UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 1)*
Krause's Furniture, Inc.
- -----------------------------------------------------------------
(Name of Issuer)
Common Stock, $.001 par value
- -----------------------------------------------------------------
(Title Class of Securities)
000500760202
--------------------------------
(CUSIP Number)
Nancy E. Barton, Esq.
General Electric Capital
Corporation
260 Long Ridge Road
Stamford, Connecticut 06927
(203) 357-4000
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
August 14, 1997
--------------------------------
(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
/ /. (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).
SCHEDULE 13D
CUSIP No. 0005007601
----------
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 of the Schedule 13D for a description of
certain agreements relating to shares of Common Stock of
Krause's Furniture, Inc. (b) / /
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
NUMBER 7 SOLE VOTING POWER
OF 7,000,000
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED 7,116,225
BY
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 7,000,000
PERSON
WITH 10 SHARED DISPOSITIVE POWER
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
14,116,225 (includes 7,116,225 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)
66%
14 TYPE OF REPORTING PERSON*
CO
SCHEDULE 13D
CUSIP No. 0005007601
----------
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
NUMBER 7 SOLE VOTING POWER
OF Disclaimed. See 11 below
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED 0
BY
EACH 9 SOLE DISPOSITIVE POWER
REPORTING Disclaimed. See 11 below
PERSON
WITH 10 SHARED DISPOSITIVE POWER
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. 0005007601
----------
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
NUMBER 7 SOLE VOTING POWER
OF Disclaimed. See 11 below.
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED 0
BY
EACH 9 SOLE DISPOSITIVE POWER
REPORTING Disclaimed. See 11 below.
PERSON
WITH 10 SHARED VOTING POWER
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
This 13D Amendment No. 1 ("13D Amendment No.1") amends and
supplements the Schedule 13D 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") on
September 9, 1996 (the "Schedule 13D"), relating to the Common
Stock, $.001 par value per share (the "Common Stock"), of
Krause's Furniture, Inc. (the "Company"). Capitalized terms used
but not defined herein shall have the meanings set forth in the
Schedule 13D. Except as expressly amended hereby, the
information set forth in the Schedule 13D remains in effect
without modification.
This 13D Amendment No. 1 relates to the Supplemental
Securities Purchase Agreement (the "Supplemental Agreement"),
dated as of August 14, 1997, among the Company, GECC and Japan
Omnibus Ltd. ("JOL"), a company formerly known as Edson
Investments, Inc. The Supplemental Agreement provides for, among
other things: (i) the amendment of the Notes issued to GECC on
August 26, 1996, in the initial aggregate principal amount of
$5,000,000 to, among other things, reduce the interest rate on
the Notes to 9.5%, change the interest payments on the Notes to
cash payment, and revise the amortization schedule of the Notes
to provide for repayment of the principal of the Notes in six (6)
equal installments commencing February 28, 2000 and ending August
31, 2002; (ii) the purchase by GECC of an additional of 9.5%
subordinated note in the principal amount of $2,500,000 (the
"1997 Note"); (iii) subject to the satisfaction of certain
conditions, the purchase by GECC of up to an additional
$2,500,000 aggregate principal amount of 9.5% subordinated notes
(the "Standby Notes"); (iv) the issuance to GECC of a warrant to
purchase 600,000 shares of Common Stock at an exercise price of
$1.25 per share, exercisable at any time prior to August 31, 2006
(the "1997 Warrant"); (v) the issuance of a warrant, exercisable
under certain circumstances commencing April 1, 2000 until August
31, 2006 for up to 1,000,000 shares of Common Stock at an
exercise price of $0.01 per share, which will be allocated
between GECC and JOL based upon the respective amounts of
additional funding provided by each of GECC and JOL pursuant to
the Supplemental Agreement (the "Performance Warrant"); and (vi)
if the Standby Notes are issued, the issuance by the Company to
GECC of warrants to purchase up to 400,000 shares of Common Stock
at an exercise price of $1.25 per share, exercisable at any time
prior to August 31, 2006 (the "Standby Warrants"). The 1997 Note
and the Standby Notes are herein referred to collectively as the
"New Notes" and the 1997 Warrant, the Performance Warrant and the
Standby Warrants are herein referred to collectively as the "New
Warrants".
ITEM 2. IDENTITY AND BACKGROUND
Item 2 (a-c) is hereby amended to add the following
information:
For updated 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.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
Item 3 is hereby amended to add the following information:
The exercise price of the 1997 Warrants (and, if GECC receives
the Standby Warrants and/or becomes entitled to exercise the
Performance Warrant in whole or in part) will be obtained by GECC
from working capital or, to the extent permitted by the terms of
the New Warrants, may be paid by surrender of shares of Common
Stock with a value equal to such exercise price.
ITEM 4. PURPOSE OF TRANSACTION
Item 4 (a-j) is hereby amended to add the following
information:
GECC has acquired the New Warrants (and will acquire any
additional New Warrants issued to it) in connection with the
purchase of the New Notes as an investment and in the ordinary
course of business.
Except as expressly amended hereby, the information set forth
in Item 4 (a-j) of the Schedule 13D remains in effect without
modification.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
Item 5 is hereby amended to read as follows:
(a) GECC has sole voting and dispositive power with respect
to 7,000,000 shares of Common Stock (including 600,000 shares
issuable upon exercise of the 1997 Warrant and 1,400,000 shares
issuable upon exercise of the Warrant previously described in the
Schedule 13D), representing approximately 33.3% of the
outstanding shares of Common Stock (assuming the exercise of the
Warrant and the 1997 Warrant). In addition, by reason of the
provisions of the Stockholders Agreement previously described in
the Schedule 13D 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 7,116,225 shares of Common Stock,
representing approximately 33.3% of the outstanding shares of
Common Stock (assuming the exercise of the Warrant, the 1997
Warrant and all options or warrants exercisable within 60 days by
members of Permal Group).
In addition, by reason of certain of the provisions of the
Stockholders Agreement, 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 15,154,213
shares of Common Stock beneficially owned by GECC, Permal Group
and the Hawleys in the aggregate (which includes the 7,000,000
shares of Common Stock beneficially owned by GECC, an aggregate
of 7,116,225 shares of Common Stock held by members of Permal
Group, 50,000 shares of Common Stock held by the Hawleys, 617,000
shares of Common Stock issuable upon the exercise of options
exercisable within 60 days by Philip M. Hawley and an aggregate
of 370,988 shares issuable upon the exercise of warrants and
options exercisable within 60 days by members of Permal Group)
would represent approximately 68.9% of the shares of Common Stock
(assuming the exercise of the Warrant, the 1997 Warrant and all
options or warrants exercisable within 60 days by members of
Permal Group and Philip M. Hawley). GECC understands that 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 13D Amendment No. 1 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.
Item 6 is hereby amended to add the following information:
Reference is made to the Supplemental Agreement and the New
Warrants, copies of which are attached hereto as Exhibits 1-4 and
incorporated herein by reference.
Pursuant to a letter agreement dated August 14, 1997, by and
among the Company, GECC and JOL (the "Letter Agreement"), GECC
has consented to the sale pursuant to a registration statement of
the Company under the Securities Act of 1933 (i) by JOL of a
maximum of 2,000,000 shares and a minimum of 1,000,000 shares of
Common Stock and (ii) by members of the Permal Group of shares of
Common Stock in the aggregate number (with such shares being
allocated among the members of the Permal Group as JOL may
determine) equal to the difference between 2,000,000 and the
number of shares of Common Stock that JOL elects to sell pursuant
to the Letter Agreement, the sale of which would otherwise be
restricted by the Registration Rights Agreement and the
Stockholders Agreement previously described in the Schedule 13D.
A copy of the Letter Agreement is attached hereto as Exhibit 5
and is incorporated herein by reference.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1: Supplemental Securities Purchase Agreement,
dated as of August 14, 1997, by and among the
Company, GECC and JOL.
Exhibit 2: 1997 Warrant dated as of August 14, 1997,
issued by the Company to GECC.
Exhibit 3: Form of Standby Warrant to be issued by the
Company to GECC.
Exhibit 4: Performance Warrant, dated as of August 14,
1997, issued by the Company to GECC.
Exhibit 5: Letter Agreement, dated August 14, 1997, by and
among the Company, GECC and the Permal Group.
A copy of the Joint Filing Agreement among the Reporting
Persons was previously filed as an exhibit to the Schedule 13D.
