UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
(AMENDMENT NO. 3* )
UNDER THE SECURITIES EXCHANGE ACT OF 1934
Krause's Furniture, Inc.
- ---------------------------------------------------------------------------
(Name of Issuer)
Common Stock, $.001 par value
- ---------------------------------------------------------------------------
(Title of 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)
January 14, 2000
------------------------------------
(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 [ ].
* Represents the first filing on Schedule 13D with respect to the
Issuer's securities by GE Capital Equity Investments, Inc.
<PAGE>
SCHEDULE 13D
CUSIP No. 000500760202
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
General Electric Capital Corporation
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [X]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
WC
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, U.S.A.
NUMBER OF 7 SOLE VOTING POWER
SHARES 7,400,000
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY EACH 909,091
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH 7,400,000
10 SHARED DISPOSITIVE POWER
909,091
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
8,309,091 (includes 909,091 shares as to which General Electric
Capital Corporation has shared voting and 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)
32.8%
14 TYPE OF REPORTING PERSON
CO
<PAGE>
SCHEDULE 13D
CUSIP No. 000500760202
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
GE Capital Equity Investments, Inc.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
WC
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, U.S.A.
NUMBER OF 7 SOLE VOTING POWER
SHARES 0
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY EACH 909,091
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH 0
10 SHARED DISPOSITIVE POWER
909,091
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
909,091
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
3.6%
14 TYPE OF REPORTING PERSON
CO
<PAGE>
SCHEDULE 13D
CUSIP No. 000500760202
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
General Electric Capital Services, Inc.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [X]
(b) [ ]
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, U.S.A.
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
<PAGE>
CUSIP No. 000500760202
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
General Electric Company
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [X]
(b) [ ]
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, U.S.A.
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
<PAGE>
This Schedule 13D ("13D Amendment No. 3") 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 and on January
12, 1998 (the "Schedule 13D"), relating to the Common Stock, $.001 par
value per share (the "Common Stock") of Krause's Furniture, Inc. (the
"Company" or the "Issuer"). This 13D Amendment No. 3, together with the
Schedule 13D which it amends and supplements, represents the first filing
on Schedule 13D by GE Capital Equity Investments, Inc. ("GE Equity") with
respect to 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. 3 relates to the Securities Purchase Agreement,
dated as of January 11, 2000, by and among the Issuer, GE Equity and the
other purchasers party thereto (the "2000 Securities Purchase Agreement"),
a copy of which is attached hereto as Exhibit 2, the Amended and Restated
Stockholders Agreement, dated as of January 14, 2000, by and among the
Issuer, GE Equity, GECC and the other stockholders party thereto (the "2000
Stockholders Agreement"), a copy of which is attached hereto as Exhibit 3,
the Amended and Restated Registration Rights Agreement, dated as of January
14, 2000, by and among the Issuer, GE Equity, GECC and the other
stockholders party thereto (the "2000 Registration Rights Agreement"), a
copy of which is attached hereto as Exhibit 4, the Certificate of
Designation of Series A Convertible Preferred Stock of Krause's Furniture,
Inc., as signed and attested on January 12, 2000 (the "Series A Certificate
of Designation"), a copy of which is attached hereto as Exhibit 5, and the
Agreement, entered into as of January 11, 2000, by and among the Issuer,
GECC and Japan Omnibus Ltd. (the "Note Amendment Agreement") to amend the
Standby Note, 1997 Note and the Note, a copy of which is attached hereto as
Exhibit 6.
ITEM 2. Identity and Background
-----------------------
Item 2 (a), (b), (c) is hereby amended to add the following:
This 13D Amendment No. 3 is filed by GE Equity, GECC, GECS and GE and
they are sometimes referred to herein individually as a "Reporting Person"
and collectively as the "Reporting Persons."
GE Equity is a Delaware corporation and a wholly-owned subsidiary of
GECC. GE Equity is engage in the business of investment and maintains its
principal executive offices at 120 Long Ridge Road, Stamford, Connecticut
06927.
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 GE Equity, see
Schedule II attached hereto; (iii) each director and executive officer of
GECS, see Schedule III attached hereto; and (iv) each director and
executive officer of GE, see Schedule IV attached hereto.
This 13D Amendment No. 3 is being filed while the Reporting Persons
are in the process of verifying information required herein from their
respective directors and executive officers. If any Reporting Person
obtains information which would cause a change in the information contained
herein, an amendment will be filed setting forth such change in
information.
Item 2 (d), (e) is hereby amended in its entirety to read as follows:
Her Majesty's Inspectorate of Pollution v. IGE Medical Systems Limited
(St. Albans Magistrates Court, St. Albans, Hertsfordshire, England, Case
No. 04/00320181)
In April, 1994, GEMS' U.K. subsidiary, IGE Medical Systems Limited
(IGEMS) discovered the loss of a radioactive barium source at the Radlett,
England facility. The lost source, used to calibrate nuclear camera
detectors, emits a very low level of radiation. IGEMS immediately reported
the loss as required by the U.K. Radioactive Substances Act. An ensuing
investigation, conducted in cooperation with government authorities, failed
to locate the source. On July 21, 1994, Her Majesty's Inspectorate of
Pollution (HMIP) charged IGEMS with violating the Radioactive Substances
Act by failing to comply with a condition of registration. The Act provides
that a registrant like IGEMS, which "does not comply with a limitation or
condition subject to which (it) is so registered ... shall be guilty of (a
criminal) offense." Condition 7 of IGEMS' registration states that it
"shall so far as is reasonably practicable prevent ... loss of any
registered source."
At the beginning of trial on February 24, 1995, IGEMS entered a guilty
plea and agreed to pay of fine of (pound)5,000 and assessed costs of
(pound)5,754. The prosecutor's presentation focused primarily on the 1991
change in internal IGEMS procedures and, in particular, the source logging
procedure. The prosecutor complimented IGEMS' investigation and efforts to
locate the source and advised the court that IGEMS had no previous
violations of the Radioactive Substances Act. He also told the court that
the Radlett plant had been highlighted as an exemplary facility to HIMP
inspectors as part of their training. In mitigation, IGEMS emphasized the
significant infrastructure and expense undertaken by IGEMS to provide
security for radiation sources and the significant effort and expense
incurred in attempting to locate the missing source.
Except for the foregoing, during the last five years, neither any
Reporting Person nor, to the best knowledge of the applicable Reporting
Person, any person identified in Schedules I through IV has (i) been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to,
federal or state securities laws or finding any violation with respect to
such laws.
Item 2 (f) is hereby amended in its entirety to read as follows:
To the best knowledge of the applicable Reporting Person, all persons
identified in Schedules I through IV are United States citizens, except
that: P. Fresco is a citizen of Italy, C.X. Gonzalez is a citizen of Mexico
and Andrea Jung is a citizen of Canada.
ITEM 3. Source and Amount of Funds or Other Consideration
-------------------------------------------------
Item 3 is hereby amended to add the following:
On January 14, 2000, GE Equity purchased 20,000 shares (the "Preferred
Shares") of the Issuer's Series A Convertible Preferred Stock, par value
$.001 per share ("Series A Convertible Preferred Stock"), from the Issuer
for $1,000,000 pursuant to the 2000 Securities Purchase Agreement. The 2000
Securities Purchase Agreement, a copy of which is set forth in Exhibit 2,
is hereby incorporated by reference herein. The funds used to purchase the
Preferred Shares were obtained by GE Equity from working capital.
ITEM 4. Purpose of Transaction
----------------------
Item 4 (a-j) is hereby amended to add the following:
GE Equity acquired the Preferred Shares for the purpose of investment.
Except as previously set forth in the Schedule 13D, no Reporting
Person nor, to the best knowledge of the applicable Reporting Person, any
Person identified in Schedules I through IV, has any plans or proposals
which relate to or would result in the types of transactions set forth in
subparagraphs (a) through (j) of Item 4 of Schedule 13D.
ITEM 5. Interest in Securities of the Issuer
------------------------------------
Item 5 (a) is hereby amended to read as follows:
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 32.8% of the outstanding shares of Common Stock
(assuming the exercise of the Warrant, the 1997 Warrant, and the Standby
Warrant) based upon the Company's most recently filed Form 10-Q for the
quarter ended November 1, 1999. GE Equity and GECC have shared voting and
dispositive power with respect to 909,091 shares of Common Stock issuable
upon the conversion of the Preferred Shares, representing approximately
4.0% of the outstanding shares of Common Stock (assuming the exercise of
the Warrant, the 1997 Warrant, and the Standby Warrant) based upon the
Company's most recently filed Form 10-Q for the quarter ended November 1,
1999.
Pursuant to the 2000 Stockholders Agreement, certain provisions of the
prior Stockholders Agreement dated as of August 26, 1996 relating to the
voting of shares held by Permal Group and the Hawleys were eliminated. By
reason of these amendments, GECC and GE Equity believe that, to the extent
GECC previously may have been deemed to constitute a "group," as such term
is defined in Section 13(d)(3) of the Exchange Act, with Permal Group and
the Hawleys, such group has been terminated. Accordingly, GECC and GE
Equity disclaim beneficial ownership of all shares held by Permal Group and
the Hawleys.
Item 5 (b) is hereby amended to read as follows:
The responses of each Reporting Person to Items 7 through 11 of the
cover pages of this 13D Amendment No. 3 relating to beneficial ownership of
shares of Common Stock are incorporated herein by reference.
Item 5 (c) is hereby amended to read as follows:
Except as set forth above, no Reporting Person nor, to the best
knowledge of the applicable Reporting Person, any person identified in
Schedules I through IV, beneficially owns any shares of Common Stock or has
effected any transactions in shares of Common Stock during the preceding 60
days.
ITEM 6. Contracts, Arrangements, Understandings or Relationships with
Respect to Securities of the Issuer
-------------------------------------------------------------
Item 6 is hereby amended to add the following:
Reference is made to the 2000 Securities Purchase Agreement, the 2000
Stockholders Agreement, the 2000 Registration Rights Agreement and the Note
Amendment, copies of which are attached as Exhibits 2,3,4 and 6, which are
hereby incorporated by reference herein.
Except as set forth or incorporated by reference in this 13D Amendment
No. 3 or as previously reported in the Schedule 13D, no Reporting Person
nor, to the best knowledge of the applicable Reporting Person, any person
identified in Schedules I through IV, has any contracts, arrangements,
understandings or relationships beneficially owns any shares of Common
Stock or has effected any transactions in shares of Common Stock during the
preceding 60 days.
ITEM 7. Material to be Filed as Exhibits
--------------------------------
Exhibit 1: Joint Filing Agreement among the Reporting Persons
Exhibit 2: The 2000 Securities Purchase Agreement
Exhibit 3: The 2000 Stockholders Agreement
Exhibit 4: The 2000 Registration Rights Agreement
Exhibit 5: The Series A Certificate of Designation
Exhibit 6: The Note Amendment
Exhibit 7: Powers of Attorney
<PAGE>
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
By:/s/ Michael E. Pralle
---------------------------------
Name: Michael E. Pralle
Title: Vice President
GE CAPITAL EQUITY INVESTMENTS, INC.
By:/s/ Michael E. Pralle
---------------------------------
Name: Michael E. Pralle
Title: President/General Manager
GENERAL ELECTRIC CAPITAL SERVICES, INC.
By:/s/ Michael E. Pralle
---------------------------------
Name: Michael E. Pralle
Title: Attorney-in-fact*
GENERAL ELECTRIC COMPANY
By:/s/ Michael E. Pralle
---------------------------------
Name: Michael E. Pralle
Title: Attorney-in-fact*
Dated: January 24, 2000
* Pursuant to a Power of Attorney attached hereto as Exhibit 7.
<PAGE>
SCHEDULE I
GENERAL ELECTRIC CAPITAL CORPORATION DIRECTORS
PRESENT PRESENT
NAME BUSINESS ADDRESS PRINCIPAL OCCUPATION
- ---- ---------------- --------------------
Nigel D.T. Andrews General Electric Executive Vice President,
Capital Corporation General Electric Capital
260 Long Ridge Road Corporation
Stamford, CT 06927
Nancy E. Barton General Electric Senior Vice President,
Capital Corporation General Counsel and
260 Long Ridge Road Secretary, General Electric
Stamford, CT 06927 Capital Corporation
Stephen M. Bennett General Electric Executive Vice President,
Capital Corporation General Electric Capital
260 Long Ridge Road Corporation
Stamford, CT 06927
James R. Bunt General Electric Company Vice President
3135 Easton Turnpike and Treasurer
Fairfield, CT 06431 General Electric
Company
David L. Calhoun General Electric Capital Executive Vice President
Services, Inc. General Electric Capital
3135 Easton Turnpike Executive Officer, General
Fairfield, CT 06431 Services, Inc.
D.D. Dammerman General Electric Company Vice Chairman of the Board,
3135 Easton Turnpike Executive Officer, General
Fairfield, CT 06431 Electric Company; Chairman
and Chief Executive Officer,
General Electric Capital
Services, Inc.
B.W. Heineman, Jr. General Electric Company Senior Vice President -
3135 Easton Turnpike General Counsel and
Fairfield, CT 06431 Secretary, General Electric
Company
J.R. Immelt General Electric Company Senior Vice President -
P.O. Box 414 GE Medical Systems
Milwaukee, WI 53201
W.J. McNerney, Jr. General Electric Company Senior Vice President -
1 Neumann Way GE Aircraft Engines
Cincinnati, OH 05215
John H. Myers 303 Summer Street Chief Executive Officer,
Stamford, CT 06904 GE Investments, Inc.
R.L. Nardelli General Electric Company Senior Vice President -
1 River Road GE Power Systems
Schenectady, NY 12345
Denis J. Nayden General Electric President and Chief
Capital Corporation Executive Officer,
260 Long Ridge Road General Electric
Stamford, CT 06927 Capital Corporation
Michael A. Neal General Electric Executive Vice President,
Capital Corporation General Electric Capital
260 Long Ridge Road Corporation
Stamford, CT 06927
James A. Parke General Electric Executive Vice President
Capital Corporation and Chief Financial Officer,
260 Long Ridge Road General Electric
Stamford, CT 06927 Capital Corporation
G.M. Reiner General Electric Company Senior Vice President -
3135 Easton Turnpike Chief Information Officer,
Fairfield, CT 06431 General Electric Company
John M Samuels General Electric Company Vice President and
3135 Easton Turnpike Senior Counsel - Corporate
Fairfield, CT 06431 Tax, General Electric Company
K.S. Sherin General Electric Company Senior Vice President
3135 Easton Turnpike Finance and Chief Financial
Fairfield, CT 06431 Officer, General Electric
Company
Edward D. Stewart General Electric Executive Vice President,
Capital Corporation General Electric Capital
260 Long Ridge Road Corporation
Stamford, CT 06927
J.F. Welch, Jr. General Electric Company Chairman of the Board
3135 Easton Turnpike and Chief Executive
Fairfield, CT 06431 Officer, General Electric
Company
GENERAL ELECTRIC CAPITAL CORPORATION EXECUTIVE OFFICERS
PRESENT PRESENT
NAME BUSINESS ADDRESS PRINCIPAL OCCUPATION
- ---- ---------------- --------------------
Nigel D.T. Andrews General Electric Executive Vice President,
Capital Corporation General Electric Capital
260 Long Ridge Road Corporation
Stamford, CT 06927
Nancy E. Barton General Electric Senior Vice President,
Capital Corporation General Counsel and
260 Long Ridge Road Secretary, General Electric
Stamford, CT 06927 Capital Corporation
Stephen M. Bennett General Electric Executive Vice President,
Capital Corporation General Electric Capital
260 Long Ridge Road Corporation
Stamford, CT 06927
James A. Colica General Electric Senior Vice President,
Capital Corporation Global Risk Management,
260 Long Ridge Road General Electric
Stamford, CT 06927 Capital Corporation
Richard D'Avino General Electric Senior Vice President,
Capital Corporation Taxes, General Electric
260 Long Ridge Road Capital Corporation
Stamford, CT 06927
Michael D. Frazier General Electric Senior Vice President,
Capital Corporation Insurance/ Investment
260 Long Ridge Road Products, General Electric
Stamford, CT 06927 Capital Corporation
Robert L. Lewis General Electric Senior Vice President,
Capital Corporation Structured Finance Group,
260 Long Ridge Road General Electric
Stamford, CT 06927 Capital Corporation
Denis J. Nayden General Electric President and Chief
Capital Corporation Executive Officer,
260 Long Ridge Road General Electric
Stamford, CT 06927 Capital Corporation
Michael A. Neal General Electric Executive Vice President,
Capital Corporation General Electric Capital
260 Long Ridge Road Corporation
Stamford, CT 06927
James A. Parke General Electric Executive Vice President
Capital Corporation and Chief Financial Officer,
260 Long Ridge Road General Electric
Stamford, CT 06927 Capital Corporation
Marc J. Saperstein General Electric Senior Vice President,
Capital Corporation Human Resources,
260 Long Ridge Road General Electric
Stamford, CT 06927 Capital Corporation
Edward D. Stewart General Electric Executive Vice President,
Capital Corporation General Electric Capital
260 Long Ridge Road Corporation
Stamford, CT 06927
Jeffrey S. Werner General Electric Senior Vice President,
Capital Corporation Corporate Treasury and
260 Long Ridge Road Global Funding Operation,
Stamford, CT 06927 General Electric Capital
Corporation
<PAGE>
SCHEDULE II
GE CAPITAL EQUITY INVESTMENTS, INC. DIRECTOR
PRESENT PRESENT
NAME BUSINESS ADDRESS PRINCIPAL OCCUPATION
- ---- ---------------- --------------------
Michael E. Pralle GE Capital Equity President and Chairman of
Investments, Inc. the Board, GE Capital
120 Long Ridge Road Equity Investments, Inc.
Stamford, CT 06927
GE CAPITAL EQUITY INVESTMENTS, INC. OFFICERS
PRESENT PRESENT
NAME BUSINESS ADDRESS PRINCIPAL OCCUPATION
- ---- ---------------- --------------------
Michael E. Pralle GE Capital Equity President and Chairman of
Investments, Inc. the Board, GE Capital
120 Long Ridge Road Equity Investments, Inc.
Stamford, CT 06927
Jonathan K. Sprole GE Capital Equity Vice President, General
Investments, Inc. Counsel and Secretary,
120 Long Ridge Road GE Capital Equity
Stamford, CT 06927 Investments, Inc.
Iain MacKay GE Capital Equity Vice President-Finance
Investments, Inc. and Treasurer,
120 Long Ridge Road GE Capital Equity
Stamford, CT 06927 Investments, Inc.
Joseph Swezey GE Capital Equity Vice President-Controller,
Investments, Inc. GE Capital Equity
120 Long Ridge Road Investments, Inc.
Stamford, CT 06927
Barbara J. Gould GE Capital Equity Vice President, Associate
Investments, Inc. General Counsel and
120 Long Ridge Road Assistant Secretary, GE
Stamford, CT 06927 Capital Equity Investments, Inc.
Peter J. Muniz GE Capital Equity Vice President, Associate
Investments, Inc. General Counsel and
120 Long Ridge Road Assistant Secretary, GE
Stamford, CT 06927 Capital Equity Investments, Inc.
Bryant Cohen GE Capital Equity Vice President-Taxes,
Investments, Inc. GE Capital Equity
120 Long Ridge Road Investments, Inc.
Stamford, CT 06927
<PAGE>
SCHEDULE III
GENERAL ELECTRIC CAPITAL SERVICES, INC. DIRECTORS
PRESENT PRESENT
NAME BUSINESS ADDRESS PRINCIPAL OCCUPATION
- ---- ---------------- --------------------
Nigel D.T. Andrews General Electric Executive Vice President,
Capital Corporation General Electric Capital
260 Long Ridge Road Corporation
Stamford, CT 06927
Nancy E. Barton General Electric Senior Vice President,
Capital Corporation General Counsel and
260 Long Ridge Road Secretary, General Electric
Stamford, CT 06927 Capital Corporation
Stephen M. Bennett General Electric Executive Vice President,
Capital Corporation General Electric Capital
260 Long Ridge Road Corporation
Stamford, CT 06927
James R. Bunt General Electric Company Vice President
3135 Easton Turnpike and Treasurer
Fairfield, CT 06431 General Electric
Company
David L. Calhoun General Electric Capital Executive Vice President
Services, Inc. General Electric Capital
3135 Easton Turnpike Executive Officer, General
Fairfield, CT 06431 Services, Inc.
D.D. Dammerman General Electric Company Vice Chairman of the Board,
3135 Easton Turnpike Executive Officer, General
Fairfield, CT 06431 Electric Company; Chairman
and Chief Executive Officer,
General Electric Capital
Services, Inc.
B.W. Heineman, Jr. General Electric Company Senior Vice President -
3135 Easton Turnpike General Counsel and
Fairfield, CT 06431 Secretary, General Electric
Company
J.R. Immelt General Electric Company Senior Vice President -
P.O. Box 414 GE Medical Systems
Milwaukee, WI 53201
W.J. McNerney, Jr. General Electric Company Senior Vice President -
1 Neumann Way GE Aircraft Engines
Cincinnati, OH 05215
John H. Myers 303 Summer Street Chief Executive Officer,
Stamford, CT 06904 GE Investments, Inc.
R.L. Nardelli General Electric Company Senior Vice President -
1 River Road GE Power Systems
Schenectady, NY 12345
Denis J. Nayden General Electric President and Chief
Capital Corporation Executive Officer,
260 Long Ridge Road General Electric
Stamford, CT 06927 Capital Corporation
Michael A. Neal General Electric Executive Vice President,
Capital Corporation General Electric Capital
260 Long Ridge Road Corporation
Stamford, CT 06927
James A. Parke General Electric Executive Vice President
Capital Corporation and Chief Financial Officer,
260 Long Ridge Road General Electric
Stamford, CT 06927 Capital Corporation
G.M. Reiner General Electric Company Senior Vice President -
3135 Easton Turnpike Chief Information Officer,
Fairfield, CT 06431 General Electric Company
John M Samuels General Electric Company Vice President and
3135 Easton Turnpike Senior Counsel - Corporate
Fairfield, CT 06431 Tax, General Electric Company
K.S. Sherin General Electric Company Senior Vice President
3135 Easton Turnpike Finance and Chief Financial
Fairfield, CT 06431 Officer, General Electric
Company
Edward D. Stewart General Electric Executive Vice President,
Capital Corporation General Electric Capital
260 Long Ridge Road Corporation
Stamford, CT 06927
J.F. Welch, Jr. General Electric Company Chairman of the Board
3135 Easton Turnpike and Chief Executive
Fairfield, CT 06431 Officer, General Electric
Company
GENERAL ELECTRIC CAPITAL SERVICES, INC. EXECUTIVE OFFICERS
PRESENT PRESENT
NAME BUSINESS ADDRESS PRINCIPAL OCCUPATION
- ---- ---------------- --------------------
Joan C. Amble General Electric Vice President and
Capital Corporation Controller General Electric
260 Long Ridge Road Capital Services, Inc.
Stamford, CT 06927
Nigel D.T. Andrews General Electric Executive Vice President,
Capital Corporation General Electric Capital
260 Long Ridge Road Corporation
Stamford, CT 06927
Nancy E. Barton General Electric Senior Vice President,
Capital Corporation General Counsel and
260 Long Ridge Road Secretary, General Electric
Stamford, CT 06927 Capital Corporation
Stephen M. Bennett General Electric Executive Vice President,
Capital Corporation General Electric Capital
260 Long Ridge Road Corporation
Stamford, CT 06927
David L. Calhoun General Electric Capital Executive Vice President
Services, Inc. General Electric Capital
3135 Easton Turnpike Executive Officer, General
Fairfield, CT 06431 Services, Inc.
James A. Colica General Electric Senior Vice President,
Capital Corporation Global Risk Management,
260 Long Ridge Road General Electric
Stamford, CT 06927 Capital Corporation
Richard D'Avino General Electric Senior Vice President,
Capital Corporation Taxes, General Electric
260 Long Ridge Road Capital Corporation
Stamford, CT 06927
Barbara E. Daniele General Electric Capital Vice President and
Services, Inc. Senior Litigation Counsel
260 Long Ridge Road General Electric Capital
Stamford, CT 06927 Services, Inc.
D.D. Dammerman General Electric Company Vice Chairman of the Board,
3135 Easton Turnpike Executive Officer, General
Fairfield, CT 06431 Electric Company; Chairman
and Chief Executive Officer,
General Electric Capital
Services, Inc.
Michael D. Frazier General Electric Senior Vice President,
Capital Corporation Insurance/ Investment
260 Long Ridge Road Products, General Electric
Stamford, CT 06927 Capital Corporation
Robert L. Lewis General Electric Senior Vice President,
Capital Corporation Structured Finance Group,
260 Long Ridge Road General Electric
Stamford, CT 06927 Capital Corporation
Denis J. Nayden General Electric President and Chief
Capital Corporation Executive Officer,
260 Long Ridge Road General Electric
Stamford, CT 06927 Capital Corporation
Michael A. Neal General Electric Executive Vice President,
Capital Corporation General Electric Capital
260 Long Ridge Road Corporation
Stamford, CT 06927
James A. Parke General Electric Executive Vice President
Capital Corporation and Chief Financial Officer,
260 Long Ridge Road General Electric
Stamford, CT 06927 Capital Corporation
Marc J. Saperstein General Electric Senior Vice President,
Capital Corporation Human Resources,
260 Long Ridge Road General Electric
Stamford, CT 06927 Capital Corporation
Edward D. Stewart General Electric Executive Vice President,
Capital Corporation General Electric Capital
260 Long Ridge Road Corporation
Stamford, CT 06927
Jeffrey S. Werner General Electric Senior Vice President,
Capital Corporation Corporate Treasury and
260 Long Ridge Road Global Funding Operation,
Stamford, CT 06927 General Electric Capital
Corporation
<PAGE>
Schedule IV
GENERAL ELECTRIC COMPANY
DIRECTORS
PRESENT PRESENT
NAME BUSINESS ADDRESS PRINCIPAL OCCUPATION
- ---- ---------------- --------------------
J.I.Cash, Jr. Harvard Business School Professor of Business
Morgan Hall Administration-Graduate
Soldiers Field Road School of Business
Boston, MA 02163 Administration, Harvard
University
S.S. Cathcart 222 Wisconsin Avenue Retired Chairman,
Suite 103 Illinois Tool Works
Lake Forest, IL 60045
D.D. Dammerman General Electric Company Vice Chairman of the Board,
3135 Easton Turnpike Executive Officer, General
Fairfield, CT 06431 Electric Company; Chairman
and Chief Executive Officer,
General Electric Capital
Services, Inc.
P. Fresco Fiat SpA Chairman of the Board,
via Nizza 250 Fiat SpA
10126 Torino, Italy
A. M. Fudge Kraft Foods, Inc. Executive Vice President,
555 South Broadway Kraft Foods, Inc.
Tarrytown, NY 10591
C.X. Gonzalez Kimberly-Clark de Mexico, Chairman of the Board
S.A. de C.V. and Chief Executive
Jose Luis Lagrange 103, Officer,
Tercero Piso Kimberly-Clark de Mexico,
Colonia Los Morales S.A. de C.V.
Mexico, D.F. 11510, Mexico
A. Jung Avon Products, Inc. President and Chief
1345 Avenue of the Americas Executive Officer,
New York, NY 10105 Avon Products, Inc.
K.G. Langone Invemed Associates, Inc. Chairman, President and
375 Park Avenue Chief Executive Officer,
New York, NY 10152 Invemed Associates, Inc.
Scott G. McNealy Sun Microsystems, Inc. Chairman, President and
901 San Antonio Road Chief Executive Officer,
Palo Alto, CA 94303-4900 Sun Microsystems, Inc.
G.G. Michelson Federated Department Stores Former Member of the
151 West 34th Street Board of Directors,
New York, NY 10001 Federated Department
Stores
S. Nunn King & Spalding Partner, King & Spalding
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
J.D. Opie General Electric Company Vice Chairman of the
3135 Easton Turnpike Board and Executive
Fairfield, CT 06431 Officer, General Electric
Company
R.S. Penske Penske Corporation Chairman of the Board
13400 Outer Drive, West and President, Penske
Detroit, MI 48239-4001 Corporation
F.H.T. Rhodes Cornell University President Emeritus
3104 Snee Building Cornell University
Ithaca, NY 14853
A.C. Sigler Champion International Retired Chairman of the
Corporation Board and CEO
1 Champion Plaza and former Director,
Stamford, CT 06921 Champion International
Corporation
D.A. Warner III J. P. Morgan & Co., Inc. Chairman of the Board,
& Morgan Guaranty Trust Co. President, and Chief
60 Wall Street Executive Officer,
New York, NY 10260 J.P. Morgan & Co.
Incorporated and Morgan
Guaranty Trust Company
J.F. Welch, Jr. General Electric Company Chairman of the Board
3135 Easton Turnpike and Chief Executive
Fairfield, CT 06431 Officer, General Electric
Company
GENERAL ELECTRIC COMPANY EXECUTIVE OFFICERS
PRESENT PRESENT
NAME BUSINESS ADDRESS PRINCIPAL OCCUPATION
- ---- ---------------- --------------------
J.F. Welch, Jr. General Electric Company Chairman of the Board and
3135 Easton Turnpike Chief Executive Officer,
Fairfield, CT 06431 General Electric Company
P.D. Ameen General Electric Company Vice President and
3135 Easton Turnpike Comptroller, General
Fairfield, CT 06431 Electric Company
J.R. Bunt General Electric Company Vice President and
3135 Easton Turnpike Treasurer, General Electric
Fairfield, CT 06431 Company
W.J. Conaty General Electric Company Senior Vice President -
3135 Easton Turnpike Human Resources,
Fairfield, CT 06431 General Electric Company
D.D. Dammerman General Electric Company Vice Chairman of the Board
3135 Easton Turnpike Executive Officer, General
Fairfield, CT 06431 Electric Company; Chairman
and Chief Executive Officer,
General Electric Capital
Services, Inc.
