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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): AUGUST 14, 1997
KRAUSE'S FURNITURE, INC.
(Exact name of Registrant as Specified in its Charter)
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DELAWARE 0-17868 77-0310773
(State or Other Jurisdiction (Commission File No.) (IRS Employer Identification No.)
of Incorporation)
200 NORTH BERRY STREET, BREA, CALIFORNIA 92821-3903
(Address of Principal Executive Offices) (Zip Code)
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(714) 990-3100
(Registrant's Telephone Number, Including Area Code)
PAGE 1 OF 7 PAGES
EXHIBIT INDEX LOCATED ON PAGE 7
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INFORMATION TO BE INCLUDED IN REPORT
ITEM 5. OTHER EVENTS.
New Financing
On August 14, 1997, the Company concluded a Supplemental Securities
Purchase Agreement (the "Agreement") among the Company, General Electric Capital
Corporation ("GECC") and Japan Omnibus Ltd. ("JOL"), a company formerly known as
Edson Investments, Inc. Under the Agreement and certain ancillary documents
described in further detail below, the Company sold subordinated notes in an
aggregate principal amount of $3,000,000 to GECC and JOL, and arranged a standby
credit facility under which the Company may at its option, subject to the
attainment of certain financial covenants, sell up to $3,500,000 aggregate
principal amount of additional notes to GECC and JOL. As described in detail
below, the Company issued warrants in conjunction with the notes, including
performance warrants that would be canceled if the Company meets certain
economic performance targets, and agreed to issue additional warrants if it
draws on the standby credit facility. In addition, the Company and Congress
Financial Corporation (Western) ("Congress"), holder of the Company's secured
revolving credit notes, agreed to make a change in the advance rate for
borrowings under the revolving credit agreement that will provide additional
credit availability. The proceeds of these transactions will be used to retire
existing debt and to finance the Company's planned expansion and remodeling
program in accordance with its business plan.
The provisions of the Agreement include the following:
- The Company issued to GECC a new 9.50% Subordinated Note due
August 31, 2002 (the "Replacement Note") in an initial
principal amount of $5,501,091.00, to replace the Company's
10% Subordinated Pay-In-Kind Note due August 31, 2001, in
principal amount of $5,000,000, and certain additional notes
in aggregate principal amount of $501,091.00 reflecting
accrued interest. The Replacement Note is payable
semiannually, on a straight-line basis over three years
beginning February 2000 whereas the Pay-In-Kind Note was
payable semiannually, on a straight-line basis over three
years beginning February 1999.
- The Company issued to GECC a new 9.50% Subordinated Note due
August 31, 2002, in the principal amount of $2.5 million, and
issued to JOL a new 9.50% Subordinated Note due August 31,
2002 in the principal amount of $500,000 (collectively, the
"1997 Notes") in each case in consideration of the Company's
receipt at the closing of the Agreement of an amount of cash
equal to the principal amount of the note. The 1997 Notes are
payable semiannually, on a straight-line basis over three
years beginning February 2000.
- At the Company's option, subject to the attainment of certain
financial covenants, it may draw on the standby credit
facility with GECC and JOL by selling additional 9.50%
Subordinated Notes in an aggregate principal amount of up to
$3,500,000 (the
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"Standby Notes"). The Standby Notes will be available to be
issued from January 2, 1998, to February 28, 2000, at the
Company's option in a single transaction of $3,500,000 (of
which $2,500,000 would issue to GECC and $1,000,000 would
issue to JOL), or two transactions of $1,750,000 each (of
which $1,250,000 would issue to GECC and $500,000 would issue
to JOL), in each case in consideration of an amount of cash
equal to the principal amount of the note.
- In connection with the issuance of the 1997 Notes, the
Company also issued to GECC a warrant to purchase 600,000
shares of the common stock of the Company and to JOL a warrant
to purchase 140,000 shares of the common stock of the Company,
in each case at a purchase price of $1.25 per share (such
warrants, collectively, the "1997 Warrants").
- In connection with the issuance of the 1997 Notes, the
Company also issued to GECC and JOL a warrant to purchase an
aggregate amount of up to 1,000,000 shares of the Company's
common stock at a price of $0.01 per share (the "Performance
Warrant"), which warrant may be completely or partially
canceled depending on the economic performance of the Company.
Specifically, the number of shares of Common Stock for which
the Performance Warrant is exercisable shall be based on the
Company's consolidated net income, plus interest expense (net
of interest income), plus income tax expense, plus
depreciation and amortization expense ("EBITDA"), computed in
accordance with generally accepted accounting principles
applied on a consistent basis, for the fiscal year ending 1999
("FYE 1999") as follows:
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FYE 1999 EBITDA Number of Shares
--------------- ----------------
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$15,000,000 or greater 0
$14,000,000 - $14,999,999 200,000
$13,000,000 - $13,999,999 400,000
$12,000,000 - $12,999,999 600,000
$11,000,000 - $11,999,999 800,000
$10,999,999 or less 1,000,000
</TABLE>
The shares, if any, purchased through exercise of the
Performance Warrant shall be allocated between GECC and JOL in
proportion with the aggregate amount of 1997 Notes and Standby
Notes purchased by each of them pursuant to the Agreement.
- If the Company elects to draw on the credit available from
GECC and JOL by issuing Standby Notes, the Agreement provides
that the Company shall issue to GECC warrants to purchase an
aggregate of up to 400,000 shares of the common stock of the
Company, and to JOL warrants to purchase an aggregate of up to
160,000 shares of the common stock of the Company
(collectively the "Standby Warrants"), in each case at a
purchase price of $1.25 per share. The Company shall issue to
GECC a Standby Warrant for the purchase of 200,000 shares if
the Company issues GECC a
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Standby Note in the principal amount of $1,250,000, or a
Standby Warrant for the purchase of 400,000 shares if the
Company issues GECC a Standby Note in the principal amount of
$2,500,000. The Company shall issue to JOL a Standby Warrant
for the purchase of 80,000 shares if the Company issues JOL a
Standby Note in the principal amount of $500,000, or a Standby
Warrant for the purchase of 160,000 shares if the Company
issues JOL a Standby Note in the principal amount of
$1,000,000.
- Each of the subordinated notes issued under the Agreement is
subordinated to the Company's debt under its revolving credit
agreement with Congress pursuant to a Loan and Security
Agreement dated as of January 20, 1995.
The Company and Congress entered into a Fourth Amendment dated August
14, 1997 to the Loan and Security Agreement dated January 20, 1995 (the
"Revolver Amendment") and a related letter agreement dated August 14, 1997.
Under the Revolver Amendment, Congress, in consideration of a modification fee
of $25,000 and the Company's receipt of $2,500,000 million in additional junior
debt financing under the Agreement, agreed to make a change in the advance rate
for borrowings under the revolving credit agreement that will provide additional
credit availability, which credit will be senior indebtedness of the Company.
The Company, GECC and JOL also agreed that JOL and the members of the
Permal Group of stockholders of the Company would, notwithstanding the
restrictions on sale under a Stockholders Agreement dated August 26, 1996 (the
"Stockholders Agreement"), be permitted to sell up to 2,000,000 shares of the
Company's common stock currently held by JOL and the Permal Group.
In addition, GECC and JOL agreed that, with respect to warrants issued
pursuant to the Agreement, and with respect to warrants to purchase 1,400,000
shares of the common stock of the Company previously issued to GECC, GECC and
JOL would waive any right they might otherwise have to make anti-dilution
adjustments to the number of shares or exercise price of such warrants.
The foregoing description of the terms of the transactions is qualified
in its entirety by reference to the Agreement and the Revolver Amendment, and
the related letter agreements. A copy of each of the Agreement, the Revolver
Amendment and the related letter agreements, is filed herewith as Exhibit 10.1,
10.2, 10.3 and 10.4 and 10.5 respectively, and in each case is incorporated
herein by reference.
A press release announcing the entering into of the Agreement and the
Revolver Amendment and announcing the Company's expansion and remodeling program
was issued on August 18, 1997. The press release is attached hereto as Exhibit
99.1 and incorporated herein by reference.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
Not applicable.
(b) Pro Forma financial Information.
Not applicable.
(c) Exhibits.
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Exhibit No. Description
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10.1 Supplemental Securities Purchase Agreement
Among Krause's Furniture, Inc., General
Electric Capital Corporation and Japan
Omnibus Ltd., Dated as of August 14, 1997,
including Exhibits A, B, C-1, C-2, C-3 and E
(the "Agreement").
10.2 Fourth Amendment to Loan and Security Agreement, dated as of
August 14, 1997 ("Revolver Amendment").
10.3 Letter agreement between the Company and
Congress Financial Corporation (Western)
dated August 14, 1997.
10.4 Letter agreement dated August 14, 1997 regarding Permal Group
shares.
10.5 Letter agreement dated August 14, 1997 regarding warrant
dilution provisions.
99.1 Text of Press Release dated August 18, 1997.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
KRAUSE'S FURNITURE, INC.
By /s/ Robert A. Burton
-------------------------------------------
Robert A. Burton
Senior Vice President and Chief Financial
Officer
Date: August 27, 1997
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EXHIBIT INDEX
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Exhibit No. Description
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10.1 Supplemental Securities Purchase Agreement
Among Krause's Furniture, Inc., General
Electric Capital Corporation and Japan
Omnibus Ltd., Dated as of August 14, 1997,
including Exhibits A, B, C-1, C-2, C-3 and E
(the "Agreement").
10.2 Fourth Amendment to Loan and Security Agreement, dated as of
August 14, 1997 ("Revolver Amendment").
10.3 Letter agreement between the Company and
Congress Financial Corporation (Western)
dated August 14, 1997.
10.4 Letter agreement dated August 14, 1997 regarding Permal Group
shares.
10.5 Letter agreement dated August 14, 1997 regarding warrant
dilution provisions.
99.1 Text of Press Release dated August 18, 1997.
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EXHIBIT 10.1
SUPPLEMENTAL
SECURITIES PURCHASE AGREEMENT
AMONG
KRAUSE'S FURNITURE, INC.,
GENERAL ELECTRIC CAPITAL CORPORATION
AND
JAPAN OMNIBUS LTD.
Dated as of August 14, 1997
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TABLE OF CONTENTS
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Page
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1. Purchase and Sale of the New Securities.......................................2
1.1. Authorization to Sell the New Securities.............................2
1.2. Closing..............................................................2
1.3. Deliveries at Closing................................................3
1.4. Standby Note Closing.................................................3
1.5. Conditions to Funding the Standby Notes..............................4
1.6. Deliveries at Each Standby Note Closing..............................5
1.7. Definitions..........................................................5
2. Representations and Warranties of the Company.................................5
2.1. Organization and Qualification.......................................5
2.2. Due Authorization....................................................6
2.3. Subsidiaries.........................................................6
2.4. SEC Reports..........................................................6
2.5. Financial Statements.................................................7
2.6. Actions Pending; Compliance with Laws................................7
2.7. Title to Properties; Insurance.......................................7
2.8. Governmental Consents, etc...........................................8
2.9. Holding Company Act and Investment Company Act.......................8
2.10. Taxes...............................................................8
2.11. Conflicting Agreements and Charter Provisions.......................9
2.12. Capitalization......................................................9
2.13. Issuance, Sale and Delivery of the New Notes and the New
Warrants.........................................................10
2.14. Issuance, Sale and Delivery of the Common Stock.....................10
2.15. Registration Under Exchange Act.....................................10
2.16. ERISA...............................................................10
2.17. Possession of Franchises, Licenses, Etc.............................11
2.18. Environmental and Other Regulations.................................11
2.19. Patents and Trademarks..............................................11
2.20. Material Contracts and Obligations..................................12
2.21. Books and Records...................................................12
2.22. Transactions with Related Parties...................................13
2.23. Brokers.............................................................13
2.24. Accuracy of Information.............................................13
2.25. Offering of New Securities..........................................13
2.26. Use of Proceeds.....................................................14
2.27. Unlawful Use of Proceeds............................................14
2.28. Costs of "Year 2000" Modifications..................................14
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3. Representations and Warranties of each Purchaser..............................14
3.1. Organization and Qualification.......................................14
3.2. Due Authorization....................................................15
3.3. Conflicting Agreements and Other Matters.............................15
3.4. Actions Pending; Compliance with Laws................................15
3.5. Acquisition for Investment...........................................15
3.6. Brokers or Finders...................................................16
3.7. Accredited Investor..................................................16
4. Registration, Exchange and Transfer of Notes..................................16
4.1. Authorized Denominations of Notes....................................16
4.2. The Note Register; Persons Deemed Owners.............................16
4.3. Issuance of New Notes Upon Exchange or Transfer......................16
4.4. Lost, Stolen, Damaged and Destroyed Notes............................17
5. Payment of Notes..............................................................17
5.1. Home Office Payment..................................................17
5.2. Limitation on Interest...............................................17
5.3. Interest.............................................................18
5.4. Business Day.........................................................18
6. Covenants of the Company......................................................18
6.1. Payment of the Notes.................................................18
6.2. Financial Covenants..................................................18
6.3. Limitation on Senior Equity Securities...............................19
6.4. Merger; Purchase and Sale of Assets..................................19
6.5. Compliance with Laws.................................................20
6.6. Limitation on Agreements.............................................20
6.7. Preservation of Franchises and Existence.............................20
6.8. Insurance............................................................21
6.9. Payment of Taxes and Other Charges...................................21
6.10. Effect of Certain Breaches..........................................21
6.11. ERISA...............................................................22
6.12. Financial Statements and Other Reports..............................22
6.13. Inspection of Property..............................................23
6.14. Rights of First Offer...............................................24
6.15. Lost, Stolen, Damaged and Destroyed Stock Certificates..............24
6.16. Related Party Transactions..........................................25
6.17. Operations in Accordance with Business Plan.........................25
6.18. Notice of Breach....................................................25
7. Restrictions on Transfer......................................................25
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8. Events of Default and Remedies................................................26
8.1. Events of Default....................................................26
8.2. Acceleration of Maturity.............................................27
8.3. Other Remedies.......................................................28
8.4. Conduct Not a Waiver; Collection Expenses............................28
8.5. Annulment of Acceleration............................................28
8.6. Remedies Cumulative..................................................29
8.7. Limitations..........................................................29
9. Redemption....................................................................29
9.1. Optional Redemption..................................................29
9.2. Mandatory Redemption.................................................29
9.3. Procedures for Partial Redemption....................................30
9.4. Change in Control....................................................30
9.5. Redemption Procedures................................................30
10. Subordination of Notes.......................................................31
10.1. Subordination of Notes to Senior Indebtedness.......................31
10.2. Proofs of Claim of Holders of Senior Indebtedness; Voting...........33
10.3. Rights of Holders of Senior Indebtedness Unimpaired.................34
10.4. Effects of Event of Default.........................................34
10.5. Company's Obligations Unimpaired....................................34
10.6. Subrogation.........................................................35
11. Interpretation...............................................................35
11.1. Definitions.........................................................35
11.2. Accounting Principles...............................................40
12. Miscellaneous................................................................40
12.1. Payments............................................................40
12.2. Severability........................................................40
12.3. Specific Enforcement................................................40
12.4. Entire Agreement....................................................41
12.5. Counterparts........................................................41
12.6. Notices and Other Communications....................................41
12.7. Amendments; Waivers.................................................42
12.8. Cooperation.........................................................43
12.9. Successors and Assigns..............................................43
12.10. Expenses and Remedies..............................................43
12.11. Survival of Representations and Warranties.........................44
12.12. Transfer of Securities.............................................44
12.13. Governing Law; Consent to Jurisdiction.............................45
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12.14. Term...............................................................46
12.15. Publicity..........................................................46
12.16. Signatures.........................................................46
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THIS SUPPLEMENTAL SECURITIES PURCHASE AGREEMENT, dated as of
August 14, 1997 (this "Agreement"), among KRAUSE'S FURNITURE, INC., a Delaware
corporation (including its predecessors, the "Company"), GENERAL ELECTRIC
CAPITAL CORPORATION, a New York corporation ("GECC"), and JAPAN OMNIBUS LTD., an
international business company incorporated in the British Virgin Islands
("JOL"; each of GECC and JOL is sometimes referred to herein as a "Purchaser"
and collectively as the "Purchasers").
WHEREAS, pursuant to the Securities Purchase Agreement dated as
of August 26, 1996 (the "Original Agreement") between the Company and GECC, GECC
purchased from the Company, and the Company sold to GECC, (i) 5,000,000 shares
of the Company's Common Stock par value $.001 per share (the "Common Stock"), at
an aggregate purchase price of $5,000,000, (ii) the Company's 10% Subordinated
Pay-In-Kind Note due August 31, 2001, in the initial aggregate principal amount
of $5,000,000 (the "Original Note"), and (iii) in connection with the sale of
the Existing Notes, a warrant (the "Existing Warrant" and, together with any
warrants issued upon any division thereof, the "Existing Warrants") to purchase
1,400,000 shares of Common Stock.
WHEREAS, pursuant to this Agreement the Company and GECC wish to
amend and restate the provisions of the Original Note and the Additional Notes
(as defined in the Original Agreement) issued in payment of accrued interest on
the Original Note and Additional Notes through May 31, 1997, and to replace the
Original Note and the Additional Notes with a single note in the initial
principal amount of $5,501,091.00, representing the aggregate principal amount
of the Original Note and the Additional Notes and all interest accrued on the
Original Note and the Additional Notes from June 1, 1997 through the date of
this Agreement (such replacement note including all securities issued in
exchange or replacement therefor, the "Replacement Note")
WHEREAS, GECC and JOL wish to purchase from the Company, and the
Company wishes to sell to GECC and JOL, (i) the Company's 9.5% Subordinated
Notes due August 31, 2002, in the aggregate principal amount of $3,000,000
(including all securities issued in exchange or replacement therefor, herein
referred to as the "1997 Notes"), and, subject to the terms and conditions set
forth herein, the Company's 9.5% Subordinated Notes, substantially in the form
set forth on Exhibit B attached hereto, in the aggregate maximum principal
amount of $3,500,000, available to be issued, subject to the terms and
conditions of this Agreement, at the Company's option in a single transaction in
the amount of $3,500,000 or in up to two transactions, each in the amount of
$1,750,000, from January 2, 1998 through February 28, 2000 (including all
securities issued in exchange or replacement therefor, herein referred to as the
"Standby Notes" and, together with the 1997 Notes, the "New Notes") and (ii) (a)
in connection with the sale of the 1997 Notes, warrants (together with any
warrants issued upon any division thereof, the "1997 Warrants") to purchase
740,000 shares of Common Stock, having the terms and conditions set forth in the
form of the warrant attached
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hereto as Exhibit C-1, (b) in connection with the sale of each Standby Note, a
warrant (each, a "Standby Warrant" and, together with any warrants issued upon
any division thereof, the "Standby Warrants") to purchase shares of Common Stock
(covering 560,000 shares of Common Stock in the aggregate, or 80,000 shares of
Common Stock for each $500,000 principal amount of Standby Notes) having the
terms and conditions set forth in the form of the warrant attached hereto as
Exhibit C-2 and (c) a warrant (the "Performance Warrant" and, together with any
warrants issued upon any division thereof, the "Performance Warrants") to
purchase up to 1,000,000 shares of Common Stock having the terms and conditions
set forth in the form of the warrant attached hereto as Exhibit C-3 (the 1997
Warrants, the Standby Warrants and the Performance Warrants are collectively
referred to as the "New Warrants"). In this Agreement, the Existing Warrants and
the New Warrants are collectively referred to as the "Warrants"; the New Notes
and the Replacement Notes are collectively referred to as the "Notes"; and the
Common Stock, the Notes and the Warrants are collectively referred to as the
"Securities".
WHEREAS, the Purchasers and the Company desire to provide for the
purchase and sale of the New Notes and the New Warrants (the "New Securities")
and GECC and the Company desire to amend and restate certain provisions of the
Original Agreement and to establish various rights and obligations in connection
therewith.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein set forth, GECC and the Company agree to amend
and restate the provisions of Sections 4 through 10 of the Original Agreement
and that the provisions of Sections 4 through 10 of this Agreement shall
supersede the provisions of the corresponding sections of the Original Agreement
and the Purchasers and the Company agree as follows:
1. Purchase and Sale of the New Securities.
1.1. Authorization to Sell the New Securities. Subject to the
terms and conditions of this Agreement, the Company has duly authorized the
issuance and sale of the New Securities.
1.2. Closing . The closing of the purchase and sale of the 1997
Note, the 1997 Warrant and the Performance Warrant (the "Closing") will take
place at the offices of Fried, Frank, Harris, Shriver & Jacobson, New York, New
York, at 9:00 a.m. on the date of this Agreement or on such other date as shall
be mutually agreed by the Company and the Purchasers (the "Closing Date").
1.3. Deliveries at Closing. At the Closing:
(i) Morrison & Foerster L.L.P., counsel to the Company,
shall have delivered to the Purchasers an opinion dated the Closing Date
with respect to the matters set forth in Exhibit D hereto;
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(ii) the Company shall have delivered to the Purchasers
the 1997 Warrants (covering 600,000 shares of Common Stock in the case
of GECC and 140,000 shares of Common Stock in the case of JOL) and the
Performance Warrants in the forms of Exhibit C-1 and Exhibit C-3;
(iii) the Company shall have delivered to the Purchasers
the 1997 Notes in such denominations as the Purchasers have requested,
dated the Closing Date and registered in the name of the applicable
Purchaser, in an aggregate principal amount of $2,500,000 in the case of
GECC, and $500,000 in the case of JOL;
(iv) GECC shall have paid to the Company $2,500,000 by
wire transfer of immediately available funds which shall represent the
purchase price for the 1997 Note, 1997 Warrant and the Performance
Warrant to be acquired by it, and JOL shall have paid to the Company
$500,000 by wire transfer of immediately available funds which shall
represent the purchase price for the 1997 Note, 1997 Warrants and the
Performance Warrant to be acquired by it;
(v) the Company shall have delivered to GECC a
Replacement Note in the initial aggregate principal amount of
$5,501,091.00 in the form attached hereto as Exhibit E, which shall
replace the Original Note and the outstanding Additional Notes (which
shall be canceled and retired) and any Additional Notes issuable in
payment of accrued and unpaid interest on the Original Notes and the
outstanding Additional Notes from June 1, 1997 through the date of this
Agreement;
(vi) the side letter agreement (the "Side Letter") in
the form of Exhibit F attached hereto shall have been executed by the
Company, the Purchasers and the Stockholders of the Company holding at
least a majority of the Common Stock and delivered to the Permal Group
(as defined in the Original Agreement); and
(vii) the Senior Indebtedness shall have been amended as
set forth in Exhibit G attached hereto.
The Closing of the purchase and sale of the 1997 Note, the 1997
Warrant and the Performance Warrant shall be deemed to have taken place in the
State of New York.
1.4. Standby Note Closing. Subject to the terms and conditions
hereinafter set forth, the Company may elect to issue the Standby Notes in a
single transaction in the aggregate principal amount of $3,500,000 or in up to
two transactions each in the aggregate principal amount of $1,750,000. The
closing (each, a "Standby Note Closing") of each purchase and sale of Standby
Notes (and the accompanying Standby Warrants) will take place at the offices of
Fried, Frank, Harris, Shriver & Jacobson, New York, New York, at 9:00 a.m. on
such date that is 30 days after the date the Company gives written notice (each,
a "Drawdown Notice") to the Purchasers of its intent to issue to the Purchasers
such Standby Notes and no later than February 28, 2000, or on such other date as
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shall be mutually agreed by the Company and the Purchasers, but no earlier than
January 2, 1998 and no later than February 28, 2000 (each, a "Drawdown Date").
1.5. Conditions to Funding the Standby Notes. The obligation of
the Purchasers to fund the applicable Standby Notes on any Drawdown Date shall
be subject to the compliance by the Company with its agreements contained herein
and to the satisfaction on or before such Drawdown Date of each of the following
further conditions:
(i) on such Drawdown Date, each Purchaser shall purchase from
the Company its pro rata share of the Standby Notes to be issued at such Standby
Note Closing.
(ii) the representations and warranties contained in Section 2
shall be true and correct on and as of the date of this Agreement and on and as
of such Drawdown Date with the same force and effect as though made on and as of
such date (except as to transactions permitted hereby) and the Company shall
have complied with each of its covenants and agreements contained in this
Agreement; and no Event of Default shall have occurred (except an Event of
Default which shall have been waived in writing or which shall have been cured)
and no Event of Default shall exist after giving effect to the funding of the
Standby Note; and the Purchasers shall have received a certificate containing a
representation to these effects dated such Drawdown Date and signed by an
officer of the Company;
(iii) the funding of the Standby Notes by the Purchasers on such
Drawdown Date shall not be prohibited by any order, judgment, decree, statute,
law, rule or regulation to which either Purchaser or the Company or any of their
respective property is subject;
(iv) as of the date of such Drawdown Notice and as of such
Drawdown Date (each, a "Measurement Date"), the Company shall have achieved
EBITDA for the 12-month period immediately preceding each such Measurement Date
(or such shorter period as may be indicated on Schedule 1.5) not less than the
amount set forth opposite such Measurement Date on Schedule 1.5; provided that,
if actual EBITDA of the Company for the month immediately preceding any such
Measurement Date is not available on any Measurement Date, the applicable period
shall be the 12-month period (or shorter period, as the case may be) ending with
the month prior to the month immediately preceding such Measurement Date; and
(v) all instruments and legal and corporate proceedings in
connection with the Standby Note contemplated by this Agreement shall be
satisfactory in form and substance to the Purchasers, and the Purchasers shall
have received copies of all documents which the Purchasers may have reasonably
requested in connection with the Standby Notes.
1.6. Deliveries at Each Standby Note Closing. At each Standby
Note Closing:
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(i) counsel to the Company shall have delivered to the
Purchasers an opinion dated the Drawdown Date reasonably satisfactory to the
Purchasers with respect to matters reasonably requested by the Purchasers;
(ii) the Company shall have delivered to the Purchaser the
Standby Warrant to be issued to such Purchaser at such Standby Note Closing in
the form of Exhibit C-2;
(iii) the Company shall have delivered to each Purchaser the
Standby Notes in such denominations as such Purchaser may request, dated the
Drawdown Date and registered in the name of the applicable Purchaser; and
(iv) each Purchaser shall have paid to the Company by wire
transfer of immediately available funds, the purchase price for the Standby
Notes and the Standby Warrants to be acquired by it.
The Closing of the purchase and sale of the Standby Notes and
the Standby Warrants shall be deemed to have taken place in the State of New
York.
1.7. Definitions. Certain capitalized terms used in this
Agreement are defined in Section 11 hereof.
2. Representations and Warranties of the Company.
The Company represents and warrants as of the Closing Date and
as of each Drawdown Date as follows:
2.1. Organization and Qualification . Each of the Company and
its Subsidiaries is a corporation duly organized and existing in good standing
under the laws of the jurisdiction in which it is incorporated and has the power
to own its respective property and to carry on its respective business as now
being conducted. Each of the Company and its Subsidiaries is duly qualified as a
foreign corporation to do business and in good standing in every jurisdiction in
which the nature of the respective business conducted or property owned by it
makes such qualification necessary and where the failure so to qualify would be
material to the Company or such Subsidiary, as the case may be.
2.2. Due Authorization . The execution and delivery of this
Agreement, the Side Letter, the New Notes and the New Warrants and the issuance
and sale of the New Securities by the Company and compliance by the Company with
all the provisions of this Agreement, the Side Letter, the New Notes and the New
Warrants (i) are within the corporate power and authority of the Company; (ii)
do not or will not require any approval or consent of the stockholders of the
Company, other than approvals and consents which have been duly obtained; and
(iii) have been authorized by all requisite corporate proceedings on the part of
the Company. This Agreement, the Side Letter, the New Notes and the New Warrants
have been duly executed and delivered by the Company and constitute valid and
binding
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agreements of the Company, enforceable in accordance with their respective
terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights, and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. The Company has furnished to the Purchasers
true and correct copies of the Company's Certificate of Incorporation and
By-laws as in effect on the date of this Agreement.
2.3. Subsidiaries. The Subsidiaries of the Company, all of
which are wholly owned by the Company, directly or indirectly, together with
their jurisdiction of incorporation, are as set forth on Schedule 2.3 hereto.
2.4. SEC Reports. The Company and its predecessors have filed
all proxy statements, reports and other documents required to be filed by it
under the Exchange Act since December 31, 1993; and the Company has furnished
the Purchaser copies of its Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, and all proxy statements and reports under the Exchange Act
filed by the Company after such date, each as filed with the Securities and
Exchange Commission (the "Commission") (collectively, the "SEC Reports"). Each
SEC Report was in compliance with the requirements of its respective report form
and did not on the date of filing contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading and as of the date hereof there is no fact not
disclosed in the SEC Reports which is material to the Company.
2.5. Financial Statements. The financial statements (including
any related schedules and/or notes) included in the SEC Reports have been
prepared in accordance with generally accepted accounting principles
consistently followed (except as indicated in the notes thereto) throughout the
periods involved and fairly present the consolidated financial condition,
results of operations, changes in stockholders' equity and cash flows of the
Company and its Subsidiaries as of the dates thereof and for the periods ended
on such dates (in each case subject, as to interim statements, to changes
resulting from year-end adjustments, which in the aggregate will not be material
in amount or effect), and the Company and its Subsidiaries have no material
liabilities, contingent or otherwise, not reflected in the Company's balance
sheet as of May 4, 1997 included in the SEC Reports or otherwise referred to in
the SEC Reports or otherwise disclosed to the Purchaser in writing prior to the
date of this Agreement, other than any such liabilities incurred in the ordinary
course of business since May 4, 1997. Since May 4, 1997 the Company and its
Subsidiaries have operated their respective businesses only in the ordinary
course and no event has occurred which has or is reasonably likely to have a
material adverse effect on the business, financial condition, operations,
results of operations, assets, liabilities or prospects of the Company or any of
its Subsidiaries (a "Material Adverse Effect"), other than changes
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<PAGE> 12
disclosed or referred to in the SEC Reports or otherwise disclosed to the
Purchasers in writing prior to the date of this Agreement.
2.6. Actions Pending; Compliance with Laws. There is no action,
suit, investigation or proceeding pending or, to the knowledge of the Company,
threatened by any public official or governmental authority, against the Company
or any of its Subsidiaries or any of their respective properties or assets by or
before any court, arbitrator or governmental body, department, commission,
board, bureau, agency or instrumentality, which questions the validity or
enforceability of, or seeks to enjoin or invalidate this Agreement, the Side
Letter, or the New Securities or any action taken or to be taken pursuant hereto
or thereto, or, except as set forth in the SEC Reports or as otherwise disclosed
to the Purchasers in writing, which is reasonably likely to be material to the
Company or any of its Subsidiaries, and neither the Company nor any of its
Subsidiaries is in default in any material respect with respect to any judgment,
order, writ, injunction, decree or award.
2.7. Title to Properties; Insurance. The Company and each of
its Subsidiaries have good and valid title to, or, in the case of property
leased by any of them as lessee, a valid and subsisting leasehold interest in,
their respective properties and assets, free of all liens and encumbrances other
than those referred to in the financial statements of the Company (or the notes
thereto) for the year ended February 2, 1997, included in the SEC Reports,
except in each case for such defects in title and such other liens and
encumbrances which are disclosed in the SEC Reports or which do not in the
aggregate materially detract from the value to the Company and its Subsidiaries
of their respective properties and assets. The Company and its Subsidiaries
maintain insurance in such amounts (to the extent available in the public
market), including self-insurance, retainage and deductible arrangements, and of
such a character as is reasonable for companies engaged in the same or similar
business. All insurance policies of the Company and its Subsidiaries are
disclosed on Schedule 2.7.
2.8. Governmental Consents, etc. The Company is not required to
obtain any consent, approval or authorization of, or to make any declaration or
filing with, any governmental authority as a condition to or in connection with
the valid execution, delivery and performance of this Agreement, the Side
Letter, the New Notes and the New Warrants and the valid offer, issue, sale or
delivery of the New Securities, or the performance by the Company of its
obligations in respect thereof, except for any filings required to effect any
registration pursuant to the Registration Rights Agreement and any filings
required pursuant to state and federal securities laws which will be timely made
after the Closing hereunder.
2.9. Holding Company Act and Investment Company Act. Neither
the Company nor any Subsidiary is: (i) a "public utility company" or a "holding
company," or an "affiliate" or a "subsidiary company" of a "holding company," or
an "affiliate" of such a "subsidiary company," as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended, or (ii) a "public
utility," as defined in the Federal Power Act, as amended, or (iii) an
"investment company" or an "affiliated person" thereof or an "affiliated
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<PAGE> 13
person" of any such "affiliated person," as such terms are defined in the
Investment Company Act of 1940, as amended.
2.10. Taxes. The Company and each of its Subsidiaries have
filed or caused to be filed all tax returns which are required to be filed and
have paid or caused to be paid all taxes as shown on said returns and on all
assessments received by them to the extent that such taxes have become due,
except taxes the validity or amount of which is being contested in good faith by
appropriate proceedings and with respect to which adequate reserves have been
set aside. The federal income tax returns of the Company and its Subsidiaries
have been examined and reported on by the Internal Revenue Service (or closed by
applicable statutes) and all tax liabilities including additional assessments
have been satisfied for all fiscal years prior to and including the fiscal year
ended December 31, 1993, for the Company and its Subsidiaries and May 2, 1992
for Krause's Sofa Factory and its Subsidiaries. The Company and its Subsidiaries
have paid or caused to be paid, or have established reserves that the Company
reasonably believes to be adequate, for all federal income tax liabilities and
state income tax liabilities applicable to the Company or any of its
Subsidiaries for all fiscal years which have not been examined and reported on
by the taxing authorities (or closed by applicable statutes).
2.11. Conflicting Agreements and Charter Provisions. Neither
the Company nor any of its Subsidiaries is a party to any contract or agreement
or subject to any charter or bylaw provision or judgment or decree which has or
is reasonably likely to have a Material Adverse Effect. None of (i) the
execution and delivery of this Agreement, the Side Letter, the New Notes and the
New Warrants and the issuance of the New Securities and (ii) the fulfillment of
and compliance with the terms and provisions hereof and thereof and of the New
Securities will conflict with or result in a breach of the terms, conditions or
provisions of, or give rise to a right of termination under, or constitute a
default under, or result in any violation of, the Certificate of Incorporation
or By-laws of the Company or any Subsidiary or any mortgage, agreement,
instrument, order, judgment, decree, statute, law, rule or regulation to which
the Company or any Subsidiary or any of their respective properties is subject.
Neither the Company nor any of its Subsidiaries (i) is in default under any
outstanding indenture or other debt instrument or with respect to the payment of
principal of or interest on any outstanding obligation for borrowed money, or
(ii) is in default under any of their respective contracts or agreements, or
under any instrument by which the Company or any of its Subsidiaries is bound
which default, in the case of this clause (ii), individually or in the aggregate
with all other such defaults, would be material to the Company or any of its
Subsidiaries.
2.12. Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of: (a) 35,000,000 shares of Common Stock,
of which 19,020,539 shares are validly issued and outstanding, fully paid and
nonassessable; (b) warrants to purchase 1,757,474 shares of Common Stock which
are validly issued and outstanding, fully paid and nonassessable; (c) options to
purchase 1,626,958 shares of Common Stock which
8
<PAGE> 14
are validly issued and outstanding, fully paid and nonassessable; and (d)
666,667 shares of Preferred Stock, of which none are outstanding. All of the
outstanding shares of Common Stock have been validly issued and are fully paid
and nonassessable. No class of capital stock of the Company is entitled to
preemptive rights. Except for the options and warrants listed above and
directors' deferred stock units for 24,616 shares of Common Stock and except for
the restrictions and commitments contained in the Original Agreement and the
agreements executed concurrently with the Original Agreement in connection with
transactions contemplated by the Original Agreement, there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into,
shares of any class of capital stock of the Company, or contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of its capital stock or options, warrants or rights to
purchase or acquire any shares of its capital stock. Since February 2, 1997, the
Company has not changed the amount of its authorized capital stock or subdivided
or otherwise changed any shares of any class of its capital stock, whether by
way of reclassification, recapitalization, stock split or otherwise, or issued
or reissued, or agreed to issue or reissue, any of its capital stock.
2.13. Issuance, Sale and Delivery of the New Notes and the New
Warrants. When issued and delivered by the Company, and paid for by the
Purchasers, the New Notes and the New Warrants will constitute valid and legally
binding obligations of the Company enforceable against it in accordance with
their terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors' and
contracting parties' rights generally and except as enforceability may be
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
2.14. Issuance, Sale and Delivery of the Common Stock. The
shares of Common Stock which will be issued upon exercise of the New Warrants
have been authorized and reserved for issuance, and when issued and delivered in
accordance with the terms of the New Warrants, will be validly issued, fully
paid and nonassessable.
2.15. Registration Under Exchange Act. The Company has not
registered the New Notes or the New Warrants as a class pursuant to Section 12
of the Exchange Act. Neither the New Notes nor the New Warrants will be
registered as such class and such registration is not required except as
otherwise required by the provisions of the Registration Rights Agreement.
2.16. ERISA. No accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists
with respect to any Pension Plan (as defined in Section 11) (other than a
Multiemployer Plan (as defined below)). No liability to the PBGC has been, or is
reasonably likely to be, incurred with respect to any Pension Plan (other than a
Multiemployer Plan) by the Company, any of its Subsidiaries or any ERISA
Affiliate (as defined below) which is or would be materially
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<PAGE> 15
adverse to the Company, its Subsidiaries and any ERISA Affiliate. Neither the
Company nor any of its Subsidiaries and any ERISA Affiliate has incurred, or is
reasonably likely to incur, any withdrawal liability under Title IV of ERISA
with respect to any Multiemployer Plan which is or would be materially adverse
to the Company, its Subsidiaries and its ERISA Affiliates and if the Company,
its Subsidiaries and ERISA Affiliates, were to completely withdraw as of the
date hereof from each Multiemployer Plan in which they participate, the Company,
its Subsidiaries and its ERISA Affiliates would not incur any material
withdrawal liability under Title IV of ERISA. Neither the Company nor any of its
Subsidiaries has any obligation to provide post-retirement health benefits to
any employee or former employee. No fiduciary of any employee benefit plan (as
defined in Section 3(3) of ERISA) maintained or contributed to by the Company or
any of its subsidiaries, for the benefit of their respective employees (each an
"Employee Plan") has engaged or caused any Employee Plan to engage in any
transaction prohibited by Section 4975 of the Code or Section 406 of ERISA which
is reasonably likely to subject the Company or any Subsidiary or any entity the
Company or any Subsidiary has an obligation to indemnify to any tax or penalty
imposed under Section 4975 of the Code or Section 502 of ERISA. Each Employee
Plan has been maintained and administered in compliance with all applicable law
including ERISA and the Code in all material respects. An "ERISA Affiliate" for
purposes of this Section is any trade or business, whether or not incorporated,
which, together with the Company, is under common control, as described in
Section 414(b) or (c) of the Code, and the term "Multiemployer Plan" shall mean
any Pension Plan which is a "multiemployer plan" (as such term is defined in
Section 4001(a)(3) of ERISA).
2.17. Possession of Franchises, Licenses, Etc. The Company and
its Subsidiaries possess all franchises, certificates, licenses, permits and
other authorizations from governmental or political subdivisions or regulatory
authorities and all patents, trademarks, service marks, trade names, copyrights,
licenses and other rights, free from burdensome restrictions, that are necessary
in any material respect to the Company or any of its Subsidiaries for the
ownership, maintenance and operation of their respective properties and assets,
and neither the Company nor any of its Subsidiaries is in violation of any
thereof in any material respect.
2.18. Environmental and Other Regulations. The Company and its
Subsidiaries are in compliance with all applicable federal, state, local and
foreign laws and regulations relating to protection of the environment and human
health, and are in compliance in all material respects with all other applicable
federal, state, local and foreign laws and regulations, including, without
limitation, those relating to equal employment opportunity and employment
safety. There are no claims, notices, civil, criminal or administrative actions,
suits, hearings, investigations, inquiries or proceedings pending or, to the
best knowledge of the Company, threatened against the Company or any Subsidiary
that are based on or related to any environmental matters, including any
disposal of hazardous substances at any place, or the failure to have any
required environmental permits, and there
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are no past or present conditions that are likely to give rise to any liability
or other obligations of the Company or any Subsidiary under any environmental
laws.
2.19. Patents and Trademarks. Set forth on Schedule 2.19 is a
true and complete list of all patents, patent applications, trademarks, service
marks, trademark and service mark applications, trade names, copyrights and
licenses of any of the foregoing presently used by the Company or any Subsidiary
or necessary for the conduct of the business of the Company and its Subsidiaries
as conducted and as proposed to be conducted (the "Intellectual Property
Rights"). The Company owns, or has the right to use under the agreements or upon
the terms described on Schedule 2.19, all of the Intellectual Property Rights.
To the best of the Company's knowledge, the business conducted or proposed to be
conducted by the Company and its Subsidiaries does not infringe or violate any
of the patents, trademarks, service marks, trade names, copyrights, licenses of
any of the foregoing, trade secrets or other proprietary rights of any other
person or entity. Except as set forth on Schedule 2.19, to the Company's
knowledge, no other Person has any right to or interest in any inventions,
improvements, discoveries or other confidential information utilized by the
Company or any Subsidiary in its business.
2.20. Material Contracts and Obligations. Schedule 2.20 sets
forth a list of the following agreements or commitments of any nature to which
the Company or any Subsidiary is a party or by which it is bound: (a) any
agreement relating to the Intellectual Property Rights, (b) all employment and
consulting agreements, and all employee benefit, bonus, pension, profit-sharing,
stock option, stock purchase and similar plans and arrangements, (c) all
manufacturing, distributor and sales representative agreements and all
agreements with suppliers or vendors, other than invoices and purchase orders
not exceeding $100,000 individually entered into in the ordinary course of
business and agreements which are terminable by the Company or any Subsidiary on
not more than 60 days' notice without payment of a material penalty, (d) all
agreements or commitments which restrict the ability of the Company or any
Subsidiary or Affiliate to engage in any business or line of business in any
location, (e) all agreements or commitments relating to Indebtedness or
Guarantees of the Company or any Subsidiary and (f) any other agreement or
commitment which requires future payments by or to the Company or any Subsidiary
in excess of $50,000 or which is otherwise material to the Company or any of its
Subsidiaries. The Company has delivered or made available to the Purchasers
copies of all of the foregoing agreements and commitments. All of such
agreements and commitments are valid, binding and in full force and effect,
except that, with respect to parties to such agreements and commitments other
than the Company and its Subsidiaries, this representation is made only to the
best knowledge of the Company.
2.21. Books and Records. All the books, records and accounts of
the Company and its Subsidiaries are in all material respects true and complete,
are maintained in accordance with good business practice and all laws applicable
to its business, and accurately present and reflect in all material respects all
of the transactions therein described. The
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Company has previously delivered to the Purchasers true and complete texts of
all of the minutes relating to meetings of the stockholders, board of directors
and committees of the board of directors of the Company and each Subsidiary for
the past five years.
2.22. Transactions with Related Parties. Schedule 2.22 sets
forth a true and complete list of the amounts and other essential terms of any
contract, arrangement or transaction currently in effect or effected during the
past five years between the Company or any Subsidiary and any Related Party,
other than (i) arrangements for the payment of salary, including bonuses, for
services rendered to the Company, which arrangements have previously been
disclosed to the Purchasers, (ii) other arrangements with any such person which
in the aggregate do not involve more than $10,000 or (iii) as previously
disclosed in the SEC Reports.
2.23. Brokers. Neither the Company nor any Subsidiary has
engaged any finder, broker or investment adviser, and has no obligation to pay
any fees, in connection with the transactions contemplated hereby.
2.24. Accuracy of Information. None of the representations and
warranties of the Company contained herein or the information, documents or
other materials (other than projections) which have been furnished in writing by
the Company or any of its representatives to the Purchasers in connection with
the transactions contemplated by this Agreement contains any material
misstatement of fact, or omits any material fact required to be stated herein or
therein or necessary to make the statements herein and therein not misleading.
All projections furnished in writing by the Company in connection with this
Agreement (i) have been prepared by management of the Company after a careful
analysis of all material data, (ii) are based on reasonable assumptions by
management of the Company and (iii) represent the best estimate by management of
the Company, based upon current reasonable assumptions, as to the financial
performance of the Company and its Subsidiaries for the periods indicated, but
do not represent any guarantee or assurance of the future financial results of
the Company and its Subsidiaries.
2.25. Offering of New Securities. Neither the Company nor any
Person acting on its behalf has offered any of the New Securities or any similar
securities of the Company for sale to, solicited any offers to buy any of the
New Securities or any similar securities of the Company from or otherwise
approached or negotiated with respect to the Company with any Person other than
the Purchasers and other "Accredited Investors" (as defined in Rule 501(a) under
the Securities Act). Neither the Company nor any Person acting on its behalf has
taken or will take any action (including, without limitation, any offering of
any securities of the Company under circumstances which would require the
integration of such offering with the offering of any of the New Securities
under the Securities Act and the rules and regulations of the Commission
thereunder) which could reasonably be expected to subject the offering, issuance
or sale of any of the New Securities to the registration requirements of Section
5 of the Securities Act.
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2.26. Use of Proceeds. The proceeds of the sale of the New
Securities will be used by the Company for remodeling existing showrooms, new
store build outs, repayment of outstanding Senior Indebtedness and general
corporate purposes.
2.27. Unlawful Use of Proceeds. (a) The Company will not use
any proceeds from the sale of the New Notes to purchase or carry any "Security",
as defined in Section 3(a)(10) of the Exchange Act, or for any other purpose
which would result in any transaction contemplated by this Agreement
constituting a "purpose credit" within the meaning of Regulation G issued by the
Board of Governors of the Federal Reserve System (12 CFR Part 207), or which
would involve a violation of Section 7 of the Exchange Act or Regulation T, U or
X of said Board of Governors (12 CFR Parts 220, 221 and 224, respectively).
