UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D/A-2
UNDER THE SECURITIES EXCHANGE ACT OF 1934
KRAUSE'S FURNITURE, INC.
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(Name of Issuer)
Common Stock, $.001 par value
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(Title Class of Securities)
000500760202
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(CUSIP Number)
Nancy E. Barton, Esq.
General Electric Capital Corporation
260 Long Ridge Road
Stamford, Connecticut 06927
(203) 357-4000
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications)
December 31, 1997
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(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 |_|.
SCHEDULE 13D
CUSIP No. 0005007601
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1 NAME OF REPORTING PERSON
General Electric Capital Corporation
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
(I.R.S. #13-1500700)
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [x]
(b) [ ]
SEE ITMES 4 AND 5 OF THE SCHEDULE 13D FOR A DESCRIPTION OF
CERTAIN AGREEMENTS RELATING TO SHARES OF COMMON STOCK OF KRAUSE'S
FURNITURE, INC.
3 SEC USE ONLY
4 SOURCE OF FUNDS
Not Applicable
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York
NUMBER OF 7 SOLE VOTING POWER
SHARES 7,400,000
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY EACH 7,276,225
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH 7,400,000
10 SHARED DISPOSITIVE POWER
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
14,676,225 (includes 7,276,225 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)
68.5%
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 OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER OF 7 SOLE VOTING POWER
SHARES Disclaimed. See 11 below.
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY EACH 0
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH Disclaimed. See 11 below.
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 OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York
NUMBER OF 7 SOLE VOTING POWER
SHARES Disclaimed. See 11 below.
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY EACH 0
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH Disclaimed. See 11 below.
10 SHARED DISPOSITIVE 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. 2 ("13D Amendment No.2") 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, as amended on August 15, 1997 (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. 2 relates to the following transactions completed on
December 31, 1997, in accordance with 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.: (i) the purchase by GECC of a 9.5% subordinated note
due August 31, 2002 in the principal amount of $2,500,000 (the "Standby Note")
and (ii) the issuance by the Company to GECC of a warrant 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 Warrant").
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 Standby Warrant will be obtained by GECC from
working capital or, pursuant to the terms of the Standby Warrant, 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 Standby Warrant in connection with the purchase of the
Standby Note as an investment and in the ordinary course of business.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
Item 5(a-b) is hereby amended to read as follows:
(a) GECC has sole voting and dispositive power with respect to 7,400,000
shares of Common Stock (including 400,000 shares issuable upon exercise of the
Standby Warrant, 600,000 shares issuable upon exercise of the 1997 Warrant,
and 1,400,000 shares issuable upon exercise of the Warrant), representing
approximately 34.5% of the outstanding shares of Common Stock (assuming the
exercise of the Warrant, the 1997 Warrant, and the Standby 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
7,276,225 shares of Common Stock, representing approximately 34% of the
outstanding shares of Common Stock (assuming the exercise of the Warrant, the
1997 Warrant and the Standby Warrant).
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
15,676,225 shares of Common Stock beneficially owned by GECC, Permal Group and
the Hawleys in the aggregate (which includes the 7,400,000 shares of Common
Stock beneficially owned by GECC, an aggregate of 7,276,225 shares of Common
Stock beneficially owned by members of Permal Group and 1,000,000 shares of
the Common Stock beneficially owned by the Hawleys) would represent
approximately 73.2% of the shares of Common Stock (assuming the exercise of
the Warrant, the 1997 Warrant and the Standby Warrant). GECC understands that
the members of Permal Group have made and will make 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.2 relating to beneficial ownership of
shares of Common Stock are incorporated herein by reference.
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 Standby Warrant and the Standby Note copies of
which are attached hereto as Exhibits 1 - 2 and are incorporated herein by
reference.
In December 1997, GECC entered into a Succession Agreement a copy of which
is attached hereto as Exhibit 3 and is incorporated herein by reference.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.(FN*)
Exhibit 1: Standby Warrant dated as of December 30, 1997 issued
by the Company to GECC.
Exhibit 2: Standby Note dated as of December 30, 1997 purchased
by GECC from the Company.
Exhibit 3: Succession Agreement between GECC, the Company,
Philip M. Hawley, John F. Hawley, Dr. Philip M. Hawley, Jr.,
Permal Capital Management, Inc. and each of the other
shareholders of the Company listed on the signature pages
thereof.
[FN]
* A copy of the Joint Filing Agreement among the Reporting Persons was
previously filed as an exhibit to the Schedule 13D.
</FN>
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
January 12, 1998 By: /s/ Michael E. Pralle
-------------------------------
Name: Michael E. Pralle
Title: Vice President
Exhibit 1
WARRANT
To Purchase Shares of Common Stock of
KRAUSE'S FURNITURE, INC.