L.S. Edelheit General Electric Company Senior Vice President -
P. O. Box 8 Corporate Research
Schenectady, NY 12301 and Development, General
Electric Company
B.W. Heineman, Jr. General Electric Company Senior Vice President -
3135 Easton Turnpike General Counsel and
Fairfield, CT 06431 Secretary, General Electric
Company
J.R. Immelt General Electric Company Senior Vice President -
P.O. Box 414 GE Medical Systems
Milwaukee, WI 53201
L. R. Johnston General Electric Company Senior Vice President -
Appliance Park GE Appliances
Louisville, KY 40225
W.J. McNerney, Jr. General Electric Company Senior Vice President -
1 Neumann Way GE Aircraft Engines
Cincinnati, OH 05215
R.L. Nardelli General Electric Company Senior Vice President -
1 River Road GE Power Systems
Schenectady, NY 12345
R.W. Nelson General Electric Company Vice President -
3135 Easton Turnpike Corporate Financial Planning
Fairfield, CT 06431 and Analysis, General
Electric Company
J.D. Opie General Electric Company Vice Chairman of the Board
3135 Easton Turnpike and Executive Officer,
Fairfield, CT 06431 General Electric Company
G.M. Reiner General Electric Company Senior Vice President -
3135 Easton Turnpike Chief Information Officer,
Fairfield, CT 06431 General Electric Company
J.G. Rice General Electric Company Vice President -
2901 East Lake Road GE Transportation Systems
Erie, PA 16531
G.L. Rogers General Electric Company Senior Vice President -
1 Plastics Avenue GE Plastics
Pittsfield, MA 01201
K.S. Sherin General Electric Company Senior Vice President
3135 Easton Turnpike Finance and Chief Financial
Fairfield, CT 06431 Officer, General Electric
Company
L.G. Trotter General Electric Company Senior Vice President -
41 Woodford Avenue GE Industrial Systems
Plainville, CT 06062
M.S. Zafirovski General Electric Company Senior Vice President -
Nela Park GE Lighting
Cleveland, OH 44112
Exhibit 1
JOINT FILING AGREEMENT
This will confirm the agreement by and among all the undersigned that
the Amendment No. 3 to Schedule 13D filed on or about this date and any
further amendments to the Schedule 13D with respect to beneficial ownership
by the undersigned of shares o0f the Common Stock, par value $0.001 per
share, of Krause's Furniture, Inc., are being filed on behalf of each of
the undersigned in accordance with Rule 13D-1 (k) (1) under the Securities
Exchange Act of 1934. This agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Dated: January 24, 2000
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Michael E. Pralle
---------------------------------
Name: Michael E. Pralle
Title: Vice President
GE CAPITAL EQUITY INVESTMENTS, INC.
By: /s/ Michael E. Pralle
---------------------------------
Name: Michael E. Pralle
Title: President/General Manager
GENERAL ELECTRIC CAPITAL SERVICES, INC.
By: /s/ Michael E. Pralle
---------------------------------
Name: Michael E. Pralle
Title: Attorney-in-fact*
GENERAL ELECTRIC COMPANY
By: /s/ Michael E. Pralle
---------------------------------
Name: Michael E. Pralle
Title: Attorney-in-fact*
* Pursuant to a Power of Attorney attached to the Amendment No. 3 to
Schedule 13D.
KRAUSE'S FURNITURE, INC.
SERIES A CONVERTIBLE PREFERRED STOCK
SECURITIES PURCHASE AGREEMENT
Dated as of January 11, 2000
<PAGE>
TABLE OF CONTENTS
PAGE
1. PURCHASE AND SALE OF THE SERIES A PREFERRED STOCK.............1
1.1. Authorization to Sell the Series A Preferred Stock............1
1.2. Closings......................................................1
1.3. Deliveries at Closings........................................2
1.4. Restructuring of Certain Indebtedness.........................3
1.5. Definitions...................................................3
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................3
2.1. Organization and Qualification................................3
2.2. Due Authorization.............................................3
2.3. Subsidiaries..................................................4
2.4. SEC Reports...................................................4
2.5. Financial Statements..........................................4
2.6. Actions Pending; Compliance with Laws.........................5
2.7. Title to Properties; Insurance................................5
2.8. Governmental Consents, etc....................................6
2.9. Holding Company Act and Investment Company Act................6
2.10. Taxes.........................................................6
2.11. Conflicting Agreements and Charter Provisions.................7
2.12. Capitalization................................................7
2.13. Issuance, Sale and Delivery of the Series A Preferred Stock...8
2.14. Registration Under Exchange Act...............................8
2.15. ERISA.........................................................9
2.16. Possession of Franchises, Licenses, etc.......................9
2.17. Environmental and Other Regulations..........................10
2.18. Patents and Trademarks.......................................10
2.19. Material Contracts and Obligations...........................10
2.20. Books and Records............................................11
2.21. Transactions with Related Parties............................11
2.22. Brokers......................................................11
2.23. Accuracy of Information......................................11
2.24. Offering of Series A Preferred Stock.........................12
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.............12
3.1. Organization and Qualification...............................12
3.2. Due Authorization............................................12
3.3. Conflicting Agreements and Other Matters.....................13
3.4. Acquisition for Investment...................................13
3.5. Brokers or Finders...........................................13
3.6. Accredited Investor..........................................13
4. COVENANTS OF THE COMPANY.....................................13
4.1. Limitation on Senior Equity Securities ......................14
4.2. Compliance with Laws.........................................14
4.3. Preservation of Franchises and Existence.....................14
4.4. Use of Proceeds..............................................14
4.5. Insurance....................................................14
4.6. Payment of Taxes and Other Charges...........................14
4.7. Effect of Breach.............................................15
4.8. ERISA........................................................15
4.9. Financial Statements and Other Reports.......................16
4.10. Inspection of Property.......................................17
4.11. Lost, Stolen, Damaged and Destroyed Stock Certificates.......18
4.12. Related Party Transactions...................................18
4.13. Operations in Accordance with Business Plan..................18
4.14. Reservation of Shares........................................18
4.15. Notice of Breach.............................................19
4.16. Limitation on Dividends .....................................19
4.17 Right of First Refusal.......................................19
5. RESTRICTIONS ON TRANSFER.....................................20
6. EVENT OF DEFAULT AND REMEDIES................................20
6.1. Event of Default.............................................21
6.2. Remedies.....................................................21
6.3. Conduct no Waiver............................................21
6.4 Remedies Cumulative..........................................22
7. CONDITIONS...................................................22
7.1 Conditions to Each Party's Obligations to Effect the
Transactions Contemplated Hereby.............................22
7.2 Conditions to Purchasers' Obligations to Effect the
Transactions Contemplated Hereby.............................23
8. INTERPRETATION...............................................24
8.1. Definitions..................................................24
8.2. Accounting Principles........................................27
9. MISCELLANEOUS................................................27
9.1. Severability.................................................27
9.2. Specific Enforcement.........................................28
9.3. Entire Agreement.............................................28
9.4. Counterparts.................................................28
9.5. Notices and Other Communications.............................28
9.6. Amendments...................................................29
9.7. Cooperation..................................................30
9.8. Successors and Assigns.......................................30
9.9. Expenses and Remedies........................................30
9.10. Survival of Representations and Warranties...................32
9.11. Transfer of Series A Preferred Stock.........................32
9.12. Governing Law; Consent to Jurisdiction.......................33
9.13. Publicity....................................................34
9.14. Signatures...................................................34
Exhibit A - Form of Amended and Restated Stockholders' Agreement
Exhibit B - Form of Opinion of Morrison & Foerster LLP
Exhibit C - Form of Amended and Restated Registration Rights Agreement
Exhibit D - Form of Indebtedness Amendment
<PAGE>
This Securities Purchase Agreement, dated as of January 11, 2000 (this
"Agreement"), between Krause's Furniture, Inc., a Delaware corporation
(including its predecessors, the "Company") and the purchasers listed on
the signature pages hereto (each a "Purchaser", and collectively, the
"Purchasers").
WHEREAS, the Purchasers wish to severally purchase from the Company,
and the Company wishes to sell to the Purchasers, an aggregate of 380,000
shares of the Company's Series A Convertible Preferred Stock, par value
$.001 per share (the "Series A Preferred Stock"), at an aggregate purchase
price of $19,000,000.
WHEREAS, in connection with the purchase and sale of the Series A
Preferred Stock, the Purchasers, the Company and the stockholders listed on
the signature pages thereof, will enter into an amended and restated
Stockholders Agreement, substantially in the form attached hereto as
Exhibit A (the "Stockholders Agreement").
WHEREAS, the Purchasers and the Company desire to provide for such
purchase and sale and to establish various rights and obligations in
connection therewith.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein set forth, the parties hereto agree as
follows:
SECTION 1. PURCHASE AND SALE OF THE SERIES A PREFERRED STOCK.
1.1 Authorization to Sell the Series A Preferred Stock. Subject to the
terms and conditions of this Agreement, the Company has duly authorized the
issuance and sale of the Series A Preferred Stock.
1.2 Closings. The transactions contemplated hereby will take place in
two closings. The first closing shall be held on or prior to January 18,
2000 (the "First Closing") at the offices of Skadden, Arps, Slate, Meagher
& Flom LLP ("SASM&F"), 300 South Grand Avenue, Suite 3400, Los Angeles,
California 90071-3144 at 9:00 a.m., or at such place, date and time as
shall be mutually agreed by the Company and the Initial Purchasers (the
"First Closing Date"). The second closing shall be held on or prior to
January 18, 2000 (the "Second Closing" and together with the First Closing,
the "Closings") at SASM&F, 300 South Grand Avenue, Los Angeles, California
90071-3144, at 9:00 a.m, or such place, date and time as shall be mutually
agreed by the Company and the Individual Purchasers (the "Second Closing
Date" and together with the First Closing Date, the "Closing Dates").
1.3 Deliveries at Closings.
----------------------
(a) At the First Closing:
(i) the Company shall execute and deliver an Amended and Restated
Stockholders Agreement in the form of Exhibit A hereto;
(ii) Morrison & Foerster LLP, counsel to the Company, shall
deliver to the Initial Purchasers an opinion dated the First Closing
Date substantially in the form of Exhibit B hereto;
(iii) the Company shall execute and deliver an Amended and
Restated Registration Rights Agreement substantially in the form of
Exhibit C hereto (the "Registration Rights Agreement");
(iv) the Company shall deliver to each Initial Purchaser stock
certificates representing the number of shares of Series A Preferred
Stock to be purchased by such Initial Purchaser, as set forth under
its signature on the signature pages hereto, registered in the name of
such Initial Purchaser or its designee or nominee;
(v) each Initial Purchaser shall pay to the Company, by wire
transfer of immediately available funds, the purchase price for the
Series A Preferred Stock being purchased by such Initial Purchaser;
and
(vi) the Company shall deliver evidence of the restructuring of
certain indebtedness of the Company as described in Section 1.4 below
in form and substance satisfactory to the Initial Purchasers.
(b) At the Second Closing:
(i) Morrison & Foerster LLP, counsel to the Company, shall
deliver to the Individual Purchasers an opinion dated the Second
Closing Date substantially in the form of Exhibit B hereto;
(ii) the Company shall deliver to each Individual Purchaser stock
certificates representing the number of shares of Series A Preferred
Stock to be purchased by such Individual Purchaser, as set forth under
its signature on the signature pages hereto, registered in the name of
such Individual Purchaser or its designee or nominee; and
(iii) each Individual Purchaser shall pay to the Company, by wire
transfer of immediately available funds, the purchase price for the
Series A Preferred Stock being purchased by such Individual Purchaser.
1.4 Restructuring of Certain Indebtedness. On or before the First
Closing Date, the Company shall execute and deliver an Amendment to the
Note Agreement substantially in the form of Exhibit D hereto (the
"Indebtedness Amendment").
1.5 Definitions. Certain capitalized terms used in this Agreement are
defined in Section 8 hereof.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants as follows:
2.1 Organization and Qualification. Each of the Company and its
Subsidiaries is a corporation duly organized and existing in good standing
under the laws of the jurisdiction in which it is incorporated and has the
power to own its respective property and to carry on its respective
business as now being conducted. Each of the Company and its Subsidiaries
is duly qualified as a foreign corporation to do business and in good
standing in every jurisdiction in which the nature of the respective
business conducted or property owned by it makes such qualification
necessary and where the failure so to qualify would be material to the
Company or such Subsidiary, as the case may be.
2.2 Due Authorization. The execution and delivery of this Agreement,
the Stockholders Agreement and the Registration Rights Agreement, and the
issuance and sale of the Series A Preferred Stock by the Company and
compliance by the Company with all the provisions of this Agreement, the
Stockholders Agreement and the Registration Rights Agreement (i) are within
the corporate power and authority of the Company; (ii) do not and will not
require any approval or consent of the stockholders of the Company or any
other Person, other than approvals and consents which have been duly
obtained or which will be obtained pursuant to Section 4.14; and (iii) have
been authorized by all requisite corporate proceedings on the part of the
Company. This Agreement, the Stockholders Agreement and the Registration
Rights Agreement 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, together with their jurisdiction of
incorporation, are as set forth on Schedule 2.3 hereto.
2.4 SEC Reports. The Company and its predecessor have filed all proxy
statements, reports and other documents required to be filed by it under
the Exchange Act, since December 31, 1996; and the Company has furnished
the Purchasers copies of its Annual Report on Form 10-K for the fiscal year
ended January 31, 1999, 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 in all material respects
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. 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). The Company and its
Subsidiaries have no material liabilities, contingent or otherwise, not
reflected in the Company's balance sheet as of January 31, 1999 that is
included in the SEC Reports or otherwise referred to in the SEC Reports or
otherwise disclosed to the Purchasers in writing prior to the date of this
Agreement, other than any such liabilities incurred in the ordinary course
of business, consistent with past practice, since January 31, 1999. Since
January 31, 1999, the Company and its Subsidiaries have operated their
respective businesses only in the ordinary course, consistent with past
practice, and no event has occurred that 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 Stockholders Agreement, the Registration Rights Agreement or
the Series A Preferred Stock 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 fiscal year ended January 31,
1999, 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 or other Person as a condition to
or in connection with the valid execution, delivery and performance of this
Agreement, the Stockholders Agreement and the Registration Rights Agreement
and the valid offer, issue, sale or delivery of the Series A Preferred
Stock, 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 applicable 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. (a)The Company and each of its Subsidiaries have filed or
caused to be filed all tax returns which are required to be filed by them,
and all such tax returns are true, complete and correct in all material
respects. The Company and each of its Subsidiaries have paid or caused to
be paid all taxes that 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 in accordance
with generally accepted accounting principles. 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. The Company and its
Subsidiaries have paid or caused to be paid, or have established reserves
in accordance with generally accepted accounting principles that the
Company reasonably believes are 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).
(b) As of January 31, 1999, the Company did not have any
accumulated "earnings and profits" as determined under section 312 of the
Internal Revenue Code of 1986, as amended (the "Code"). To the best
knowledge and belief of the Company, the Company does not anticipate having
any material current earnings and profits, as determined under section 312
of the Code, for its current taxable year. As of the date hereof, the
Company is not a "United States real property holding corporation" within
the meaning of section 897(c)(2) of the Code. The Company shall not become
a United States real property holding corporation.
2.11 Conflicting Agreements and Charter Provisions. Neither the
Company nor any of its Subsidiaries is a party to any contract or agreement
or subject to any charter or bylaw provision or judgment or decree which
has or is reasonably likely to have a Material Adverse Effect. None of (i)
the execution and delivery of this Agreement, the Shareholders Agreement
and the Registration Rights Agreement and the issuance of the Series A
Preferred Stock and (ii) the fulfillment of and compliance with the terms
and provisions hereof and thereof and of the Series A Preferred Stock 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,
par value $0.001 per share (the "Common Stock" and, together with the
Series A Preferred Stock, the "Stock"), of which 22,050,328 shares are
validly issued and outstanding, fully paid and nonassessable; (b) warrants
to purchase 2,712,045 shares of Common Stock which are validly issued and
outstanding, fully paid and nonassessable; (c) options to purchase
2,823,458 shares of Common Stock and deferred stock units representing the
right to receive 85,225 shares of Common Stock, all of which are validly
issued and outstanding, fully paid and nonassessable; and (d) 666,667
shares of Preferred Stock, par value $.001 per share, of which no shares
are outstanding, as of the date hereof, and 380,000 shares designated as
Series A Convertible Preferred Stock will be issued and outstanding on the
Second Closing Date after consummation of the transactions contemplated
hereby. All of the outstanding shares of Common Stock have been validly
issued and are fully paid and nonassessable. Except as set forth in the
Stockholders Agreement, no class of capital stock of the Company is
entitled to preemptive rights. Except for the options and warrants listed
above, there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to,
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 August 1, 1996, 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 Series A Preferred Stock. The
shares of Series A Preferred Stock being issued to the Initial Purchasers
at the First Closing and the shares of Series A Preferred Stock being
issued to the Individual Purchasers at the Second Closing are duly
authorized and when issued and delivered in accordance herewith will be,
validly issued, fully paid and nonassessable. The 17,272,727 shares of
Common Stock to be issued upon conversion of the Series A Preferred Stock,
when issued and delivered upon such conversion in accordance with the terms
of the Certificate of Designation, will be validly issued, fully paid and
nonassessable. The Company will take all action necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient to reserve shares of Common Stock for issuance upon
conversion of the Series A Preferred Stock, including, without limitation,
obtaining the requisite stockholder approval of any necessary amendment to
the Company's Certificate of Incorporation.
2.14 Registration Under Exchange Act. The Company has not registered
the Series A Preferred Stock as a class pursuant to Section 12 of the
Exchange Act.
2.15 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).
2.16 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.
2.17 Environmental and Other Regulations. The Company and its
Subsidiaries are in compliance with all applicable laws and regulations
relating to protection of the environment and human health, and are in
compliance in all material respects with all other applicable 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.
2.18 Patents and Trademarks. Set forth on Schedule 2.18 is a true and
complete list of all patents, patent applications, trademarks, service
marks, trademark and service mark applications, trade names, copyrights and
licenses presently used by the Company or any Subsidiary or necessary for
the conduct of the business of the Company and its Subsidiaries as
conducted and as proposed to be conducted (the "Intellectual Property
Rights"). The Company owns, or has the right to use under the agreements or
upon the terms described on Schedule 2.18, all of the Intellectual Property
Rights. To the best of the Company's knowledge, the business conducted or
proposed to be conducted by the Company and its Subsidiaries does not
infringe or violate any of the patents, trademarks, service marks, trade
names, copyrights, licenses, trade secrets or other proprietary rights of
any other Person. Except as set forth on Schedule 2.18, 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.
2.19 Material Contracts and Obligations. Schedule 2.19 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 material 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 (other than plans or arrangements providing for less than
$10,000 per employee), (c) all manufacturing, distributor and sales
representative agreements and all agreements with suppliers or vendors if
the value of the payments thereunder is in excess of $100,000, (d) all
agreements or commitments that materially 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 if the value of
the payments thereunder is in excess of $100,000 and (f) any other
agreement or commitment which requires future payments by or to the Company
or any Subsidiary in excess of $100,000 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. To the best knowledge of the Company, all of such agreements
and commitments are valid, binding and in full force and effect.
2.20 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, boards of
directors and committees of the Company and each Subsidiary for the past
five years.
2.21 Transactions with Related Parties. Schedule 2.21 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.
2.22 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.
2.23 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 necessary to
make the statements herein and therein, in light of the circumstances under
which they were made, not misleading. All projections furnished in writing
by the Company (i) have been prepared by management of the Company after a
careful analysis of all material data, (ii) are based on reasonable
assumptions by management of the Company and (iii) represent the best
estimate by management of the Company, based upon current reasonable
assumptions, as to the financial performance of the Company and its
Subsidiaries for the periods indicated, but do not represent any guarantee
or assurance of the future financial results of the Company and its
Subsidiaries.
2.24 Offering of Series A Preferred Stock. Neither the Company nor any
Person acting on its behalf has offered any of the Series A Preferred Stock
or any similar securities of the Company for sale to, solicited any offers
to buy any of the Series A Preferred Stock 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 Series A Preferred Stock 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 Series A Preferred Stock to the registration
requirements of Section 5 of the Securities Act.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser represents and warrants as follows:
3.1 Organization and Qualification. Such Purchaser is either (a) (i)
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 and
(ii) 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 or (b) a natural person with
the capacity to enter into this Agreement and to consummate the
transactions contemplated hereby.
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 the
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 the Purchaser and constitutes a valid and binding agreement of
the Purchaser enforceable in accordance with its terms, except that (i)
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors, rights, and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefor may be brought.
3.3 Conflicting Agreements and Other Matters. Neither the execution
and delivery of this Agreement nor the performance by the Purchaser of its
obligations hereunder will conflict with, result in a breach of the terms,
conditions or provisions of, constitute a default under, or require any
consent, approval or other action by or any notice to or filing with any
court or administrative or governmental body pursuant to, the
organizational documents or agreements of the Purchaser or any mortgage,
agreement, instrument, order, judgment, decree, statute, law, rule or
regulation to which the Purchaser or any of its respective properties are
subject.
3.4 Acquisition for Investment. The Purchaser is acquiring the Series
A Preferred Stock being purchased by it for its own account for the purpose
of investment and not with a view to or for sale in connection with any
distribution thereof, and the Purchaser has no present intention or plan to
effect any distribution thereof. The Purchaser acknowledges that the Series
A Preferred Stock has not been registered under the Securities Act and may
be sold or disposed of in the absence of such registration only pursuant to
an exemption from such registration.
3.5 Brokers or Finders. No agent, broker, investment banker or other
firm or Person, including any of the foregoing that is an Affiliate of the
Purchasers, is or will be entitled to any broker's fee or any other
commission or similar fee from the Purchaser in connection with any of the
transactions contemplated by this Agreement that the Company will be
responsible for pursuant to Section 9.9.
3.6 Accredited Investor. The Purchaser is an "Accredited Investor"
within the meaning of Rule 501 promulgated under the Securities Act.
SECTION 4. COVENANTS OF THE COMPANY.
4.1 Limitation on Senior Equity Securities. Without the consent of the
holders of a majority of the then outstanding shares of Series A Preferred
Stock, 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 pari passu or senior as to dividends or upon liquidation to the
Series A Preferred Stock.
4.2 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.
4.3 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 4.3 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, 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 Series A Preferred Stock.
4.4 Use of Proceeds. The Company will only use the Proceeds for
Permitted Proceeds Uses; provided that, in the case of Retail Proceeds, the
Company may, pending any Retail Proceeds Uses, use Retail Proceeds to pay
down long-term indebtedness so long as the Company has the right to
immediately reborrow such amounts.
4.5 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.
4.6 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 Sections 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.
4.7 Effect of Breach. In addition to the rights of THLi under the
Stockholders Agreement, upon the occurrence of an Event of Default and
notification by THLi prior to the two-year anniversary of the First Closing
Date of its desire to add directors in accordance with Section 6.2, then
the Board of Directors 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 THLi that, when added to any directors then in office
designated solely by THLi, will result in directors designated by THLi
constituting a majority of the entire Board of Directors. THLi shall be
entitled to designate the Additional Members and, for so long as such Event
of Default continues, at each subsequent annual meeting, THLi 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. In the event of any vacancy
arising by reason of the resignation, death, removal or inability to serve
of any Additional Member, THLi 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
THLi under this Section 4.7 shall terminate (and THLi shall cause such
Additional Directors to resign from the Board of Directors), subject to
revesting in the event of each and every subsequent Event of Default.
4.8 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.
4.9 Financial Statements and Other Reports.
--------------------------------------
(a) 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 THLi 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);
(b) The Company will, as soon as practicable and in any event
within 100 days after the end of each fiscal year, furnish to THLi
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);
(c) The Company 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;
(d) The Company will, promptly after such package becomes
available, furnish to THLi copies of all financial reporting packages
prepared for management of the Company; and
(e) Until the two-year anniversary of the First Closing Date, the
Company will, as soon as practicable, and in any event within 5 days
after the end of each month, furnish to THLi and GECC detailed
reports, and any other information THLi and GECC may reasonably
request, relating to (i) the use of Proceeds by the Company and its
Subsidiaries and (ii) the Company's compliance with the Retail Plan
and the E-Commerce Plan;
(f) The Company will promptly furnish to THLi copies of any
reports furnished to GECC pursuant to the Note Agreement; and
(g) The Company will promptly furnish to THLi 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.
4.10 Inspection of Property. The Company will permit representatives
of THLi to visit and inspect, at THLi'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.
4.11 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 Series A
Preferred Stock (or any certificate for the shares of Common Stock into
which the Series A Preferred Stock is convertible) and in the case of loss,
theft or destruction, upon delivery of an indemnity satisfactory to the
Company (which, in the case of any 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 Series A Preferred
Stock (or, if applicable, shares of Common Stock into which the Series A
Preferred Stock is convertible) equal to the number of shares of such stock
represented by the certificate lost, stolen, destroyed or mutilated.
4.12 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 (i) any action to terminate
the Consumer Credit Card Agreement by and among Krause's Sofa Factory,
Castro Convertible Corporation and Monogram Credit Bank of Georgia, dated
as of April 27, 1997 and (ii) the payment of salary and benefits pursuant
to employment agreements entered into in the ordinary course of business.
4.13 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 a majority of the Board of Directors, which majority must
include the GECC Designee and the THLi Designees (each 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.
The Company shall submit the E-Commerce Plan to the Board of Directors for
approval no later than 90 days from the First Closing Date.
4.14 Reservation of Shares. From and after the 15th day following the
first meeting of stockholders of the Company occurring on or after the
First Closing Date, the Company shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock solely
for the purpose of effecting the conversion of the shares of the Series A
Preferred Stock, such number of its shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding
shares of the Series A Preferred Stock.
4.15 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 4, the Company shall
provide the Purchasers with written notice specifying the nature of such
breach and any actions proposed to be taken by the Company to cure such
breach.
4.16 Limitation on Dividends. The Company shall not pay any dividends
on Common Stock so long as any shares of Series A Preferred Stock remain
outstanding.
4.17 Right of First Refusal. Subject to the terms and conditions
specified in this Section 4.17, the Company hereby grants to THLi or any of
its designees (collectively, the "First Refusal Stockholders") a right of
first offer with respect to future sales by the Company of its Offered
Shares (as hereinafter defined).
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable or exchangeable for any shares of, any
class of its capital stock ("Offered Shares"), the Company shall first make
an offering of such Offered Shares to the First Refusal Stockholders in
accordance with the following provisions:
(a) The Company shall deliver a notice in accordance with Section
9.5 of this Agreement ("Notice") to THLi stating (i) its bona fide
intention to offer such Offered Shares, (ii) the number of such
Offered Shares to be offered, and (iii) the price and terms, if any,
upon which it proposes to offer such Offered Shares.
(b) Within 15 days after delivery of the Notice, the First
Refusal Stockholders may elect to purchase or obtain, at the price and
on the terms specified in the Notice, up to that portion of such
Offered Shares that equals the proportion that the number of shares of
Common Stock issued and held (or issuable upon conversion and exercise
of all convertible or exercisable securities then held by THLi and its
Affiliates) bears to the total number of shares of Common Stock then
outstanding (assuming full conversion and exercise of all outstanding
convertible or exercisab1e securities).
(c) The right of first offer in this Section 4 shall not be
applicable to any issuance or sale of any of the following securities:
(i) Common Stock issued pursuant to any stock split, dividend or
distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly, additional shares of Common Stock
without payment of any consideration by such holder, provided that all
holders of capital stock of the Company and options or warrants or
other securities exercisable or exchangeable for or convertible into,
capital stock of the Company receive their pro rata share (on a common
equivalent basis) of such Common Stock,
(ii) Common Stock issuable or issued to employees, consultants or
directors of the Company directly or pursuant to a stock option plan
or restricted stock plan, or other similar arrangements related to
compensation for services in effect on the date of this Agreement, or
thereafter approved by a majority vote of THLi Designees;
(iii) capital stock issued upon conversion or exercise of
warrants, options or other securities outstanding immediately
following the First Closing; or
(iv) Common Stock issued in a bona fide firm commitment
underwritten offering to the public.
SECTION 5. RESTRICTIONS ON TRANSFER. Neither the Purchasers or any of
their respective Affiliates shall, directly or indirectly, sell, transfer,
pledge, encumber or otherwise dispose of (collectively, a "Transfer") any
of the Series A Preferred Stock or Common Stock received upon conversion of
the Series A Preferred Stock, except for: (a) Transfers to or between
Affiliates who agree to be bound by the provisions of this Agreement; (b)
Transfers of Series A Preferred Stock or Common Stock received upon
conversion of the Series A Preferred Stock pursuant to the exercise of the
registration rights set forth in the Registration Rights Agreement; or (c)
other Transfers that comply with the provisions of the Securities Act. The
Company may require, in connection with any Transfer pursuant to the
preceding clause (c), an opinion of counsel to the Purchaser that such
Transfer complies with the provisions of the Securities Act.
SECTION 6. EVENT OF DEFAULT AND REMEDIES.
6.1 Event of Default. The occurrence of any of the events set forth on
Schedule 6.1 prior to the two-year anniversary of the First Closing Date
shall constitute an Event of Default under this Agreement.
6.2 Remedies. The Company shall notify the Purchasers immediately upon
becoming aware of any Event of Default. If an Event of Default occurs and
is continuing, then in every such case:
(a) THLi at its option, shall have the right to either:
(i) demand immediate redemption of up to its Maximum Number
(as such term is defined in the Certificate of Designation) of shares of
Series A Preferred Stock pursuant to paragraph 5(c) of the Certificate of
Designation, or
(ii) nominate and designate additional members of the Board
of Directors pursuant to Section 4.7 hereof; and
(b) without limiting the foregoing, any Purchaser 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
Certificate of Incorporation or in aid of the exercise of any power granted
in this Agreement or the Certificate of Incorporation.
If THLi elects to demand redemption pursuant to clause (a)(i) above,
each other holder of Series A Preferred Stock shall also be entitled to
demand immediate redemption of such shares of Series A Preferred Stock
permitted under paragraph 5(c) of the Certificate of Designation.
6.3 Conduct no Waiver. 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.
6.4 Remedies Cumulative. No right or remedy conferred upon or reserved
to the holders of Series A Preferred Stock 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
Series A Preferred Stock may be exercised from time to time and as often as
may be deemed expedient by the holders.
SECTION 7. CONDITIONS.
7.1 Conditions to Each Party's Obligations to Effect the Transactions
Contemplated Hereby. The respective obligations of each party to effect the
transactions contemplated by this Agreement shall be subject to the
fulfillment at or prior to the applicable Closing Date of the following
conditions:
(a) No temporary restraining order, preliminary or permanent
injunction or other order or decree by any court of competent
jurisdiction which prevents the consummation of the transactions
contemplated hereby or imposes material conditions with respect
thereto shall have been issued and remain in effect (each party
agreeing to use its reasonable efforts to have any such injunction,
order or decree lifted).
(b) No action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or Federal government
or governmental agency which would prevent the consummation of the
transactions contemplated by this Agreement or imposes material
conditions with respect thereto.
(c) All consents and approvals of governmental entities legally
required for the consummation of the transactions contemplated by this
Agreement shall have been obtained and be in effect at the applicable
Closing Date, except those for which failure to obtain such consents
and approvals would not, individually or in the aggregate, have a
Material Adverse Effect or materially impair the ability of any party
to this Agreement to consummate the transactions contemplated by this
Agreement.
7.2 Conditions to Purchasers' Obligations to Effect the Transactions
Contemplated Hereby. The obligations of the Purchasers to effect the
transactions contemplated by this Agreement shall be subject to the
fulfillment at or prior to the applicable Closing Date of the following
additional conditions:
(a) The Company shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or
prior to the applicable Closing Date, and the representations and
warranties of the Company contained in this Agreement shall be true
and correct in all material respects (if not qualified by materiality)
and true and correct (if so qualified) on and as of the date of this
Agreement and at and as of the applicable Closing Date as if made at
and as of the applicable Closing Date, except to the extent that any
such representation or warranty expressly relates to another date (in
which case, as of such date).