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
August 15, 1997 By: /s/Michael M. Pralle
-----------------------
Name: Michael M. Pralle
Title: Vice President
Schedule I
----------
GENERAL ELECTRIC CAPITAL CORPORATION
DIRECTORS AND EXECUTIVE OFFICERS
PRESENT BUSINESS PRESENT PRINCIPAL
NAME ADDRESS 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 Comptroller,
3135 Easton Turnpike General Electric
Fairfield, CT 06431 Company
Dennis D. Dammerman General Electric Senior Vice
Company President, Finance,
3135 Easton Turnpike General Electric
Fairfield, CT 06431 Company
Paolo Fresco General Electric Vice Chairman and
Company Executive Officer,
3135 Easton Turnpike General Electric
Fairfield, CT 06431 Company
Benjamin W. General Electric Senior Vice
Heineman, Jr. Company President, General
3135 Easton Turnpike Counsel and
Fairfield, CT 06431 Secretary, General
Electric Company
John H. Myers General Electric Chairman President,
Investment Corporation General Electric
3003 Summer Street Investment
Stamford, CT 06904 Corporation
Robert L. Nardelli General Electric Power President and Chief
Systems Executive Officer,
One River Road General Electric
Schentectady, NY 12345 Power Systems
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
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 General Electric
Stamford, CT 06927 Capital Corporation
Denis J. Nayden General Electric President and Chief
Capital Corporation Operating Officer,
260 Long Ridge Road General Electric
Stamford, CT 06927 Capital Corporation
Nigel D.T. Andrews General Electric Executive Vice
Capital Corporation President, General
260 Long Ridge Road Electric Capital
Stamford, CT 06927 Corporation
Michael A. Neal General Electric Executive Vice
Capital Corporation President, General
260 Long Ridge Road Electric Capital
Stamford, CT 06927 Corporation
Edward D. Stewart 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 A. Colica General Electric Senior Vice
Capital Corporation President and
260 Long Ridge Road Manager, Global
Stamford, CT 06927 Risk Management,
General Electric
Capital Corporation
Michael D. Fraizer General Electric Senior Vice
Capital Corporation President,
260 Long Ridge Road Insurance/Investment
Stamford, CT 06927 Products, General
Electric Capital
Corporation
Robert L. Lewis General Electric Senior Vice
Capital Corporation President and
1600 Summer Street General Manager,
6th Floor Structured Finance
Stamford, CT 06905 Group, General
Electric Capital
Corporation
James A. Parke General Electric Senior Vice
Capital Corporation President, Finance,
260 Long Ridge Road General Electric
Stamford, CT 06927 Capital Corporation
Todd S. Thomson General Electric Senior Vice
Capital Corporation President,
260 Long Ridge Road Strategic Planning
Stamford, CT 06927 and Business
Development,
General Electric
Capital Corporation
Lawrence J. Toole General Electric Senior Vice
Capital Corporation President, Human
260 Long Ridge Road Resources, General
Stamford, CT 06927 Electric Capital
Corporation
Jeffrey S. Werner General Electric Senior Vice
Capital Corporation President,
201 High Ridge Road Corporate Treasury
Stamford, CT 06927 and Global Funding
Operation, General
Electric Capital
Corporation
Schedule II
-----------
GENERAL ELECTRIC CAPITAL SERVICES, INC.
DIRECTORS AND EXECUTIVE OFFICERS
PRESENT BUSINESS PRESENT PRINCIPAL
NAME ADDRESS 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, General
Road Electric Capital
Stamford, CT 06927 Corporation
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, General
3135 Easton Electric Company
Turnpike
Fairfield, CT
06431
Paolo Fresco General Electric Vice Chairman and
Company Executive Officer,
3135 Easton General Electric
Turnpike Company
Fairfield, CT
06431
Benjamin W. General Electric Senior Vice President,
Heineman, Jr. Company General Counsel
3135 Easton and Secretary,
Turnpike General Electric
Fairfield, CT Company
06431
John H. Myers General Electric Chairman and
Investment President, General
Corporation Electric Investment
3003 Summer Street Corporation
Stamford, CT
06904
Robert L. Nardelli General Electric President and Chief
Power Systems Executive Officer,
One River Road General Electric Power
Schenectady, NY Systems
12345
Denis J. Nayden General Electric President and Chief
Capital Operating Officer,
Corporation General Electric
260 Long Ridge Capital Corporation
Road
Stamford, CT 06927
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
Operation 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
Denis J. Nayden General Electric President and Chief
Capital Operating Officer,
Corporation General Electric
260 Long Ridge Capital Corporation
Road
Stamford, CT 06927
Michael A. Neal General Electric Executive Vice
Capital President, General
Corporation Electric Capital
260 Long Ridge Corporation
Road
Stamford, CT 06927
Edward D. Stewart General Electric Executive Vice
Capital President, General
Corporation Electric Capital
260 Long Ridge Corporation
Road
Stamford, CT 06927
Nancy E. Barton General Electric Senior Vice President,
Capital General Counsel and
Corporation Secretary, General
260 Long Ridge Electric Capital
Road Corporation
Stamford, CT 06927
James A. Parke General Electric Senior Vice President,
Capital Finance, General
Corporation Electric Capital
260 Long Ridge Corporation
Road
Stamford, CT 06927
Lawrence J. Toole General Electric Senior Vice President,
Capital Human Resources,
Corporation General Electric
260 Long Ridge Capital Corporation
Road
Stamford, CT 06927
Jeffrey S. Werner General Electric Senior Vice President,
Capital Corporate Treasury and
Corporation Global Funding
201 High Ridge Operation, General
Road Electric Capital
Stamford, CT 06927 Corporation
Joan C. Amble General Electric Vice President and
Capital Controller, General
Corporation Electric Capital
260 Long Ridge Corporation
Road
Stamford, CT
06927
Barbara E. Daniele General Electric Vice President and
Capital Senior Litigation
Corporation Counsel, General
260 Long Ridge Electric Capital
Road Corporation
Stamford, CT
06927
Richard D'Avino General Electric Vice President and
Capital Senior Counsel, Taxes,
Corporation General Electric
777 Long Ridge Capital Corporation
Road
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
3135 Easton Turnpike and Chief Financial
Fairfield, CT 06431 Officer, 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, S.A. de C.V. Board and Chief
Jose Luis Lagrange Executive Officer,
103, Kimberly-Clark de
Tercero Piso Mexico, S.A. de C.V.
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
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 President, Penske
13400 Outer Drive, Corporation
West and Detroit Diesel
Detroit, MI 48239- 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
J.F. Welch, Jr. General Electric Chairman of the
Company Board and Chief
3135 Easton Turnpike Executive Officer,
Fairfield, CT 06431 General Electric
Company
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 Executive
(U.S.A.) 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 - Finance
3135 Easton Turnpike and Chief Financial
Fairfield, CT 06431 Officer
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 - General
3135 Easton Turnpike Counsel and
Fairfield, CT 06431 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 Engines
Cincinnati, OH 05215
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 Financial
3135 Easton Turnpike Planning and
Fairfield, CT 06431 Analysis
J.D. Opie General Electric Vice Chairman of the
Company Board and Executive
3135 Easton Turnpike Officer
Fairfield, CT 06431
G.M. Reiner General Electric Senior Vice
Company President - Chief
3135 Easton Turnpike Information Officer
Fairfield, CT 06431
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
SUPPLEMENTAL
SECURITIES PURCHASE AGREEMENT
AMONG
KRAUSE'S FURNITURE, INC.,
GENERAL ELECTRIC CAPITAL CORPORATION
AND
JAPAN OMNIBUS LTD.
Dated as of August 14, 1997
TABLE OF CONTENTS
Page
1. Purchase and Sale of the New Securities. 2
1.1. Authorization to Sell the New Securities 2
1.2. Closing 2
1.3. Deliveries at Closing 2
1.4. Standby Note Closing 3
1.5. Conditions to Funding the Standby Notes 4
1.6. Deliveries at Each Standby Note Closing. 4
1.7. Definitions 5
2. Representations and Warranties of the Company 5
2.1. Organization and Qualification 5
2.2. Due Authorization 5
2.3. Subsidiaries 6
2.4. SEC Reports 6
2.5. Financial Statements 6
2.6. Actions Pending; Compliance with Laws 7
2.7. Title to Properties; Insurance 7
2.8. Governmental Consents, etc. 7
2.9. Holding Company Act and Investment Company
Act 7
2.10. Taxes 8
2.11. Conflicting Agreements and Charter
Provisions 8
2.12. Capitalization 8
2.13. Issuance, Sale and Delivery of the New
Notes and the New Warrants 9
2.14. Issuance, Sale and Delivery of the Common
Stock 9
2.15. Registration Under Exchange Act 9
2.16. ERISA 9
2.17. Possession of Franchises, Licenses, Etc. 10
2.18. Environmental and Other Regulations 10
2.19. Patents and Trademarks 11
2.20. Material Contracts and Obligations 11
2.21. Books and Records 11
2.22. Transactions with Related Parties 12
2.23. Brokers 12
2.24. Accuracy of Information 12
2.25. Offering of New Securities 12
2.26. Use of Proceeds 13
2.27. Unlawful Use of Proceeds 13
2.28. Costs of "Year 2000" Modifications 13
3. Representations and Warranties of each Purchaser 13
3.1. Organization and Qualification 13
3.2. Due Authorization 13
3.3. Conflicting Agreements and Other Matters 14
3.4. Actions Pending; Compliance with Laws 14
3.5. Acquisition for Investment 14
3.6. Brokers or Finders 14
3.7. Accredited Investor 14
4. Registration, Exchange and Transfer of Notes 15
4.1. Authorized Denominations of Notes 15
4.2. The Note Register; Persons Deemed Owners 15
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 16
6.3. Limitation on Senior Equity Securities 17
6.4. Merger; Purchase and Sale of Assets 18
6.5. Compliance with Laws 18
6.6. Limitation on Agreements 18
6.7. Preservation of Franchises and Existence 18
6.8. Insurance 19
6.9. Payment of Taxes and Other Charges 19
6.10. Effect of Certain Breaches 19
6.11. ERISA 20
6.12. Financial Statements and Other Reports 20
6.13. Inspection of Property 21
6.14. Rights of First Offer 21
6.15. Lost, Stolen, Damaged and Destroyed Stock
Certificates 22
6.16. Related Party Transactions 22
6.17 Operations in Accordance with Business
Plan. 23
6.18. Notice of Breach 23
7. Restrictions on Transfer 23
8. Events of Default and Remedies 23
8.1. Events of Default 23
8.2. Acceleration of Maturity 25
8.3. Other Remedies 25
8.4. Conduct Not a Waiver; Collection Expenses 26
8.5. Annulment of Acceleration 26
8.6. Remedies Cumulative 26
8.7. Limitations 26
9. Redemption. 27
9.1. Optional Redemption 27
9.2. Mandatory Redemption 27
9.3. Procedures for Partial Redemption 27
9.4. Change in Control 28
9.5. Redemption Procedures 28
10. Subordination of Notes 28
10.1. Subordination of Notes to Senior
Indebtedness 28
10.2. Proofs of Claim of Holders of Senior
Indebtedness; Voting 31
10.3. Rights of Holders of Senior Indebtedness
Unimpaired 31
10.4. Effects of Event of Default 31
10.5. Company's Obligations Unimpaired 31
10.6. Subrogation 32
11. Interpretation. 32
11.1 Definitions. 32
11.2. Accounting Principles 37
12. Miscellaneous 37
12.1. Payments 37
12.2. Severability 37
12.3. Specific Enforcement 37
12.4. Entire Agreement 38
12.5. Counterparts 38
12.6. Notices and Other Communications 38
12.7. Amendments; Waivers 39
12.8. Cooperation 39
12.9. Successors and Assigns 40
12.10. Expenses and Remedies 40
12.11. Survival of Representations and
Warranties 41
12.12. Transfer of Securities 41
12.13. Governing Law; Consent to Jurisdiction 42
12.14. Term 42
12.15. Publicity 43
12.16. Signatures 43
THIS SUPPLEMENTAL SECURITIES PURCHASE AGREEMENT, dated
as of August 14, 1997 (this "Agreement"), among KRAUSE'S
FURNITURE, INC., a Delaware corporation (including its
predecessors, the "Company"), GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation ("GECC"), and JAPAN OMNIBUS
LTD., an international business company incorporated in the
British Virgin Islands ("JOL"; each of GECC and JOL is sometimes
referred to herein as a "Purchaser" and collectively as the
"Purchasers").