(b) The Company does not intend to apply and will not
apply any part of the proceeds of the sale of the New Notes in any manner which
is unlawful or which would involve a violation of any regulation of the United
States Treasury Department administered by the Office of Foreign Assets Control.
2.28. Costs of "Year 2000" Modifications The estimated costs to
the Company and its Subsidiaries of "Year 2000" modifications to their computer
systems and software do not exceed $100,000.
2.29. Amendment of Senior Indebtedness The Company represents
and warrants that the amendment attached as Exhibit G hereto referenced in
Section 1.3(vii) increases credit availability under the current credit facility
of the Senior Indebtedness by at least $900,000.
3. Representations and Warranties of each Purchaser.
Each Purchaser represents and warrants severally as to itself as
follows:
3.1. Organization and Qualification. Such Purchaser is a
corporation duly organized and existing in good standing under the laws of the
jurisdiction of its formation and has the power to own its respective property
and to carry on its respective business as now being conducted. Such Purchaser
is duly qualified to do business and in good standing in every jurisdiction in
which the nature of the respective business conducted or property owned by it
makes such qualification necessary, except where the failure to so qualify would
not prevent consummation of the transactions contemplated hereby or have a
material adverse effect on such Purchaser's ability to perform its obligations
hereunder.
3.2. Due Authorization. Such Purchaser has all right, power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by such
Purchaser and the consummation by such
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<PAGE> 19
Purchaser of the transactions contemplated hereby have been duly authorized by
all necessary action on behalf of such Purchaser. This Agreement has been duly
executed and delivered by such Purchaser and constitutes a valid and binding
agreement of such Purchaser enforceable in accordance with its terms, except
that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors, rights, and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
3.3. Conflicting Agreements and Other Matters. Neither the
execution and delivery of this Agreement nor the performance by such Purchaser
of its obligations hereunder will conflict with, result in a breach of the
terms, conditions or provisions of, constitute a default under, or require any
consent, approval or other action by or any notice to or filing with any court
or administrative or governmental body pursuant to, the organizational documents
or agreements of such Purchaser or any mortgage, agreement, instrument, order,
judgment, decree, statute, law, rule or regulation to which such Purchaser or
any of its respective properties are subject.
3.4. Actions Pending; Compliance with Laws. There is no action,
suit, investigation or proceeding pending or, to the knowledge of such
Purchaser, threatened by any public official or governmental authority, against
such Purchaser or any of its Affiliates or any of their respective properties or
assets by or before any court, arbitrator or governmental body, department,
commission, board, bureau, agency or instrumentality, which questions the
validity or enforceability of, or seeks to enjoin or invalidate this Agreement
or the New Securities or any action taken or to be taken pursuant hereto or
thereto.
3.5. Acquisition for Investment. Such Purchaser is acquiring
the New Securities being purchased by it for its own account for the purpose of
investment and not with a view to or for sale in connection with any
distribution thereof, and such Purchaser has no present intention or plan to
effect any distribution thereof. Such Purchaser acknowledges that the New
Securities have not been registered under the Securities Act and may be sold or
disposed of in the absence of such registration only pursuant to an exemption
from such registration.
3.6. Brokers or Finders. No agent, broker, investment banker or
other firm or Person, including any of the foregoing that is an Affiliate of
such Purchaser, is or will be entitled to any broker's fee or any other
commission or similar fee from such Purchaser in connection with any of the
transactions contemplated by this Agreement that the Company will be responsible
for pursuant to Section 12.10.
3.7. Accredited Investor. Such Purchaser is an "accredited
investor" within the meaning of Rule 501 promulgated under the Securities Act.
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4. Registration, Exchange and Transfer of Notes.
4.1. Authorized Denominations of Notes. The Notes are issuable
only as fully registered Notes in denominations of at least $100,000 and any
integral multiple thereof.
4.2. The Note Register; Persons Deemed Owners. The Company
shall maintain, at its office designated for notices in accordance with Section
12.6, a register for the Notes (the "Note Register"), in which the Company shall
record the name and address of the person in whose name each Note has been
issued and the name and address of each transferee and prior owner of each Note.
The Company may deem and treat the person in whose name a Note is so registered
as the holder and owner thereof for all purposes and shall not be affected by
any notice to the contrary, until due presentment of such Note for registration
of transfer as provided in this Article 4.
4.3. Issuance of New Notes Upon Exchange or Transfer. Upon
surrender for exchange or registration of transfer of any Note at the office of
the Company designated for notices in accordance with Section 12.6, the Company
shall execute and deliver, at its expense, one or more new Notes of any
authorized denominations requested by the holder of the surrendered Note, each
dated the date to which interest has been paid on the Note so surrendered (or,
if no interest has been paid, the date of such surrendered Note), but in the
same aggregate unpaid principal amount as such surrendered Note, and registered
in the name of such person or persons as shall be designated in writing by such
holder. Every Note surrendered for registration of transfer shall be duly
endorsed, or be accompanied by a written instrument of transfer duly executed,
by the holder of such Note or by his attorney duly authorized in writing. The
Company may also condition the issuance of any new Note or Notes in connection
with a transfer by any person on the payment of a sum sufficient to cover any
stamp tax or other governmental charge imposed in respect of such transfer.
4.4. Lost, Stolen, Damaged and Destroyed Notes. Upon receipt of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Note or Notes and in the case of loss, theft or destruction,
upon delivery of an indemnity satisfactory to the Company (which, in the case of
a Purchaser, may be an undertaking by such Purchaser so to indemnify the
Company), or, in the case of mutilation, upon surrender and cancellation
thereof, the Company will issue a new Note or Notes of the same denominations
and of the same unpaid principal amounts and otherwise of the same tenor as the
Note or Notes so lost, stolen, destroyed or mutilated.
5. Payment of Notes.
5.1. Home Office Payment. The Company will pay to each
Purchaser or any transferee thereof all sums becoming due on the Notes
(including all sums which become due on the Notes at the maturity thereof) at
the address specified by such Purchaser for such purpose in Schedule 5.1 hereto,
or at the address specified by such transferee, by wire
15
<PAGE> 21
transfer of immediately available funds, or at such other address or by such
other method as a Purchaser or transferee shall have designated by notice to the
Company, without presentment for notation of payment and without surrender.
Before selling or otherwise transferring any Note, each Purchaser or transferee
will make a notation thereon of the aggregate amount of all payments of
principal, if any, theretofore made, and of the date to which interest has been
paid.
5.2. Limitation on Interest. No provision of this Agreement or
of any Note shall require the payment or permit the collection of interest in
excess of the maximum rate which is permitted by law. If any such excess
interest is provided for herein or in any Note, or shall be adjudicated to be so
provided for, then the Company shall not be obligated to pay such interest in
excess of the maximum rate permitted by law, and the right to demand payment of
any such excess interest is hereby waived, any other provisions in this
Agreement or in any Note to the contrary notwithstanding.
5.3. Interest. (a) Interest on the unpaid principal balance of
each Note shall be payable at a rate per annum (computed on the basis of a
360-day year of twelve 30-day months) of 9.50%, due and payable (i) quarterly,
on each November 30, February 28, May 31 and August 31 (each, a "Payment Date")
after the date of the Notes commencing with November 30, 1996 with respect to
the Existing Notes, November 30, 1997 with respect to the 1997 Notes and the
first such Payment Date after the issuance of each Standby Note, if applicable,
and (ii) on the date of any prepayment, on the amount prepaid, until such Notes
has been paid in full.
(b) Accrued interest on each Note is required to be paid
in cash (in accordance with Section 5.1 herein) on each Payment Date.
5.4. Business Day. Any payments in respect of any Note which
are required under this Agreement to be made on a day which is not a Business
Day shall be made on the next succeeding Business Day.
6. Covenants of the Company. From the date hereof and as long as any of
the Notes remain outstanding:
6.1. Payment of the Notes. The Company shall pay the principal
of and interest on the Notes on the dates and in the manner provided in this
Agreement and the Notes.
6.2. Financial Covenants. (a) The Company will not permit its
Consolidated Net Worth at any time during any fiscal year to be less than the
amount set forth below for such fiscal year:
<TABLE>
<S> <C>
1997 $ 8,500,000
1998 $ 8,500,000
</TABLE>
16
<PAGE> 22
<TABLE>
<S> <C>
1999 $13,700,000
2000 $27,000,000
2001 $39,000,000
2002 $51,000,000
</TABLE>
(b) The Company will not incur, create, assume or permit
to exist any Indebtedness during any fiscal year if such Indebtedness would
result in a ratio of Consolidated Total Indebtedness to Consolidated Net Worth
of more than the amount for such fiscal year indicated set forth below:
<TABLE>
<S> <C>
1997 No greater than 1.92
1998 No greater than 1.92
1999 No greater than 1.05
2000 No greater than 0.80
2001 No greater than 0.60
2002 No greater than 0.35
</TABLE>
(c) The Company will not permit its Fixed Charge Ratio
during any fiscal year to be less than the amount set forth below for such
fiscal year:
<TABLE>
<S> <C>
1997 No less than 0.80
1998 No less than 0.80
1999 No less than 1.10
2000 No less than 1.40
2001 No less than 1.60
2002 No less than 1.60
</TABLE>
(d) The Company and its Subsidiaries will not make
capital expenditures (net of any sale leasebacks incurred within such fiscal
year) in excess of the amounts set forth below for the fiscal years indicated:
<TABLE>
<S> <C>
1997 $3,500,000
1998 $7,250,000
1999 $6,000,000
2000 $6,000,000
2001 $6,000,000
2002 $6,000,000
</TABLE>
Any amount not spent in any one fiscal year may be spent in a
succeeding fiscal year, subject to the Company's annual business plan.
6.3. Limitation on Senior Equity Securities. The Company will
not issue any equity securities or any rights, options, warrants or other
securities which are exercisable
17
<PAGE> 23
for, exchangeable for or convertible into shares of any class of capital stock
ranking senior as to dividends or upon liquidation to the Common Stock.
6.4. Merger; Purchase and Sale of Assets. (a) The Company will
not merge with or into or consolidate with any other Person unless the Company
is the continuing or surviving entity and the shares of Common Stock then
outstanding remain unchanged and outstanding and represent at least a majority
of the Voting Securities of the surviving corporation, and immediately after the
consummation of such merger or consolidation the surviving corporation would not
be in violation of any covenant set forth in Section 6.2 hereof.
(b) The Company will not, and will not permit any
Subsidiary to, in any transaction or series of transactions, sell, lease or
exchange any assets of the Company and/or any Subsidiary representing in the
aggregate more than 10% of the Company's Consolidated Net Worth, except for
sales of inventory in the ordinary course of business and except for subleasing
of vacant retail space on arm's-length terms.
(c) The Company will not, and will not permit any
Subsidiary to, in any transaction or series of transactions, acquire (including
pursuant to a merger or consolidation) all or any substantial portion of the
business or assets of any Person (except for acquisitions in any fiscal year
involving aggregate consideration of less than 10% of the Company's Consolidated
Net Worth as of the commencement of such fiscal year) unless (i) such
transaction or series of transactions has been approved by the Board of
Directors of the Company and (ii) after giving effect to such transaction or
series of transactions, the Company would be in compliance with the covenants
set forth in Section 6.2 hereof.
6.5. Compliance with Laws. The Company will, and will cause
each Subsidiary to, comply with all applicable statutes, rules, regulations and
orders of all governmental authorities, with respect to the conduct of its
business and the ownership of its properties, including without limitation,
those relating to protection of the environment and human health, equal
employment opportunity, employee safety, ERISA and international trade laws and
regulations, and apply for obtain and maintain all permits necessary for the
conduct of its business and the ownership of its properties.
6.6. Limitation on Agreements. Except for the provisions of any
Senior Indebtedness, the Company will not, and will not permit any Subsidiary
to, enter into any agreement, or any amendment, modification, extension or
supplement to any existing agreement, which contractually prohibits the Company
from paying interest on the Notes or redeeming the Notes.
6.7. Preservation of Franchises and Existence. The Company will
(i) maintain its corporate existence, rights and franchises in full force and
effect, and (ii) cause the Subsidiaries to maintain their respective corporate
existences, rights and franchises in full force and effect, provided that
nothing in this Section 6.7 shall prevent the
18
<PAGE> 24
Company or any Subsidiary from discontinuing its operations in any particular
state or at any particular location or locations within the state, or prevent
the corporate existence, rights and franchises of any Subsidiary from being
terminated if, in the opinion of the Board of Directors of the Company, the
preservation thereof is no longer desirable in the conduct of the business of
the Company and its Subsidiaries and the loss thereof is not disadvantageous in
any material respect to the holders of Securities.
6.8. Insurance. The Company will, and will cause each of the
Subsidiaries to maintain, with insurers believed by the Company to be
responsible, such insurance, in such amounts and of such types as are
customarily carried under similar circumstances by companies engaged in the same
or a similar business or having similar properties similarly situated.
6.9. Payment of Taxes and Other Charges. The Company will pay
or discharge, and will cause each of the Subsidiaries to pay or discharge,
before the same shall become delinquent, (i) all taxes, assessments and other
governmental charges or levies imposed upon it or any of its properties or
income (including, without limitation, such as may arise under Section 4062,
4063, or 4064 of ERISA or any similar provision of law), and (ii) all claims or
demands of materialmen, mechanics, carriers, warehousemen, landlords and other
like persons which, in the case of either clause (i) or clause (ii), if unpaid,
might result in the creation of a material lien upon any of its properties,
provided, however, that the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith pursuant to
appropriate proceedings.
6.10. Effect of Certain Breaches. In addition to the rights of
GECC under the Stockholders Agreement, upon the occurrence of any Event of
Default under the Notes, then, and in each such case, the Board of Directors of
the Company shall take all necessary action to increase or decrease the size of
the Board of Directors and to appoint to the Board of Directors a number of
additional members (the "Additional Members") designated by the Purchasers that,
when added to any directors then in office designated solely by GECC, will
result in directors designated by GECC and the directors designated pursuant to
this Section 6.10 together constituting a majority of the entire Board of
Directors. The holders of 66 2/3% in outstanding principal amount of the Notes
shall be entitled to designate the Additional Members of the Board of Directors,
and, for so long as such breach or Event of Default continues, at each
subsequent annual meeting the holders of 66 2/3% in outstanding principal amount
of the Notes shall be entitled to propose (and the Board of Directors shall
nominate and recommend) persons reasonably acceptable to the Board of Directors
as the Additional Members of the Board of Directors of the Company. In the event
of any vacancy arising by reason of the resignation, death, removal or inability
to serve of any Additional Member, the Purchasers shall be entitled to designate
a successor to fill such vacancy for the remaining term of such director. At
such times as such Event of Default shall have been cured or waived, the rights
of the holders of Notes under this Section 6.10 shall terminate
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<PAGE> 25
(and the holders of the Notes shall cause such Additional Directors to resign
from the Board of Directors of the Company), subject to revesting in the event
of each and every subsequent event of the character indicated above.
6.11. ERISA. Neither the Company nor any Subsidiary shall incur
any material liability with respect to retiree medical or death benefits or
unfunded benefits payable after termination of employment. All employee benefit
plans and arrangements maintained or contributed to by the Company, any
Subsidiary or any ERISA Affiliate shall be maintained in compliance in all
material respects with all applicable law, including any reporting requirements.
With respect to any plan maintained by or contributed to by the Company or any
Subsidiary, neither the Company nor any Subsidiary will fail to make any
contribution due from it under the terms of such plan or as required by law.
Neither the Company nor any ERISA Affiliate will permit a Pension Plan to incur
an accumulated funding deficiency (as such term is defined in Section 302 of
ERISA or Section 412 of the Code), whether or not waived, cause a lien or a
security interest to attach to any asset of the Company or any Subsidiary for
the benefit of any Plan, or incur any liability which would be material to the
Company or any of its Subsidiaries under Title IV of ERISA, including withdrawal
liability (other than the payment of premiums, none of which are overdue).
Neither the Company nor any Subsidiary, nor any other Person including any
fiduciary, will engage in any transaction prohibited by Section 406 of ERISA or
Section 4975 of the Code which is reasonably likely to subject the Company, any
Subsidiary or any entity that the Company or any Subsidiary has an obligation to
indemnify to any tax or penalty imposed under Section 4975 of the Code or
Section 502 of ERISA.
6.12. Financial Statements and Other Reports.
(i) The Company will, as soon as practicable and in any
event within 60 days after the end of each quarterly period (other than
the last quarterly period) in each fiscal year, furnish to each
Purchaser statements of consolidated net income and cash flows and a
statement of changes in consolidated stockholders' equity of the Company
and its Subsidiaries for the period from the beginning of the then
current fiscal year to the end of such quarterly period, and a
consolidated balance sheet of the Company and its Subsidiaries as of the
end of such quarterly period, setting forth in each case in comparative
form figures for the corresponding period or date in the preceding
fiscal year, all in reasonable detail and certified by an authorized
financial officer of the Company, subject to changes resulting from
year-end adjustments; provided, however, that delivery pursuant to
clause (iii) below of a copy of the Quarterly Report on Form 10-Q of the
Company for such quarterly period filed with the Commission shall be
deemed to satisfy the requirements of this clause (i);
(ii) it will, as soon as practicable and in any event
within 100 days after the end of each fiscal year, furnish to each
Purchaser statements of consolidated net income and cash flows and a
statement of changes in consolidated stockholders' equity of the Company
and its Subsidiaries for such year, and a consolidated balance
20
<PAGE> 26
sheet of the Company and its Subsidiaries as of the end of such year,
setting forth in each case in comparative form the corresponding figures
from the preceding fiscal year, all in reasonable detail and examined
and reported on by independent public accountants of recognized national
standing selected by the Company; provided, however, that delivery
pursuant to clause (iii) below of a copy of the Annual Report on Form
10-K of the Company for such fiscal year filed with the Commission shall
be deemed to satisfy the requirements of this clause (ii);
(iii) it will, promptly upon transmission thereof,
furnish to each Purchaser copies of all such financial statements, proxy
statements, notices and reports as it shall send to its stockholders and
copies of all such registration statements (without exhibits), other
than registration statements relating to employee benefit or dividend
reinvestment plans, and all such regular and periodic reports as it
shall file with the Commission;
(iv) it will, promptly after such package becomes
available, furnish to each Purchaser copies of all financial reporting
packages prepared for management of the Company; and
(v) it will promptly furnish to each Purchaser copies of
any compliance certificates furnished to lenders in respect of
Indebtedness of the Company and its Subsidiaries and, with reasonable
promptness, furnish to each Purchaser such other financial and other
data of the Company and its Subsidiaries as such Purchaser may
reasonably request, including, but not limited to, operating financial
information for each retail store owned or operated by the Company or
any of its Subsidiaries.
Together with each delivery of financial statements required by
clauses (i) and (ii) above, the Company will deliver to each Purchaser a
certificate of the Chief Financial Officer, Treasurer or other financial officer
of the Company regarding compliance by the Company with the covenants set forth
in Section 6.2.
6.13. Inspection of Property. The Company will permit
representatives of each Purchaser to visit and inspect, at such Purchaser's
expense, any of the properties of the Company and its Subsidiaries, to examine
the corporate books and make copies or extracts therefrom and to discuss the
affairs, finances and accounts of the Company and its Subsidiaries with the
principal officers of the Company, all at such reasonable times, upon reasonable
notice and as often as such Purchaser may reasonably request.
6.14. Rights of First Offer. In the event that the Company
intends to sell any debt securities or any shares of capital stock or securities
convertible into, exchangeable for or exercisable for debt securities or shares
of capital stock of the Company, other than pursuant to a registered public
offering:
21
<PAGE> 27
(i) the Company shall give GECC written notice of its
intent to sell such securities, specifying the number thereof to be sold
and the minimum price and terms and conditions of such sale and offering
to sell to GECC (or its designee), at such minimum price and on such
terms and conditions (to the extent reasonably applicable to GECC), a
percentage of such securities equal to the percentage equity interest in
the Company represented by the shares of Common Stock and Warrants then
owned by GECC (and its Affiliates), after giving effect to the
conversion or exercise of all outstanding securities of the Company
which are then convertible into or exercisable for equity securities,
the conversion or exercise price of which is less than the Current
Market Price;
(ii) if GECC (or its designee) shall not, within 30 days
after receipt of the notice given pursuant to clause (i) above accept
such offer in writing with respect to the securities specified in such
notice, then the Company shall be free to sell such securities at a
price equal to or above the minimum price and on other terms and
conditions no less favorable to the Company than those specified in such
notice, at any time within 120 days of the expiration of such 30-day
period;
(iii) if the Company shall not have consummated the
proposed sale within 120 days after the expiration of the 30-day period
referred to in clause (ii) above, then the Company may not thereafter
sell such securities without complying with the provisions of this
Section 6.14; and
(iv) if GECC (or its designee) shall accept such offer
within 30 days after the notice given pursuant to clause (i) above, then
GECC (or its designee) shall purchase the securities specified in such
notice as promptly as is reasonably practicable, but within no more than
60 days thereafter.
JOL shall be sent contemporaneously a copy of any notices or
communications under this Section 6.14 in accordance with the notice provisions
set forth in Section 12.6.
6.15. Lost, Stolen, Damaged and Destroyed Stock Certificates.
Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of any certificate for shares of Common Stock and in
the case of loss, theft or destruction, upon delivery of an indemnity
satisfactory to the Company (which, in the case of a Purchaser, may be an
undertaking by such Purchaser so to indemnify the Company), or, in the case of
mutilation, upon surrender and cancellation thereof, the Company will issue a
new certificate of like tenor for a number of shares of Common Stock equal to
the number of shares of such stock represented by the certificate lost, stolen,
destroyed or mutilated.
6.16. Related Party Transactions. The Company shall not,
directly or indirectly, and shall not permit any of its Subsidiaries to,
directly or indirectly, enter into, amend or terminate any contract, arrangement
or transaction with a Related Party, other than
22
<PAGE> 28
the payment of salary and benefits pursuant to employment agreements entered
into in the ordinary course of business.
6.17 Operations in Accordance with Business Plan. The business
and operations of the Company and its Subsidiaries shall be conducted in all
material respects in accordance with the Company's annual business plan as
approved by the Board of Directors including the GECC Designee (as defined in
the Stockholders Agreement), except for such changes which shall have been
approved in accordance with Section 2.2(u) of the Stockholders Agreement.
6.18. Notice of Breach. As promptly as practicable, and in any
event not later than ten Business Days after senior management of the Company
becomes aware of any breach by the Company of any provision of this Agreement,
including, without limitation, this Article 6, the Company shall provide each
Purchaser with written notice specifying the nature of such breach and any
actions proposed to be taken by the Company to cure such breach.
7. Restrictions on Transfer. Neither Purchaser nor any of its
Affiliates will, directly or indirectly, sell, transfer, pledge, encumber or
otherwise dispose of (collectively, a "Transfer") any of the Securities, except
for: (a) Transfers to or between Affiliates who agree to be bound by the
provisions of this Agreement; (b) Transfers of Securities pursuant to the
exercise of the registration rights set forth in the Registration Rights
Agreement; or (c) Transfers which comply with the provisions of the Securities
Act. The Company may require, in connection with any Transfer pursuant to the
preceding clause (c), an opinion of counsel to such Purchaser that such Transfer
complies with the provisions of the Securities Act.
8. Events of Default and Remedies.
8.1. Events of Default. Each of the following shall constitute
an Event of Default with respect to the Notes under this Agreement:
(a) Nonpayment of the Notes. If the Company fails to pay the
principal of, interest on or any other sum, if any, due on any Note,
within five days after the same becomes due and payable, whether at the
maturity thereof, on a dated fixed for a redemption, or otherwise; or
(b) Voluntary Bankruptcy and Insolvency Proceedings. If the
Company or any Subsidiary shall file a petition in bankruptcy or for
reorganization or for an arrangement or any composition, readjustment,
liquidation, dissolution or similar relief pursuant to the Federal
Bankruptcy Code of 1978, as amended, or under any similar present or
future federal law or the law of any other jurisdiction or shall be
adjudicated a bankrupt or become insolvent, or consent to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator
23
<PAGE> 29
(or other similar official) of the Company or such Subsidiary or for all
or any substantial part of its respective property, or, the Company or
any Subsidiary shall make an assignment for the benefit of its
creditors, or shall admit in writing its inability to pay its debts
generally as they become due, or shall take any corporate action, as the
case may be, in furtherance of any of the foregoing; or
(c) Adjudication of Bankruptcy. If a petition or answer shall be
filed proposing the adjudication of the Company or any Subsidiary as a
bankrupt or its reorganization or arrangement, or any composition,
readjustment, liquidation, dissolution or similar relief with respect to
it pursuant to the Federal Bankruptcy Code of 1978, as amended, or under
any similar present or future federal law or the law of any other
jurisdiction applicable to the Company or such Subsidiary, and the
Company or any Subsidiary shall consent to or acquiesce in the filing
thereof, or such petition or answer shall not be discharged or denied
within 60 days after the filing thereof; or
(d) Receivership or Sequestration. If a decree or order is
rendered by a court having jurisdiction (i) for the appointment of a
receiver or custodian or liquidator or trustee or sequestrator or
assignee (or similar official) in bankruptcy or insolvency of the
Company or any Subsidiary or of all or a substantial part of its
property, or for the winding-up or liquidation of its affairs, and such
decree or order shall have remained in force undischarged and unstayed
for a period of 60 days, or (ii) for the sequestration or attachment of
any property of the Company or any Subsidiary without its return to the
possession of the Company or such Subsidiary or its release from such
sequestration or attachment within 60 days thereafter; or
(e) Acceleration of Other Indebtedness. If default shall be made
with respect to any Indebtedness of the Company (other than the Notes)
with the result that Indebtedness in an aggregate amount of $100,000 or
more has been accelerated so that the same has become due and payable
prior to the date on which the same would otherwise have become due and
payable, provided that such acceleration is not rescinded within 10 days
after the declaration thereof; or
(f) Judgment Default. A judgment or order for the payment of
money in excess of $100,000 shall be entered against the Company or any
Subsidiary by any court, and either (i) such judgment or order shall
continue undischarged and unstayed for a period of 60 days or (ii)
enforcement proceedings shall have been commenced upon such judgment or
order; or
(g) Covenant Defaults. The Company shall have breached in any
material respect any of the covenants set forth in this Agreement and
such breach continues for 30 days after notice in writing by the holders
to the Company; or
24
<PAGE> 30
(h) Untrue or Incorrect Representation or Warranty. Any of the
representations and warranties of or with respect to the Company or any
Subsidiary contained in Article 2 hereof shall have been untrue in any
material respect on or as of the date made and the facts or
circumstances to which such representation or warranty relates shall not
have been subsequently corrected to make such representation or warranty
no longer incorrect.
8.2. Acceleration of Maturity. If any Event of Default shall
have occurred and be continuing, the holders of 66 2/3% of the outstanding
principal amount of Notes may, by notice to the Company, declare the entire
outstanding principal balance of the Notes, and all accrued and unpaid interest
thereon, to be due and payable immediately, and upon any such declaration the
entire outstanding principal balance of the Notes, and said accrued and unpaid
interest shall become and be immediately due and payable, without presentment,
demand, protest or other notice whatsoever, all of which are hereby expressly
waived, anything in the Notes or in this Agreement to the contrary
notwithstanding; provided that if an Event of Default under clause (b), (c), or
(d) of Section 8.1 with respect to the Company shall have occurred, the
outstanding principal amount of all of the Notes, and all accrued and unpaid
interest thereon, shall immediately become due and payable, without any
declaration and without presentment, demand, protest or other notice whatsoever,
all of which are hereby expressly waived, anything in the Notes or this
Agreement to the contrary notwithstanding; and provided, further, that if an
Event of Default under clause (a) of Section 8.1 shall have occurred and be
continuing with respect to any Note, any holder of one or more Notes in an
aggregate outstanding principal amount of at least $500,000 may, by notice to
the Company, declare the entire outstanding principal of such Notes and all
accrued and unpaid interest thereon, to be due and payable immediately, and upon
any such declaration the entire outstanding principal of such Notes and said
accrued and unpaid interest shall become and be immediately due and payable,
without presentment, demand, protest or other notice whatsoever, all of which
are hereby expressly waived, anything in such Notes or in this Agreement to the
contrary notwithstanding.
8.3. Other Remedies. If any Event of Default shall have
occurred and be continuing, from and including the date of such Event of Default
to but not including the date such Event of Default is cured or waived, any
holder may enforce its rights by suit in equity, by action at law, or by any
other appropriate proceedings, whether for the specific performance (to the
extent permitted by law) of any covenant or agreement contained in this
Agreement or the Notes or in aid of the exercise of any power granted in this
Agreement or the Notes, and any holder may enforce the payment of any Note held
by such holder and any of its other legal or equitable rights. During the
continuance of any Event of Default, the Company shall pay interest on the
outstanding principal of the Notes and (to the extent legally enforceable) on
any overdue installment of interest, at the rate of 12.00% per annum, until such
overdue amount is paid or until such Event of Default is cured or waived.
25
<PAGE> 31
8.4. Conduct Not a Waiver; Collection Expenses. No course of
dealing on the part of any holder, nor any delay or failure on the part of any
holder to exercise any of its rights, shall operate as a waiver of such right or
otherwise prejudice such holder's rights, powers and remedies. If the Company
fails to pay, when due, the principal or the premium, if any, or the interest on
any Note, the Company will pay to each holder, to the extent permitted by law,
on demand, all costs and expenses incurred by such holder in the collection of
any amount due in respect of any Note hereunder, including reasonable legal fees
incurred by such holder in enforcing its rights hereunder.
8.5. Annulment of Acceleration. If a declaration is made in
accordance with Section 8.2, then and in every such case, the holders of at
least 66 2/3% of the outstanding principal amount of the Notes may, by an
instrument delivered to the Company, annul such declaration and the consequences
thereof, provided that at the time such declaration is annulled:
(a) no judgment or decree has been entered for the payment of
any monies due on the Notes or pursuant to this Agreement;
(b) all arrears of interest on the Notes and all other sums
payable on the Notes and pursuant to this Agreement (except any
principal of or interest on the Notes which has become due and payable
by reason of such declaration) shall have been duly paid; and
(c) every other Event of Default shall have been duly waived or
otherwise made good or cured;
provided, however, that only a Purchaser or an Affiliate of a Purchaser (but not
any transferee thereof other than an Affiliate of the Purchaser) of the Note or
Notes making the declaration permitted by the last proviso of Section 8.2 may
annul such declaration; and provided, further, that no such annulment shall
extend to or affect any subsequent Event of Default or impair any right
consequent thereon.
8.6. Remedies Cumulative. No right or remedy conferred upon or
reserved to the holders of Notes under this Agreement is intended to be
exclusive of any other right or remedy, and every right and remedy shall be
cumulative and in addition to every other right and remedy given hereunder or
now and hereafter existing under applicable law. Every right and remedy given by
this Agreement or by applicable law to the holders of Notes may be exercised
from time to time and as often as may be deemed expedient by the holders.
8.7. Limitations. Notwithstanding the foregoing provisions of
this Article 8, the exercise of remedies by holders of Notes is subject to the
provisions of Article 10 hereof.
26
<PAGE> 32
9. Redemption.
9.1. Optional Redemption. The Company shall have the right, at
its sole option and election made in accordance with Section 9.5 to redeem the
Notes, in whole or in part, in integral multiples of not less than $250,000 at
any time and from time to time, plus an amount equal to all accrued and unpaid
interest to and including the date of redemption, in cash. Any such redemption
shall be applied first against the Replacement Notes, until the Replacement
Notes have been repaid in full, second against the 1997 Notes, until the 1997
Notes have been repaid in full, and third against the Standby Notes, if
applicable. Any such redemption shall reduce the Company's obligation under
Section 9.2, beginning with the next succeeding Redemption Date (as defined in
Section 9.2) or the next succeeding Standby Redemption Date (as defined in
Section 9.2), if applicable.
9.2. Mandatory Redemption. (a) The Company shall on February 28
and on August 31, in each year commencing with the year 2000 and ending in the
year 2002 (each a "Redemption Date"), redeem the 1997 Notes in the aggregate
outstanding principal amount of $500,000 and the Replacement Notes in the
aggregate outstanding principal amount of $916,848.50, together with accrued and
unpaid interest on each note, to and including such Redemption Date.
(b) With respect to each Standby Note, the Company
shall, beginning on the later of the first anniversary of the Drawdown Date of
such Standby Note or February 28, 2000 (the "Beginning Standby Redemption
Date"), and on each succeeding February 28 and August 31 (each, a "Standby
Redemption Date") after the Beginning Standby Redemption Date until the
principal amount of such Standby Note has been repaid in full, redeem such
Standby Note, in the amount necessary to repay the entire initial aggregate
principal amount of such Standby Note in six (6) equal installments of
principal, together with accrued and unpaid interest on each such note to and
including such Standby Redemption Date.
9.3. Procedures for Partial Redemption. (a) If less than all
1997 Notes at the time outstanding are to be redeemed, the aggregate principal
amount to be redeemed shall be prorated among the outstanding 1997 Notes.
(b) If less than all Replacement Notes at the time
outstanding are to be redeemed, the aggregate principal amount to be redeemed
shall be prorated among the outstanding Replacement Notes.
(c) If less than all Standby Notes at the time
outstanding are to be redeemed, the aggregate principal amount to be redeemed
shall be applied first against any Standby Notes issued at the initial Standby
Note Closing, pro rata among all such outstanding Standby Notes and thereafter
against any Standby Notes issued at the second Standby Note Closing, pro rata
among all such outstanding Standby Notes.
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9.4. Change in Control. In the event that there occurs a Change
in Control, any record holder of Notes, in accordance with the procedures set
forth in Section 9.5(b), may require the Company to redeem any or all of the
Notes held by such holder for, at such holder's option, an amount equal to
principal amount of such Notes, plus all accrued and unpaid interest on the
Notes being redeemed to and including the date of redemption, in cash.
9.5. Redemption Procedures. (a) Notice of any redemption of
Notes pursuant to Section 9.1 or 9.2 shall be mailed at least 30 but not more
than 60 days prior to the date fixed for redemption to each holder of Notes to
be redeemed, at such holder's address as it appears in the Note Register. In
order to facilitate the redemption of Notes, the Board of Directors may fix a
record date for the determination of Notes to be redeemed.
(b) Promptly following a Change in Control (but in no
event more than five Business Days thereafter), the Company shall mail to each
holder of Notes, at such holder's address as it appears on the transfer books of
the Company, notice of such Change in Control, which notice shall set forth each
holder's right to require the Company to redeem any or all Notes held by it. The
Company shall thereafter during a period of 90 days from the date of such notice
(or the date the Company was required to give such notice) redeem any Notes, in
whole or in part, at the option of the holder, upon at least five days' written
notice to the Company by such holder specifying (i) the principal amount of
Notes to be redeemed and (ii) the redemption date.
(c) On the date of any redemption being made pursuant to
Section 9.1, 9.2 or 9.4 which is specified in a notice given pursuant to this
Section 9.5, the Company shall wire transfer to such holder the redemption price
for the principal amount of notes so redeemed, together with an amount equal to
all accrued and unpaid interest thereon to the date of redemption.
10. Subordination of Notes.
10.1. Subordination of Notes to Senior Indebtedness. The
Indebtedness evidenced by the Notes and all renewals and extensions thereof
(collectively called the "Junior Indebtedness") shall at all times be wholly
subordinate and junior in right of payment to any and all Senior Indebtedness of
the Company (including any claims by the holders of such Senior Indebtedness for
interest accruing after any assignment for the benefit of creditors by the
Company or the institution by or against the Company of any proceedings under
the Bankruptcy Code or any law for the relief of or relating to debtors, or any
other claim by such holders for any such interest which would have accrued in
the absence of such assignment or the institution of such proceedings) in the
manner and with the force and effect hereafter set forth:
(a) In the event of any liquidation, dissolution or winding up of
the Company, or of any execution, sale, receivership, insolvency,
bankruptcy, liquidation, readjustment, reorganization or other similar
proceeding relative to the Company or
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its property, all sums owing on all Senior Indebtedness of the Company
(including cash collateral and amounts not yet due and payable) shall
first be paid in full before any payment is made upon the Junior
Indebtedness; and in any such event any payment or distribution of any
kind or character, whether in cash, property, or securities which shall
be made upon or in respect of the Junior Indebtedness shall be paid over
to the holders of the Senior Indebtedness of the Company, pro rata, for
application in payment thereof unless and until such Senior Indebtedness
shall have been paid or satisfied in full.
In case of any assignment for the benefit of creditors by the Company or
in case any proceedings under the Bankruptcy Code or any other law for
the relief of or relating to debtors are instituted by or against the
Company, or in case of the appointment of any receiver for the Company's
business or assets, or in case of any dissolution or winding up of the
affairs of the Company, the Company and any assignee, trustee in
bankruptcy, receiver, debtor in possession or other person or persons in
charge are hereby directed to pay to the holders of the Senior
Indebtedness of the Company the full amount of such holders' claims
against the Company (including interest to the date of payment) before
making any payments to the holders of Junior Indebtedness, and insofar
as may be necessary for that purpose, each Purchaser hereby assigns and
transfers to the holders of Senior Indebtedness of the Company all
rights to any payments, dividends or other distributions.
Each Purchaser agrees not to file or join in any petition to commence
any proceeding under the Bankruptcy Code (or other law for the relief of
or relating to debtors) so long as any Senior Indebtedness of the
Company is outstanding.
(b) In the event that all or any part of the Junior Indebtedness
is declared or becomes due and payable because of the occurrence of any
Event of Default or otherwise than at the option of the Company (other
than pursuant to its terms at its final maturity), under circumstances
when the foregoing clause (a) shall not be applicable, the holders of
the Junior Indebtedness shall be entitled to payments only after there
shall first have been paid in full all Senior Indebtedness of the
Company or payment shall have been provided therefor in a manner
satisfactory to the holders of such Senior Indebtedness.
(c) Upon the occurrence of an event which is, or with the lapse
of time or notice or both would be, an event which gives any holder of
any Senior Indebtedness of the Company the right to demand payment, cash
collateral, accelerate the maturity, or terminate any commitment to
further extend credit, no payment shall be made on any Junior
Indebtedness if either:
(i) notice of such default in writing or by telegram has
been given to the Company by any holder of any Senior
Indebtedness of the Company, provided that judicial proceedings
shall be commenced with respect to such
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default (x) within 180 days thereafter if such default consists
of the nonpayment of principal, interest, or any other sum due
on such Senior Indebtedness, or (y) within 180 days after the
earlier of (i) the giving of such notice or (ii) the date on
which such holder is entitled to institute judicial proceedings,
or
(ii) judicial proceedings shall be pending in respect of
such default.
The holder of any portion of Senior Indebtedness of the Company shall
not be entitled to give notice pursuant to this clause (c) more than
once with respect to any default which was specified in such notice and
which has continued without interruption since the date such notice was
given, nor shall such holder be entitled to give a separate notice with
respect to any default not so specified which (to the knowledge of the
holder giving notice) was existing on the date such notice was given
pursuant to this clause (c) and which has continued without interruption
from the date such notice was given. Upon receipt of any notice from any
holder of any Senior Indebtedness pursuant to this clause (c), the
Company shall forthwith send a copy thereof to each holder of Junior
Indebtedness and each holder of its Senior Indebtedness at the time
outstanding.
(d) All payments, cash, or noncash distributions made to the
holders of Junior Indebtedness which should have been made to the
holders of Senior Indebtedness of the Company shall be received and held
by the former in trust for the benefit of the latter, and the holders of
Junior Indebtedness shall forthwith remit such payments, cash, or
noncash distributions to the holders of the Senior Indebtedness of the
Company, pro rata, in the form in which it was received, together with
such endorsements or documents as may be necessary to effectively
negotiate or transfer the same to the holders of the Senior Indebtedness
of the Company.
(e) Each holder of Senior Indebtedness of the Company is hereby
authorized by each Purchaser to:
(i) renew, compromise, extend, accelerate or otherwise
change the time of payment, or any other terms, of any Senior
Indebtedness of the Company held by such holder;
(ii) increase or decrease the rate of interest payable
thereon or any part thereof;
(iii) exchange, enforce, waive or release any security
therefor;
(iv) apply such security and direct the order or manner
of sale thereof in such manner as such holder may at its
discretion determine; and/or
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(v) release the Company or any guarantor of any Senior
Indebtedness of the Company from liability; all without notice
to such Purchaser and any holder of Junior Indebtedness and
without affecting the subordination provided by this Agreement.
10.2. Proofs of Claim of Holders of Senior Indebtedness; Voting
. Each Purchaser undertakes and agrees for the benefit of each holder of Senior
Indebtedness of the Company to execute, verify, deliver and file any proofs of
claim relating to the Junior Indebtedness which any holder of such Senior
Indebtedness may at any time require in order to prove and realize upon any
rights or claims pertaining to the Junior Indebtedness and to effectuate the
full benefit of the subordination contained herein. Upon failure of any
Purchaser to file the required proof or proofs of claim prior to 30 days before
the expiration of the time to file claims in such proceeding, each holder of
Senior Indebtedness of the Company is hereby irrevocably appointed by such
Purchaser to be such Purchaser's agent to file the appropriate claim or claims
and if such holder of Senior Indebtedness elects at its sole discretion to file
such claim or claims (i) to accept or reject any plan of reorganization or
arrangement on behalf of such Purchaser, and (ii) to otherwise vote such
Purchaser's claim in respect of the Junior Indebtedness in any manner deemed
appropriate for the benefit and protection of the holders of the Senior
Indebtedness of the Company.
10.3. Rights of Holders of Senior Indebtedness Unimpaired. No
right of any holder of any Senior Indebtedness to enforce subordination as
herein provided shall at any time or in any way be affected or impaired by any
failure to act on the part of the Company or the holders of Senior Indebtedness,
or by any noncompliance by the Company with any of the terms, provisions and
covenants of this Agreement, regardless of any knowledge thereof that any such
holder of Senior Indebtedness may have or be otherwise charged with.
10.4. Effects of Event of Default. The Company agrees, for the
benefit of the holders of Senior Indebtedness, that in the event that a Note is
declared due and payable before its maturity because of the occurrence of an
Event of Default, (i) the Company will give prompt notice in writing of such
happening to the holders of Senior Indebtedness and (ii) all Senior Indebtedness
shall forthwith become immediately due and payable upon demand, regardless of
the expressed maturity thereof.
10.5. Company's Obligations Unimpaired. The provisions of this
Article 10 are solely for the purpose of defining the relative rights of the
holders of Senior Indebtedness on the one hand, and the Purchasers on the other
hand, and nothing herein shall impair, as between the Company and the
Purchasers, the obligation of the Company, which is unconditional and absolute,
to pay the principal, premium, if any, and interest on the Notes in accordance
with this Agreement and the terms of the Notes, nor shall anything herein
prevent the Purchasers from exercising all remedies otherwise permitted by
applicable law or under this Agreement or the Notes upon the occurrence of an
Event of Default, subject to the rights of the holders of Senior Indebtedness as
herein provided for.
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10.6. Subrogation. Subject to the payment in full of Senior
Indebtedness, holders of the Notes shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payments or distributions of cash,
property or securities made on the Senior Indebtedness until the Notes shall be
paid in full; and, for the purposes of such subrogation, payments or
distributions to the holders of Senior Indebtedness of any cash, property or
securities to which any holder of Notes would be entitled except for the
provisions of this Agreement shall, as between the Company and its creditors
other than the holders of Senior Indebtedness and holders of the Notes, be
deemed to be a payment by the Company to or on account of the Notes, it being
understood that the provisions of this Agreement are and are intended solely for
the purpose of defining the relative rights of the holders of the Notes on the
one hand, and the holders of Senior Indebtedness, on the other hand. The purpose
of this Section 10.6 is to grant to holders of the Notes the same rights against
the Company with respect to the aggregate amount of such payments or
distributions as the holders of Senior Indebtedness would have against the
Company if such aggregate amount were considered overdue Senior Indebtedness.
11. Interpretation.
11.1 Definitions.
"Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act; provided that GECC shall not be deemed an "Affiliate" of the
Company.
"Beneficially own" with respect to any securities shall mean
having "beneficial ownership" of such securities (as determined pursuant to Rule
13d-3 under the Exchange Act), including pursuant to any agreement, arrangement
or understanding, whether or not in writing.
"Business Day" shall mean any day other than a Saturday, Sunday,
or a day on which banking institutions in the State of New York are authorized
or obligated by law or executive order to close.
"Capitalized Lease" shall mean, with respect to any person, any
lease or any other agreement for the use of property which, in accordance with
generally accepted accounting principles, should be capitalized on the lessee's
or user's balance sheet.
"Capitalized Lease Obligation" of any person shall mean and
include, as of any date as of which the amount thereof is to be determined, the
amount of the liability capitalized or disclosed (or which should be disclosed)
in a balance sheet of such person in respect of a Capitalized Lease of such
person.