(b) The consent or approval of each third party whose consent or
approval shall be required in connection with the transactions
contemplated hereby shall have been obtained.
(c) The Company and the stockholders listed on the signature
pages thereto shall have executed and delivered the Stockholders
Agreement substantially in the form attached hereto as Exhibit A.
(d) Purchasers shall have received an opinion of Morrison &
Foerster LLP, counsel to the Company, substantially in the form
attached hereto as Exhibit B.
(e) The Company and the stockholders listed on the signature
pages thereto shall have executed and delivered the Registration
Rights Agreement substantially in the form attached hereto as Exhibit
C.
(f) Since the date of this Agreement, there shall not have been
any change or events which have resulted or would in reasonable
probability result in a Material Adverse Effect.
(g) The Company, GECC and JOL shall have executed and delivered
the Indebtedness Amendment substantially in the form attached hereto
as Exhibit D.
(h) The Company shall have filed the Certificate of Designation
substantially in the form attached hereto as Exhibit E with the
Delaware Secretary of State.
(i) Purchasers shall have completed their business, legal and
financial due diligence review and the results of such review shall be
satisfactory to Purchasers in their sole judgment.
SECTION 8. INTERPRETATION.
8.1 Definitions.
-----------
"Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act.
"beneficially own" with respect to any Series A Preferred Stock shall
mean having "beneficial ownership" of such Series A Preferred Stock (as
determined pursuant to Rule 13d-3 under the Exchange Act), including
pursuant to any agreement, arrangement or understanding, whether or not in
writing.
"Board of Directors" shall mean the board of directors of the Company.
"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.
"Certificate of Designation" shall mean the Certificate of Designation
of Series A Convertible Preferred Stock of the Company substantially in the
form attached hereto as Exhibit E.
"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.
"E-Commerce Plan" shall mean a business plan setting forth the
Company's planned business to business and E-commerce activities, including
detailed information with respect to E-Commerce Proceed Uses, strategy,
implementation of strategy, milestone targets and a timeline with respect
thereto, as such business plan may be amended from time to time in
accordance with Section 2.2(u) of the Stockholders Agreement.
"E-Commerce Proceed Uses" shall mean the use of Proceeds to build
infrastructure and sales and marketing capabilities for (including the
recruitment of appropriate talent associated with) business-to-business
activities and e-commerce activities, including commerce related to
transactions on the Internet and such further uses described in the
E-Commerce Plan.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor Federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
Reference to a particular section of the Securities Exchange Act of 1934,
as amended, shall include reference to the comparable section, if any, of
any such successor Federal statute.
"GECC" shall mean, collectively, General Electric Capital Corporation,
a New York corporation and GE Capital Equity Investments, Inc., a Delaware
corporation.
"Individual Purchasers" shall mean the Purchasers other than THLi,
GECC and Permal.
"Initial Purchasers" shall mean THLi, GECC and Permal.
"JOL" shall mean Japan Omnibus Ltd., an international business
corporation incorporated in the British Virgin Islands.
"Note Agreement" shall mean, collectively, the Securities Purchase
Agreement dated as of August 26, 1996 between the Company and GECC and the
Supplemental Securities Purchase Agreement, dated as of August 14, 1997,
among the Company GECC and JOL, in each case, as amended.
"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.
"Permal" shall mean those entities and individuals constituting the
Permal Group as set forth on Schedule C to the Stockholders Agreement.
"Permitted Proceeds Uses" shall mean Retail Proceed Uses or E-Commerce
Proceed Uses.
"Person" shall mean any individual, firm, corporation, partnership or
other entity, and shall include any successor (by merger or otherwise) of
such entity.
"Proceeds" shall mean the proceeds from the sale of the Series A
Preferred Stock pursuant to this Agreement.
"Related Party" shall mean any officer, director or beneficial holder
of 3% or more of the outstanding shares of capital stock of the Company or
any Subsidiary, any spouse, former spouse, child, parent, parent of a
spouse, sibling or grandchild of any such officer, director or beneficial
holder of the Company or any Subsidiary, and any Affiliate or Associate of
any of the foregoing Persons; provided, however, that neither THLi nor GECC
shall be deemed to be a Related Party.
"Retail Plan" shall mean a business plan setting forth the Company's
planned retail activities, including detailed information with respect to
Retail Proceed Uses, Strategy, implementation of Strategy, milestone
targets and a time line with respect thereto, as such business plan may be
amended from time to time in accordance with section 2.2(a) of the
Stockholders Agreement.
"Retail Proceed Uses" shall mean the use of Proceeds to (i) repay the
Loan and Security Agreement, dated as of January 20, 1995, as amended, by
and between Congress Financial Corporation (Western), Krause's Sofa Factory
and Castro Convertible Corporation (the "Credit Agreement"), (ii) make
capital expenditures related to the opening of new stores, (iii) for
working capital purposes in connection with the Company's retail business
and (iv) for such further uses described in the Retail Plan.
"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.
"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.
"THLi" shall mean, collectively, TH Lee.Putnam Internet Partners, L.P.
and TH Lee.Putnam Internet Parallel Partners, L.P., together with their
affiliates.
"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.
8.2 Accounting Principles. The character or amount of any asset,
liability, capital account or reserve and of any item of income or expense
required to be determined pursuant to this Agreement, and any consolidation
or other accounting computation required to be made pursuant to this
Agreement, and the construction of any definition in this Agreement
containing a financial term, shall be determined or made, as the case may
be, in accordance with generally accepted accounting principles, to the
extent applicable, unless such principles are inconsistent with the express
requirements of this Agreement. References in this Agreement to a fiscal
year refer to the period ending on the last Sunday of January of the
following calendar year as determined by the 52/53 retail fiscal year. (For
example, 1998 fiscal year refers to the fiscal year ending January 31,
1999.)
SECTION 9. MISCELLANEOUS.
9.1 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.
9.2 Specific Enforcement. Each Purchaser, on the one hand, and the
Company, on the other, acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction to prevent breaches of the provisions of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the
United States or any state thereof having jurisdiction, this being in
addition to any other remedy to which they may be entitled at law or
equity.
9.3 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.
9.4 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.
9.5 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 facsimile or sent by prepaid overnight courier
service, to:
The Company:
Krause's Furniture, Inc.
200 North Berry Street
Brea, CA 92821-3903
Facsimile #: (714) 990-3561
Attention: Philip M. Hawley
With a copy to:
Krause's Furniture, Inc.
200 North Berry Street
Brea, CA 92821-3903
Facsimile #: (714) 990-3561
Attention: Judith O. Lasker, Esq.
and
Morrison & Foerster LLP
555 West 5th Street, Suite 3500
Los Angeles, CA 90013-1024
Facsimile #: (213) 892-5454
Attention: Charles Kaufman, Esq.
Each Purchaser:
At the address or facsimile number set forth on the signature
pages hereto.
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Suite 3400
Los Angeles, California 90071
Facsimile #: (213) 687-5600
Attention: Michael A. Woronoff, Esq.
or to such other address as any party may, from time to time, designate in
a written notice given in a like manner.
9.6 Amendments. 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 (i) the written consent of the Purchasers and/or
such successors and assigns who are the registered holders of not less than
a majority of the outstanding shares of Series A Preferred Stock then held
by the Purchasers and their successors or assigns and (ii) the written
consent of THLi; provided, however, that without the consent of each holder
affected, however, no amendment or waiver may (with respect to any shares
of Series A Preferred Stock held by a nonconsenting holder of shares of
Series A Preferred Stock):
(a) reduce the aggregate number of shares of Series A Preferred
Stock whose holders must consent to an amendment or waiver of any
provision of this Agreement; or
(b) make any change in the foregoing amendment and waiver
provisions.
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.
9.7 Cooperation. Each Purchaser and the Company agree to take, or
cause to be taken, all such further or other actions as shall reasonably be
necessary to make effective and consummate the transactions contemplated by
this Agreement.
9.8 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. Any Purchaser may (but shall not be
required to) assign any or all of its rights under this Agreement to any
transferee of any Series A Preferred Stock; provided that THLi may only
assign its rights under Section 4 to a transferee of at least 30% of the
Stock held by THLi as of the date of this Agreement (calculated as if all
shares of Series A Preferred Stock had been converted into shares of Common
Stock as of the date of such calculation). If THLi assigns any or all of
its rights under Section 4, such rights shall only be exercised by holders
of more than 50% of the Stock held by THLi as of the date of this Agreement
(calculated as if all shares of Series A Preferred Stock had been converted
into shares of Common Stock as of the date of such calculation). This
Agreement may not be assigned by the Company.
9.9 Expenses and Remedies.
---------------------
(a) The Company agrees to pay THLi for all reasonable outside
legal and consulting fees of THLi in connection with this Agreement
and the consummation of all transactions contemplated hereby, which
costs shall not exceed $50,000, and all costs and expenses relating to
any future amendment or supplement to this Agreement or the Series A
Preferred Stock (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 THLi relating to the
enforcement of this Agreement, the Registration Rights Agreement or
the Series A Preferred Stock.
(b) The Company further agrees to indemnify and save harmless
each Purchaser and each Purchaser's 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 representations,
warranties or other 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) The indemnified party under this Section 9.9 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 9.9 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
9.9. 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 9.9 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. The obligations of
the Company to each indemnified party hereunder shall be separate
obligations, and the Company's liability to any such indemnified party
hereunder shall not be extinguished solely because any other
indemnified party is not entitled to indemnity hereunder. The
obligations of the Company under this Section 9.9 shall survive the
redemption or purchase by the Company of the shares of Series A
Preferred Stock purchased by any Purchaser, any transfer of the Series
A Preferred Stock by any Purchaser and the termination of this
Agreement, the Series A Preferred Stock, the Stockholders Agreement
and any of the other documents executed in connection herewith.
9.10 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 Series A Preferred Stock,
regardless of any investigation made by or on behalf of any party.
9.11 Transfer of Series A Preferred Stock. (a) Each Purchaser
understands and agrees that the Series A Preferred Stock has 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 Series A Preferred Stock. Each Purchaser
understands and agrees that each certificate representing the Series A
Preferred Stock shall bear legends substantially in the form as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION
TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS."
"THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED BY A STOCKHOLDERS AGREEMENT BY AND
AMONG KRAUSE'S FURNITURE, INC. (THE "COMPANY") AND THE
STOCKHOLDERS PARTIES THERETO (THE "STOCKHOLDERS AGREEMENT"),
A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE COMPANY."
"IN ADDITION TO THE RESTRICTIONS SET FORTH IN THE
STOCKHOLDERS AGREEMENT, THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO THE RESTRICTIONS SET FORTH IN A
SECURITIES PURCHASE AGREEMENT BY AND AMONG THE COMPANY AND
THE PURCHASERS LISTED ON THE SIGNATURE PAGES THERETO, A COPY
OF EACH OF WHICH IS ON FILE AT THE OFFICES OF THE COMPANY."
9.12 Governing Law; Consent to Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of New
York, including, without limitation, Sections 5-1401 and 5-1402 of the New
York General Obligations Law and New York Civil Practice Laws and Rules
327(b). 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.
9.13 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 document
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.
9.14 Signatures. This Agreement shall be effective upon delivery of
original signature pages or facsimile copies thereof executed by each of
the parties hereto.
<PAGE>
IN WITNESS WHEREOF, the Company and the Purchasers have caused this
agreement to be executed and delivered by their respective officers
thereunto duly authorized.
KRAUSE'S FURNITURE, INC.
By: /s/ Robert A. Burton
------------------------------------------------
Name: Robert A. Burton
Title: Executive Vice President and
Chief Financial Officer
<PAGE>
TH LEE.PUTNAM INTERNET PARTNERS, L.P.
By: TH LEE.PUTNAM INTERNET FUND ADVISORS, L.P.,
its General Partner
By: TH LEE.PUTNAM INTERNET FUND
ADVISORS, LLC, its General Partner
By: /s/ Christine Kim
------------------------------------------------
Name: Christine Kim
Title: Vice President
Address: 200 Madison Avenue, Suite 2225
New York, New York 10016
Facsimile #: (212) 951-8655
Attention: Christine Kim
Number of Shares: 134,000
Purchase Price: $6,700,000
<PAGE>
TH LEE.PUTNAM INTERNET PARALLEL
PARTNERS, L.P.
By: TH LEE.PUTNAM INTERNET FUND ADVISORS, L.P.,
its General Partner
By: TH LEE.PUTNAM INTERNET FUND
ADVISORS, LLC, its General Partner
By: /s/ Christine Kim
-----------------------------------------------
Name: Christine Kim
Title: Vice President
Address: 200 Madison Avenue, Suite 2225
New York, New York 10016
Facsimile #: (212) 951-8655
Attention: Christine Kim
Number of Shares: 126,000
Purchase Price: $6,300,000
<PAGE>
GE CAPITAL EQUITY INVESTMENTS, INC.
By: /s/ George L. Hashbarger, Jr.
-----------------------------------------------
Name: George L. Hashbarger, Jr.
Title: Senior Vice President
Address: 260 Long Ridge Road
Stamford, Connecticut 06927
Facsimile #: (203)
Attention:
Number of Shares: 20,000
Purchase Price: $1,000,000
<PAGE>
ASCEND PARTNERS, L.P.
By:
-----------------------------------------------
Name:
Title:
Address: One Valley High
Lafayette, California 94549
Facsimile #:
Attention: Malcolm Fairbairn, c/o
Emily Wang
Number of Shares: 6,500
Purchase Price: $325,000
<PAGE>
ATCO DEVELOPMENT, INC.
By:
-----------------------------------------------
Name:
Title:
Address: 11777 Katy Freeway, Suite 175
Houston, Texas 77079
Facsimile #:
Attention: Kamal Abdelnour
Number of Shares: 5,000
Purchase Price: $250,000
<PAGE>
LARRY BLACK
By:
-----------------------------------------------
Address: c/o Black and Company
One SW Columbia Street
Portland, Oregon 97258
Facsimile #:
Number of Shares: 1,000
Purchase Price: $50,000
<PAGE>
BRANAGH REVOCABLE TRUST
By:
-----------------------------------------------
Name: Peter W. Branagh
Title: Trustee
By:
-----------------------------------------------
Name: Ramona Y. Branagh
Title: Trustee
Address: Apex Capital, LLC
Pine Grove
4 Orinda Way, Suite 240-B
Orinda, California 94563
Facsimile #:
Attention: Sanford J. Colen
Number of Shares: 300
Purchase Price: $15,000
<PAGE>
MATTHEW WILLIAM CLARKE - IRA
By:
-----------------------------------------------
Name:
Title:
Address: Apex Capital, LLC
Pine Grove
4 Orinda Way, Suite 240-B
Orinda, California 94563
Facsimile #:
Attention: Sanford J. Colen
Number of Shares: 2,000
Purchase Price: $100,000
<PAGE>
SANFORD J. COLEN
By:
-----------------------------------------------
Address: Apex Capital, LLC
Pine Grove
4 Orinda Way, Suite 240-B
Orinda, California 94563
Facsimile #:
Attention: Sanford J. Colen
Number of Shares: 900
Purchase Price: $45,000
<PAGE>
AARON J. COLEN, UTMA, CA
By:
-----------------------------------------------
Name: Sanford J. Colen
Title: Custodian
Address: Apex Capital, LLC
Pine Grove
4 Orinda Way, Suite 240-B
Orinda, California 94563
Facsimile #:
Attention: Sanford J. Colen
Number of Shares: 250
Purchase Price: $12,500
<PAGE>
ELYSE L. COLEN, UTMA, CA
By:
-----------------------------------------------
Name: Sanford J. Colen
Title: Custodian
Address: Apex Capital, LLC
Pine Grove
4 Orinda Way, Suite 240-B
Orinda, California 94563
Facsimile #:
Attention: Sanford J. Colen
Number of Shares: 250
Purchase Price: $12,500
<PAGE>
SARA K. COX
By:
-----------------------------------------------
Address: 101 South Las Palmas Avenue
Los Angeles, California 90004
Facsimile #:
Number of Shares: 500
Purchase Price: $25,000
<PAGE>
JOHN DAVIES
By:
-----------------------------------------------
Address: c/o Tyler Runnels
1999 Avenue of the Stars, Suite 2530
Los Angeles, California 90067
Facsimile #:
Number of Shares: 1,250
Purchase Price: $62,500
<PAGE>
DIAMOND A. PARTNERS, L.P.
By:
-----------------------------------------------
Name:
Title:
Address: Lawndale Capital Management, L.L.C.
One Sansome Street, Suite 3900
San Francisco, California 94104
Facsimile #:
Attention: Andrew E. Shapiro
Number of Shares: 2,625
Purchase Price: $131,250
<PAGE>
J. STEVEN EMERSON
By:
-----------------------------------------------
Address: Emerson Investment Group
10506 Ilona Avenue, Suite 1410
Los Angeles, California 90064
Facsimile #:
Attention: J. Steven Emerson
Number of Shares: 6,250
Purchase Price: $312,500
<PAGE>
EMILY FAIRBAIRN - IRA
By:
-----------------------------------------------
Name:
Title:
Address: One Valley High
Lafayette, California 94549
Facsimile #:
Attention: Emily Wang
Number of Shares: 4,500
Purchase Price: $225,000
<PAGE>
MALCOLM FAIRBAIRN - IRA
By:
-----------------------------------------------
Name:
Title:
Address: One Valley High
Lafayette, California 94549
Facsimile #:
Attention: Emily Wang
Number of Shares: 1,500
Purchase Price: $75,000
<PAGE>
WILLIAM T. AND KATHLEEN P. GIBSON
By:
-----------------------------------------------
Name: William T. Gibson
By:
-----------------------------------------------
Name: Kathleen P. Gibson
Address: 109 La Plata
Santa Barbara, California 93109
Facsimile #:
Number of Shares: 500
Purchase Price: $25,000
<PAGE>
JONATHAN & NANCY GLASER FAMILY TRUST
By:
-----------------------------------------------
Name: Jonathan M. Glaser
Title: Trustee
By:
-----------------------------------------------
Name: Nancy Ellen Glaser
Title: Trustee
Address: 1999 Avenue of the Stars, Suite 2530
Los Angeles, California 90067
Facsimile #:
Attention:
Number of Shares: 2,000
Purchase Price: $100,000
<PAGE>
EDWARD M. HAWLEY
By:
-----------------------------------------------
Address: 129 North Van Ness
Los Angeles, California 90004
Facsimile #:
Number of Shares: 200
Purchase Price: $10,000
<PAGE>
GEORGE P. HAWLEY
By:
-----------------------------------------------
Address: 116 North Citrus Avenue
Los Angeles, California 90036
Facsimile #:
Number of Shares: 200
Purchase Price: $10,000
<PAGE>
ALLISON BOOTH HAWLEY TRUST I
By:
-----------------------------------------------
Name: John F. Hawley
Title: Trustee
Address: 238 South Lorrainne
Los Angeles, California 90004
Facsimile #:
Attention: John F. Hawley
Number of Shares: 2,500
Purchase Price: $125,000
<PAGE>
CAITLIN HALE HAWLEY TRUST I
By:
-----------------------------------------------
Name: John F. Hawley
Title: Trustee
Address: 238 South Lorrainne
Los Angeles, California 90004
Facsimile #:
Attention: John F. Hawley
Number of Shares: 2,500
Purchase Price: $125,000
<PAGE>
HAWLEY FAMILY TRUST
By:
----------------------------------------
Name: John F. Hawley
Title: Trustee
Address: 238 South Lorrainne
Los Angeles, California 90004
Facsimile #:
Attention: John F. Hawley
Number of Shares: 2,500
Purchase Price: $125,000
<PAGE>
MAUREEN ERIN HAWLEY TRUST I
By:
-----------------------------------------------
Name: John F. Hawley
Title: Trustee
Address: 238 South Lorrainne
Los Angeles, California 90004
Facsimile #:
Attention: John F. Hawley
Number of Shares: 2,500
Purchase Price: $125,000
<PAGE>
SHANNON FOLLEN HAWLEY TRUST I
By:
-----------------------------------------------
Name: John F. Hawley
Title: Trustee
Address: 238 South Lorrainne
Los Angeles, California 90004
Facsimile #:
Attention: John F. Hawley
Number of Shares: 2,500
Purchase Price: $125,000
<PAGE>
DR. PHILIP HAWLEY, JR.
By:
-----------------------------------------------
Address: 165 South Las Palmas
Los Angeles, California 90004-1085
Facsimile #:
Number of Shares: 1,250
Purchase Price: $62,500
<PAGE>
VICTOR F. HAWLEY
By:
-----------------------------------------------
Address: 122 South Plymouth Boulevard
Los Angeles, California 90005
Facsimile #:
Number of Shares: 200
Purchase Price: $10,000
<PAGE>
RICHARD HICKS
By:
-----------------------------------------------
Address: 21 Tanfield Road
Tiburon, California 94920
Facsimile #:
Number of Shares: 6,000
Purchase Price: $300,000
<PAGE>
KATHRYN JERGENS TRUST
By:
-----------------------------------------------
Name:
Title:
Address: 1999 Avenue of the Stars, Suite 2530
Los Angeles, California 90067
Facsimile #:
Attention: Kathryn Jergens
Number of Shares: 250
Purchase Price: $12,500
<PAGE>
DIANE JOHNSON
By:
-----------------------------------------------
Address: 9901 Manassas Place
Tucson, Arizona 85748
Facsimile #:
Number of Shares: 200
Purchase Price: $10,000
<PAGE>
RICHARD M. KELLER
By:
-----------------------------------------------
Address: 101 South Las Palmas Avenue
Los Angeles, California 90004
Facsimile #:
Number of Shares: 500
Purchase Price: $25,000
<PAGE>
STEPHEN M. KELLER
By:
-----------------------------------------------
Address: 30 East 81st Street, Apt. 7E
New York, New York 10028
Facsimile #:
Attention: Elizabeth Hughes
Number of Shares: 500
Purchase Price: $25,000
<PAGE>
STEPHEN F. KELLER PROFESSIONAL
CORPORATION DEFINED BENEFIT PLAN
By:
-----------------------------------------------
Name:
Title:
Address: 101 S. Las Palmas Avenue
Los Angeles, California 90004
Facsimile #:
Attention: Stephen F. Keller
Number of Shares: 1,500
Purchase Price: $75,000
<PAGE>
PAUL KESSLER
By:
-----------------------------------------------
Address: 11777 San Vincente Boulevard, Suite 702
Los Angeles, California 90049
Facsimile #:
Attention: Elizabeth Hughes
Number of Shares: 3,750
Purchase Price: $187,500
<PAGE>
SIDNEY KIMMEL
By:
-----------------------------------------------
Address: Apex Capital, LLC
Pine Grove
4 Orinda Way, Suite 240-B
Orinda, California 94563
Facsimile #:
Attention: Sanford J. Colen
Number of Shares: 125
Purchase Price: $6,250
<PAGE>
THEODORE D. KONOPISOS
By:
-----------------------------------------------
Address: 17291 Irvine Boulevard, Suite 254
Tustin, California 92780
Facsimile #:
Attention: Elizabeth Hughes
Number of Shares: 1,250
Purchase Price: $62,500
<PAGE>
PETER LAMM
By:
-----------------------------------------------
Address: 1655 El Camino Real
Palo Alto, California 94306
Facsimile #:
Number of Shares: 2,000
Purchase Price: $100,000
<PAGE>
ROBERT LONDON
By:
-----------------------------------------------
Address: Cruttenden Roth
809 Presidio Avenue, Suite B
Santa Barbara, California 93101
Facsimile #:
Attention: Robert London
Number of Shares: 6,000
Purchase Price: $300,000
<PAGE>
JEFFREY S. MORGAN
By:
-----------------------------------------------
Address: Coldwell Banker
990 West 190th Street, Suite 100
Torrance, California 90502
Facsimile #:
Attention: Jeffrey S. Morgan
Number of Shares: 625
Purchase Price: $31,250
<PAGE>
THE MUHL FAMILY TRUST
By:
-----------------------------------------------
Name: Phillip E. Muhl
Title: Trustee
By:
-----------------------------------------------
Name: Kristin A. Muhl
Title: Trustee
Address: 500 South Buena Vista
Burbank, California 91521-0312
Facsimile #:
Attention: Phillip E. Muhl or
Kristin A. Muhl
Number of Shares: 625
Purchase Price: $31,250
<PAGE>
PACIFIC SECURITY GROUP, INC.
By:
-----------------------------------------------
Name:
Title:
Address: 2224 Walsh Tarlton, Suite 200
Austin, Texas 78746
Facsimile #:
Attention: Malcolm Fairbairn, c/o
Emily Wang
Number of Shares: 500
Purchase Price: $25,000
<PAGE>
PERMAL U.S. OPPORTUNITIES LTD.
By:
-----------------------------------------------
Name:
Title:
Address: Apex Capital, LLC
Pine Grove
4 Orinda Way, Suite 240-B
Orinda, California 94563
Facsimile #:
Attention: Sanford J. Colen
Number of Shares: 1,000
Purchase Price: $50,000
<PAGE>
PILOT HOLDINGS, L.P.
By: SHED INVESTMENTS, LLC, its General Partner
By: /s/ Thomas M. DeLitto
-----------------------------------------------
Name: Thomas M. DeLitto
Title: Managing Member
Address: 177 Post Road West
Westport, Connecticut 96880
Facsimile #: (203) 222-7187
Attention: Thomas M. DeLitto
Number of Shares: 5,000
Purchase Price: $250,000
<PAGE>
POINTE INVESTMENTS CAPITAL, LTD.
By:
-----------------------------------------------
Name:
Title:
Address: 638 N. Faring
Los Angeles, California 90077
Facsimile #:
Attention: Mohamed Hadid
Number of Shares:2,000
Purchase Price: $100,000
<PAGE>
POLLAT, EVANS & CO., INC.
By:
-----------------------------------------------
Name:
Title:
Address: Apex Capital, LLC
Pine Grove
4 Orinda Way, Suite 240-B
Orinda, California 94563
Facsimile #:
Attention: Sanford J. Colen
Number of Shares: 175
Purchase Price: $8,750
<PAGE>
KEVIN AND ERIN PRZYBOCKI
By:
-----------------------------------------------
Name: Kevin Przybocki
By:
-----------------------------------------------
Name: Erin Przybocki
Address: 336 South Hudson Avenue
Los Angeles, California 90020
Facsimile #:
Number of Shares: 200
Purchase Price: $10,000
<PAGE>
CHARLES B. RUNNELS, JR.
By:
-----------------------------------------------
Address: 2029 Avenue of the Stars, Suite 2530
Los Angeles, California 90067
Facsimile #:
Attention: Tyler Runnels
Number of Shares: 625
Purchase Price: $31,250
<PAGE>
CHARLES B. RUNNELS, III
By:
-----------------------------------------------
Address: 10095 East Charter Oak
Scottsdale, Arizona 85260
Facsimile #:
Number of Shares: 625
Purchase Price: $31,250
<PAGE>
G. TYLER RUNNELS
By:
-----------------------------------------------
Address: 1999 Avenue of the Stars, Suite 2530
Los Angeles, California 90067
Facsimile #:
Number of Shares: 8,000
Purchase Price: $400,000
<PAGE>
LORD ROBIN RUSSELL
By:
-----------------------------------------------
Address: Park House
Woburn Park
Woburn
Milton Keynes
MK17 9PQ England
Facsimile #:
Number of Shares: 250
Purchase Price: $12,500
<PAGE>
TIMOTHY MICHAEL WALLACE
By:
-----------------------------------------------
Address: 116 S. McCadden Place
Los Angeles, California 90004
Facsimile #:
Attention: Tyler Runnels
Number of Shares: 2,500
Purchase Price: $125,000
<PAGE>
WAVE ENTERPRISES, INC.
By:
-----------------------------------------------
Name:
Title:
Address: 24255 Pacific Coast Highway
Malibu, California 90263-4458
Facsimile #:
Attention: Mike E. O'Neal
Number of Shares: 250
Purchase Price: $12,500
<PAGE>
IRA WEINGARTEN
By:
-----------------------------------------------
Address: Equity Communications
1512 Grand Avenue, Suite 200
Santa Barbara, California 93103
Facsimile #:
Attention: Ira Weingarten
Number of Shares: 625
Purchase Price: $31,250
<PAGE>
J.D. YATES
By:
-----------------------------------------------
Address: 1125 Lane 30 1/4
Pueblo, Colorado 81006
Facsimile #:
Number of Shares: 250
Purchase Price: $12,500
<PAGE>
ZAXIS PARTNERS, L.P.
By:
-----------------------------------------------
Name:
Title:
Address: Apex Capital, LLC
Pine Grove
4 Orinda Way, Suite 240-B
Orinda, California 94563
Facsimile #:
Attention: Sanford J. Colen
Number of Shares: 5,000
Purchase Price: $250,000
<PAGE>
SCHEDULE 6.1
EVENTS OF DEFAULT
-----------------
(a) the Company's breach of the covenant contained in the last
sentence of Section 4.13 of the Agreement;
(b) the failure of the Company to receive approval of the
E-Commerce Plan in accordance with Section 2.2(u) of the Stockholders
Agreement within 120 days from the First Closing Date;
(c) failure to use at least $10,000,000 of the Proceeds for
E-Commerce Proceed Uses during the term of the E-Commerce Plan; and
(d) the Company's material variance (positive or negative) from
the aggregate projected expenditures contained in the E-Commerce Plan
for any calendar month and the continuance of a material variance for
the period beginning on the first day of such month and ending 60 days
after written notice is given to the Company by THLi.
THLi shall be deemed to waive any Event of Default pursuant to clause
(c) or (d) above unless THLi has notified the Company in writing of such
Event of Default within 15 days of the later of (i) THLi's becoming aware
of such Event of Default and (ii) THLi's receipt of the monthly report
required by Section 4.9(e) of the Agreement. In addition, THLi may approve
deviations from the E-Commerce Plan (and such deviations will not be deemed
to be Events of Default) or waive any of the defaults listed above, in each
case by executing a written instrument specifying such waiver.
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
by and among
KRAUSE'S FURNITURE, INC.
and
THE STOCKHOLDERS LISTED ON
THE SIGNATURE PAGES HEREOF
Dated as of January 14, 2000
<PAGE>
TABLE OF CONTENTS
PAGE
Section 1. Definitions .......................................... 2
Section 2. Corporate Governance ................................. 8
2.1 Board of Directors ................................... 8
2.2 Certain Actions Requiring Consent of the GECC
Designee and the THLi Fund Designee ................ 11
2.3 Management ........................................... 14
2.4 Directors' Indemnification ........................... 15
2.5 Expenses ............................................. 15
2.6 Cooperation .......................................... 16
Section 3. Restrictions on Transfers of Stock ................... 16
Section 4. Rights of First Offer ................................ 16
Section 4A. Hawley Trust Stock Rights of First Offer ............. 18
Section 5. Tag-Along Rights ..................................... 20
Section 6. Conflicting Agreements ............................... 21
Section 7. Legend ............................................... 21
Section 8. Representations and Warranties ....................... 22
Section 9. Duration of Agreement ................................ 23
Section 10. Further Assurances ................................... 24
Section 11. Amendment and Waiver ................................. 24
Section 12. Severability ......................................... 24
Section 13. Entire Agreement ..................................... 24
Section 14. Successors and Assigns ............................... 24
Section 15. Counterparts ......................................... 25
Section 16. Remedies ............................................. 25
Section 17. Notices and Other Communications ..................... 25
Section 18. Governing Law; Consent to Jurisdiction ............... 27
Section 19. Descriptive Headings ................................. 27
Section 20. Construction ......................................... 28
<PAGE>
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
This Amended and Restated Stockholders Agreement (this "Agreement") is
made as of January 14, 2000 by and among Krause's Furniture, Inc., a
Delaware corporation (the "Company") and each of the stockholders of the
Company listed on the signature pages hereof (each, a "Signatory
Stockholder" and collectively, the "Signatory Stockholders").