WHEREAS, pursuant to the Securities Purchase Agreement
dated as of August 26, 1996 (the "Original Agreement") between
the Company and GECC, GECC purchased from the Company, and the
Company sold to GECC, (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 Note due August 31, 2001, in the initial
aggregate principal amount of $5,000,000 (the "Original Note"),
and (iii) in connection with the sale of the Existing Notes, a
warrant (the "Existing Warrant" and, together with any warrants
issued upon any division thereof, the "Existing Warrants") to
purchase 1,400,000 shares of Common Stock.
WHEREAS, pursuant to this Agreement the Company and
GECC wish to amend and restate the provisions of the Original
Note and the Additional Notes (as defined in the Original
Agreement) issued in payment of accrued interest on the Original
Note and Additional Notes through May 31, 1997, and to replace
the Original Note and the Additional Notes with a single note in
the initial principal amount of $5,501,091.00, representing the
aggregate principal amount of the Original Note and the
Additional Notes and all interest accrued on the Original Note
and the Additional Notes from June 1, 1997 through the date of
this Agreement (such replacement note including all securities
issued in exchange or replacement therefor, the "Replacement
Note")
WHEREAS, GECC and JOL wish to purchase from the
Company, and the Company wishes to sell to GECC and JOL, (i) the
Company's 9.5% Subordinated Notes due August 31, 2002, in the
aggregate principal amount of $3,000,000 (including all
securities issued in exchange or replacement therefor, herein
referred to as the "1997 Notes"), and, subject to the terms and
conditions set forth herein, the Company's 9.5% Subordinated
Notes, substantially in the form set forth on Exhibit B attached
hereto, in the aggregate maximum principal amount of $3,500,000,
available to be issued, subject to the terms and conditions of
this Agreement, at the Company's option in a single transaction
in the amount of $3,500,000 or in up to two transactions, each in
the amount of $1,750,000, from January 2, 1998 through February
28, 2000 (including all securities issued in exchange or
replacement therefor, herein referred to as the "Standby Notes"
and, together with the 1997 Notes, the "New Notes") and (ii) (a)
in connection with the sale of the 1997 Notes, warrants (together
with any warrants issued upon any division thereof, the "1997
Warrants") to purchase 740,000 shares of Common Stock, having the
terms and conditions set forth in the form of the warrant
attached hereto as Exhibit C-1, (b) in connection with the sale
of each Standby Note, a warrant (each, a "Standby Warrant" and,
together with any warrants issued upon any division thereof, the
"Standby Warrants") to purchase shares of Common Stock (covering
560,000 shares of Common Stock in the aggregate, or 80,000 shares
of Common Stock for each $500,000 principal amount of Standby
Notes) having the terms and conditions set forth in the form of
the warrant attached hereto as Exhibit C-2 and (c) a warrant (the
"Performance Warrant" and, together with any warrants issued upon
any division thereof, the "Performance Warrants") to purchase up
to 1,000,000 shares of Common Stock having the terms and
conditions set forth in the form of the warrant attached hereto
as Exhibit C-3 (the 1997 Warrants, the Standby Warrants and the
Performance Warrants are collectively referred to as the "New
Warrants"). In this Agreement, the Existing Warrants and the New
Warrants are collectively referred to as the "Warrants"; the New
Notes and the Replacement Notes are collectively referred to as
the "Notes"; and the Common Stock, the Notes and the Warrants are
collectively referred to as the "Securities".
WHEREAS, the Purchasers and the Company desire to
provide for the purchase and sale of the New Notes and the New
Warrants (the "New Securities") and GECC and the Company desire
to amend and restate certain provisions of the Original Agreement
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, GECC and
the Company agree to amend and restate the provisions of Sections
4 through 10 of the Original Agreement and that the provisions of
Sections 4 through 10 of this Agreement shall supersede the
provisions of the corresponding sections of the Original
Agreement and the Purchasers and the Company agree as follows:
1. Purchase and Sale of the New Securities.
---------------------------------------
1.1. Authorization to Sell the New Securities.
Subject to the terms and conditions of this Agreement, the
Company has duly authorized the issuance and sale of the New
Securities.
1.2. Closing. The closing of the purchase and sale of
the 1997 Note, the 1997 Warrant and the Performance Warrant (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 Purchasers (the "Closing
Date").
1.3. Deliveries at Closing. At the Closing:
(i) Morrison & Foerster L.L.P., counsel to
the Company, shall have delivered to the Purchasers an
opinion dated the Closing Date with respect to the matters
set forth in Exhibit D hereto;
(ii) the Company shall have delivered to the
Purchasers the 1997 Warrants (covering 600,000 shares of
Common Stock in the case of GECC and
140,000 shares of Common Stock in the case of JOL) and the
Performance Warrants in the forms of Exhibit C-1 and Exhibit
C-3;
(iii) the Company shall have delivered to the
Purchasers the 1997 Notes in such denominations as the
Purchasers have requested, dated the Closing Date and
registered in the name of the applicable Purchaser, in an
aggregate principal amount of $2,500,000 in the case of
GECC, and $500,000 in the case of JOL;
(iv) GECC shall have paid to the Company $2,500,000 by
wire transfer of immediately available funds which shall
represent the purchase price for the 1997 Note, 1997 Warrant and
the Performance Warrant to be acquired by it, and JOL shall have
paid to the Company $500,000 by wire transfer of immediately
available funds which shall represent the purchase price for the
1997 Note, 1997 Warrants and the Performance Warrant to be
acquired by it;
(v) the Company shall have delivered to GECC a
Replacement Note in the initial aggregate principal amount of
$5,501,091.00 in the form attached hereto as Exhibit E, which
shall replace the Original Note and the outstanding Additional
Notes (which shall be canceled and retired) and any Additional
Notes issuable in payment of accrued and unpaid interest on the
Original Notes and the outstanding Additional Notes from June 1,
1997 through the date of this Agreement;
(vi) the side letter agreement (the "Side Letter")
in the form of Exhibit F attached hereto shall have been executed by
the Company, the Purchasers and the Stockholders of the Company
holding at least a majority of the Common Stock and delivered to
the Permal Group (as defined in the Original Agreement); and
(vii) the Senior Indebtedness shall have been
amended as set forth in Exhibit G attached hereto.
The Closing of the purchase and sale of the 1997 Note,
the 1997 Warrant and the Performance Warrant shall be deemed to
have taken place in the State of New York.
1.4. Standby Note Closing. Subject to the terms and
conditions hereinafter set forth, the Company may elect to issue
the Standby Notes in a single transaction in the aggregate
principal amount of $3,500,000 or in up to two transactions each
in the aggregate principal amount of $1,750,000. The closing
(each, a "Standby Note Closing") of each purchase and sale of
Standby Notes (and the accompanying Standby Warrants) will take
place at the offices of Fried, Frank, Harris, Shriver & Jacobson,
New York, New York, at 9:00 a.m. on such date that is 30 days
after the date the Company gives written notice (each, a
"Drawdown Notice") to the Purchasers of its intent to issue to
the Purchasers such Standby Notes and no later than February 28,
2000, or on such other date as shall be mutually agreed by the
Company and the Purchasers, but no earlier than January 2, 1998
and no later than February 28, 2000 (each, a "Drawdown Date").
1.5. Conditions to Funding the Standby Notes. The
obligation of the Purchasers to fund the applicable Standby Notes
on any Drawdown Date shall be subject to the compliance by the
Company with its agreements contained herein and to the
satisfaction on or before such Drawdown Date of each of the
following further conditions:
(i) on such Drawdown Date, each Purchaser shall
purchase from the Company its pro rata share of the Standby Notes
to be issued at such Standby Note Closing.
