaning hereof.
10. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW.
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF
THE STATE OF NEW YORK AND OF THE UNITED STATES OF AMERICA, IN
EACH CASE LOCATED IN THE COUNTY OF NEW YORK, FOR ANY ACTION,
PROCEEDING OR INVESTIGATION IN ANY COURT OR BEFORE ANY
GOVERNMENTAL AUTHORITY ("LITIGATION") ARISING OUT OF OR RELATING
TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY (AND
AGREES NOT TO COMMENCE ANY LITIGATION RELATING THERETO EXCEPT IN
SUCH COURTS), AND FURTHER AGREES THAT SERVICE OF ANY PROCESS,
SUMMONS, NOTICE OR DOCUMENT BY U.S. REGISTERED MAIL TO ITS
RESPECTIVE ADDRESS SET FORTH IN THIS AGREEMENT SHALL BE EFFECTIVE
SERVICE OF PROCESS FOR ANY LITIGATION BROUGHT AGAINST IT IN ANY
SUCH COURT. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF
ANY LITIGATION ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY IN THE COURTS OF THE STATE OF NEW YORK OR THE
UNITED STATES OF AMERICA, IN EACH CASE LOCATED IN THE COUNTY OF
NEW YORK, AND HEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY
WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT
ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM. EACH OF THE PARTIES IRREVOCABLY AND
UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY AND ALL RIGHTS TO TRIAL BY JURY IN CONNECTION
WITH ANY LITIGATION ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY.
11. No Inconsistent Agreements. The Company will not
hereafter enter into any agreement with respect to its securities
which is inconsistent with the rights granted to the holders of
Registrable Securities in this Agreement.
12. Recapitalizations. etc. In the event that any capital
stock or other securities are issued in respect of, in exchange
for, or in substitution of, any Registrable Securities by reason
of any reorganization, recapitalization, reclassification,
merger, consolidation, spin-off, partial or complete liquidation,
stock dividend, split-up, sale of assets, distribution to
stockholders or combination of the shares of Registrable
Securities or any other change in the Company's capital
structure, appropriate adjustments shall be made in this
Agreement so as to fairly and equitably preserve, as far as
practicable, the original rights and obligations of the parties
hereto under this Agreement. At the request of the Selling
Holders of a majority of Registrable Securities in connection
with any registration pursuant to Section 2.1 hereof, the Company
will effect such adjustments to the outstanding Common Stock by
way of stock split or stock dividend as the Selling Holders may
reasonably request to facilitate the registration and sale of the
Common Stock.
13. Attorneys' Fees. In any action or proceeding brought
to enforce any provision of this Agreement, or where any
provision hereof is validly asserted as a defense, the prevailing
party to such action or proceeding shall be entitled to recover
reasonable attorneys' fees in addition to any other available
remedy.
14. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an
original, but all such counterparts shall together constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties have caused this
Registration Rights Agreement to be executed and delivered by
their respective officers thereunto duly authorized as of the
date first above written.
KRAUSE'S FURNITURE, INC.
By:________________________________________
Name:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By:________________________________________
Name: Jeffrey H. Coats
Title: Managing Director/
Department Operations Manager
IN WITNESS WHEREOF, the parties have caused this
Registration Rights Agreement to be executed and delivered by
their respective officers thereunto duly authorized as of the
date first above written.
By:________________________________________
SCHEDULE A
HAWLEY GROUP consists of:
Allison Booth Hawley Trust I
Caitlin Hale Hawley Trust I
Maureen Erin Hawley Trust I
Shannon Follen Hawley Trust I
Hawley Family Trust
Dr. Philip M. Hawley, Jr.
Philip M. Hawley
JOINT FILING AGREEMENT
------------------------
This will confirm the agreement by and among all the
undersigned that the Schedule 13D filed on or about this date and
any amendments thereto with respect to the beneficial ownership
by the undersigned of securities of Krauses' Furniture, Inc. is
being filed on behalf of each of the undersigned. This Agreement
may be executed in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute
one and the same instrument.
Date: September 9, 1996
GENERAL ELECTRIC COMPANY
By: /s/ Paul J. Licursi
-------------------------
Name: Paul J. Licursi
Title: Attorney-in-Fact
GENERAL ELECTRIC CAPITAL
SERVICES, INC.
By: /s/ Joan C. Amble
-------------------------
Name: Joan C. Amble
Title: Vice President
and Controller
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Joan C. Amble
-------------------------
Name: Joan C. Amble
Title: Vice President
and Controller