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"Change in Control" shall mean:
(a) the acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)
of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of more than 30% of the combined voting power of
the then outstanding Voting Securities of the Company entitled to vote
generally in the election of directors, but excluding, for this purpose,
any such acquisition by (i) the Company or any of its subsidiaries, (ii)
any employee benefit plan (or related trust) of the Company or its
subsidiaries, (iii) any corporation with respect to which, following
such acquisition, a majority of the combined voting power of the then
outstanding Voting Securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned,
directly or indirectly, by individuals and entities who were the
beneficial owners of voting securities of the Company immediately prior
to such acquisition in substantially the same proportion as their
ownership, immediately prior to such acquisition, of the combined voting
power of the then outstanding voting securities of the Company entitled
to vote generally in the election of directors or (iv) GECC or an
Affiliate of GECC; or
(b) a reorganization, merger or consolidation, in each
case, with respect to which all or substantially all the individuals and
entities who were the respective beneficial owners of the voting
securities of the Company immediately prior to such reorganization,
merger or consolidation do not, following such reorganization, merger or
consolidation beneficially own, directly or indirectly, more than 50% of
the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors of the
corporation resulting from such reorganization, merger or consolidation;
or
(c) the sale or other disposition of a majority or more
of the consolidated assets or property of the Company and its
Subsidiaries in one transaction or series of related transactions,
provided, however, that a "Change of Control" as defined in either (b)
or (c) above shall not include any transaction between GECC or any
Affiliate of GECC and the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Consolidated" or "consolidated", when used with reference to any
financial term in this Agreement (but not when used with respect to any tax
return or tax liability), shall mean the aggregate for two or more persons of
the amounts signified by such term for all such persons, with inter-company
items eliminated and, with respect to earnings, after eliminating the portion of
earnings properly attributable to minority interests, if any, in the
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<PAGE> 39
capital stock of any such person or attributable to shares of preferred stock of
any such person not owned by any other such person.
"Consolidated Net Worth" shall mean the consolidated
stockholders' equity of the Company and its Subsidiaries determined in
accordance with generally accepted accounting principles consistently applied
(it being understood that the Notes and any other Subordinated Indebtedness
which is not subordinated to the Notes shall not be treated as equity for this
purpose).
"Consolidated Total Indebtedness" shall mean consolidated
Indebtedness of the Company and its Subsidiaries, determined in accordance with
generally accepted accounting principles consistently applied.
"EBITDA" means, for a given year, the consolidated net income of
the Company for such year, plus interest expense (net of interest income), plus
income tax expense, plus depreciation and amortization expense, each of the
above computed in accordance with generally accepted accounting principles
applied on a consistent basis.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Event of Default" shall mean each of the happenings or
circumstances enumerated in Section 8.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time. Reference
to a particular section of the Exchange Act shall include reference to the
comparable section, if any, of any such successor Federal statute.
"Fixed Charge Ratio" shall mean the ratio of (a) the sum of
earnings before taxes, depreciation and amortization plus current operating
lease expense plus interest expense to (b) interest expense plus current
operating lease expense of the Company and its Subsidiaries on a consolidated
basis determined in accordance with generally accepted accounting principles
consistently applied, as measured at the last day of the most recently completed
fiscal quarter.
"Guarantee" by any Person shall mean all obligations (other than
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) of any Person guaranteeing, or in effect guaranteeing,
any Indebtedness, dividend or other obligation of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, all obligations incurred through an agreement, contingent or
otherwise, by such Person: (i) to purchase such Indebtedness or obligation or
any property or assets constituting security therefor, (ii) to advance or supply
funds (x) for
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<PAGE> 40
the purchase or payment of such Indebtedness or obligation, (y) to maintain
working capital or other balance sheet condition or otherwise to advance or make
available funds for the purchase or payment of such Indebtedness or obligation,
(iii) to lease property or to purchase securities or other property or services
primarily for the purpose of assuring the owner of such Indebtedness or
obligation of the ability of the primary obligor to make payment of such
Indebtedness or obligation, or (iv) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purposes of any computations made under this Agreement, a
Guarantee in respect of any Indebtedness for borrowed money shall be deemed to
be Indebtedness equal to the principal amount of the Indebtedness for borrowed
money which has been guaranteed, and a Guarantee in respect of any other
obligation or liability or any dividend shall be deemed to be Indebtedness equal
to the maximum aggregate amount of such obligation, liability or dividend.
"Indebtedness" shall mean, with respect to any person, (i) all
obligations of such person for borrowed money, or with respect to deposits or
advances of any kind, (ii) all obligations of such person evidenced by bonds,
debentures, notes or similar instruments, (iii) all obligations of such person
under conditional sale or other title retention agreements relating to property
purchased by such person, (iv) all obligations of such person issued or assumed
as the deferred purchase price of property or services (other than accounts
payable to suppliers and similar accrued liabilities incurred in the ordinary
course of business and paid in a manner consistent with industry practice), (v)
all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any lien or security interest on property owned or acquired by such person
whether or not the obligations secured thereby have been assumed, but only to
the extent of such security, if such obligations have not been assumed, (vi) all
Capitalized Lease Obligations of such person, (vii) all Guarantees of such
person, (viii) all obligations (including but not limited to reimbursement
obligations) relating to the issuance of letters of credit for the account of
such person, (ix) all obligations arising out of foreign exchange contracts, and
(x) all obligations arising out of interest rate and currency swap agreements,
cap, floor and collar agreements, interest rate insurance, currency spot and
forward contracts and other agreements or arrangements designed to provide
protection against fluctuations in interest or currency exchange rates.
"outstanding" shall mean when used with reference to the Notes at
a particular time, all Notes theretofore issued as provided in this Agreement,
except (i) Notes theretofore reported as lost, stolen, damaged or destroyed, or
surrendered for transfer, exchange or replacement, in respect to which
replacement Notes have been issued, (ii) Notes theretofore paid in full, and
(iii) Notes theretofore canceled by the Company, except that, for the purpose of
determining whether holders of the requisite principal amount of Notes have made
or concurred in any waiver, consent, approval, notice or other communication
under this Agreement, Notes registered in the name of, or owned beneficially by,
the Company or any Subsidiary of any thereof, shall not be deemed to be
outstanding.
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"PBGC" shall mean the Pension Benefit Guaranty Corporation, or
any successor thereto.
"Pension Plan" shall mean any multiemployer plan or single
employer plan, as defined in Section 4001 of ERISA, that is subject to Title IV
of ERISA, that the Company, any Subsidiary or any ERISA Affiliate maintains or
is or ever has been obligated to contribute to for the benefit of employees or
former employees of the Company, any Subsidiary or any ERISA Affiliate.
"Person" shall mean any individual, firm, corporation,
partnership or other entity, and shall include any successor (by merger or
otherwise) of such entity.
"Registration Rights Agreement" shall mean the Registration
Rights Agreement dated August 26, 1996, between the Company, GECC and each of
the parties listed on the signature pages thereof.
"Related Party" shall mean, other than GECC or any of its
Affiliates, any officer, director or beneficial holder of 3% or more of the
outstanding shares of capital stock of the Company or any Subsidiary, any
spouse, former spouse, child, parent, parent of a spouse, sibling or grandchild
of any such officer, director or beneficial holder of the Company or any
Subsidiary, and any Affiliate or Associate of any of the foregoing persons.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Senior Indebtedness" shall mean and include, as of any date as
of which the amount thereof is to be determined, the principal of and premium,
if any, and interest due on any Indebtedness under the Loan and Security
Agreement dated as of January 20, 1995 and as amended on May 10, 1996, August
26, 1996 and November 25, 1996, and as further amended on August 14, 1997
between Congress Financial Corporation (Western) as lender and Krause's Sofa
Factory, a California corporation, and its wholly owned subsidiary, Castro
Convertible Corporation, a New York corporation, as borrowers (with the Company
as Guarantor pursuant to a Guarantee signed by the Company on January 20, 1995),
and any refinancing, refunding, replacement or extension thereof.
"Stockholder" means each of the stockholders listed as a
signatory to the Stockholders Agreement dated August 26, 1996 by and among the
Company, GECC and each of the stockholders listed on the signature pages
thereof.
"Subordinated Indebtedness" shall mean all Indebtedness which is
by its terms subordinated to Senior Indebtedness.
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"Subsidiary" of any Person means any corporation or other entity
of which a majority of the voting power or the Voting Securities or equity
interest is owned, directly or indirectly, by such Person.
"Voting Securities" of any Person shall mean at any time shares
of any class of capital stock of such Person which are then entitled to vote
generally in the election of directors.
11.2. Accounting Principles. The character or amount of any
asset, liability, capital account or reserve and of any item of income or
expense required to be determined pursuant to this Agreement, and any
consolidation or other accounting computation required to be made pursuant to
this Agreement, and the construction of any definition in this Agreement
containing a financial term, shall be determined or made, as the case may be, in
accordance with generally accepted accounting principles, to the extent
applicable, unless such principles are inconsistent with the express
requirements of this Agreement. References in this Agreement to a fiscal year
refer to the period ending on the Sunday closest to the last day of January of
the following calendar year as determined by the 52/53 retail fiscal year. (For
example, 1996 fiscal year refers to the fiscal year ending February 2, 1997.)
12. Miscellaneous.
12.1. Payments. The Company agrees that, so long as any
Purchaser shall hold any Securities, the Company will make all cash interest or
dividend payments thereon in immediately available funds in such manner as such
Purchaser may reasonably request in writing.
12.2. Severability. If any term, provision, covenant or
restriction of this Agreement or any exhibit hereto is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of this Agreement and such
exhibits shall remain in full force and effect and shall in no way be affected,
impaired or invalidated. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
12.3. Specific Enforcement. The Purchasers, on the one hand,
and the Company, on the other, acknowledge and agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction to
prevent breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
thereof having jurisdiction, this being in addition to any other remedy to which
they may be entitled at law or equity.
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12.4. Entire Agreement. This Agreement (including the documents
set forth in the exhibits hereto) contains the entire understanding of the
parties with respect to the transactions contemplated hereby.
12.5. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more of the counterparts have been signed
by each party and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
12.6. Notices and Other Communications. All notices, consents,
requests, instructions, approvals, financial statements, proxy statements,
reports and other communications provided for herein shall be in writing and
shall be delivered personally, by telecopy or sent by prepaid overnight courier
service, to:
THE COMPANY:
Krause's Furniture, Inc.
200 North Berry Street
Brea, CA 92821-3903
Attention: Philip M. Hawley
With copies (which shall not constitute notice) to:
Judith O. Lasker and
Robert A. Burton
Krause's Furniture, Inc.
200 North Berry Street
Brea, CA 92821-3903
and
Timothy Scott, Esq.
Morrison & Foerster
555 West Fifth Street
Los Angeles, CA 90013-1024
GECC:
General Electric Capital Corporation
Equity Capital Group
260 Long Ridge Road
Stamford, CT 06927
Attention: Jeffrey H. Coats and
Attention: Counsel
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With a copy (which shall not constitute notice) to:
Warren de Wied, Esq.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
JOL:
Japan Omnibus Ltd.
Stephen Hutchings
Tropic Isle Building
Road Town, Tortola
British Virgins Islands
With a copy (which shall not constitute notice) to:
David Kaufman, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
or to such other address as any party may, from time to time, designate in a
written notice given in a like manner.
12.7. Amendments; Waivers. This Agreement may be amended as to
the Purchasers and their successors and assigns, and the Company may take any
action herein prohibited, or omit to perform any act required to be performed by
it, if the Company shall obtain the written consent of the registered holders of
not less than 66 2/3% of the outstanding principal amount of the Notes then held
by the Purchasers and their successors or assigns; provided, however, that
without the written consent of the holder or holders of all Notes at the time
outstanding, no amendment to or waiver of any terms of this Agreement shall
change or affect (1) the interest rate, maturity, principal amount, time of
payment, currency of payment, or the amount or allocation of any prepayments of
any Note, or (2) the conditions or manner of funding of the Standby Notes. This
Agreement may not be waived, changed, modified, or discharged orally, but only
by an agreement in writing signed by the party or parties against whom
enforcement of any waiver, change, modification or discharge is sought or by
parties with the right to consent to such waiver, change, modification or
discharge on behalf of such party. Notwithstanding anything in this Agreement to
the contrary, no provision of this Section 12.7 may be waived, changed or
modified.
12.8. Cooperation. The Purchasers and the Company agree to
take, or cause to be taken, all such further or other actions as shall
reasonably be necessary to make effective and consummate the transactions
contemplated by this Agreement.
39
<PAGE> 45
12.9. Successors and Assigns. All covenants and agreements
contained herein shall bind and inure to the benefit of the parties hereto and
their respective successors and assigns. This Agreement may be assigned by any
Purchaser to any transferee of any Securities of such Purchaser. This Agreement
may not be assigned by the Company.
12.10. Expenses and Remedies. (a) The Company agrees to pay
each Purchaser for all reasonable outside legal and consulting fees of such
Purchaser in connection with this Agreement and the consummation of all
transactions contemplated hereby, and all costs and expenses relating to any
future amendment or supplement to this Agreement or any of the Securities (or
any proposal by the Company for such amendment or supplement) whether or not
consummated or any waiver or consent with respect thereto (or any proposal for
such waiver or consent) whether or not consummated, and all costs and expenses
of each Purchaser relating to the enforcement of this Agreement, the
Registration Rights Agreement, the Warrants or the Notes or any of the
Securities.
(b) The Company further agrees to indemnify and save
harmless each Purchaser and its respective officers, directors, partners,
employees, trustees and agents, each person who controls such Purchaser within
the meaning of the Securities Act or the Exchange Act, from and against any and
all costs, expenses, damages or other liabilities resulting from any breach of
this Agreement by the Company or any legal, administrative or other proceedings
arising out of the transactions contemplated hereby (other than such costs,
expenses, damages or other liabilities resulting, directly or indirectly, (i)
from the breach by such Purchaser of any of its agreements contained herein,
(ii) from the gross negligence or willful misconduct of such Purchaser or any of
its officers, directors, partners, employees or agents, or any person who
controls such Purchaser within the meaning of the Securities Act or the Exchange
Act or (iii) from an ERISA violation resulting from any action or inaction by
such Purchaser, other than an ERISA violation resulting from a breach by the
Company of this Agreement); provided, however, that, if and to the extent that
such indemnification is unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of such indemnified
liability which shall be permissible under applicable laws.
(c) An indemnified party under this Section 12.10 will,
promptly after the receipt of notice of the commencement of any action against
such indemnified party in respect of which indemnity may be sought from the
Company on account of an indemnity agreement contained in this Section 12.10,
notify the Company in writing of the commencement thereof. The omission of any
indemnified party so to notify the Company of any such action shall not relieve
the Company from any liability which it may have to such indemnified party
except to the extent the Company shall have been prejudiced by the omission of
such indemnified party so to notify the Company, pursuant to this Section 12.10.
In case any such action shall be brought against any indemnified party and it
shall notify the Company of the commencement thereof, the Company shall be
entitled to participate therein and, to the extent that it may wish, to assume
the defense thereof, with counsel reasonably
40
<PAGE> 46
satisfactory to such indemnified party, and after notice from the Company to
such indemnified party of its election so to assume the defense thereof, the
Company will not be liable to such indemnified party under this Section 12.10
for any legal or other expense subsequently incurred by such indemnified party
in connection with the defense thereof nor for any settlement thereof entered
into without the consent of the Company; provided, however, that (i) if the
Company shall elect not to assume the defense of such claim or action or (ii) if
the indemnified party reasonably determines (x) that there may be a conflict
between the positions of the Company and of the indemnified party in defending
such claim or action or (y) that there may be legal defenses available to such
indemnified party different from or in addition to those available to the
Company, then separate counsel for the indemnified party shall be entitled to
participate in and conduct the defense, in the case of (i) and (ii)(x), or such
different defenses, in the case of (ii)(y), and the Company shall be liable for
any reasonable legal or other expenses incurred by the indemnified party in
connection with the defense.
12.11. Survival of Representations and Warranties. All
representations and warranties contained herein or made in writing by any party
in connection herewith shall survive the execution and delivery of this
Agreement and the issuance and delivery of the Securities, regardless of any
investigation made by or on behalf of any party.
12.12. Transfer of Securities. (a) Each Purchaser understands
and agrees that the Securities have not been registered under the Securities Act
or the securities laws of any state and that they may be sold or otherwise
disposed of only in one or more transactions registered under the Securities Act
and, where applicable, such laws or transactions as to which an exemption from
the registration requirements of the Securities Act and, where applicable, such
laws are available. Each Purchaser acknowledges that, except as provided in the
Registration Rights Agreement, such Purchaser has no right to require the
Company to register the Securities. Each Purchaser understands and agrees that
each Note or certificate representing the Securities shall bear legends
substantially in the form as follows:
"[THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE]
[THIS NOTE HAS] NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH LAWS."
"IN ADDITION TO THE RESTRICTIONS SET FORTH IN THE
SECURITIES PURCHASE AGREEMENT AND THE SUPPLEMENTAL SECURITIES
PURCHASE AGREEMENT BETWEEN KRAUSE'S FURNITURE, INC., GENERAL
ELECTRIC CAPITAL CORPORATION AND JAPAN OMNIBUS LTD., [THE
SECURITIES REPRESENTED BY
41
<PAGE> 47
THIS CERTIFICATE ARE] [THIS NOTE IS] SUBJECT TO THE RESTRICTIONS
SET FORTH IN THE STOCKHOLDERS AGREEMENT BY AND AMONG KRAUSE'S
FURNITURE, INC. AND THE STOCKHOLDERS PARTIES THERETO. COPIES OF
SUCH AGREEMENTS ARE ON FILE IN THE OFFICES OF THE CORPORATION."
12.13. Governing Law; Consent to Jurisdiction. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW. EACH OF
THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO SUBMIT TO
THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE
UNITED STATES OF AMERICA, IN EACH CASE LOCATED IN THE COUNTY OF NEW YORK, FOR
ANY ACTION, PROCEEDING OR INVESTIGATION IN ANY COURT OR BEFORE ANY GOVERNMENTAL
AUTHORITY ("LITIGATION") ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREBY (AND AGREES NOT TO COMMENCE ANY LITIGATION
RELATING THERETO EXCEPT IN SUCH COURTS), AND FURTHER AGREES THAT SERVICE OF ANY
PROCESS, SUMMONS, NOTICE OR DOCUMENT BY U.S. REGISTERED MAIL TO ITS RESPECTIVE
ADDRESS SET FORTH IN THIS AGREEMENT SHALL BE EFFECTIVE SERVICE OF PROCESS FOR
ANY LITIGATION BROUGHT AGAINST IT IN ANY SUCH COURT. EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF
VENUE OF ANY LITIGATION ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY IN THE COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES
OF AMERICA, IN EACH CASE LOCATED IN THE COUNTY OF NEW YORK, AND HEREBY FURTHER
IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY
SUCH COURT THAT ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM. EACH OF THE PARTIES IRREVOCABLY AND UNCONDITIONALLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHTS TO
TRIAL BY JURY IN CONNECTION WITH ANY LITIGATION ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
12.14. Term. This Agreement shall terminate upon the repayment
in full of all amounts of principal, interest and other sums due and payable on
all Notes, except that Section 12.10 shall survive the termination of this
Agreement.
42
<PAGE> 48
12.15. Publicity. Each of the parties hereto agrees that it
will make no statement regarding the transactions contemplated hereby which is
inconsistent with the press release agreed to by the parties hereto.
Notwithstanding the foregoing, each of the parties hereto may, in documents
required to be filed by it with the Commission or other regulatory bodies, make
such statements with respect to the transactions contemplated hereby as each may
be advised is legally necessary upon advice of its counsel.
12.16. Signatures. This Agreement shall be effective upon
delivery of original signature pages or facsimile copies thereof executed by
each of the parties hereto.
[Remainder of page left intentionally blank.]
43
<PAGE> 49
IN WITNESS WHEREOF, the Company and the Purchaser have caused
this Agreement to be executed and delivered by their respective officers
thereunto duly authorized.
KRAUSE'S FURNITURE, INC.
By:
----------------------------------------
Name: Robert A. Burton
Title: Senior Vice President
and Chief Financial Officer
GENERAL ELECTRIC CAPITAL CORPORATION
By:
----------------------------------------
Name: George L. Hashbarger, Jr.
Title: Senior Vice President/
Department Operations Manager
JAPAN OMNIBUS LTD.
(formerly known as EDSON INVESTMENTS, INC.)
By:
----------------------------------------
Name:
Title:
44
<PAGE> 50
GENERAL ELECTRIC CAPITAL CORPORATION
260 Long Ridge Road
Stamford, CT 06927
August 14, 1997
The Parties listed on Schedule A attached hereto (the "Permal Group")
c/o Thomas DeLitto
Permal Capital Management, Inc.
900 Third Avenue
New York, NY 10022
Ladies and Gentlemen:
Reference is hereby made to the Stockholders Agreement dated as of
August 26, 1996, by and among Krause's Furniture, Inc. (the "Company") and each
of the stockholders of the Company listed on the signature pages thereof (the
"Stockholders Agreement"), and the Registration Rights Agreement dated as of
August 26, 1996, by and among the Company and each of the stockholders of the
Company listed on the signature pages thereof (the "Registration Rights
Agreement").
By executing this letter agreement (this "Agreement"), each of the
undersigned signatories to the Stockholders Agreement and the Registration
Rights Agreement agree that, notwithstanding any provision of the Stockholders
Agreement and the Registration Rights Agreement, (i) Japan Omnibus Ltd.
(formerly known as Edson Investments, Inc., "JOL") shall be permitted to offer
for sale or sell a maximum of 2,000,000 shares in the aggregate and a minimum of
1,000,000 shares of the Company's Common Stock, par value $.001 per share
("Common Stock") and (ii) members of the Permal Group shall be permitted to
offer for sale or sell a maximum amount of shares of Common Stock in the
aggregate (with such shares being allocated among the members of the Permal
Group as JOL may determine) equal to (x) 2,000,000 minus (y) the amount of
shares of Common Stock that JOL elects to offer for sale or sell under this
paragraph, at any time after the date of this Agreement, pursuant to a
registration statement of the Company under the Securities Act of 1933. This
letter shall be construed as a consent of GECC under Section 2.8(a) of the
Registration Rights Agreement with respect to the matters described in this
paragraph.
Very truly yours,
GENERAL ELECTRIC CAPITAL CORPORATION
By:
-------------------------------
Name:
Title:
<PAGE> 51
Please confirm your agreement with the foregoing by signing below:
KRAUSE'S FURNITURE, INC.
By:
------------------------------
Name:
Title:
JAPAN OMNIBUS LTD.
(formerly known as EDSON INVESTMENTS, INC.)
By:
------------------------------
Name:
Title:
-2-
<PAGE> 52
SCHEDULE A: THE PERMAL GROUP
Permal Capital Management, Inc.
Permal Services, Inc.
Permal Capital Partners, L.P.
Permal Asset Management
Permal Special Opportunities, Ltd.
Japan Omnibus Ltd. (formerly known as Edson
Investments, Inc.)
Jean R. Perrette
Isaac Robert Souede
Thomas M. DeLitto
Thomas M. & Donna S. DeLitto
United Gulf Bank (B.S.C.) E.C.
Kuwait Investment Projects
ATCO Holdings Ltd.
ATCO Development, Inc.
-3-
<PAGE> 53
Exhibit A: 1997 Note (GECC)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
THIS NOTE IS SUBJECT TO THE RESTRICTIONS SET FORTH IN THE SECURITIES PURCHASE
AGREEMENT AND THE SUPPLEMENTAL SECURITIES PURCHASE AGREEMENT BY AND AMONG
KRAUSE'S FURNITURE, INC., GENERAL ELECTRIC CAPITAL CORPORATION AND JAPAN OMNIBUS
LTD., COPIES OF WHICH ARE ON FILE IN THE OFFICES OF THE CORPORATION.
KRAUSE'S FURNITURE, INC.
9.50% Subordinated Note
due August 31, 2002
New York, NY
$2,500,000.00 August 14, 1997
KRAUSE'S FURNITURE, INC. (the "Company"), a Delaware corporation,
for value received, hereby promises to pay to GENERAL ELECTRIC CAPITAL
CORPORATION ("GECC"), or registered assigns, the sum of TWO MILLION FIVE HUNDRED
THOUSAND DOLLARS ($2,500,000.00), payable in six equal installments of principal
of $416,666.67, commencing on February 28, 2000, and on each August 31 and
February 28 thereafter until August 31, 2002, with interest (computed on the
basis of a 360-day year of twelve 30-day months) on the unpaid balance of such
principal amount at the rate of 9.50% per annum from the date hereof, due and
payable (i) quarterly, on each November 30, February 28, May 31 and August 31
(each, a "Payment Date") after the date of the Notes commencing with November
30, 1997 and (ii) on the date of any prepayment, on the amount prepaid, until
the Notes have been paid in full. Accrued interest on each Note is required to
be paid in cash (in accordance with Section 5.1 of the Supplemental Securities
Purchase Agreement dated as of August 14, 1997, as from time to time amended, by
and among the Company, GECC and Japan Omnibus Ltd. (the "Supplemental Securities
Purchase Agreement")) on each Payment Date.
Interest on this Note shall cease to accrue if (i) the holder of
this Note has been notified by the Company under Section 9.5 of the Supplemental
Securities Purchase Agreement that this Note will be redeemed, and (ii) all
amounts due under this Note are paid to the holder of this Note on the
redemption date specified in such notice or such
<PAGE> 54
amounts are segregated and held in trust by the Company for payment upon
surrender of this Note in accordance with such notice. During the continuance of
any Event of Default (as defined in the Supplemental Securities Purchase
Agreement), the Company shall pay interest on the outstanding principal of, and
any other amounts (other than interest), if any, due on the Notes and (to the
extent legally enforceable) on any overdue installment of interest, at the rate
of 12.00% per annum (computed on the same basis as above) until such overdue
amount is paid or until such Event of Default is cured or waived. All payments
on this Note shall be made in lawful money of the United States of America at
the address specified by the holder hereof for such purpose in Schedule 5.1 to
the Supplemental Securities Purchase Agreement or by such method as may be
designated by notice to the Company, in the manner set forth in the Supplemental
Securities Purchase Agreement.
The outstanding principal amount of this Note shall be payable in
six equal installments of principal of $416,666.67, commencing on February 28,
2000, and on each August 31 and February 28 thereafter until August 31, 2002.
This Note is also subject to optional redemption, in whole or in part, all as
specified in the Supplemental Securities Purchase Agreement.
This Note is issued pursuant to the Supplemental Securities
Purchase Agreement. The registered holder of this Note is entitled to the
benefits of such Supplemental Securities Purchase Agreement and may enforce the
agreements of the Company contained therein and exercise the remedies provided
for thereby or otherwise available in respect thereof.
This Note is expressly subordinated to the extent and in the
manner provided in Section 10 of the Supplemental Securities Purchase Agreement
to all Senior Indebtedness (as defined therein) of the Company.
This Note is a registered Note and, as provided in the
Supplemental Securities Purchase Agreement, is transferable only upon surrender
of this Note for registration of transfer, duly endorsed, or accompanied by a
written instrument of transfer duly executed, by the registered holder hereof or
his attorney duly authorized in writing. The Company may treat the person in
whose name this Note is registered as the owner hereof for the purpose of
receiving payment and for all other purposes, and the Company shall not be
affected by any notice to the contrary.
In case an Event of Default shall occur and be continuing, the
unpaid balance of the principal, interest and any other amounts payable on this
Note may be declared and become due and payable in the manner and with the
effect provided in the Supplemental Securities Purchase Agreement.
2
<PAGE> 55
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE PRINCIPLES OF
CONFLICTS OF LAW. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS
OF THE STATE OF NEW YORK AND OF THE UNITED STATES OF AMERICA, IN EACH CASE
LOCATED IN THE COUNTY OF NEW YORK, FOR ANY ACTION, PROCEEDING OR INVESTIGATION
IN ANY COURT OR BEFORE ANY GOVERNMENTAL AUTHORITY ("LITIGATION") ARISING OUT OF
OR RELATING TO THIS NOTE AND THE TRANSACTIONS CONTEMPLATED HEREBY (AND AGREES
NOT TO COMMENCE ANY LITIGATION RELATING THERETO EXCEPT IN SUCH COURTS), AND
FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR DOCUMENT BY U.S.
REGISTERED MAIL TO ITS RESPECTIVE ADDRESS SET FORTH IN THIS NOTE SHALL BE
EFFECTIVE SERVICE OF PROCESS FOR ANY LITIGATION BROUGHT AGAINST IT IN ANY SUCH
COURT. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES
ANY OBJECTION TO THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF THIS NOTE
OR THE TRANSACTIONS CONTEMPLATED HEREBY IN THE COURTS OF THE STATE OF NEW YORK
OR THE UNITED STATES OF AMERICA, IN EACH CASE LOCATED IN THE COUNTY OF NEW YORK,
AND HEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO
PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH LITIGATION BROUGHT IN ANY SUCH
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE PARTIES IRREVOCABLY
AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHTS TO TRIAL BY JURY IN CONNECTION WITH ANY LITIGATION ARISING
OUT OF OR RELATING TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY.
KRAUSE'S FURNITURE, INC.
By:
------------------------
Name:
Title:
3
<PAGE> 56
Exhibit A: 1997 Note (Permal)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
THIS NOTE IS SUBJECT TO THE RESTRICTIONS SET FORTH IN THE SECURITIES PURCHASE
AGREEMENT AND THE SUPPLEMENTAL SECURITIES PURCHASE AGREEMENT BY AND AMONG
KRAUSE'S FURNITURE, INC., GENERAL ELECTRIC CAPITAL CORPORATION AND JAPAN OMNIBUS
LTD., COPIES OF WHICH ARE ON FILE IN THE OFFICES OF THE CORPORATION.
KRAUSE'S FURNITURE, INC.
9.50% Subordinated Note
due August 31, 2002
New York, NY
$500,000.00 August 14, 1997
KRAUSE'S FURNITURE, INC. (the "Company"), a Delaware corporation,
for value received, hereby promises to pay to JAPAN OMNIBUS LTD. ("JOL"), or
registered assigns, the sum of FIVE HUNDRED THOUSAND DOLLARS ($500,000.00),
payable in six equal installments of principal of $83,333.33, commencing on
February 28, 2000, and on each August 31 and February 28 thereafter until August
31, 2002, with interest (computed on the basis of a 360-day year of twelve
30-day months) on the unpaid balance of such principal amount at the rate of
9.50% per annum from the date hereof, due and payable (i) quarterly, on each
November 30, February 28, May 31 and August 31 (each, a "Payment Date") after
the date of the Notes commencing with November 30, 1997 and (ii) on the date of
any prepayment, on the amount prepaid, until the Notes have been paid in full.
Accrued interest on each Note is required to be paid in cash (in accordance with
Section 5.1 of the Supplemental Securities Purchase Agreement dated as of August
14, 1997, as from time to time amended, between the Company, General Electric
Capital Corporation and JOL (the "Supplemental Securities Purchase Agreement"))
on each Payment Date.
Interest on this Note shall cease to accrue if (i) the holder of
this Note has been notified by the Company under Section 9.5 of the Supplemental
Securities Purchase Agreement that this Note will be redeemed, and (ii) all
amounts due under this Note are paid to the holder of this Note on the
redemption date specified in such notice or such
<PAGE> 57
amounts are segregated and held in trust by the Company for payment upon
surrender of this Note in accordance with such notice. During the continuance of
any Event of Default (as defined in the Supplemental Securities Purchase
Agreement), the Company shall pay interest on the outstanding principal of, and
any other amounts (other than interest), if any, due on the Notes and (to the
extent legally enforceable) on any overdue installment of interest, at the rate
of 12.00% per annum (computed on the same basis as above) until such overdue
amount is paid or until such Event of Default is cured or waived. All payments
on this Note shall be made in lawful money of the United States of America at
the address specified by the holder hereof for such purpose in Schedule 5.1 to
the Supplemental Securities Purchase Agreement or by such method as may be
designated by notice to the Company, in the manner set forth in the Supplemental
Securities Purchase Agreement.
The outstanding principal amount of this Note shall be payable in
six equal installments of principal of $83,333.33, commencing on February 28,
2000, and on each August 31 and February 28 thereafter until August 31, 2002.
This Note is also subject to optional redemption, in whole or in part, all as
specified in the Supplemental Securities Purchase Agreement.
This Note is issued pursuant to the Supplemental Securities
Purchase Agreement. The registered holder of this Note is entitled to the
benefits of such Supplemental Securities Purchase Agreement and may enforce the
agreements of the Company contained therein and exercise the remedies provided
for thereby or otherwise available in respect thereof.
This Note is expressly subordinated to the extent and in the
manner provided in Section 10 of the Supplemental Securities Purchase Agreement
to all Senior Indebtedness (as defined therein) of the Company.
This Note is a registered Note and, as provided in the
Supplemental Securities Purchase Agreement, is transferable only upon surrender
of this Note for registration of transfer, duly endorsed, or accompanied by a
written instrument of transfer duly executed, by the registered holder hereof or
his attorney duly authorized in writing. The Company may treat the person in
whose name this Note is registered as the owner hereof for the purpose of
receiving payment and for all other purposes, and the Company shall not be
affected by any notice to the contrary.
In case an Event of Default shall occur and be continuing, the
unpaid balance of the principal, interest and any other amounts payable on this
Note may be declared and become due and payable in the manner and with the
effect provided in the Supplemental Securities Purchase Agreement.
2
<PAGE> 58
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE PRINCIPLES OF
CONFLICTS OF LAW. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS
OF THE STATE OF NEW YORK AND OF THE UNITED STATES OF AMERICA, IN EACH CASE
LOCATED IN THE COUNTY OF NEW YORK, FOR ANY ACTION, PROCEEDING OR INVESTIGATION
IN ANY COURT OR BEFORE ANY GOVERNMENTAL AUTHORITY ("LITIGATION") ARISING OUT OF
OR RELATING TO THIS NOTE AND THE TRANSACTIONS CONTEMPLATED HEREBY (AND AGREES
NOT TO COMMENCE ANY LITIGATION RELATING THERETO EXCEPT IN SUCH COURTS), AND
FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR DOCUMENT BY U.S.
REGISTERED MAIL TO ITS RESPECTIVE ADDRESS SET FORTH IN THIS NOTE SHALL BE
EFFECTIVE SERVICE OF PROCESS FOR ANY LITIGATION BROUGHT AGAINST IT IN ANY SUCH
COURT. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES
ANY OBJECTION TO THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF THIS NOTE
OR THE TRANSACTIONS CONTEMPLATED HEREBY IN THE COURTS OF THE STATE OF NEW YORK
OR THE UNITED STATES OF AMERICA, IN EACH CASE LOCATED IN THE COUNTY OF NEW YORK,
AND HEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO
PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH LITIGATION BROUGHT IN ANY SUCH
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE PARTIES IRREVOCABLY
AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHTS TO TRIAL BY JURY IN CONNECTION WITH ANY LITIGATION ARISING
OUT OF OR RELATING TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY.
KRAUSE'S FURNITURE, INC.
By:
------------------------
Name:
Title:
3
<PAGE> 59
Exhibit B: Standby Note (GECC)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
THIS NOTE IS SUBJECT TO THE RESTRICTIONS SET FORTH IN THE SECURITIES PURCHASE
AGREEMENT AND THE SUPPLEMENTAL SECURITIES PURCHASE AGREEMENT BY AND AMONG
KRAUSE'S FURNITURE, INC., GENERAL ELECTRIC CAPITAL CORPORATION AND JAPAN OMNIBUS
LTD., COPIES OF WHICH ARE ON FILE IN THE OFFICES OF THE CORPORATION.
KRAUSE'S FURNITURE, INC.
9.50% Subordinated Note
due , 200
--------- ----
New York, NY
($2,500,000.00)($1,250,000)1 August 14, 1997
KRAUSE'S FURNITURE, INC. (the "Company"), a Delaware corporation,
for value received, hereby promises to pay to GENERAL ELECTRIC CAPITAL
CORPORATION ("GECC"), or registered assigns, the sum of [TWO MILLION FIVE
HUNDRED] [ONE MILLION TWO HUNDRED FIFTY]1 DOLLARS
(($2,500,000.00)($1,250,000)1), payable in six equal installments of principal
of $[416,666.67] [208,333.33]1, commencing on ________ 200_, and on each August
31 and February 28 thereafter until ________, 200_, with interest (computed on
the basis of a 360-day year of twelve 30-day months) on the unpaid balance of
such principal amount at the rate of 9.50% per annum from the date hereof, due
and payable (i) quarterly, on each November 30, February 28, May 31 and August
31 (each, a "Payment Date") after the date of the Notes commencing with the
first such Payment Date after the issuance of this Note and (ii) on the date of
any prepayment, on the amount prepaid, until the Notes have been paid in full.
Accrued interest on each Note is required to be paid in cash (in
- --------
1 Based on whether the Company opts to issue this Note in a single
transaction in the amount of $2,500,000 or in up to two transactions,
each in the amount of $1,250,000.
<PAGE> 60
accordance with Section 5.1 of the Supplemental Securities Purchase Agreement
dated as of August 14, 1997, as from time to time amended, between the Company
and GECC (the "Supplemental Securities Purchase Agreement")) on each Payment
Date.
Interest on this Note shall cease to accrue if (i) the holder of
this Note has been notified by the Company under Section 9.5 of the Supplemental
Securities Purchase Agreement that this Note will be redeemed, and (ii) all
amounts due under this Note are paid to the holder of this Note on the
redemption date specified in such notice or such amounts are segregated and held
in trust by the Company for payment upon surrender of this Note in accordance
with such notice. During the continuance of any Event of Default (as defined in
the Supplemental Securities Purchase Agreement), the Company shall pay interest
on the outstanding principal of, and any other amounts (other than interest), if
any, due on the Notes and (to the extent legally enforceable) on any overdue
installment of interest, at the rate of 12.00% per annum (computed on the same
basis as above) until such overdue amount is paid or until such Event of Default
is cured or waived. All payments on this Note shall be made in lawful money of
the United States of America at the address specified by the holder hereof for
such purpose in Schedule 5.1 to the Supplemental Securities Purchase Agreement
or by such method as may be designated by notice to the Company, in the manner
set forth in the Supplemental Securities Purchase Agreement.
The outstanding principal amount of this Note shall be payable in
six equal installments of principal of $[416,666.67] [208,333.33]1, commencing
on ________, 200_, and on each August 31 and February 28 thereafter until
________, 200_. This Note is also subject to optional redemption, in whole or in
part, all as specified in the Supplemental Securities Purchase Agreement.
This Note is issued pursuant to the Supplemental Securities
Purchase Agreement. The registered holder of this Note is entitled to the
benefits of such Supplemental Securities Purchase Agreement and may enforce the
agreements of the Company contained therein and exercise the remedies provided
for thereby or otherwise available in respect thereof.
This Note is expressly subordinated to the extent and in the
manner provided in Section 10 of the Supplemental Securities Purchase Agreement
to all Senior Indebtedness (as defined therein) of the Company.
This Note is a registered Note and, as provided in the
Supplemental Securities Purchase Agreement, is transferable only upon surrender
of this Note for registration of transfer, duly endorsed, or accompanied by a
written instrument of transfer duly executed, by the registered holder hereof or
his attorney duly authorized in writing. The Company may treat the person in
whose name this Note is registered as the owner
2
<PAGE> 61
hereof for the purpose of receiving payment and for all other purposes, and the
Company shall not be affected by any notice to the contrary.
In case an Event of Default shall occur and be continuing, the
unpaid balance of the principal, interest and any other amounts payable on this
Note may be declared and become due and payable in the manner and with the
effect provided in the Supplemental Securities Purchase Agreement.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE PRINCIPLES OF
CONFLICTS OF LAW. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS
OF THE STATE OF NEW YORK AND OF THE UNITED STATES OF AMERICA, IN EACH CASE
LOCATED IN THE COUNTY OF NEW YORK, FOR ANY ACTION, PROCEEDING OR INVESTIGATION
IN ANY COURT OR BEFORE ANY GOVERNMENTAL AUTHORITY ("LITIGATION") ARISING OUT OF
OR RELATING TO THIS NOTE AND THE TRANSACTIONS CONTEMPLATED HEREBY (AND AGREES
NOT TO COMMENCE ANY LITIGATION RELATING THERETO EXCEPT IN SUCH COURTS), AND
FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR DOCUMENT BY U.S.
REGISTERED MAIL TO ITS RESPECTIVE ADDRESS SET FORTH IN THIS NOTE SHALL BE
EFFECTIVE SERVICE OF PROCESS FOR ANY LITIGATION BROUGHT AGAINST IT IN ANY SUCH
COURT. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES
ANY OBJECTION TO THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF THIS NOTE
OR THE TRANSACTIONS CONTEMPLATED HEREBY IN THE COURTS OF THE STATE OF NEW YORK
OR THE UNITED STATES OF AMERICA, IN EACH CASE LOCATED IN THE COUNTY OF NEW YORK,
AND HEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO
PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH LITIGATION BROUGHT IN ANY SUCH
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE PARTIES IRREVOCABLY
AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHTS TO TRIAL BY JURY IN CONNECTION WITH ANY LITIGATION ARISING
OUT OF OR RELATING TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY.
KRAUSE'S FURNITURE, INC.
By:
------------------------
Name:
Title:
3
<PAGE> 62
Exhibit B: Standby Note (Permal)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
THIS NOTE IS SUBJECT TO THE RESTRICTIONS SET FORTH IN THE SECURITIES
PURCHASE AGREEMENT AND
THE SUPPLEMENTAL SECURITIES PURCHASE AGREEMENT BY AND AMONG KRAUSE'S
FURNITURE, INC., GENERAL ELECTRIC CAPITAL CORPORATION AND JAPAN OMNIBUS
LTD., COPIES OF WHICH ARE ON FILE IN THE OFFICES
OF THE CORPORATION.
KRAUSE'S FURNITURE, INC.
9.50% Subordinated Note
due _________, 200_
New York, NY
($1,000,000.00)($500,000)1 August 14, 1997
KRAUSE'S FURNITURE, INC. (the "Company"), a Delaware corporation, for
value received, hereby promises to pay to JAPAN OMNIBUS LTD. (the "Holder"), or
registered assigns, the sum of [ONE MILLION] [FIVE HUNDRED THOUSAND]1 DOLLARS
(($1,000,000.00)($500,000)1), payable in six equal installments of principal of
$[166,666.67][83,333.33]1, commencing on ________ 200_, and on each August 31
and February 28 thereafter until ________, 200_, with interest (computed on the
basis of a 360-day year of twelve 30-day months) on the unpaid balance of such
principal amount at the rate of 9.50% per annum from the date hereof, due and
payable (i) quarterly, on each November 30, February 28, May 31 and August 31
(each, a "Payment Date") after the date of the Notes commencing with the first
such Payment Date after the issuance of this Note and (ii) on the date of any
prepayment, on the amount prepaid, until the Notes have been paid in full.
Accrued interest on each Note is required to be paid in cash (in accordance with
Section 5.1 of the Supplemental Securities Purchase Agreement dated as
- --------
1 Based on whether the Company opts to issue this Note in a single
transaction in the amount of $1,000,000 or in up to two transactions,
each in the amount of $500,000.
-1-
<PAGE> 63
of August 14, 1997, as from time to time amended, between the Company and the
Holder (the "Supplemental Securities Purchase Agreement")) on each Payment Date.
Interest on this Note shall cease to accrue if (i) the holder of this
Note has been notified by the Company under Section 9.5 of the Supplemental
Securities Purchase Agreement that this Note will be redeemed, and (ii) all
amounts due under this Note are paid to the holder of this Note on the
redemption date specified in such notice or such amounts are segregated and held
in trust by the Company for payment upon surrender of this Note in accordance
with such notice. During the continuance of any Event of Default (as defined in
the Supplemental Securities Purchase Agreement), the Company shall pay interest
on the outstanding principal of, and any other amounts (other than interest), if
any, due on the Notes and (to the extent legally enforceable) on any overdue
installment of interest, at the rate of 12.00% per annum (computed on the same
basis as above) until such overdue amount is paid or until such Event of Default
is cured or waived. All payments on this Note shall be made in lawful money of
the United States of America at the address specified by the holder hereof for
such purpose in Schedule 5.1 to the Supplemental Securities Purchase Agreement
or by such method as may be designated by notice to the Company, in the manner
set forth in the Supplemental Securities Purchase Agreement.
The outstanding principal amount of this Note shall be payable in six
equal installments of principal of $[166,666.67][83,333.33]1, commencing on
________, 200_, and on each August 31 and February 28 thereafter until ________,
200_. This Note is also subject to optional redemption, in whole or in part, all
as specified in the Supplemental Securities Purchase Agreement.
This Note is issued pursuant to the Supplemental Securities Purchase
Agreement. The registered holder of this Note is entitled to the benefits of
such Supplemental Securities Purchase Agreement and may enforce the agreements
of the Company contained therein and exercise the remedies provided for thereby
or otherwise available in respect thereof.
This Note is expressly subordinated to the extent and in the manner
provided in Section 10 of the Supplemental Securities Purchase Agreement to all
Senior Indebtedness (as defined therein) of the Company.
This Note is a registered Note and, as provided in the Supplemental
Securities Purchase Agreement, is transferable only upon surrender of this Note
for registration of transfer, duly endorsed, or accompanied by a written
instrument of transfer duly executed, by the registered holder hereof or his
attorney duly authorized in writing. The Company may treat the person in whose
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<PAGE> 64
name this Note is registered as the owner hereof for the purpose of receiving
payment and for all other purposes, and the Company shall not be affected by any
notice to the contrary.
In case an Event of Default shall occur and be continuing, the unpaid
balance of the principal, interest and any other amounts payable on this Note
may be declared and become due and payable in the manner and with the effect
provided in the Supplemental Securities Purchase Agreement.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF
LAW. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS
TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK
AND OF THE UNITED STATES OF AMERICA, IN EACH CASE LOCATED IN THE COUNTY OF NEW
YORK, FOR ANY ACTION, PROCEEDING OR INVESTIGATION IN ANY COURT OR BEFORE ANY
GOVERNMENTAL AUTHORITY ("LITIGATION") ARISING OUT OF OR RELATING TO THIS NOTE
AND THE TRANSACTIONS CONTEMPLATED HEREBY (AND AGREES NOT TO COMMENCE ANY
LITIGATION RELATING THERETO EXCEPT IN SUCH COURTS), AND FURTHER AGREES THAT
SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR DOCUMENT BY U.S. REGISTERED MAIL TO
ITS RESPECTIVE ADDRESS SET FORTH IN THIS NOTE SHALL BE EFFECTIVE SERVICE OF
PROCESS FOR ANY LITIGATION BROUGHT AGAINST IT IN ANY SUCH COURT. EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION TO
THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF THIS NOTE OR THE
TRANSACTIONS CONTEMPLATED HEREBY IN THE COURTS OF THE STATE OF NEW YORK OR THE
UNITED STATES OF AMERICA, IN EACH CASE LOCATED IN THE COUNTY OF NEW YORK, AND
HEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR
CLAIM IN ANY SUCH COURT THAT ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE PARTIES IRREVOCABLY AND
UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
AND ALL RIGHTS TO TRIAL BY JURY IN CONNECTION WITH ANY LITIGATION ARISING OUT OF
OR RELATING TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY.