(ii) the representations and warranties contained in
Section 2 shall be true and correct on and as of the date of this
Agreement and on and as of such Drawdown Date with the same force
and effect as though made on and as of such date (except as to
transactions permitted hereby) and the Company shall have
complied with each of its covenants and agreements contained in
this Agreement; and no Event of Default shall have occurred
(except an Event of Default which shall have been waived in
writing or which shall have been cured) and no Event of Default
shall exist after giving effect to the funding of the Standby
Note; and the Purchasers shall have received a certificate
containing a representation to these effects dated such Drawdown
Date and signed by an officer of the Company;
(iii) the funding of the Standby Notes by the
Purchasers on such Drawdown Date shall not be prohibited by any
order, judgment, decree, statute, law, rule or regulation to
which either Purchaser or the Company or any of their respective
property is subject;
(iv) as of the date of such Drawdown Notice and as of
such Drawdown Date (each, a "Measurement Date"), the Company
shall have achieved EBITDA for the 12-month period immediately
preceding each such Measurement Date (or such shorter period as
may be indicated on Schedule 1.5) not less than the amount set
forth opposite such Measurement Date on Schedule 1.5; provided
that, if actual EBITDA of the Company for the month immediately
preceding any such Measurement Date is not available on any
Measurement Date, the applicable period shall be the 12-month
period (or shorter period, as the case may be) ending with the
month prior to the month immediately preceding such Measurement
Date; and
(v) all instruments and legal and corporate
proceedings in connection with the Standby Note contemplated by
this Agreement shall be satisfactory in form and substance to the
Purchasers, and the Purchasers shall have received copies of all
documents which the Purchasers may have reasonably requested in
connection with the Standby Notes.
1.6. Deliveries at Each Standby Note Closing. At each
Standby Note Closing:
(i) counsel to the Company shall have delivered to
the Purchasers an opinion dated the Drawdown Date reasonably
satisfactory to the Purchasers with respect to matters reasonably
requested by the Purchasers;
(ii) the Company shall have delivered to the Purchaser
the Standby Warrant to be issued to such Purchaser at such
Standby Note Closing in the form of Exhibit C-2;
(iii) the Company shall have delivered to each
Purchaser the Standby Notes in such denominations as such
Purchaser may request, dated the Drawdown Date and registered in
the name of the applicable Purchaser; and
(iv) each Purchaser shall have paid to the Company by
wire transfer of immediately available funds, the purchase price
for the Standby Notes and the Standby Warrants to be acquired by
it.
The Closing of the purchase and sale of the Standby
Notes and the Standby Warrants shall be deemed to have taken
place in the State of New York.
1.7. 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 of the Closing
Date and as of each Drawdown Date 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 Side Letter, the New Notes and the New
Warrants and the issuance and sale of the New Securities by the
Company and compliance by the Company with all the provisions of
this Agreement, the Side Letter, the New Notes and the New
Warrants (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 Side Letter, the New Notes and
the New Warrants 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 Purchasers 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, directly or
indirectly, 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 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 May 4, 1997 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 May 4, 1997. Since May 4, 1997
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 Purchasers 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 Side Letter, or the New
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 Purchasers 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 February 2, 1997, 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 Side
Letter, the New Notes and the New Warrants and the valid offer,
issue, sale or delivery of the New 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 Side Letter, the New Notes and
the New Warrants and the issuance of the New Securities and (ii)
the fulfillment of and compliance with the terms and provisions
hereof and thereof and of the New 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 19,020,539 shares are
validly issued and outstanding, fully paid and nonassessable; (b)
warrants to purchase 1,757,474 shares of Common Stock which are
validly issued and outstanding, fully paid and nonassessable; (c)
options to purchase 1,626,958 shares of Common Stock which are
validly issued and outstanding, fully paid and nonassessable; and
(d) 666,667 shares of Preferred Stock, of which none are
outstanding. 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
directors' deferred stock units for 24,616 shares of Common Stock
and except for the restrictions and commitments contained in the
Original Agreement and the agreements executed concurrently with
the Original Agreement in connection with transactions
contemplated by the Original Agreement, 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 February 2, 1997, 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 New Notes and
the New Warrants. When issued and delivered by the Company, and
paid for by the Purchasers, the New Notes and the New Warrants
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 which will be issued upon exercise of
the New Warrants have been authorized and reserved for issuance,
and when issued and delivered in accordance with the terms of the
New Warrants, will be validly issued, fully paid and
nonassessable.
2.15. Registration Under Exchange Act. The Company has
not registered the New Notes or the New Warrants as a class
pursuant to Section 12 of the Exchange Act. Neither the New
Notes nor the New Warrants 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 of any of
the foregoing 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 of any of the foregoing,
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, other than invoices and
purchase orders not exceeding $100,000 individually entered into
in the ordinary course of business and agreements which are
terminable by the Company or any Subsidiary on not more than 60
days' notice without payment of a material penalty, (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 Purchasers 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 Purchasers 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 Purchasers, (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 Purchasers 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 in connection with this
Agreement (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 New Securities. Neither the Company
nor any Person acting on its behalf has offered any of the New
Securities or any similar securities of the Company for sale to,
solicited any offers to buy any of the New 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 Purchasers 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 New
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 New
Securities to the registration requirements of Section 5 of the
Securities Act.
2.26. Use of Proceeds. The proceeds of the sale of the
New Securities will be used by the Company for remodeling
existing showrooms, new store build outs, repayment of
outstanding Senior Indebtedness and general corporate purposes.
2.27. Unlawful Use of Proceeds. (a) The Company will
not use any proceeds from the sale of the New 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 New Notes
in any manner which is unlawful or which would involve a
violation of any regulation of the United States Treasury
Department administered by the Office of Foreign Assets Control.
2.28. Costs of "Year 2000" Modifications. The
estimated costs to the Company and its Subsidiaries of "Year
2000" modifications to their computer systems and software do not
exceed $100,000.
2.29. Amendment of Senior Indebtedness. The Company
represents and warrants that the amendment attached as Exhibit G
hereto referenced in Section 1.3(vii) increases credit
availability under the current credit facility of the Senior
Indebtedness by at least $900,000.
3. Representations and Warranties of each Purchaser.
------------------------------------------------
Each Purchaser represents and warrants severally as to
itself as follows:
3.1. Organization and Qualification. Such 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. Such 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 such Purchaser's ability to
perform its obligations hereunder.
3.2. Due Authorization. Such 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 such Purchaser and the
consummation by such Purchaser of the transactions contemplated
hereby have been duly authorized by all necessary action on
behalf of such Purchaser. This Agreement has been duly executed
and delivered by such Purchaser and constitutes a valid and
binding agreement of such 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 such 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 such Purchaser
or any mortgage, agreement, instrument, order, judgment, decree,
statute, law, rule or regulation to which such Purchaser or any
of its respective properties are subject.
3.4. Actions Pending; Compliance with Laws. There is
no action, suit, investigation or proceeding pending or, to the
knowledge of such Purchaser, threatened by any public official or
governmental authority, against such Purchaser or any of its
Affiliates 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 or the New Securities or any action
taken or to be taken pursuant hereto or thereto.
3.5. Acquisition for Investment. Such Purchaser is
acquiring the New 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 such
Purchaser has no present intention or plan to effect any
distribution thereof. Such Purchaser acknowledges that the New
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.
3.6. Brokers or Finders. No agent, broker, investment
banker or other firm or Person, including any of the foregoing
that is an Affiliate of such Purchaser, is or will be entitled to
any broker's fee or any other commission or similar fee from such
Purchaser in connection with any of the transactions contemplated
by this Agreement that the Company will be responsible for
pursuant to Section 12.10.
3.7. Accredited Investor. Such Purchaser is an
"accredited investor" within the meaning of Rule 501 promulgated
under the Securities Act.
4. Registration, Exchange and Transfer of Notes.
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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.
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. Upon
receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Note or Notes and in the
case of loss, theft or destruction, upon delivery of an indemnity
satisfactory to the Company (which, in the case of a Purchaser,
may be an undertaking by such Purchaser so to indemnify the
Company), or, in the case of mutilation, upon surrender and
cancellation thereof, the Company will issue 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, destroyed or mutilated.
5. Payment of Notes
----------------
5.1. Home Office Payment. The Company will pay to
each 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 such 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, each 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 9.50%, 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 with
respect to the Existing Notes, November 30, 1997 with respect to
the 1997 Notes and the first such Payment Date after the issuance
of each Standby Note, if applicable, and (ii) on the date of any
prepayment, on the amount prepaid, until such Notes has 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.
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 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 during any fiscal
year to be less than the amount set forth below for such fiscal
year:
1997 $ 8,500,000
1998 $ 8,500,000
1999 $13,700,000
2000 $27,000,000
2001 $39,000,000
2002 $51,000,000
(b)The Company will not incur, create, assume or
permit to exist any Indebtedness during any fiscal year if such
Indebtedness would result in a ratio of Consolidated Total
Indebtedness to Consolidated Net Worth of more than the amount
for such fiscal year indicated set forth below:
1997 No greater than 1.92
1998 No greater than 1.92
1999 No greater than 1.05
2000 No greater than 0.80
2001 No greater than 0.60
2002 No greater than 0.35
(c)The Company will not permit its Fixed Charge
Ratio during any fiscal year to be less than the amount set forth
below for such fiscal year:
1997 No less than 0.80
1998 No less than 0.80
1999 No less than 1.10
2000 No less than 1.40
2001 No less than 1.60
2002 No less than 1.60
(d)The Company and its Subsidiaries will not
make capital expenditures (net of any sale leasebacks incurred
within such fiscal year) in excess of the amounts set forth below
for the fiscal years indicated:
1997 $3,500,000
1998 $7,250,000
1999 $6,000,000
2000 $6,000,000
2001 $6,000,000
2002 $6,000,000
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 in 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 GECC 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 Purchasers that, when added to any directors
then in office designated solely by GECC, will result in
directors designated by GECC and the directors designated
pursuant to this Section 6.10 together 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
Purchasers 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 each 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 each 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 each 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 each Purchaser copies of all
financial reporting packages prepared for management of the
Company; and
(v) it will promptly furnish to each 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
each Purchaser such other financial and other data of the
Company and its Subsidiaries as such 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 each 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 each Purchaser to visit and inspect, at such
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 such 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 GECC 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 GECC (or its
designee), at such minimum price and on such terms and
conditions (to the extent reasonably applicable to GECC), 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 GECC (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 GECC (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 GECC (or its designee) shall accept
such offer within 30 days after the notice given pursuant to
clause (i) above, then GECC (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.