No. of Shares of Common Stock: 400,000
TABLE OF CONTENTS
Section Page
1. DEFINITIONS.......................................................1
2. EXERCISE OF WARRANT...............................................4
2.1. Manner of Exercise..............................................4
2.2. Payment of Taxes..........................................5
2.3. Fractional Shares.........................................5
3. TRANSFER, DIVISION AND COMBINATION................................5
3.1. Transfer..................................................6
3.2. Division and Combination..................................6
3.3. Expenses..................................................6
3.4. Maintenance of Books......................................6
4. ADJUSTMENTS.......................................................6
4.1. Stock Dividends, Subdivisions and Combinations............6
4.2. Certain Other Distributions...............................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....................................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................................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.........................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...18
9.3. Registration Rights.......................................18
9.4. Termination of Restrictions...............................18
10. SUPPLYING INFORMATION............................................19
11. LOSS OR MUTILATION...............................................19
12. LIMITATION OF LIABILITY..........................................20
13. MISCELLANEOUS....................................................20
13.1. Nonwaiver and Expenses...................................20
13.2. Notice Generally.........................................21
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
Exhibit A - Subscription Form
Exhibit B - Assignment Form
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: 400,000
WARRANT
To Purchase Shares of Common Stock of
KRAUSE'S FURNITURE, INC.
THIS IS TO CERTIFY THAT GENERAL ELECTRIC CAPITAL CORPORATION, or
registered assigns, is entitled, at any time prior to the Expiration Date (as
hereinafter defined), to purchase from KRAUSE'S FURNITURE, INC., a Delaware
corporation (the "Company"), 400,000 shares of Common Stock (as hereinafter
defined and subject to adjustment as provided herein), in whole or in part,
at a purchase price of $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 December 30, 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
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.
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: December 30, 1997
KRAUSE'S FURNITURE, INC.
By: /s/ Robert A. Burton
--------------------
Name: Robert A. Burton
Title: Senior Vice President
and Chief Financial Officer
Attest:
By: /s/ Judith O. Lasker
--------------------
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.
Exhibit 2
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.
THIS NOTE IS SUBJECT 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., COPIES OF WHICH ARE ON FILE IN THE OFFICES OF THE CORPORATION.
KRAUSE'S FURNITURE, INC.
9.50% Subordinated Note
due August 31, 2002
New York, NY
$2,500,000.00 December 30, 1997
KRAUSE'S FURNITURE, INC. (the "Company"), a Delaware corporation,
for value received, hereby promises to pay to GENERAL ELECTRIC CAPITAL
CORPORATION ("GECC"), or registered assigns, the sum of TWO MILLION FIVE
HUNDRED THOUSAND DOLLARS ($2,500,000.00), payable in six equal installments
of principal of $416,666.67, commencing on February 28, 2000, and on each
August 31 and February 28 thereafter until August 31, 2002, with interest
(computed on the basis of a 360-day year of twelve 30-day months) on the
unpaid balance of such principal amount at the rate of 9.50% per annum from
the date hereof, 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 the first such Payment Date after the issuance of this Note
and (ii) on the date of any prepayment, on the amount prepaid, until the
Notes have been paid in full. Accrued interest on each Note is required to
be paid in cash (in accordance with Section 5.1 of the Supplemental
Securities Purchase Agreement dated as of August 14, 1997, as from time to
time amended, among the Company, GECC and Japan Omnibus Ltd. (the
"Supplemental Securities Purchase Agreement")) on each Payment Date.
Interest on this Note shall cease to accrue if (i) the holder of
this Note has been notified by the Company under Section 9.5 of the
Supplemental Securities Purchase Agreement that this Note will be redeemed,
and (ii) all amounts due under this Note are paid to the holder of this Note
on the redemption date specified in such notice or such amounts are
segregated and held in trust by the Company for payment upon surrender of
this Note in accordance with such notice. During the continuance of any
Event of Default (as defined in the Supplemental Securities Purchase
Agreement), the Company shall pay interest on the outstanding principal of,
and any other amounts (other than interest), if any, due on the Notes and (to
the extent legally enforceable) on any overdue installment of interest, at
the rate of 12.00% per annum (computed on the same basis as above) until such
overdue amount is paid or until such Event of Default is cured or waived.
All payments on this Note shall be made in lawful money of the United States
of America at the address specified by the holder hereof for such purpose in
Schedule 5.1 to the Supplemental Securities Purchase Agreement or by such
method as may be designated by notice to the Company, in the manner set forth
in the Supplemental Securities Purchase Agreement.