-3-
<PAGE> 65
KRAUSE'S FURNITURE, INC.
By:________________________
Name:
Title:
-4-
<PAGE> 66
EXHIBIT C-1: 1997 WARRANT (GECC)
WARRANT
To Purchase Shares of Common Stock of
KRAUSE'S FURNITURE, INC.
No. of Shares of Common Stock: 600,000
<PAGE> 67
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1. DEFINITIONS.......................................................................................1
2. EXERCISE OF WARRANT...............................................................................4
2.1. Manner of Exercise.....................................................................4
2.2. Payment of Taxes.......................................................................5
2.3. Fractional Shares......................................................................5
3. TRANSFER, DIVISION AND COMBINATION................................................................6
3.1. Transfer...............................................................................6
3.2. Division and Combination...............................................................6
3.3. Expenses...............................................................................6
3.4. Maintenance of Books...................................................................6
4. ADJUSTMENTS.......................................................................................6
4.1. Stock Dividends, Subdivisions and Combinations.........................................7
4.2. Certain Other Distributions............................................................7
4.3. Issuance of Additional Shares of Common Stock..........................................8
4.4. Issuance of Warrants or Other Rights...................................................9
4.5. Issuance of Convertible Securities.....................................................10
4.6. Superseding Adjustment.................................................................11
4.7. Other Provisions Applicable to Adjustments under this Section..........................12
4.8. Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets..............................................................14
4.9. Other Action Affecting Common Stock....................................................15
4.10. Certain Limitations...................................................................15
5. NOTICES TO WARRANT HOLDERS........................................................................16
5.1. Notice of Adjustment...................................................................16
5.2. Notice of Corporate Action.............................................................16
6. RIGHTS OF HOLDERS.................................................................................17
6.1. No Impairment..........................................................................17
</TABLE>
-i-
<PAGE> 68
<TABLE>
<S> <C> <C>
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH APPROVAL OF ANY GOVERNMENTAL
AUTHORITY...................................................................................18
8. TAKING OF RECORD: STOCK AND WARRANT TRANSFER
BOOKS.......................................................................................18
9. RESTRICTIONS ON TRANSFERABILITY...................................................................18
9.1. Restrictive Legend.....................................................................18
9.2. Notice of Proposed Transfers; Requests for Registration................................19
9.3. Registration Rights....................................................................20
9.4. Termination of Restrictions............................................................20
10. SUPPLYING INFORMATION............................................................................20
11. LOSS OR MUTILATION...............................................................................20
12. LIMITATION OF LIABILITY..........................................................................21
13. MISCELLANEOUS....................................................................................21
13.1. Nonwaiver and Expenses................................................................21
13.2. Notice Generally......................................................................21
13.3. Remedies..............................................................................22
13.4. Successors and Assigns................................................................22
13.5. Amendment.............................................................................22
13.6. Severability..........................................................................22
13.7. Headings..............................................................................23
13.8. Governing Law.........................................................................23
SIGNATURES...........................................................................................24
EXHIBITS.............................................................................................25
Exhibit A - Subscription Form........................................................................25
Exhibit B - Assignment Form..........................................................................26
</TABLE>
ii
<PAGE> 69
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR
SUCH LAWS.
IN ADDITION TO THE RESTRICTIONS SET FORTH IN THE SECURITIES PURCHASE AGREEMENT
AND THE SUPPLEMENTAL SECURITIES PURCHASE AGREEMENT BY AND AMONG KRAUSE'S
FURNITURE, INC., GENERAL ELECTRIC CAPITAL CORPORATION AND JAPAN OMNIBUS LTD.,
THIS WARRANT IS SUBJECT TO THE RESTRICTIONS SET FORTH IN THE STOCKHOLDERS
AGREEMENT BY AND AMONG KRAUSE'S FURNITURE, INC. AND THE STOCKHOLDERS PARTIES
THERETO, COPIES OF SUCH AGREEMENTS ARE ON FILE IN THE OFFICES OF THE
CORPORATION.
No. of Shares of Common Stock: 600,000
WARRANT
To Purchase Shares of Common Stock of
KRAUSE'S FURNITURE, INC.
THIS IS TO CERTIFY THAT GENERAL ELECTRIC CAPITAL CORPORATION,
or registered assigns, is entitled, at any time prior to the Expiration Date (as
hereinafter defined), to purchase from KRAUSE'S FURNITURE, INC., a Delaware
corporation (the "Company"), 600,000 shares of Common Stock (as hereinafter
defined and subject to adjustment as provided herein), in whole or in part, at a
purchase price of $1.25 per share, all on the terms and conditions and pursuant
to the provisions hereinafter set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the
respective meanings set forth below:
<PAGE> 70
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Company after the Closing Date, other than Warrant
Stock.
"Business Day" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.
"Closing Date" shall mean August 14, 1997.
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency then administering the Securities Act and other
federal securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, $.001 par value, of the Company as constituted on
the Closing Date, and any capital stock into which such Common Stock may
thereafter be changed, and shall also include (i) capital stock of the Company
of any other class (regardless of how denominated) issued to the holders of
shares of Common Stock upon any reclassification thereof which is not preferred
as to dividends or assets over any other class of stock of the Company and which
is not subject to redemption and (ii) shares of common stock of any successor or
acquiring corporation (as defined in Section 4.8) received by or distributed to
the holders of Common Stock of the Company in the circumstances contemplated by
Section 4.8.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable
or exercisable, with or without payment of additional consideration in cash or
property, for Additional Shares of Common Stock, either immediately or upon the
occurrence of a specified date or a specified event.
"Current Market Price" shall mean, in respect of any share of
Common Stock on any date herein specified, the closing price per share of Common
Stock on such date and, when used with reference to shares of Common Stock for
any period, shall mean the average of the daily closing prices per share of
Common Stock for such period. The closing price for each day shall be the last
quoted sale price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc., Automated Quotation System or such
other system then in use, or, if on any such date the Common Stock or such other
securities are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Common Stock selected by the Board of Directors of the Company. If the
Common Stock is listed or admitted to trading on a national securities exchange,
the closing price shall be the last sale price, regular way, or, in case no such
sale takes place on such day,
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<PAGE> 71
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Common Stock is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Common Stock is listed or admitted to trading.
"Current Warrant Price" shall mean, in respect of a share of
Common Stock at any date herein specified, the price at which a share of Common
Stock may be purchased pursuant to this Warrant on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect from time to time.
Reference to a particular section of the Exchange Act shall include reference to
the comparable section, if any, of such successor federal statute.
"Expiration Date" shall mean August 31, 2006.
"Holder" shall mean the Person in whose name this Warrant is
registered on the books of the Company maintained for such purpose. "Holders"
shall mean, collectively, each Holder of a Warrant, in the event of any division
of this Warrant.
"Majority Holders" shall mean the holders of Warrants
exercisable for in excess of 50% of the aggregate number of shares of Warrant
Stock then purchasable upon exercise of all Warrants.
"Other Property" shall have the meaning set forth in Section
4.8.
"Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all issued shares of Common Stock, except shares then owned or held by or for
the account of the Company or any subsidiary thereof, and shall include all
shares issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock. For the purposes of Sections
4.3, 4.4, 4.5, 4.6 and 4.7, Common Stock Outstanding shall include all shares of
Common Stock issuable in respect of options or warrants to purchase, or
securities convertible into, shares of Common Stock, the exercise or conversion
price of which is less than the Current Market Price as of any date on which the
number of shares of Common Stock Outstanding is to be determined.
"Permitted Issuances" shall mean issuances of shares of Common
Stock upon exercise of the warrants and options listed on Schedule 1.
-3-
<PAGE> 72
"Person" shall mean any individual, firm, corporation,
partnership or other entity, and shall include any successor by merger or
otherwise of such entity.
"Restricted Common Stock" shall mean shares of Common Stock
which are, or which upon their issuance on the exercise of this Warrant would
be, evidenced by a certificate bearing the restrictive legend set forth in
Section 9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Transfer" shall mean any disposition of any Warrant or
Warrant Stock or of any interest in either thereof, which would constitute a
sale thereof within the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section
9.2.
"Warrants" shall mean this Warrant and all warrants issued
upon transfer, division or combination of, or in substitution for, any thereof.
All Warrants shall at all times be identical as to terms and conditions and
date, except as to the number of shares of Common Stock for which they may be
exercised.
"Warrant Stock" shall mean the shares of Common Stock
purchased by the holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
2.1. Manner of Exercise. At any time or from time to time from
and after the Closing Date and until 5:00 P.M., New York time, on the Expiration
Date, Holder may exercise this Warrant, on any Business Day, for all or any part
of the number of shares of Common Stock purchasable hereunder.
In order to exercise this Warrant, in whole or in part, Holder
shall deliver to the Company at its principal office at 200 North Berry Street,
Brea, CA 92821-3903 (i) a written notice of Holder's election to exercise this
Warrant, which notice shall specify the number of shares of Common Stock to be
purchased, (ii) payment of the Current Warrant Price and (iii) this Warrant.
Such notice shall be substantially in the form appearing at the end of this
Warrant as Exhibit A, duly executed by Holder. Upon receipt of the items
specified in the second preceding sentence, the Company shall execute or cause
to be executed and deliver or cause to be delivered to Holder a certificate or
certificates representing the aggregate number of full shares of Common Stock
issuable upon such exercise, together with cash in lieu of any fraction of a
share, as hereinafter provided. The stock certificate or certificates so
delivered shall be in such denomination or denominations
-4-
<PAGE> 73
as Holder shall request in the notice and shall be registered in the name of
Holder or, subject to Section 9, such other name as shall be designated in the
notice. This Warrant shall be deemed to have been exercised and such certificate
or certificates shall be deemed to have been issued, and Holder or any other
Person so designated shall be deemed to have become a holder of record of such
shares for all purposes, as of the date the notice, together with the Current
Warrant Price and this Warrant, are received by the Company as described above.
If this Warrant shall have been exercised in part, the Company shall, at the
time of delivery of the certificate or certificates representing Warrant Stock,
deliver to Holder a new Warrant evidencing the right of Holder to purchase the
unpurchased shares of Common Stock called for by this Warrant, which new Warrant
shall in all other respects be identical with this Warrant, or, at the request
of Holder, appropriate notation may be made on this Warrant and the same
returned to Holder.
Payment of the Current Warrant Price shall be made at the
option of Holder by payment in cash, by certified or official bank check, or by
the surrender of shares of Common Stock having a value equal to the aggregate
warrant price of the shares of Common Stock being purchased upon exercise of the
Warrant, by delivering to the Company certificates representing the number of
shares of Common Stock to be surrendered, duly endorsed by or accompanied by
appropriate instruments of transfer duly executed by Holder. For the purposes of
making payment of the Current Warrant Price, the value of the Common Stock
surrendered shall be determined based upon the Current Market Price as of the
date of surrender of such shares of Common Stock. If Holder surrenders shares of
Common Stock in payment of the Current Warrant Price and less than all of the
shares of Common Stock represented by any certificate are being surrendered, the
Company shall deliver to Holder a new certificate or certificates representing
the shares of Common Stock not applied to payment of the Current Warrant Price;
provided, however, that in lieu of any fractional share of Common Stock which
such Holder would otherwise be entitled to receive, the Company shall pay to
Holder an amount of cash equal to such fraction multiplied by the Current Market
Price as of the date of surrender of the shares of Common Stock.
2.2. Payment of Taxes. All shares of Common Stock issuable
upon the exercise of this Warrant shall be validly issued, fully paid and
nonassessable and without any preemptive rights. The Company shall pay all
expenses in connection with, and all taxes and other governmental charges that
may be imposed with respect to, the issue or delivery thereof.
2.3. Fractional Shares. The Company shall not be required to
issue a fractional share of Common Stock upon exercise of this Warrant. As to
any fraction of a share which Holder would otherwise be entitled to purchase
upon such exercise, the Company shall pay a cash adjustment in respect of such
fraction in an amount equal to the
-5-
<PAGE> 74
same fraction of the Current Market Price per share of Common Stock on the date
of exercise.
3. TRANSFER, DIVISION AND COMBINATION
3.1. Transfer. Subject to compliance with Section 9, transfer
of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose, upon
surrender of this Warrant at the principal office of the Company referred to in
Section 2.1, together with a written assignment of this Warrant substantially in
the form of Exhibit B hereto duly executed by Holder and funds sufficient to pay
any transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall, subject to Section 9, execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denomination specified in such instrument of assignment, and shall
issue to the assignor a new Warrant evidencing the portion of this Warrant not
so assigned, and this Warrant shall promptly be canceled. A Warrant, if properly
assigned in compliance with Section 9, may be exercised by a new Holder for the
purchase of shares of Common Stock without having a new Warrant issued.
3.2. Division and Combination. Subject to Section 9, this
Warrant may be divided into multiple Warrants or combined with other Warrants
upon presentation hereof at the aforesaid office or agency of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by Holder. Subject to compliance with
Section 3.1 and with Section 9, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3. Expenses. The Company shall prepare, issue and deliver at
its own expense (other than transfer taxes) the new Warrant or Warrants under
this Section 3.
3.4. Maintenance of Books. The Company agrees to maintain, at
its aforesaid office, books for the registration and the registration of
transfer of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable and/or the price at which such shares may be purchased upon exercise
of this Warrant, shall be subject to adjustment from time to time as set forth
in this Section 4. The Company shall give each Holder notice of any event
described below which requires an adjustment pursuant to this Section 4 at the
time of such event.
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<PAGE> 75
4.1. Stock Dividends, Subdivisions and Combinations. If at any
time the Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
per share shall be adjusted to equal (A) the Current Warrant Price multiplied by
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
4.2. Certain Other Distributions. If at any time the Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive any dividend or other distribution of:
(a) cash,
(b) any evidences of its indebtedness, any shares of its stock
or any other securities or property of any nature whatsoever (other
than cash, Convertible Securities or Additional Shares of Common
Stock), or
(c) any warrants or other rights to subscribe for or purchase
any evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock),
then (i) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product of the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such
adjustment by a fraction (A) the numerator of which shall be the Current Market
Price per share of Common Stock at the date of taking such record and (B) the
denominator of which shall be such Current
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Market Price per share of Common Stock minus the amount allocable to one share
of Common Stock of any such cash so distributable and of the fair value (as
determined in good faith by the Board of Directors of the Company and supported
by an opinion from an investment banking firm of recognized national standing
acceptable to the Majority Holders) of any and all such evidences of
indebtedness, shares of stock, other securities or property or warrants or other
subscription or purchase rights so distributable, and (ii) the Current Warrant
Price shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment. A
reclassification of the Common Stock (other than a change in par value, or from
par value to no par value or from no par value to par value) into shares of
Common Stock and shares of any other class of stock shall be deemed a
distribution by the Company to the holders of its Common Stock of such shares of
such other class of stock within the meaning of this Section 4.2 and, if the
outstanding shares of Common Stock shall be changed into a larger or smaller
number of shares of Common Stock as a part of such reclassification, such change
shall be deemed a subdivision or combination, as the case may be, of the
outstanding shares of Common Stock within the meaning of Section 4.1.
4.3. Issuance of Additional Shares of Common Stock. (a) If at
any time the Company shall (except as hereinafter provided) issue or sell any
Additional Shares of Common Stock, other than Permitted Issuances, in exchange
for consideration in an amount per Additional Share of Common Stock less than
the Current Warrant Price at the time the Additional Shares of Common Stock are
issued, then (i) the Current Warrant Price as to the number of shares for which
this Warrant is exercisable prior to such adjustment shall be reduced to a price
determined by dividing (A) an amount equal to the sum of (x) the number of
shares of Common Stock Outstanding immediately prior to such issue or sale
multiplied by the then existing Current Warrant Price, plus (y) the
consideration, if any, received by the Company upon such issue or sale, by (B)
the total number of shares of Common Stock Outstanding immediately after such
issue or sale; and (ii) the number of shares of Common Stock for which this
Warrant is exercisable shall be adjusted to equal the product obtained by
multiplying the Current Warrant Price in effect immediately prior to such issue
or sale by the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such issue or sale and dividing the product
thereof by the Current Warrant Price resulting from the adjustment made pursuant
to clause (i) above.
(b) If at any time the Company shall (except as hereinafter
provided) issue or sell any Additional Shares of Common Stock, other than
Permitted Issuances, for consideration in an amount per Additional Share of
Common Stock less than the Current Market Price, then (i) the number of shares
of Common Stock for which this Warrant is exercisable shall be adjusted to equal
the product obtained by multiplying the number of
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shares of Common Stock for which this Warrant is exercisable immediately prior
to such issue or sale by a fraction (A) the numerator of which shall be the
number of shares of Common Stock Outstanding immediately after such issue or
sale, and (B) the denominator of which shall be the number of shares of Common
Stock Outstanding immediately prior to such issue or sale plus the number of
shares which the aggregate offering price of the total number of such Additional
Shares of Common Stock would purchase at the then Current Market Price; and (ii)
the Current Warrant Price as to the number of shares for which this Warrant is
exercisable prior to such adjustment shall be adjusted by multiplying such
Current Warrant Price by a fraction (X) the numerator of which shall be the
number of shares for which this Warrant is exercisable immediately prior to such
issue or sale; and (Y) the denominator of which shall be the number of shares of
Common Stock purchasable immediately after such issue or sale.
(c) If at any time the Company (except as hereinafter
provided) shall issue or sell any Additional Shares of Common Stock, other than
Permitted Issuances, in exchange for consideration in an amount per Additional
Shares of Common Stock which is less than the Current Warrant Price and the
Current Market Price at the time the Additional Shares of Common Stock are
issued, the adjustment required under Section 4.3 shall be made in accordance
with the formula in paragraph (a) or (b) above which results in the lower
Current Warrant Price following such adjustment. The provisions of paragraphs
(a) and (b) of Section 4.3 shall not apply to any issuance of Additional Shares
of Common Stock for which an adjustment is provided under Section 4.1 or 4.2. No
adjustment of the number of shares of Common Stock for which this Warrant shall
be exercisable shall be made under paragraph (a) or (b) of Section 4.3 upon the
issuance of any Additional Shares of Common Stock which are issued pursuant to
the exercise of any warrants or other subscription or purchase rights or
pursuant to the exercise of any conversion or exchange rights in any Convertible
Securities, if any such adjustment shall previously have been made upon the
issuance of such warrants or other rights or upon the issuance of such
Convertible Securities (or upon the issuance of any warrant or other rights
therefor) pursuant to Section 4.4 or Section 4.5 herein.
4.4. Issuance of Warrants or Other Rights. If at any time the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving
corporation) issue or sell, any warrants or other rights to subscribe for or
purchase any Additional Shares of Common Stock or any Convertible Securities,
whether or not the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is issuable upon the
exercise of such Warrants or other rights or upon conversion or exchange of such
Convertible Securities shall be less than the Current Warrant Price or the
Current Market Price in effect immediately prior to the time of such issue or
sale, then the number of shares for which this Warrant is exercisable and the
Current Warrant Price shall be
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adjusted as provided in Section 4.3 on the basis that the maximum number of
Additional Shares of Common Stock issuable pursuant to all such warrants or
other rights or necessary to effect the conversion or exchange of all such
Convertible Securities shall be deemed to have been issued and outstanding and
the Company shall have received all of the consideration payable therefor, if
any, as of the date of the actual issuance of the number of shares for which
this Warrant is exercisable and such warrants or other rights. No further
adjustments of the Current Warrant Price shall be made upon the actual issue of
such Common Stock or of such Convertible Securities upon exercise of such
warrants or other rights or upon the actual issue of such Common Stock upon such
conversion or exchange of such Convertible Securities. Notwithstanding the
foregoing, no adjustment shall be required under this Section 4.4 solely by
reason of the issuance of stock purchase rights under a stockholder rights plan
of the Company, provided that the adjustments required by this Section 4.4 shall
be made if any "flip-in" or "flip-over" event shall occur under such stockholder
rights plan.
4.5. Issuance of Convertible Securities. If at any time the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving
corporation) issue or sell, any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
price per share for which Common Stock is issuable upon such conversion or
exchange shall be less than the Current Warrant Price or Current Market price in
effect immediately prior to the time of such issue or sale, then the number of
shares for which this Warrant is exercisable and the Current Warrant Price shall
be adjusted as provided in Section 4.3 on the basis that the maximum number of
Additional shares of Common Stock necessary to effect the conversion or exchange
of all such Convertible Securities shall be deemed to have been issued and
outstanding and the Company shall have received all of the consideration payable
therefor, if any, as of the date of actual issuance of such Convertible
Securities. No adjustment of the number of shares for which this Warrant is
exercisable and the Current Warrant Price shall be made under this Section 4.5
upon the issuance of any Convertible Securities which are issued pursuant to the
exercise of any warrants or other subscription or purchase rights therefor, if
any such adjustment shall previously have been made upon the issuance of such
warrants or other rights pursuant to Section 4.4. No further adjustments of the
number of shares for which this Warrant is exercisable and the Current Warrant
Price shall be made upon the actual issue of such Common Stock upon conversion
or exchange of such Convertible Securities and, if any issue or sale of such
Convertible Securities is made upon exercise of any warrant or other right to
subscribe for or to purchase any such Convertible Securities for which
adjustments of the number of shares for which this Warrant is exercisable and
the Current Warrant Price have been or are to be made pursuant to other
provisions of this Section 4, no further adjustments of the number of
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shares for which this Warrant is exercisable and the Current Warrant Price shall
be made by reason of such issue or sale.
4.6. Superseding Adjustment. If, at any time after any
adjustment of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price shall have been made pursuant to
Section 4.4 or Section 4.5 as the result of any issuance of warrants, rights or
Convertible Securities,
(a) such warrants or rights, or the right of conversion or
exchange in such other Convertible Securities, shall expire, and all or
a portion of such warrants or rights, or the right of conversion or
exchange with respect to all or a portion of such other Convertible
Securities, as the case may be, shall not have been exercised, or
(b) the consideration per share for which shares of Common
Stock are issuable pursuant to such warrants or rights, or the terms of
such other Convertible Securities, shall be increased solely by virtue
of provisions therein contained for an automatic increase in such
consideration per share upon the occurrence of a specified date or
event,
then for each outstanding Warrant such previous adjustment shall be rescinded
and annulled and the Additional Shares of Common Stock which were deemed to have
been issued by virtue of the computation made in connection with the adjustment
so rescinded and annulled shall no longer be deemed to have been issued by
virtue of such computation. Thereupon, a recomputation shall be made of the
effect of such rights or options or other Convertible Securities on the basis of
(c) treating the number of Additional Shares of Common Stock
or other property, if any, theretofore actually issued or issuable
pursuant to the previous exercise of any such warrants or rights or any
such right of conversion or exchange, as having been issued on the date
or dates of any such exercise and for the consideration actually
received and receivable therefor, and
(d) treating any such warrants or rights or any such other
Convertible Securities which then remain outstanding as having been
granted or issued immediately after the time of such increase of the
consideration per share for which shares of Common Stock or other
property are issuable under such warrants or rights or other
Convertible Securities; whereupon a new adjustment of the number of
shares of Common Stock for which this Warrant is exercisable and the
Current Warrant Price shall be made, which new adjustment shall
supersede the previous adjustment so rescinded and annulled.
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4.7. Other Provisions Applicable to Adjustments under this
Section. The following provisions shall be applicable to the making of
adjustments of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price provided for in this Section 4:
(a) Computation of Consideration. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any
warrants or other rights to subscribe for or purchase any Additional
Shares of Common Stock or any Convertible Securities shall be issued
for cash consideration, the consideration received by the Company
therefor shall be the amount of the cash received by the Company
therefor, or, if such Additional Shares of Common Stock or Convertible
Securities are offered by the Company for subscription, the
subscription price, or, if such Additional Shares of Common Stock or
Convertible Securities are sold to underwriters or dealers for public
offering without a subscription offering, the public offering price (in
any such case subtracting any amounts paid or receivable for accrued
interest or accrued dividends and without taking into account any
compensation, discounts or expenses paid or incurred by the Company for
and in the underwriting of, or otherwise in connection with, the
issuance thereof). To the extent that such issuance shall be for a
consideration other than cash, then, except as herein otherwise
expressly provided, the amount of such consideration shall be deemed to
be the fair value of such consideration at the time of such issuance as
determined in good faith by the Board of Directors of the Company. In
case any Additional Shares of Common Stock or any Convertible
Securities or any warrants or other rights to subscribe for or purchase
such Additional Shares of Common Stock or Convertible Securities shall
be issued in connection with any merger in which the Company issues any
securities, the amount of consideration therefor shall be deemed to be
the fair value, as determined in good faith by the Board of Directors
of the Company, of such portion of the assets and business of the
nonsurviving corporation as such Board in good faith shall determine to
be attributable to such Additional Shares of Common Stock, Convertible
Securities, warrants or other rights, as the case may be. The
consideration for any Additional Shares of Common Stock issuable
pursuant to any warrants or other rights to subscribe for or purchase
the same shall be the consideration received by the Company for issuing
such warrants or other rights plus the additional consideration payable
to the Company upon exercise of such warrants or other rights. The
consideration for any Additional Shares of Common Stock issuable
pursuant to the terms of any Convertible Securities shall be the
consideration received by the Company for issuing warrants or other
rights to subscribe for or purchase such Convertible Securities, plus
the consideration paid or payable to the Company in respect of the
subscription for or purchase of such Convertible Securities, plus the
additional consideration, if any, payable to the Company upon
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the exercise of the right of conversion or exchange in such Convertible
Securities. In case of the issuance at any time of any Additional
Shares of Common Stock or Convertible Securities in payment or
satisfaction of any dividends upon any class of stock other than Common
Stock, the Company shall be deemed to have received for such Additional
Shares of Common Stock or Convertible Securities a consideration equal
to the amount of such dividend so paid or satisfied.
(b) When Adjustments to Be Made. The adjustments required by
this Section 4 shall be made whenever and as often as any specified
event requiring an adjustment shall occur, except that any adjustment
of the number of shares of Common Stock for which this Warrant is
exercisable that would otherwise be required may be postponed (except
in the case of a subdivision or combination of shares of the Common
Stock, as provided for in Section 4.1) up to, but not beyond the date
of exercise if such adjustment either by itself or with other
adjustments not previously made results in an increase or decrease of
less than 1% of the shares of Common Stock for which this Warrant is
exercisable immediately prior to the making of such adjustment. Any
adjustment representing a change of less than such minimum amount
(except as aforesaid) which is postponed shall be carried forward and
made as soon as such adjustment, together with other adjustments
required by this Section 4 and not previously made, would result in a
minimum adjustment or on the date of exercise. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the
close of business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into
account to the nearest 1/100th of a share.
(d) When Adjustment Not Required. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or distribution or subscription or purchase
rights and shall, thereafter and before the distribution to
stockholders thereof, legally abandon its plan to pay or deliver such
dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the taking of
such record and any such adjustment previously made in respect thereof
shall be rescinded and annulled.
(e) Escrow of Warrant Stock. If after any property becomes
distributable pursuant to this Section 4 by reason of the taking of any
record of the holders of Common Stock, but prior to the occurrence of
the event for which such record is taken, Holder exercises this
Warrant, any Additional Shares of Common Stock issuable upon exercise
by reason of such adjustment shall be deemed the last
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shares of Common Stock for which this Warrant is exercised
(notwithstanding any other provision to the contrary herein) and such
shares or other property shall be held in escrow for Holder by the
Company to be issued to Holder when and to the extent that the event
actually takes place, upon payment of the then Current Warrant Price.
Notwithstanding any other provision to the contrary herein, if the
event for which such record was taken fails to occur or is rescinded,
then such escrowed shares shall be canceled by the Company and escrowed
property returned.
4.8. Reorganization, Reclassification, Merger, Consolidation
or Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then Holder shall have the right thereafter to receive, upon
exercise of this Warrant and payment of the Current Warrant Price, the number of
shares of common stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and Other Property receivable upon
or as a result of such reorganization, reclassification, merger, consolidation
or disposition of assets by a holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event. In case of
any such reorganization, reclassification, merger, consolidation or disposition
of assets, the successor or acquiring corporation (if other than the Company)
shall expressly assume the due and punctual observance and performance of each
and every covenant and condition of this Warrant to be performed and observed by
the Company and all the obligations and liabilities hereunder, subject to such
modifications as may be deemed appropriate (as determined by resolution of the
Board of Directors of the Company) in order to provide for adjustments of shares
of the Common Stock for which this Warrant is exercisable which shall be as
nearly equivalent as practicable to the adjustments provided for in this Section
4. For purposes of this Section 4.8, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a
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specified event and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this Section 4.8 shall similarly
apply to successive reorganizations, reclassifications, mergers, consolidations
or disposition of assets.
4.9. Other Action Affecting Common Stock. In case at any time
or from time to time the Company shall take any action in respect of its Common
Stock, other than any action described in this Section 4, then, unless such
action will not have a materially adverse effect upon the rights of the Holders,
the number of shares of Common Stock or other stock for which this Warrant is
exercisable and/or the purchase price thereof shall be adjusted in such manner
as may be equitable in the circumstances.
4.10. Certain Limitations. Notwithstanding anything herein to
the contrary, the Company agrees not to enter into any transaction which, by
reason of any adjustment hereunder, would cause the Current Warrant Price to be
less than the par value per share of Common Stock.
5. NOTICES TO WARRANT HOLDERS
5.1. Notice of Adjustments. Whenever the number of shares of
Common Stock for which this Warrant is exercisable, or whenever the price at
which a share of such Common Stock may be purchased upon exercise of the
Warrants, shall be adjusted pursuant to Section 4, the Company shall forthwith
prepare a certificate to be executed by the chief financial officer of the
Company setting forth, in reasonable detail, the event requiring the adjustment
and the method by which such adjustment was calculated (including a description
of the basis on which the Board of Directors of the Company determined the fair
value of any evidences of indebtedness, shares of stock, other securities or
property or warrants or other subscription or purchase rights referred to in
Section 4.2 or 4.7(a)), specifying the number of shares of Common Stock for
which this Warrant is exercisable and (if such adjustment was made pursuant to
Section 4.8 or 4.9) describing the number and kind of any other shares of stock
or Other Property for which this Warrant is exercisable, and any change in the
purchase price or prices thereof, after giving effect to such adjustment or
change. The Company shall promptly cause a signed copy of such certificate to be
delivered to each Holder in accordance with Section 13.2. The Company shall keep
at its principal office copies of all such certificates and cause the same to be
available for inspection at said office during normal business hours by any
Holder or any prospective purchaser of a Warrant designated by a Holder thereof.
5.2. Notice of Corporate Action. If at any time
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend
(other than a cash dividend payable out of earnings or earned surplus
legally available for the payment of
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dividends under the laws of the jurisdiction of incorporation of the
Company) or other distribution, or any right to subscribe for or
purchase any evidences of its indebtedness, any shares of stock of any
class or any other securities or property, or to receive any other
right, or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger of the Company with, or any
sale, transfer or other disposition of all or substantially all the
property, assets or business of the Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 20 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, at least 20 days' prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause also shall specify
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common Stock
shall be entitled to any such dividend, distribution or right, and the amount
and character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 13.2.
6. RIGHTS OF HOLDERS
6.1 No Impairment. The Company shall not by any action,
including, without limitation, amending its Certificate of Incorporation or
comparable governing instruments or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such actions
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as may be necessary or appropriate to protect the rights of Holder against
impairment. Without limiting the generality of the foregoing, the Company will
(a) not increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the amount payable therefor upon such exercise
immediately prior to such increase in par value, (b) take all such action as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the exercise of
this Warrant, and (c) use its best efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be necessary to enable the Company to perform its obligations
under this Warrant.
Upon the request of Holder, the Company will at any time
during the period this Warrant is outstanding acknowledge in writing, in form
reasonably satisfactory to Holder, the continuing validity of this Warrant and
the obligations of the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY
From and after the Closing Date, the Company shall at all
times reserve and keep available for issue upon the exercise of Warrants such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. All
shares of Common Stock which shall be so issuable, when issued upon exercise of
any Warrant and payment therefor in accordance with the terms of such Warrant,
shall be duly and validly issued and fully paid and nonassessable, and not
subject to preemptive rights.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the
Company to the holders of its Common Stock with respect to which any provision
of Section 4 refers to the taking of a record of such holders, the Company will
in each such case take such a record and will take such record as of the close
of business on a Business Day. The Company will not at any time, except upon
dissolution, liquidation or winding up of the Company, close its stock transfer
books or Warrant transfer books so as to result in preventing or delaying the
exercise or transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act
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with respect to the Transfer of any Warrant or any Warrant Stock. Holder, by
acceptance of this Warrant, agrees to be bound by the provisions of this Section
9.
9.1. Restrictive Legend. Except as otherwise provided in this
Section 9, each Warrant and each certificate for Warrant Stock initially issued
upon the exercise of a Warrant, and each certificate for Warrant Stock issued to
any subsequent transferee of any such certificate, shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"[THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY]
[THE SECURITIES REPRESENTED BY THIS CERTIFICATE] HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH
LAWS."
"IN ADDITION TO THE RESTRICTIONS SET FORTH IN THE
SECURITIES PURCHASE AGREEMENT AND THE SUPPLEMENTAL SECURITIES
PURCHASE AGREEMENT BY AND AMONG KRAUSE'S FURNITURE, INC.,
GENERAL ELECTRIC CAPITAL CORPORATION AND JAPAN OMNIBUS LTD.,
[THIS WARRANT IS] [THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE] SUBJECT TO THE RESTRICTIONS SET FORTH IN THE
STOCKHOLDERS AGREEMENT BY AND AMONG KRAUSE'S FURNITURE, INC.
AND THE STOCKHOLDERS PARTIES THERETO, COPIES OF WHICH ARE ON
FILE IN THE OFFICES OF THE CORPORATION."
9.2. Notice of Proposed Transfers; Requests for Registration.
Prior to any Transfer or attempted Transfer of any Warrants or any shares of
Restricted Common Stock, the holder of such Warrants or Restricted Common Stock
shall give ten days' prior written notice (a "Transfer Notice") to the Company
of such holder's intention to effect such Transfer, describing the manner and
circumstances of the proposed Transfer, and obtain from counsel to such holder
who shall be reasonably satisfactory to the Company, an opinion that the
proposed Transfer of such Warrants or such Restricted Common Stock may be
effected without registration under the Securities Act. After receipt of the
Transfer Notice and opinion, the Company shall, within five days thereof, notify
the
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holder of such Warrants or such Restricted Common Stock as to whether such
opinion is reasonably satisfactory and, if so, such holder shall thereupon be
entitled to Transfer such Warrants or such Restricted Common Stock, in
accordance with the terms of the Transfer Notice. Each certificate, if any,
evidencing such shares of Restricted Common Stock issued upon such Transfer and
each Warrant issued upon such Transfer shall bear the restrictive legend set
forth in Section 9.1, unless in the opinion of such counsel such legend is not
required in order to ensure compliance with the Securities Act. The holder of
the Warrants or the Restricted Common Stock, as the case may be, giving the
Transfer Notice shall not be entitled to Transfer such Warrants or such
Restricted Common Stock until receipt of notice from the Company under this
Section 9.2 that such opinion is reasonably satisfactory.
9.3. Registration Rights. The holders of Warrants and Warrant
Stock shall have the registration rights set forth in the Registration Rights
Agreement.
9.4. Termination of Restrictions. Notwithstanding the
foregoing provisions of this Section 9, the restrictions imposed by this Section
upon the transferability of the Warrants, the Warrant Stock and the Restricted
Common Stock and the legend requirements of Section 9.1 shall terminate as to
any particular Warrant or share of Warrant Stock or Restricted Common Stock (i)
when and so long as such security shall have been effectively registered under
the Securities Act and disposed of pursuant thereto or (ii) when the Company
shall have received an opinion of counsel reasonably satisfactory to it that
such shares may be transferred without registration thereof under the Securities
Act.
10. SUPPLYING INFORMATION
The Company shall cooperate with each Holder of a Warrant and
each holder of Restricted Common Stock in supplying such information as may be
reasonably necessary for such holder to complete and file any reports or forms
presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of any Warrant
or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from any Holder of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of this Warrant and indemnity reasonably satisfactory
to it (it being understood that the written agreement of GE Capital shall be
sufficient indemnity), and in case of mutilation upon surrender and cancellation
hereof, the Company will execute and deliver in lieu hereof a new Warrant of
like tenor to such Holder; provided, in the case of mutilation, no
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<PAGE> 88
indemnity shall be required if this Warrant in identifiable form is surrendered
to the Company for cancellation.
12. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of Holder hereof, shall give rise to any liability of such
Holder for the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
13. MISCELLANEOUS
13.1. Nonwaiver and Expenses. No course of dealing or any
delay or failure to exercise any right hereunder on the part of Holder shall
operate as a waiver of such right or otherwise prejudice Holder's rights, powers
or remedies. If the Company fails to make, when due, any payments provided for
hereunder, or fails to comply with any other provision of this Warrant, the
Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers
or remedies hereunder.
13.2. Notice Generally. Any notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Warrant shall be sufficiently given or made
if in writing and either delivered in person with receipt acknowledged or sent
by registered or certified mail, return receipt requested, postage prepaid, or
by telecopy and confirmed by telecopy answerback, addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at its last
known address appearing on the books of the Company maintained for such
purpose.
(b) If to the Company at
Krause's Furniture, Inc.
200 North Berry Street
Brea, CA 92821-3903
Attention: Philip M. Hawley
Robert A. Burton
Judith O. Lasker
Telecopy Number: (714) 990-3561
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<PAGE> 89
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and confirmed by telecopy
answerback, or three (3) Business Days after the same shall have been deposited
in the United States mail. Failure or delay in delivering copies of any notice,
demand, request, approval, declaration, delivery or other communication to the
person designated above to receive a copy shall in no way adversely affect the
effectiveness of such notice, demand, request, approval, declaration, delivery
or other communication.
13.3. Remedies. Each holder of Warrant and Warrant Stock, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under of this Warrant. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Warrant and hereby agrees to waive the defense in any action
for specific performance that a remedy at law would be adequate.
13.4. Successors and Assigns. Subject to the provisions of
Sections 3.1, this Warrant and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and assigns of Holder. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant and, with respect to
Section 9 hereof, holders of Warrant Stock, and shall be enforceable by any such
Holder or holder of Warrant Stock.
13.5. Amendment. This Warrant and all other Warrants may be
modified or amended or the provisions hereof waived with the written consent of
the Company and the Majority Holders, provided that no such Warrant may be
modified or amended to reduce the number of shares of Common Stock for which
such Warrant is exercisable or to increase the price at which such shares may be
purchased upon exercise of such Warrant (before giving effect to any adjustment
as provided therein) without the prior written consent of the Holder thereof,
provided however, that the foregoing shall not limit the operation of Section
4.6.
13.6. Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
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<PAGE> 90
13.7. Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
13.8. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
AND UNCONDITIONALLY CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES OF AMERICA, IN EACH
CASE LOCATED IN THE COUNTY OF NEW YORK, FOR ANY ACTION, PROCEEDING OR
INVESTIGATION IN ANY COURT OR BEFORE ANY GOVERNMENTAL AUTHORITY ("LITIGATION")
ARISING OUT OF OR RELATING TO THIS WARRANT AND THE TRANSACTIONS CONTEMPLATED
HEREBY (AND AGREES NOT TO COMMENCE ANY LITIGATION RELATING THERETO EXCEPT IN
SUCH COURTS), AND FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR
DOCUMENT BY U.S. REGISTERED MAIL TO ITS RESPECTIVE ADDRESS SET FORTH IN THIS
WARRANT SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY LITIGATION BROUGHT AGAINST
IT IN ANY SUCH COURT. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY LITIGATION
ARISING OUT OF THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN THE
COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES OF AMERICA, IN EACH CASE
LOCATED IN THE COUNTY OF NEW YORK, AND HEREBY FURTHER IRREVOCABLY AND
UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT
ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. EACH OF THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHTS TO TRIAL
BY JURY IN CONNECTION WITH ANY LITIGATION ARISING OUT OF OR RELATING TO THIS
WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
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<PAGE> 91
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
Dated: August , 1997
----
KRAUSE'S FURNITURE, INC.
By:
-------------------------------
Name: Robert A. Burton
Title: Senior Vice President
and Chief Financial Officer
Attest:
By:
-----------------------------
Name: Judith O. Lasker
Title: Secretary
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<PAGE> 92
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of _____ Shares of Common Stock of
KRAUSE'S FURNITURE, INC. and herewith makes payment therefor, all at the price
and on the terms and conditions specified in this Warrant and requests that
certificates for the shares of Common Stock hereby purchased (and any securities
or other property issuable upon such exercise) be issued in the name of and
delivered to _____________ whose address is ________________ and, if such shares
of Common Stock shall not include all of the shares of Common Stock issuable as
provided in this Warrant, that a new Warrant of like tenor and date for the
balance of the shares of Common Stock issuable hereunder be delivered to the
undersigned.
-------------------------------------
(Name of Registered Owner)
-------------------------------------
(Signature of Registered Owner)
-------------------------------------
(Street Address)
-------------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
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<PAGE> 93
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of Common Stock
and does hereby irrevocably constitute and appoint ________________
attorney-in-fact to register such transfer on the books of KRAUSE'S FURNITURE,
INC. maintained for the purpose, with full power of substitution in the
premises.
Dated: Print Name:
---------------- ----------------------------
Signature:
-----------------------------
Witness:
-------------------------------
NOTICE: The signature on this assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
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<PAGE> 94
Exhibit C-1: 1997 Warrant (Permal)
WARRANT
To Purchase Shares of Common Stock of
KRAUSE'S FURNITURE, INC.
No. of Shares of Common Stock: 140,000
<PAGE> 95
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1. DEFINITIONS.......................................................................................1
2. EXERCISE OF WARRANT...............................................................................4
2.1. Manner of Exercise.....................................................................4
2.2. Payment of Taxes.......................................................................5
2.3. Fractional Shares......................................................................5
3. TRANSFER, DIVISION AND COMBINATION................................................................6
3.1. Transfer...............................................................................6
3.2. Division and Combination...............................................................6
3.3. Expenses...............................................................................6
3.4. Maintenance of Books...................................................................6
4. ADJUSTMENTS.......................................................................................6
4.1. Stock Dividends, Subdivisions and Combinations.........................................7
4.2. Certain Other Distributions............................................................7
4.3. Issuance of Additional Shares of Common Stock..........................................8
4.4. Issuance of Warrants or Other Rights...................................................9
4.5. Issuance of Convertible Securities.....................................................10
4.6. Superseding Adjustment.................................................................11
4.7. Other Provisions Applicable to Adjustments under this Section..........................12
4.8. Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets..............................................................14
4.9. Other Action Affecting Common Stock....................................................15
4.10. Certain Limitations...................................................................15
5. NOTICES TO WARRANT HOLDERS........................................................................16
5.1. Notice of Adjustment...................................................................16
5.2. Notice of Corporate Action.............................................................16
6. RIGHTS OF HOLDERS.................................................................................17
6.1. No Impairment..........................................................................17
</TABLE>
-i-
<PAGE> 96
<TABLE>
<S> <C> <C>
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH APPROVAL OF ANY GOVERNMENTAL
AUTHORITY...................................................................................18
8. TAKING OF RECORD: STOCK AND WARRANT TRANSFER
BOOKS.......................................................................................18
9. RESTRICTIONS ON TRANSFERABILITY...................................................................18
9.1. Restrictive Legend.....................................................................18
9.2. Notice of Proposed Transfers; Requests for Registration................................19
9.3. Registration Rights....................................................................20
9.4. Termination of Restrictions............................................................20
10. SUPPLYING INFORMATION............................................................................20
11. LOSS OR MUTILATION...............................................................................20
12. LIMITATION OF LIABILITY..........................................................................21
13. MISCELLANEOUS....................................................................................21
13.1. Nonwaiver and Expenses................................................................21
13.2. Notice Generally......................................................................21
13.3. Remedies..............................................................................22
13.4. Successors and Assigns................................................................22
13.5. Amendment.............................................................................22
13.6. Severability..........................................................................22
13.7. Headings..............................................................................23
13.8. Governing Law.........................................................................23
SIGNATURES...........................................................................................24
EXHIBITS.............................................................................................25
Exhibit A - Subscription Form........................................................................25
Exhibit B - Assignment Form..........................................................................26
</TABLE>
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<PAGE> 97
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR
SUCH LAWS.
IN ADDITION TO THE RESTRICTIONS SET FORTH IN THE SECURITIES PURCHASE AGREEMENT
AND THE SUPPLEMENTAL SECURITIES PURCHASE AGREEMENT BY AND AMONG KRAUSE'S
FURNITURE, INC., GENERAL ELECTRIC CAPITAL CORPORATION AND JAPAN OMNIBUS LTD.,
THIS WARRANT IS SUBJECT TO THE RESTRICTIONS SET FORTH IN THE STOCKHOLDERS
AGREEMENT BY AND AMONG KRAUSE'S FURNITURE, INC. AND THE STOCKHOLDERS PARTIES
THERETO, COPIES OF SUCH AGREEMENTS ARE ON FILE IN THE OFFICES OF THE
CORPORATION.