JOL shall be sent contemporaneously a copy of any
notices or communications under this Section 6.14 in accordance
with the notice provisions set forth in Section 12.6.
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 a Purchaser, may be an
undertaking by such 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. 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 each
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. Neither Purchaser nor
any of its Affiliates will, 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 such Purchaser 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 under
this Agreement:
(a) Nonpayment 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 Not a 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 a Purchaser or an Affiliate of a
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, 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 be applied first against the Replacement Notes,
until the Replacement Notes have been repaid in full, second
against the 1997 Notes, until the 1997 Notes have been repaid in
full, and third against the Standby Notes, if applicable. 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) or the next succeeding Standby
Redemption Date (as defined in Section 9.2), if applicable.
9.2. Mandatory Redemption. (a) The Company shall on
February 28 and on August 31, in each year commencing with the
year 2000 and ending in the year 2002 (each a "Redemption Date"),
redeem the 1997 Notes in the aggregate outstanding principal
amount of $500,000 and the Replacement Notes in the aggregate
outstanding principal amount of $916,848.50, together with
accrued and unpaid interest on each note, to and including such
Redemption Date.
(b) With respect to each Standby Note, the
Company shall, beginning on the later of the first anniversary of
the Drawdown Date of such Standby Note or February 28, 2000 (the
"Beginning Standby Redemption Date"), and on each succeeding
February 28 and August 31 (each, a "Standby Redemption Date")
after the Beginning Standby Redemption Date until the principal
amount of such Standby Note has been repaid in full, redeem such
Standby Note, in the amount necessary to repay the entire initial
aggregate principal amount of such Standby Note in six (6) equal
installments of principal, together with accrued and unpaid
interest on each such note to and including such Standby
Redemption Date.
9.3. Procedures for Partial Redemption. (a) If less
than all 1997 Notes at the time outstanding are to be redeemed,
the aggregate principal amount to be redeemed shall be prorated
among the outstanding 1997 Notes.
(b) If less than all Replacement Notes at the
time outstanding are to be redeemed, the aggregate principal
amount to be redeemed shall be prorated among the outstanding
Replacement Notes.
(c) If less than all Standby Notes at the time
outstanding are to be redeemed, the aggregate principal amount to
be redeemed shall be applied first against any Standby Notes
issued at the initial Standby Note Closing, pro rata among all
such outstanding Standby Notes and thereafter against any Standby
Notes issued at the second Standby Note Closing, pro rata among
all such outstanding Standby 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, each Purchaser hereby assigns and transfers to the
holders of Senior Indebtedness of the Company all rights to
any payments, dividends or other distributions.
Each 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 each 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 such 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. Each 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 any 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 such Purchaser to be such
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 such Purchaser, and
(ii) to otherwise vote such 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 Purchasers on the other hand, and nothing herein
shall impair, as between the Company and the Purchasers, 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 Purchasers 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; provided that GECC
shall not be deemed an "Affiliate" of the Company.
"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
principles, 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.
"EBITDA" means, for a given year, the consolidated net
income of the Company for such year, plus interest expense (net
of interest income), plus income tax expense, plus depreciation
and amortization expense, each of the above computed in
accordance with generally accepted accounting principles applied
on a consistent basis.
"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 Exchange Act 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.
"Registration Rights Agreement" shall mean the
Registration Rights Agreement dated August 26, 1996, between the
Company, GECC and each of the parties listed on the signature
pages thereof.
"Related Party" shall mean, other than GECC or any of
its Affiliates, 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, August 26, 1996
and November 25, 1996, and as further amended on August 14, 1997
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.
"Stockholder" means each of the stockholders listed as
a signatory to the Stockholders Agreement dated August 26, 1996
by and among the Company, GECC and each of the stockholders
listed on the signature pages 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
Sunday closest to the last day 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
February 2, 1997.)
12. Miscellaneous.
-------------
12.1. Payments. The Company agrees that, so long as
any Purchaser shall hold any Securities, the Company will make
all cash interest or dividend payments thereon in immediately
available funds in such manner as such 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 Purchasers, 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 92821-3903
Attention: Philip M. Hawley
With copies (which shall not constitute notice) to:
Judith O. Lasker and
Robert A. Burton
Krause's Furniture, Inc.
200 North Berry Street
Brea, CA 92821-3903
and
Timothy Scott, Esq.
Morrison & Foerster
555 West Fifth Street
Los Angeles, CA 90013-1024
GECC:
General Electric Capital Corporation
Equity Capital Group
260 Long Ridge Road
Stamford, CT 06927
Attention: Jeffrey H. Coats and
Attention: Counsel
With a copy (which shall not constitute notice) to:
Warren de Wied, Esq.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
JOL:
Japan Omnibus Ltd.
Stephen Hutchings
Tropic Isle Building
Road Town, Tortola
British Virgins Islands
With a copy (which shall not constitute notice) to:
David Kaufman, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
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; Waivers. This Agreement may be
amended as to the Purchasers 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 registered holders of not
less than 66 2/3% of the outstanding principal amount of the
Notes then held by the Purchasers and their successors or
assigns; provided, however, that without the written consent of
the holder or holders of all Notes at the time outstanding, no
amendment to or waiver of any terms of this Agreement shall
change or affect (1) the interest rate, maturity, principal
amount, time of payment, currency of payment, or the amount or
allocation of any prepayments of any Note, or (2) the conditions
or manner of funding of the Standby Notes. 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.
Notwithstanding anything in this Agreement to the contrary, no
provision of this Section 12.7 may be waived, changed or
modified.
12.8. Cooperation. The Purchasers 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 any Purchaser to any
transferee of any Securities of such Purchaser. This Agreement
may not be assigned by the Company.
12.10. Expenses and Remedies. (a) The Company
agrees to pay each Purchaser for all reasonable outside legal and
consulting fees of such 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 each
Purchaser relating to the enforcement of this Agreement, the
Registration Rights Agreement, the Warrants or the Notes or any
of the Securities.
(b) The Company further agrees to indemnify and
save harmless each Purchaser and its respective officers,
directors, partners, employees, trustees and agents, each person
who controls such 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 such Purchaser of any of its agreements contained
herein, (ii) from the gross negligence or willful misconduct of
such Purchaser or any of its officers, directors, partners,
employees or agents, or any person who controls such 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 such 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) An 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) Each 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. Each
Purchaser acknowledges that, except as provided in the
Registration Rights Agreement, such Purchaser has no right to
require the Company to register the Securities. Each 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."
"IN ADDITION TO THE RESTRICTIONS SET FORTH IN THE
SECURITIES PURCHASE AGREEMENT AND THE SUPPLEMENTAL
SECURITIES PURCHASE AGREEMENT BETWEEN KRAUSE'S
FURNITURE, INC., GENERAL ELECTRIC CAPITAL CORPORATION
AND JAPAN OMNIBUS LTD., [THE SECURITIES REPRESENTED BY
THIS CERTIFICATE ARE] [THIS NOTE IS] SUBJECT TO THE
RESTRICTIONS SET FORTH IN THE STOCKHOLDERS AGREEMENT BY
AND AMONG KRAUSE'S FURNITURE, INC. AND THE STOCKHOLDERS
PARTIES THERETO. COPIES OF SUCH AGREEMENTS ARE 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 upon
the repayment in full of all amounts of principal, interest and
other sums due and payable on all Notes, 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.
[Remainder of page left intentionally blank.]
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: Robert A. Burton
Title: Senior Vice President
and Chief Financial Officer
GENERAL ELECTRIC CAPITAL CORPORATION
By:-------------------------------------
Name: George L. Hashbarger, Jr.
Title: Senior Vice President/
Department Operations Manager
JAPAN OMNIBUS LTD.
(formerly known as EDSON INVESTMENTS,
INC.)
By:-------------------------------------
Name:
Title:
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, 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.
IN ADDITION TO THE RESTRICTIONS SET FORTH IN THE SECURITIES
PURCHASE AGREEMENT AND THE SUPPLEMENTAL SECURITIES PURCHASE
AGREEMENT BY AND AMONG KRAUSE'S FURNITURE, INC., GENERAL ELECTRIC
CAPITAL CORPORATION AND JAPAN OMNIBUS LTD., THIS WARRANT IS
SUBJECT TO THE RESTRICTIONS SET FORTH IN THE STOCKHOLDERS
AGREEMENT BY AND AMONG KRAUSE'S FURNITURE, INC. AND THE
STOCKHOLDERS PARTIES THERETO, COPIES OF SUCH AGREEMENTS ARE ON
FILE IN THE OFFICES OF THE CORPORATION.
No. of Shares of Common Stock: 600,000
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"), 600,000 shares of Common Stock (as hereinafter
defined and subject to adjustment as provided herein), in whole
or in part, at a purchase price of $1.25 per share, all on the
terms and conditions and pursuant to the provisions hereinafter
set forth.
1. DEFINITIONS
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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 14, 1997.
"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.
"Current Warrant Price" shall mean, in respect of a
share of Common Stock at any date herein specified, the price at
which a share of Common Stock may be purchased pursuant to this
Warrant on such date.
"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 Stock" shall mean the shares of Common Stock
purchased by the holders of the Warrants upon the exercise
thereof.