W I T N E S S E T H :
WHEREAS, pursuant to a Securities Purchase Agreement between the
Company and General Electric Capital Corporation (collectively, with GE
Capital Equity Investments, Inc., "GECC") dated August 26, 1996 (the "1996
Securities Purchase Agreement"), GECC purchased from the Company 5,000,000
shares of the Company's common stock, par value $.001 per share (the
"Common Stock"), for an aggregate purchase price of $5,000,000, the
Company's 10% Subordinated Pay-in-Kind Notes due August 31, 2001, as
described in the Securities Purchase Agreement (the "Notes"), in the
initial principal amount of $5,000,000, and, in connection with the Notes,
a warrant (the "First Warrant") to purchase 1,400,000 shares of Common
Stock;
WHEREAS, concurrently with such purchase by GECC, (i) Hawley Group
purchased 1,000,000 shares of Common Stock for an aggregate purchase price
of $1,000,000, (ii) certain other investors purchased 3,000,000 shares of
Common Stock for an aggregate purchase price of $3,000,000 and (iii) Japan
Omnibus Ltd. (formerly named Edson Investments Inc.) and certain other
holders of indebtedness of the Company exchanged such indebtedness for
shares of Common Stock, as more fully described in the Securities Purchase
Agreement;
WHEREAS, in connection with the 1996 Securities Purchase Agreement,
the Company entered into a Stockholders Agreement with certain stockholders
dated August 26, 1996 (the "Prior Stockholders Agreement");
WHEREAS, pursuant to a Supplemental Securities Purchase Agreement
between the Company, GECC and Japan Omnibus LTD. ("JOL"), dated August 14,
1997, (i) the Company and GECC amended and restated the provisions of the
Notes, (ii) GECC and JOL purchased certain additional notes, (iii) in
connection with the Notes, GECC and JOL received warrants (the "Second
Warrants") to purchase 1,300,000 shares of Common Stock and (iv) GECC and
JOL received an additional warrant (the "Performance Warrant," and
collectively with the First Warrant and the Second Warrants, the
"Warrants") to purchase 1,000,000 shares of Common Stock;
WHEREAS, pursuant to a Securities Purchase Agreement among the
Company, TH Lee.Putnam Internet Partners, L.P. and TH Lee.Putnam Internet
Parallel Partners, L.P. (collectively with their Affiliates, "THLi"), and
the purchasers listed on the signature pages thereto (collectively, the
"Purchasers"), dated the date hereof (the "2000 Securities Purchase
Agreement," and, together with the 1996 Securities Purchase Agreement, the
"Securities Purchase Agreements"), the Purchas ers are purchasing from the
Company 380,000 shares of the Company's Series A Convertible Preferred
Stock, par value $.001 per share (the "Series A Preferred Stock"), for an
aggregate purchase price of $19,000,000;
WHEREAS, pursuant to the 2000 Securities Purchase Agreement, the
Company will restructure the Notes, as more fully described in the 2000
Securities Purchase Agreement; and
WHEREAS, it is a condition to the consummation of the foregoing
transactions that the parties hereto enter into this Agreement to amend,
restate and supersede the Prior Stockholders Agreement in accordance with
Section 11 of the Prior Stockholders Agreement, and the parties hereto deem
it to be in their best interests to enter into this Agreement establishing
and setting forth their agreement with respect to certain rights and
obligations associated with ownership of shares of capital stock of the
Company.
SECTION 1. DEFINITIONS. As used herein, the following terms shall have
the following meanings (capitalized terms used herein and not defined
herein shall have the meanings assigned to such terms in the 2000
Securities Purchase Agreement):
"Affiliate" and "Associate" have the meanings ascribed to such terms
in Rule 12b-2 of the General Rules and Regulations under the Exchange Act.
"Beneficially Own" with respect to any securities shall mean having
"benefi cial ownership" of such securities (as determined pursuant to Rule
13d-3 under the Exchange Act), including pursuant to any agreement,
arrangement or understanding, whether or not in writing.
"Board" has the meaning assigned to it in Section 2.1. "By-laws" means
the By-laws of the Company as in effect on the date hereof, as they may be
amended from time to time hereafter.
"Capitalized Lease" shall mean, with respect to any person, any lease
or any other agreement for the use of property which, in accordance with
generally accepted accounting principals, should be capitalized on the
lessee's or user's balance sheet.
"Capitalized Lease Obligation" of any person shall mean and include,
as of any date as of which the amount thereof is to be determined, the
amount of the liability capitalized or disclosed (or which should be
disclosed) in a balance sheet of such person in respect of a Capitalized
Lease of such person.
"Certificate" means the Certificate of Incorporation of the Company as
in effect on the date stated hereof, as it may be amended from time to time
hereafter.
"Common Stock Equivalents" means rights, options, scrip, warrants or
other securities convertible into, or exchangeable or exercisable for,
shares of Common Stock.
"Company" has the meaning assigned to it in the first paragraph
hereof.
"Current Market Price", when used with reference to shares of Common
Stock for any given date, shall mean the closing price per share of Common
Stock on such date. The closing price for each day shall be the last quoted
sale price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System or such
other system then in use, or, if on any such date the Common Stock or such
other securities are not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market
maker making a market in the Common Stock or such other securities selected
by the Board of Directors of the Company. If the Common Stock is listed or
admitted to trading on a national securities exchange, the closing price
shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular
way, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to trading
on the New York Stock Exchange or, if the Common Stock or such other
securities are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national
securities exchange on which the Common Stock or such other securities are
listed or admitted to trading.
"E-Commerce Activities" shall mean business-to-business and e-commerce
activities, including commerce related to transactions on the Internet,
related to the E-Commerce Proceed Uses.
"Employment Agreement" shall mean the Employment Agreement dated as of
August 26, 1996, as amended, between the Company and Philip M. Hawley
("Hawley").
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor Federal statute, and the rules and regulations of
the omission thereunder, all as the same shall be in effect at the time.
Reference to a particular section of the Securities Exchange Act of 1934,
as amended, shall include reference to the comparable section, if any, of
any such successor Federal statute.
"Fully Diluted" shall mean, when used with reference to the Common
Stock, at any date as of which the number of shares thereof is to be
determined, (i) all shares of Common Stock outstanding at such date and
(ii) all shares of Common Stock issuable in respect of vested options or
warrants to purchase, or securities convertible into, exercisable for or
exchangeable for, shares of Common Stock outstanding on such date, the
conversion, exercise or exchange price of which is less than the Current
Market Price.
"Group" has the meaning assigned such term for purposes of Rule 13d-5
under the Exchange Act.
"Guarantee" by any Person shall mean all obligations (other than
endorsements in the ordinary course of business of negotiable instruments
for deposit or collection) of any Person guaranteeing, or in effect
guaranteeing, any Indebtedness, dividend or other obligation of any other
Person (the "Primary Obligor") in any manner, whether directly or
indirectly, including, without limitation, all obligations incurred through
an agreement, contingent or otherwise, by such Person: (i) to purchase such
Indebtedness or obligation or any property or assets constituting security
therefor, (ii) to advance or supply funds (x) for the purchase or payment
of such Indebtedness or obligation, (y) to maintain working capital or
other balance sheet condition or otherwise to advance or make available
funds for the purchase or payment of such Indebtedness or obligation, (iii)
to lease property or to purchase securities or other property or services
primarily for the purpose of assuring the owner of such Indebtedness or
obligation of the ability of the primary obligor to make payment of such
Indebtedness or obligation, or (iv) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purposes of any computations made under this Agreement, a
Guarantee in respect of any Indebtedness for borrowed money shall be deemed
to be Indebtedness equal to the principal amount of the Indebtedness for
borrowed money which has been guaranteed, and a Guarantee in respect of any
other obligation or liability or any dividend shall be deemed to be
Indebtedness equal to the maximum aggregate amount of such obligation,
liability or dividend.
"Hawley Group" shall mean those Persons listed on Schedule A attached
hereto.
"Hawley Trusts" shall mean the Hawley Group other than Philip M.
Hawley and Dr. Philip M. Hawley, Jr.
"Indebtedness" shall mean, with respect to any person, (i) all
obligations of such person for borrowed money, or with respect to deposits
or advances of any kind, (ii) all obligations of such person evidenced by
bonds, debentures, notes or similar instruments, (iii) all obligations of
such person under conditional sale or other title retention agreements
relating to property purchased by such person, (iv) all obligations of such
person issued or assumed as the deferred purchase price of property or
services (other than accounts payable to suppliers and similar accrued
liabilities incurred in the ordinary course of business and paid in a
manner consistent with industry practice), (v) all Indebtedness of others
secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any lien or security
interest on property owned or acquired by such person whether or not the
obligations secured thereby have been assumed, but only to the extent of
such security, if such obligations have not been assumed, (vi) all
Capitalized Lease Obligations of such person, (vii) all Guarantees of such
person, (viii) all obligations (including but not limited to reimbursement
obligations) relating to the issuance of letters of credit for the account
of such person, (ix) all obligations arising out of foreign exchange
contracts, and (x) all obligations arising out of interest rate and
currency swap agreements, cap, floor and collar agreements, interest rate
insurance, currency spot and forward contracts and other agreements or
arrangements designed to provide protection against fluctuations in
interest or currency exchange rates.
"Permal Group" shall mean those Persons listed on Schedule C attached
hereto.
"Permitted Transfer" shall mean any Transfer (i) by an individual
Stock holder to such Stockholder's spouse, former spouse, child, parent,
parent of a spouse, sibling or grandchild (collectively, "Relatives") or to
or among a trust of which there are no principal beneficiaries other than
one or more Relatives of such Stockholder; (ii) from a Relative of an
individual Stockholder to another Relative of that individual Stockholder
or to that individual Stockholder; (iii) by any Stockholder to any of its
Affiliates or partners; or (iv) by an Individual Stockholder pursuant to
laws of descent or survivorship.
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock
company, trust, unincorporated organization or government or any agency or
political subdivisions thereof.
"Proportionate Share" means, with respect to each Stockholder, a
number of shares of Common Stock which bears the same ratio to the number
of shares of Common Stock beneficially owned by such Stockholder on a Fully
Diluted basis as the Tag-Along Number bears to the number of shares of
Common Stock beneficially owned by the Selling Stockholders on a Fully
Diluted basis.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date hereof, between the Company and the
stockholders listed on the signature page thereto as it may be amended from
time to time.
"Related Party" shall mean any officer, director or beneficial holder
of 3% or more of the outstanding shares of capital stock of the Company or
any Subsidiary, any Relative of any such officer, director or beneficial
holder of the Company or any Subsidiary, and any Affiliate or Associate of
any of the foregoing persons.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Sell" as to any Stock, shall mean to sell, or in any other way
directly or indirectly transfer (including by operation of law, by merger
or consolidation, or sale of securities of a holding company), assign,
distribute or otherwise dispose of, such Stock; and the terms "Sale" and
"Sold" shall have meanings correlative to the foregoing. A Permitted
Transfer shall not constitute a Sale for purposes of this Agreement.
"Stock" means (i) any shares of Common Stock and (ii) any Common Stock
Equivalents (including, without limitation, the Common Stock issuable upon
conversion, exercise or exchange thereof), in each case, whether owned on
the date hereof or acquired hereafter.
"Stockholder" and "Stockholders" shall mean the stockholders listed on
Schedule B hereto; provided that any transferee of Stock pursuant to a
Permitted Transfer shall be treated as a Stockholder for purposes of this
Agreement and shall be entitled to the benefits of, and shall be bound by,
the provisions of this Agreement.
"Stockholder's Group" shall mean, with respect to any Stockholder who
is a member of the Hawley Group or the Permal Group, either the Hawley
Group or the Permal Group, as the case may be.
"Subsidiary" means with respect to any Person, (i) any corporation,
partnership or other entity of which shares of capital stock or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other similar managing body of such corporation,
partnership or other entity are at the time owned by such Person, or (ii)
the management of which is otherwise controlled, directly or indirectly,
through one or more intermediaries by such Person.
"Transfer" as to any Stock, means to Sell, or in any other way
directly or indirectly transfer, assign, distribute, pledge, encumber or
otherwise dispose of, either voluntarily or involuntarily, and whether or
not for value.
"Voting Shares" means shares of any class of capital stock of the
Company the holders of which are generally entitled to vote in the election
of members of the Board.
SECTION 2. CORPORATE GOVERNANCE.
2.1 BOARD OF DIRECTORS.
(a) Members. Subject to the provisions of Section 6.10 of the
1996 Securities Purchase Agreement and Section 4.7 of the 2000 Securities
Purchase Agreement, the Board of Directors of the Company (the "Board")
shall consist of nine members, of whom:
(i) one shall be designated by GECC (such person so
designated, and any successor thereto, being referred to herein as the
"GECC Designee");
(ii) one shall be designated by Permal Group (such person so
designated, and any successor thereto, being referred to herein as the
"Permal Designee");
(iii) one shall be Hawley, or, in the event of death or
incapacity of Hawley, shall be John Hawley, or, if John Hawley is
unavailable to serve as director or ceases to serve as director, then
an individual nominated by the trustee(s) of the Hawley Trusts, having
qualifications similar to those of John Hawley or any other director
of the Company shall serve as director under the same terms that would
have applied to John Hawley hereunder (the "Hawley Designee").
(iv) an E-commerce and/or business to business expert shall
be designated by THLi (the "THLi Internet Designee") and one
additional member shall be designated by THLi (the "THLi Fund
Designee" and, together with the THLi Internet Designee and any
successors to either of them, being referred to herein as the "THLi
Designees" );
(v) one shall be unanimously designated by GECC and THLi
(such person so designated, and any successor thereto, being referred
to herein as the "GECC/THLi Designee"); and
(vi) three shall be selected by the vote of the GECC
Designee, the Permal Designee, the THLi Fund Designee and the Hawley
Designee (such persons so designated, any successors thereto, being
referred to herein as the "Joint Designees" and, together with the
GECC Designee, the Permal Designee, the Hawley Designee, the THLi
Designees and the GECC/THLi Designee, the "Designees").
At each meeting of the stockholders of the Company held for the
purpose of electing directors, the Stockholders (other than the Hawley
Trusts) shall take such action as shall be necessary to cause the Designees
(or any successor to any such person designated in accordance with
paragraph (b) of this Section) to be elected as directors (including, in
the case of GECC, Permal Group and THLi, causing their respective designees
on the Board to nominate, and recommend to the stockholders of the Company
the election of, the Designees to the Board and opposing, and causing their
respective designees on the Board to oppose, any proposal to remove any
Designee at each meeting of the stockholders of the Company at which the
election or removal of members of the Board is on the agenda), and shall
take no action which would diminish the prospects of any Designee being
elected to the Board or increase the prospects of any Designee being
removed from the Board. The Company shall take all necessary action to
reduce the size of the Board to the extent required by the first sentence
of this paragraph and shall cause the current members of the Board to
resign from office as necessary to implement the provisions of the first
sentence of this paragraph.
(b) Vacancies. Each of the GECC Designee, the Permal Designee,
the THLi Designees and the GECC/THLi Designee shall hold office until his
death, resignation or removal or until his successor shall have been duly
elected and qualified. If any GECC Designee shall cease to serve as a
director of the Company for any reason, the vacancy resulting thereby shall
be filled by another person designated by GECC. If any Permal Designee
shall cease to serve as a director of the Company for any reason, the
vacancy resulting thereby shall be filled by another person designated by
Permal Group. If any of the THLi Designees shall cease to serve as a
director of the Company for any reason, the vacancy resulting thereby shall
be filled by another person designated by THLi. If any GECC/THLi Designee
shall cease to serve as a director of the Company for any reason, the
vacancy resulting thereby shall be filled by another person unanimously
designated by GECC and THLi. If the Hawley Designee shall cease to serve as
a director of the Company for any reason, the vacancy resulting thereby
shall be filled by another person unanimously designated by the Hawley
Group. In the event that at any time there exist vacancies on the Board
such that there is either no GECC Designee, no Permal Designee, no
GECC/THLi Designee or less than two THLi Designees, no action may be taken
by the Board until such vacancy is filled. GECC, Permal Group, the Hawley
Group and THLi agree to use their best efforts to designate successors to
fill any such vacancies as promptly as practicable.
(c) Removal. No GECC Designee may be removed from office except
by GECC, no Permal Designee may be removed from office except by Permal
Group, no THLi Designee may be removed from office except by THLi, no
Hawley Designee may be removed from office except by the Hawley Group;
provided that such limitation shall not apply to the removal of Hawley as
Chairman so long as Hawley remains a Director, no GECC/THLi Designee may be
removed from office except unanimously by GECC and THLi. GECC shall have
the right to remove any GECC Designee, Permal Group shall have the right to
remove any Permal Designee, THLi shall have the right to remove any THLi
Designee, the Hawley Group shall have the right to remove any Hawley
Designee and GECC and THLi shall unanimously have the right to remove any
GECC/THLi Designee, with or without cause, at any time.
(d) Quorum Requirements. Subject to Section 2.2, the quorum which
shall be required for action to be taken by the Board (other than an
adjournment of any meeting of the Board) shall be the GECC Designee, the
Permal Designee, the THLi Fund Designee and the Hawley Designee. Directors
participating by telephone conference in any meeting of the Board shall be
considered in determining whether a quorum of directors is present.
(e) Committees. The Company shall cause the GECC Designee, the
Permal Designee and at least one THLi Designee to be appointed to each of
the committees of the Board as may be requested at any time or from time to
time by GECC, Permal Group or THLi, as the case may be.
(f) Chairman of the Board. Hawley shall serve as Chairman of the
Board for as long as he is Chief Executive Officer. GECC, Permal Group and
THLi presently intend to continue to nominate Hawley to serve as a director
and Chairman of the Board after Hawley retires as Chief Executive Officer,
provided that Hawley shall not be obligated to accept such nomination.
(g) Board and Committee Meetings. The Company shall hold regular
meetings of its Board on at least a quarterly basis. The Company agrees,
and shall cause its By-laws to be amended to the extent necessary to
provide, that the GECC Designee, any THLi Designee and the GECC/THLi
Designee shall have the right, upon reasonable notice, to call meetings of
the Board and of each committee of the Board on which he or she is a
member.
(h) Duration. The right of each of GECC, Permal Group and THLi to
designate directors pursuant to this Section shall continue only for so
long as GECC and its Affiliates, Permal Group, or THLi and its Affiliates,
as the case may be, beneficially owns at least 2,000,000 shares of Common
Stock on a Fully Diluted Basis, as adjusted for stock splits, combinations
or similar transactions. The right of the Hawley Group to designate
directors pursuant to this Section 2.1(h) shall continue only for so long
as the Hawley Group beneficially owns at least 1,000,000 shares of Common
Stock on a Fully Diluted Basis, as adjusted for stock splits, combinations
or similar transactions.
(i) Observation. In addition to THLi's right to designate members
of the Board pursuant to Section 2.1(a), so long as THLi is the owner of
any Stock, it shall have the right to designate an observer to attend
meetings of the Board, but such observer shall not have a vote with respect
to any matter presented to the Board of Directors for action thereon. In
connection with such observer's right, THLi shall receive all notices and
information provided to Board members.
2.2 CERTAIN ACTIONS REQUIRING CONSENT OF THE GECC DESIGNEE AND THE
THLI FUND DESIGNEE. Notwithstanding any other provision of this Agreement,
without the approval, at a meeting of the Board or a committee thereof duly
called and held, (1) for so long as GECC is entitled to designate the GECC
Designee, of the GECC Designee and (2) for so long as THLi is entitled to
designate the THLi Fund Designee, of the THLi Fund Designee, the Company
shall not, directly or indirectly, and shall not permit any of its
Subsidiaries to, directly or indirectly, take any of the following actions
(except to the extent any such action is specifically authorized under this
Agreement, the Securities Purchase Agreements, the Registration Rights
Agreement or an annual business plan previously approved by the GECC
Designee and the THLi Fund Designee in accordance with this Section):
(a) merge with or into or consolidate with any other Person;
(b) voluntarily liquidate, dissolve or wind up or file any
voluntary petition in bankruptcy or for receivership or make any assignment
for the benefit of creditors;
(c) in any transaction or series of transactions, acquire
(including pursuant to a merger or consolidation) all or any substantial
portion of the business or assets of any Person;
(d) enter or commit to enter into any joint venture or
partnership or establish any non-wholly-owned subsidiaries or otherwise
make any debt or equity investment in any Person (other than extensions of
credit in the ordinary course of business);
(e) expand into new lines of business (it being understood that
"new lines of business" do not include (i) geographic expansion of the
retail operations conducted by the Company and its Subsidiaries as of the
date of this Agreement and (ii) E-Commerce Activities);
(f) assign to any other Person any rights of the Company under
this Agreement, the Registration Rights Agreement or the Securities
Purchase Agreements;
(g) in any transaction or series of transactions, sell, lease or
exchange any assets of the Company and/or any Subsidiary, except for (i)
sales of inventory in the ordinary course of business, (ii) subleasing of
vacant retail space on arm's-length terms and (iii) entering into or
terminating leases in the ordinary course of business pursuant to a
procedure adopted by the Board of Directors and approved by the GECC
Designee and the THLi Fund Designee;
(h) adopt or change any material accounting policy of the Company
or any of its Subsidiaries, except as required by generally accepted
accounting principles;
(i) create, incur, assume or suffer to exist any Indebtedness
other than (a) Indebtedness in existence as of the date of this Agreement
and interest thereon, reduced to the extent such amounts are repaid or
retired, and any refinancing of such Indebtedness, (b) Indebtedness under
the Loan and Security Agreement dated as of January 20, 1995 between the
Company and Congress Financial Corporation (Western), as amended to the
date of this Agreement, including premium (if any), and interest thereon,
(c) Indebtedness already approved in accordance with this subsection,
reduced to the extent such amounts are repaid, refinanced or retired, and
(d) other Indebtedness not to exceed in the aggregate $200,000 at any time
outstanding;
(j) mortgage, encumber, create, incur or suffer to exist, liens
on its assets (other than liens on assets under Indebtedness outstanding as
of the date hereof and materialmen's, mechanics' and other similar liens
arising for work performed in the ordinary course of business which are not
overdue for more than 30 days);
(k) pay, declare or set aside any sums for the payment of, any
dividends, or make any distribution on, any shares of its capital stock or
redeem, repurchase or otherwise acquire any outstanding shares of its
capital stock or any other of its outstanding securities or Indebtedness
(except for Indebtedness (other than indebtedness to any Related Party,
excluding indebtedness for expenses incurred in the ordinary course of
business on behalf of the Company and its Subsidiaries) to the extent it
becomes due in accordance with its terms);
(l) make or commit to make (with respect to the Company and all
of its Subsidiaries taken together) during (i) the calendar year ended
December 31, 2000, any capital expenditure or capital expenditures in an
amount in excess of $8,000,000 with respect to the Company's retail
business and $100,000 with respect to the Company's E-commerce business and
(ii) any other calendar year any capital expenditure or capital
expenditures in an amount in excess of $100,000;
(m) issue or sell any shares of capital stock or rights, options,
warrants or other securities exercisable for, exchangeable for or
convertible into shares of capital stock of the Company or any of the
Company's Subsidiaries, other than upon the exercise of options or warrants
outstanding on the date of this Agreement or previously approved in
accordance with this Section, or grant, amend or terminate any stock
appreciation right or other stock-based award;
(n) enter into, adopt, amend or terminate any employment or
consulting agreement, or hire or retain any person who will report directly
to the Chief Executive Officer or to whom the Company shall pay total
compensation (including, without limitation, compensation in the form of
benefits) in excess of $150,000 per year, or enter into, adopt, amend or
terminate any employee benefit plan, policy or arrangement, except as
required by law or generally accepted accounting principles; provided that
the renewal by the Company in the ordinary course of its business of
benefit plans applicable to employees of the Company, generally, shall not
require consent pursuant to this subparagraph (n);
(o) amend its Certificate or By-laws, including, without
limitation, any change in the number of directors comprising its Board of
Directors, or adopt, amend, redeem or terminate any shareholder rights plan
or similar plan or arrangement;
(p) amend, modify or waive an provision of this Agreement, the
Securities Purchase Agreements, the Registration Rights Agreement or the
agreements ancillary thereto, or become a party to any agreement which by
its terms restricts the Company's or any of its Subsidiaries', or any
Stockholder's, performance of the terms of any of such agreements;
(q) change its independent certified accountants or actuaries;
(r) register any securities under the Securities Act or grant any
registration rights therefor;
(s) enter into, amend or terminate, or waive any material rights
of the Company and its Subsidiaries under, any contract, arrangement or
transaction involving consideration in excess of $100,000 or which is
otherwise material to the Company or any of its Subsidiaries;
(t) enter into, amend or terminate any contract, arrangement or
transaction with a Related Party, other than (i) any action to terminate
the Consumer Credit Card Agreement by and among Krause's Sofa Factory,
Castro Convertible Corporation and Monogram Credit Bank of Georgia, dated
as of April 27, 1997, and (ii) the payment of salary and benefits pursuant
to employment arrangements entered into in the ordinary course of business
in compliance with this Agreement;
(u) enter into, adopt, amend (whether by agreement or by conduct
of the business), except as required by law or generally accepted
accounting principles, or terminate any annual business plan;
(v) take any action required by law to be approved by the Board;
or
(w) agree or otherwise commit to take any of the actions set
forth in the foregoing subparagraphs (a) through (v).
2.3 MANAGEMENT.
(a) Chief Executive Officer. Subject to the provisions of this
Agreement and the Employment Agreement, Hawley shall be the Chief Executive
Officer of the Company. In the event of the death, resignation, removal or
other termination of Hawley's services as Chief Executive Officer, any
successor Chief Executive Officer (and any successor(s) thereto) shall be
selected by a majority of the Board; provided that no such person shall be
selected without the unanimous approval of the GECC Designee and the THLi
Fund Designee.
(b) Appointment of Management. Subject to Section 2.2 hereof, all
members of management of the Company (other than the Chief Executive
Officer) shall be designated by, their compensation shall be determined by,
and they may be removed, promoted or demoted by, the Chief Executive
Officer of the Company; provided, however, that the designation of, setting
of compensation for, or removal, promotion or demotion of, any person who
will report directly to the Chief Executive Officer or earn total
compensation (including benefits) from the Company and its Subsidiaries of
$150,000 or more per year shall be subject to the prior approval of the
Board.
2.4 DIRECTORS' INDEMNIFICATION.
(a) The Company shall obtain and cause to be maintained in
effect, with financially sound insurers, a policy of directors' and
officers' liability insurance covering the Designees (and their respective
successors) in an amount of at least $15,000,000 or such other amount the
Board shall specify (as such amount shall be increased from time to time at
the request of GECC or THLi).
(b) The Certificate, By-laws and other organizational documents
of the Company and each of its Subsidiaries shall at all times, to the
fullest extent permitted by law, provide for indemnification of,
advancement of expenses to, and limitation of the personal liability of,
the members of the Board and the members of the boards of directors or
other similar managing bodies of each of the Company's Subsidiaries and
such other persons, if any, who, pursuant to a provision of such
Certificates, By-laws or other organizational documents, exercise or
perform any of the powers or duties otherwise conferred or imposed upon
members of the Board or the boards of directors or other similar managing
bodies of each of the Company's Subsidiaries. Such provisions may not be
amended, repealed or otherwise modified in any manner adverse to any member
of the Board or any member of the boards of directors or other similar
managing bodies of any of the Company's Subsidiaries, until at least six
years following the termination of this Agreement.
(c) Each of the Designees is intended to be a third-party
beneficiary of the obligations of the Company pursuant to this Section 2.4,
and the obligations of the Company pursuant to this Section 2.4 shall be
enforceable by the Designees.
2.5 EXPENSES. The Company shall pay the reasonable out-of-pocket
expenses incurred by each of the GECC designee, the Permal Designee, the
THLi Designees, the GECC/THLi Designees and the Joint Designees in
connection with performing his or her duties, including without limitation
the reasonable out-of-pocket expenses incurred by such person attending
meetings of the Board or any committee thereof or meetings of any board of
directors or other similar managing body (and any committee thereof) of any
subsidiary of the Company.
2.6 COOPERATION. Each Stockholder (other than the Hawley Trusts)
shall vote all of its voting shares and shall take all other necessary or
desirable actions within its control (including, without limitation,
attending all meetings in person or by proxy for purposes of obtaining a
quorum, executing all written consents in lieu of meetings and voting to
remove members of the Board or to amend the Certificate, as applicable),
and the Company shall take all necessary and desirable actions within its
control (including, without limitation, calling special Board and
stockholder meetings and voting to remove members of the Board or to amend
the Certificate, as applicable), to (a) effectuate the provisions of
Section 2.1 and (b) cause the Company to have a sufficient number of
authorized and unissued shares of Company Stock reserved for issuance
solely for the purpose of effecting conversion of outstanding Series A
Preferred Stock.
SECTION 3. RESTRICTIONS ON TRANSFERS OF STOCK.
(a) Notwithstanding anything to the contrary contained herein, no
Stockholder shall Transfer any Stock, except for Sales in bona fide
transactions for value complying with the provisions of this Section 3 and
Permitted Transfers. The Company shall not reflect on its books any Sale of
Stock, unless (a) the Sale is pursuant to an effective registration
statement under the Securities Act and under any applicable state
securities or blue sky laws, or (b) the Selling Stockholder shall have
furnished the Company with evidence reasonably satisfactory to the Company
that no such registration is required because of the availability of an
exemption from registration under the Securities Act and under applicable
state securities or blue sky laws. A written opinion of counsel of
recognized standing to the effect set forth in clause (b) of the preceding
sentence shall satisfy the requirements of such clause.
(b) Any Transfer or attempted Transfer of Stock in violation of
any provision of this Agreement shall be void, and the Company shall not
record such Transfer on its books or treat any purported transferee of such
Stock as the owner of such Stock for any purpose.
SECTION 4. RIGHTS OF FIRST OFFER.