No. of Shares of Common Stock: 140,000
WARRANT
To Purchase Shares of Common Stock of
KRAUSE'S FURNITURE, INC.
THIS IS TO CERTIFY THAT JAPAN OMNIBUS LTD., or registered
assigns, is entitled, at any time prior to the Expiration Date (as hereinafter
defined), to purchase from KRAUSE'S FURNITURE, INC., a Delaware corporation (the
"Company"), 140,000 shares of Common Stock (as hereinafter defined and subject
to adjustment as provided herein), in whole or in part, at a purchase price of
$1.25 per share, all on the terms and conditions and pursuant to the provisions
hereinafter set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the
respective meanings set forth below:
<PAGE> 98
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Company after the Closing Date, other than Warrant
Stock.
"Business Day" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.
"Closing Date" shall mean August 14, 1997.
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency then administering the Securities Act and other
federal securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, $.001 par value, of the Company as constituted on
the Closing Date, and any capital stock into which such Common Stock may
thereafter be changed, and shall also include (i) capital stock of the Company
of any other class (regardless of how denominated) issued to the holders of
shares of Common Stock upon any reclassification thereof which is not preferred
as to dividends or assets over any other class of stock of the Company and which
is not subject to redemption and (ii) shares of common stock of any successor or
acquiring corporation (as defined in Section 4.8) received by or distributed to
the holders of Common Stock of the Company in the circumstances contemplated by
Section 4.8.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable
or exercisable, with or without payment of additional consideration in cash or
property, for Additional Shares of Common Stock, either immediately or upon the
occurrence of a specified date or a specified event.
"Current Market Price" shall mean, in respect of any share of
Common Stock on any date herein specified, the closing price per share of Common
Stock on such date and, when used with reference to shares of Common Stock for
any period, shall mean the average of the daily closing prices per share of
Common Stock for such period. The closing price for each day shall be the last
quoted sale price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc., Automated Quotation System or such
other system then in use, or, if on any such date the Common Stock or such other
securities are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Common Stock selected by the Board of Directors of the Company. If the
Common Stock is listed or admitted to trading on a national securities exchange,
the closing price shall be the last sale price, regular way, or, in case no such
sale takes place on such day,
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<PAGE> 99
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Common Stock is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Common Stock is listed or admitted to trading.
"Current Warrant Price" shall mean, in respect of a share of
Common Stock at any date herein specified, the price at which a share of Common
Stock may be purchased pursuant to this Warrant on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect from time to time.
Reference to a particular section of the Exchange Act shall include reference to
the comparable section, if any, of such successor federal statute.
"Expiration Date" shall mean August 31, 2006.
"Holder" shall mean the Person in whose name this Warrant is
registered on the books of the Company maintained for such purpose. "Holders"
shall mean, collectively, each Holder of a Warrant, in the event of any division
of this Warrant.
"Majority Holders" shall mean the holders of Warrants
exercisable for in excess of 50% of the aggregate number of shares of Warrant
Stock then purchasable upon exercise of all Warrants.
"Other Property" shall have the meaning set forth in Section
4.8.
"Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all issued shares of Common Stock, except shares then owned or held by or for
the account of the Company or any subsidiary thereof, and shall include all
shares issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock. For the purposes of Sections
4.3, 4.4, 4.5, 4.6 and 4.7, Common Stock Outstanding shall include all shares of
Common Stock issuable in respect of options or warrants to purchase, or
securities convertible into, shares of Common Stock, the exercise or conversion
price of which is less than the Current Market Price as of any date on which the
number of shares of Common Stock Outstanding is to be determined.
"Permitted Issuances" shall mean issuances of shares of Common
Stock upon exercise of the warrants and options listed on Schedule 1.
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<PAGE> 100
"Person" shall mean any individual, firm, corporation,
partnership or other entity, and shall include any successor by merger or
otherwise of such entity.
"Restricted Common Stock" shall mean shares of Common Stock
which are, or which upon their issuance on the exercise of this Warrant would
be, evidenced by a certificate bearing the restrictive legend set forth in
Section 9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Transfer" shall mean any disposition of any Warrant or
Warrant Stock or of any interest in either thereof, which would constitute a
sale thereof within the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section
9.2.
"Warrants" shall mean this Warrant and all warrants issued
upon transfer, division or combination of, or in substitution for, any thereof.
All Warrants shall at all times be identical as to terms and conditions and
date, except as to the number of shares of Common Stock for which they may be
exercised.
"Warrant Stock" shall mean the shares of Common Stock
purchased by the holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
2.1. Manner of Exercise. At any time or from time to time from
and after the Closing Date and until 5:00 P.M., New York time, on the Expiration
Date, Holder may exercise this Warrant, on any Business Day, for all or any part
of the number of shares of Common Stock purchasable hereunder.
In order to exercise this Warrant, in whole or in part, Holder
shall deliver to the Company at its principal office at 200 North Berry Street,
Brea, CA 92821-3903 (i) a written notice of Holder's election to exercise this
Warrant, which notice shall specify the number of shares of Common Stock to be
purchased, (ii) payment of the Current Warrant Price and (iii) this Warrant.
Such notice shall be substantially in the form appearing at the end of this
Warrant as Exhibit A, duly executed by Holder. Upon receipt of the items
specified in the second preceding sentence, the Company shall execute or cause
to be executed and deliver or cause to be delivered to Holder a certificate or
certificates representing the aggregate number of full shares of Common Stock
issuable upon such exercise, together with cash in lieu of any fraction of a
share, as hereinafter provided. The stock certificate or certificates so
delivered shall be in such denomination or denominations as
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<PAGE> 101
Holder shall request in the notice and shall be registered in the name of Holder
or, subject to Section 9, such other name as shall be designated in the notice.
This Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and Holder or any other Person
so designated shall be deemed to have become a holder of record of such shares
for all purposes, as of the date the notice, together with the Current Warrant
Price and this Warrant, are received by the Company as described above. If this
Warrant shall have been exercised in part, the Company shall, at the time of
delivery of the certificate or certificates representing Warrant Stock, deliver
to Holder a new Warrant evidencing the right of Holder to purchase the
unpurchased shares of Common Stock called for by this Warrant, which new Warrant
shall in all other respects be identical with this Warrant, or, at the request
of Holder, appropriate notation may be made on this Warrant and the same
returned to Holder.
Payment of the Current Warrant Price shall be made at the
option of Holder by payment in cash, by certified or official bank check, or by
the surrender of shares of Common Stock having a value equal to the aggregate
warrant price of the shares of Common Stock being purchased upon exercise of the
Warrant, by delivering to the Company certificates representing the number of
shares of Common Stock to be surrendered, duly endorsed by or accompanied by
appropriate instruments of transfer duly executed by Holder. For the purposes of
making payment of the Current Warrant Price, the value of the Common Stock
surrendered shall be determined based upon the Current Market Price as of the
date of surrender of such shares of Common Stock. If Holder surrenders shares of
Common Stock in payment of the Current Warrant Price and less than all of the
shares of Common Stock represented by any certificate are being surrendered, the
Company shall deliver to Holder a new certificate or certificates representing
the shares of Common Stock not applied to payment of the Current Warrant Price;
provided, however, that in lieu of any fractional share of Common Stock which
such Holder would otherwise be entitled to receive, the Company shall pay to
Holder an amount of cash equal to such fraction multiplied by the Current Market
Price as of the date of surrender of the shares of Common Stock.
2.2. Payment of Taxes. All shares of Common Stock issuable
upon the exercise of this Warrant shall be validly issued, fully paid and
nonassessable and without any preemptive rights. The Company shall pay all
expenses in connection with, and all taxes and other governmental charges that
may be imposed with respect to, the issue or delivery thereof.
2.3. Fractional Shares. The Company shall not be required to
issue a fractional share of Common Stock upon exercise of this Warrant. As to
any fraction of a share which Holder would otherwise be entitled to purchase
upon such exercise, the Company shall pay a cash adjustment in respect of such
fraction in an amount equal to the
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<PAGE> 102
same fraction of the Current Market Price per share of Common Stock on the date
of exercise.
3. TRANSFER, DIVISION AND COMBINATION
3.1. Transfer. Subject to compliance with Section 9, transfer
of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose, upon
surrender of this Warrant at the principal office of the Company referred to in
Section 2.1, together with a written assignment of this Warrant substantially in
the form of Exhibit B hereto duly executed by Holder and funds sufficient to pay
any transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall, subject to Section 9, execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denomination specified in such instrument of assignment, and shall
issue to the assignor a new Warrant evidencing the portion of this Warrant not
so assigned, and this Warrant shall promptly be canceled. A Warrant, if properly
assigned in compliance with Section 9, may be exercised by a new Holder for the
purchase of shares of Common Stock without having a new Warrant issued.
3.2. Division and Combination. Subject to Section 9, this
Warrant may be divided into multiple Warrants or combined with other Warrants
upon presentation hereof at the aforesaid office or agency of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by Holder. Subject to compliance with
Section 3.1 and with Section 9, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3. Expenses. The Company shall prepare, issue and deliver at
its own expense (other than transfer taxes) the new Warrant or Warrants under
this Section 3.
3.4. Maintenance of Books. The Company agrees to maintain, at
its aforesaid office, books for the registration and the registration of
transfer of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable and/or the price at which such shares may be purchased upon exercise
of this Warrant, shall be subject to adjustment from time to time as set forth
in this Section 4. The Company shall give each Holder notice of any event
described below which requires an adjustment pursuant to this Section 4 at the
time of such event.
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<PAGE> 103
4.1. Stock Dividends, Subdivisions and Combinations. If at any
time the Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
per share shall be adjusted to equal (A) the Current Warrant Price multiplied by
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
4.2. Certain Other Distributions. If at any time the Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive any dividend or other distribution of:
(a) cash,
(b) any evidences of its indebtedness, any shares of its stock
or any other securities or property of any nature whatsoever (other
than cash, Convertible Securities or Additional Shares of Common
Stock), or
(c) any warrants or other rights to subscribe for or purchase
any evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock),
then (i) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product of the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such
adjustment by a fraction (A) the numerator of which shall be the Current Market
Price per share of Common Stock at the date of taking such record and (B) the
denominator of which shall be such Current
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Market Price per share of Common Stock minus the amount allocable to one share
of Common Stock of any such cash so distributable and of the fair value (as
determined in good faith by the Board of Directors of the Company and supported
by an opinion from an investment banking firm of recognized national standing
acceptable to the Majority Holders) of any and all such evidences of
indebtedness, shares of stock, other securities or property or warrants or other
subscription or purchase rights so distributable, and (ii) the Current Warrant
Price shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment. A
reclassification of the Common Stock (other than a change in par value, or from
par value to no par value or from no par value to par value) into shares of
Common Stock and shares of any other class of stock shall be deemed a
distribution by the Company to the holders of its Common Stock of such shares of
such other class of stock within the meaning of this Section 4.2 and, if the
outstanding shares of Common Stock shall be changed into a larger or smaller
number of shares of Common Stock as a part of such reclassification, such change
shall be deemed a subdivision or combination, as the case may be, of the
outstanding shares of Common Stock within the meaning of Section 4.1.
4.3. Issuance of Additional Shares of Common Stock. (a) If at
any time the Company shall (except as hereinafter provided) issue or sell any
Additional Shares of Common Stock, other than Permitted Issuances, in exchange
for consideration in an amount per Additional Share of Common Stock less than
the Current Warrant Price at the time the Additional Shares of Common Stock are
issued, then (i) the Current Warrant Price as to the number of shares for which
this Warrant is exercisable prior to such adjustment shall be reduced to a price
determined by dividing (A) an amount equal to the sum of (x) the number of
shares of Common Stock Outstanding immediately prior to such issue or sale
multiplied by the then existing Current Warrant Price, plus (y) the
consideration, if any, received by the Company upon such issue or sale, by (B)
the total number of shares of Common Stock Outstanding immediately after such
issue or sale; and (ii) the number of shares of Common Stock for which this
Warrant is exercisable shall be adjusted to equal the product obtained by
multiplying the Current Warrant Price in effect immediately prior to such issue
or sale by the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such issue or sale and dividing the product
thereof by the Current Warrant Price resulting from the adjustment made pursuant
to clause (i) above.
(b) If at any time the Company shall (except as hereinafter
provided) issue or sell any Additional Shares of Common Stock, other than
Permitted Issuances, for consideration in an amount per Additional Share of
Common Stock less than the Current Market Price, then (i) the number of shares
of Common Stock for which this Warrant is exercisable shall be adjusted to equal
the product obtained by multiplying the number of
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shares of Common Stock for which this Warrant is exercisable immediately prior
to such issue or sale by a fraction (A) the numerator of which shall be the
number of shares of Common Stock Outstanding immediately after such issue or
sale, and (B) the denominator of which shall be the number of shares of Common
Stock Outstanding immediately prior to such issue or sale plus the number of
shares which the aggregate offering price of the total number of such Additional
Shares of Common Stock would purchase at the then Current Market Price; and (ii)
the Current Warrant Price as to the number of shares for which this Warrant is
exercisable prior to such adjustment shall be adjusted by multiplying such
Current Warrant Price by a fraction (X) the numerator of which shall be the
number of shares for which this Warrant is exercisable immediately prior to such
issue or sale; and (Y) the denominator of which shall be the number of shares of
Common Stock purchasable immediately after such issue or sale.
(c) If at any time the Company (except as hereinafter
provided) shall issue or sell any Additional Shares of Common Stock, other than
Permitted Issuances, in exchange for consideration in an amount per Additional
Shares of Common Stock which is less than the Current Warrant Price and the
Current Market Price at the time the Additional Shares of Common Stock are
issued, the adjustment required under Section 4.3 shall be made in accordance
with the formula in paragraph (a) or (b) above which results in the lower
Current Warrant Price following such adjustment. The provisions of paragraphs
(a) and (b) of Section 4.3 shall not apply to any issuance of Additional Shares
of Common Stock for which an adjustment is provided under Section 4.1 or 4.2. No
adjustment of the number of shares of Common Stock for which this Warrant shall
be exercisable shall be made under paragraph (a) or (b) of Section 4.3 upon the
issuance of any Additional Shares of Common Stock which are issued pursuant to
the exercise of any warrants or other subscription or purchase rights or
pursuant to the exercise of any conversion or exchange rights in any Convertible
Securities, if any such adjustment shall previously have been made upon the
issuance of such warrants or other rights or upon the issuance of such
Convertible Securities (or upon the issuance of any warrant or other rights
therefor) pursuant to Section 4.4 or Section 4.5 herein.
4.4. Issuance of Warrants or Other Rights. If at any time the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving
corporation) issue or sell, any warrants or other rights to subscribe for or
purchase any Additional Shares of Common Stock or any Convertible Securities,
whether or not the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is issuable upon the
exercise of such Warrants or other rights or upon conversion or exchange of such
Convertible Securities shall be less than the Current Warrant Price or the
Current Market Price in effect immediately prior to the time of such issue or
sale, then the number of shares for which this Warrant is exercisable and the
Current Warrant Price shall be
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adjusted as provided in Section 4.3 on the basis that the maximum number of
Additional Shares of Common Stock issuable pursuant to all such warrants or
other rights or necessary to effect the conversion or exchange of all such
Convertible Securities shall be deemed to have been issued and outstanding and
the Company shall have received all of the consideration payable therefor, if
any, as of the date of the actual issuance of the number of shares for which
this Warrant is exercisable and such warrants or other rights. No further
adjustments of the Current Warrant Price shall be made upon the actual issue of
such Common Stock or of such Convertible Securities upon exercise of such
warrants or other rights or upon the actual issue of such Common Stock upon such
conversion or exchange of such Convertible Securities. Notwithstanding the
foregoing, no adjustment shall be required under this Section 4.4 solely by
reason of the issuance of stock purchase rights under a stockholder rights plan
of the Company, provided that the adjustments required by this Section 4.4 shall
be made if any "flip-in" or "flip-over" event shall occur under such stockholder
rights plan.
4.5. Issuance of Convertible Securities. If at any time the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving
corporation) issue or sell, any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
price per share for which Common Stock is issuable upon such conversion or
exchange shall be less than the Current Warrant Price or Current Market price in
effect immediately prior to the time of such issue or sale, then the number of
shares for which this Warrant is exercisable and the Current Warrant Price shall
be adjusted as provided in Section 4.3 on the basis that the maximum number of
Additional shares of Common Stock necessary to effect the conversion or exchange
of all such Convertible Securities shall be deemed to have been issued and
outstanding and the Company shall have received all of the consideration payable
therefor, if any, as of the date of actual issuance of such Convertible
Securities. No adjustment of the number of shares for which this Warrant is
exercisable and the Current Warrant Price shall be made under this Section 4.5
upon the issuance of any Convertible Securities which are issued pursuant to the
exercise of any warrants or other subscription or purchase rights therefor, if
any such adjustment shall previously have been made upon the issuance of such
warrants or other rights pursuant to Section 4.4. No further adjustments of the
number of shares for which this Warrant is exercisable and the Current Warrant
Price shall be made upon the actual issue of such Common Stock upon conversion
or exchange of such Convertible Securities and, if any issue or sale of such
Convertible Securities is made upon exercise of any warrant or other right to
subscribe for or to purchase any such Convertible Securities for which
adjustments of the number of shares for which this Warrant is exercisable and
the Current Warrant Price have been or are to be made pursuant to other
provisions of this Section 4, no further adjustments of the number of
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shares for which this Warrant is exercisable and the Current Warrant Price shall
be made by reason of such issue or sale.
4.6. Superseding Adjustment. If, at any time after any
adjustment of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price shall have been made pursuant to
Section 4.4 or Section 4.5 as the result of any issuance of warrants, rights or
Convertible Securities,
(a) such warrants or rights, or the right of conversion or
exchange in such other Convertible Securities, shall expire, and all or
a portion of such warrants or rights, or the right of conversion or
exchange with respect to all or a portion of such other Convertible
Securities, as the case may be, shall not have been exercised, or
(b) the consideration per share for which shares of Common
Stock are issuable pursuant to such warrants or rights, or the terms of
such other Convertible Securities, shall be increased solely by virtue
of provisions therein contained for an automatic increase in such
consideration per share upon the occurrence of a specified date or
event,
then for each outstanding Warrant such previous adjustment shall be rescinded
and annulled and the Additional Shares of Common Stock which were deemed to have
been issued by virtue of the computation made in connection with the adjustment
so rescinded and annulled shall no longer be deemed to have been issued by
virtue of such computation. Thereupon, a recomputation shall be made of the
effect of such rights or options or other Convertible Securities on the basis of
(c) treating the number of Additional Shares of Common Stock
or other property, if any, theretofore actually issued or issuable
pursuant to the previous exercise of any such warrants or rights or any
such right of conversion or exchange, as having been issued on the date
or dates of any such exercise and for the consideration actually
received and receivable therefor, and
(d) treating any such warrants or rights or any such other
Convertible Securities which then remain outstanding as having been
granted or issued immediately after the time of such increase of the
consideration per share for which shares of Common Stock or other
property are issuable under such warrants or rights or other
Convertible Securities; whereupon a new adjustment of the number of
shares of Common Stock for which this Warrant is exercisable and the
Current Warrant Price shall be made, which new adjustment shall
supersede the previous adjustment so rescinded and annulled.
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4.7. Other Provisions Applicable to Adjustments under this
Section. The following provisions shall be applicable to the making of
adjustments of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price provided for in this Section 4:
(a) Computation of Consideration. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any
warrants or other rights to subscribe for or purchase any Additional
Shares of Common Stock or any Convertible Securities shall be issued
for cash consideration, the consideration received by the Company
therefor shall be the amount of the cash received by the Company
therefor, or, if such Additional Shares of Common Stock or Convertible
Securities are offered by the Company for subscription, the
subscription price, or, if such Additional Shares of Common Stock or
Convertible Securities are sold to underwriters or dealers for public
offering without a subscription offering, the public offering price (in
any such case subtracting any amounts paid or receivable for accrued
interest or accrued dividends and without taking into account any
compensation, discounts or expenses paid or incurred by the Company for
and in the underwriting of, or otherwise in connection with, the
issuance thereof). To the extent that such issuance shall be for a
consideration other than cash, then, except as herein otherwise
expressly provided, the amount of such consideration shall be deemed to
be the fair value of such consideration at the time of such issuance as
determined in good faith by the Board of Directors of the Company. In
case any Additional Shares of Common Stock or any Convertible
Securities or any warrants or other rights to subscribe for or purchase
such Additional Shares of Common Stock or Convertible Securities shall
be issued in connection with any merger in which the Company issues any
securities, the amount of consideration therefor shall be deemed to be
the fair value, as determined in good faith by the Board of Directors
of the Company, of such portion of the assets and business of the
nonsurviving corporation as such Board in good faith shall determine to
be attributable to such Additional Shares of Common Stock, Convertible
Securities, warrants or other rights, as the case may be. The
consideration for any Additional Shares of Common Stock issuable
pursuant to any warrants or other rights to subscribe for or purchase
the same shall be the consideration received by the Company for issuing
such warrants or other rights plus the additional consideration payable
to the Company upon exercise of such warrants or other rights. The
consideration for any Additional Shares of Common Stock issuable
pursuant to the terms of any Convertible Securities shall be the
consideration received by the Company for issuing warrants or other
rights to subscribe for or purchase such Convertible Securities, plus
the consideration paid or payable to the Company in respect of the
subscription for or purchase of such Convertible Securities, plus the
additional consideration, if any, payable to the Company upon
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the exercise of the right of conversion or exchange in such Convertible
Securities. In case of the issuance at any time of any Additional
Shares of Common Stock or Convertible Securities in payment or
satisfaction of any dividends upon any class of stock other than Common
Stock, the Company shall be deemed to have received for such Additional
Shares of Common Stock or Convertible Securities a consideration equal
to the amount of such dividend so paid or satisfied.
(b) When Adjustments to Be Made. The adjustments required by
this Section 4 shall be made whenever and as often as any specified
event requiring an adjustment shall occur, except that any adjustment
of the number of shares of Common Stock for which this Warrant is
exercisable that would otherwise be required may be postponed (except
in the case of a subdivision or combination of shares of the Common
Stock, as provided for in Section 4.1) up to, but not beyond the date
of exercise if such adjustment either by itself or with other
adjustments not previously made results in an increase or decrease of
less than 1% of the shares of Common Stock for which this Warrant is
exercisable immediately prior to the making of such adjustment. Any
adjustment representing a change of less than such minimum amount
(except as aforesaid) which is postponed shall be carried forward and
made as soon as such adjustment, together with other adjustments
required by this Section 4 and not previously made, would result in a
minimum adjustment or on the date of exercise. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the
close of business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into
account to the nearest 1/100th of a share.
(d) When Adjustment Not Required. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or distribution or subscription or purchase
rights and shall, thereafter and before the distribution to
stockholders thereof, legally abandon its plan to pay or deliver such
dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the taking of
such record and any such adjustment previously made in respect thereof
shall be rescinded and annulled.
(e) Escrow of Warrant Stock. If after any property becomes
distributable pursuant to this Section 4 by reason of the taking of any
record of the holders of Common Stock, but prior to the occurrence of
the event for which such record is taken, Holder exercises this
Warrant, any Additional Shares of Common Stock issuable upon exercise
by reason of such adjustment shall be deemed the last
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shares of Common Stock for which this Warrant is exercised
(notwithstanding any other provision to the contrary herein) and such
shares or other property shall be held in escrow for Holder by the
Company to be issued to Holder when and to the extent that the event
actually takes place, upon payment of the then Current Warrant Price.
Notwithstanding any other provision to the contrary herein, if the
event for which such record was taken fails to occur or is rescinded,
then such escrowed shares shall be canceled by the Company and escrowed
property returned.
4.8. Reorganization, Reclassification, Merger, Consolidation
or Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then Holder shall have the right thereafter to receive, upon
exercise of this Warrant and payment of the Current Warrant Price, the number of
shares of common stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and Other Property receivable upon
or as a result of such reorganization, reclassification, merger, consolidation
or disposition of assets by a holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event. In case of
any such reorganization, reclassification, merger, consolidation or disposition
of assets, the successor or acquiring corporation (if other than the Company)
shall expressly assume the due and punctual observance and performance of each
and every covenant and condition of this Warrant to be performed and observed by
the Company and all the obligations and liabilities hereunder, subject to such
modifications as may be deemed appropriate (as determined by resolution of the
Board of Directors of the Company) in order to provide for adjustments of shares
of the Common Stock for which this Warrant is exercisable which shall be as
nearly equivalent as practicable to the adjustments provided for in this Section
4. For purposes of this Section 4.8, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a
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specified event and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this Section 4.8 shall similarly
apply to successive reorganizations, reclassifications, mergers, consolidations
or disposition of assets.
4.9. Other Action Affecting Common Stock. In case at any time
or from time to time the Company shall take any action in respect of its Common
Stock, other than any action described in this Section 4, then, unless such
action will not have a materially adverse effect upon the rights of the Holders,
the number of shares of Common Stock or other stock for which this Warrant is
exercisable and/or the purchase price thereof shall be adjusted in such manner
as may be equitable in the circumstances.
4.10. Certain Limitations. Notwithstanding anything herein to
the contrary, the Company agrees not to enter into any transaction which, by
reason of any adjustment hereunder, would cause the Current Warrant Price to be
less than the par value per share of Common Stock.
5. NOTICES TO WARRANT HOLDERS
5.1. Notice of Adjustments. Whenever the number of shares of
Common Stock for which this Warrant is exercisable, or whenever the price at
which a share of such Common Stock may be purchased upon exercise of the
Warrants, shall be adjusted pursuant to Section 4, the Company shall forthwith
prepare a certificate to be executed by the chief financial officer of the
Company setting forth, in reasonable detail, the event requiring the adjustment
and the method by which such adjustment was calculated (including a description
of the basis on which the Board of Directors of the Company determined the fair
value of any evidences of indebtedness, shares of stock, other securities or
property or warrants or other subscription or purchase rights referred to in
Section 4.2 or 4.7(a)), specifying the number of shares of Common Stock for
which this Warrant is exercisable and (if such adjustment was made pursuant to
Section 4.8 or 4.9) describing the number and kind of any other shares of stock
or Other Property for which this Warrant is exercisable, and any change in the
purchase price or prices thereof, after giving effect to such adjustment or
change. The Company shall promptly cause a signed copy of such certificate to be
delivered to each Holder in accordance with Section 13.2. The Company shall keep
at its principal office copies of all such certificates and cause the same to be
available for inspection at said office during normal business hours by any
Holder or any prospective purchaser of a Warrant designated by a Holder thereof.
5.2. Notice of Corporate Action. If at any time
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend
(other than a cash dividend payable out of earnings or earned surplus
legally available for the payment of
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dividends under the laws of the jurisdiction of incorporation of the
Company) or other distribution, or any right to subscribe for or
purchase any evidences of its indebtedness, any shares of stock of any
class or any other securities or property, or to receive any other
right, or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger of the Company with, or any
sale, transfer or other disposition of all or substantially all the
property, assets or business of the Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 20 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, at least 20 days' prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause also shall specify
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common Stock
shall be entitled to any such dividend, distribution or right, and the amount
and character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 13.2.
6. RIGHTS OF HOLDERS
6.1 No Impairment. The Company shall not by any action,
including, without limitation, amending its Certificate of Incorporation or
comparable governing instruments or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such actions
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as may be necessary or appropriate to protect the rights of Holder against
impairment. Without limiting the generality of the foregoing, the Company will
(a) not increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the amount payable therefor upon such exercise
immediately prior to such increase in par value, (b) take all such action as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the exercise of
this Warrant, and (c) use its best efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be necessary to enable the Company to perform its obligations
under this Warrant.
Upon the request of Holder, the Company will at any time
during the period this Warrant is outstanding acknowledge in writing, in form
reasonably satisfactory to Holder, the continuing validity of this Warrant and
the obligations of the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY
From and after the Closing Date, the Company shall at all
times reserve and keep available for issue upon the exercise of Warrants such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. All
shares of Common Stock which shall be so issuable, when issued upon exercise of
any Warrant and payment therefor in accordance with the terms of such Warrant,
shall be duly and validly issued and fully paid and nonassessable, and not
subject to preemptive rights.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the
Company to the holders of its Common Stock with respect to which any provision
of Section 4 refers to the taking of a record of such holders, the Company will
in each such case take such a record and will take such record as of the close
of business on a Business Day. The Company will not at any time, except upon
dissolution, liquidation or winding up of the Company, close its stock transfer
books or Warrant transfer books so as to result in preventing or delaying the
exercise or transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act
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with respect to the Transfer of any Warrant or any Warrant Stock. Holder, by
acceptance of this Warrant, agrees to be bound by the provisions of this Section
9.
9.1. Restrictive Legend. Except as otherwise provided in this
Section 9, each Warrant and each certificate for Warrant Stock initially issued
upon the exercise of a Warrant, and each certificate for Warrant Stock issued to
any subsequent transferee of any such certificate, shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"[THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY]
[THE SECURITIES REPRESENTED BY THIS CERTIFICATE] HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH
LAWS."
"IN ADDITION TO THE RESTRICTIONS SET FORTH IN THE
SECURITIES PURCHASE AGREEMENT AND THE SUPPLEMENTAL SECURITIES
PURCHASE AGREEMENT BY AND AMONG KRAUSE'S FURNITURE, INC.,
GENERAL ELECTRIC CAPITAL CORPORATION AND JAPAN OMNIBUS LTD.,
[THIS WARRANT IS] [THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE] SUBJECT TO THE RESTRICTIONS SET FORTH IN THE
STOCKHOLDERS AGREEMENT BY AND AMONG KRAUSE'S FURNITURE, INC.
AND THE STOCKHOLDERS PARTIES THERETO, COPIES OF WHICH ARE ON
FILE IN THE OFFICES OF THE CORPORATION."
9.2. Notice of Proposed Transfers; Requests for Registration.
Prior to any Transfer or attempted Transfer of any Warrants or any shares of
Restricted Common Stock, the holder of such Warrants or Restricted Common Stock
shall give ten days' prior written notice (a "Transfer Notice") to the Company
of such holder's intention to effect such Transfer, describing the manner and
circumstances of the proposed Transfer, and obtain from counsel to such holder
who shall be reasonably satisfactory to the Company, an opinion that the
proposed Transfer of such Warrants or such Restricted Common Stock may be
effected without registration under the Securities Act. After receipt of the
Transfer Notice and opinion, the Company shall, within five days thereof, notify
the
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holder of such Warrants or such Restricted Common Stock as to whether such
opinion is reasonably satisfactory and, if so, such holder shall thereupon be
entitled to Transfer such Warrants or such Restricted Common Stock, in
accordance with the terms of the Transfer Notice. Each certificate, if any,
evidencing such shares of Restricted Common Stock issued upon such Transfer and
each Warrant issued upon such Transfer shall bear the restrictive legend set
forth in Section 9.1, unless in the opinion of such counsel such legend is not
required in order to ensure compliance with the Securities Act. The holder of
the Warrants or the Restricted Common Stock, as the case may be, giving the
Transfer Notice shall not be entitled to Transfer such Warrants or such
Restricted Common Stock until receipt of notice from the Company under this
Section 9.2 that such opinion is reasonably satisfactory.
9.3. Registration Rights. The holders of Warrants and Warrant
Stock shall have the registration rights set forth in the Registration Rights
Agreement.
9.4. Termination of Restrictions. Notwithstanding the
foregoing provisions of this Section 9, the restrictions imposed by this Section
upon the transferability of the Warrants, the Warrant Stock and the Restricted
Common Stock and the legend requirements of Section 9.1 shall terminate as to
any particular Warrant or share of Warrant Stock or Restricted Common Stock (i)
when and so long as such security shall have been effectively registered under
the Securities Act and disposed of pursuant thereto or (ii) when the Company
shall have received an opinion of counsel reasonably satisfactory to it that
such shares may be transferred without registration thereof under the Securities
Act.
10. SUPPLYING INFORMATION
The Company shall cooperate with each Holder of a Warrant and
each holder of Restricted Common Stock in supplying such information as may be
reasonably necessary for such holder to complete and file any reports or forms
presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of any Warrant
or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from any Holder of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of this Warrant and indemnity reasonably satisfactory
to it (it being understood that the written agreement of GE Capital shall be
sufficient indemnity), and in case of mutilation upon surrender and cancellation
hereof, the Company will execute and deliver in lieu hereof a new Warrant of
like tenor to such Holder; provided, in the case of mutilation, no
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<PAGE> 116
indemnity shall be required if this Warrant in identifiable form is surrendered
to the Company for cancellation.
12. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of Holder hereof, shall give rise to any liability of such
Holder for the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
13. MISCELLANEOUS
13.1. Nonwaiver and Expenses. No course of dealing or any
delay or failure to exercise any right hereunder on the part of Holder shall
operate as a waiver of such right or otherwise prejudice Holder's rights, powers
or remedies. If the Company fails to make, when due, any payments provided for
hereunder, or fails to comply with any other provision of this Warrant, the
Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers
or remedies hereunder.
13.2. Notice Generally. Any notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Warrant shall be sufficiently given or made
if in writing and either delivered in person with receipt acknowledged or sent
by registered or certified mail, return receipt requested, postage prepaid, or
by telecopy and confirmed by telecopy answerback, addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at its last
known address appearing on the books of the Company maintained for such
purpose.
(b) If to the Company at
Krause's Furniture, Inc.
200 North Berry Street
Brea, CA 92821-3903
Attention: Philip M. Hawley
Robert A. Burton
Judith O. Lasker
Telecopy Number: (714) 990-3561
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or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and confirmed by telecopy
answerback, or three (3) Business Days after the same shall have been deposited
in the United States mail. Failure or delay in delivering copies of any notice,
demand, request, approval, declaration, delivery or other communication to the
person designated above to receive a copy shall in no way adversely affect the
effectiveness of such notice, demand, request, approval, declaration, delivery
or other communication.
13.3. Remedies. Each holder of Warrant and Warrant Stock, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under of this Warrant. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Warrant and hereby agrees to waive the defense in any action
for specific performance that a remedy at law would be adequate.
13.4. Successors and Assigns. Subject to the provisions of
Sections 3.1, this Warrant and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and assigns of Holder. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant and, with respect to
Section 9 hereof, holders of Warrant Stock, and shall be enforceable by any such
Holder or holder of Warrant Stock.
13.5. Amendment. This Warrant and all other Warrants may be
modified or amended or the provisions hereof waived with the written consent of
the Company and the Majority Holders, provided that no such Warrant may be
modified or amended to reduce the number of shares of Common Stock for which
such Warrant is exercisable or to increase the price at which such shares may be
purchased upon exercise of such Warrant (before giving effect to any adjustment
as provided therein) without the prior written consent of the Holder thereof,
provided however, that the foregoing shall not limit the operation of Section
4.6.
13.6. Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
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13.7. Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
13.8. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION
OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES OF AMERICA, IN
EACH CASE LOCATED IN THE COUNTY OF NEW YORK, FOR ANY ACTION, PROCEEDING OR
INVESTIGATION IN ANY COURT OR BEFORE ANY GOVERNMENTAL AUTHORITY ("LITIGATION")
ARISING OUT OF OR RELATING TO THIS WARRANT AND THE TRANSACTIONS CONTEMPLATED
HEREBY (AND AGREES NOT TO COMMENCE ANY LITIGATION RELATING THERETO EXCEPT IN
SUCH COURTS), AND FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR
DOCUMENT BY U.S. REGISTERED MAIL TO ITS RESPECTIVE ADDRESS SET FORTH IN THIS
WARRANT SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY LITIGATION BROUGHT AGAINST
IT IN ANY SUCH COURT. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY LITIGATION
ARISING OUT OF THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN THE
COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES OF AMERICA, IN EACH CASE
LOCATED IN THE COUNTY OF NEW YORK, AND HEREBY FURTHER IRREVOCABLY AND
UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT
ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. EACH OF THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHTS TO TRIAL
BY JURY IN CONNECTION WITH ANY LITIGATION ARISING OUT OF OR RELATING TO THIS
WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
Dated: August , 1997
------
KRAUSE'S FURNITURE, INC.
By:
---------------------------------
Name: Robert A. Burton
Title: Senior Vice President
and Chief Financial Officer
Attest:
By:
--------------------------
Name: Judith O. Lasker
Title: Secretary
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<PAGE> 120
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of _____ Shares of Common Stock of
KRAUSE'S FURNITURE, INC. and herewith makes payment therefor, all at the price
and on the terms and conditions specified in this Warrant and requests that
certificates for the shares of Common Stock hereby purchased (and any securities
or other property issuable upon such exercise) be issued in the name of and
delivered to _____________ whose address is ________________ and, if such shares
of Common Stock shall not include all of the shares of Common Stock issuable as
provided in this Warrant, that a new Warrant of like tenor and date for the
balance of the shares of Common Stock issuable hereunder be delivered to the
undersigned.
------------------------------------------
(Name of Registered Owner)
------------------------------------------
(Signature of Registered Owner)
------------------------------------------
(Street Address)
------------------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
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<PAGE> 121
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of Common Stock
- ---------------------------- -----------------------------
and does hereby irrevocably constitute and appoint ________________
attorney-in-fact to register such transfer on the books of KRAUSE'S FURNITURE,
INC. maintained for the purpose, with full power of substitution in the
premises.
Dated: Print Name:
--------------- --------------------------
Signature:
----------------------------
Witness:
-----------------------------
NOTICE: The signature on this assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
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<PAGE> 122
Exhibit C-2: Standby Warrant (GECC)
WARRANT
To Purchase Shares of Common Stock of
KRAUSE'S FURNITURE, INC.
No. of Shares of Common Stock: (200,000)(400,000)1
- --------------
1 Based on whether the accompanying Standby Note is issued in the amount
of $1,250,000 or $2,500,000.
<PAGE> 123
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1. DEFINITIONS.......................................................................................2
2. EXERCISE OF WARRANT...............................................................................4
2.1. Manner of Exercise..............................................................................4
2.2. Payment of Taxes.......................................................................5
2.3. Fractional Shares......................................................................6
3. TRANSFER, DIVISION AND COMBINATION................................................................6
3.1. Transfer...............................................................................6
3.2. Division and Combination...............................................................6
3.3. Expenses...............................................................................6
3.4. Maintenance of Books...................................................................7
4. ADJUSTMENTS.......................................................................................7
4.1. Stock Dividends, Subdivisions and Combinations.........................................7
4.2. Certain Other Distributions............................................................7
4.3. Issuance of Additional Shares of Common Stock..........................................8
4.4. Issuance of Warrants or Other Rights...................................................10
4.5. Issuance of Convertible Securities.....................................................10
4.6. Superseding Adjustment.................................................................11
4.7. Other Provisions Applicable to Adjustments under this Section..........................12
4.8. Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets.......14
4.9. Other Action Affecting Common Stock....................................................15
4.10. Certain Limitations...................................................................15
5. NOTICES TO WARRANT HOLDERS........................................................................16
5.1. Notice of Adjustment...................................................................16
5.2. Notice of Corporate Action.............................................................16
6. RIGHTS OF HOLDERS.................................................................................17
6.1. No Impairment..........................................................................17
</TABLE>
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<PAGE> 124
<TABLE>
<S> <C> <C>
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH APPROVAL OF ANY GOVERNMENTAL
AUTHORITY...................................................................................18
8. TAKING OF RECORD: STOCK AND WARRANT TRANSFER BOOKS................................................18
9. RESTRICTIONS ON TRANSFERABILITY...................................................................18
9.1. Restrictive Legend.....................................................................18
9.2. Notice of Proposed Transfers; Requests for Registration................................19
9.3. Registration Rights....................................................................20
9.4. Termination of Restrictions............................................................20
10. SUPPLYING INFORMATION............................................................................20
11. LOSS OR MUTILATION...............................................................................20
12. LIMITATION OF LIABILITY..........................................................................21
13. MISCELLANEOUS....................................................................................21
13.1. Nonwaiver and Expenses................................................................21
13.2. Notice Generally......................................................................21
13.3. Remedies..............................................................................22
13.4. Successors and Assigns................................................................22
13.5. Amendment.............................................................................22
13.6. Severability..........................................................................22
13.7. Headings..............................................................................23
13.8. Governing Law.........................................................................23
SIGNATURES...........................................................................................23
EXHIBITS.............................................................................................25
Exhibit A - Subscription Form........................................................................25
Exhibit B - Assignment Form..........................................................................26
</TABLE>
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<PAGE> 125
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR
SUCH LAWS.
IN ADDITION TO THE RESTRICTIONS SET FORTH IN THE SECURITIES PURCHASE AGREEMENT
AND THE SUPPLEMENTAL SECURITIES PURCHASE AGREEMENT BY AND AMONG KRAUSE'S
FURNITURE, INC., GENERAL ELECTRIC CAPITAL CORPORATION AND JAPAN OMNIBUS LTD.,
THIS WARRANT IS SUBJECT TO THE RESTRICTIONS SET FORTH IN THE STOCKHOLDERS
AGREEMENT BY AND AMONG KRAUSE'S FURNITURE, INC. AND THE STOCKHOLDERS PARTIES
THERETO, COPIES OF SUCH AGREEMENTS ARE ON FILE IN THE OFFICES OF THE
CORPORATION.
No. of Shares of Common Stock: (200,000)(400,000)(1)
WARRANT
To Purchase Shares of Common Stock of
KRAUSE'S FURNITURE, INC.
THIS IS TO CERTIFY THAT GENERAL ELECTRIC CAPITAL CORPORATION,
or registered assigns, is entitled, at any time prior to the Expiration Date (as
hereinafter defined), to purchase from KRAUSE'S FURNITURE, INC., a Delaware
corporation (the "Company"), (200,000)(400,000)1 shares of Common Stock (as
hereinafter defined and subject to adjustment as provided herein), in whole or
in part, at a purchase price of $1.25 per share, all on the terms and conditions
and pursuant to the provisions hereinafter set forth.
- --------
(1) Based on whether the accompanying Standby Note is issued in the amount
of $1,250,000 or $2,500,000.
<PAGE> 126
1. DEFINITIONS
As used in this Warrant, the following terms have the
respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Company after the Closing Date, other than Warrant
Stock.
"Business Day" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.
"Closing Date" shall mean August 14, 1997.
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency then administering the Securities Act and other
federal securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, $.001 par value, of the Company as constituted on
the Closing Date, and any capital stock into which such Common Stock may
thereafter be changed, and shall also include (i) capital stock of the Company
of any other class (regardless of how denominated) issued to the holders of
shares of Common Stock upon any reclassification thereof which is not preferred
as to dividends or assets over any other class of stock of the Company and which
is not subject to redemption and (ii) shares of common stock of any successor or
acquiring corporation (as defined in Section 4.8) received by or distributed to
the holders of Common Stock of the Company in the circumstances contemplated by
Section 4.8.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable
or exercisable, with or without payment of additional consideration in cash or
property, for Additional Shares of Common Stock, either immediately or upon the
occurrence of a specified date or a specified event.
"Current Market Price" shall mean, in respect of any share of
Common Stock on any date herein specified, the closing price per share of Common
Stock on such date and, when used with reference to shares of Common Stock for
any period, shall mean the average of the daily closing prices per share of
Common Stock for such period. The closing price for each day shall be the last
quoted sale price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc., Automated Quotation System or such
other system then in use, or, if on any such date the Common Stock or such other
securities are not quoted by any such organization, the average of the closing
bid and
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<PAGE> 127
asked prices as furnished by a professional market maker making a market in the
Common Stock selected by the Board of Directors of the Company. If the Common
Stock is listed or admitted to trading on a national securities exchange, the
closing price shall be the last sale price, regular way, or, in case no such
sale takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Common Stock is not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading.
"Current Warrant Price" shall mean, in respect of a share of
Common Stock at any date herein specified, the price at which a share of Common
Stock may be purchased pursuant to this Warrant on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect from time to time.
Reference to a particular section of the Exchange Act shall include reference to
the comparable section, if any, of such successor federal statute.
"Expiration Date" shall mean August 31, 2006.
"Holder" shall mean the Person in whose name this Warrant is
registered on the books of the Company maintained for such purpose. "Holders"
shall mean, collectively, each Holder of a Warrant, in the event of any division
of this Warrant.
"Majority Holders" shall mean the holders of Warrants
exercisable for in excess of 50% of the aggregate number of shares of Warrant
Stock then purchasable upon exercise of all Warrants.
"Other Property" shall have the meaning set forth in Section
4.8.
"Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all issued shares of Common Stock, except shares then owned or held by or for
the account of the Company or any subsidiary thereof, and shall include all
shares issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock. For the purposes of Sections
4.3, 4.4, 4.5, 4.6 and 4.7, Common Stock Outstanding shall include all shares of
Common Stock issuable in respect of options or warrants to purchase, or
securities convertible into, shares of Common Stock, the exercise or
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<PAGE> 128
conversion price of which is less than the Current Market Price as of any date
on which the number of shares of Common Stock Outstanding is to be determined.
"Permitted Issuances" shall mean issuances of shares of Common
Stock upon exercise of the warrants and options listed on Schedule 1.
"Person" shall mean any individual, firm, corporation,
partnership or other entity, and shall include any successor by merger or
otherwise of such entity.
"Restricted Common Stock" shall mean shares of Common Stock
which are, or which upon their issuance on the exercise of this Warrant would
be, evidenced by a certificate bearing the restrictive legend set forth in
Section 9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Transfer" shall mean any disposition of any Warrant or
Warrant Stock or of any interest in either thereof, which would constitute a
sale thereof within the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section
9.2.
"Warrants" shall mean this Warrant and all warrants issued
upon transfer, division or combination of, or in substitution for, any thereof.
All Warrants shall at all times be identical as to terms and conditions and
date, except as to the number of shares of Common Stock for which they may be
exercised.