2. EXERCISE OF WARRANT
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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 92821-3903 (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 Current 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 Current
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 Current Warrant Price shall be made at
the option of Holder by payment in cash, by certified or official
bank check, or by the surrender of shares of Common Stock having
a value equal to the aggregate warrant price of the shares of
Common Stock being purchased upon exercise of the Warrant, by
delivering to the Company certificates representing the number of
shares of Common Stock to be surrendered, duly endorsed by or
accompanied by appropriate instruments of transfer duly executed
by Holder. For the purposes of making payment of the Current
Warrant Price, the value of the Common Stock surrendered shall be
determined based upon the Current Market Price as of the date of
surrender of such shares of Common Stock. If Holder surrenders
shares of Common Stock in payment of the Current Warrant Price
and less than all of the shares of Common Stock represented by
any certificate are being surrendered, the Company shall deliver
to Holder a new certificate or certificates representing the
shares of Common Stock not applied to payment of the Current
Warrant Price; provided, however, that in lieu of any fractional
share of Common Stock which such Holder would otherwise be
entitled to receive, the Company shall pay to Holder an amount of
cash equal to such fraction multiplied by the Current Market
Price as of the date of surrender of the shares of Common Stock.
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
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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 (i) 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, and (ii) the Current
Warrant Price per share shall be adjusted to equal (A) the
Current Warrant Price multiplied by the number of shares of
Common Stock for which this Warrant is exercisable immediately
prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such
adjustment.
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 (i) 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 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, and (ii)
the Current Warrant Price shall be adjusted to equal (A) the
Current Warrant Price multiplied by the number of shares of
Common Stock for which this Warrant is exercisable immediately
prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such
adjustment. 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, in exchange for consideration in
an amount per Additional Share of Common Stock less than the
Current Warrant Price at the time the Additional Shares of Common
Stock are issued, then (i) the Current Warrant Price as to the
number of shares for which this Warrant is exercisable prior to
such adjustment shall be reduced to a price determined by
dividing (A) an amount equal to the sum of (x) the number of
shares of Common Stock Outstanding immediately prior to such
issue or sale multiplied by the then existing Current Warrant
Price, plus (y) the consideration, if any, received by the
Company upon such issue or sale, by (B) the total number of
shares of Common Stock Outstanding immediately after such issue
or sale; and (ii) the number of shares of Common Stock for which
this Warrant is exercisable shall be adjusted to equal the
product obtained by multiplying the Current Warrant Price in
effect immediately prior to such issue or sale by the number of
shares of Common Stock for which this Warrant is exercisable
immediately prior to such issue or sale and dividing the product
thereof by the Current Warrant Price resulting from the
adjustment made pursuant to clause (i) above.
(b) 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 (i) 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; and (ii) the Current Warrant Price as to
the number of shares for which this Warrant is exercisable prior
to such adjustment shall be adjusted by multiplying such Current
Warrant Price by a fraction (X) the numerator of which shall be
the number of shares for which this Warrant is exercisable
immediately prior to such issue or sale; and (Y) the denominator
of which shall be the number of shares of Common Stock
purchasable immediately after such issue or sale.
(c) If at any time the Company (except as hereinafter
provided) shall issue or sell any Additional Shares of Common
Stock, other than Permitted Issuances, in exchange for
consideration in an amount per Additional Shares of Common Stock
which is less than the Current Warrant Price and the Current
Market Price at the time the Additional Shares of Common Stock
are issued, the adjustment required under Section 4.3 shall be
made in accordance with the formula in paragraph (a) or (b) above
which results in the lower Current Warrant Price following such
adjustment. The provisions of paragraphs (a) and (b) of 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) or (b) of 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 Warrant
Price or 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 and the Current Warrant Price
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 of the
Current Warrant Price 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 Warrant
Price or 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 and the Current Warrant Price 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 and the Current
Warrant Price 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 and the Current
Warrant Price 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 and
the Current Warrant Price 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 and the
Current Warrant Price 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 and the Current Warrant Price 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 and the Current
Warrant Price 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 and the Current Warrant
Price 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 made 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 then Current 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 Current
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 and/or the purchase price thereof shall be
adjusted in such manner as may be equitable in the circumstances.
4.10. CERTAIN LIMITATIONS. Notwithstanding anything
herein to the contrary, the Company agrees not to enter into any
transaction which, by reason of any adjustment hereunder, would
cause the Current Warrant Price to be less than the par value per
share of Common Stock.
5. NOTICES TO WARRANT HOLDERS
--------------------------
5.1. NOTICE OF ADJUSTMENTS. Whenever the number of
shares of Common Stock for which this Warrant is exercisable, or
whenever the price at which a share of such Common Stock may be
purchased upon exercise of the Warrants, 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 or 4.9)
describing the number and kind of any other shares of stock or
Other Property for which this Warrant is exercisable, and any
change in the purchase price or prices thereof, after giving
effect to such adjustment or change. 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 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."
"IN ADDITION TO THE RESTRICTIONS SET FORTH IN
THE SECURITIES PURCHASE AGREEMENT AND THE
SUPPLEMENTAL SECURITIES PURCHASE AGREEMENT BY AND
AMONG KRAUSE'S FURNITURE, INC., GENERAL ELECTRIC
CAPITAL CORPORATION AND JAPAN OMNIBUS LTD., [THIS
WARRANT IS] [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, COPIES OF WHICH ARE ON FILE IN
THE OFFICES OF THE CORPORATION."
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
Krause's Furniture, Inc.
200 North Berry Street
Brea, CA 92821-3903
Attention: Philip M. Hawley
Robert A. Burton
Judith O. Lasker
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 -----, 1997
KRAUSE'S FURNITURE, INC.
By:
--------------------------------
Name: Robert A. Burton
Title: Senior Vice President
and Chief Financial
Officer
Attest:
By:
-------------------------
Name: Judith O. Lasker
Title: Secretary
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............................... 6
3. TRANSFER, DIVISION AND COMBINATION..................... 6
3.1. Transfer........................................ 6
3.2. Division and Combination........................ 6
3.3. Expenses........................................ 7
3.4. Maintenance of Books............................ 7
4. ADJUSTMENTS............................................ 7
4.1. Stock Dividends, Subdivisions and Combinations.. 7
4.2. Certain Other Distributions..................... 7
4.3. Issuance of Additional Shares of Common Stock... 8
4.4. Issuance of Warrants or Other Rights............ 10
4.5. Issuance of Convertible Securities.............. 11
4.6. Superseding Adjustment.......................... 11
4.7. Other Provisions Applicable to Adjustments
under this Section.............................. 12
4.8. Reorganization, Reclassification, Merger,
Consolidation or Disposition of Assets.......... 15
4.9. Other Action Affecting Common Stock............. 16
4.10. Certain Limitations............................. 16
5. NOTICES TO WARRANT HOLDERS............................. 17
5.1. Notice of Adjustment............................ 17
5.2. Notice of Corporate Action...................... 17
6. RIGHTS OF HOLDERS...................................... 18
6.1. No Impairment................................... 18
7. RESERVATION AND AUTHORIZATION OF COMMON
STOCK; REGISTRATION WITH APPROVAL OF ANY
GOVERNMENTAL AUTHORITY................................. 19
8. TAKING OF RECORD: STOCK AND WARRANT TRANSFER BOOKS 19
9. RESTRICTIONS ON TRANSFERABILITY........................ 19
9.1. Restrictive Legend.............................. 20
9.2. Notice of Proposed Transfers; Requests
for Registration................................ 20
9.3. Registration Rights............................. 21
9.4. Termination of Restrictions..................... 21
10. SUPPLYING INFORMATION.................................. 21
11. LOSS OR MUTILATION..................................... 21
12. LIMITATION OF LIABILITY................................ 22
13. MISCELLANEOUS.......................................... 22
13.1. Nonwaiver and Expenses.......................... 22
13.2. Notice Generally................................ 22
13.3. Remedies........................................ 23
13.4. Successors and Assigns.......................... 23
13.5. Amendment....................................... 23
13.6. Severability.................................... 24
13.7. Headings........................................ 24
13.8. Governing Law................................... 24
SIGNATURES.................................................. 25
EXHIBITS.................................................... 25
Exhibit A - Subscription Form............................... 25
Exhibit B - Assignment Form................................. 26
Exhibit C-1: 1997 Warrant (GECC)
---------------------------------
WARRANT
To Purchase Shares of Common Stock of
KRAUSE'S FURNITURE, INC.
No. of Shares of Common Stock: 600,000
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, 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.
IN ADDITION TO THE RESTRICTIONS SET FORTH IN THE SECURITIES
PURCHASE AGREEMENT AND THE SUPPLEMENTAL SECURITIES PURCHASE
AGREEMENT BY AND AMONG KRAUSE'S FURNITURE, INC., GENERAL ELECTRIC
CAPITAL CORPORATION AND JAPAN OMNIBUS LTD., THIS WARRANT IS
SUBJECT TO THE RESTRICTIONS SET FORTH IN THE STOCKHOLDERS
AGREEMENT BY AND AMONG KRAUSE'S FURNITURE, INC. AND THE
STOCKHOLDERS PARTIES THERETO, COPIES OF SUCH AGREEMENTS ARE ON
FILE IN THE OFFICES OF THE CORPORATION.
No. of Shares of Common Stock: (200,000)(400,000)[FN1]
[FN1] Based on whether the accompanying Standby Note
is issued in the amount of $1,250,000 or
$2,500,000.
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"), (200,000)(400,000)[FN1] [FN1: Based on whether
the accompanying Standby Note is issued in the amount of
$1,250,000 or $2,500,000.] shares of Common Stock (as hereinafter
defined and subject to adjustment as provided herein), in whole
or in part, at a purchase price of $1.25 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 14, 1997.
"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.
"Current Warrant Price" shall mean, in respect of a
share of Common Stock at any date herein specified, the price at
which a share of Common Stock may be purchased pursuant to this
Warrant on such date.