(a) If any Stockholder (other than the Hawley Trusts) intends to
Sell any Stock (other than (1) Sales pursuant to a registered public
offering or (2) Sales on a national securities exchange which, when
aggregated with all other Sales under this clause (2) by such Stockholder
or, if such Stockholder is a member of a Stockholder Group, all other Sales
under this clause (2) by the members of such Stockholder Group from and
after the date of this Agreement, would represent, in the aggregate, not
more than 1,000,000 shares of Common Stock on a Fully Diluted Basis, as
adjusted for stock splits, combinations or similar transactions):
(i) The Stockholder intending to transfer such Stock (the
"Proposing Seller") shall give each other Stockholder (each an
"Offeree") written notice of its intent to Sell such Stock, specifying
the number of securities to be sold and the minimum price and terms
and conditions of such sale and offering to Sell to such Offeree, at
such minimum price and on such terms and conditions, its pro rata
share of such Stock (based on the number of shares of Common Stock
beneficially owned by each Offeree on a Fully Diluted basis); provided
that any Offeree may, by written notice to the Proposing Seller, elect
to purchase, in addition to its pro rata share of such Stock, all or
any portion of the Stock (if any) with respect to which any other
Offeree fails to exercise its right of first offer under this Section
4, and such additional Stock shall be pro-rated among such Offerees in
the manner described above to the extent such additional Stock is
oversubscribed;
(ii) if any Offeree shall not, within 15 days after receipt of
the notice given pursuant to clause (i) above, accept such offer in
writing with respect to the Stock specified in such notice, then the
Proposing Seller shall be free to Sell the Stock specified in the
notice to such Offeree (but only those securities covered by the
notice of intention to Sell which no other Offeree shall have agreed
to purchase) at a price equal to or above the minimum price and on
other terms and conditions no less favorable to the Proposing Seller
than those specified in such notice, at any time within 90 days of the
expiration of such 15-day period;
(iii) if the Proposing Seller shall not have consummated the
proposed Sale within 90 days after the expiration of the 15-day period
referred to in clause (ii) above, then the Proposing Seller may not
thereafter Sell such Stock without complying with the provisions of
this Section 4; and
(iv) if any Offeree shall accept such offer within 15 days after
the notice given pursuant to clause (i) above, then such Offeree shall
purchase the Stock specified in such notice as promptly as is
reasonably practicable, but in any event within 45 days after the
notice given pursuant to clause (i) above or such later date as the
Proposing Seller may designate within the 90-day period referred to in
clause (iii) above.
(b) THLi, 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, a "Permal Offeree") has the opportunity to purchase any Common
Stock ("Offered Shares") owned by any member of the Permal Group, whether
by offer to the Permal Offeree from a member of the Permal Group or due to
a solicitation by the Permal Offeree, or otherwise, the Permal Offeree
shall promptly notify the parties subject to (and entitled to the benefits
of) this Section 4(b)(v) of the opportunity and shall allow them the right
to participate in such purchase and acquire Offered Shares. The number of
Offered Shares that may be purchased by each of them, respectively, shall
be (i) as among GECC, THLi and all of the members of the Hawley Group
together, in proportion to the number of shares of Common Stock owned by
GECC, THLI or the Hawley Group, respectively, as a percentage of the
aggregate number of shares of Common Stock then owned by GECC, THLi and all
members of the Hawley Group together, and (ii) as among the members of the
Hawley Group, in proportion to the number of shares of Common Stock owned
by such member as a percentage of the number of shares of Common Stock then
owned by all Hawley Group members electing to purchase Common Stock
hereunder. The rights in this Section 4(b) are in addition to and
subordinate to the other provisions of this Stockholders Agreement. Any
failure to exercise the rights in the Section within 15 days of receipt of
notice shall be deemed a waiver of such rights.
SECTION 4A. HAWLEY TRUST STOCK RIGHTS OF FIRST OFFER. If any of the
Hawley Trusts intends to sell any Stock (other than (1) Sales pursuant to a
registered public offering or (2) Sales on a national securities exchange
which, when aggregated with all other Sales under this clause (2) by the
Hawley Group from and after the date of this Agreement, would represent, in
the aggregate, not more than 1,000,000 shares of Common Stock on a Fully
Diluted Basis, as adjusted for stock splits, combinations or similar
transactions):
(i) the Hawley Trust intending to transfer such Stock (the
"Hawley Trust Seller") shall give the Company, GECC, THLi and the
Permal Group written notice (the "Hawley Trust Seller Notice") of its
intent to Sell such Stock, specifying the number of securities to be
sold and the minimum price and terms and conditions of such sale, and
offering to Sell to the Company, GECC, THLi and the Permal Group, at
such minimum price and on such terms and conditions. The Company shall
provide a copy of any Hawley Trust Seller Notice to each Stockholder
within two days after receipt by it of the Hawley Trust Seller Notice.
The Company shall have the right to purchase all or any part of such
Stock by giving written notice to the Hawley Trust Seller, GECC, THLi
and the Permal Group within two days after receipt by it of the Hawley
Trust Seller Notice, specifying the number of shares of such Stock to
be so purchased by the Company. If the Company elects to purchase none
of, or less than all, the Stock that is the subject of the proposed
Transfer by the Hawley Trust Seller, then GECC, THLi and the Permal
Group shall have the right to purchase their pro rata share of any or
all of the available Stock (and, if either elects not to purchase its
full pro rata share, the Stock not so purchased) by giving written
notice to the Hawley Trust Seller and the Company within seven days
after receipt by it of the Hawley Trust Seller Notice (the "Notice
Period"); provided that any other Stockholder (each, an "Electing
Stockholder") may, by written notice to GECC, THLi and the Permal
Group prior to the expiration of the Notice Period elect to purchase
its pro rata share of the available Stock, and any such Electing
Stockholder may elect to purchase, in addition to its pro rata share
of the available Stock, all or any portion of the Stock (if any) with
respect to which GECC, THLi, the Permal Group or any other Stockholder
fails to exercise its right under this Section 4A, and such additional
Stock shall be pro-rated among such Electing Stockholders in the
manner described above to the extent such additional Stock is
oversubscribed;
(ii) GECC shall act as agent for the Electing Stockholders in
connection with any exercise by an Electing Stockholder of its rights
under this Section and the Hawley Trust Seller shall not be obligated
to deal with any Stockholder other than GECC in connection with any
purchase and sale under this Section 4A; provided that GECC shall have
no liability to the Hawley Trust Seller if GECC fails to purchase any
Stock which GECC disclosed in writing to the Hawley Trust Seller at
the time of delivery of GECC's election to purchase was being
purchased by GECC solely as agent for one or more Electing
Stockholders; and GECC shall have no liability to any other
Stockholder for any act or omission by GECC under this Section 4A;
(iii) if the Company, GECC, THLi and the Permal Group fail to
elect to purchase all the Stock specified in the Hawley Trust Seller
Notice, then the Hawley Trust Seller shall be free to sell, pursuant
to a Shelf Registration Statement, the portion of such Stock as to
which no election to purchase has been made by the Company, GECC, THLi
or the Permal Group at a price equal to or above the minimum price and
on other terms and conditions no less favorable to the Hawley Trust
Seller than those specified in the Hawley Trust Seller Notice, at any
time within 90 days of the expiration of the seven-day period referred
to in clause (i) above;
(iv) if the Hawley Trust Seller shall not have consummated the
proposed Transfer within 90 days after the expiration of the seven-day
period referred to in clause (ii) above, then the Hawley Trust Seller
may not thereafter Transfer such Stock without complying with the
provisions of this Section 4A;
(v) any Electing Stockholder shall provide to GECC all funds
required, and shall execute and deliver to GECC all documents
reasonably requested by GECC, in connection with the purchase by GECC
of any Stock as agent for such Electing Stockholder, and GECC shall
deliver certificates representing the Stock acquire by such Electing
Stockholder to such Stockholder promptly following the consummation of
any purchase under this Section 4A and the satisfaction by such
Electing Stockholder of his obligations under this clause (v).
SECTION 5. TAG-ALONG RIGHTS.
(a) If GECC, any member of Permal Group, or THLi whether acting
alone or in concert with any other Stockholder (collectively, the "Selling
Stockholders") pursuant to a common plan, understanding or arrangement,
shall enter into an agreement to Sell or otherwise propose to Sell to any
Person or Group (other than pursuant to a registered public offering) (such
Person or Group, the "Tag-along Transferee"), in one transaction or a
series of related transactions, any Stock, such that immediately following
the consummation of such Sale, the Selling Stockholders would have Sold to
such Person or Group in the aggregate Stock representing in excess of
3,000,000 shares of Common Stock on a Fully Diluted Basis, as adjusted for
stock splits, combinations or similar transactions (a "Tag-along Sale")
(such number of shares of Stock being referred to herein as the "Tag-along
Number"), then each of the other Stockholders (each a "Tag-along Offeree")
shall have the right to participate in such Tag-Along Sale by selling a
number of shares of Common Stock equal to such Stockholder's Proportionate
Share, as part of the Tag-Along Sale by the Selling Stockholders, on the
same terms as those applicable to the Tag-Along Sale (except that, if the
Tag-Along Sale involves Common Stock Equivalents, the economic terms of
such Sale shall be appropriately adjusted to reflect that the Tag-Along
Offerees are selling Common Stock).
(b) The Selling Stockholders shall provide to each Tag-Along
Offeree written notice of any Tag-Along Sale (the "Tag-along Notice"), not
more than 45 and not less than 15 days prior to the Tag-Along Sale, setting
forth the terms of the Tag-Along Sale and specifically identifying the
Tag-Along Transferee of the Stock, and shall give each Tag-Along Offeree at
least 10 days after delivery of the Tag-Along Notice within which to
exercise its rights contained in this Section 5, by written notice thereof
to the Selling Stockholder.
SECTION 6. CONFLICTING AGREEMENTS. Each Stockholder represents and
warrants that such Stockholder has not granted and is not a party to any
proxy, voting trust or other agreement which is inconsistent with or
conflicts with any provision of this Agreement, and no holder of Stock
shall grant any proxy or become party to any voting trust or other
agreement which is inconsistent with or conflicts with any provision of
this Agreement.
SECTION 7. LEGEND. (a) Each Stockholder and the Company shall take all
such action necessary (including exchanging with the Company certificates
representing shares of Stock issued prior to the date hereof) to cause each
certificate representing outstanding shares of Stock (other than shares
which have been registered under the Securities Act, to which the first
paragraph of such legends shall not apply) to bear legends substantially in
the form as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS."
"THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED BY A STOCKHOLDERS AGREEMENT BY AND AMONG KRAUSE'S FURNITURE,
INC. (THE "COMPANY") AND THE STOCKHOLDERS PARTIES THERETO (THE
"STOCKHOLDERS AGREEMENT"), A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE
COMPANY."
"IN ADDITION TO THE RESTRICTIONS SET FORTH IN THE STOCKHOLDERS
AGREEMENT, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE RESTRICTIONS SET FORTH IN A SECURITIES PURCHASE AGREEMENT BETWEEN THE
COMPANY AND GENERAL ELECTRIC CAPITAL CORPORATION AND A SECURITIES PURCHASE
AGREEMENT BY AND AMONG THE COMPANY AND THE PURCHASERS LISTED ON THE
SIGNATURE PAGES THERETO, A COPY OF EACH OF WHICH IS ON FILE AT THE OFFICES
OF THE COMPANY."
The first paragraph of the legends shall be removed from certificates
for shares transferred pursuant to Rule 144 under the Securities Act or
when such shares are transferred in any other transaction, in each case if
the seller delivers to the Company an opinion of its counsel, which counsel
and opinion shall be reasonably satisfactory to the Company, or a
"no-action" letter from the staff of the Securities and Exchange
Commission, in either case to the effect that such legend is no longer
necessary in order to protect the Company against a violation by it of the
Securities Act upon any Sale or other disposition of such shares without
registration thereunder. The requirement that the above legend regarding
this Agreement be placed upon certificates evidencing shares of Stock shall
cease and terminate upon the Sale of such shares, other than pursuant to a
Permitted Transfer. Upon the consummation of any event requiring the
removal of a legend hereunder, the Company, upon the surrender of
certificates containing such legend, shall, at its own expense, deliver to
the holder of any such shares as to which the requirement for such legend
shall have terminated, one or more new certificates evidencing such shares
not bearing such legend.
(b) Any provision herein to the contrary notwithstanding,
certificates for up to 1,000,000 shares of Common Stock held by the Hawley
Trusts shall not be required to bear legends required by this Agreement so
long as such shares may sold under Rule 144(k) under the Securities Act or
are not "restricted securities" within the meaning of Rule 144 under the
Securities Act.
SECTION 8. REPRESENTATIONS AND WARRANTIES.
(a) Each party hereto represents and warrants to the other
parties hereto as follows:
(i) it has full power and authority to execute, deliver and
perform its obligations under this Agreement;
(ii) this agreement has been duly and validly authorized,
executed and delivered by it, and constitutes a valid and binding
obligation of it, enforceable against it in accordance with its terms
except to the extent that enforceability may be limited by bankruptcy,
insolvency or other similar laws affecting creditors' rights
generally;
(iii) the execution, delivery and performance of this Agreement
by it does not (x) violate, conflict with, or constitute a breach of
or default under its organizational documents, if any, or any
agreement to which it is a party or by which it is bound or (y)
violate any law, regulation, order, writ, judgment, injunction or
decree applicable to it;
(iv) no consent or approval of, or filing with, any governmental
or regulatory body is required to be obtained or made by it in
connection with the transactions contemplated hereby; and
(v) it is not a party to any agreement which is inconsistent with
the rights of any party hereunder or otherwise conflicts with the
provisions hereof.
(b) each Signatory Stockholder severally represents and warrants
to GECC and THLi with respect only to GECC and THLi and not any other
Stockholder as follows:
(i) Schedule B hereto sets forth a list of all securities of the
Company (including, without limitation, shares of capital stock,
convertible securities, debentures, etc.) held of record or
beneficially owned by it immediately after the date hereof; and
(ii) except as set forth on Schedule B hereto and other than this
Agreement and the Registration Rights Agreement, it is not a party to
any contract or agreement, written or oral, with respect to the voting
or transfer of securities of the Company (including, without
limitation, any voting agreement, voting trust, stockholder's
agreement, registration rights agreement, etc.).
SECTION 9. DURATION OF AGREEMENT. Subject to the last sentence of this
Section, the rights and obligations of a Stockholder under this Agreement
shall terminate at such time as such Stockholder no longer is the
beneficial owner of any shares of Stock. As to any of GECC's rights or
obligations under this Agreement, this Agreement shall terminate at such
time as GECC no longer is the beneficial owner of 2,000,000 or more of the
outstanding shares of Common Stock on a Fully Diluted Basis, subject to
adjustment for stock splits, combinations or similar transactions, or at
such earlier time as may be agreed by GECC, Permal Group and THLi (or, if
applicable, THLi's transferee pursuant to Section 14(ii)).
As to any of THLi's rights or obligations under this Agreement, this
Agreement shall terminate at such time as THLi (and any transferee's
assigned rights under this Agreement pursuant to Section 14) no longer
beneficially owns 2,000,000 or more of the outstanding shares of Common
Stock on a Fully Diluted Basis, subject to adjustment for stock splits,
combinations or similar transactions, or at such earlier time as may be
agreed by GECC, Permal Group and THLi (or such transferee, if applicable).
This Agreement (other than Section 4A), shall terminate as to any
member of the Hawley Group six months after Hawley ceases to be a Director
of the Company.
Any provision herein to the contrary notwithstanding, the provisions
of Sections 3, 4, 4A, 5 and 7 of this Agreement shall not be applicable to
any shares of Stock first acquired by any member of the Hawley Group after
August 26, 1996 or by any member of the Permal Group, GECC or THLi after
the date hereof.
SECTION 10. FURTHER ASSURANCES. At any time or from time to time after
the date hereof, the parties agree to cooperate with each other, and at the
request of any other party, to execute and deliver any further instruments
or documents and to take all such further action as the other party may
reasonably request in order to evidence or effectuate the consummation of
the transactions contemplated hereby and to otherwise carry out the intent
of the parties hereunder.
SECTION 11. AMENDMENT AND WAIVER. Except as otherwise provided herein,
no modification, amendment or waiver of any provision of this Agreement
shall be effective against the Company or any Stockholder unless such
modification, amendment or waiver is approved in writing by the Company,
Stockholders holding at least a majority of the Common Stock, and, so long
as it holds any shares of Stock, by GECC or THLi. The failure of any party
to enforce any of the provisions of this Agreement shall in no way be
construed as a waiver of such provisions and shall not affect the right of
such party thereafter to enforce each and every provision of this Agreement
in accordance with its terms.
SECTION 12. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law
or rule in any jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provision or any other
jurisdiction, but this Agreement shall be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision
had never been contained herein.
SECTION 13. ENTIRE AGREEMENT. Except as otherwise expressly set forth
herein, this document and the other documents dated the date hereof
executed in connection herewith embody the complete agreement and
understanding among the parties hereto with respect to the subject matter
hereof and supersedes and preempts any prior understandings, agreements or
representations by or among the parties, written or oral, which may have
related to the subject matter hereof in any way.
SECTION 14. SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, this Agreement shall bind and inure to the benefit of and be
enforceable by the Company and its successors and assigns and each
Stockholder and their respective successors, assigns, heirs and personal
representatives, so long as they hold Stock. No Stockholder shall have the
right to assign its rights and obligations under this Agreement, except
pursuant to (i) a Permitted Transfer or (ii) a transfer by THLi of more
than 50% of the Stock (calculated as if all shares of Series A Preferred
Stock had been converted into shares of Common Stock as of the date of such
calculation) held by THLi as of the date of this Agreement (in which case
the transferee shall be entitled to exercise all rights, and shall be bound
by all obligations, of its transferor under this Agreement).
SECTION 15. COUNTERPARTS. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken
together shall constitute one and the same agreement.
SECTION 16. REMEDIES. Each Stockholder shall be entitled to enforce
its rights under this Agreement specifically to recover damages by reason
of any breach of any provision of this Agreement and to exercise all other
rights existing in their favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that each party may in its sole discretion
apply to any court of law or equity of competent jurisdiction for specific
performance and/or injunctive relief (without posting a bond or other
security) in order to enforce or prevent any violation of the provisions of
this Agreement.
SECTION 17. NOTICES AND OTHER COMMUNICATIONS. All notices, consents,
requests, instructions, approvals, financial statements, proxy statements,
reports and other communications provided for herein shall be in writing
and shall be delivered personally, by facsimile or sent by prepaid
overnight courier service, to the Company and to each Stockholder as set
forth below and to any subsequent holder of Stock subject to this Agreement
at such address as indicated by the Company's records, or at such address
or to the attention of such other person as the recipient party has
specified by written notice to the sending party:
The Company:
Krause's Furniture, Inc.
200 North Berry Street
Brea, CA 92821-3903
Facsimile #: (714) 990-3561
Attention: Philip M. Hawley
with copies to:
Krause's Furniture, Inc.
200 North Berry Street
Brea, CA 92821-3903
Facsimile #: (714) 990-3561
Attention: Judith O. Lasker, Esq.
and
Morrison & Foerster LLP
555 West 5th Street, Suite 3500
Los Angeles, CA 90013-1024
Facsimile #: (213) 892-5454
Attention: Charles Kaufman, Esq.
To each Stockholder:
At the address for such Stockholder set forth
on Schedule B attached hereto.
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Facsimile #: (212) 859-4000
Attention: Warren de Wied, Esq.
and
Stroock & Stroock & Lavan LLP
7 Hanover Square
New York, New York 10004
Facsimile #: (212) 806-6006
Attention: David Kaufman, Esq.
and
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Suite 3400
Los Angeles, California 90071
Facsimile #: (213) 687-5600
Attention: Michael A. Woronoff, Esq.
SECTION 18. GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement
shall be governed by and construed in accordance with the laws of the State
of New York, including, without limitation, Sections 5-1401 and 5-1402 of
the New York General Obligations Law and New York Civil Practice Laws and
Rules 327(b). Each of the parties hereto hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the
courts of the State of New York and of the United States of America, in
each case located in the County of New York, for any action, proceeding or
investigation in any court or before any governmental authority
("litigation") arising out of or relating to this Agreement and the
transactions contemplated hereby (and agrees not to commence any litigation
relating thereto except in such courts), and further agrees that service of
any process, summons, notice or document by U.S. Registered Mail to its
respective address set forth in this Agreement shall be effective service
of process for any litigation brought against it in any such court. Each of
the parties hereto hereby irrevocably and unconditionally waives any
objection to the laying of venue of any litigation arising out of this
Agreement or the transactions contemplated hereby in the courts of the
State of New York or the United States of America, in each case located in
the County of New York, and hereby further irrevocably and unconditionally
waives and agrees not to plead or claim in any such court that any such
litigation brought in any such court has been brought in an inconvenient
forum. Each of the parties irrevocably and unconditionally waives, to the
fullest extent permitted by applicable law, any and all rights to trial by
jury in connection with any litigation arising out of or relating to this
Agreement or the transactions contemplated hereby.
SECTION 19. DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
SECTION 20. CONSTRUCTION. Where specific language is used to clarify
by example a general statement contained herein, such specific language
shall not be deemed to modify, limit or restrict in any manner the
construction of the general statement to which it relates. The language
used in this Agreement shall be deemed to be the language chosen by the
parties hereto to express their mutual intent, and no rule of strict
construction shall be applied against any party.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement on the day and year first above written.
KRAUSE'S FURNITURE, INC.
By: /s/ Robert A. Burton
-----------------------------------------
Name: Robert A. Burton
Title: Executive Vice President and
Chief Financial Officer
<PAGE>
GE CAPITAL EQUITY INVESTMENTS, INC.
By: /s/ George L. Hashbarger, Jr.
-----------------------------------------
Name: George L. Hashbarger, Jr.
Title: Senior Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ George L. Hashbarger, Jr.
-----------------------------------------
Name: George L. Hashbarger, Jr.
Title: Department Operations Manager
<PAGE>
PERMAL CAPITAL MANAGEMENT, INC.
By: /s/ Thomas M. DeLitto
-----------------------------------------
Name:
Title:
PERMAL SERVICES, INC.
By: /s/ Thomas M. DeLitto
-----------------------------------------
Name:
Title:
PERMAL CAPITAL PARTNERS, L.P.
By: PERMAL MANAGEMENT CORPO RATION,
its Investment Manager
By: /s/ Thomas M. DeLitto
-----------------------------------------
Name:
Title:
PERMAL ASSET MANAGEMENT
By: /s/ Thomas M. DeLitto
-----------------------------------------
Name:
Title:
PERMAL SPECIAL OPPORTUNITIES, LTD.
By: /s/ James R. Hodge
-----------------------------------------
Name:
Title:
JAPAN OMNIBUS LTD.
By: /s/ James R. Hodge
-----------------------------------------
Name:
Title:
JEAN R. PERRETTE
By: /s/ Jean R. Perrette
-----------------------------------------
ISAAC ROBERT SOUEDE
By: /s/ Isaac Robert Souede
-----------------------------------------
THOMAS M. DELITTO
By: /s/ Thomas M. Delitto
-----------------------------------------
THOMAS M. AND DONNA S. DELITTO
By: /s/ Thomas M. Delitto
-----------------------------------------
Name: Thomas M. DeLitto
By:
-----------------------------------------
Name: Donna S. DeLitto
UNITED GULF BANK (B.S.C.) E.C.
By:
-----------------------------------------
Name:
Title:
KUWAIT INVESTMENT PROJECTS COMPANY
By:
-----------------------------------------
Name:
Title:
ATCO HOLDINGS, LTD.
By: /s/ Kamal Abdelnour
-----------------------------------------
Name:
Title:
ATCO DEVELOPMENT, INC.
By: /s/ Kamal Abdelnour
-----------------------------------------
Name:
Title:
<PAGE>
PILOT HOLDINGS, L.P.
By: SHED INVESTMENTS, LLC, its
General Partner
By: /s/ Thomas M. DeLitto
-----------------------------------------
Name: Thomas M. DeLitto
Title: Managing Member
<PAGE>
ALLISON BOOTH HAWLEY TRUST I
By:
-----------------------------------------
Name:
Title:
CAITLIN HALE HAWLEY TRUST I
By:
-----------------------------------------
Name:
Title:
MAUREEN ERIN HAWLEY TRUST I
By:
-----------------------------------------
Name:
Title:
SHANNON FOLLEN HAWLEY TRUST I
By:
-----------------------------------------
Name:
Title:
HAWLEY FAMILY TRUST
By:
-----------------------------------------
Name:
Title:
DR. PHILIP M. HAWLEY, JR.
By:
-----------------------------------------
PHILIP M. HAWLEY
By:
-----------------------------------------
<PAGE>
TH LEE.PUTNAM INTERNET PARTNERS, L.P.
By: TH LEE.PUTNAM INTERNET FUND AD
VISORS, L.P., its General Partner
By: TH LEE.PUTNAM INTERNET FUND
ADVISORS, LLC, its General Partner
By: /s/ Christine Kim
-----------------------------------------
Name: Christine Kim
Title: Vice President
TH LEE.PUTNAM INTERNET PARALLEL
PARTNERS, L.P.
By: TH LEE.PUTNAM INTERNET FUND AD
VISORS, L.P., its General Partner
By: TH LEE.PUTNAM INTERNET FUND
ADVISORS, LLC, its General Partner
By: Christine Kim
-----------------------------------------
Name: Christine Kim
Title: Vice President
<PAGE>
ASCEND PARTNERS, L.P.
By:
-----------------------------------------
Name:
Title:
LARRY BLACK
By:
-----------------------------------------
BRANAGH REVOCABLE TRUST
By:
-----------------------------------------
Name: Peter W. Branagh
Title: Trustee
By:
-----------------------------------------
Name: Ramona Y. Branagh
Title: Trustee
MATTHEW WILLIAM CLARKE - IRA
By:
-----------------------------------------
Name:
Title:
SANFORD J. COLEN
By:
-----------------------------------------
AARON J. COLEN, UTMA, CA
By:
-----------------------------------------
Name: Sanford J. Colen
Title: Custodian
ELYSE L. COLEN, UTMA, CA
By:
-----------------------------------------
Name: Sanford J. Colen
Title: Custodian
SARA K. COX
By:
-----------------------------------------
JOHN DAVIES
By:
-----------------------------------------
DIAMOND A. PARTNERS, L.P.
By:
-----------------------------------------
Name:
Title:
J. STEVEN EMERSON
By:
-----------------------------------------
EMILY FAIRBAIRN - IRA
By:
-----------------------------------------
Name:
Title:
MALCOLM FAIRBAIRN - IRA
By:
-----------------------------------------
Name:
Title:
WILLIAM T. AND KATHLEEN P. GIBSON
By:
-----------------------------------------
Name: William T. Gibson
By:
-----------------------------------------
Name: Kathleen P. Gibson
JONATHAN & NANCY GLASER FAMILY TRUST
By:
-----------------------------------------
Name: Jonathan M. Glaser
Title: Trustee
By:
-----------------------------------------
Name: Nancy Ellen Glaser
Title: Trustee
EDWARD M. HAWLEY
By:
-----------------------------------------
GEORGE P. HAWLEY
By:
-----------------------------------------
VICTOR F. HAWLEY
By:
-----------------------------------------
RICHARD HICKS
By:
-----------------------------------------
KATHRYN JERGENS TRUST
By:
-----------------------------------------
Name:
Title:
DIANE JOHNSON
By:
-----------------------------------------
RICHARD M. KELLER
By:
-----------------------------------------
STEPHEN M. KELLER
By:
-----------------------------------------
STEPHEN F. KELLER PROFESSIONAL
CORPORATION DEFINED BENEFIT PLAN
By:
-----------------------------------------
Name:
Title:
PAUL KESSLER
By:
-----------------------------------------
SIDNEY KIMMEL
By:
-----------------------------------------
THEODORE D. KONOPISOS
By:
-----------------------------------------
PETER LAMM
By:
-----------------------------------------
ROBERT LONDON
By:
-----------------------------------------
JEFFREY S. MORGAN
By:
-----------------------------------------
THE MUHL FAMILY TRUST
By:
-----------------------------------------
Name: Phillip E. Muhl
Title: Trustee
By:
-----------------------------------------
Name: Kristin A. Muhl
Title: Trustee
PACIFIC SECURITY GROUP, INC.
By:
-----------------------------------------
Name:
Title:
POINTE INVESTMENTS CAPITAL, LTD.
By:
-----------------------------------------
Name:
Title:
POLLAT, EVANS & CO., INC.
By:
-----------------------------------------
Name:
Title:
KEVIN AND ERIN PRZYBOCKI
By:
-----------------------------------------
Name: Kevin Przybocki
By:
-----------------------------------------
Name: Erin Przybocki
CHARLES B. RUNNELS, JR.
By:
-----------------------------------------
CHARLES B. RUNNELS, III
By:
-----------------------------------------
G. TYLER RUNNELS
By:
-----------------------------------------
LORD ROBIN RUSSELL
By:
-----------------------------------------
TIMOTHY MICHAEL WALLACE
By:
-----------------------------------------
WAVE ENTERPRISES, INC.
By:
-----------------------------------------
Name:
Title:
IRA WEINGARTEN
By:
-----------------------------------------
J.D. YATES
By:
-----------------------------------------
ZAXIS PARTNERS, L.P.
By:
-----------------------------------------
Name:
Title:
<PAGE>
SCHEDULE A
HAWLEY GROUP CONSISTS OF:
Allison Booth Hawley Trust I
Caitlin Hale Hawley Trust I
Maureen Erin Hawley Trust I
Shannon Follen Hawley Trust I
Hawley Family Trust
Dr. Philip M. Hawley, Jr.
Philip M. Hawley
<PAGE>
SCHEDULE B
STOCKHOLDER INFORMATION
[FINAL VERSION TO COME]
<PAGE>
SCHEDULE C
PERMAL GROUP CONSISTS OF:
Permal Capital Management, Inc.
Permal Services, Inc.
Permal Capital Partners, L.P.
Permal Asset Management
Permal Special Opportunities, Ltd.
Japan Omnibus Ltd.
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.
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
by and among
KRAUSE'S FURNITURE, INC.
and
THE STOCKHOLDERS LISTED ON THE SIGNATURE PAGES HEREOF
Dated as of January 14, 2000
<PAGE>
Amended and Restated Registration Rights Agreement (this "Agree
ment"), dated as of January 14, 2000, by and among Krause's Furniture,
Inc., a Delaware corporation (the "Company"), and each of the stockholders
of the Company listed on the signature pages hereto (the "Investors").
1. Background. The Investors own shares of either the Company's common
stock, par value $.001 per share (the "Common Stock") or the Company's
Series A Convertible Preferred Stock, par value $.0001 per share, (the
"Series A Preferred Stock"), which is convertible into Common Stock. In
connection with a Securities Purchase Agreement between the Company and the
purchasers listed thereto, dated August 26, 1996, the Company entered into
a Registration Rights Agreement with certain stockholders dated August 26,
1996 (the "Prior Registration Rights Agreement").
Pursuant to a Securities Purchase Agreement among the Company and the
purchasers listed thereto, dated the date hereof, the Company and the
Investors have entered into this Agreement to amend, restate and supersede
the Prior Registration Rights Agreement.