"Warrant Stock" shall mean the shares of Common Stock
purchased by the holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
2.1. Manner of Exercise. At any time or from time to time from
and after the Closing Date and until 5:00 P.M., New York time, on the Expiration
Date, Holder may exercise this Warrant, on any Business Day, for all or any part
of the number of shares of Common Stock purchasable hereunder.
In order to exercise this Warrant, in whole or in part, Holder
shall deliver to the Company at its principal office at 200 North Berry Street,
Brea, CA 92821-3903 (i) a written notice of Holder's election to exercise this
Warrant, which notice shall specify the number of shares of Common Stock to be
purchased, (ii) payment of the Current Warrant Price and (iii) this Warrant.
Such notice shall be substantially in the form appearing at the
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<PAGE> 129
end of this Warrant as Exhibit A, duly executed by Holder. Upon receipt of the
items specified in the second preceding sentence, the Company shall execute or
cause to be executed and deliver or cause to be delivered to Holder a
certificate or certificates representing the aggregate number of full shares of
Common Stock issuable upon such exercise, together with cash in lieu of any
fraction of a share, as hereinafter provided. The stock certificate or
certificates so delivered shall be in such denomination or denominations as
Holder shall request in the notice and shall be registered in the name of Holder
or, subject to Section 9, such other name as shall be designated in the notice.
This Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and Holder or any other Person
so designated shall be deemed to have become a holder of record of such shares
for all purposes, as of the date the notice, together with the Current Warrant
Price and this Warrant, are received by the Company as described above. If this
Warrant shall have been exercised in part, the Company shall, at the time of
delivery of the certificate or certificates representing Warrant Stock, deliver
to Holder a new Warrant evidencing the right of Holder to purchase the
unpurchased shares of Common Stock called for by this Warrant, which new Warrant
shall in all other respects be identical with this Warrant, or, at the request
of Holder, appropriate notation may be made on this Warrant and the same
returned to Holder.
Payment of the Current Warrant Price shall be made at the
option of Holder by payment in cash, by certified or official bank check, or by
the surrender of shares of Common Stock having a value equal to the aggregate
warrant price of the shares of Common Stock being purchased upon exercise of the
Warrant, by delivering to the Company certificates representing the number of
shares of Common Stock to be surrendered, duly endorsed by or accompanied by
appropriate instruments of transfer duly executed by Holder. For the purposes of
making payment of the Current Warrant Price, the value of the Common Stock
surrendered shall be determined based upon the Current Market Price as of the
date of surrender of such shares of Common Stock. If Holder surrenders shares of
Common Stock in payment of the Current Warrant Price and less than all of the
shares of Common Stock represented by any certificate are being surrendered, the
Company shall deliver to Holder a new certificate or certificates representing
the shares of Common Stock not applied to payment of the Current Warrant Price;
provided, however, that in lieu of any fractional share of Common Stock which
such Holder would otherwise be entitled to receive, the Company shall pay to
Holder an amount of cash equal to such fraction multiplied by the Current Market
Price as of the date of surrender of the shares of Common Stock.
2.2. Payment of Taxes. All shares of Common Stock issuable
upon the exercise of this Warrant shall be validly issued, fully paid and
nonassessable and without any preemptive rights. The Company shall pay all
expenses in connection with, and all
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<PAGE> 130
taxes and other governmental charges that may be imposed with respect to, the
issue or delivery thereof.
2.3. Fractional Shares. The Company shall not be required to
issue a fractional share of Common Stock upon exercise of this Warrant. As to
any fraction of a share which Holder would otherwise be entitled to purchase
upon such exercise, the Company shall pay a cash adjustment in respect of such
fraction in an amount equal to the same fraction of the Current Market Price per
share of Common Stock on the date of exercise.
3. TRANSFER, DIVISION AND COMBINATION
3.1. Transfer. Subject to compliance with Section 9, transfer
of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose, upon
surrender of this Warrant at the principal office of the Company referred to in
Section 2.1, together with a written assignment of this Warrant substantially in
the form of Exhibit B hereto duly executed by Holder and funds sufficient to pay
any transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall, subject to Section 9, execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denomination specified in such instrument of assignment, and shall
issue to the assignor a new Warrant evidencing the portion of this Warrant not
so assigned, and this Warrant shall promptly be canceled. A Warrant, if properly
assigned in compliance with Section 9, may be exercised by a new Holder for the
purchase of shares of Common Stock without having a new Warrant issued.
3.2. Division and Combination. Subject to Section 9, this
Warrant may be divided into multiple Warrants or combined with other Warrants
upon presentation hereof at the aforesaid office or agency of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by Holder. Subject to compliance with
Section 3.1 and with Section 9, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3. Expenses. The Company shall prepare, issue and deliver at
its own expense (other than transfer taxes) the new Warrant or Warrants under
this Section 3.
3.4. Maintenance of Books. The Company agrees to maintain, at
its aforesaid office, books for the registration and the registration of
transfer of the Warrants.
4. ADJUSTMENTS
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<PAGE> 131
The number of shares of Common Stock for which this Warrant is
exercisable and/or the price at which such shares may be purchased upon exercise
of this Warrant, shall be subject to adjustment from time to time as set forth
in this Section 4. The Company shall give each Holder notice of any event
described below which requires an adjustment pursuant to this Section 4 at the
time of such event.
4.1. Stock Dividends, Subdivisions and Combinations. If at any
time the Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
per share shall be adjusted to equal (A) the Current Warrant Price multiplied by
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
4.2. Certain Other Distributions. If at any time the Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive any dividend or other distribution of:
(a) cash,
(b) any evidences of its indebtedness, any shares of its stock
or any other securities or property of any nature whatsoever (other
than cash, Convertible Securities or Additional Shares of Common
Stock), or
(c) any warrants or other rights to subscribe for or purchase
any evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock),
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then (i) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product of the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such
adjustment by a fraction (A) the numerator of which shall be the Current Market
Price per share of Common Stock at the date of taking such record and (B) the
denominator of which shall be such Current Market Price per share of Common
Stock minus the amount allocable to one share of Common Stock of any such cash
so distributable and of the fair value (as determined in good faith by the Board
of Directors of the Company and supported by an opinion from an investment
banking firm of recognized national standing acceptable to the Majority Holders)
of any and all such evidences of indebtedness, shares of stock, other securities
or property or warrants or other subscription or purchase rights so
distributable, and (ii) the Current Warrant Price shall be adjusted to equal (A)
the Current Warrant Price multiplied by the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to the adjustment divided by
(B) the number of shares for which this Warrant is exercisable immediately after
such adjustment. A reclassification of the Common Stock (other than a change in
par value, or from par value to no par value or from no par value to par value)
into shares of Common Stock and shares of any other class of stock shall be
deemed a distribution by the Company to the holders of its Common Stock of such
shares of such other class of stock within the meaning of this Section 4.2 and,
if the outstanding shares of Common Stock shall be changed into a larger or
smaller number of shares of Common Stock as a part of such reclassification,
such change shall be deemed a subdivision or combination, as the case may be, of
the outstanding shares of Common Stock within the meaning of Section 4.1.
4.3. Issuance of Additional Shares of Common Stock. (a) If at
any time the Company shall (except as hereinafter provided) issue or sell any
Additional Shares of Common Stock, other than Permitted Issuances, in exchange
for consideration in an amount per Additional Share of Common Stock less than
the Current Warrant Price at the time the Additional Shares of Common Stock are
issued, then (i) the Current Warrant Price as to the number of shares for which
this Warrant is exercisable prior to such adjustment shall be reduced to a price
determined by dividing (A) an amount equal to the sum of (x) the number of
shares of Common Stock Outstanding immediately prior to such issue or sale
multiplied by the then existing Current Warrant Price, plus (y) the
consideration, if any, received by the Company upon such issue or sale, by (B)
the total number of shares of Common Stock Outstanding immediately after such
issue or sale; and (ii) the number of shares of Common Stock for which this
Warrant is exercisable shall be adjusted to equal the product obtained by
multiplying the Current Warrant Price in effect immediately prior to such issue
or sale by the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such issue or sale and dividing the product
thereof by the Current Warrant Price resulting from the adjustment made pursuant
to clause (i) above.
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(b) If at any time the Company shall (except as hereinafter
provided) issue or sell any Additional Shares of Common Stock, other than
Permitted Issuances, for consideration in an amount per Additional Share of
Common Stock less than the Current Market Price, then (i) the number of shares
of Common Stock for which this Warrant is exercisable shall be adjusted to equal
the product obtained by multiplying the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such issue or sale by a
fraction (A) the numerator of which shall be the number of shares of Common
Stock Outstanding immediately after such issue or sale, and (B) the denominator
of which shall be the number of shares of Common Stock Outstanding immediately
prior to such issue or sale plus the number of shares which the aggregate
offering price of the total number of such Additional Shares of Common Stock
would purchase at the then Current Market Price; and (ii) the Current Warrant
Price as to the number of shares for which this Warrant is exercisable prior to
such adjustment shall be adjusted by multiplying such Current Warrant Price by a
fraction (X) the numerator of which shall be the number of shares for which this
Warrant is exercisable immediately prior to such issue or sale; and (Y) the
denominator of which shall be the number of shares of Common Stock purchasable
immediately after such issue or sale.
(c) If at any time the Company (except as hereinafter
provided) shall issue or sell any Additional Shares of Common Stock, other than
Permitted Issuances, in exchange for consideration in an amount per Additional
Shares of Common Stock which is less than the Current Warrant Price and the
Current Market Price at the time the Additional Shares of Common Stock are
issued, the adjustment required under Section 4.3 shall be made in accordance
with the formula in paragraph (a) or (b) above which results in the lower
Current Warrant Price following such adjustment. The provisions of paragraphs
(a) and (b) of Section 4.3 shall not apply to any issuance of Additional Shares
of Common Stock for which an adjustment is provided under Section 4.1 or 4.2. No
adjustment of the number of shares of Common Stock for which this Warrant shall
be exercisable shall be made under paragraph (a) or (b) of Section 4.3 upon the
issuance of any Additional Shares of Common Stock which are issued pursuant to
the exercise of any warrants or other subscription or purchase rights or
pursuant to the exercise of any conversion or exchange rights in any Convertible
Securities, if any such adjustment shall previously have been made upon the
issuance of such warrants or other rights or upon the issuance of such
Convertible Securities (or upon the issuance of any warrant or other rights
therefor) pursuant to Section 4.4 or Section 4.5 herein.
4.4. Issuance of Warrants or Other Rights. If at any time the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving
corporation) issue or sell, any warrants or other rights to subscribe for or
purchase any Additional Shares of Common Stock or any Convertible Securities,
whether or not the rights to exchange or convert thereunder are
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immediately exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such Warrants or other rights or upon conversion
or exchange of such Convertible Securities shall be less than the Current
Warrant Price or the Current Market Price in effect immediately prior to the
time of such issue or sale, then the number of shares for which this Warrant is
exercisable and the Current Warrant Price shall be adjusted as provided in
Section 4.3 on the basis that the maximum number of Additional Shares of Common
Stock issuable pursuant to all such warrants or other rights or necessary to
effect the conversion or exchange of all such Convertible Securities shall be
deemed to have been issued and outstanding and the Company shall have received
all of the consideration payable therefor, if any, as of the date of the actual
issuance of the number of shares for which this Warrant is exercisable and such
warrants or other rights. No further adjustments of the Current Warrant Price
shall be made upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such warrants or other rights or upon the actual
issue of such Common Stock upon such conversion or exchange of such Convertible
Securities. Notwithstanding the foregoing, no adjustment shall be required under
this Section 4.4 solely by reason of the issuance of stock purchase rights under
a stockholder rights plan of the Company, provided that the adjustments required
by this Section 4.4 shall be made if any "flip-in" or "flip-over" event shall
occur under such stockholder rights plan.
4.5. Issuance of Convertible Securities. If at any time the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving
corporation) issue or sell, any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
price per share for which Common Stock is issuable upon such conversion or
exchange shall be less than the Current Warrant Price or Current Market price in
effect immediately prior to the time of such issue or sale, then the number of
shares for which this Warrant is exercisable and the Current Warrant Price shall
be adjusted as provided in Section 4.3 on the basis that the maximum number of
Additional shares of Common Stock necessary to effect the conversion or exchange
of all such Convertible Securities shall be deemed to have been issued and
outstanding and the Company shall have received all of the consideration payable
therefor, if any, as of the date of actual issuance of such Convertible
Securities. No adjustment of the number of shares for which this Warrant is
exercisable and the Current Warrant Price shall be made under this Section 4.5
upon the issuance of any Convertible Securities which are issued pursuant to the
exercise of any warrants or other subscription or purchase rights therefor, if
any such adjustment shall previously have been made upon the issuance of such
warrants or other rights pursuant to Section 4.4. No further adjustments of the
number of shares for which this Warrant is exercisable and the Current Warrant
Price shall be made upon the actual issue of such Common Stock upon conversion
or exchange of such
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Convertible Securities and, if any issue or sale of such Convertible Securities
is made upon exercise of any warrant or other right to subscribe for or to
purchase any such Convertible Securities for which adjustments of the number of
shares for which this Warrant is exercisable and the Current Warrant Price have
been or are to be made pursuant to other provisions of this Section 4, no
further adjustments of the number of shares for which this Warrant is
exercisable and the Current Warrant Price shall be made by reason of such issue
or sale.
4.6. Superseding Adjustment. If, at any time after any
adjustment of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price shall have been made pursuant to
Section 4.4 or Section 4.5 as the result of any issuance of warrants, rights or
Convertible Securities,
(a) such warrants or rights, or the right of conversion or
exchange in such other Convertible Securities, shall expire, and all or
a portion of such warrants or rights, or the right of conversion or
exchange with respect to all or a portion of such other Convertible
Securities, as the case may be, shall not have been exercised, or
(b) the consideration per share for which shares of Common
Stock are issuable pursuant to such warrants or rights, or the terms of
such other Convertible Securities, shall be increased solely by virtue
of provisions therein contained for an automatic increase in such
consideration per share upon the occurrence of a specified date or
event,
then for each outstanding Warrant such previous adjustment shall be rescinded
and annulled and the Additional Shares of Common Stock which were deemed to have
been issued by virtue of the computation made in connection with the adjustment
so rescinded and annulled shall no longer be deemed to have been issued by
virtue of such computation. Thereupon, a recomputation shall be made of the
effect of such rights or options or other Convertible Securities on the basis of
(c) treating the number of Additional Shares of Common Stock
or other property, if any, theretofore actually issued or issuable
pursuant to the previous exercise of any such warrants or rights or any
such right of conversion or exchange, as having been issued on the date
or dates of any such exercise and for the consideration actually
received and receivable therefor, and
(d) treating any such warrants or rights or any such other
Convertible Securities which then remain outstanding as having been
granted or issued immediately after the time of such increase of the
consideration per share for which shares of Common Stock or other
property are issuable under such warrants
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or rights or other Convertible Securities; whereupon a new adjustment
of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price shall be made, which new
adjustment shall supersede the previous adjustment so rescinded and
annulled.
4.7. Other Provisions Applicable to Adjustments under this
Section. The following provisions shall be applicable to the making of
adjustments of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price provided for in this Section 4:
(a) Computation of Consideration. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any
warrants or other rights to subscribe for or purchase any Additional
Shares of Common Stock or any Convertible Securities shall be issued
for cash consideration, the consideration received by the Company
therefor shall be the amount of the cash received by the Company
therefor, or, if such Additional Shares of Common Stock or Convertible
Securities are offered by the Company for subscription, the
subscription price, or, if such Additional Shares of Common Stock or
Convertible Securities are sold to underwriters or dealers for public
offering without a subscription offering, the public offering price (in
any such case subtracting any amounts paid or receivable for accrued
interest or accrued dividends and without taking into account any
compensation, discounts or expenses paid or incurred by the Company for
and in the underwriting of, or otherwise in connection with, the
issuance thereof). To the extent that such issuance shall be for a
consideration other than cash, then, except as herein otherwise
expressly provided, the amount of such consideration shall be deemed to
be the fair value of such consideration at the time of such issuance as
determined in good faith by the Board of Directors of the Company. In
case any Additional Shares of Common Stock or any Convertible
Securities or any warrants or other rights to subscribe for or purchase
such Additional Shares of Common Stock or Convertible Securities shall
be issued in connection with any merger in which the Company issues any
securities, the amount of consideration therefor shall be deemed to be
the fair value, as determined in good faith by the Board of Directors
of the Company, of such portion of the assets and business of the
nonsurviving corporation as such Board in good faith shall determine to
be attributable to such Additional Shares of Common Stock, Convertible
Securities, warrants or other rights, as the case may be. The
consideration for any Additional Shares of Common Stock issuable
pursuant to any warrants or other rights to subscribe for or purchase
the same shall be the consideration received by the Company for issuing
such warrants or other rights plus the additional consideration payable
to the Company upon exercise of such warrants or other rights. The
consideration for any Additional Shares of Common Stock issuable
pursuant to the terms of any Convertible Securities shall be the
consideration
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received by the Company for issuing warrants or other rights to
subscribe for or purchase such Convertible Securities, plus the
consideration paid or payable to the Company in respect of the
subscription for or purchase of such Convertible Securities, plus the
additional consideration, if any, payable to the Company upon the
exercise of the right of conversion or exchange in such Convertible
Securities. In case of the issuance at any time of any Additional
Shares of Common Stock or Convertible Securities in payment or
satisfaction of any dividends upon any class of stock other than Common
Stock, the Company shall be deemed to have received for such Additional
Shares of Common Stock or Convertible Securities a consideration equal
to the amount of such dividend so paid or satisfied.
(b) When Adjustments to Be Made. The adjustments required by
this Section 4 shall be made whenever and as often as any specified
event requiring an adjustment shall occur, except that any adjustment
of the number of shares of Common Stock for which this Warrant is
exercisable that would otherwise be required may be postponed (except
in the case of a subdivision or combination of shares of the Common
Stock, as provided for in Section 4.1) up to, but not beyond the date
of exercise if such adjustment either by itself or with other
adjustments not previously made results in an increase or decrease of
less than 1% of the shares of Common Stock for which this Warrant is
exercisable immediately prior to the making of such adjustment. Any
adjustment representing a change of less than such minimum amount
(except as aforesaid) which is postponed shall be carried forward and
made as soon as such adjustment, together with other adjustments
required by this Section 4 and not previously made, would result in a
minimum adjustment or on the date of exercise. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the
close of business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into
account to the nearest 1/100th of a share.
(d) When Adjustment Not Required. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or distribution or subscription or purchase
rights and shall, thereafter and before the distribution to
stockholders thereof, legally abandon its plan to pay or deliver such
dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the taking of
such record and any such adjustment previously made in respect thereof
shall be rescinded and annulled.
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(e) Escrow of Warrant Stock. If after any property becomes
distributable pursuant to this Section 4 by reason of the taking of any
record of the holders of Common Stock, but prior to the occurrence of
the event for which such record is taken, Holder exercises this
Warrant, any Additional Shares of Common Stock issuable upon exercise
by reason of such adjustment shall be deemed the last shares of Common
Stock for which this Warrant is exercised (notwithstanding any other
provision to the contrary herein) and such shares or other property
shall be held in escrow for Holder by the Company to be issued to
Holder when and to the extent that the event actually takes place, upon
payment of the then Current Warrant Price. Notwithstanding any other
provision to the contrary herein, if the event for which such record
was taken fails to occur or is rescinded, then such escrowed shares
shall be canceled by the Company and escrowed property returned.
(f) Challenge to Good Faith Determination. Whenever the Board
of Directors of the Company shall be required to make a determination
in good faith of the fair value of any item under this Section 4, such
determination may be challenged in good faith by the Majority Holders,
and any dispute shall be resolved by an investment banking firm of
recognized national standing selected by the Company and acceptable to
the Majority Holders.
4.8. Reorganization, Reclassification, Merger, Consolidation
or Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then Holder shall have the right thereafter to receive, upon
exercise of this Warrant and payment of the Current Warrant Price, the number of
shares of common stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and Other Property receivable upon
or as a result of such reorganization, reclassification, merger, consolidation
or disposition of assets by a holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event. In case of
any such reorganization, reclassification, merger, consolidation or disposition
of assets, the successor or acquiring corporation (if other than the Company)
shall expressly assume the due and punctual observance and performance of each
and every covenant and
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condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined by resolution of the Board of Directors of
the Company) in order to provide for adjustments of shares of the Common Stock
for which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 4. For purposes of
this Section 4.8, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 4.8 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
4.9. Other Action Affecting Common Stock. In case at any time
or from time to time the Company shall take any action in respect of its Common
Stock, other than any action described in this Section 4, then, unless such
action will not have a materially adverse effect upon the rights of the Holders,
the number of shares of Common Stock or other stock for which this Warrant is
exercisable and/or the purchase price thereof shall be adjusted in such manner
as may be equitable in the circumstances.
4.10. Certain Limitations. Notwithstanding anything herein to
the contrary, the Company agrees not to enter into any transaction which, by
reason of any adjustment hereunder, would cause the Current Warrant Price to be
less than the par value per share of Common Stock.
5. NOTICES TO WARRANT HOLDERS
5.1. Notice of Adjustments. Whenever the number of shares of
Common Stock for which this Warrant is exercisable, or whenever the price at
which a share of such Common Stock may be purchased upon exercise of the
Warrants, shall be adjusted pursuant to Section 4, the Company shall forthwith
prepare a certificate to be executed by the chief financial officer of the
Company setting forth, in reasonable detail, the event requiring the adjustment
and the method by which such adjustment was calculated (including a description
of the basis on which the Board of Directors of the Company determined the fair
value of any evidences of indebtedness, shares of stock, other securities or
property or warrants or other subscription or purchase rights referred to in
Section 4.2 or 4.7(a)), specifying the number of shares of Common Stock for
which this Warrant is exercisable and (if such adjustment was made pursuant to
Section 4.8 or 4.9) describing the number and kind of any other shares of stock
or Other Property for which this Warrant is exercisable, and any change in the
purchase price or prices thereof, after
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giving effect to such adjustment or change. The Company shall promptly cause a
signed copy of such certificate to be delivered to each Holder in accordance
with Section 13.2. The Company shall keep at its principal office copies of all
such certificates and cause the same to be available for inspection at said
office during normal business hours by any Holder or any prospective purchaser
of a Warrant designated by a Holder thereof.
5.2. Notice of Corporate Action. If at any time
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend
(other than a cash dividend payable out of earnings or earned surplus
legally available for the payment of dividends under the laws of the
jurisdiction of incorporation of the Company) or other distribution, or
any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities
or property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger of the Company with, or any
sale, transfer or other disposition of all or substantially all the
property, assets or business of the Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 20 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, at least 20 days' prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause also shall specify
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common Stock
shall be entitled to any such dividend, distribution or right, and the amount
and character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently
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given if addressed to Holder at the last address of Holder appearing on the
books of the Company and delivered in accordance with Section 13.2.
6. RIGHTS OF HOLDERS
6.1. No Impairment. The Company shall not by any action,
including, without limitation, amending its Certificate of Incorporation or
comparable governing instruments or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such actions as may
be necessary or appropriate to protect the rights of Holder against impairment.
Without limiting the generality of the foregoing, the Company will (a) not
increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the amount payable therefor upon such exercise
immediately prior to such increase in par value, (b) take all such action as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the exercise of
this Warrant, and (c) use its best efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be necessary to enable the Company to perform its obligations
under this Warrant.
Upon the request of Holder, the Company will at any time
during the period this Warrant is outstanding acknowledge in writing, in form
reasonably satisfactory to Holder, the continuing validity of this Warrant and
the obligations of the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY
From and after the Closing Date, the Company shall at all
times reserve and keep available for issue upon the exercise of Warrants such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. All
shares of Common Stock which shall be so issuable, when issued upon exercise of
any Warrant and payment therefor in accordance with the terms of such Warrant,
shall be duly and validly issued and fully paid and nonassessable, and not
subject to preemptive rights.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the
Company to the holders of its Common Stock with respect to which any provision
of Section 4 refers to
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the taking of a record of such holders, the Company will in each such case take
such a record and will take such record as of the close of business on a
Business Day. The Company will not at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise or
transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant or
any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 9.
9.1. Restrictive Legend. Except as otherwise provided in this
Section 9, each Warrant and each certificate for Warrant Stock initially issued
upon the exercise of a Warrant, and each certificate for Warrant Stock issued to
any subsequent transferee of any such certificate, shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"[THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY]
[THE SECURITIES REPRESENTED BY THIS CERTIFICATE] HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH
LAWS."
"IN ADDITION TO THE RESTRICTIONS SET FORTH IN THE
SECURITIES PURCHASE AGREEMENT AND THE SUPPLEMENTAL SECURITIES
PURCHASE AGREEMENT BY AND AMONG KRAUSE'S FURNITURE, INC.,
GENERAL ELECTRIC CAPITAL CORPORATION AND JAPAN OMNIBUS LTD.,
[THIS WARRANT IS] [THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE] SUBJECT TO THE RESTRICTIONS SET FORTH IN THE
STOCKHOLDERS AGREEMENT BY AND AMONG KRAUSE'S FURNITURE, INC.
AND THE STOCKHOLDERS
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PARTIES THERETO, COPIES OF WHICH ARE ON FILE IN THE OFFICES OF
THE CORPORATION."
9.2. Notice of Proposed Transfers; Requests for Registration.
Prior to any Transfer or attempted Transfer of any Warrants or any shares of
Restricted Common Stock, the holder of such Warrants or Restricted Common Stock
shall give ten days' prior written notice (a "Transfer Notice") to the Company
of such holder's intention to effect such Transfer, describing the manner and
circumstances of the proposed Transfer, and obtain from counsel to such holder
who shall be reasonably satisfactory to the Company, an opinion that the
proposed Transfer of such Warrants or such Restricted Common Stock may be
effected without registration under the Securities Act. After receipt of the
Transfer Notice and opinion, the Company shall, within five days thereof, notify
the holder of such Warrants or such Restricted Common Stock as to whether such
opinion is reasonably satisfactory and, if so, such holder shall thereupon be
entitled to Transfer such Warrants or such Restricted Common Stock, in
accordance with the terms of the Transfer Notice. Each certificate, if any,
evidencing such shares of Restricted Common Stock issued upon such Transfer and
each Warrant issued upon such Transfer shall bear the restrictive legend set
forth in Section 9.1, unless in the opinion of such counsel such legend is not
required in order to ensure compliance with the Securities Act. The holder of
the Warrants or the Restricted Common Stock, as the case may be, giving the
Transfer Notice shall not be entitled to Transfer such Warrants or such
Restricted Common Stock until receipt of notice from the Company under this
Section 9.2 that such opinion is reasonably satisfactory.
9.3. Registration Rights. The holders of Warrants and Warrant
Stock shall have the registration rights set forth in the Registration Rights
Agreement.
9.4. Termination of Restrictions. Notwithstanding the
foregoing provisions of this Section 9, the restrictions imposed by this Section
upon the transferability of the Warrants, the Warrant Stock and the Restricted
Common Stock and the legend requirements of Section 9.1 shall terminate as to
any particular Warrant or share of Warrant Stock or Restricted Common Stock (i)
when and so long as such security shall have been effectively registered under
the Securities Act and disposed of pursuant thereto or (ii) when the Company
shall have received an opinion of counsel reasonably satisfactory to it that
such shares may be transferred without registration thereof under the Securities
Act.
10. SUPPLYING INFORMATION
The Company shall cooperate with each Holder of a Warrant and
each holder of Restricted Common Stock in supplying such information as may be
reasonably necessary for such holder to complete and file any reports or forms
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<PAGE> 144
presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of any Warrant
or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from any Holder of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of this Warrant and indemnity reasonably satisfactory
to it (it being understood that the written agreement of GE Capital shall be
sufficient indemnity), and in case of mutilation upon surrender and cancellation
hereof, the Company will execute and deliver in lieu hereof a new Warrant of
like tenor to such Holder; provided, in the case of mutilation, no indemnity
shall be required if this Warrant in identifiable form is surrendered to the
Company for cancellation.
12. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of Holder hereof, shall give rise to any liability of such
Holder for the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
13. MISCELLANEOUS
13.1. Nonwaiver and Expenses. No course of dealing or any
delay or failure to exercise any right hereunder on the part of Holder shall
operate as a waiver of such right or otherwise prejudice Holder's rights, powers
or remedies. If the Company fails to make, when due, any payments provided for
hereunder, or fails to comply with any other provision of this Warrant, the
Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers
or remedies hereunder.
13.2. Notice Generally. Any notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Warrant shall be sufficiently given or made
if in writing and either delivered in person with receipt acknowledged or sent
by registered or certified mail, return receipt requested, postage prepaid, or
by telecopy and confirmed by telecopy answerback, addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at its last
known address appearing on the books of the Company maintained for such
purpose.
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(b) If to the Company at
Krause's Furniture, Inc.
200 North Berry Street
Brea, CA 92621-3903
Attention: Philip M. Hawley
Robert A. Burton
Judith O. Lasker
Telecopy Number: (714) 990-3561
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and confirmed by telecopy
answerback, or three (3) Business Days after the same shall have been deposited
in the United States mail. Failure or delay in delivering copies of any notice,
demand, request, approval, declaration, delivery or other communication to the
person designated above to receive a copy shall in no way adversely affect the
effectiveness of such notice, demand, request, approval, declaration, delivery
or other communication.
13.3. Remedies. Each holder of Warrant and Warrant Stock, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under of this Warrant. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Warrant and hereby agrees to waive the defense in any action
for specific performance that a remedy at law would be adequate.
13.4. Successors and Assigns. Subject to the provisions of
Sections 3.1, this Warrant and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and assigns of Holder. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant and, with respect to
Section 9 hereof, holders of Warrant Stock, and shall be enforceable by any such
Holder or holder of Warrant Stock.
13.5. Amendment. This Warrant and all other Warrants may be
modified or amended or the provisions hereof waived with the written consent of
the Company and the Majority Holders, provided that no such Warrant may be
modified or amended to reduce the number of shares of Common Stock for which
such Warrant is exercisable or to increase the price at which such shares may be
purchased upon exercise of such Warrant (before giving effect to any adjustment
as provided therein) without the prior
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written consent of the Holder thereof, provided however, that the foregoing
shall not limit the operation of Section 4.6.
13.6. Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
13.7. Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
13.8. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
AND UNCONDITIONALLY CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES OF AMERICA, IN EACH
CASE LOCATED IN THE COUNTY OF NEW YORK, FOR ANY ACTION, PROCEEDING OR
INVESTIGATION IN ANY COURT OR BEFORE ANY GOVERNMENTAL AUTHORITY ("LITIGATION")
ARISING OUT OF OR RELATING TO THIS WARRANT AND THE TRANSACTIONS CONTEMPLATED
HEREBY (AND AGREES NOT TO COMMENCE ANY LITIGATION RELATING THERETO EXCEPT IN
SUCH COURTS), AND FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR
DOCUMENT BY U.S. REGISTERED MAIL TO ITS RESPECTIVE ADDRESS SET FORTH IN THIS
WARRANT SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY LITIGATION BROUGHT AGAINST
IT IN ANY SUCH COURT. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY LITIGATION
ARISING OUT OF THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN THE
COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES OF AMERICA, IN EACH CASE
LOCATED IN THE COUNTY OF NEW YORK, AND HEREBY FURTHER IRREVOCABLY AND
UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT
ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. EACH OF THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHTS TO TRIAL
BY JURY IN CONNECTION WITH ANY
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<PAGE> 147
LITIGATION ARISING OUT OF OR RELATING TO THIS WARRANT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
Dated:
---------------
KRAUSE'S FURNITURE, INC.
By:
---------------------------------
Name: Robert A. Burton
Title: Senior Vice President
and Chief Financial Officer
Attest:
By:
---------------------------
Name: Judith O. Lasker
Title: Corporate Secretary
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<PAGE> 148
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of _____ Shares of Common Stock of
KRAUSE'S FURNITURE, INC. and herewith makes payment therefor, all at the price
and on the terms and conditions specified in this Warrant and requests that
certificates for the shares of Common Stock hereby purchased (and any securities
or other property issuable upon such exercise) be issued in the name of and
delivered to _____________ whose address is ________________ and, if such shares
of Common Stock shall not include all of the shares of Common Stock issuable as
provided in this Warrant, that a new Warrant of like tenor and date for the
balance of the shares of Common Stock issuable hereunder be delivered to the
undersigned.
-----------------------------------------
(Name of Registered Owner)
-----------------------------------------
(Signature of Registered Owner)
-----------------------------------------
(Street Address)
-----------------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
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<PAGE> 149
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of Common Stock
and does hereby irrevocably constitute and appoint ________________
attorney-in-fact to register such transfer on the books of KRAUSE'S FURNITURE,
INC. maintained for the purpose, with full power of substitution in the
premises.
Dated: Print Name:
--------------- ------------------------------
Signature:
-------------------------------
Witness:
---------------------------------
NOTICE: The signature on this assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
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<PAGE> 150
Exhibit C-2: Standby Warrant (Permal)
WARRANT
To Purchase Shares of Common Stock of
KRAUSE'S FURNITURE, INC.
No. of Shares of Common Stock: (80,000)(160,000)(1)
- --------------
(1) Based on whether the accompanying Standby Note is issued in the amount
of $500,000 or $1,000,000.
<PAGE> 151
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1. DEFINITIONS.......................................................................................2
2. EXERCISE OF WARRANT...............................................................................4
2.1. Manner of Exercise.....................................................................4
2.2. Payment of Taxes.......................................................................5
2.3. Fractional Shares......................................................................6
3. TRANSFER, DIVISION AND COMBINATION................................................................6
3.1. Transfer...............................................................................6
3.2. Division and Combination...............................................................6
3.3. Expenses...............................................................................6
3.4. Maintenance of Books...................................................................7
4. ADJUSTMENTS.......................................................................................7
4.1. Stock Dividends, Subdivisions and Combinations.........................................7
4.2. Certain Other Distributions............................................................7
4.3. Issuance of Additional Shares of Common Stock..........................................8
4.4. Issuance of Warrants or Other Rights...................................................10
4.5. Issuance of Convertible Securities.....................................................10
4.6. Superseding Adjustment.................................................................11
4.7. Other Provisions Applicable to Adjustments under this Section..........................12
4.8. Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets.......14
4.9. Other Action Affecting Common Stock....................................................15
4.10. Certain Limitations...................................................................15
5. NOTICES TO WARRANT HOLDERS........................................................................16
5.1. Notice of Adjustment...................................................................16
5.2. Notice of Corporate Action.............................................................16
6. RIGHTS OF HOLDERS.................................................................................17
6.1. No Impairment..........................................................................17
</TABLE>
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<PAGE> 152
<TABLE>
<S> <C> <C>
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH APPROVAL OF ANY GOVERNMENTAL
AUTHORITY...................................................................................18
8. TAKING OF RECORD: STOCK AND WARRANT TRANSFER BOOKS................................................18
9. RESTRICTIONS ON TRANSFERABILITY...................................................................18
9.1. Restrictive Legend.....................................................................18
9.2. Notice of Proposed Transfers; Requests for Registration................................19
9.3. Registration Rights....................................................................20
9.4. Termination of Restrictions............................................................20
10. SUPPLYING INFORMATION............................................................................20
11. LOSS OR MUTILATION...............................................................................20
12. LIMITATION OF LIABILITY..........................................................................21
13. MISCELLANEOUS....................................................................................21
13.1. Nonwaiver and Expenses................................................................21
13.2. Notice Generally......................................................................21
13.3. Remedies..............................................................................22
13.4. Successors and Assigns................................................................22
13.5. Amendment.............................................................................22
13.6. Severability..........................................................................22
13.7. Headings..............................................................................23
13.8. Governing Law.........................................................................23
SIGNATURES...........................................................................................23
EXHIBITS.............................................................................................25
Exhibit A - Subscription Form........................................................................25
Exhibit B - Assignment Form..........................................................................26
</TABLE>
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<PAGE> 153
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR
SUCH LAWS.
IN ADDITION TO THE RESTRICTIONS SET FORTH IN THE SECURITIES PURCHASE AGREEMENT
AND THE SUPPLEMENTAL SECURITIES PURCHASE AGREEMENT BY AND AMONG KRAUSE'S
FURNITURE, INC., GENERAL ELECTRIC CAPITAL CORPORATION AND JAPAN OMNIBUS LTD.,
THIS WARRANT IS SUBJECT TO THE RESTRICTIONS SET FORTH IN THE STOCKHOLDERS
AGREEMENT BY AND AMONG KRAUSE'S FURNITURE, INC. AND THE STOCKHOLDERS PARTIES
THERETO, COPIES OF SUCH AGREEMENTS ARE ON FILE IN THE OFFICES OF THE
CORPORATION.
No. of Shares of Common Stock: (80,000)(160,000)(1)
WARRANT
To Purchase Shares of Common Stock of
KRAUSE'S FURNITURE, INC.
THIS IS TO CERTIFY THAT JAPAN OMNIBUS LTD., or registered
assigns, is entitled, at any time prior to the Expiration Date (as hereinafter
defined), to purchase from KRAUSE'S FURNITURE, INC., a Delaware corporation (the
"Company"), (80,000)(160,000)(1) shares of Common Stock (as hereinafter defined
and subject to adjustment as provided herein), in whole or in part, at a
purchase price of $1.25 per share, all on the terms and conditions and pursuant
to the provisions hereinafter set forth.
- ------------------
(1) Based on whether the accompanying Standby Note is issued in the amount
of $500,000 or $1,000,000.
<PAGE> 154
1. DEFINITIONS
As used in this Warrant, the following terms have the
respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Company after the Closing Date, other than Warrant
Stock.
"Business Day" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.
"Closing Date" shall mean August 14, 1997.
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency then administering the Securities Act and other
federal securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, $.001 par value, of the Company as constituted on
the Closing Date, and any capital stock into which such Common Stock may
thereafter be changed, and shall also include (i) capital stock of the Company
of any other class (regardless of how denominated) issued to the holders of
shares of Common Stock upon any reclassification thereof which is not preferred
as to dividends or assets over any other class of stock of the Company and which
is not subject to redemption and (ii) shares of common stock of any successor or
acquiring corporation (as defined in Section 4.8) received by or distributed to
the holders of Common Stock of the Company in the circumstances contemplated by
Section 4.8.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable
or exercisable, with or without payment of additional consideration in cash or
property, for Additional Shares of Common Stock, either immediately or upon the
occurrence of a specified date or a specified event.
"Current Market Price" shall mean, in respect of any share of
Common Stock on any date herein specified, the closing price per share of Common
Stock on such date and, when used with reference to shares of Common Stock for
any period, shall mean the average of the daily closing prices per share of
Common Stock for such period. The closing price for each day shall be the last
quoted sale price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc., Automated Quotation System or such
other system then in use, or, if on any such date the Common Stock or such other
securities are not quoted by any such organization, the average of the closing
bid and
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<PAGE> 155
asked prices as furnished by a professional market maker making a market in the
Common Stock selected by the Board of Directors of the Company. If the Common
Stock is listed or admitted to trading on a national securities exchange, the
closing price shall be the last sale price, regular way, or, in case no such
sale takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Common Stock is not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading.
"Current Warrant Price" shall mean, in respect of a share of
Common Stock at any date herein specified, the price at which a share of Common
Stock may be purchased pursuant to this Warrant on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect from time to time.
Reference to a particular section of the Exchange Act shall include reference to
the comparable section, if any, of such successor federal statute.
"Expiration Date" shall mean August 31, 2006.
"Holder" shall mean the Person in whose name this Warrant is
registered on the books of the Company maintained for such purpose. "Holders"
shall mean, collectively, each Holder of a Warrant, in the event of any division
of this Warrant.
"Majority Holders" shall mean the holders of Warrants
exercisable for in excess of 50% of the aggregate number of shares of Warrant
Stock then purchasable upon exercise of all Warrants.
"Other Property" shall have the meaning set forth in Section
4.8.
"Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all issued shares of Common Stock, except shares then owned or held by or for
the account of the Company or any subsidiary thereof, and shall include all
shares issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock. For the purposes of Sections
4.3, 4.4, 4.5, 4.6 and 4.7, Common Stock Outstanding shall include all shares of
Common Stock issuable in respect of options or warrants to purchase, or
securities convertible into, shares of Common Stock, the exercise or
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<PAGE> 156
conversion price of which is less than the Current Market Price as of any date
on which the number of shares of Common Stock Outstanding is to be determined.
"Permitted Issuances" shall mean issuances of shares of Common
Stock upon exercise of the warrants and options listed on Schedule 1.
"Person" shall mean any individual, firm, corporation,
partnership or other entity, and shall include any successor by merger or
otherwise of such entity.
"Restricted Common Stock" shall mean shares of Common Stock
which are, or which upon their issuance on the exercise of this Warrant would
be, evidenced by a certificate bearing the restrictive legend set forth in
Section 9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Transfer" shall mean any disposition of any Warrant or
Warrant Stock or of any interest in either thereof, which would constitute a
sale thereof within the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section
9.2.
"Warrants" shall mean this Warrant and all warrants issued
upon transfer, division or combination of, or in substitution for, any thereof.
All Warrants shall at all times be identical as to terms and conditions and
date, except as to the number of shares of Common Stock for which they may be
exercised.
"Warrant Stock" shall mean the shares of Common Stock
purchased by the holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
2.1. Manner of Exercise. At any time or from time to time from
and after the Closing Date and until 5:00 P.M., New York time, on the Expiration
Date, Holder may exercise this Warrant, on any Business Day, for all or any part
of the number of shares of Common Stock purchasable hereunder.
In order to exercise this Warrant, in whole or in part, Holder
shall deliver to the Company at its principal office at 200 North Berry Street,
Brea, CA 92821-3903 (i) a written notice of Holder's election to exercise this
Warrant, which notice shall specify the number of shares of Common Stock to be
purchased, (ii) payment of the Current Warrant Price and (iii) this Warrant.
Such notice shall be substantially in the form appearing at the
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<PAGE> 157
end of this Warrant as Exhibit A, duly executed by Holder. Upon receipt of the
items specified in the second preceding sentence, the Company shall execute or
cause to be executed and deliver or cause to be delivered to Holder a
certificate or certificates representing the aggregate number of full shares of
Common Stock issuable upon such exercise, together with cash in lieu of any
fraction of a share, as hereinafter provided. The stock certificate or
certificates so delivered shall be in such denomination or denominations as
Holder shall request in the notice and shall be registered in the name of Holder
or, subject to Section 9, such other name as shall be designated in the notice.
This Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and Holder or any other Person
so designated shall be deemed to have become a holder of record of such shares
for all purposes, as of the date the notice, together with the Current Warrant
Price and this Warrant, are received by the Company as described above. If this
Warrant shall have been exercised in part, the Company shall, at the time of
delivery of the certificate or certificates representing Warrant Stock, deliver
to Holder a new Warrant evidencing the right of Holder to purchase the
unpurchased shares of Common Stock called for by this Warrant, which new Warrant
shall in all other respects be identical with this Warrant, or, at the request
of Holder, appropriate notation may be made on this Warrant and the same
returned to Holder.
Payment of the Current Warrant Price shall be made at the
option of Holder by payment in cash, by certified or official bank check, or by
the surrender of shares of Common Stock having a value equal to the aggregate
warrant price of the shares of Common Stock being purchased upon exercise of the
Warrant, by delivering to the Company certificates representing the number of
shares of Common Stock to be surrendered, duly endorsed by or accompanied by
appropriate instruments of transfer duly executed by Holder. For the purposes of
making payment of the Current Warrant Price, the value of the Common Stock
surrendered shall be determined based upon the Current Market Price as of the
date of surrender of such shares of Common Stock. If Holder surrenders shares of
Common Stock in payment of the Current Warrant Price and less than all of the
shares of Common Stock represented by any certificate are being surrendered, the
Company shall deliver to Holder a new certificate or certificates representing
the shares of Common Stock not applied to payment of the Current Warrant Price;
provided, however, that in lieu of any fractional share of Common Stock which
such Holder would otherwise be entitled to receive, the Company shall pay to
Holder an amount of cash equal to such fraction multiplied by the Current Market
Price as of the date of surrender of the shares of Common Stock.
2.2. Payment of Taxes. All shares of Common Stock issuable
upon the exercise of this Warrant shall be validly issued, fully paid and
nonassessable and without any preemptive rights. The Company shall pay all
expenses in connection with, and all
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<PAGE> 158
taxes and other governmental charges that may be imposed with respect to, the
issue or delivery thereof.
2.3. Fractional Shares. The Company shall not be required to
issue a fractional share of Common Stock upon exercise of this Warrant. As to
any fraction of a share which Holder would otherwise be entitled to purchase
upon such exercise, the Company shall pay a cash adjustment in respect of such
fraction in an amount equal to the same fraction of the Current Market Price per
share of Common Stock on the date of exercise.
3. TRANSFER, DIVISION AND COMBINATION
3.1. Transfer. Subject to compliance with Section 9, transfer
of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose, upon
surrender of this Warrant at the principal office of the Company referred to in
Section 2.1, together with a written assignment of this Warrant substantially in
the form of Exhibit B hereto duly executed by Holder and funds sufficient to pay
any transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall, subject to Section 9, execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denomination specified in such instrument of assignment, and shall
issue to the assignor a new Warrant evidencing the portion of this Warrant not
so assigned, and this Warrant shall promptly be canceled. A Warrant, if properly
assigned in compliance with Section 9, may be exercised by a new Holder for the
purchase of shares of Common Stock without having a new Warrant issued.
3.2. Division and Combination. Subject to Section 9, this
Warrant may be divided into multiple Warrants or combined with other Warrants
upon presentation hereof at the aforesaid office or agency of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by Holder. Subject to compliance with
Section 3.1 and with Section 9, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3. Expenses. The Company shall prepare, issue and deliver at
its own expense (other than transfer taxes) the new Warrant or Warrants under
this Section 3.