"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 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 92821-3903 (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 Current 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 Current
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 Current Warrant Price shall be made at
the option of Holder by payment in cash, by certified or official
bank check, or by the surrender of shares of Common Stock having
a value equal to the aggregate warrant price of the shares of
Common Stock being purchased upon exercise of the Warrant, by
delivering to the Company certificates representing the number of
shares of Common Stock to be surrendered, duly endorsed by or
accompanied by appropriate instruments of transfer duly executed
by Holder. For the purposes of making payment of the Current
Warrant Price, the value of the Common Stock surrendered shall be
determined based upon the Current Market Price as of the date of
surrender of such shares of Common Stock. If Holder surrenders
shares of Common Stock in payment of the Current Warrant Price
and less than all of the shares of Common Stock represented by
any certificate are being surrendered, the Company shall deliver
to Holder a new certificate or certificates representing the
shares of Common Stock not applied to payment of the Current
Warrant Price; provided, however, that in lieu of any fractional
share of Common Stock which such Holder would otherwise be
entitled to receive, the Company shall pay to Holder an amount of
cash equal to such fraction multiplied by the Current Market
Price as of the date of surrender of the shares of Common Stock.
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
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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 (i) 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, and (ii) the Current
Warrant Price per share shall be adjusted to equal (A) the
Current Warrant Price multiplied by the number of shares of
Common Stock for which this Warrant is exercisable immediately
prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such
adjustment.
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 (i) 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 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, and (ii)
the Current Warrant Price shall be adjusted to equal (A) the
Current Warrant Price multiplied by the number of shares of
Common Stock for which this Warrant is exercisable immediately
prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such
adjustment. 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, in exchange for consideration in
an amount per Additional Share of Common Stock less than the
Current Warrant Price at the time the Additional Shares of Common
Stock are issued, then (i) the Current Warrant Price as to the
number of shares for which this Warrant is exercisable prior to
such adjustment shall be reduced to a price determined by
dividing (A) an amount equal to the sum of (x) the number of
shares of Common Stock Outstanding immediately prior to such
issue or sale multiplied by the then existing Current Warrant
Price, plus (y) the consideration, if any, received by the
Company upon such issue or sale, by (B) the total number of
shares of Common Stock Outstanding immediately after such issue
or sale; and (ii) the number of shares of Common Stock for which
this Warrant is exercisable shall be adjusted to equal the
product obtained by multiplying the Current Warrant Price in
effect immediately prior to such issue or sale by the number of
shares of Common Stock for which this Warrant is exercisable
immediately prior to such issue or sale and dividing the product
thereof by the Current Warrant Price resulting from the
adjustment made pursuant to clause (i) above.
(b) 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 (i) 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; and (ii) the Current Warrant Price as to
the number of shares for which this Warrant is exercisable prior
to such adjustment shall be adjusted by multiplying such Current
Warrant Price by a fraction (X) the numerator of which shall be
the number of shares for which this Warrant is exercisable
immediately prior to such issue or sale; and (Y) the denominator
of which shall be the number of shares of Common Stock
purchasable immediately after such issue or sale.
(c) If at any time the Company (except as hereinafter
provided) shall issue or sell any Additional Shares of Common
Stock, other than Permitted Issuances, in exchange for
consideration in an amount per Additional Shares of Common Stock
which is less than the Current Warrant Price and the Current
Market Price at the time the Additional Shares of Common Stock
are issued, the adjustment required under Section 4.3 shall be
made in accordance with the formula in paragraph (a) or (b) above
which results in the lower Current Warrant Price following such
adjustment. The provisions of paragraphs (a) and (b) of 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) or (b) of 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 Warrant
Price or 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 and the Current Warrant Price
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 of the
Current Warrant Price 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 Warrant
Price or 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 and the Current Warrant Price 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 and the Current
Warrant Price 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 and the Current
Warrant Price 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 and
the Current Warrant Price 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 and the
Current Warrant Price 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 and the Current Warrant Price 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 and the Current
Warrant Price 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 and the Current Warrant
Price 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 made 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 then Current 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.
(f) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever
the Board of Directors of the Company shall be required to
make a determination in good faith of the fair value of any
item under this Section 4, such determination may be
challenged in good faith by the Majority Holders, and any
dispute shall be resolved by an investment banking firm of
recognized national standing selected by the Company and
acceptable to the Majority Holders.
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 Current
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 and/or the purchase price thereof shall be
adjusted in such manner as may be equitable in the circumstances.
4.10. CERTAIN LIMITATIONS. Notwithstanding anything
herein to the contrary, the Company agrees not to enter into any
transaction which, by reason of any adjustment hereunder, would
cause the Current Warrant Price to be less than the par value per
share of Common Stock.
5. NOTICES TO WARRANT HOLDERS
--------------------------
5.1. NOTICE OF ADJUSTMENTS. Whenever the number of
shares of Common Stock for which this Warrant is exercisable, or
whenever the price at which a share of such Common Stock may be
purchased upon exercise of the Warrants, 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 or 4.9)
describing the number and kind of any other shares of stock or
Other Property for which this Warrant is exercisable, and any
change in the purchase price or prices thereof, after giving
effect to such adjustment or change. 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 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."
"IN ADDITION TO THE RESTRICTIONS SET FORTH IN
THE SECURITIES PURCHASE AGREEMENT AND THE
SUPPLEMENTAL SECURITIES PURCHASE AGREEMENT BY AND
AMONG KRAUSE'S FURNITURE, INC., GENERAL ELECTRIC
CAPITAL CORPORATION AND JAPAN OMNIBUS LTD., [THIS
WARRANT IS] [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, COPIES OF WHICH ARE ON FILE IN
THE OFFICES OF THE CORPORATION."
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
Krause's Furniture, Inc.
200 North Berry Street
Brea, CA 92621-3903
Attention: Philip M. Hawley
Robert A. Burton
Judith O. Lasker
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:
---------------------
KRAUSE'S FURNITURE, INC.
By:
-----------------------------
Name: Robert A. Burton
Title: Senior Vice President
and Chief Financial
Officer
Attest:
By:
------------------------
Name: Judith O. Lasker
Title: Corporate Secretary
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......................................... 2
2. EXERCISE OF WARRANT................................. 4
2.1. Manner of Exercise........................... 4
2.2. Payment of Taxes............................. 5
2.3. Fractional Shares............................ 6
3. TRANSFER, DIVISION AND COMBINATION.................. 6
3.1. Transfer..................................... 6
3.2. Division and Combination..................... 6
3.3. Expenses..................................... 6
3.4. Maintenance of Books......................... 6
4. ADJUSTMENTS......................................... 7
4.1. Stock Dividends, Subdivisions and
Combinations................................ 7
4.2. Certain Other Distributions................. 7
4.3. Issuance of Additional Shares of Common
Stock ..................................... 8
4.4. Issuance of Warrants or Other Rights........ 9
4.5. Issuance of Convertible Securities.......... 10
4.6. Superseding Adjustment...................... 11
4.7. Other Provisions Applicable to
Adjustments under this Section.............. 12
4.8. Reorganization, Reclassification,
Merger, Consolidation or Disposition
of Assets................................... 14
4.9. Other Action Affecting Common Stock......... 15
4.10. Certain Limitations......................... 15
5. NOTICES TO WARRANT HOLDERS.......................... 15
5.1. Notice of Adjustment....................... 15
5.2. Notice of Corporate Action.................. 16
6. RIGHTS OF HOLDERS.................................... 17
6.1. No Impairment............................... 17
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK;
REGISTRATION WITH APPROVAL OF ANY GOVERNMENTAL
AUTHORITY.......................................... 17
8. TAKING OF RECORD: STOCK AND WARRANT
TRANSFER BOOKS..................................... 17
9. RESTRICTIONS ON TRANSFERABILITY.................... 18
9.1. Restrictive Legend.......................... 18
9.2. Notice of Proposed Transfers; Requests
for Registration............................ 19
9.3. Registration Rights......................... 19
9.4. Termination of Restrictions................. 19
10. SUPPLYING INFORMATION.............................. 19
11. LOSS OR MUTILATION................................. 20
12. LIMITATION OF LIABILITY............................ 20
13. MISCELLANEOUS...................................... 20
13.1. Nonwaiver and Expenses...................... 20
13.2. Notice Generally............................ 20
13.3. Remedies.................................... 21
13.4. Successors and Assigns...................... 21
13.5. Amendment................................... 21
13.6. Severability................................ 22
13.7. Headings.................................... 22
13.8. Governing Law............................... 22
SIGNATURES.............................................. 23
EXHIBITS................................................ 24
Exhibit A - Subscription Form........................... 24
Exhibit B - Assignment Form............................. 25
Exhibit C-2: Standby Warrant (GECC)
-----------------------------------
WARRANT
To Purchase Shares of Common Stock of
KRAUSE'S FURNITURE, INC.
No. of Shares of Common Stock: (200,000)(400,000)[FN1]
[FN1: Based on whether the accompanying Standby Note
is issued in the amount of $1,250,000 or
$2,500,000.]
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, 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.
IN ADDITION TO THE RESTRICTIONS SET FORTH IN THE SECURITIES
PURCHASE AGREEMENT AND THE SUPPLEMENTAL SECURITIES PURCHASE
AGREEMENT BY AND AMONG KRAUSE'S FURNITURE, INC., GENERAL ELECTRIC
CAPITAL CORPORATION AND JAPAN OMNIBUS LTD., THIS WARRANT IS
SUBJECT TO THE RESTRICTIONS SET FORTH IN THE STOCKHOLDERS
AGREEMENT BY AND AMONG KRAUSE'S FURNITURE, INC. AND THE
STOCKHOLDERS PARTIES THERETO, COPIES OF SUCH AGREEMENTS ARE ON
FILE IN THE OFFICES OF THE CORPORATION.
No. of Shares of Common Stock: As determined and allocated in
accordance with Section 2.4.
WARRANT
To Purchase Shares of Common Stock of
KRAUSE'S FURNITURE, INC.