2. Registration Under Securities Act, Etc.
--------------------------------------
2.1 Registration on Request.
-----------------------
(a) Request. Subject to Section 2.8 hereof, at any time and from
time to time upon the written request of Holders (the "Initiating Holders")
of not less than the Required Number of Shares that the Company effect the
registration under the Securities Act (other than pursuant to a Shelf
Registration Statement) of all or part of such Initiating Holders'
Registrable Securities (provided that the Company shall not be obligated to
register less than the Required Number of Shares pursuant to such request),
the Company will promptly give written notice of such requested
registration to all registered Holders, and thereupon the Company will use
its best efforts to effect the registration under the Securities Act of:
(i) the Registrable Securities (representing not less than
the Required Number of Shares) which the Company has been so
requested to register by such Initiating Holders, and
(ii) all other Registrable Securities which the Company has
been requested to register by the Holders thereof (such Holders
together with the Initiating Holders are hereinafter referred to
as the "Selling Holders") by written request given to the Company
within 20 days after the giving of such written notice by the
Company, all to the extent required to permit the disposition of
the Registrable Securities so to be registered.
(b) Registration of Other Securities. Whenever the Company shall
effect a registration pursuant to this Section 2.1 in connection with an
underwritten offering by one or more Selling Holders, no securities other
than Registrable Securities shall be included among the securities covered
by such registration unless (i) the managing underwriter of such offering
shall have advised each Selling Holder to be covered by such registration
in writing that the inclusion of such other securities would not adversely
affect such offering or (ii) the Selling Holders of not less than a
majority of all Registrable Securities to be covered by such registration
shall have consented in writing to the inclusion of such other securities.
(c) Registration Statement Form. Registrations under this Section
2.1 shall be on such appropriate registration form of the Commission as
shall be selected by the Company.
(d) Expenses. The Company will pay the Registration Expenses in
connection with any registration requested pursuant to this Section 2.1.
(e) Effective Registration Statement. A registration requested
pursuant to this Section 2.1 shall not be deemed to have been effected:
(i) unless a registration statement with respect thereto has
become effective,
(ii) if after it has become effective, such registration is
interfered with by any stop order, injunction or other order or requirement
of the Commission or other governmental agency or court for any reason not
attributable to the Selling Holders and such registration has not
thereafter become effective, or
(iii) if the conditions to closing specified in the
underwriting agreement, if any, entered into in connection with such
registration are not satisfied or waived, other than by reason of a failure
on the part of the Selling Holders.
(f) Selection of Underwriters. The underwriter or underwriters of
each underwritten offering of the Registrable Securities shall be selected
by the mutual agreement of the Company and the Selling Holders of a
majority of the Registrable Securities so to be registered.
(g) Priority in Requested Registration. If the managing
underwriter of any underwritten offering shall advise the Company in
writing (with a copy to each Selling Holder) that, in its opinion, the
number of securities requested to be included in such registration exceeds
the number which can be sold in such offering within a price range
acceptable to the Selling Holders of a majority of the Registrable
Securities requested to be included in such registration, the Company will
include in such registration, to the extent of the number which the Company
is so advised can be sold in such offering, Registrable Securities
requested to be included in such registration, pro rata among the Selling
Holders on the basis of the percentage of the Registrable Securities of
such Selling Holders requested so to be registered. In connection with any
such registration to which this Section 2.1(g) is applicable, no securities
other than Registrable Securities shall be covered by such registration.
(h) Limitations on Registration on Request. Notwithstanding
anything in this Section 2.1 to the contrary, the Company shall not be
required to effect, in the aggregate pursuant to this Section 2.1, without
regard to the Holder making such request, more than two registrations
during any twelve month period.
2.2 Incidental Registration.
-----------------------
(a) Right to Include Registrable Securities. If the Company
proposes at any time to register any of its securities under the Securities
Act (other than a Shelf Registration Statement) by registration on Forms
S-1, S-2 or S-3 or any successor or similar form(s) (except registrations
on such Forms or similar form(s) solely for registration of securities in
connection with an employee benefit plan or dividend reinvestment plan or a
merger, reorganization, or consolidation), whether or not for sale for its
own account, it will, subject to Section 2.8 hereof, each such time give
prompt written notice to all registered Holders of its intention to do so
and of such Holders' rights under this Section 2.2. Upon the written
request of any such Holder (a "Requesting Holder") made as promptly as
practicable and in any event within 20 days after the receipt of any such
notice (10 days if the Company states in such written notice or gives
telephonic notice to all registered Holders , with written confirmation to
follow promptly thereafter, that (i) such registration will be on Form S-3
and (ii) such shorter period of time is required because of a planned
filing date) (which request shall specify the Registrable Securities
intended to be disposed of by such Requesting Holder), the Company will,
subject to Section 2.8 hereof, use its best efforts to effect the
registration under the Securities Act of all Registrable Securities which
the Company has been so requested to register by the Requesting Holders
thereof; provided, that if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the
Company shall determine for any reason not to register or to delay
registration of such securities, the Company may, at its election, give
written notice of such determination to each Requesting Holder and (i) in
the case of a determination not to register, shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration (but not from any obligation of the Company to pay the
Registration Expenses in connection therewith), without prejudice, however,
to the rights of any Holder or Holders entitled to do so to request that
such registration be effected as a registration under Section 2.1 and (ii)
in the case of a determination to delay registering, shall be permitted to
delay registering any Registrable Securities, for the same period as the
delay in registering such other securities. No registration effected under
this Section 2.2 shall relieve the Company of its obligation to effect any
registration upon request under Section 2.1. The Company will pay all
Registration Expenses in connection with registration of Registrable
Securities requested pursuant to this Section 2.2.
(b) Priority in Incidental Registrations. If the managing
underwriter of any underwritten offering shall inform the Company (or, in
the case of a secondary offering, the selling stockholders initiating such
offering) of its belief that the number or type of Registrable Securities
requested to be included in such registration would materially adversely
affect such offering, then the Company will include in such registration,
to the extent of the number and type which the Company is (or the selling
stockholders initiating such offering are) so advised can be sold in (or
during the time of) such offering, first, all securities proposed by the
Company (or, in the case of a secondary offering, the selling stockholders
initiating such offering) to be sold for its (or their) own account, and
second, such Registrable Securities and any other securities of the Company
requested to be included in such registration, pro rata among all such
Holders on the basis of the estimated gross proceeds of the securities of
such Holders requested to be so included.
(c) Selection of Managing Underwriter. The managing underwriter
of any underwritten offering pursuant to this Section 2.2 shall be selected
by the Company at its sole discretion.
2.3 Registration Procedures. If and whenever the Company is required
to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Section 2.1, 2.2 or 2.8,
the Company will as expeditiously as possible:
(a) in the case of a registration pursuant to Section 2.1 or 2.2,
prepare and (as soon as practicable, and in any event within 75 days in the
case of Form S-1 or S-2 and 30 days in the case of a registration requested
on Form S-3 after the end of the period within which requests for
registration may be given to the Company) file with the Commission the
requisite registration statement to effect such registration and thereafter
use its best efforts to cause such registration statement to become
effective; provided, that the Company may discontinue any registration of
its securities which are not Registrable Securities (and, under the
circumstances specified in Section 2.2(a), its securities which are
Registrable Securities) at any time prior to the effective date of the
registration statement relating thereto;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of all Registrable Securities covered by
such registration statement for such period as shall be required for the
disposition of all of such Registrable Securities, provided, that in the
case of a registration pursuant to Section 2.1 or 2.2, such period need not
exceed 90 days;
(c) furnish to each seller of Registrable Securities covered by
such registration statement, such number of conformed copies of such
registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the
prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents, as such
seller may reasonably request;
(d) use its best efforts:
(i) to register or qualify all Registrable Securities
and other securities covered by such registration statement under such
other securities or blue sky laws of such states of the United States of
America where an exemption is not available and as the sellers of
Registrable Securities covered by such registration statement shall
reasonably request;
(ii) to keep such registration or qualification in
effect for so long as such registration statement remains in effect; and
(iii) to take any other action which may be reasonably
necessary or advisable to enable such sellers to consummate the disposition
in such jurisdictions of the securities to be sold by such sellers, except
that the Company shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this subdivision (d) be
obligated to be so qualified or to consent to general service of process in
any such jurisdiction;
(e) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or approved by
such other federal or state governmental agencies or authorities as may be
necessary in the opinion of counsel to the Company and counsel to the
seller or sellers thereof to consummate the disposition of such Registrable
Securities;
(f) in the case of a registration pursuant to Section 2.1 or 2.2,
furnish to each seller of Registrable Securities a signed counterpart of
(i) an opinion of counsel for the Company and (ii) a "comfort" letter
signed by the independent public accountants who have certified the
Company's financial statements included or incorporated by reference in
such registration statement covering substantially the same matters with
respect to such registration statement (and the prospectus included
therein) and, in the case of the accountant's comfort letter, with respect
to events subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in accountant's
comfort letters delivered to the underwriters in underwritten public
offerings of securities (and dated the dates such opinions and comfort
letters are customarily dated) and, in the case of the accountant's comfort
letter, such other financial matters, and in the case of the legal opinion,
such other legal matters, as the sellers of a majority of the Registrable
Securities covered by such registration statement, or the underwriters, may
reasonably request;
(g) notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, upon discovery that, or
upon the happening of any event as a result of which, in the judgment of
the Company, the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading, in the light of the circum stances
under which they were made, and at the request of any such seller promptly
prepare and furnish to it a reasonable number of copies of a supplement to
or an amendment of such prospectus as may be necessary so that, in the
judgment of the Company, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made;
(h) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
the period of at least twelve months, but not more than eighteen months,
beginning with the first full calendar month after the effective date of
such registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 promulgated
thereunder, and promptly furnish to each such seller of Registrable
Securities a copy of any amendment or supplement to such registration
statement or prospectus;
(i) provide and cause to be maintained a transfer agent and
registrar (which, in each case, may be the Company) for all Registrable
Securities covered by such registration statement from and after a date not
later than the effective date of such registration; and
(j) use its best efforts to list all Registrable Securities
covered by such registration statement on any national securities exchange
or national quotations system on which Registrable Securities of the same
class covered by such registration statement are then listed.
The Company may require each seller of Registrable Securities as
to which any registration is being effected to furnish the Company in
writing as promptly as reasonably practicable such information regarding
such seller and the distribution of such securities as the Company may from
time to time reasonably request in writing.
Each Holder agrees that upon receipt of any notice from the
Company of the happening of any event of the kind described in subdivision
(g) of this Section 2.3, such Holder will forthwith discontinue such
Holder's disposition of Registrable Securities pursuant to the registration
statement relating to such Registrable Securities until such Holder's
receipt of the copies of the supplemented or amended prospectus
contemplated by subdivision (g) of this Section 2.3 and, if so directed by
the Company, will deliver to the Company (at the Company's expense) all
copies, other than permanent file copies, then in such Holder's possession,
of the prospectus relating to such Registrable Securities current at the
time of receipt of such notice.
2.4 Underwritten Offerings.
----------------------
(a) Requested Underwritten Offerings. If requested by the
underwriters for any underwritten offering by Holders pursuant to a
registration requested under Section 2.1, the Company will enter into an
underwriting agreement with such underwriters for such offering, such
agreement to be reasonably satisfactory in substance and form to the
Company, each such Holder and the underwriters and to contain such
representations and warranties by the Company and such other terms as are
generally prevailing in agreements of that type, including, without
limitation, indemnities to the effect and to the extent provided in Section
2.7. The Holders of the Registrable Securities proposed to be distributed
by such underwriters will cooperate with the Company in the negotiation of
the underwriting agreement and will give consideration to the reasonable
suggestions of the Company regarding the form thereof. Such Holders to be
distributed by such underwriters shall be parties to such underwriting
agreement and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of,
the Company to and for the benefit of such underwriters shall also be made
to and for the benefit of such Holders and that any or all of the
conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
Holders. Any such Holder shall not be required to make any representations
or warranties to or agreements with the Company or the underwriters other
than representations, warranties or agreements regarding such Holder, such
Holder's Registrable Securities, such Holder's intended method of
distribution and any other representations required by law.
(b) Incidental Underwritten Offerings. If the Company proposes to
register any of its securities under the Securities Act as contemplated by
Section 2.2 and such securities are to be distributed by or through one or
more underwriters, the Company will, subject to Section 2.8 hereof, if
requested by any Requesting Holder arrange for such underwriters to include
all the Registrable Securities to be offered and sold by such Requesting
Holder among the securities of the Company to be distributed by such
underwriters. The Holders of Registrable Securities to be distributed by
such underwriters shall be parties to the underwriting agreement between
the Company and such underwriters and may, at their option, require that
any or all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such Holders and
that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to
the obligations of such Holders. Any such Requesting Holder shall not be
required to make any representations or warranties to or agreements with
the Company or the underwriters other than representations, warranties or
agreements regarding such Requesting Holder, such Requesting Holder's
Registrable Securities and such Requesting Holder's intended method of
distribution or any other representations required by law. Notwithstanding
the foregoing provisions of this Section 2.4(b), the Company need not
include any Registrable Securities of any such Requesting Holder in an
underwritten offering of the Company's securities if the inclusion of such
Requesting Holder's securities, in the opinion of the managing underwriter
for such offering by the Company, might adversely affect such offering by
the Company.
(c) Hold-back Agreements.
--------------------
(i) In the case of any underwritten public offering by the
Company of shares of Common Stock, each Holder agrees not to effect
any disposition (other than a disposition of Registrable Securities
under such underwritten public offering or a bona fide pledge or a
disposition to an Affiliate of such Holder who agrees to be bound by
the provisions of this paragraph) (a "Disposition") of any Registrable
Securities, and not to effect any such Disposition of any other equity
security of the Company or of any security convertible into or
exchangeable or exercisable for any equity security of the Company (in
each case, other than as part of such underwritten public offering)
during the 15 days prior to, and during the 90-day period (or such
longer period as may be reasonably requested by the underwriter of
such offering) beginning on, the effective date of such registration
statement (except as apart of such registration); provided that each
Holder has received written notice of such registration at least 15
days prior to such effective date.
(ii) If any registration of Registrable Securities shall be
in connection with an underwritten public offering, the Company agrees
(x) not to effect any public sale or distribution of any of its equity
securities or of any security convertible into or exchangeable or
exercisable for any equity security of the Company (other than any
such sale or distribution of such securities in connection with any
merger or consolidation by the Company or any subsidiary of the
Company of the capital stock or substantially all the assets of any
other person or in connection with an employee stock option or other
benefit plan) during the 90 days prior to, and during the 180-day
period beginning on, the effective date of such registration statement
(except as part of such registration) and (y) that any agreement
entered into after the date of this Agreement pursuant to which the
Company issues or agrees to issue any privately placed equity
securities shall contain a provision under which Holders of such
securities agree not to effect any Disposition of any such securities
during the period referred to in the foregoing clause (x) (except as
part of such registration, if permitted).
2.5 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities
Act pursuant to this Agreement, the Company will give the Holders of
Registrable Securities registered under such registration statement, their
underwriters, if any, and their respective counsel and accountants the
opportunity to participate in the preparation of such registration
statement, each prospectus included therein or filed with the Commission,
and, to the extent practicable, each amendment thereof or supplement
thereto, and give each of them such access to its books and records (to the
extent customarily given to underwriters of the Company's securities) and
such opportunities to discuss the business of the Company with its officers
and the independent public accountants who have certified its financial
statements as shall be necessary, in the opinion of such Holders' and such
underwriters' respective counsel, to conduct a reasonable investigation
within the meaning of the Securities Act.
2.6 Limitations, Conditions and Qualifications to Obligations Under
Registration Covenants. The obligation of the Company to use its best
efforts to cause the Registrable Securities to be registered under the
Securities Act is subject to the following limitations, conditions and
qualifications.
(a) The Company shall be entitled to postpone for a reasonable
period of time (but not exceeding 180 days, in the case of a registration
pursuant to Section 2.1 or 2.2, and 30 days in the case of a registration
pursuant to Section 2.8) the filing of any registration statement otherwise
required to be prepared and filed by it pursuant to Section 2.1, if the
Company determines, in its reasonable judgment, that such registration and
offering (i) would interfere with any financing, acquisition, merger,
consolidation, material joint venture, corporate reorganization or other
material transaction involving the Company or any of its Affiliates, or
(ii) would require premature disclosure of any of the foregoing
transactions (or of the existence of negotiations, discussions or pending
proposals with respect thereto) or of any pending or threatened litigation,
claim, assessment or governmental investigation which would be material to
the Company, and promptly gives the Holders requesting registration thereof
pursuant to Section 2.1 written notice of such delay. If the Company shall
so postpone the filing of a registration statement, such Holders of
Registrable Securities requesting registration thereof pursuant to Section
2.1 shall have the right to withdraw the request for registration by giving
written notice to the Company within 30 days after receipt of the notice of
postponement and, in the event of such withdrawal, such request shall not
be counted for purposes of the requests for registration to which Holders
are entitled pursuant to Section 2.1 hereof.
(b) The Company shall not be obligated to effect the registration
of Registrable Securities of any Holder pursuant to Section 2.1, 2.2 or 2.8
unless such Holder consents to reasonable conditions imposed by the
Company, including without limitation:
(i) conditions prohibiting the sale of shares by such Holder
until the registration shall have been effective for a specified
period of time;
(ii) conditions requiring such Holder to comply with all
prospectus delivery requirements of the Securities Act and with all
anti-stabilization, anti-manipulation and similar provisions of
Section 10 of the Exchange Act and any rules issued thereunder by the
Commission, and to furnish to the Company information about sales made
in such public offering;
(iii) conditions prohibiting such Holder from effecting the
sale of shares upon receipt of telegraphic or written notice from the
Company (until further notice) given to permit the Company to correct
or update a registration statement or prospectus; and
(iv) conditions requiring that at the end of the period
during which the Company is obligated to keep the registration
statement effective under Section 2.3(b) or 2.8(c), such Holder shall
discontinue sales of shares pursuant to such registration statement
upon receipt of notice from the Company of its intention to remove
from registration the shares covered by such registration statement
that remain unsold, and requiring such Holder to notify the Company of
the number of Registrable Securities registered that remain unsold
promptly upon receipt of notice from the Company.
(c) Holders shall use their reasonable best efforts to effect as
wide a distribution of such Registrable Securities as reasonably
practicable, and in no event shall any sale of Registrable Securities be
made knowingly to (i) any Person (including its Affiliates) or (ii) any
Persons or entities which are to the knowledge of such Holders (or to the
knowledge of any underwriter for such Holders) part of any "group" within
the meaning of Regulation 13D of the Exchange Act which includes such
purchaser or any of its Affiliates that, after giving effect to such sale,
would beneficially own securities representing more than 5% of the
aggregate voting power of all outstanding voting securities of the Company.
The Holders of such Registrable Securities shall secure the agreement of
their underwriter or underwriters, if any, for such offering to comply with
the foregoing.
2.7 Indemnification.
---------------
(a) Indemnification by the Company. In the event of any
registration of any securities of the Company under the Securities Act, the
Company will, and hereby does, indemnify and hold harmless, in the case of
any registration statement filed pursuant to Section 2.1, 2.2 or 2.8, each
seller of any Registrable Securities covered by such registration
statement, its directors, officers, partners, agents and Affiliates and
each other Person who participates as an underwriter in the offering or
sale of such securities and each other Person, if any, who controls such
seller or any such underwriter within the meaning of the Securities Act (a
"Controlling Person"), insofar as losses, claims, damages or liabilities
(or actions or proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration
statement under which such securities were registered under the Securities
Act, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein in light of the
circumstances in which they were made not misleading, and the Company will
reimburse such seller and each such director, officer, partner, agent or
affiliate, underwriter and Controlling Person for any legal or any other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided,
that the Company shall not be liable in any such case to the extent that
any such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to the Company through an
instrument executed by or on behalf of such seller or underwriter, as the
case may be, specifically stating that it is for use in the preparation
thereof; and provided further, that the Company shall not be liable to any
Person who participates as an underwriter in the offering or sale of
Registrable Securities or any other Person, if any, who controls such
underwriter within the meaning of the Securities Act, in any such case to
the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of such Person's
failure to send or give a copy of the final prospectus, as the same may be
then supplemented or amended, to the Person asserting an untrue statement
or alleged untrue statement or omission or alleged omission at or prior to
the written confirmation of the sale of Registrable Securities to such
Person if such statement or omission was corrected in such final prospectus
so long as such final prospectus, and any amendments or supplements
thereto, have been furnished to such underwriter. Such indemnity shall
remain in full force and effect regardless of any investigation made by or
on behalf of such seller or any such director, officer, partner, agent or
affiliate or Controlling Person and shall survive the transfer of such
securities by such seller.
(b) Indemnification by the Sellers. As a condition to including
any Registrable Securities in any registration statement, the Company shall
have received an undertaking satisfactory to it from the prospective seller
of such Registrable Securities, to indemnify and hold harmless (in the same
manner and to the same extent as set forth in subdivision (a) of this
Section 2.7) the Company, and each director of the Company, each officer of
the Company and each other Person, if any, who controls the Company within
the meaning of the Securities Act (a "Company Controlling Person"), with
respect to any statement or alleged statement in or omission or alleged
omission from such registration statement, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any amendment
or supplement thereto, if such statement or alleged statement or omission
or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company through an instrument duly
executed by such seller specifically stating that it is for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement; provided, however,
that the liability of such indemnifying party under this Section 2.7(b)
shall be limited to the amount of proceeds received by such indemnifying
party in the offering giving rise to such liability. Such indemnity shall
remain in full force and effect, regardless of any investigation made by or
on behalf of the Company or any such director, officer or Company
Controlling Person and shall survive the transfer of such securities by
such seller.
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section
2.7, such indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party, give written notice to the latter of
the commencement of such action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subdivisions of
this Section 2.7, except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. In case any such action
is brought against an indemnified party, unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties is reasonably likely to exist in respect of such
claim, the indemnifying party shall be entitled to participate in and, to
assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof other than reasonable
costs of investigation unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties arises in respect of such claim after the assumption of the defense
thereof and the indemnified party notifies the indemnifying party of such
indemnified party's judgment and the basis therefor. No indemnifying party
shall be liable for any settlement of any action or proceeding effected
without its written consent, which consent shall not be unreasonably
withheld. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release
from all liability in respect of such claim or litigation.
(d) Contribution. If the indemnification provided for in this
Section 2.7 shall for any reason be held by a court to be unavailable to an
indemnified party under subparagraph (a) or (b) hereof in respect of any
loss, claim, damage or liability, or any action in respect thereof, then,
in lieu of the amount paid or payable under subparagraph (a) or (b) hereof,
the indemnified party and the indemnifying party under subparagraph (a) or
(b) hereof shall contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in
connection with investigating the same), (i) in such proportion as is
appropriate to reflect the relative fault of the Company and the
prospective sellers of Registrable Securities covered by the registration
statement which resulted in such loss, claims, damage or liability, or
action in respect thereof, with respect to the statements or omissions
which resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as shall be appropriate to reflect the
relative benefits received by the Company and such prospective sellers from
the offering of the securities covered by such registration statement. No
Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation. Such
prospective sellers' obligations to contribute as provided in this
subparagraph (d) are several in proportion to the relative value of their
respective Registrable Securities covered by such registration statement
and not joint. In addition, no Person shall be obligated to contribute
hereunder any amounts in payment for any settlement of any action or claim
effected without such Person's consent, which consent shall not be
unreasonably withheld.
(e) Other Indemnification. Indemnification and contribution
similar to that specified in the preceding subdivisions of this Section 2.7
(with appropriate modifications) shall be given by the Company and each
seller of Registrable Securities with respect to any required registration
or other qualification of securities under any Federal or state law or
regulation of any governmental authority other than the Securities Act.
(f) Indemnification Payments. The indemnification and
contribution required by this Section 2.7 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as and when bills are received or expense, loss, damage or
liability is incurred. In any case in which it shall be judicially
determined that a party is not entitled to indemnification or contribution,
any payments previously received by such party hereunder shall be promptly
reimbursed.
2.8 Shelf Registration Statements.
-----------------------------
(a) Within 120 days of the date hereof, the Company shall have
filed with the Commission and shall use its best efforts to cause to be
declared effective within 180 days from the date hereof, a Shelf
Registration Statement, relating to the offer and sale of the Registrable
Securities owned by the Holders listed on Schedule A hereto.
(b) The Company will use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the
prospectus forming part thereof to be usable by such Holders for a period
of three years from the date such Shelf Registration Statement is first
declared effective by the Commission, or for such shorter period that will
terminate when all Registrable Securities covered by such Shelf
Registration Statement have been sold pursuant thereto or cease to be
outstanding or otherwise to be Registrable Securities.
(c) The Company will pay the Registration Expenses in connection
with any Shelf Registration Statement pursuant to this Section 2.8.
3. Definitions. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings (capitalized
terms used but not defined herein having the meanings set forth in the
Stockholders Agreement):
"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2
of the General Rules and Regulations under the Exchange Act.
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
Reference to a particular section of the Securities Exchange Act of 1934,
as amended, shall include a reference to the comparable section, if any, of
any such similar Federal statute.
"Holder" means any holder of Registrable Securities.
"Person" means a corporation, an association, a partnership, an
organization, a business, an individual, a governmental or political
subdivision thereof or a governmental agency.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with Section 2, including, without limitation,
all registration, filing and fees of the National Association of Securities
Dealers, Inc., all listing fees, all fees and expenses of complying with
securities or blue sky laws (including, without limitation, reasonable fees
and disbursements of counsel for the underwriters in connection with blue
sky qualifications of the Registrable Securities), all word processing,
duplicating and printing expenses, messenger and delivery expenses, the
fees and disbursements of counsel for the Company and of its independent
public accountants, including the expenses of "cold comfort" letters
required by or incident to such performance and compliance, any fees and
disbursements of underwriters (including, without limitation, fees and
expenses of counsel to the underwriters) customarily paid by issuers or
sellers of securities and the reasonable fees and expenses of one counsel
to the Selling Holders (selected by Selling Holders representing at least a
majority of the Registrable Securities covered by such registration);
provided, however, that Registration Expenses shall exclude, and the
sellers of the Registrable Securities being registered shall pay,
underwriters' fees and underwriting discounts and commissions and transfer
taxes in respect of the Registrable Securities being registered.
"Registrable Securities" means (i) the shares of Common Stock and the
shares of Common Stock issuable upon conversion of the Series A Preferred
Stock held or otherwise acquired by the Investors (including by way of
issuance upon exercise or conversion of any warrants or other securities)
and (ii) any Common Stock of the Company issuable or issued with respect to
the Common Stock, the Series A Preferred Stock and/or warrants or other
securities referred to in clause (i) by way of a merger, consolidation,
stock split, stock dividend, recapitalization of the Company or similar
transaction. As to any particular Registrable Securities, once issued such
securities shall cease to be Registrable Securities when (a) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (b) they shall
have been sold as permitted by, and in compliance with, Rule 144 (or
successor provision) promulgated under the Securities Act, (c) they shall
have been otherwise transferred, new certificates for them not bearing a
legend restricting further transfer under the Securities Act shall have
been delivered by the Company and subsequent public distribution of them
shall not require registration of them under the Securities Act, or (d)
they shall have ceased to be outstanding.
"Required Number of Shares" means shares of Common Stock (or
securities convertible into or exchangeable or exercisable for Common
Stock) representing a total of 1,000,000 shares of Common Stock, subject to
adjustment as provided in Section 12.
"Securities Act" means the Securities Act of 1933, 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. References to a
particular section of the Securities Act of 1933, as amended, shall include
a reference to the comparable section, if any, of any such similar Federal
statute.
"Shelf Registration Statement" means either Shelf Registration
Statement No. 1 or Shelf Registration Statement No. 2.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company filed pursuant to Section 2.8, on an appropriate
form under Rule 415 under the Securities Act, or any similar rule that may
be adopted by the Commission, and all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Stockholders Agreement" shall mean the Amended and Restated
Stockholders Agreement dated the date hereof between the Company and the
stockholders listed on the signature pages thereof.
4. Rule 144. The Company shall take all actions reasonably necessary
to enable Holders of Common Stock or Series A Preferred Stock to sell such
securities without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144 under the Securities
Act, as such Rule may be amended from time to time, or (b) any similar rule
or regulation hereafter adopted by the Commission including, without
limiting the generality of the foregoing, filing on a timely basis all
reports required to be filed by the Exchange Act. Upon the request of any
Holder of Common Stock or Series A Preferred Stock, the Company will
deliver to such Holder a written statement as to whether it has complied
with such requirements.
5. Amendments and Waivers. This Agreement may be amended with the
consent of the Company and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by
it, only if the Company shall have obtained the written consent to such
amendment, action or omission to act, of :
(i) the Holders of at least a majority of the Registrable
Securities (calculated on a fully diluted basis);
(ii) GE Capital Equity Investments, Inc. (collectively, with
General Electric Capital Corporation, "GECC"), in the event GECC
beneficially owns at least 2,000,000 shares of Registrable Securities; and
(iii) TH Lee.Putnam Internet Partners, L.P. and TH Lee.Putnam
Internet Parallel Partners, L.P. (collectively with their affiliates,
"THLi"), in the event THLi beneficially owns at least 2,000,000 shares of
Registrable Securities.
Each beneficial owner of any Registrable Securities at the time or
thereafter outstanding shall be bound by any consent authorized by this
Section 5, whether or not such Registrable Securities shall have been
marked to indicate such consent.
6. Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election in writing delivered to the
Company, be treated as the Holder of such Registrable Securities for
purposes of any request or other action by any Holder or Holders pursuant
to this Agreement or any determination of any number or percentage of
Registrable Securities held by any Holder or Holders contemplated by this
Agreement. If the beneficial owner of any Registrable Securities so elects,
the Company may require assurances reasonably satisfactory to it of such
owner's beneficial ownership of such Registrable Securities.
7. Notices. All communications provided for hereunder shall be sent by
courier or other overnight delivery service, shall be effective upon
receipt, and shall be addressed as follows:
(a) if to an Investor, at such address as the Investor shall have
furnished to the Company in writing;
(b) if to any other Holder , at the address that such Holder
shall have furnished to the Company in writing, or, until any such other
holder so furnishes to the Company an address, then to and at the address
of the last Holder of such Registrable Securities who has furnished an
address to the Company; or
(c) if to the Company, addressed to it at Krause's Furniture,
Inc. 200 North Berry Street, Brea, CA 92821-3903, Attention: Judith O.
Lasker, Esq. or at such other address as the Company shall have furnished
to each Holder at the time outstanding.
8. Assignment; Calculation of Interests in Registrable Securities.
--------------------------------------------------------------
(a) This Agreement shall be binding upon and inure the benefit of
and be enforceable by the parties hereto and, with respect to the Company,
its respective successors and assigns and, with respect to the Investors,
any beneficial owner of any Registrable Securities, subject to the
provisions respecting the minimum number or proportion of shares of
Registrable Securities required in order to be entitled to certain rights,
or take certain actions, contained herein.