3.4. Maintenance of Books. The Company agrees to maintain, at
its aforesaid office, books for the registration and the registration of
transfer of the Warrants.
4. ADJUSTMENTS
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<PAGE> 159
The number of shares of Common Stock for which this Warrant is
exercisable and/or the price at which such shares may be purchased upon exercise
of this Warrant, shall be subject to adjustment from time to time as set forth
in this Section 4. The Company shall give each Holder notice of any event
described below which requires an adjustment pursuant to this Section 4 at the
time of such event.
4.1. Stock Dividends, Subdivisions and Combinations. If at any
time the Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
per share shall be adjusted to equal (A) the Current Warrant Price multiplied by
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
4.2. Certain Other Distributions. If at any time the Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive any dividend or other distribution of:
(a) cash,
(b) any evidences of its indebtedness, any shares of its stock
or any other securities or property of any nature whatsoever (other
than cash, Convertible Securities or Additional Shares of Common
Stock), or
(c) any warrants or other rights to subscribe for or purchase
any evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock),
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then (i) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product of the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such
adjustment by a fraction (A) the numerator of which shall be the Current Market
Price per share of Common Stock at the date of taking such record and (B) the
denominator of which shall be such Current Market Price per share of Common
Stock minus the amount allocable to one share of Common Stock of any such cash
so distributable and of the fair value (as determined in good faith by the Board
of Directors of the Company and supported by an opinion from an investment
banking firm of recognized national standing acceptable to the Majority Holders)
of any and all such evidences of indebtedness, shares of stock, other securities
or property or warrants or other subscription or purchase rights so
distributable, and (ii) the Current Warrant Price shall be adjusted to equal (A)
the Current Warrant Price multiplied by the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to the adjustment divided by
(B) the number of shares for which this Warrant is exercisable immediately after
such adjustment. A reclassification of the Common Stock (other than a change in
par value, or from par value to no par value or from no par value to par value)
into shares of Common Stock and shares of any other class of stock shall be
deemed a distribution by the Company to the holders of its Common Stock of such
shares of such other class of stock within the meaning of this Section 4.2 and,
if the outstanding shares of Common Stock shall be changed into a larger or
smaller number of shares of Common Stock as a part of such reclassification,
such change shall be deemed a subdivision or combination, as the case may be, of
the outstanding shares of Common Stock within the meaning of Section 4.1.
4.3. Issuance of Additional Shares of Common Stock. (a) If at
any time the Company shall (except as hereinafter provided) issue or sell any
Additional Shares of Common Stock, other than Permitted Issuances, in exchange
for consideration in an amount per Additional Share of Common Stock less than
the Current Warrant Price at the time the Additional Shares of Common Stock are
issued, then (i) the Current Warrant Price as to the number of shares for which
this Warrant is exercisable prior to such adjustment shall be reduced to a price
determined by dividing (A) an amount equal to the sum of (x) the number of
shares of Common Stock Outstanding immediately prior to such issue or sale
multiplied by the then existing Current Warrant Price, plus (y) the
consideration, if any, received by the Company upon such issue or sale, by (B)
the total number of shares of Common Stock Outstanding immediately after such
issue or sale; and (ii) the number of shares of Common Stock for which this
Warrant is exercisable shall be adjusted to equal the product obtained by
multiplying the Current Warrant Price in effect immediately prior to such issue
or sale by the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such issue or sale and dividing the product
thereof by the Current Warrant Price resulting from the adjustment made pursuant
to clause (i) above.
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(b) If at any time the Company shall (except as hereinafter
provided) issue or sell any Additional Shares of Common Stock, other than
Permitted Issuances, for consideration in an amount per Additional Share of
Common Stock less than the Current Market Price, then (i) the number of shares
of Common Stock for which this Warrant is exercisable shall be adjusted to equal
the product obtained by multiplying the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such issue or sale by a
fraction (A) the numerator of which shall be the number of shares of Common
Stock Outstanding immediately after such issue or sale, and (B) the denominator
of which shall be the number of shares of Common Stock Outstanding immediately
prior to such issue or sale plus the number of shares which the aggregate
offering price of the total number of such Additional Shares of Common Stock
would purchase at the then Current Market Price; and (ii) the Current Warrant
Price as to the number of shares for which this Warrant is exercisable prior to
such adjustment shall be adjusted by multiplying such Current Warrant Price by a
fraction (X) the numerator of which shall be the number of shares for which this
Warrant is exercisable immediately prior to such issue or sale; and (Y) the
denominator of which shall be the number of shares of Common Stock purchasable
immediately after such issue or sale.
(c) If at any time the Company (except as hereinafter
provided) shall issue or sell any Additional Shares of Common Stock, other than
Permitted Issuances, in exchange for consideration in an amount per Additional
Shares of Common Stock which is less than the Current Warrant Price and the
Current Market Price at the time the Additional Shares of Common Stock are
issued, the adjustment required under Section 4.3 shall be made in accordance
with the formula in paragraph (a) or (b) above which results in the lower
Current Warrant Price following such adjustment. The provisions of paragraphs
(a) and (b) of Section 4.3 shall not apply to any issuance of Additional Shares
of Common Stock for which an adjustment is provided under Section 4.1 or 4.2. No
adjustment of the number of shares of Common Stock for which this Warrant shall
be exercisable shall be made under paragraph (a) or (b) of Section 4.3 upon the
issuance of any Additional Shares of Common Stock which are issued pursuant to
the exercise of any warrants or other subscription or purchase rights or
pursuant to the exercise of any conversion or exchange rights in any Convertible
Securities, if any such adjustment shall previously have been made upon the
issuance of such warrants or other rights or upon the issuance of such
Convertible Securities (or upon the issuance of any warrant or other rights
therefor) pursuant to Section 4.4 or Section 4.5 herein.
4.4. Issuance of Warrants or Other Rights. If at any time the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving
corporation) issue or sell, any warrants or other rights to subscribe for or
purchase any Additional Shares of Common Stock or any Convertible Securities,
whether or not the rights to exchange or convert thereunder are
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immediately exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such Warrants or other rights or upon conversion
or exchange of such Convertible Securities shall be less than the Current
Warrant Price or the Current Market Price in effect immediately prior to the
time of such issue or sale, then the number of shares for which this Warrant is
exercisable and the Current Warrant Price shall be adjusted as provided in
Section 4.3 on the basis that the maximum number of Additional Shares of Common
Stock issuable pursuant to all such warrants or other rights or necessary to
effect the conversion or exchange of all such Convertible Securities shall be
deemed to have been issued and outstanding and the Company shall have received
all of the consideration payable therefor, if any, as of the date of the actual
issuance of the number of shares for which this Warrant is exercisable and such
warrants or other rights. No further adjustments of the Current Warrant Price
shall be made upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such warrants or other rights or upon the actual
issue of such Common Stock upon such conversion or exchange of such Convertible
Securities. Notwithstanding the foregoing, no adjustment shall be required under
this Section 4.4 solely by reason of the issuance of stock purchase rights under
a stockholder rights plan of the Company, provided that the adjustments required
by this Section 4.4 shall be made if any "flip-in" or "flip-over" event shall
occur under such stockholder rights plan.
4.5. Issuance of Convertible Securities. If at any time the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving
corporation) issue or sell, any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
price per share for which Common Stock is issuable upon such conversion or
exchange shall be less than the Current Warrant Price or Current Market price in
effect immediately prior to the time of such issue or sale, then the number of
shares for which this Warrant is exercisable and the Current Warrant Price shall
be adjusted as provided in Section 4.3 on the basis that the maximum number of
Additional shares of Common Stock necessary to effect the conversion or exchange
of all such Convertible Securities shall be deemed to have been issued and
outstanding and the Company shall have received all of the consideration payable
therefor, if any, as of the date of actual issuance of such Convertible
Securities. No adjustment of the number of shares for which this Warrant is
exercisable and the Current Warrant Price shall be made under this Section 4.5
upon the issuance of any Convertible Securities which are issued pursuant to the
exercise of any warrants or other subscription or purchase rights therefor, if
any such adjustment shall previously have been made upon the issuance of such
warrants or other rights pursuant to Section 4.4. No further adjustments of the
number of shares for which this Warrant is exercisable and the Current Warrant
Price shall be made upon the actual issue of such Common Stock upon conversion
or exchange of such
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Convertible Securities and, if any issue or sale of such Convertible Securities
is made upon exercise of any warrant or other right to subscribe for or to
purchase any such Convertible Securities for which adjustments of the number of
shares for which this Warrant is exercisable and the Current Warrant Price have
been or are to be made pursuant to other provisions of this Section 4, no
further adjustments of the number of shares for which this Warrant is
exercisable and the Current Warrant Price shall be made by reason of such issue
or sale.
4.6. Superseding Adjustment. If, at any time after any
adjustment of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price shall have been made pursuant to
Section 4.4 or Section 4.5 as the result of any issuance of warrants, rights or
Convertible Securities,
(a) such warrants or rights, or the right of conversion or
exchange in such other Convertible Securities, shall expire, and all or
a portion of such warrants or rights, or the right of conversion or
exchange with respect to all or a portion of such other Convertible
Securities, as the case may be, shall not have been exercised, or
(b) the consideration per share for which shares of Common
Stock are issuable pursuant to such warrants or rights, or the terms of
such other Convertible Securities, shall be increased solely by virtue
of provisions therein contained for an automatic increase in such
consideration per share upon the occurrence of a specified date or
event,
then for each outstanding Warrant such previous adjustment shall be rescinded
and annulled and the Additional Shares of Common Stock which were deemed to have
been issued by virtue of the computation made in connection with the adjustment
so rescinded and annulled shall no longer be deemed to have been issued by
virtue of such computation. Thereupon, a recomputation shall be made of the
effect of such rights or options or other Convertible Securities on the basis of
(c) treating the number of Additional Shares of Common Stock
or other property, if any, theretofore actually issued or issuable
pursuant to the previous exercise of any such warrants or rights or any
such right of conversion or exchange, as having been issued on the date
or dates of any such exercise and for the consideration actually
received and receivable therefor, and
(d) treating any such warrants or rights or any such other
Convertible Securities which then remain outstanding as having been
granted or issued immediately after the time of such increase of the
consideration per share for which shares of Common Stock or other
property are issuable under such warrants
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or rights or other Convertible Securities; whereupon a new adjustment
of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price shall be made, which new
adjustment shall supersede the previous adjustment so rescinded and
annulled.
4.7. Other Provisions Applicable to Adjustments under this
Section. The following provisions shall be applicable to the making of
adjustments of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price provided for in this Section 4:
(a) Computation of Consideration. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any
warrants or other rights to subscribe for or purchase any Additional
Shares of Common Stock or any Convertible Securities shall be issued
for cash consideration, the consideration received by the Company
therefor shall be the amount of the cash received by the Company
therefor, or, if such Additional Shares of Common Stock or Convertible
Securities are offered by the Company for subscription, the
subscription price, or, if such Additional Shares of Common Stock or
Convertible Securities are sold to underwriters or dealers for public
offering without a subscription offering, the public offering price (in
any such case subtracting any amounts paid or receivable for accrued
interest or accrued dividends and without taking into account any
compensation, discounts or expenses paid or incurred by the Company for
and in the underwriting of, or otherwise in connection with, the
issuance thereof). To the extent that such issuance shall be for a
consideration other than cash, then, except as herein otherwise
expressly provided, the amount of such consideration shall be deemed to
be the fair value of such consideration at the time of such issuance as
determined in good faith by the Board of Directors of the Company. In
case any Additional Shares of Common Stock or any Convertible
Securities or any warrants or other rights to subscribe for or purchase
such Additional Shares of Common Stock or Convertible Securities shall
be issued in connection with any merger in which the Company issues any
securities, the amount of consideration therefor shall be deemed to be
the fair value, as determined in good faith by the Board of Directors
of the Company, of such portion of the assets and business of the
nonsurviving corporation as such Board in good faith shall determine to
be attributable to such Additional Shares of Common Stock, Convertible
Securities, warrants or other rights, as the case may be. The
consideration for any Additional Shares of Common Stock issuable
pursuant to any warrants or other rights to subscribe for or purchase
the same shall be the consideration received by the Company for issuing
such warrants or other rights plus the additional consideration payable
to the Company upon exercise of such warrants or other rights. The
consideration for any Additional Shares of Common Stock issuable
pursuant to the terms of any Convertible Securities shall be the
consideration
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received by the Company for issuing warrants or other rights to
subscribe for or purchase such Convertible Securities, plus the
consideration paid or payable to the Company in respect of the
subscription for or purchase of such Convertible Securities, plus the
additional consideration, if any, payable to the Company upon the
exercise of the right of conversion or exchange in such Convertible
Securities. In case of the issuance at any time of any Additional
Shares of Common Stock or Convertible Securities in payment or
satisfaction of any dividends upon any class of stock other than Common
Stock, the Company shall be deemed to have received for such Additional
Shares of Common Stock or Convertible Securities a consideration equal
to the amount of such dividend so paid or satisfied.
(b) When Adjustments to Be Made. The adjustments required by
this Section 4 shall be made whenever and as often as any specified
event requiring an adjustment shall occur, except that any adjustment
of the number of shares of Common Stock for which this Warrant is
exercisable that would otherwise be required may be postponed (except
in the case of a subdivision or combination of shares of the Common
Stock, as provided for in Section 4.1) up to, but not beyond the date
of exercise if such adjustment either by itself or with other
adjustments not previously made results in an increase or decrease of
less than 1% of the shares of Common Stock for which this Warrant is
exercisable immediately prior to the making of such adjustment. Any
adjustment representing a change of less than such minimum amount
(except as aforesaid) which is postponed shall be carried forward and
made as soon as such adjustment, together with other adjustments
required by this Section 4 and not previously made, would result in a
minimum adjustment or on the date of exercise. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the
close of business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into
account to the nearest 1/100th of a share.
(d) When Adjustment Not Required. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or distribution or subscription or purchase
rights and shall, thereafter and before the distribution to
stockholders thereof, legally abandon its plan to pay or deliver such
dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the taking of
such record and any such adjustment previously made in respect thereof
shall be rescinded and annulled.
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(e) Escrow of Warrant Stock. If after any property becomes
distributable pursuant to this Section 4 by reason of the taking of any
record of the holders of Common Stock, but prior to the occurrence of
the event for which such record is taken, Holder exercises this
Warrant, any Additional Shares of Common Stock issuable upon exercise
by reason of such adjustment shall be deemed the last shares of Common
Stock for which this Warrant is exercised (notwithstanding any other
provision to the contrary herein) and such shares or other property
shall be held in escrow for Holder by the Company to be issued to
Holder when and to the extent that the event actually takes place, upon
payment of the then Current Warrant Price. Notwithstanding any other
provision to the contrary herein, if the event for which such record
was taken fails to occur or is rescinded, then such escrowed shares
shall be canceled by the Company and escrowed property returned.
(f) Challenge to Good Faith Determination. Whenever the Board
of Directors of the Company shall be required to make a determination
in good faith of the fair value of any item under this Section 4, such
determination may be challenged in good faith by the Majority Holders,
and any dispute shall be resolved by an investment banking firm of
recognized national standing selected by the Company and acceptable to
the Majority Holders.
4.8. Reorganization, Reclassification, Merger, Consolidation
or Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then Holder shall have the right thereafter to receive, upon
exercise of this Warrant and payment of the Current Warrant Price, the number of
shares of common stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and Other Property receivable upon
or as a result of such reorganization, reclassification, merger, consolidation
or disposition of assets by a holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event. In case of
any such reorganization, reclassification, merger, consolidation or disposition
of assets, the successor or acquiring corporation (if other than the Company)
shall expressly assume the due and punctual observance and performance of each
and every covenant and
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condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined by resolution of the Board of Directors of
the Company) in order to provide for adjustments of shares of the Common Stock
for which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 4. For purposes of
this Section 4.8, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 4.8 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
4.9. Other Action Affecting Common Stock. In case at any time
or from time to time the Company shall take any action in respect of its Common
Stock, other than any action described in this Section 4, then, unless such
action will not have a materially adverse effect upon the rights of the Holders,
the number of shares of Common Stock or other stock for which this Warrant is
exercisable and/or the purchase price thereof shall be adjusted in such manner
as may be equitable in the circumstances.
4.10. Certain Limitations. Notwithstanding anything herein to
the contrary, the Company agrees not to enter into any transaction which, by
reason of any adjustment hereunder, would cause the Current Warrant Price to be
less than the par value per share of Common Stock.
5. NOTICES TO WARRANT HOLDERS
5.1. Notice of Adjustments. Whenever the number of shares of
Common Stock for which this Warrant is exercisable, or whenever the price at
which a share of such Common Stock may be purchased upon exercise of the
Warrants, shall be adjusted pursuant to Section 4, the Company shall forthwith
prepare a certificate to be executed by the chief financial officer of the
Company setting forth, in reasonable detail, the event requiring the adjustment
and the method by which such adjustment was calculated (including a description
of the basis on which the Board of Directors of the Company determined the fair
value of any evidences of indebtedness, shares of stock, other securities or
property or warrants or other subscription or purchase rights referred to in
Section 4.2 or 4.7(a)), specifying the number of shares of Common Stock for
which this Warrant is exercisable and (if such adjustment was made pursuant to
Section 4.8 or 4.9) describing the number and kind of any other shares of stock
or Other Property for which this Warrant is exercisable, and any change in the
purchase price or prices thereof, after
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giving effect to such adjustment or change. The Company shall promptly cause a
signed copy of such certificate to be delivered to each Holder in accordance
with Section 13.2. The Company shall keep at its principal office copies of all
such certificates and cause the same to be available for inspection at said
office during normal business hours by any Holder or any prospective purchaser
of a Warrant designated by a Holder thereof.
5.2. Notice of Corporate Action. If at any time
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend
(other than a cash dividend payable out of earnings or earned surplus
legally available for the payment of dividends under the laws of the
jurisdiction of incorporation of the Company) or other distribution, or
any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities
or property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger of the Company with, or any
sale, transfer or other disposition of all or substantially all the
property, assets or business of the Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 20 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, at least 20 days' prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause also shall specify
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common Stock
shall be entitled to any such dividend, distribution or right, and the amount
and character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently
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given if addressed to Holder at the last address of Holder appearing on the
books of the Company and delivered in accordance with Section 13.2.
6. RIGHTS OF HOLDERS
6.1 No Impairment. The Company shall not by any action,
including, without limitation, amending its Certificate of Incorporation or
comparable governing instruments or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such actions as may
be necessary or appropriate to protect the rights of Holder against impairment.
Without limiting the generality of the foregoing, the Company will (a) not
increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the amount payable therefor upon such exercise
immediately prior to such increase in par value, (b) take all such action as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the exercise of
this Warrant, and (c) use its best efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be necessary to enable the Company to perform its obligations
under this Warrant.
Upon the request of Holder, the Company will at any time
during the period this Warrant is outstanding acknowledge in writing, in form
reasonably satisfactory to Holder, the continuing validity of this Warrant and
the obligations of the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY
From and after the Closing Date, the Company shall at all
times reserve and keep available for issue upon the exercise of Warrants such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. All
shares of Common Stock which shall be so issuable, when issued upon exercise of
any Warrant and payment therefor in accordance with the terms of such Warrant,
shall be duly and validly issued and fully paid and nonassessable, and not
subject to preemptive rights.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the
Company to the holders of its Common Stock with respect to which any provision
of Section 4 refers to
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the taking of a record of such holders, the Company will in each such case take
such a record and will take such record as of the close of business on a
Business Day. The Company will not at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise or
transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant or
any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 9.
9.1. Restrictive Legend. Except as otherwise provided in this
Section 9, each Warrant and each certificate for Warrant Stock initially issued
upon the exercise of a Warrant, and each certificate for Warrant Stock issued to
any subsequent transferee of any such certificate, shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"[THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY]
[THE SECURITIES REPRESENTED BY THIS CERTIFICATE] HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH
LAWS."
"IN ADDITION TO THE RESTRICTIONS SET FORTH IN THE
SECURITIES PURCHASE AGREEMENT AND THE SUPPLEMENTAL SECURITIES
PURCHASE AGREEMENT BY AND AMONG KRAUSE'S FURNITURE, INC.,
GENERAL ELECTRIC CAPITAL CORPORATION AND JAPAN OMNIBUS LTD.,
[THIS WARRANT IS] [THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE] SUBJECT TO THE RESTRICTIONS SET FORTH IN THE
STOCKHOLDERS AGREEMENT BY AND AMONG KRAUSE'S FURNITURE, INC.
AND THE STOCKHOLDERS
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PARTIES THERETO, COPIES OF WHICH ARE ON FILE IN THE OFFICES OF
THE CORPORATION."
9.2. Notice of Proposed Transfers; Requests for Registration.
Prior to any Transfer or attempted Transfer of any Warrants or any shares of
Restricted Common Stock, the holder of such Warrants or Restricted Common Stock
shall give ten days' prior written notice (a "Transfer Notice") to the Company
of such holder's intention to effect such Transfer, describing the manner and
circumstances of the proposed Transfer, and obtain from counsel to such holder
who shall be reasonably satisfactory to the Company, an opinion that the
proposed Transfer of such Warrants or such Restricted Common Stock may be
effected without registration under the Securities Act. After receipt of the
Transfer Notice and opinion, the Company shall, within five days thereof, notify
the holder of such Warrants or such Restricted Common Stock as to whether such
opinion is reasonably satisfactory and, if so, such holder shall thereupon be
entitled to Transfer such Warrants or such Restricted Common Stock, in
accordance with the terms of the Transfer Notice. Each certificate, if any,
evidencing such shares of Restricted Common Stock issued upon such Transfer and
each Warrant issued upon such Transfer shall bear the restrictive legend set
forth in Section 9.1, unless in the opinion of such counsel such legend is not
required in order to ensure compliance with the Securities Act. The holder of
the Warrants or the Restricted Common Stock, as the case may be, giving the
Transfer Notice shall not be entitled to Transfer such Warrants or such
Restricted Common Stock until receipt of notice from the Company under this
Section 9.2 that such opinion is reasonably satisfactory.
9.3. Registration Rights. The holders of Warrants and Warrant
Stock shall have the registration rights set forth in the Registration Rights
Agreement.
9.4. Termination of Restrictions. Notwithstanding the
foregoing provisions of this Section 9, the restrictions imposed by this Section
upon the transferability of the Warrants, the Warrant Stock and the Restricted
Common Stock and the legend requirements of Section 9.1 shall terminate as to
any particular Warrant or share of Warrant Stock or Restricted Common Stock (i)
when and so long as such security shall have been effectively registered under
the Securities Act and disposed of pursuant thereto or (ii) when the Company
shall have received an opinion of counsel reasonably satisfactory to it that
such shares may be transferred without registration thereof under the Securities
Act.
10. SUPPLYING INFORMATION
The Company shall cooperate with each Holder of a Warrant and
each holder of Restricted Common Stock in supplying such information as may be
reasonably necessary for such holder to complete and file any reports or forms
presently or hereafter
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<PAGE> 172
required by the Commission as a condition to the availability of an exemption
from the Securities Act for the sale of any Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from any Holder of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of this Warrant and indemnity reasonably satisfactory
to it (it being understood that the written agreement of GE Capital shall be
sufficient indemnity), and in case of mutilation upon surrender and cancellation
hereof, the Company will execute and deliver in lieu hereof a new Warrant of
like tenor to such Holder; provided, in the case of mutilation, no indemnity
shall be required if this Warrant in identifiable form is surrendered to the
Company for cancellation.
12. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of Holder hereof, shall give rise to any liability of such
Holder for the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
13. MISCELLANEOUS
13.1. Nonwaiver and Expenses. No course of dealing or any
delay or failure to exercise any right hereunder on the part of Holder shall
operate as a waiver of such right or otherwise prejudice Holder's rights, powers
or remedies. If the Company fails to make, when due, any payments provided for
hereunder, or fails to comply with any other provision of this Warrant, the
Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers
or remedies hereunder.
13.2. Notice Generally. Any notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Warrant shall be sufficiently given or made
if in writing and either delivered in person with receipt acknowledged or sent
by registered or certified mail, return receipt requested, postage prepaid, or
by telecopy and confirmed by telecopy answerback, addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at its last
known address appearing on the books of the Company maintained for such
purpose.
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<PAGE> 173
(b) If to the Company at
Krause's Furniture, Inc.
200 North Berry Street
Brea, CA 92621-3903
Attention: Philip M. Hawley
Robert A. Burton
Judith O. Lasker
Telecopy Number: (714) 990-3561
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and confirmed by telecopy
answerback, or three (3) Business Days after the same shall have been deposited
in the United States mail. Failure or delay in delivering copies of any notice,
demand, request, approval, declaration, delivery or other communication to the
person designated above to receive a copy shall in no way adversely affect the
effectiveness of such notice, demand, request, approval, declaration, delivery
or other communication.
13.3. Remedies. Each holder of Warrant and Warrant Stock, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under of this Warrant. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Warrant and hereby agrees to waive the defense in any action
for specific performance that a remedy at law would be adequate.
13.4. Successors and Assigns. Subject to the provisions of
Sections 3.1, this Warrant and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and assigns of Holder. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant and, with respect to
Section 9 hereof, holders of Warrant Stock, and shall be enforceable by any such
Holder or holder of Warrant Stock.
13.5. Amendment. This Warrant and all other Warrants may be
modified or amended or the provisions hereof waived with the written consent of
the Company and the Majority Holders, provided that no such Warrant may be
modified or amended to reduce the number of shares of Common Stock for which
such Warrant is exercisable or to increase the price at which such shares may be
purchased upon exercise of such Warrant (before giving effect to any adjustment
as provided therein) without the prior
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<PAGE> 174
written consent of the Holder thereof, provided however, that the foregoing
shall not limit the operation of Section 4.6.
13.6. Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
13.7. Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
13.8. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION
OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES OF AMERICA, IN
EACH CASE LOCATED IN THE COUNTY OF NEW YORK, FOR ANY ACTION, PROCEEDING OR
INVESTIGATION IN ANY COURT OR BEFORE ANY GOVERNMENTAL AUTHORITY ("LITIGATION")
ARISING OUT OF OR RELATING TO THIS WARRANT AND THE TRANSACTIONS CONTEMPLATED
HEREBY (AND AGREES NOT TO COMMENCE ANY LITIGATION RELATING THERETO EXCEPT IN
SUCH COURTS), AND FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR
DOCUMENT BY U.S. REGISTERED MAIL TO ITS RESPECTIVE ADDRESS SET FORTH IN THIS
WARRANT SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY LITIGATION BROUGHT AGAINST
IT IN ANY SUCH COURT. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY LITIGATION
ARISING OUT OF THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN THE
COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES OF AMERICA, IN EACH CASE
LOCATED IN THE COUNTY OF NEW YORK, AND HEREBY FURTHER IRREVOCABLY AND
UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT
ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. EACH OF THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHTS TO TRIAL
BY JURY IN CONNECTION WITH ANY
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<PAGE> 175
LITIGATION ARISING OUT OF OR RELATING TO THIS WARRANT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
Dated:
-----------
KRAUSE'S FURNITURE, INC.
By:
---------------------------------
Name: Robert A. Burton
Title: Senior Vice President
and Chief Financial Officer
Attest:
By:
-----------------------------
Name: Judith O. Lasker
Title: Corporate Secretary
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<PAGE> 176
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of _____ Shares of Common Stock of
KRAUSE'S FURNITURE, INC. and herewith makes payment therefor, all at the price
and on the terms and conditions specified in this Warrant and requests that
certificates for the shares of Common Stock hereby purchased (and any securities
or other property issuable upon such exercise) be issued in the name of and
delivered to _____________ whose address is ________________ and, if such shares
of Common Stock shall not include all of the shares of Common Stock issuable as
provided in this Warrant, that a new Warrant of like tenor and date for the
balance of the shares of Common Stock issuable hereunder be delivered to the
undersigned.
-----------------------------------------
(Name of Registered Owner)
-----------------------------------------
(Signature of Registered Owner)
-----------------------------------------
(Street Address)
-----------------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
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<PAGE> 177
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of Common Stock
- ---------------------------- -----------------------------
and does hereby irrevocably constitute and appoint ________________
attorney-in-fact to register such transfer on the books of KRAUSE'S FURNITURE,
INC. maintained for the purpose, with full power of substitution in the
premises.
Dated: Print Name:
--------------- ---------------------------------
Signature:
----------------------------------
Witness:
-----------------------------------
NOTICE: The signature on this assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
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<PAGE> 178
Exhibit C-3: Performance Warrant
WARRANT
To Purchase Shares of Common Stock of
KRAUSE'S FURNITURE, INC.
No. of Shares of Common Stock: As determined
and allocated in accordance with Section 2.4 herein.
<PAGE> 179
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1. DEFINITIONS.......................................................................................1
2. EXERCISE OF WARRANT...............................................................................4
2.1. Manner of Exercise.....................................................................4
2.2. Payment of Taxes.......................................................................5
2.3. Fractional Shares......................................................................5
2.4. Determination of Number of Shares; Allocation of Shares................................5
3. TRANSFER, DIVISION AND COMBINATION................................................................6
3.1. Transfer...............................................................................6
3.2. Division and Combination...............................................................6
3.3. Expenses...............................................................................7
3.4. Maintenance of Books...................................................................7
4. ADJUSTMENTS.......................................................................................7
4.1. Stock Dividends, Subdivisions and Combinations.........................................7
4.2. Certain Other Distributions............................................................7
4.3. Issuance of Additional Shares of Common Stock..........................................8
4.4. Issuance of Warrants or Other Rights...................................................9
4.5. Issuance of Convertible Securities.....................................................10
4.6. Superseding Adjustment.................................................................10
4.7. Other Provisions Applicable to Adjustments under this Section..........................11
4.8. Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets.......13
4.9. Other Action Affecting Common Stock....................................................14
5. NOTICES TO WARRANT HOLDERS........................................................................14
5.1. Notice of Adjustment...................................................................14
5.2. Notice of Corporate Action.............................................................15
6. RIGHTS OF HOLDERS.................................................................................16
6.1. No Impairment..........................................................................16
</TABLE>
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<PAGE> 180
<TABLE>
<S> <C> <C>
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH APPROVAL OF ANY GOVERNMENTAL
AUTHORITY...................................................................................16
8. TAKING OF RECORD: STOCK AND WARRANT TRANSFER BOOKS................................................17
9. RESTRICTIONS ON TRANSFERABILITY...................................................................17
9.1. Restrictive Legend.....................................................................17
9.2. Notice of Proposed Transfers; Requests for Registration................................18
9.3. Registration Rights....................................................................19
9.4. Termination of Restrictions............................................................19
10. SUPPLYING INFORMATION............................................................................19
11. LOSS OR MUTILATION...............................................................................19
12. LIMITATION OF LIABILITY..........................................................................19
13. MISCELLANEOUS....................................................................................19
13.1. Nonwaiver and Expenses................................................................20
13.2. Notice Generally......................................................................20
13.3. Remedies..............................................................................21
13.4. Successors and Assigns................................................................21
13.5. Amendment.............................................................................21
13.6. Severability..........................................................................21
13.7. Headings..............................................................................21
13.8. Governing Law.........................................................................21
SIGNATURES...........................................................................................23
EXHIBITS.............................................................................................24
Exhibit A - Subscription Form........................................................................24
Exhibit B - Assignment Form..........................................................................25
</TABLE>
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<PAGE> 181
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR
SUCH LAWS.
IN ADDITION TO THE RESTRICTIONS SET FORTH IN THE SECURITIES PURCHASE AGREEMENT
AND THE SUPPLEMENTAL SECURITIES PURCHASE AGREEMENT BY AND AMONG KRAUSE'S
FURNITURE, INC., GENERAL ELECTRIC CAPITAL CORPORATION AND JAPAN OMNIBUS LTD.,
THIS WARRANT IS SUBJECT TO THE RESTRICTIONS SET FORTH IN THE STOCKHOLDERS
AGREEMENT BY AND AMONG KRAUSE'S FURNITURE, INC. AND THE STOCKHOLDERS PARTIES
THERETO, COPIES OF SUCH AGREEMENTS ARE ON FILE IN THE OFFICES OF THE
CORPORATION.
No. of Shares of Common Stock: As determined and allocated in accordance with
Section 2.4.
WARRANT
To Purchase Shares of Common Stock of
KRAUSE'S FURNITURE, INC.
THIS IS TO CERTIFY THAT GENERAL ELECTRIC CAPITAL CORPORATION ("GECC")
and JAPAN OMNIBUS LTD. ("JOL"), or their respective registered assigns, are
entitled, at any time prior to the Expiration Date (as hereinafter defined), to
purchase from KRAUSE'S FURNITURE, INC., a Delaware corporation (the "Company"),
a number of shares of Common Stock (as hereinafter defined) as determined and
allocated in accordance with Section 2.4 and subject to adjustment as provided
herein, in whole or in part, at a purchase price of $0.01 per share, all on the
terms and conditions and pursuant to the provisions hereinafter set forth.
1. DEFINITIONS
<PAGE> 182
As used in this Warrant, the following terms have the respective
meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Closing Date, other than Warrant Stock.
"Business Day" shall mean any day that is not a Saturday or Sunday or a
day on which banks are required or permitted to be closed in the State of New
York.
"Closing Date" shall mean August 14, 1997.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, $.001 par value, of the Company as constituted on
the Closing Date, and any capital stock into which such Common Stock may
thereafter be changed, and shall also include (i) capital stock of the Company
of any other class (regardless of how denominated) issued to the holders of
shares of Common Stock upon any reclassification thereof which is not preferred
as to dividends or assets over any other class of stock of the Company and which
is not subject to redemption and (ii) shares of common stock of any successor or
acquiring corporation (as defined in Section 4.8) received by or distributed to
the holders of Common Stock of the Company in the circumstances contemplated by
Section 4.8.
"Convertible Securities" shall mean evidences of indebtedness, shares
of stock or other securities which are convertible into or exchangeable or
exercisable, with or without payment of additional consideration in cash or
property, for Additional Shares of Common Stock, either immediately or upon the
occurrence of a specified date or a specified event.
"Current Market Price" shall mean, in respect of any share of Common
Stock on any date herein specified, the closing price per share of Common Stock
on such date and, when used with reference to shares of Common Stock for any
period, shall mean the average of the daily closing prices per share of Common
Stock for such period. The closing price for each day shall be the last quoted
sale price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc., Automated Quotation System or such other system
then in use, or, if on any such date the Common Stock or such other securities
are not quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in the
Common Stock selected by the Board of Directors of the Company. If the Common
2
<PAGE> 183
Stock is listed or admitted to trading on a national securities exchange, the
closing price shall be the last sale price, regular way, or, in case no such
sale takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Common Stock is not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading.
"EBITDA" means, for a given year, the consolidated net income of the
Company for such year, plus interest expense (net of interest income), plus
income tax expense, plus depreciation and amortization expense, each of the
above computed in accordance with generally accepted accounting principles
applied on a consistent basis.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
Reference to a particular section of the Exchange Act shall include reference to
the comparable section, if any, of such successor federal statute.
"Expiration Date" shall mean August 31, 2006.
"Holder" shall mean the Persons in whose name this Warrant is
registered on the books of the Company maintained for such purpose. "Holders"
shall mean, collectively, each Holder of a Warrant, in the event of any division
of this Warrant.
"Majority Holders" shall mean the holders of Warrants exercisable for
in excess of 50% of the aggregate number of shares of Warrant Stock then
purchasable upon exercise of all Warrants.
"Other Property" shall have the meaning set forth in Section 4.8.
"Outstanding" shall mean, when used with reference to Common Stock, at
any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for the
account of the Company or any subsidiary thereof, and shall include all shares
issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock. For the purposes of Sections
4.3, 4.4, 4.5, 4.6 and 4.7, Common Stock Outstanding shall include all shares of
Common Stock issuable in respect of options or warrants to purchase, or
securities convertible into, shares of Common Stock, the exercise or conversion
price of which is less than the Current Market Price as of any date on which the
number of shares of Common Stock Outstanding is to be determined.
3
<PAGE> 184
"Permitted Issuances" shall mean issuances of shares of Common Stock
upon exercise of the warrants and options listed on Schedule 1.
"Person" shall mean any individual, firm, corporation, partnership or
other entity, and shall include any successor by merger or otherwise of such
entity.
"Restricted Common Stock" shall mean shares of Common Stock which are,
or which upon their issuance on the exercise of this Warrant would be, evidenced
by a certificate bearing the restrictive legend set forth in Section 9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Transfer" shall mean any disposition of any Warrant or Warrant Stock
or of any interest in either thereof, which would constitute a sale thereof
within the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section 9.2.
"Warrants" shall mean this Warrant and all warrants issued upon
transfer, division or combination of, or in substitution for, any thereof. All
Warrants shall at all times be identical as to terms and conditions and date,
except as to the number of shares of Common Stock for which they may be
exercised.
"Warrant Price" shall mean $0.01 per share of Common Stock.
"Warrant Stock" shall mean the shares of Common Stock purchased by the
holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
2.1. Manner of Exercise. At any time or from time to time from and
after April 1, 2000 and until 5:00 P.M., New York time, on the Expiration Date,
each Holder may exercise this Warrant, on any Business Day, for all or any part
of the number of shares of Common Stock purchasable by such Holder hereunder.
In order to exercise this Warrant, in whole or in part, a Holder shall
deliver to the Company at its principal office at 200 North Berry Street, Brea,
CA 92821-3903 (i) a written notice of such Holder's election to exercise this
Warrant, which notice shall specify the number of shares of Common Stock to be
purchased, (ii) payment of the Warrant Price and (iii) this Warrant. Such notice
shall be substantially in the form appearing at the end of this Warrant as
Exhibit A, duly executed by such Holder. Upon
4
<PAGE> 185
receipt of the items specified in the second preceding sentence, the Company
shall execute or cause to be executed and deliver or cause to be delivered to
such Holder a certificate or certificates representing the aggregate number of
full shares of Common Stock issuable upon such exercise, together with cash in
lieu of any fraction of a share, as hereinafter provided. The stock certificate
or certificates so delivered shall be in such denomination or denominations as
the exercising Holder shall request in the notice and shall be registered in the
name of such Holder or, subject to Section 9, such other name as shall be
designated in the notice. This Warrant shall be deemed to have been exercised
and such certificate or certificates shall be deemed to have been issued, and
the exercising Holder or any other Person so designated shall be deemed to have
become a holder of record of such shares for all purposes, as of the date the
notice, together with the Warrant Price and this Warrant, are received by the
Company as described above. If this Warrant shall have been exercised in part,
the Company shall, at the time of delivery of the certificate or certificates
representing Warrant Stock, deliver to the exercising Holder a new Warrant
evidencing the right of such Holder to purchase the unpurchased shares of Common
Stock called for by this Warrant and allocated to such Holder, which new Warrant
shall in all other respects be identical with this Warrant, or, at the request
of the exercising Holder, appropriate notation may be made on this Warrant and
the same returned to the exercising Holder.
Payment of the Warrant Price shall be made by certified or official
bank check.
2.2. Payment of Taxes. All shares of Common Stock issuable upon the
exercise of this Warrant shall be validly issued, fully paid and nonassessable
and without any preemptive rights. The Company shall pay all expenses in
connection with, and all taxes and other governmental charges that may be
imposed with respect to, the issue or delivery thereof.
2.3. Fractional Shares. The Company shall not be required to issue
a fractional share of Common Stock upon exercise of this Warrant. As to any
fraction of a share which a Holder would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of such
fraction in an amount equal to the same fraction of the Current Market Price per
share of Common Stock on the date of exercise.
2.4. Determination of Number of Shares; Allocation of Shares. (a)
Subject to Section 4, the number of shares of Common Stock for which this
Warrant is exercisable shall be determined based upon EBITDA of the Company for
the fiscal year ended January 30, 2000 ("FYE 1999 EBITDA"), as follows:
5
<PAGE> 186
<TABLE>
<CAPTION>
FYE 1999 EBITDA Number of Shares
--------------- ----------------
<S> <C>
$15,000,000 or greater 0
$14,000,000 - $14,999,999 200,000
$13,000,000 - $13,999,999 400,000
$12,000,000 - $12,999,999 600,000
$11,000,000 - $11,999,999 800,000
$10,999,999 or less 1,000,000
</TABLE>
(b) The Shares which may be purchased upon exercise of this
Warrant shall be allocated between GECC and JOL in proportion to the
aggregate amount of 1997 Notes and Standby Notes purchased by each of
them pursuant to the Supplemental Securities Purchase Agreement dated
as of August 14, 1997 among the Company, GECC and JOL.
3. TRANSFER, DIVISION AND COMBINATION
3.1. Transfer. Subject to compliance with Section 9, transfer of
this Warrant and all rights of a Holder hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose, upon
surrender of this Warrant at the principal office of the Company referred to in
Section 2.1, together with a written assignment of this Warrant substantially in
the form of Exhibit B hereto duly executed by the transferring Holder and funds
sufficient to pay any transfer taxes payable upon the making of such transfer.
Upon such surrender and, if required, such payment, the Company shall, subject
to Section 9, execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees and in the denomination specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing the portion
of this Warrant not so assigned, and all rights of the transferring Holder under
this Warrant shall promptly be canceled. A Warrant, if properly assigned in
compliance with Section 9, may be exercised by a new Holder for the purchase of
shares of Common Stock without having a new Warrant issued.
3.2. Division and Combination. Subject to Section 9, this Warrant
may be divided into multiple Warrants or combined with other Warrants upon
presentation hereof at the aforesaid office or agency of the Company, together
with a written notice specifying the names and denominations in which new
Warrants are to be issued, signed by the surrendering Holder. Subject to
compliance with Section 3.1 and with Section 9, as to any transfer which may be
involved in such division or combination, the Company shall execute and deliver
a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice. This Warrant shall
6
<PAGE> 187
be divided into separate Warrants in the names of GECC and JOL upon
determination and allocation of the shares of Common Stock covered hereby
pursuant to Section 2.4.
3.3. Expenses. The Company shall prepare, issue and deliver at its
own expense (other than transfer taxes) the new Warrant or Warrants under this
Section 3.
3.4. Maintenance of Books. The Company agrees to maintain, at its
aforesaid office, books for the registration and the registration of transfer of
the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable and/or the price at which such shares may be purchased upon exercise
of this Warrant, shall be subject to adjustment from time to time as set forth
in this Section 4. The Company shall give each Holder notice of any event
described below which requires an adjustment pursuant to this Section 4 at the
time of such event.
4.1. Stock Dividends, Subdivisions and Combinations. If at any time
the Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock,
then the number of shares of Common Stock for which this Warrant is exercisable
immediately after the occurrence of any such event shall be adjusted to equal
the number of shares of Common Stock which a record holder of the same number of
shares of Common Stock for which this Warrant is exercisable immediately prior
to the occurrence of such event would own or be entitled to receive after the
happening of such event.
4.2. Certain Other Distributions. If at any time the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive any dividend or other distribution of:
(a) cash,
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(b) any evidences of its indebtedness, any shares of its stock or
any other securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock), or
(c) any warrants or other rights to subscribe for or purchase any
evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock),
then the number of shares of Common Stock for which this Warrant is exercisable
shall be adjusted to equal the product of the number of shares of Common Stock
for which this Warrant is exercisable immediately prior to such adjustment
multiplied by a fraction (A) the numerator of which shall be the Current Market
Price per share of Common Stock at the date of taking such record and (B) the
denominator of which shall be such Current Market Price per share of Common
Stock minus the amount allocable to one share of Common Stock of any such cash
so distributable and of the fair value (as determined in good faith by the Board
of Directors of the Company and supported by an opinion from an investment
banking firm of recognized national standing acceptable to the Majority Holders)
of any and all such evidences of indebtedness, shares of stock, other securities
or property or warrants or other subscription or purchase rights so
distributable. A reclassification of the Common Stock (other than a change in
par value, or from par value to no par value or from no par value to par value)
into shares of Common Stock and shares of any other class of stock shall be
deemed a distribution by the Company to the holders of its Common Stock of such
shares of such other class of stock within the meaning of this Section 4.2 and,
if the outstanding shares of Common Stock shall be changed into a larger or
smaller number of shares of Common Stock as a part of such reclassification,
such change shall be deemed a subdivision or combination, as the case may be, of
the outstanding shares of Common Stock within the meaning of Section 4.1.
4.3. Issuance of Additional Shares of Common Stock. (a) If at any
time the Company shall (except as hereinafter provided) issue or sell any
Additional Shares of Common Stock, other than Permitted Issuances, for
consideration in an amount per Additional Share of Common Stock less than the
Current Market Price, then the number of shares of Common Stock for which this
Warrant is exercisable shall be adjusted to equal the product obtained by
multiplying the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such issue or sale by a fraction (A) the
numerator of which shall be the number of shares of Common Stock Outstanding
immediately after such issue or sale, and (B) the denominator of which shall be
the number of shares of Common Stock Outstanding immediately prior to such issue
or sale plus the number of shares which the aggregate offering price of the
total number of such Additional Shares of Common Stock would purchase at the
then Current Market Price.
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(b) The provisions of paragraph (a) of this Section 4.3 shall not
apply to any issuance of Additional Shares of Common Stock for which an
adjustment is provided under Section 4.1 or 4.2. No adjustment of the
number of shares of Common Stock for which this Warrant shall be
exercisable shall be made under paragraph (a) of this Section 4.3 upon the
issuance of any Additional Shares of Common Stock which are issued pursuant
to the exercise of any warrants or other subscription or purchase rights or
pursuant to the exercise of any conversion or exchange rights in any
Convertible Securities, if any such adjustment shall previously have been
made upon the issuance of such warrants or other rights or upon the
issuance of such Convertible Securities (or upon the issuance of any
warrant or other rights therefor) pursuant to Section 4.4 or Section 4.5
herein.