THIS IS TO CERTIFY THAT GENERAL ELECTRIC CAPITAL CORPORATION
("GECC") and JAPAN OMNIBUS LTD. ("JOL"), or their respective
registered assigns, are entitled, at any time prior to the
Expiration Date (as hereinafter defined), to purchase from
KRAUSE'S FURNITURE, INC., a Delaware corporation (the "Company"),
a number of shares of Common Stock (as hereinafter defined) as
determined and allocated in accordance with Section 2.4 and
subject to adjustment as provided herein, in whole or in part, at
a purchase price of $0.01 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 14, 1997.
"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.
"EBITDA" means, for a given year, the consolidated net
income of the Company for such year, plus interest expense (net
of interest income), plus income tax expense, plus depreciation
and amortization expense, each of the above computed in
accordance with generally accepted accounting principles applied
on a consistent basis.
"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 Persons 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 $0.01 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 April 1, 2000 and until 5:00 P.M., New York
time, on the Expiration Date, each Holder may exercise this
Warrant, on any Business Day, for all or any part of the number
of shares of Common Stock purchasable by such Holder hereunder.
In order to exercise this Warrant, in whole or in part,
a Holder shall deliver to the Company at its principal office at
200 North Berry Street, Brea, CA 92821-3903 (i) a written notice
of such 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 such
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 such 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 the exercising
Holder shall request in the notice and shall be registered in the
name of such 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 the exercising 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 the exercising Holder a new Warrant
evidencing the right of such Holder to purchase the unpurchased
shares of Common Stock called for by this Warrant and allocated
to such Holder, which new Warrant shall in all other respects be
identical with this Warrant, or, at the request of the exercising
Holder, appropriate notation may be made on this Warrant and the
same returned to the exercising 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 a
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.
2.4. DETERMINATION OF NUMBER OF SHARES; ALLOCATION OF
SHARES (a) Subject to Section 4, the number of shares of Common
Stock for which this Warrant is exercisable shall be determined
based upon EBITDA of the Company for the fiscal year ended
January 30, 2000 ("FYE 1999 EBITDA"), as follows:
FYE 1999 EBITDA Number of Shares
--------------- ----------------
$15,000,000 or greater 0
$14,000,000 - $14,999,999 200,000
$13,000,000 - $13,999,999 400,000
$12,000,000 - $12,999,999 600,000
$11,000,000 - $11,999,999 800,000
$10,999,999 or less 1,000,000
(b) The Shares which may be purchased upon exercise of
this Warrant shall be allocated between GECC and JOL in
proportion to the aggregate amount of 1997 Notes and Standby
Notes purchased by each of them pursuant to the Supplemental
Securities Purchase Agreement dated as of August 14, 1997
among the Company, GECC and JOL.
3. TRANSFER, DIVISION AND COMBINATION
----------------------------------
3.1. TRANSFER. Subject to compliance with Section 9,
transfer of this Warrant and all rights of a Holder 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
the transferring 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 all rights of the
transferring Holder under 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 the surrendering 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. This Warrant shall be divided
into separate Warrants in the names of GECC and JOL upon
determination and allocation of the shares of Common Stock
covered hereby pursuant to Section 2.4.
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
each 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 each Holder at the last
address of such 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 each 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 any Holder, the Company will at any
time during the period this Warrant is outstanding acknowledge in
writing, in form reasonably satisfactory to such 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. Each 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 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."
"IN ADDITION TO THE RESTRICTIONS SET FORTH IN
THE SECURITIES PURCHASE AGREEMENT AND THE
SUPPLEMENTAL SECURITIES PURCHASE AGREEMENT BY AND
AMONG KRAUSE'S FURNITURE, INC., GENERAL ELECTRIC
CAPITAL CORPORATION AND JAPAN OMNIBUS LTD., [THIS
WARRANT IS] [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, COPIES OF WHICH ARE ON FILE IN
THE OFFICES OF THE CORPORATION."
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 GECC or JOL 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 a Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of any 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 a Holder shall operate as a waiver of such right or otherwise
prejudice such 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 each 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 such 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
Krause's Furniture, Inc.
200 North Berry Street
Brea, CA 92821-3903
Attention: Philip M. Hawley
Robert A. Burton
Judith O. Lasker
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 this 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 each
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;
provided, further, that so long as the interests of GECC and JOL
are represented by a single Warrant, no modification, amendment
or waiver of any provision of such Warrant will be made without
the written consent of each of GECC and JOL.
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 ---, 1997
KRAUSE'S FURNITURE, INC.
By:
--------------------------------
Name: Robert A. Burton
Title: Senior Vice President
and Chief Financial
Officer
Attest:
By:
----------------------------
Name: Judith O. Lasker
Title: Corporate Secretary
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
2.4. Determination of Number of Shares;
Allocation of Shares.............................. 5
3. TRANSFER, DIVISION AND COMBINATION....................... 6
3.1. Transfer.......................................... 6
3.2. Division and Combination.......................... 6
3.3. Expenses.......................................... 7
3.4. Maintenance of Books.............................. 7
4. ADJUSTMENTS.............................................. 7
4.1. Stock Dividends, Subdivisions and
Combinations...................................... 7
4.2. Certain Other
Distributions..................................... 7
4.3. Issuance of Additional Shares of Common Stock..... 8
4.4. Issuance of Warrants or Other Rights.............. 9
4.5. Issuance of Convertible Securities................ 10
4.6. Superseding Adjustment............................ 10
4.7. Other Provisions Applicable to
Adjustments under this Section.................... 11
4.8. Reorganization, Reclassification, Merger,
Consolidation or Disposition of Assets............ 13
4.9. Other Action Affecting Common Stock............... 14
5. NOTICES TO WARRANT HOLDERS............................... 14
5.1. Notice of Adjustment.............................. 14
5.2. Notice of Corporate Action........................ 15
6. RIGHTS OF HOLDERS........................................ 16
6.1. No Impairment..................................... 16
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK;
REGISTRATION WITH APPROVAL OF ANY GOVERNMENTAL
AUTHORITY................................................ 16
8. TAKING OF RECORD: STOCK AND WARRANT TRANSFER BOOKS....... 17
9. RESTRICTIONS ON TRANSFERABILITY.......................... 17
9.1. Restrictive Legend................................ 17
9.2. Notice of Proposed Transfers; Requests
for Registration.................................. 18
9.3. Registration Rights............................... 19
9.4. Termination of Restrictions....................... 19
10. SUPPLYING INFORMATION.................................... 19
11. LOSS OR MUTILATION....................................... 19
12. LIMITATION OF LIABILITY.................................. 19
13. MISCELLANEOUS............................................ 19
13.1. Nonwaiver and Expenses............................ 20
13.2. Notice Generally.................................. 20
13.3. Remedies.......................................... 21
13.4. Successors and Assigns............................ 21
13.5. Amendment......................................... 21
13.6. Severability...................................... 21
13.7. Headings.......................................... 21
13.8. Governing Law..................................... 21
SIGNATURES.................................................... 23
EXHIBITS...................................................... 24
Exhibit A - Subscription Form................................. 24
Exhibit B - Assignment Form................................... 25
Exhibit C-3: Performance Warrant
---------------------------------
WARRANT
To Purchase Shares of Common Stock of
KRAUSE'S FURNITURE, INC.
No. of Shares of Common Stock: As determined
and allocated in accordance with Section 2.4 herein.
GENERAL ELECTRIC CAPITAL CORPORATION
260 Long Ridge Road
Stamford, CT 06927
August 14, 1997
The Parties listed on Schedule A attached hereto (the
"Permal Group")
c/o Thomas DeLitto
Permal Capital Management, Inc.
900 Third Avenue
New York, NY 10022
Ladies and Gentlemen:
Reference is hereby made to the Stockholders Agreement
dated as of August 26, 1996, by and among Krause's
Furniture, Inc. (the "Company") and each of the stockholders
of the Company listed on the signature pages thereof (the
"Stockholders Agreement"), and the Registration Rights
Agreement dated as of August 26, 1996, by and among the
Company and each of the stockholders of the Company listed
on the signature pages thereof (the "Registration Rights
Agreement").
By executing this letter agreement (this "Agreement"),
each of the undersigned signatories to the Stockholders
Agreement and the Registration Rights Agreement agree that,
notwithstanding any provision of the Stockholders Agreement
and the Registration Rights Agreement, (i) Japan Omnibus
Ltd. (formerly known as Edson Investments, Inc., "JOL")
shall be permitted to offer for sale or sell a maximum of
2,000,000 shares in the aggregate and a minimum of 1,000,000
shares of the Company's Common Stock, par value $.001 per
share ("Common Stock") and (ii) members of the Permal Group
shall be permitted to offer for sale or sell a maximum
amount of shares of Common Stock in the aggregate (with such
shares being allocated among the members of the Permal Group
as JOL may determine) equal to (x) 2,000,000 minus (y) the
amount of shares of Common Stock that JOL elects to offer
for sale or sell under this paragraph, at any time after the
date of this Agreement, pursuant to a registration statement
of the Company under the Securities Act of 1933. This
letter shall be construed as a consent of GECC under Section
2.8(a) of the Registration Rights Agreement with respect to
the matters described in this paragraph.
Very truly yours,
GENERAL ELECTRIC CAPITAL
CORPORATION
By:
---------------------------
Name:
Title:
Please confirm your agreement with the foregoing by signing
below:
KRAUSE'S FURNITURE, INC.
By:
--------------------
Name:
Title:
JAPAN OMNIBUS LTD.
(formerly known as EDSON INVESTMENTS, INC.)
By:
--------------------
Name:
Title:
SCHEDULE A: THE PERMAL GROUP
-----------------------------
Permal Capital Management, Inc.
Permal Services, Inc.
Permal Capital Partners, L.P.
Permal Asset Management
Permal Special Opportunities, Ltd.
Japan Omnibus Ltd. (formerly known as
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.