(b) All references to Registrable Securities shall be calculated
as if all shares of Series A Preferred Stock had been converted into shares
of Common Stock as of the date of such calculation; provided, that any
proportion of the Registrable Securities necessary to be determined in
connection with a specific registration shall be calculated based upon the
number of Registrable Securities participating in such registration only
(assuming any shares of Series A Preferred Stock had been converted into
shares of Common Stock.)
9. Descriptive Headings. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only
and shall not limit or otherwise affect the meaning hereof.
10. Governing Law; Consent to Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of New
York, including, without limitation, Sections 5-1401 and 5-1402 of the New
York General Obligations Law and New York Civil Practice Laws and Rules
327(b). Each of the parties hereto hereby irrevocably and unconditionally
consents to submit to the exclusive jurisdiction of the courts of the State
of New York and of the United States of America, in each case located in
the County of New York, for any action, proceeding or investigation in any
court or before any governmental authority ("litigation") arising out of or
relating to this Agreement and the transactions contemplated hereby (and
agrees not to commence any litigation relating thereto except in such
courts), and further agrees that service of any process, summons, notice or
document by U.S. Registered Mail to its respective address set forth in
this Agreement shall be effective service of process for any litigation
brought against it in any such court. Each of the parties hereto hereby
irrevocably and unconditionally waives any objection to the laying of venue
of any litigation arising out of this Agreement or the transactions
contemplated hereby in the courts of the State of New York or the United
States of America, in each case located in the County of New York, and
hereby further irrevocably and unconditionally waives and agrees not to
plead or claim in any such court that any such litigation brought in any
such court has been brought in an inconvenient forum. Each of the parties
irrevocably and unconditionally waives, to the fullest extent permitted by
applicable law, any and all rights to trial by jury in connection with any
litigation arising out of or relating to this Agreement or the transactions
contemplated hereby.
11. No Inconsistent Agreements. The Company will not hereafter enter
into any agreement with respect to its securities which is inconsistent
with the rights granted to the Holders in this Agreement.
12. Recapitalizations, etc. In the event that any capital stock or
other securities are issued in respect of, in exchange for, or in
substitution of, any Registrable Securities by reason of any
reorganization, recapitalization, reclassification, merger, consolidation,
spin-off, partial or complete liquidation, stock dividend, split-up, sale
of assets, distribution to stockholders or combination of the shares of
Registrable Securities or any other change in the Company's capital
structure, appropriate adjustments shall be made in this Agreement so as to
fairly and equitably preserve, to the extent practicable, the original
rights and obligations of the parties hereto under this Agreement. At the
request of the Selling Holders of a majority of Registrable Securities in
connection with any registration pursuant to Section 2.1 hereof, the
Company will effect such adjustments to the outstanding Common Stock, by
way of stock split or stock dividend as the Selling Holders may reasonably
request to facilitate the registration and sale of the Common Stock.
13. Attorneys' Fees. In any action or proceeding brought to enforce
any provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the prevailing party to such action or proceeding
shall be entitled to recover reasonable attorneys' fees in addition to any
other available remedy.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be executed and delivered by their respective officers
thereunto duly authorized as of the date first above written.
KRAUSE'S FURNITURE, INC.
By: /s/ Robert A. Burton
-----------------------------------
Name: Robert A. Burton
Title: Executive Vice President and
Chief Financial Officer
<PAGE>
GE CAPITAL EQUITY INVESTMENTS, INC.
By: /s/ George L. Hashbarger, Jr.
-------------------------------------
Name: George L. Hashbarger, Jr.
Title: Senior Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ George L. Hashbarger, Jr.
-------------------------------------
Name: George L. Hashbarger, Jr.
Title: Department Operations Manager
<PAGE>
PERMAL CAPITAL MANAGEMENT, INC.
By: /s/ Thomas M. DeLitto
-------------------------------------
Name:
Title:
PERMAL SERVICES, INC.
By: /s/ Thomas M. DeLitto
-------------------------------------
Name:
Title:
PERMAL CAPITAL PARTNERS, L.P.
By: PERMAL MANAGEMENT
CORPO RATION, its Investment
Manager
By: /s/ Thomas M. DeLitto
-------------------------------------
Name:
Title:
PERMAL ASSET MANAGEMENT
By: /s/ Thomas M. DeLitto
-------------------------------------
Name:
Title:
PERMAL SPECIAL OPPORTUNITIES, LTD.
By: /s/ James R. Hodge
-------------------------------------
Name:
Title:
<PAGE>
JAPAN OMNIBUS LTD.
By: /s/ James R. Hodge
-------------------------------------
Name:
Title:
JEAN R. PERRETTE
By: /s/ Jean R. Perrette
-------------------------------------
ISAAC ROBERT SOUEDE
By: /s/ Isaac Robert Souede
-------------------------------------
THOMAS M. DELITTO
By: /s/ Thomas M. DeLitto
-------------------------------------
THOMAS M. AND DONNA S. DELITTO
By: /s/ Thomas M. DeLitto
-------------------------------------
Name: Thomas M. DeLitto
By:
-------------------------------------
Name: Donna S. DeLitto
<PAGE>
UNITED GULF BANK (B.S.C.) E.C.
By:
-------------------------------------
Name:
Title:
KUWAIT INVESTMENT PROJECTS COMPANY
By:
-------------------------------------
Name:
Title:
ATCO HOLDINGS, LTD.
By: /s/ Kamal Abdelnour
-------------------------------------
Name:
Title:
ATCO DEVELOPMENT, INC.
By: /s/ Kamal Abdelnour
-------------------------------------
Name:
Title:
<PAGE>
PILOT HOLDINGS, L.P.
By: SHED INVESTMENTS, LLC, its General
Partner
By: /s/ Thomas M. DeLitto
-------------------------------------
Name: Thomas M. DeLitto
Title: Managing Member
<PAGE>
ALLISON BOOTH HAWLEY TRUST I
By:
-------------------------------------
Name:
Title:
CAITLIN HALE HAWLEY TRUST I
By:
-------------------------------------
Name:
Title:
MAUREEN ERIN HAWLEY TRUST I
By:
-------------------------------------
Name:
Title:
SHANNON FOLLEN HAWLEY TRUST I
By:
-------------------------------------
Name:
Title:
HAWLEY FAMILY TRUST
By:
-------------------------------------
Name:
Title:
DR. PHILIP M. HAWLEY, JR.
By:
-------------------------------------
PHILIP M. HAWLEY
By:
-------------------------------------
<PAGE>
ASCEND PARTNERS, L.P.
By:
-------------------------------------
Name:
Title:
LARRY BLACK
By:
-------------------------------------
BRANAGH REVOCABLE TRUST
By:
-------------------------------------
Name: Peter W. Branagh
Title: Trustee
By:
-------------------------------------
Name: Ramona Y. Branagh
Title: Trustee
MATTHEW WILLIAM CLARKE - IRA
By:
-------------------------------------
Name:
Title:
SANFORD J. COLEN
By:
-------------------------------------
<PAGE>
AARON J. COLEN, UTMA, CA
By:
-------------------------------------
Name: Sanford J. Colen
Title: Custodian
ELYSE L. COLEN, UTMA, CA
By:
-------------------------------------
Name:
Title:
SARA K. COX
By:
-------------------------------------
JOHN DAVIES
By:
-------------------------------------
DIAMOND A. PARTNERS, L.P.
By:
-------------------------------------
Name:
Title:
<PAGE>
J. STEVEN EMERSON
By:
-------------------------------------
EMILY FAIRBAIRN - IRA
By:
-------------------------------------
Name:
Title:
MALCOLM FAIRBAIRN - IRA
By:
-------------------------------------
Name:
Title:
WILLIAM T. AND KATHLEEN P. GIBSON
By:
-------------------------------------
Name: William T. Gibson
By:
-------------------------------------
Name: Kathleen P. Gibson
<PAGE>
JONATHAN & NANCY GLASER FAMILY TRUST
By:
-------------------------------------
Name: Jonathan M. Glaser
Title: Trustee
By:
-------------------------------------
Name: Nancy Ellen Glaser
Title: Trustee
EDWARD M. HAWLEY
By:
-------------------------------------
Name:
Title:
GEORGE P. HAWLEY
By:
-------------------------------------
VICTOR F. HAWLEY
By:
-------------------------------------
RICHARD HICKS
By:
-------------------------------------
<PAGE>
KATHRYN JERGENS TRUST
By:
-------------------------------------
Name:
Title:
DIANE JOHNSON
By:
-------------------------------------
RICHARD M. KELLER
By:
-------------------------------------
STEPHEN M. KELLER
By:
-------------------------------------
STEPHEN F. KELLER PROFESSIONAL
CORPORATION DEFINED BENEFIT
PLAN
By:
-------------------------------------
Name:
Title:
<PAGE>
PAUL KESSLER
By:
-------------------------------------
SIDNEY KIMMEL
By:
-------------------------------------
THEODORE D. KONOPISOS
By:
-------------------------------------
PETER LAMM
By:
-------------------------------------
ROBERT LONDON
By:
-------------------------------------
JEFFREY S. MORGAN
By:
-------------------------------------
<PAGE>
THE MUHL FAMILY TRUST
By:
-------------------------------------
Name: Phillip E. Muhl
Title: Trustee
By:
-------------------------------------
Name: Kristin A. Muhl
Title: Trustee
PACIFIC SECURITY GROUP, INC.
By:
-------------------------------------
Name:
Title:
POINTE INVESTMENTS CAPITAL, LTD.
By:
-------------------------------------
Name:
Title:
POLLAT, EVANS & CO., INC.
By:
-------------------------------------
Name:
Title:
<PAGE>
KEVIN AND ERIN PRZYBOCKI
By:
-------------------------------------
Name: Kevin Przybocki
By:
-------------------------------------
Name: Erin Przbocki
CHARLES B. RUNNELS, JR.
By:
-------------------------------------
CHARLES B. RUNNELS, III
By:
-------------------------------------
G. TYLER RUNNELS.
By:
-------------------------------------
LORD ROBIN RUSSELL
By:
-------------------------------------
TIMOTHY MICHAEL WALLACE
By:
-------------------------------------
<PAGE>
WAVE ENTERPRISES, INC.
By:
-------------------------------------
Name:
Title:
IRA WEINGARTEN
By:
-------------------------------------
Name:
Title:
J.D. YATES
By:
-------------------------------------
Name:
Title:
ZAXIS PARTNERS, L.P.
By:
-------------------------------------
Name:
Title:
<PAGE>
TH LEE.PUTNAM INTERNET PARTNERS, L.P.
By: TH LEE.PUTNAM INTERNET FUND
ADVISORS, L.P., its General Partner
By: TH LEE.PUTNAM INTERNET FUND
ADVISORS, LLC, its General Partner
By: /s/ Christine Kim
-------------------------------------
Name: Christine Kim
Title: Vice President
TH LEE.PUTNAM INTERNET PARALLEL
PARTNERS, L.P.
By: TH LEE.PUTNAM INTERNET FUND
ADVISORS, L.P., its General Partner
By: TH LEE.PUTNAM INTERNET FUND
ADVISORS, LLC, its General Partner
By: /s/ Christine Kim
-------------------------------------
Name: Christine Kim
Title: Vice President
<PAGE>
SCHEDULE A
-----------
Ascend Partners, L.P.
Larry Black
Branagh Revocable Trust
Matthew William Clarke - IRA
Sanford J. Colen
Aaron J. Colen, UTMA, CA
Elyse L. Colen, UTMA, CA
Sara K. Cox
John Davies
Diamond A. Partners, L.P.
J. Steven Emerson
Emily Fairbairn - IRA
Malcolm Fairbairn - IRA
William T. and Kathleen P. Gibson
Jonathan & Nancy Glaser Family Trust
George P. Hawley
Allison Booth Hawley Trust I
Caitlin Hale Hawley Trust I
Hawley Family Trust
Maureen Erin Hawley Trust I
Shannon Follen Hawley Trust I
Edward M. Hawley
Philip M. Hawley
Dr. Philip Hawley, Jr.
Victor F. Hawley
Richard Hicks
Kathryn Jergens Trust
Diane Johnson
Richard M. Keller
Stephen M. Keller
Stephen F. Keller Professional Corporation Defined Benefit Plan
Paul Kessler
Sidney Kimmel
Theodore D. Konopisos
Peter Lamm
Robert London
Jeffrey S. Morgan
The Muhl Family Trust
Pacific Security Group, Inc.
Pilot Holdings, L.P.
Pointe Investments Capital, Ltd.
Pollat, Evans & Co., Inc.
Kevin and Erin Przybocki
Charles B. Runnels, Jr.
Charles B. Runnels, III
G. Tyler Runnels.
Lord Robin Russell
Timothy Michael Wallace
Wave Enterprises, Inc.
Ira Weingarten
J.D. Yates
Zaxis Partners, L.P.
CERTIFICATE OF DESIGNATION
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
KRAUSE'S FURNITURE, INC.
------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
------------------------
Krause's Furniture, Inc. (the "Corporation"), a corporation
organized and existing under and by virtue of the provisions of the General
Corporation Law of the State of Delaware (the "DGCL"), certifies as
follows:
FIRST: The Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation") authorizes the issuance of Six Hundred
Sixty-Six Thousand, Six Hundred Sixty-Seven (666,667) shares of Preferred
Stock, par value $0.001 per share (the "Preferred Stock"), and further
provides that Preferred Stock may be issued in one or more series and the
number of shares, designations, preferences, rights and restrictions of
each series as shall be fixed by resolution or resolutions adopted by the
Board of Directors prior to the issuance of any shares of a particular
series of Preferred Stock.
SECOND: The Board of Directors of the Corporation, at a special
meeting of the Board of Directors on January 12, 2000, did duly adopt the
following resolutions authorizing the creation and issuance of up to
450,000 shares of a series of Preferred Stock to be known as "Series A
Convertible Preferred Stock."
RESOLVED that, pursuant to the authority vested in the Board of
Directors by the Certificate of Incorporation, a series of the class of
authorized Preferred Stock, par value $0.001 per share (the "Preferred
Stock"), of the Corporation is hereby created, such series to consist of
450,000 shares, which shall be designated as Series A Convertible Preferred
Stock ("Series A Preferred Stock"), having the following designations,
preferences, rights, qualifications, powers, privileges, limitations and
restrictions of the shares of such series:
1. CERTAIN DEFINITIONS. Unless the context otherwise requires,
the terms defined in this paragraph 1 shall have, for all purposes of this
resolution, the meanings herein specified.
Adjusted E-Commerce Proceeds as of any date shall mean $10,000,000
less any amounts spent on or prior to such date for E-Commerce Proceed Uses
(as defined in the Securities Purchase Agreement) either (a) in accordance
with the E-Commerce Plan (as defined in the Securities Purchase Agreement)
or (b) otherwise as consented to in writing by THLi.
Affiliate shall have the meaning ascribed to it in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act.
Change of 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 Corporation entitled to vote generally
in the election of directors, but excluding, for this purpose, any such
acquisition by (i) the Corporation or any of its subsidiaries, (ii) any
employee benefit plan (or related trust) of the Corporation 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 Corporation 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 Corporation entitled to vote
generally in the election of directors, (iv) GECC or an Affiliate of GECC
or (v) THLi or an Affiliate of THLi; 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
Corporation 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 Corporation 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 among GECC or any Affiliate of
GECC, THLi or any Affiliate THLi, and the Corporation.
Common Stock shall mean all shares now or hereafter authorized of any
class of Common Stock of the Corporation and any other stock of the
Corporation, howsoever designated, authorized after the Issue Date, which
has the right (subject always to prior rights of any class or series of
preferred stock) to participate in the distribution of the assets and
earnings of the Corporation without limit as to per share amount.
Conversion Price shall mean the price per share of Common Stock used
to determine the number of shares of Common Stock deliverable upon
conversion of a share of the Series A Preferred Stock, which price shall
initially be $1.10 per share, subject to adjustment in accordance with the
provisions of paragraph 6 below.
Convertible Securities shall mean all options, warrants or other
rights to purchase or subscribe for Common Stock other than Options.
Exchange Act shall mean the Securities Exchange Act of 1934, as
amended.
GECC shall mean, collectively, General Electric Capital Corporation
and GE Capital Equity Investments, Inc.
Issue Date shall mean the date that shares of Series A Preferred Stock
are first issued by the Corporation.
Issue Price shall mean $50 per share of Series A Preferred Stock.
Junior Stock shall mean the Common Stock and any other class or series
of stock of the Corporation other than Parity Stock or Senior Stock.
Maximum Amount shall mean as to any holder on any date:
(a) if such date is prior to the sixth anniversary of the Issue Date,
the product of (i) the sum of (x) 125,400 and (y) 33% of the number of
shares of Series A Preferred Stock issued after the Second Closing Date (as
defined in the Securities Purchase Agreement) and (ii) the ratio of (x) the
number of shares of Series A Preferred Stock then held by such holder to
(y) the total number of shares of Series A Preferred Stock then
outstanding,
(b) if such date is from the sixth anniversary of the Issue Date
through the seventh anniversary of the Issue Date, the product of (i) the
sum of (x) 315,400 and (y) 83% of the number of shares of Series A
Preferred Stock issued after the Second Closing Date and (ii) the ratio of
(x) the number of shares of Series A Preferred Stock then held by such
holder to (y) the total number of shares of Series A Preferred Stock then
outstanding, and
(c) thereafter, 100% of the shares of Series A Preferred Stock.
Maximum Number shall mean, on any date, with respect to any holder of
Series A Preferred Stock, that number of shares of Series A Preferred Stock
equal to the product of (a) the ratio of (i) the Adjusted E-Commerce
Proceeds on such date divided by (ii) the Redemption Price times (b) the
ratio of (i) the number of shares of Series A Preferred Stock purchased by
such holder pursuant to the Purchase Agreement divided by (ii) 380,000.
Options shall mean securities by their terms convertible into or
exchangeable for Common Stock.
Parity Stock shall mean any class or series of stock of the
Corporation issued after the Issue Date ranking on a parity with the Series
A Preferred Stock in respect of (i) the right to receive dividends or (ii)
the right to receive assets upon the liquidation, dissolution or winding up
of the affairs of the Corporation.
Redemption Date shall mean, with respect to any redemption of shares
of Series A Preferred Stock pursuant to paragraph 5 below, the date on
which such shares are redeemed.
Redemption Price shall mean the Issue Price.
Securities Purchase Agreement shall mean the Securities Purchase
Agreement dated as of January 11, 2000 among the Corporation and the
purchasers listed on the signature pages thereto.
Senior Stock shall mean any class or series of stock of the
Corporation issued after the Issue Date ranking senior to the Series A
Preferred Stock in respect of (i) the right to receive dividends or (ii)
the right to receive assets upon the liquidation, dissolution or winding up
of the affairs of the Corporation.
Subordinated Notes shall mean the 9.5% Subordinated Notes due 2003
issued by the Corporation pursuant to the Supplemental Securities
Agreement.
Supplemental Securities Agreement shall mean the Supplemental
Securities Purchase Agreement dated as of August 14, 1997 among the
Corporation, General Electric Capital Corporation and Japan Omnibus Ltd.,
as in effect on the Issue Date.
THLi shall mean, collectively, TH Lee.Putnam Internet Partners, L.P.
and TH Lee.Putnam Internet Parallel Partners, L.P., together with their
affiliates.
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.
2. DIVIDEND RIGHTS. So long as any shares of Series A Preferred
Stock shall be outstanding, the Corporation shall not declare or pay on any
Junior Stock any dividend whatsoever, whether in cash, property or
otherwise, nor shall the Corporation or any of its subsidiaries make any
distribution on any Junior Stock, nor shall the Corporation or any of its
subsidiaries purchase or redeem any Junior Stock or pay or make available
any monies for a sinking fund for the purchase or redemption of any Junior
Stock.
3. LIQUIDATION PREFERENCE. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation (a
"Liquidation"), the holders of the outstanding shares of Series A
Preferred Stock shall be entitled to receive, out of the assets of the
Corporation available for distribution to its stockholders, whether from
capital, surplus funds or earnings, prior and in preference to any
distribution of any of the assets of the Corporation to the holders of
Junior Stock, an amount per share equal to the Issue Price for such share
(the "Series A Liquidation Preference Price"). After the full liquidation
preference of the holders of the outstanding shares of Series A Preferred
Stock has been satisfied as set forth in this paragraph 3, the remaining
assets of the Corporation shall be distributed to the holders of shares of
Common Stock and Series A Preferred Stock in an equal amount per share as
if all shares of Series A Preferred Stock had been converted into shares of
Common Stock immediately prior to the Liquidation.
4. CHANGE OF CONTROL. The Corporation shall give each holder of
record of Series A Preferred Stock written notice of an impending Change of
Control not later than twenty-five (25) days prior to the earlier of (i)
any record date relating to such Change of Control, (ii) any stockholders'
meeting called to approve such transaction, or (iii) the closing of such
transaction, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction, and the
Corporation shall thereafter give such holders prompt notice of any
material changes. The transaction shall in no event take place sooner than
twenty-five (25) days after the Corporation has given the first notice
provided for herein or sooner than ten (10) days after the Corporation has
given notice of any material changes provided for herein; provided,
however, that such periods may be shortened upon the written consent of the
holders of two-thirds of the voting power of the Series A Preferred Stock
entitled to such notice or similar right to receive notice.
5. REDEMPTION.
----------
(a) At any time on or after January 14, 2005, upon the
written request of the holders of a majority of the shares of Series A
Preferred Stock (which request shall specify (i) a Redemption Date not less
than thirty (30) or more than ninety (90) days from the date of such
request and (ii) the number of shares of Series A Preferred Stock to be
redeemed, which number shall not exceed the Maximum Amount applicable to
each requesting holder less the number of shares of Series A Preferred
Stock, if any, previously redeemed from such holder pursuant to this
paragraph 5(a)), the Corporation shall redeem, on a pro rata basis, the
number of shares of Series A Preferred Stock specified in such request on
the specified Redemption Date at the Redemption Price.
(b) In the event of a Change of Control, each holder of
Series A Preferred Stock may elect, by written notice to the Corporation
specifying the number of shares of Series A Preferred Stock to be redeemed
and the Redemption Date (which shall not be less than thirty (30) or more
than ninety (90) days from the date of such notice) to have the Corporation
redeem all or any part of the shares of Series A Preferred Stock then held
by such holder on the specified Redemption Date at the Redemption Price.
(c) Upon the written request of a holder of Series A
Preferred Stock pursuant to, and in accordance with, Section 6.2 of the
Securities Purchase Agreement on or prior to the second anniversary of the
Issue Date, the Corporation shall redeem any or all of such holder's shares
of Series A Preferred Stock not to exceed such holder's Maximum Number on
the Redemption Date at the Redemption Price.
(d) If the Corporation is not in compliance with the
provisions of the first sentence of paragraph 13 below, each holder of
Series A Preferred Stock may elect, by written notice to the Corporation
specifying the number of shares of Series A Preferred Stock to be redeemed
and the Redemption Date (which shall not be less than thirty (30) or more
than ninety (90) days from the date of such notice) to have the Corporation
redeem all or any part of the shares of Series A Preferred Stock then held
by such holder on the specified Redemption Date at the Redemption Price.
(e) In the event of a redemption of any shares of Series A
Preferred Stock pursuant to this paragraph 5, the conversion rights set
forth in paragraph 6 below shall terminate as to the shares designated for
redemption at the close of business on the business day preceding the
applicable Redemption Date, except as provided in paragraph 5(f)(iii)
below.
(f) Mechanics of Redemption.
-----------------------
(i) Each holder of Series A Preferred Stock tendering shares for
redemption shall surrender to the Corporation at its principal corporate
office, together with the request for redemption, the certificate or
certificates representing such shares, duly endorsed, and thereupon the
Redemption Price of such shares shall be paid by the Corporation after
receipt of the shares to the person whose name appears on such certificate
or certificates as the owner thereof and each surrendered certificate shall
be cancelled. If less than all of the shares represented by any such
certificate or certificates are redeemed, a new certificate shall be issued
by the Corporation representing the unredeemed shares.
(ii) If the Redemption Price has been timely paid or the
Redemption Price has been escrowed in an arrangement reasonably
satisfactory to the holder, from and after the applicable Redemption Date,
all rights of the holders of such shares surrendered for redemption (except
the right to receive the Redemption Price) shall cease with respect to such
shares, and such shares shall not thereafter be transferred on the books of
the Corporation or be deemed to be outstanding for any purpose whatsoever.
(iii) The holders of Series A Preferred Stock who have tendered
shares for redemption shall be entitled to receive the Redemption Price on
or before the applicable Redemption Date, except that in no case shall the
Corporation be required to pay a Redemption Price which in the aggregate
would be in violation of Section 160 of the DGCL. Those funds of the
Corporation that are available hereunder for redemption shall be used to
redeem the maximum number possible of such shares ratably among the holders
of such shares to be redeemed. The tendered shares of Series A Preferred
Stock for which the applicable Redemption Price is not received on or
before the applicable Redemption Date shall be considered not to have been
redeemed and shall remain outstanding and entitled to all the rights and
preferences provided herein and shall be redeemed by the Corporation as
soon as permitted pursuant to this paragraph 5(f)(iii).
(g) Except as set forth in this paragraph 5, the Corporation
shall not have the right to call or redeem all or any shares of the Series
A Preferred Stock at any time.
6. CONVERSION. The holders of the Series A Preferred Stock
shall have conversion rights as follows:
(a) Right to Convert. Each share of Series A Preferred Stock
shall be convertible, at the option of the holder thereof, at any time, at
the office of the Corporation or a transfer agent for the Series A
Preferred Stock, as the case may be, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the Issue
Price by the Conversion Price then in effect. Any notice to the Corporation
of a holder's exercise of conversion rights pursuant to this paragraph 6(a)
may be made contingent upon the happening of a redemption pursuant to
paragraph 5 above.
(b) Mandatory Conversion. Each share of Series A Preferred
Stock shall automatically be converted into such number of shares of Common
Stock as is determined by dividing the Issue Price by the Conversion Price
at the time in effect for such stock, without further action by the holders
of such shares and whether or not the certificates representing such shares
are surrendered to the Corporation or its transfer agent, (i) at the
closing of a bona fide firm commitment registered public offering of the
Corporation's Common Stock for an aggregate offering price resulting in
gross cash proceeds to the Corporation of not less than twenty-five million
dollars ($25,000,000) and at a price per share of Common Stock of at least
$3.30, subject to adjustment for stock splits, combinations or similar
transactions (a "Qualified Public Offering") or (ii) upon the vote of the
holders of at least 66 2/3% of the Series A Preferred Stock. Except for the
purposes of the calculation in the immediately preceding sentence, in the
event of a Qualified Public Offering, the person(s) entitled to receive the
Common Stock issuable upon conversion of Series A Preferred Stock shall not
be deemed to have converted such Series A Preferred Stock until immediately
prior to the closing of such offering.
(c) Mechanics of Conversion; Fractional Shares; Dividends.
------------------------------------------------------
(i) Before any holder of Series A Preferred Stock shall
be entitled to convert the same into shares of Common Stock pursuant to
paragraph 6(a) (or, in the case of an automatic conversion, to receive a
certificate for such holder's shares of Common Stock outstanding as a
result of such conversion), such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or
of a transfer agent for the Series A Preferred Stock, as the case may be,
and shall give written notice by mail, postage prepaid, to the Corporation
at its principal corporate office, of the election to convert the same and
shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued.
(ii) The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder, or to the
nominee or nominees of such holder, a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled.
Such conversion shall be deemed to have been made immediately prior to the
close of business on the date of such surrender of the shares of Series A
Preferred Stock to be converted (or, in the case of an automatic conversion
on the date specified in paragraph 6(b) above), and the person or persons
entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date.
(iii) Upon conversion of only a portion of the number
of shares of Series A Preferred Stock represented by a certificate
surrendered for conversion, the Corporation shall issue and deliver to the
holder of such certificate, a new certificate for the number of shares of
Series A Preferred Stock not converted. No fractional shares shall be
issued upon conversion of the Series A Preferred Stock. Whether or not
fractional shares are issuable upon such conversion shall be determined on
the basis of the total number of shares of Series A Preferred Stock the
holder is at the time converting into Common Stock and the number of shares
of Common Stock issuable upon such aggregate conversion. In lieu of
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay such holder a cash amount equal to such fraction
multiplied by the fair market value of a share of the Common Stock, as
reasonably determined in good faith by the Board of Directors.
(d) Adjustments to Series A Preferred Stock Conversion
Price.
(i) Issue of Additional Stock. Upon each issuance or
sale (or deemed issuance or sale) by the Corporation of any Additional
Stock (as defined below) without consideration or for a consideration per
share less than the Conversion Price in effect immediately prior to the
issuance of such Additional Stock, the Conversion Price shall, upon such
issue or sale, be reduced to a price determined by multiplying the
Conversion Price in effect immediately prior to each such issuance or sale
by a fraction:
(x) the numerator of which shall be (A) the number of shares of
Common Stock outstanding (or deemed to be outstanding pursuant to this
paragraph 6(d)) immediately prior to such issue or sale, plus (B) the
number of shares of Common Stock that the aggregate consideration received
by the Corporation for the total number of shares of Additional Stock so
issued or sold (or deemed issued or sold) would purchase at the Conversion
Price, and
(y) the denominator of which shall be (A) the number of shares of
Common Stock outstanding (or deemed to be outstanding pursuant to this
paragraph 6(d)) immediately prior to such issue or sale, plus (B) the
number of shares of such Additional Stock so issued or sold (or deemed
issued or sold).
(ii) No Adjustment of Conversion Price. No adjustment
of the Conversion Price shall be made in an amount less than one cent
($.01) per share; provided that any adjustments which are not required to
be made by reason of this paragraph shall be carried forward and shall be
either taken into account in any subsequent adjustment made prior to three
(3) years from the date of the event giving rise to the adjustment being
carried forward, or shall be made at the end of three (3) years from the
date of the event giving rise to the adjustment being carried forward. No
adjustment of the Conversion Price shall have the effect of increasing the
Conversion Price above the Conversion Price at the time in effect.
(iii) Determination of Consideration.
------------------------------
(A) In the case of the issuance or sale (or deemed
issuance or sale) of Additional Stock or Options for cash, the
consideration shall be deemed to be the net amount of cash received by the
Corporation after deducting any discounts, underwriting or similar
commissions, compensation or other expenses allowed, paid or incurred by
the Corporation in connection with the issuance and sale (or deemed
issuance or sale) thereof.
(B) In the case of the issuance (or deemed
issuance or sale) of Additional Stock or Options for a consideration in
whole or in part other than cash, the consideration other than cash shall
be deemed to be the fair market value thereof as reasonably determined in
good faith by the Board of Directors of the Corporation.
(iv) Issue of Securities Deemed Issue of Common Stock.
In the case of the issuance (whether before, on or after the date hereof)
of Options, Convertible Securities or options to purchase or rights to
subscribe for Convertible Securities (which are not excluded from the
definition of Additional Stock), the following provisions shall apply:
(A) The aggregate maximum number of shares of
Common Stock deliverable upon exercise of such Options shall be deemed to
have been issued at the time such Options were issued (whether or not such
Options are then exercisable) and for a consideration equal to the
consideration (determined in the manner provided in paragraph 6(d)(iii)
above), if any, received or receivable by the Corporation upon the issuance
of such Options plus the minimum additional aggregate consideration, if
any, payable to the Corporation upon the exercise of all such Options.