The outstanding principal amount of this Note shall be payable in
six equal installments of principal of $416,666.67, commencing on February
28, 2000, and on each August 31 and February 28 thereafter until August 31,
2002. This Note is also subject to optional redemption, in whole or in part,
all as specified in the Supplemental Securities Purchase Agreement.
This Note is issued pursuant to the Supplemental Securities
Purchase Agreement. The registered holder of this Note is entitled to the
benefits of such Supplemental Securities Purchase Agreement and may enforce
the agreements of the Company contained therein and exercise the remedies
provided for thereby or otherwise available in respect thereof.
This Note is expressly subordinated to the extent and in the
manner provided in Section 10 of the Supplemental Securities Purchase
Agreement to all Senior Indebtedness (as defined therein) of the Company.
This Note is a registered Note and, as provided in the
Supplemental Securities Purchase Agreement, is transferable only upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the
registered holder hereof or his attorney duly authorized in writing. The
Company may treat the person in whose name this Note is registered as the
owner hereof for the purpose of receiving payment and for all other purposes,
and the Company shall not be affected by any notice to the contrary.
In case an Event of Default shall occur and be continuing, the
unpaid balance of the principal, interest and any other amounts payable on
this Note may be declared and become due and payable in the manner and with
the effect provided in the Supplemental Securities Purchase Agreement.
THIS NOTE 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 NOTE 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 NOTE 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 NOTE 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 NOTE OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
KRAUSE'S FURNITURE, INC.
By: /s/ Robert A. Burton
-----------------------------
Name: Robert A. Burton
Title: Senior Vice President
and Chief Financial Officer
EXHIBIT 3
---------
SUCCESSION AGREEMENT
THIS SUCCESSION AGREEMENT (this "Agreement") is made as of 11/27,
1997, by and between KRAUSE'S FURNITURE, INC., a Delaware corporation (the
"Corporation"), and PHILIP M. HAWLEY ("Hawley"), JOHN F. HAWLEY ("John
Hawley"), as Trustee of the Trusts named on the signature page hereof (the
"Hawley Trusts"), DR. PHILIP M. HAWLEY, JR., GENERAL ELECTRIC CAPITAL
CORPORATION ("GECC") and PERMAL CAPITAL MANAGEMENT, INC. ("Permal"), and each
of the other stockholders of the Corporation whose name is set forth on the
signature page(s) hereof (all of such parties other than the Corporation,
collectively, the "Stockholders"), with reference to the following facts:
A. The Stockholders and the Corporation, among others, are parties
to that certain Stockholders Agreement dated August 26, 1996 by and among the
Corporation and certain of its stockholders (the "Stockholders Agreement"),
which sets forth certain rights and obligations of certain stockholders of the
Corporation, including the designation of Philip M. Hawley ("Hawley") as a
director and Chairman of the Board of Directors of the Corporation (the
"Board") for so long as he serves as Chief Executive Officer of the
Corporation and certain rights of first refusal among the parties thereto.
B. Hawley has requested that the other parties hereto agree to a
designated successor that will represent the interests of the Hawley Group on
the Board if Hawley no longer serves as a director of the Corporation and, in
reliance on the agreement thereto by certain of the parties hereto, the
persons composing the Hawley Group entered into the Stockholders Agreement.
C. The Stockholders own a majority of the issued and outstanding
shares of the Common Stock of the Corporation (the "Shares") and deem it to be
in their best interests and in the best interest of the Corporation to provide
for the designation of a successor to Hawley in his capacity as a member of
the Board of the Corporation (but not as Chairman of the Board).
D. The members of the Hawley Group and GECC have determined that it
is in their best interests to enter into an agreement with respect to any
purchase of any Common Stock offered by members of the Permal Group.
NOW, THEREFORE, IN CONSIDERATION OF the foregoing facts and the
mutual interests of the parties hereto in the success of the Company, and in
reliance hereon, the parties agree as follows:
1. Definitions. Any capitalized term used in this Agreement without
definition shall have the meaning ascribed to that term in the Stockholders
Agreement.
2. Voting. If Hawley ceases to serve as a member of the Board, each
Stockholder shall vote such Stockholder's shares of the Corporation and shall
take all actions necessary and within its power to insure that John Hawley is
elected to fill the vacancy created by Hawley's absence as soon as practicable
after Hawley has ceased to serve, and to vote such Stockholder's shares and
take all actions necessary to insure that John Hawley continues to serve as a
member of the Board thereafter. If John Hawley is unavailable to serve as
director or ceases to serve as director, then each Stockholder shall vote such
Stockholder's shares of the Corporation and shall take all actions necessary
to insure that the individual nominated by John Hawley's successor as Trustee
of the Hawley Trusts and having qualifications similar to those of John Hawley
or any other director of the Corporation serves as director under the same
terms that would have applied to John Hawley hereunder.