(B) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange for any such
Convertible Securities or upon the exercise of options for such Convertible
Securities and subsequent conversion or exchange thereof shall be deemed to
have been issued at the time such Convertible Securities or such options
were issued (whether or not such Convertible Securities are then
convertible or exchangeable or such options are then exercisable) and for a
consideration equal to the consideration, if any, received or receivable by
the Corporation upon the sale or issuance of any such Convertible
Securities and related options (excluding any cash received on account of
accrued interest or accrued dividends), plus the minimum additional
aggregate consideration, if any, payable to the Corporation upon the
conversion or exchange of such Convertible Securities or the exercise of
any related options (the consideration in each case to be determined in the
manner provided in paragraph 6(d)(iii) above).
(C) In the event of any change in the number of
shares of Common Stock deliverable or any increase in the consideration
payable to the Corporation upon exercise of such Options, or upon
conversion of or in exchange for such Convertible Securities or options for
such Convertible Securities, any Conversion Price obtained with respect to
the adjustment which was made upon the issuance of such Options,
Convertible Securities or options for such Convertible Securities, and any
subsequent adjustments based thereon, shall be recomputed to reflect such
change, but no further adjustment shall be made for the actual issuance of
Common Stock or any payment of such consideration upon the exercise of any
such Options or the conversion or exchange of such Convertible Securities
or the exercise of options for such Convertible Securities.
(D) Upon the expiration of any such Options, the
termination of any such rights to convert or exchange or the expiration of
any options or rights related to such Convertible Securities, any
Conversion Price obtained with respect to the adjustment which was made
upon the issuance of such Options or Convertible Securities or options
related to such Convertible Securities, and any subsequent adjustments
based thereon, shall be recomputed to reflect the issuance of only the
number of shares of Common Stock actually issued upon the exercise of such
Options, upon the conversion or exchange of such Convertible Securities or
upon the exercise of the options related to such Convertible Securities.
(E) In the case of any Option or Convertible
Security with respect to which the maximum number of shares of Common Stock
issuable upon exercise or conversion or exchange thereof is not
determinable, no adjustment to the Conversion Price shall be made until
such number becomes determinable.
(v) Definition of Additional Stock. "Additional Stock"
shall mean any shares of Common Stock issued (or deemed to have been issued
pursuant to paragraph 6(d)(iv) above) by the Corporation after the Issue
Date other than:
(A) Common Stock issued pursuant to a transaction
described in Paragraph 6(d)(vi) below;
(B) shares of Common Stock (as constituted on the
date hereof) issuable or issued to employees, officers, directors, or
consultants of the corporation pursuant to a stock purchase, stock option
or restricted stock plan or agreement existing on the Issue Date or
thereafter approved in accordance with Section 2.2(m) of the Amended and
Restated Stockholders Agreement dated as of January 14, 2000 among the
Company and the stockholders party thereto; provided that the purchase
price for such shares (or in the case of options, the exercise price
thereof) shall not be less than fair market value on the date of issuance;
and
(C) Common Stock issued or issuable upon
conversion of the Series A Preferred Stock or upon exercise of all or any
portion of the warrants issued before the Issue Date to purchase 2,712,045
shares of Common Stock.
(vi) Stock Splits, Subdivisions and Dividends. In the
event the Corporation shall at any time or from time to time after the
Issue Date, fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Common Stock or the determination
of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock
(hereinafter referred to as "Common Stock Equivalents") without payment of
any consideration by such holder for the additional shares of Common Stock
or the Common Stock Equivalents (including without payment for the
additional shares of Common Stock issuable upon conversion or exercise
thereof) then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the
Conversion Price shall be appropriately decreased so that the holders of
Series A Preferred Stock shall receive, upon the conversion thereof, the
number of shares of Common Stock they would have received if they had
converted their shares of Series A Preferred Stock into Common Stock
immediately prior to the occurrence of such event.
(vii) Combinations or Consolidations. In the event that
the number of shares of Common Stock outstanding at any time after the
Issue Date is decreased by a combination, reclassification or consolidation
of the outstanding shares of Common Stock then, on the effective date of
such event, the Conversion Price shall be appropriately increased so that
the number of shares of Common Stock issuable on conversion of each share
of such series shall be decreased in proportion to such decrease in the
number of outstanding shares.
(viii) Other Distributions. In the event that the
Corporation shall declare a distribution on the Common Stock payable in
securities of other persons, evidences of indebtedness issued by the
Corporation or other persons, assets (excluding cash dividends) or options
or rights not referred to in paragraph (d)(iv) above, then, in each such
case for the purpose of this paragraph 6(d)(viii), the holders of the
Series A Preferred Stock shall be entitled to a proportionate share of any
such distribution as though they were the holders of the number of shares
of Common Stock of the Corporation into which their shares of Series A
Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
(ix) Recapitalizations. If at any time or from time to
time there shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets transaction provided
for elsewhere in this paragraph 6), provision shall be made so that the
holders of the Series A Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series A Preferred Stock the number of
shares of stock or other securities or property of the Corporation or
otherwise, to which they would have been entitled to receive if they had
converted their shares of Series A Preferred Stock immediately prior to
such recapitalization. In any such case, appropriate adjustment shall be
made in the application of the provisions of this paragraph 6, with respect
to the rights of the holders of the Series A Preferred Stock after the
recapitalization to the end that the provisions of this paragraph 6
(including adjustment of the Conversion Price then in effect and the number
of shares issuable upon conversion of the Series A Preferred Stock) shall
be applicable after that event as nearly equivalent as may be practicable.
(x) Other Dilutive Events. In case any event shall
occur as to which the provisions of this paragraph 6 are not strictly
applicable but the failure to make any adjustment would not fairly protect
the conversion rights in accordance with the essential intent and principle
of the provisions of such paragraph, then, in each such case, the
Corporation shall appoint a firm of independent certified public
accountants of recognized national standing (which may be the regular
auditors of the Corporation), which shall give their opinion upon the
adjustment, if any, on a basis consistent with the essential intent and
principles established in paragraph 6, necessary to preserve, without
dilution, the conversion rights. Upon receipt of such opinion, the
Corporation will promptly mail a copy thereof to the holders of the Series
A Preferred Stock and shall make the adjustments described therein.
(xi) No Impairment. The Corporation will not, by
amendment and/or restatement of this Certificate of Designation or its
Certificate of Incorporation or through any reorganization,
recapitalization, 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 terms to be observed or
performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this paragraph 6 and in
the taking of all such action as may be necessary or appropriate in order
to protect the holders of the Series A Preferred Stock against impairment
of the conversion rights.
(xii) Certificate as to Adjustments. Upon the
occurrence of each adjustment or readjustment of the Conversion Price
pursuant to this paragraph 6, the Corporation, at its expense, shall
promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of the Series A
Preferred Stock a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment
is based. The Corporation shall, upon the written request at any time of
any holder of Series A Preferred Stock, furnish or cause to be furnished to
such holder a like certificate setting forth (A) any such adjustment and
readjustment with respect to such series, (B) the Conversion Price at the
time in effect, and (C) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be received upon
the conversion of a share of such series.
7. NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
the Corporation shall mail to each holder of Series A Preferred Stock, at
least twenty (20) days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose
of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right.
8. NOTICES. Any notice required by the provisions of this
Certificate of Designation to be given to the holders of shares of Series A
Preferred Stock shall be deemed effectively given upon receipt by the party
by means of personal delivery, courier service delivery, electronic mail or
five (5) days after deposit with the United States Post Office, by
registered or certified mail, postage prepaid, and addressed to each holder
of record at his address appearing on the books of the corporation.
9. VOTING RIGHTS. Expect as otherwise expressly provided
herein or required by law, the holder of each share of Series A Preferred
Stock shall have the right to one vote for each share of Common Stock into
which such share could then be converted (with any fractional share
determined on an aggregate conversion basis being rounded to the nearest
whole share), and with respect to such vote, such holder shall have full
voting rights and powers equal to the voting rights and powers of the
holders of Common Stock. The holders of the Series A Preferred Stock shall
be entitled, notwithstanding any provision hereof, to notice of any
stockholders' meeting in accordance with the by-laws of the Corporation,
and to vote on any matter submitted to the stockholders for a vote. Except
as expressly set forth herein or otherwise required by law, the holders of
Series A Preferred Stock and Common Stock shall vote together as a single
class on an as-converted basis.
10. PROTECTIVE PROVISIONS. So long as any shares of Series A
Preferred Stock are outstanding, the Corporation shall not, without first
obtaining the approval (by vote or written consent, as provided by law) of
the holders of not less than 66 2/3% of the Series A Preferred Stock:
(a) Authorize, create, designate, determine or issue
any Parity Stock or Senior Stock other than shares of Series A Preferred
Stock issued in satisfaction of deferred interest pursuant to the
Supplemental Securities Agreement.
(b) Amend, modify or repeal any provision of the
Corporation's Certificate of Incorporation or by-laws in any manner which
would alter or change the rights, preferences, privileges or powers of, or
the restrictions provided for the benefit of, the Series A Preferred Stock.
(c) Authorize any amendment, modification, waiver or
repeal of any provision of any agreement which grants the holders of the
Series A Preferred Stock any rights, privileges or powers and to which the
Corporation is a party.
(d) Authorize the merger, consolidation or sale or
license of all or substantially all the assets (including, without
limitation, the intellectual property rights of the Corporation) of the
Corporation or of any assets the disposition or licensing of which would
have a material effect on the business of the Corporation or any
subsidiary, or any liquidation, dissolution or winding up of the
Corporation or effect any transaction or series of transactions in which
more than 50% of the voting power of the Corporation is disposed of.
(e) Authorize (i) the distribution of, or payment of
dividends on, or (ii) the purchase, repurchase, redemption or other
acquisition by the Corporation (or otherwise set aside any sums therefor),
of any securities of the Corporation, or any interest therein, junior to
the Series A Preferred Stock.
(f) Amend the Corporation's Certificate of
Incorporation to increase the aggregate authorized number of shares of
Common Stock or Series A Preferred Stock if the additional shares so
authorized are to be sold at a price below the Issue Price, other than for
purposes of Management Incentive Plans.
11. ADDITIONAL SERIES A PREFERRED PROTECTIVE PROVISIONS. The
Corporation shall not, without first obtaining the approval of each holder
of Series A Preferred Stock affected thereby:
(a) Amend any applicable Redemption Date.
(b) Reduce the stated value or liquidation preference
or Redemption Price of the Series A Preferred Stock.
(c) Change the place or currency of payment of any
liquidation preference or dividend to which a holder of shares of Series A
Preferred Stock is entitled pursuant to this Certificate of Designation.
(d) Impair the right to institute suit for the
enforcement of any payment on or with respect to any share of Series A
Preferred Stock.
(e) Amend this Certificate of Designation in a manner
which would adversely affect the right to convert any share of Series A
Preferred Stock including, without limitation, any amendment which would
adversely affect the calculation of the Issue Price or the Conversion
Price.
(f) Amend this Certificate of Designation to reduce the
percentage of outstanding shares of Series A Preferred Stock required to
modify, amend or repeal the provisions of the Certificate of Designation or
grant waivers of any provision hereof.
12. STATUS OF CONVERTED OR REDEEMED STOCK. In the event any
shares of Series A Preferred Stock shall be redeemed or converted pursuant
to paragraph 5 or 6 above, the shares so converted or redeemed shall be
cancelled and shall not be issuable by the Corporation, and the Certificate
of Incorporation of the Corporation shall be appropriately amended to
effect the corresponding reduction in the Corporation's authorized capital
stock. Notwithstanding the foregoing, no such amendment shall be required
unless the aggregate number of shares converted or redeemed exceeds 25% of
the Corporation's then authorized shares of Series A Preferred Stock.
13. RESERVATION OF COMMON STOCK. The Corporation shall at
all times on and after the 15th day following the first meeting of
stockholders of the Corporation occurring on or after the Issue Date
reserve and keep available out of its authorized but unissued shares of
Common Stock solely for the purpose of effecting the conversion of the
shares of the Series A Preferred Stock such number of its shares of Common
Stock free from preemptive rights as shall from time to time be sufficient
to effect the conversion of all outstanding shares of the Series A
Preferred Stock. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of
all then outstanding shares of the Series A Preferred Stock, in addition to
such other remedies as shall be available to the holders of such Series A
Preferred Stock, the Corporation will take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purposes, including,
without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to the Corporation's
Certificate of Incorporation.
14. COSTS. The Corporation shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or
delivery of shares of Common Stock upon conversion of any shares of Series
A Preferred Stock; provided that the Corporation shall not be required to
pay any taxes which may be payable in respect of any transfer involved in
the issuance or delivery of any certificate for such shares in a name other
than that of the holder of the shares of Series A Preferred Stock in
respect of which such shares are being issued.
15. APPROVALS. If any shares of Common Stock to be reserved
for the purpose of conversion of shares of Series A Preferred Stock require
registration with or approval of any governmental authority under any
Federal or state law before such shares may be validly issued or delivered
upon conversion, then the Corporation will in good faith and as
expeditiously as possible endeavor to secure such registration or approval,
as the case may be. If, and so long as, any Common Stock into which the
shares of Series A Preferred Stock are then convertible is listed on any
national securities exchange, the Corporation will, if permitted by the
rules of such exchange, list and keep listed on such exchange, upon
official notice of issuance, all shares of such Common Stock issuable upon
conversion.
16. VALID ISSUANCE. All shares of Common Stock which may be
issued upon conversion of the shares of Series A Preferred Stock will upon
issuance by the Corporation be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to
the issuance thereof, and the Corporation shall take no action which will
cause a contrary result (including without limitation, any action which
would cause the Conversion Price to be less than the par value, if any, of
the Common Stock).
17. EXCLUSION OF OTHER RIGHTS. Except as may otherwise be
required by law, the shares of Series A Preferred Stock shall not have any
preferences or relative, participating, optional or other special rights,
other than those specifically set forth in this resolution (as such
resolution may be amended from time to time) and in the Corporation's
Certificate of Incorporation. The shares of Series A Preferred Stock shall
have no preemptive or subscription rights.
18. HEADINGS OF SUBDIVISIONS. The headings of the various
subdivisions hereof are for convenience of reference only and shall not
affect the interpretation of any of the provisions hereof.
19. SEVERABILITY OF PROVISIONS. If any right, preference or
limitation of the Series A Preferred Stock set forth in this resolution (as
such resolution may be amended from time to time) is invalid, unlawful or
incapable of being enforced by reason of any rule of law or public policy,
all other rights, preferences and limitations set forth in this resolution
(as so amended) which can be given effect without the invalid, unlawful or
unenforceable right, preference or limitation shall, nevertheless, remain
in full force and effect, and no right, preference or limitation herein set
forth shall be deemed dependent upon any other such right, preference or
limitation unless so expressed herein.
20. STATUS OF REACQUIRED SHARES. Shares of Series A
Preferred Stock which have been issued and reacquired in any manner shall
(upon compliance with any applicable provisions of the laws of the State of
Delaware) have the status of authorized and unissued shares of Series A
Preferred Stock issuable in series undesignated as to series and may be
redesignated and reissued.
FURTHER RESOLVED, that, before the Corporation shall issue any
shares of Series A Preferred Stock, a certificate pursuant to Section 151
of the DGCL shall be made, executed, acknowledged, filed, and recorded in
accordance with the provisions of Sections 103 and 151 of the DGCL, and the
proper officers of the Corporation be, and they hereby are, authorized and
directed to do all acts and things which may be necessary or proper in
their opinion to carry into effect the purposes and intent of this and the
foregoing resolutions.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate
of Designation to be signed in its name and on its behalf and attested on
this 12th day of January, 2000, by duly authorized officers of this
Corporation.
KRAUSE'S FURNITURE, INC.
By: /s/ Robert A. Burton
--------------------------------
Name: Robert A. Burton
Title: Executive Vice President
and CFO
ATTEST:
By: /s/ Judith O. Lasker
-------------------------------------
Name: Judith O. Lasker
Title: Secretary and General Counsel
AGREEMENT
This Agreement (this "Agreement") is entered into this 11th day
of January, 2000, by and among Krause's Furniture, Inc., a Delaware
corporation (the "Company"), General Electric Capital Corporation, a New
York corporation ("GECC"), and Japan Omnibus Ltd., an international
business corporation incorporated under the laws of the British Virgin
Islands ("JOL").
RECITALS
GECC has purchased from the Company Notes dated (i) as of August
14, 1997, as amended as of March 31, 1999, in the outstanding principal
amount of $5,501,091.20 (the "Initial Note"), (ii) as of August 14, 1997,
as amended as of March 31, 1999, in the outstanding principal amount of
$2,500,000 (the "August 1997 Note") and (iii) as of December 30, 1997, as
amended as of March 31, 1999, in the outstanding principal amount of
$2,500,000 (collectively with the Initial Note and the August 1997 Note,
the "GECC Notes").
JOL has purchased from the Company Notes dated (i) as of August
14, 1997, as amended as of March 31, 1999, in the outstanding principal
amount of $500,000 (the "JOL August 1997 Note") and (ii) as of December 30,
1997, as amended as of March 31, 1999, in the outstanding principal amount
of $1,000,000 (together with the JOL August 1997 Note, the "JOL Notes"; the
JOL Notes and the GECC Notes are referred to herein collectively as the
"Notes").
The Company, GECC and JOL are parties to a Supplemental
Securities Purchase Agreement dated as of August 14, 1997 (as amended on
September 14, 1999 and December 14, 1999, the "Supplemental Purchase
Agreement") relating to the Notes. Capitalized terms used herein without
definition have the meanings set forth in the Supplemental Purchase
Agreement.
In connection with the transactions contemplated by the Krause's
Furniture Inc. Series A Convertible Preferred Stock Securities Purchase
Agreement dated as of January 11th, 2000 (the "2000 Securities Purchase
Agreement"), the Company, GECC and JOL desire to amend certain provisions
of the Notes and the Supplemental Purchase Agreement and to provide certain
additional rights to the holders of the Notes.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
1. Effective as of December 24, 1999, Section 6.2 of the Supplemental
Purchase Agreement shall be amended in its entirety to read as follows:
6.2. Financial Covenants. For purposes of this Section 6.2,
"fiscal year" and "fiscal quarter" are measured on the basis of a fiscal
year ending on the Sunday closest to December 25 of the relevant calendar
year.1 The Company's compliance with the financial covenants set forth
below shall be determined based solely on the assets, liabilities and
operating results of the Company's retail and hospitality operations,
except that Indebtedness relating to the Company's e-commerce and
business-to-business operations shall be taken into account for purposes of
calculating compliance with the covenant in paragraph (b) and lease expense
(other than lease expense previously approved by GECC) and interest expense
relating to the Company's e-commerce and business-to-business operations
shall be taken into account for purposes of calculating compliance with the
covenant in paragraph (c).
- ---------------
1 E.g., fiscal year 2000 is the twelve-month period ending December 24,
2000; the fiscal quarters of fiscal year 2000 are the quarterly periods
ending March 26, June 25, September 24 and December 24 of such year.
(a) The Company will not permit its Consolidated Net Worth
at the end of any fiscal quarter to be less than the amount set forth below
for such fiscal quarter, provided that, upon any public or private offering
of capital stock of the Company for the Company's account, the amounts set
forth below for fiscal quarters subsequent to such offering shall be
adjusted upward by an amount equal to the net proceeds of any such offering
multiplied by 0.9:
Year Q1 Q2 Q3 Q4
---- ------- ------- ------- -------
1999 N/A N/A 8.8 MM 6.0 MM
2000 13.5 MM 14.0 MM 14.5 MM 16.0 MM
2001 17.5 MM 20.0 MM 22.0 MM 26.0 MM
2002 29.0 MM 32.0 MM 35.0 MM 40.0 MM
2003 40.0 MM 40.0 MM N/A N/A
(b) The Company and its Subsidiaries will not incur, create,
assume or permit to exist any Indebtedness at the end of any fiscal quarter
if such Indebtedness would result in a ratio of Consolidated Total
Indebtedness to Consolidated Net Worth of more than the amount for such
fiscal quarter indicated set forth below:
Year Q1 Q2 Q3 Q4
---- ------- ------- ------- -------
1999 N/A N/A 3.75 5.00
2000 1.95 1.95 1.95 1.60
2001 1.30 1.10 1.00 1.00
2002 1.00 1.00 1.00 1.00
2003 1.00 1.00 N/A N/A
(c) The Company will not permit its Fixed Charge Ratio at
the end of any fiscal quarter to be less than the amount set forth below
for such fiscal quarter:
Year Q1 Q2 Q3 Q4
---- ------- ------- ------- -------
1999 N/A N/A 0.75 0.45
2000 0.95 1.10 1.10 1.30
2001 1.20 1.20 1.20 1.35
2002 1.30 1.30 1.30 1.50
2003 1.40 1.40 N/A N/A
(d) The Company and its Subsidiaries will not make capital
expenditures (net of any sale leasebacks incurred within such fiscal year)
for its retail and hospitality operations in excess of the amounts set
forth below for the fiscal years indicated:
1999 $10,000,000
2000 $8,000,000
2001 $8,000,000
2002 $8,000,000
2003 2 $4,000,000
- ---------------
2 Applicable to the first two fiscal quarters of 2003.
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.
2. Each of the Notes is hereby amended to provide that the payment date for
each scheduled payment of principal under the Note shall be deferred for a
period of eleven months from the date specified in such Note (i.e., the
installment of principal currently payable on April 30, 2000 shall be due
and payable on March 31, 2001 and each succeeding installment of principal
shall be due and payable one year from the date specified in such Note,
with the final installment of principal due and payable on June 30, 2003).
3. Notwithstanding paragraph 2 above, commencing with the Company's fiscal
quarter ending March 31, 2000, 50% of the Company's quarterly "free cash
flow from retail operations" (as defined below) up to a maximum of
$4,000,000 in the aggregate shall be applied ratably to the Notes (in
proportion to the outstanding principal amount of each Note) to prepay the
outstanding principal amount of each Note in the inverse order of maturity
of installments under each Note. For the purposes of this Agreement, "free
cash flow from retail operations" means EBITDA of the Company's retail and
hospitality operations, less debt service payments and less capital
expenditures for the Company's retail and hospitality operations,
determined as of the end of each fiscal quarter as promptly as practicable
and in any event within 30 days after such quarter end. Any prepayments
under the Notes required by this paragraph shall be made as promptly as
practicable, and in any event within three days, after the determination of
free cash flow from retail operations for the preceding fiscal quarter.
4. Commencing June 30, 2000, the Company and its Subsidiaries shall not
enter into any contract or commitment to make any capital expenditure or
make any capital expenditure not previously contracted for by the Company
or any of its Subsidiaries relating to the retail or hospitality operations
of the Company and its Subsidiaries (other than non-new store related
retail capital expenditures not to exceed $250,000 in the aggregate per
quarter) unless (i) such capital expenditure has previously been approved
by GECC, (ii) the Company is not (and, after giving effect to such capital
expenditure, will not be) in default of any obligation under the Notes, the
Supplemental Purchase Agreement or this Agreement and (iii) after giving
effect to such proposed capital expenditure, the Company's projected free
cash flow from retail and hospitality operations (as set forth in the
current business plan for the Company's retail and hospitality operations
approved by the Board of Directors, and subject to any reductions
reasonably necessary to reflect deviations from the targets established in
such business plan), will be sufficient to make all payments of principal
and interest under the Notes when due and payable. The Company shall
provide to GECC prior to the end of each fiscal quarter a schedule listing
all capital expenditures for retail or hospitality operations proposed to
be committed or contracted for in the succeeding fiscal quarter.
5. Provided that no cash dividends shall have been paid in respect of
shares of Series A Convertible Preferred Stock of the Company, the Company
shall have the right to defer payments of interest under all (but not less
than all) of the Notes for periods ending on or prior to December 31, 2000.
Payments of interest under any Note deferred in accordance with the
preceding sentence shall be due and payable, together with interest on each
such deferred payment from and including the date on which such payment was
otherwise (but for such deferral) due and payable under the Note to but
excluding the date on which such payment is actually made by the Company as
provided in this paragraph, at an annual rate of 9.5%, compounded quarterly
on the basis of a 360-day year of 12 30-day months (the "Deferred Interest
Amount"), at the option of the holder of such Note, either (a) on December
31, 2000, in shares of Series A Convertible Preferred Stock having an
aggregate value (calculated based upon the Issue Price (as defined in the
Certificate of Designation of the Series A Convertible Preferred Stock))
equal to the Deferred Interest Amount as of such date, or (b) on the date
on which the final installment of principal of such Note is due and payable
(after giving effect to any prepayments under such Note required by
paragraph 3 of this Agreement) by the Company in accordance with such Note
as amended hereby, in cash in an amount equal to the Deferred Interest
Amount as of such date.
6. Except for any redemption of shares of Series A Convertible Preferred
Stock permitted in accordance with Section 6.2 (a) of the 2000 Securities
Purchase Agreement, no cash payments in respect of the Series A Convertible
Preferred Stock, whether of dividends, payments upon redemption or
repurchase by the Company, or upon any actual or deemed liquidation,
dissolution or winding up of the Company, shall be made unless the entire
outstanding principal amount of, and all accrued interest and other amounts
payable under the Notes have been repaid in full and the Notes have been
cancelled and retired.
7. The Company acknowledges and agrees 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 GECC and JOL 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.
8. 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.
9. This Agreement may be amended as to GECC, JOL 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 aggregate outstanding principal amount of the Notes then held by GECC,
JOL 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 the interest rate, maturity, principal amount, time of
payment, currency of payment, or the amount or allocation of any
prepayments of any Note. 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 9 may be waived, changed or modified.
10. 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 GECC or JOL to any transferee of
Notes. This Agreement may not be assigned by the Company.
11. The Company agrees to pay GECC and JOL for all reasonable outside legal
fees in connection with this Agreement.
12. This Agreement shall terminate upon the repayment in full of all
amounts of principal, interest and other sums due and payable on all Notes.
13. 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.
14. This Agreement shall be effective upon delivery of original signature
pages or facsimile copies thereof executed by each of the parties hereto.
15. 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.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly
authorized.
KRAUSE'S FURNITURE, INC.
By: /s/ Robert A. Burton
------------------------------------------
Name: Robert A. Burton
Title: Executive Vice President
and Chief Financial Officer
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ George C. Hashburger, Jr.
------------------------------------------
Name: George L. Hashbarger, Jr.
Title: Senior Vice President/
Department Operations Manager
JAPAN OMNIBUS LTD.
By: /s/ James R. Hodge
------------------------------------------
Name:
Title:
POWER OF ATTORNEY
The undersigned, General Electric Company, a New York corporation
(hereinafter referred to as the "Corporation") does hereby make, constitute
and appoint the persons listed below as the Corporation's true and lawful
agent and attorney-in-fact (hereinafter referred to as the "Attorney") to
act either together or alone in the name and on behalf of the Corporation
for and with respect to the matters hereinafter described.
Name of Attorney: Joan C. Amble
Nancy E. Barton
Jeffrey S. Werner
Michael A. Gaudino
J. Gordon Smith
Michael E. Pralle
Paul J. Licursi
Each Attorney shall have the power and authority to do the
following:
To execute and deliver any Schedule 13D, Schedule 13G or Forms 3,
4 and 5 or any amendments thereto required to be filed with the
Securities and Exchange Commission under the Securities Exchange
Act of 1934 on behalf of the Corporation with regard to any
securities owned by General Electric Capital Services, Inc.,
General Electric Capital Corporation or any of their
subsidiaries.
And, in connection with the foregoing, to execute and deliver all
documents, acknowledgments, consents and other agreements and to take such
further action as may be necessary or convenient for the Corporation in
order to more effectively carry out the Intent and purpose of the
foregoing.
Agreements, commitments, documents, instruments, and other writings
executed by the Attorney in accordance with the terms hereof shall be
binding upon the Corporation without attestation and without affixation of
the seal of the Corporation. The Power of Attorney conferred hereby shall
not be delegable by any Attorney. The Attorney shall serve without
compensation for acting in the capacity of agent and attorney-in-fact
hereunder.
Unless sooner revoked by the Corporation, this Power of Attorney shall
be governed under the laws of the State of New York and the authority of
the Attorney hereunder shall terminate on March 31, 2000.
IN WITNESS WHEREOF, the Corporation has caused this Power of Attorney
to be executed, attested and its corporate seal to be affixed pursuant to
authority granted by the Corporation's board of directors, as of the 30th
day of April, 1998.
General Electric Company
(Corporate Seal)
By: /s/ Philip D. Ameen
-------------------------------
Philip D. Ameen, Vice President
Attest:
/s/ Robert E. Healing
- ----------------------------
Robert E. Healing,
Attesting Secretary
<PAGE>
POWER OF ATTORNEY
The undersigned, General Electric Capital Services, Inc., a Delaware
corporation (hereinafter referred to as the "Corporation") does hereby
make, constitute and appoint the persons listed below as the Corporation's
true and lawful agent and attorney-in-fact (hereinafter referred to as the
"Attorney") to act either together or alone in the name and on behalf of
the Corporation and for and with respect to the matters hereinafter
described.
Name of Attorney:
Michael A. Gaudino
J. Gordon Smith
Michael E. Pralle
Paul J. Licursi
Each Attorney shall have the power and authority to do the
following:
To execute and deliver any Schedule 13D, Schedule 13G or Forms 3,
4 and 5 or any amendments thereto required to be filed with the
Security and Exchange Commission under the Securities Act of 1934
on behalf of the Corporation with regard to any securities owned
by the Corporation, General Electric Capital Corporation of any
of their subsidiaries.
And, in connection with the foregoing, to execute and deliver all
documents, acknowledgments, consents or other agreements and to take such
further action as may be necessary or convenient for the Corporation in
order to more effectively carry out the intent and purpose of the
foregoing.
Agreements, commitments, documents, instruments, and other writings
executed by the Attorney in accordance with the terms hereof shall be
binding upon the Corporation without attestation and without affixation of
the seal of the Corporation. The Power of Attorney conferred hereby shall
not be delegable by any Attorney. The Attorney shall serve without
compensation for acting in the capacity of agent and attorney-in-fact
hereunder.
Unless revoked by the Corporation, this Power of Attorney shall be
governed under the laws of the State of New York and the authority of the
Attorney hereunder shall terminate on March 31, 2000.
IN WITNESS WHEREOF, the Corporation has caused this Power of Attorney
to be executed, attested and its corporate seal to be affixed pursuant to
authority granted by the Corporation's board of directors, as of the 30th
of April, 1998.
General Electric Capital Services, Inc.
(Corporate Seal)
By: /s/ Nancy E. Barton
------------------------------------
Nancy E. Barton, Senior Vice President
Attest:
/s/ Brian T. MaAnaney
- -------------------------
Brian T. McAnaney,
Assistant Secretary