3. No Change in Directors. The parties shall take all appropriate
measures to cause the number of directors of the Corporation to remain at a
level that will permit the continued service of Hawley or a successor as
designated herein as a member of the Board of Directors of the Corporation.
4. Permal Shares. GECC and each of the members of the Hawley Group,
each in favor of the others, covenants that if any of them (for purposes of
this Section, an "Offeree") has the opportunity to purchase any Common Stock
owned by any member of the Permal Group, whether by offer to the Offeree from
a member of the Permal Group or due to a solicitation by the Offeree, or
otherwise, the Offeree shall promptly notify the parties subject of this
Section of the opportunity and shall allow them the right to participate in
such purchase and acquire Common Stock sold by any member of the Permal Group.
The number of Shares that may be purchased by each of them, respectively,
shall be (i) as between GECC and all of the members of the Hawley Group
together, in proportion with the number of shares of Common Stock owned by
GECC or the Hawley Group, respectively, as a percentage of the aggregate
Common Stock then owned by GECC and all Hawley Group together, and (ii) as
among the members of the Hawley Group, in proportion with the number of shares
of Common Stock owned by such member as a percentage of the Common Stock then
owned by all Hawley Group members electing to purchase Common Stock hereunder.
The rights in this Section are in addition to and subordinate to the
provisions of the Stockholders Agreement, which are not amended or altered
hereby. Any failure to exercise the rights in this Section within 15 days of
receipt of notice shall be deemed a waiver of such rights.
5. Duration. The obligations of the Stockholders under this
Agreement shall continue so long as (a) the Hawley Group owns an aggregate of
at least (i) 1,000,000 shares of the Common Stock.
6. Counterparts. This agreement may be executed in two or more
counterparts and by different parties hereto in separate counterparts, with
the same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Succession
Agreement as of the date first above written.
KRAUSE'S FURNITURE, INC.
a Delaware corporation
By:/s/ Philip M. Hawley
--------------------------------------
Philip M. Hawley, President
Stockholders:
Dated 11/27/97, 1997 /s/ Philip M. Hawley
-----------------------------------------
PHILIP M. HAWLEY
Dated Nov. 27, 1997 /s/ Dr. Philip M. Hawley, Jr.
-----------------------------
DR. PHILIP M. HAWLEY, JR.
Dated Nov. 27, 1997 /s/ John F. Hawley
-----------------------------------------
JOHN F. HAWLEY, as Trustee of
the following Trusts
ALLISON BOOTH HAWLEY TRUST I
CAITLIN HALE HAWLEY TRUST I
MAUREEN ERIN HAWLEY TRUST I
SHANNON FOLLEN HAWLEY TRUST I
HAWLEY FAMILY TRUST
GENERAL ELECTRIC CAPITAL
CORPORATION
Dated 12/3, 1997 By:/s/ George Hashbarger Jr.
--------------------------------------
Name: George Hashbarger Jr.
Title: DEPT OPERATIONS MANAGER
PERMAL CAPITAL MANAGEMENT, INC.
Dated 12-3, 1997 By:/s/ Thomas M. DeLitto
--------------------------------------
Thomas M. DeLitto, President
PERMAL CAPITAL PARTNERS, LP
By: PERMAL MANAGEMENT CORPORATION
Its: Investment Manager
Dated 12-3, 1997 By:/s/ Thomas M. DeLitto
----------------------------------
Thomas M. DeLitto, President
JAPAN OMNIBUS LIMITED
(formerly known as Edson Investments, Inc.)
Dated ___________, 1997 By: /s/ James R. Hodge
--------------------------------------
Name: James R. Hodge
Title: Portfolio Manager
Dated ___________, 1997 /s/ Jean R. Perrette
-----------------------------------------
JEAN R. PERRETTE
Dated ___________, 1997 /s/ Isaac Robert Souede
-----------------------------------------
ISAAC ROBERT SOUEDE
Dated 12-3-, 1997 /s/ Thomas M. DeLitto
-----------------------------------------
THOMAS M. DELITTO
ATCO HOLDINGS, LTD.
Dated 12/23/, 1997 By:/s/ Kamal Abdelnour
--------------------------------------
Kamal Abdelnour, Authorized Agent
ATCO DEVELOPMENT, INC.
Dated 12/23/, 1997 By:/s/ Kamal Abdelnour
--------------------------------------
Kamal Abdelnour, President/CEO