4.4. Issuance of Warrants or Other Rights. If at any time the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving
corporation) issue or sell, any warrants or other rights to subscribe for or
purchase any Additional Shares of Common Stock or any Convertible Securities,
whether or not the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is issuable upon the
exercise of such Warrants or other rights or upon conversion or exchange of such
Convertible Securities shall be less than the Current Market Price in effect
immediately prior to the time of such issue or sale, then the number of shares
for which this Warrant is exercisable shall be adjusted as provided in Section
4.3 on the basis that the maximum number of Additional Shares of Common Stock
issuable pursuant to all such warrants or other rights or necessary to effect
the conversion or exchange of all such Convertible Securities shall be deemed to
have been issued and outstanding and the Company shall have received all of the
consideration payable therefor, if any, as of the date of the actual issuance of
the number of shares for which this Warrant is exercisable and such warrants or
other rights. No further adjustments shall be made upon the actual issue of such
Common Stock or of such Convertible Securities upon exercise of such warrants or
other rights or upon the actual issue of such Common Stock upon such conversion
or exchange of such Convertible Securities. Notwithstanding the foregoing, no
adjustment shall be required under this Section 4.4 solely by reason of the
issuance of stock purchase rights under a stockholder rights plan of the
Company, provided that the adjustments required by this Section 4.4 shall be
made if any "flip-in" or "flip-over" event shall occur under such stockholder
rights plan.
4.5. Issuance of Convertible Securities. If at any time the Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving
corporation) issue or sell, any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately
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exercisable, and the price per share for which Common Stock is issuable upon
such conversion or exchange shall be less than the Current Market Price in
effect immediately prior to the time of such issue or sale, then the number of
shares for which this Warrant is exercisable shall be adjusted as provided in
Section 4.3 on the basis that the maximum number of Additional Shares of Common
Stock necessary to effect the conversion or exchange of all such Convertible
Securities shall be deemed to have been issued and outstanding and the Company
shall have received all of the consideration payable therefor, if any, as of the
date of actual issuance of such Convertible Securities. No adjustment of the
number of shares for which this Warrant is exercisable shall be made under this
Section 4.5 upon the issuance of any Convertible Securities which are issued
pursuant to the exercise of any warrants or other subscription or purchase
rights therefor, if any such adjustment shall previously have been made upon the
issuance of such warrants or other rights pursuant to Section 4.4. No further
adjustments of the number of shares for which this Warrant is exercisable shall
be made upon the actual issue of such Common Stock upon conversion or exchange
of such Convertible Securities and, if any issue or sale of such Convertible
Securities is made upon exercise of any warrant or other right to subscribe for
or to purchase any such Convertible Securities for which adjustments of the
number of shares for which this Warrant is exercisable have been or are to be
made pursuant to other provisions of this Section 4, no further adjustments of
the number of shares for which this Warrant is exercisable shall be made by
reason of such issue or sale.
4.6. Superseding Adjustment. If, at any time after any adjustment
of the number of shares of Common Stock for which this Warrant is exercisable
shall have been made pursuant to Section 4.4 or Section 4.5 as the result of any
issuance of warrants, rights or Convertible Securities,
(a) such warrants or rights, or the right of conversion or
exchange in such other Convertible Securities, shall expire, and all or a
portion of such warrants or rights, or the right of conversion or exchange
with respect to all or a portion of such other Convertible Securities, as
the case may be, shall not have been exercised, or
(b) the consideration per share for which shares of Common Stock
are issuable pursuant to such warrants or rights, or the terms of such
other Convertible Securities, shall be increased solely by virtue of
provisions therein contained for an automatic increase in such
consideration per share upon the occurrence of a specified date or event,
then for each outstanding Warrant such previous adjustment shall be rescinded
and annulled and the Additional Shares of Common Stock which were deemed to have
been issued by virtue of the computation made in connection with the adjustment
so rescinded
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and annulled shall no longer be deemed to have been issued by virtue of such
computation. Thereupon, a recomputation shall be made of the effect of such
rights or options or other Convertible Securities on the basis of
(c) treating the number of Additional Shares of Common Stock or
other property, if any, theretofore actually issued or issuable pursuant to
the previous exercise of any such warrants or rights or any such right of
conversion or exchange, as having been issued on the date or dates of any
such exercise and for the consideration actually received and receivable
therefor, and
(d) treating any such warrants or rights or any such other
Convertible Securities which then remain outstanding as having been granted
or issued immediately after the time of such increase of the consideration
per share for which shares of Common Stock or other property are issuable
under such warrants or rights or other Convertible Securities; whereupon a
new adjustment of the number of shares of Common Stock for which this
Warrant is exercisable shall be made, which new adjustment shall supersede
the previous adjustment so rescinded and annulled.
4.7. Other Provisions Applicable to Adjustments under this Section.
The following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable provided
for in this Section 4:
(a) Computation of Consideration. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any
warrants or other rights to subscribe for or purchase any Additional Shares
of Common Stock or any Convertible Securities shall be issued for cash
consideration, the consideration received by the Company therefor shall be
the amount of the cash received by the Company therefor, or, if such
Additional Shares of Common Stock or Convertible Securities are offered by
the Company for subscription, the subscription price, or, if such
Additional Shares of Common Stock or Convertible Securities are sold to
underwriters or dealers for public offering without a subscription
offering, the public offering price (in any such case subtracting any
amounts paid or receivable for accrued interest or accrued dividends and
without taking into account any compensation, discounts or expenses paid or
incurred by the Company for and in the underwriting of, or otherwise in
connection with, the issuance thereof). To the extent that such issuance
shall be for a consideration other than cash, then, except as herein
otherwise expressly provided, the amount of such consideration shall be
deemed to be the fair value of such consideration at the time of such
issuance as determined in good faith by the Board of Directors of the
Company. In case any Additional Shares of Common Stock or any Convertible
Securities or any warrants
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or other rights to subscribe for or purchase such Additional Shares of
Common Stock or Convertible Securities shall be issued in connection with
any merger in which the Company issues any securities, the amount of
consideration therefor shall be deemed to be the fair value, as determined
in good faith by the Board of Directors of the Company, of such portion of
the assets and business of the nonsurviving corporation as such Board in
good faith shall determine to be attributable to such Additional Shares of
Common Stock, Convertible Securities, warrants or other rights, as the case
may be. The consideration for any Additional Shares of Common Stock
issuable pursuant to any warrants or other rights to subscribe for or
purchase the same shall be the consideration received by the Company for
issuing such warrants or other rights plus the additional consideration
payable to the Company upon exercise of such warrants or other rights. The
consideration for any Additional Shares of Common Stock issuable pursuant
to the terms of any Convertible Securities shall be the consideration
received by the Company for issuing warrants or other rights to subscribe
for or purchase such Convertible Securities, plus the consideration paid or
payable to the Company in respect of the subscription for or purchase of
such Convertible Securities, plus the additional consideration, if any,
payable to the Company upon the exercise of the right of conversion or
exchange in such Convertible Securities. In case of the issuance at any
time of any Additional Shares of Common Stock or Convertible Securities in
payment or satisfaction of any dividends upon any class of stock other than
Common Stock, the Company shall be deemed to have received for such
Additional Shares of Common Stock or Convertible Securities a consideration
equal to the amount of such dividend so paid or satisfied.
(b) When Adjustments to Be Made. The adjustments required by this
Section 4 shall be made whenever and as often as any specified event
requiring an adjustment shall occur, except that any adjustment of the
number of shares of Common Stock for which this Warrant is exercisable that
would otherwise be required may be postponed (except in the case of a
subdivision or combination of shares of the Common Stock, as provided for
in Section 4.1) up to, but not beyond the date of exercise if such
adjustment either by itself or with other adjustments not previously
results in an increase or decrease of less than 1% of the shares of Common
Stock for which this Warrant is exercisable immediately prior to the making
of such adjustment. Any adjustment representing a change of less than such
minimum amount (except as aforesaid) which is postponed shall be carried
forward and made as soon as such adjustment, together with other
adjustments required by this Section 4 and not previously made, would
result in a minimum adjustment or on the date of exercise. For the purpose
of any adjustment, any specified event shall be deemed to have occurred at
the close of business on the date of its occurrence.
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(c) Fractional Interests. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into account
to the nearest 1/100th of a share.
(d) When Adjustment Not Required. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them
to receive a dividend or distribution or subscription or purchase rights
and shall, thereafter and before the distribution to stockholders thereof,
legally abandon its plan to pay or deliver such dividend, distribution,
subscription or purchase rights, then thereafter no adjustment shall be
required by reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.
(e) Escrow of Warrant Stock. If after any property becomes
distributable pursuant to this Section 4 by reason of the taking of any
record of the holders of Common Stock, but prior to the occurrence of the
event for which such record is taken, Holder exercises this Warrant, any
Additional Shares of Common Stock issuable upon exercise by reason of such
adjustment shall be deemed the last shares of Common Stock for which this
Warrant is exercised (notwithstanding any other provision to the contrary
herein) and such shares or other property shall be held in escrow for
Holder by the Company to be issued to Holder when and to the extent that
the event actually takes place, upon payment of the Warrant Price.
Notwithstanding any other provision to the contrary herein, if the event
for which such record was taken fails to occur or is rescinded, then such
escrowed shares shall be canceled by the Company and escrowed property
returned.
4.8. Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then Holder shall have the right thereafter to receive, upon
exercise of this Warrant and payment of the Warrant Price, the number of shares
of common stock of the successor or acquiring corporation or of the Company, if
it is the surviving corporation, and Other Property receivable upon or as a
result of such reorganization, reclassification, merger, consolidation or
disposition of
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assets by a holder of the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to such event. In case of any such
reorganization, reclassification, merger, consolidation or disposition of
assets, the successor or acquiring corporation (if other than the Company) shall
expressly assume the due and punctual observance and performance of each and
every covenant and condition of this Warrant to be performed and observed by the
Company and all the obligations and liabilities hereunder, subject to such
modifications as may be deemed appropriate (as determined by resolution of the
Board of Directors of the Company) in order to provide for adjustments of shares
of the Common Stock for which this Warrant is exercisable which shall be as
nearly equivalent as practicable to the adjustments provided for in this Section
4. For purposes of this Section 4.8, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 4.8 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
4.9. Other Action Affecting Common Stock. In case at any time or
from time to time the Company shall take any action in respect of its Common
Stock, other than any action described in this Section 4, then, unless such
action will not have a materially adverse effect upon the rights of the Holders,
the number of shares of Common Stock or other stock for which this Warrant is
exercisable shall be adjusted in such manner as may be equitable in the
circumstances.
5. NOTICES TO WARRANT HOLDERS
5.1. Notice of Adjustments. Whenever the number of shares of Common
Stock for which this Warrant is exercisable shall be adjusted pursuant to
Section 4, the Company shall forthwith prepare a certificate to be executed by
the chief financial officer of the Company setting forth, in reasonable detail,
the event requiring the adjustment and the method by which such adjustment was
calculated (including a description of the basis on which the Board of Directors
of the Company determined the fair value of any evidences of indebtedness,
shares of stock, other securities or property or warrants or other subscription
or purchase rights referred to in Section 4.2 or 4.7(a)), specifying the number
of shares of Common Stock for which this Warrant is exercisable and (if such
adjustment was made pursuant to Section 4.8) describing the number and kind of
any other shares of stock or Other Property for which this Warrant is
exercisable, after giving effect to such adjustment. The Company shall promptly
cause a signed copy of such certificate to be delivered to each Holder in
accordance with Section 13.2. The Company
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shall keep at its principal office copies of all such certificates and cause the
same to be available for inspection at said office during normal business hours
by any Holder or any prospective purchaser of a Warrant designated by a Holder
thereof.
5.2. Notice of Corporate Action. If at any time
(a) the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend (other than a
cash dividend payable out of earnings or earned surplus legally available
for the payment of dividends under the laws of the jurisdiction of
incorporation of the Company) or other distribution, or any right to
subscribe for or purchase any evidences of its indebtedness, any shares of
stock of any class or any other securities or property, or to receive any
other right, or
(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger of the Company with, or any sale, transfer or
other disposition of all or substantially all the property, assets or
business of the Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to each Holder
(i) at least 20 days' prior written notice of the date on which a record date
shall be selected for such dividend, distribution or right or for determining
rights to vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, at least 20 days' prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause also shall specify
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common Stock
shall be entitled to any such dividend, distribution or right, and the amount
and character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to each
Holder at the last address of such Holder appearing on the books of the Company
and delivered in accordance with Section 13.2.
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6. RIGHTS OF HOLDERS
6.1. No Impairment. The Company shall not by any action, including,
without limitation, amending its Certificate of Incorporation or comparable
governing instruments or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of each Holder against
impairment. Without limiting the generality of the foregoing, the Company will
(a) not increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the amount payable therefor upon such exercise
immediately prior to such increase in par value, (b) take all such action as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the exercise of
this Warrant, and (c) use its best efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be necessary to enable the Company to perform its obligations
under this Warrant.
Upon the request of any Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form reasonably
satisfactory to such Holder, the continuing validity of this Warrant and the
obligations of the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY
From and after the Closing Date, the Company shall at all times reserve
and keep available for issue upon the exercise of Warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding Warrants. All shares of Common Stock
which shall be so issuable, when issued upon exercise of any Warrant and payment
therefor in accordance with the terms of such Warrant, shall be duly and validly
issued and fully paid and nonassessable, and not subject to preemptive rights.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company to
the holders of its Common Stock with respect to which any provision of Section 4
refers to the taking of a record of such holders, the Company will in each such
case take such a record and will take such record as of the close of business on
a Business Day. The
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Company will not at any time, except upon dissolution, liquidation or winding up
of the Company, close its stock transfer books or Warrant transfer books so as
to result in preventing or delaying the exercise or transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant or
any Warrant Stock. Each Holder, by acceptance of this Warrant, agrees to be
bound by the provisions of this Section 9.
9.1. Restrictive Legend. Except as otherwise provided in this
Section 9, each Warrant and each certificate for Warrant Stock initially issued
upon the exercise of a Warrant, and each certificate for Warrant Stock issued to
any subsequent transferee of any such certificate, shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"[THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY] [THE
SECURITIES REPRESENTED BY THIS CERTIFICATE] HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE
AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH LAWS."
"IN ADDITION TO THE RESTRICTIONS SET FORTH IN THE SECURITIES
PURCHASE AGREEMENT AND THE SUPPLEMENTAL SECURITIES PURCHASE AGREEMENT
BY AND AMONG KRAUSE'S FURNITURE, INC., GENERAL ELECTRIC CAPITAL
CORPORATION AND JAPAN OMNIBUS LTD., [THIS WARRANT IS] [THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE] SUBJECT TO THE RESTRICTIONS SET
FORTH IN THE STOCKHOLDERS AGREEMENT BY AND AMONG KRAUSE'S FURNITURE,
INC. AND THE STOCKHOLDERS PARTIES THERETO, COPIES OF WHICH ARE ON FILE
IN THE OFFICES OF THE CORPORATION."
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9.2. Notice of Proposed Transfers; Requests for Registration. Prior
to any Transfer or attempted Transfer of any Warrants or any shares of
Restricted Common Stock, the holder of such Warrants or Restricted Common Stock
shall give ten days' prior written notice (a "Transfer Notice") to the Company
of such holder's intention to effect such Transfer, describing the manner and
circumstances of the proposed Transfer, and obtain from counsel to such holder
who shall be reasonably satisfactory to the Company, an opinion that the
proposed Transfer of such Warrants or such Restricted Common Stock may be
effected without registration under the Securities Act. After receipt of the
Transfer Notice and opinion, the Company shall, within five days thereof, notify
the holder of such Warrants or such Restricted Common Stock as to whether such
opinion is reasonably satisfactory and, if so, such holder shall thereupon be
entitled to Transfer such Warrants or such Restricted Common Stock, in
accordance with the terms of the Transfer Notice. Each certificate, if any,
evidencing such shares of Restricted Common Stock issued upon such Transfer and
each Warrant issued upon such Transfer shall bear the restrictive legend set
forth in Section 9.1, unless in the opinion of such counsel such legend is not
required in order to ensure compliance with the Securities Act. The holder of
the Warrants or the Restricted Common Stock, as the case may be, giving the
Transfer Notice shall not be entitled to Transfer such Warrants or such
Restricted Common Stock until receipt of notice from the Company under this
Section 9.2 that such opinion is reasonably satisfactory.
9.3. Registration Rights. The holders of Warrants and Warrant Stock
shall have the registration rights set forth in the Registration Rights
Agreement.
9.4. Termination of Restrictions. Notwithstanding the foregoing
provisions of this Section 9, the restrictions imposed by this Section upon the
transferability of the Warrants, the Warrant Stock and the Restricted Common
Stock and the legend requirements of Section 9.1 shall terminate as to any
particular Warrant or share of Warrant Stock or Restricted Common Stock (i) when
and so long as such security shall have been effectively registered under the
Securities Act and disposed of pursuant thereto or (ii) when the Company shall
have received an opinion of counsel reasonably satisfactory to it that such
shares may be transferred without registration thereof under the Securities Act.
10. SUPPLYING INFORMATION
The Company shall cooperate with each Holder of a Warrant and each
holder of Restricted Common Stock in supplying such information as may be
reasonably necessary for such holder to complete and file any reports or forms
presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of any Warrant
or Restricted Common Stock.
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11. LOSS OR MUTILATION
Upon receipt by the Company from any Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it being
understood that the written agreement of GECC or JOL shall be sufficient
indemnity), and in case of mutilation upon surrender and cancellation hereof,
the Company will execute and deliver in lieu hereof a new Warrant of like tenor
to such Holder; provided, in the case of mutilation, no indemnity shall be
required if this Warrant in identifiable form is surrendered to the Company for
cancellation.
12. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by a Holder
to purchase shares of Common Stock, and no enumeration herein of the rights or
privileges of any Holder hereof, shall give rise to any liability of such Holder
for the purchase price of any Common Stock or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
13. MISCELLANEOUS
13.1. Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of a Holder shall operate as
a waiver of such right or otherwise prejudice such Holder's rights, powers or
remedies. If the Company fails to make, when due, any payments provided for
hereunder, or fails to comply with any other provision of this Warrant, the
Company shall pay to each Holder such amounts as shall be sufficient to cover
any costs and expenses including, but not limited to, reasonable attorneys'
fees, including those of appellate proceedings, incurred by such Holder in
collecting any amounts due pursuant hereto or in otherwise enforcing any of its
rights, powers or remedies hereunder.
13.2. Notice Generally. Any notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Warrant shall be sufficiently given or made
if in writing and either delivered in person with receipt acknowledged or sent
by registered or certified mail, return receipt requested, postage prepaid, or
by telecopy and confirmed by telecopy answerback, addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at its last known
address appearing on the books of the Company maintained for such purpose.
(b) If to the Company at
19
<PAGE> 200
Krause's Furniture, Inc.
200 North Berry Street
Brea, CA 92821-3903
Attention: Philip M. Hawley
Robert A. Burton
Judith O. Lasker
Telecopy Number: (714) 990-3561
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and confirmed by telecopy
answerback, or three (3) Business Days after the same shall have been deposited
in the United States mail. Failure or delay in delivering copies of any notice,
demand, request, approval, declaration, delivery or other communication to the
person designated above to receive a copy shall in no way adversely affect the
effectiveness of such notice, demand, request, approval, declaration, delivery
or other communication.
13.3. Remedies. Each holder of this Warrant and Warrant Stock, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under of this Warrant. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Warrant and hereby agrees to waive the defense in any action
for specific performance that a remedy at law would be adequate.
13.4. Successors and Assigns. Subject to the provisions of Sections
3.1, this Warrant and the rights evidenced hereby shall inure to the benefit of
and be binding upon the successors of the Company and the successors and assigns
of each Holder. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant and, with respect to
Section 9 hereof, holders of Warrant Stock, and shall be enforceable by any such
Holder or holder of Warrant Stock.
13.5. Amendment. This Warrant and all other Warrants may be modified
or amended or the provisions hereof waived with the written consent of the
Company and the Majority Holders, provided that no such Warrant may be modified
or amended to reduce the number of shares of Common Stock for which such Warrant
is exercisable or to increase the price at which such shares may be purchased
upon exercise of such Warrant (before giving effect to any adjustment as
provided therein) without the prior written consent of the Holder thereof,
provided however, that the foregoing shall not limit
20
<PAGE> 201
the operation of Section 4.6; provided, further, that so long as the interests
of GECC and JOL are represented by a single Warrant, no modification, amendment
or waiver of any provision of such Warrant will be made without the written
consent of each of GECC and JOL.
13.6. Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
13.7. Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
13.8. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO
THE PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION
OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES OF AMERICA, IN
EACH CASE LOCATED IN THE COUNTY OF NEW YORK, FOR ANY ACTION, PROCEEDING OR
INVESTIGATION IN ANY COURT OR BEFORE ANY GOVERNMENTAL AUTHORITY ("LITIGATION")
ARISING OUT OF OR RELATING TO THIS WARRANT AND THE TRANSACTIONS CONTEMPLATED
HEREBY (AND AGREES NOT TO COMMENCE ANY LITIGATION RELATING THERETO EXCEPT IN
SUCH COURTS), AND FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR
DOCUMENT BY U.S. REGISTERED MAIL TO ITS RESPECTIVE ADDRESS SET FORTH IN THIS
WARRANT SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY LITIGATION BROUGHT AGAINST
IT IN ANY SUCH COURT. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY LITIGATION
ARISING OUT OF THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN THE
COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES OF AMERICA, IN EACH CASE
LOCATED IN THE COUNTY OF NEW YORK, AND HEREBY FURTHER IRREVOCABLY AND
UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT
ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. EACH OF THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
21
<PAGE> 202
AND ALL RIGHTS TO TRIAL BY JURY IN CONNECTION WITH ANY LITIGATION ARISING OUT OF
OR RELATING TO THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
22
<PAGE> 203
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
Dated: August ___, 1997
KRAUSE'S FURNITURE, INC.
By: ________________________________
Name: Robert A. Burton
Title: Senior Vice President
and Chief Financial Officer
Attest:
By: _____________________________
Name: Judith O. Lasker
Title: Corporate Secretary
23
<PAGE> 204
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for the purchase of _____ Shares of Common Stock of KRAUSE'S
FURNITURE, INC. and herewith makes payment therefor, all at the price and on the
terms and conditions specified in this Warrant and requests that certificates
for the shares of Common Stock hereby purchased (and any securities or other
property issuable upon such exercise) be issued in the name of and delivered to
_____________ whose address is ________________ and, if such shares of Common
Stock shall not include all of the shares of Common Stock issuable as provided
in this Warrant, that a new Warrant of like tenor and date for the balance of
the shares of Common Stock issuable hereunder be delivered to the undersigned.
------------------------------------
(Name of Registered Owner)
------------------------------------
(Signature of Registered Owner)
------------------------------------
(Street Address)
------------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
24
<PAGE> 205
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of Common Stock
- ---------------------------- -----------------------------
and does hereby irrevocably constitute and appoint ________________
attorney-in-fact to register such transfer on the books of KRAUSE'S FURNITURE,
INC. maintained for the purpose, with full power of substitution in the
premises.
Dated:_______________ Print Name:__________________
Signature:___________________
Witness:_____________________
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
<PAGE> 206
Exhibit E: Replacement Note
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
THIS NOTE IS SUBJECT TO THE RESTRICTIONS SET FORTH IN THE SECURITIES
PURCHASE AGREEMENT AND
THE SUPPLEMENTAL SECURITIES PURCHASE AGREEMENT BY AND AMONG KRAUSE'S
FURNITURE, INC.,
GENERAL ELECTRIC CAPITAL CORPORATION AND JAPAN OMNIBUS
LTD., COPIES OF WHICH ARE ON FILE IN THE OFFICES
OF THE CORPORATION.
KRAUSE'S FURNITURE, INC.
9.50% Subordinated Note
due August 31, 2002
New York, NY
$5,501,091.00 August 14, 1997
KRAUSE'S FURNITURE, INC. (the "Company"), a Delaware corporation, for
value received, hereby promises to pay to GENERAL ELECTRIC CAPITAL CORPORATION
("GECC"), or registered assigns, the sum of FIVE MILLION FIVE HUNDRED AND ONE
THOUSAND NINETY ONE DOLLARS ($5,501,091.00), payable in six equal installments
of principal of $916,848.50, commencing on February 28, 2000, and on each August
31 and February 28 thereafter until August 31, 2002, with interest (computed on
the basis of a 360-day year of twelve 30-day months) on the unpaid balance of
such principal amount at the rate of 9.50% per annum from the date hereof, due
and payable (i) quarterly, on each November 30, February 28, May 31 and August
31 (each, a "Payment Date") after the date of the Notes commencing with November
30, 1997 and (ii) on the date of any prepayment, on the amount prepaid, until
the Notes have been paid in full. Accrued interest on each Note is required to
be paid in cash (in accordance with Section 5.1 of the Supplemental Securities
Purchase Agreement dated as of August 14, 1997, as from time to time amended, by
and among the Company, GECC and Japan Omnibus Ltd. (the "Supplemental Securities
Purchase Agreement")) on each Payment Date.
Interest on this Note shall cease to accrue if (i) the holder of this
Note has been notified by the Company under Section 9.5 of the Supplemental
Securities Purchase Agreement that this Note will be redeemed, and (ii) all
amounts due under this Note are
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<PAGE> 207
paid to the holder of this Note on the redemption date specified in such notice
or such amounts are segregated and held in trust by the Company for payment upon
surrender of this Note in accordance with such notice. During the continuance of
any Event of Default (as defined in the Supplemental Securities Purchase
Agreement), the Company shall pay interest on the outstanding principal of, and
any other amounts (other than interest), if any, due on the Notes and (to the
extent legally enforceable) on any overdue installment of interest, at the rate
of 12.00% per annum (computed on the same basis as above) until such overdue
amount is paid or until such Event of Default is cured or waived. All payments
on this Note shall be made in lawful money of the United States of America at
the address specified by the holder hereof for such purpose in Schedule 5.1 to
the Supplemental Securities Purchase Agreement or by such method as may be
designated by notice to the Company, in the manner set forth in the Supplemental
Securities Purchase Agreement.
The outstanding principal amount of this Note shall be payable in six
equal installments of principal of $916,848.50, commencing on February 28, 2000,
and on each August 31 and February 28 thereafter until August 31, 2002. This
Note is also subject to optional redemption, in whole or in part, all as
specified in the Supplemental Securities Purchase Agreement.
This Note replaces the Original Note issued August 26, 1996, and the
Additional Notes issued November 30, 1996, February 28, 1997 and May 31, 1997,
pursuant to the terms of the Supplemental Securities Purchase Agreement. The
registered holder of this Note is entitled to the benefits of such Supplemental
Securities Purchase Agreement and may enforce the agreements of the Company
contained therein and exercise the remedies provided for thereby or otherwise
available in respect thereof.
This Note is expressly subordinated to the extent and in the manner
provided in Section 10 of the Supplemental Securities Purchase Agreement to all
Senior Indebtedness (as defined therein) of the Company.
This Note is a registered Note and, as provided in the Supplemental
Securities Purchase Agreement, is transferable only upon surrender of this Note
for registration of transfer, duly endorsed, or accompanied by a written
instrument of transfer duly executed, by the registered holder hereof or his
attorney duly authorized in writing. The Company may treat the person in whose
name this Note is registered as the owner hereof for the purpose of receiving
payment and for all other purposes, and the Company shall not be affected by any
notice to the contrary.
In case an Event of Default shall occur and be continuing, the unpaid
balance of the principal, interest and any other amounts payable on this Note
may be
-2-
<PAGE> 208
declared and become due and payable in the manner and with the effect
provided in the Supplemental Securities Purchase Agreement.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF
LAW. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS
TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK
AND OF THE UNITED STATES OF AMERICA, IN EACH CASE LOCATED IN THE COUNTY OF NEW
YORK, FOR ANY ACTION, PROCEEDING OR INVESTIGATION IN ANY COURT OR BEFORE ANY
GOVERNMENTAL AUTHORITY ("LITIGATION") ARISING OUT OF OR RELATING TO THIS NOTE
AND THE TRANSACTIONS CONTEMPLATED HEREBY (AND AGREES NOT TO COMMENCE ANY
LITIGATION RELATING THERETO EXCEPT IN SUCH COURTS), AND FURTHER AGREES THAT
SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR DOCUMENT BY U.S. REGISTERED MAIL TO
ITS RESPECTIVE ADDRESS SET FORTH IN THIS NOTE SHALL BE EFFECTIVE SERVICE OF
PROCESS FOR ANY LITIGATION BROUGHT AGAINST IT IN ANY SUCH COURT. EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION TO
THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF THIS NOTE OR THE
TRANSACTIONS CONTEMPLATED HEREBY IN THE COURTS OF THE STATE OF NEW YORK OR THE
UNITED STATES OF AMERICA, IN EACH CASE LOCATED IN THE COUNTY OF NEW YORK, AND
HEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR
CLAIM IN ANY SUCH COURT THAT ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE PARTIES IRREVOCABLY AND
UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
AND ALL RIGHTS TO TRIAL BY JURY IN CONNECTION WITH ANY LITIGATION ARISING OUT OF
OR RELATING TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY.
KRAUSE'S FURNITURE, INC.
By:________________________
Name:
Title:
-3-
<PAGE> 1
EXHIBIT 10.2
FOURTH AMENDMENT TO LOAN AND
SECURITY AGREEMENT
THIS FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
"Amendment"), dated as of August 14, 1997, is entered into by and between
CONGRESS FINANCIAL CORPORATION (WESTERN), a California corporation ("Lender"),
with a place of business at 225 South Lake Avenue, Suite 1000, Pasadena,
California 91101 and KRAUSE'S SOFA FACTORY, a California corporation, and its
wholly owned subsidiary, CASTRO CONVERTIBLE CORPORATION, a New York corporation
(jointly and severally, "Borrower"), with its chief executive office located at
200 N. Berry Street, Brea, California 92821.
RECITALS
A. Borrower and Lender have previously entered into that certain Loan
and Security Agreement dated as of January 20, 1995, as amended by that certain
First Amendment to Loan and Security Agreement dated as of May 10, 1996, that
certain Second Amendment to Loan and Security Agreement dated as of August 26,
1996, and that certain Third Amendment to Loan and Security Agreement dated as
of November 25, 1996 (collectively, the "Loan Agreement"), pursuant to which
Lender has made certain loans and financial accommodations available to
Borrower. Terms used herein without definition shall have the meanings ascribed
to them in the Loan Agreement.
B. Concurrently with the execution of this Amendment, Borrower is
receiving an additional contribution in the minimum amount of Two Million Five
Hundred Thousand Dollars ($2,500,000) from the Parent in the form of
subordinated debt.
C. In connection with the such contribution, Borrower has requested
that Lender amend the Loan Agreement to (i) increase the advance rate for
Eligible Inventory and Eligible Raw Materials, (ii) add additional financial
covenants relating to EBITDA and (iii) modify the negative covenant relating to
permitted indebtedness.
D. Lender is willing to further amend the Loan Agreement under the
terms and conditions set forth in this Amendment. Borrower is entering into this
Amendment with the understanding and agreement that none of Lender's rights or
remedies as set forth in the Loan Agreement is being waived or modified by the
terms of this Amendment.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1
<PAGE> 2
1. Amendment of Credit Facilities Provision. Paragraph (a) of Section
2.1 of the Loan Agreement, entitled Revolving Loans, is hereby amended in its
entirety as follows:
"(a) Subject to, and upon the terms and conditions contained
herein, Lender agrees to make Revolving Loans to Borrower from time to
time in amounts requested by Borrower up to the amount equal to the sum
of:
(i) the lesser of (A) sixty-seven percent (67%) of the Value of
Eligible Inventory or (B) eighty-five percent (85%) of the Value of
Eligible Inventory multiplied by the appraised median net recovery
percentage of Eligible Inventory (net of all costs and expenses
anticipated by Lender to be incurred in liquidating the Eligible
Inventory), as determined from time to time by an appraiser acceptable
to Lender in a manner consistent with the determination of net recovery
by BGA Consulting as set forth in their Inventory Liquidation Analysis
of the Borrower dated March 20,1997, as amended (the 'Analysis');
(ii) notwithstanding the exclusion of raw materials from the definition
of Eligible Inventory, the lesser of (x) fifty percent (50%) of the
Value of raw materials consisting of fabric and leather ('Eligible Raw
Materials') or (y) One Million Dollars ($1,000,000); less
(iii) any Availability Reserves;
provided, however, at no time shall aggregate advances under clauses
(i) and (ii) above exceed eighty percent (80%) of the combined Value of
Eligible Inventory and Eligible Raw Materials multiplied by the
combined appraised median net recovery percentage of Eligible Inventory
and Eligible Raw Materials (net of all costs and expenses anticipated
by Lender to be incurred in liquidating the Eligible Inventory and
Eligible Raw Materials), as determined from time to time by an
appraiser acceptable to Lender in a manner consistent with the
determination of net recovery by BGA Consulting as set forth in the
Analysis."
2. Amendment to Collateral Reporting and Covenants Provision. Clause
(d) of Section 7.3 of the Loan Agreement, entitled "Inventory Covenants", is
hereby amended in its entirety as follows:
"(d) upon Lender's request, Borrower shall, at its expense, not less
frequently than semi-annually prior to the occurrence of an Event of
Default, and at any time or times as Lender may request on or after an
2
<PAGE> 3
Event of Default, deliver or cause to be delivered to Lender written
reports or appraisals as to the Inventory in form, scope and
methodology acceptable to Lender and by an appraiser acceptable to
Lender, addressed to Lender or upon which Lender is expressly permitted
to rely (with the understanding that Lender may revise the definition
of 'Eligible Inventory' hereunder as Lender may deem advisable in its
sole discretion based upon the results of such updated appraisals);"
3. Amendment to Indebtedness Covenant Provision. Paragraph (e) of
Section 9.9 of the Loan Agreement, entitled "Indebtedness", is hereby amended in
its entirety as follows:
"(e) unsecured indebtedness of Borrower to Krause's Furniture,
Inc., a Delaware corporation ("Parent"), in a maximum amount of
Twenty-Four Million Two Hundred Fifty Thousand Dollars ($24,250,000)
consisting of: (i) Two Million Seven Hundred Thousand Dollars
($2,700,000) evidenced by that certain amended and restated Promissory
Note, dated as of January 20, 1995, issued by Borrower payable to
Parent, which amount is the result of reducing the outstanding
principal amount of such indebtedness of Four Million Seven Hundred
Thousand Dollars ($4,700,000) as of January 20, 1995 by Two Million
Dollars ($2,000,000) funded from the initial advances hereunder; (ii)
up to One Million Dollars ($1,000,000) in payment under Borrower's
agreement to indemnify Parent from any loss, cost, expense or liability
incurred by Parent in providing cash collateral for the issuance of an
One Million Dollars ($1,000,000) standby letter of credit for the
benefit of the landlord of Borrower's Brea, California facility, which
letter of credit expires in 1999 and, if drawn prior to its expiry,
will be treated as a bullet loan from Parent to Borrower due January
20, 2000 in the amount of any draw thereunder; (iii) One Million Seven
Hundred Fifty Thousand Dollars ($1,750,000) of indebtedness advanced by
Parent to Borrower during the period from January 20, 1995 through
August 22, 1996, evidenced by those certain Promissory Notes, dated,
respectively: as of September 22, 1995 in the original principal amount
of Five Hundred Thousand Dollars ($500,000); as of May 3, 1996 in the
original principal amount of Five Hundred Thousand Dollars ($500,000);
and as of May 22, 1996 in the original amount of Seven Hundred Fifty
Thousand Dollars ($750,000), each issued by Borrower payable to Parent;
(iv) Five Million Dollars ($5,000,000) of indebtedness evidenced by
that certain Promissory Note, dated as of August 26, 1996, issued by
Borrower payable to Parent; (v) One Million Dollars ($1,000,000) of
indebtedness evidenced by that certain Promissory Note, dated as of
September 27, 1996,
3
<PAGE> 4
issued by Borrower payable to Parent; (vi) One Million Five Hundred
Thousand Dollars ($1,500,000) of indebtedness evidenced by that certain
Promissory Note, dated as of October 18, 1996, issued by Borrower
payable to Parent; (vii) Two Million Five Hundred Thousand Dollars
($2,500,000) of indebtedness evidenced by that certain Promissory Note,
dated as of November 26, 1996, issued by Borrower payable to parent;
(viii) One Million Five Hundred Thousand Dollars ($1,500,000) of
indebtedness evidenced by that certain Promissory Note, dated as of
January 10, 1997, issued by Borrower payable to Parent; (ix) Five
Hundred Thousand Dollars ($500,000) of indebtedness evidenced by that
certain Promissory Note, dated as of April 3, 1997, issued by Borrower
payable to Parent; (x) Two Hundred Thousand Dollars ($200,000) of
indebtedness evidenced by that certain Promissory Note, dated as of May
14, 1997, issued by Borrower payable to parent; (xi) Three Million
Dollars ($3,000,000) of indebtedness as evidenced by that certain
Promissory Note, dated as of August 15, 1997, issued by Borrower
payable to Parent; and (xii) up to Three Million Six Hundred Thousand
Dollars ($3,600,000) of additional indebtedness to be extended by
Parent to Borrower, from time to time; all of which indebtedness is
subject to, and subordinate in right of payment to, the right of Lender
to receive the prior payment in full of all of the Obligations;
provided, that: (i) Borrower shall not, directly or indirectly, make
any payments in respect of such indebtedness, including, but not
limited to, any prepayments or other non-mandatory payments, except
that until an Event of Default, or event which with notice or passage
of time or both would constitute an Event of Default, shall exist or
have occurred and be continuing, Borrower may make payments of
principal and interest in accordance with the terms of that certain
Amended and Restated Subordination Agreement between Parent and Lender
dated August 26, 1996 (the "Subordination Agreement"), (ii) Borrower
shall not, directly or indirectly, (A) amend, modify, alter or change
any terms of such indebtedness or any agreement, document or instrument
related thereto, or (B) redeem, retire, defease, purchase or otherwise
acquire such indebtedness, or set aside or otherwise deposit or invest
any sums for such purpose, except as permitted by the Subordination
Agreement, and (iii) Borrower shall furnish to Lender all notices,
demands or other materials concerning such indebtedness either received
by Borrower or on its behalf, promptly after receipt thereof, or sent
by Borrower or on its behalf, concurrently with the sending thereof, as
the case may be."
4
<PAGE> 5
4. Addition of EBITDA Financial Covenant.
(a) Section 1 of the Loan Agreement is hereby amended to add
the following definition in its proper alphabetical order:
"'EBITDA' shall mean, for any specified accounting period, net
income (or net loss), plus, to the extent deducted in determining such
net income (or net loss), the sum of (a) interest expense, (b) income
tax expense, (c) depreciation, and (d) amortization, in each case
determined in accordance with GAAP for such period, and minus, to the
extent included in determining such net income (or net loss),
Borrower's non-recurring miscellaneous and extraordinary income for
such period."
(b) The following is hereby added to the Loan Agreement as
Section 9.15 and existing Sections 9.15 to 9.17 as hereby redesignated
as Sections 9.16 to 9.18 accordingly:
"9.15 Minimum EBITDA. Borrower shall, on and as of
the ending date of each fiscal quarter set forth below
maintain EBITDA of not less than the amount set forth next to
such ending date of each fiscal quarter:
Fiscal Quarter Ending
October 1997 $578,000
Fiscal Quarter Ending
January 1998 $482,000
Fiscal Quarter Ending
April 1998 $745,000
Fiscal Quarter Ending
July 1998 $1,010,000
Fiscal Quarter Ending
October 1998 $1,647,000
Fiscal Quarter Ending
January 1999 $1,505,000
Fiscal Quarter Ending
April 1999 $1,671,000
Fiscal Quarter Ending
July 1999 $2,064,000
5
<PAGE> 6
Fiscal Quarter Ending
October 1999 $2,825,000
Fiscal Quarter Ending
January 2000 $2,746,000"
5. Modification Fee. In consideration of Lender's agreement to enter
into this Amendment with Borrower and to provide Borrower with the financial
accommodations described herein, Borrower shall pay to Lender a modification fee
in the amount of Twenty-Five Thousand Dollars ($25,000). Such modification fee
shall be payable simultaneously with the execution hereof and shall be deemed
fully earned at the time of payment.
6. Effectiveness of this Amendment. Lender must have received the
following items, in form and substance acceptable to Lender, or evidence of the
occurrence thereof, before this Amendment is effective and before Lender is
required to extend any credit to Borrower as provided for by this Amendment. The
date on which all of the following conditions have been satisfied is the
"Closing Date".
(a) Amendment. This Amendment fully executed in a sufficient
number of counterparts for distribution to Lender and Borrower.
(b) Authorizations. Evidence that the execution, delivery and
performance by Borrower and each guarantor or subordinating creditor of
this Amendment and any instrument or agreement required under this
Amendment have been duly authorized.
(c) Representations and Warranties. The Representations and
Warranties set forth in the Loan Agreement must be true and correct.
(d) Subordinated Debt. Borrower shall have received from
Parent a capital contribution in the minimum amount of Two Million Five
Hundred Thousand Dollars ($2,500,000) as subordinated debt on terms and
conditions acceptable to Lender, and Lender shall have received, in
form and substance satisfactory to Lender, acknowledgment by Parent
that such contribution is "Junior Debt" as defined in that certain
Amended and Restated Subordination Agreement dated as of August 26,
1996 between Krause and Lender, and is subject to the terms and
conditions thereof.
(e) Other Required Documentation. All other documents and
legal matters in connection with the transactions contemplated by this
Amendment shall have been delivered or executed or recorded and shall
be in form and substance satisfactory to Lender.
7. Choice of Law. The validity of this Amendment, its construction,
interpretation and enforcement, and the rights of the parties hereunder, shall
be
6
<PAGE> 7
determined under, governed by, and construed in accordance with the laws of the
State of California governing contracts wholly to be performed in that State.
8. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties on separate counterparts, each of which
when so executed and delivered, shall be deemed an original, and all of which,
when taken together, shall constitute but one and the same instrument.
9. Due Execution. The execution, delivery and performance of this
Amendment are within the powers of the Borrower, have been authorized by all
necessary corporate action, have received all necessary governmental approval,
if any, and do not contravene any law or any contractual restrictions binding on
Borrower.
10. Otherwise Not Affected. In the event of any conflict or
inconsistency between the Loan Agreement and the provisions of this Amendment,
the provisions of this Amendment shall govern. Except to the extent set forth
herein, the Loan Agreement shall remain in full force and effect.
11. Ratification. Borrower hereby restates, ratifies and reaffirms each
and every term and condition set forth in the Loan Agreement, as amended hereby,
and the Financing Agreements effective as of the date hereof.
12. Estoppel. To induce Lender to enter into this Amendment and to
continue to make advances to Borrower under the Loan Agreement, Borrower hereby
acknowledges and agrees that, after giving effect to this Amendment, as of the
date hereof, there exists no Event of Default and no right of offset, defense,
counterclaim or objection in favor of Borrower as against Lender with respect to
the Obligations.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
KRAUSE'S SOFA FACTORY,
a California corporation
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
CASTRO CONVERTIBLE CORPORATION,
a New York corporation
7
<PAGE> 8
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
CONGRESS FINANCIAL CORPORATION
(WESTERN),
a California corporation
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
8
<PAGE> 1
EXHIBIT 10.3
KRAUSE'S FURNITURE, INC.
200 North Berry Street
Brea, California 92821
August 14, 1997
Congress Financial Corporation (Western)
225 South Lake Avenue, Suite 1000
Pasadena, California 91101
Re: Krause's Sofa Factory and Castro Convertible Corporation
(collectively, "Borrower")
Ladies and Gentlemen:
In connection with that certain Loan and Security Agreement dated as of
January 20, 1995, as amended to date (the "Senior Loan Agreement"), between
Borrower and Congress Financial Corporation (Western), a California corporation
("Lender"), Krause's Furniture, Inc., a Delaware corporation ("KFI"), has
previously entered into (i) that certain Amended and Restated Subordination
Agreement, dated as of August 26, 1996 (the "Subordination Agreement"), with
Lender, and (ii) that certain Guarantee dated as of January 20, 1995 (the
"Guarantee"), in favor of Lender. Any and all initially capitalized terms set
forth herein shall have the meaning ascribed thereto in the Subordination
Agreement.
Concurrently with the execution of that certain Fourth Amendment to Loan
and Security Agreement, of even date herewith (the "Amendment") between Borrower
and Lender, Borrower shall have received new Junior Debt financing in the amount
of Three Million Dollars ($3,000,000) (the "New KFI Indebtedness") as evidenced
by that certain Promissory Note, dated as of August 15, 1997, in the original
principal amount of Three Million Dollars ($3,000,000) executed by Borrower to
the order of KFI (the "New Promissory Note"). Furthermore, Borrower will, from
time to time, receive from KFI additional Junior Debt financing in the maximum
amount of Three Million Six Hundred Thousand Dollars ($3,600,000) (together with
the New KFI Indebtedness, the "New Junior Debt"), which will be evidenced by
additional notes or other instruments executed by Borrower to the order of KFI
(such additional notes or instruments, together with the New Promissory Note,
the "New Junior Debt Documents").
In consideration of Lender's consent to the execution and delivery of
the New Junior Debt Documents by Borrower (which consent is evidenced by
Lender's signature hereto), and Lender's agreement to continue to extend
financial accommodations under the Senior Loan Agreement to Borrower, KFI hereby
acknowledges and confirms that the
<PAGE> 2
Congress Financial Corporation (Western)
August 14, 1997
Page 2
Junior Debt as defined in the Subordination Agreement includes (without
limitation) the New Junior Debt and that the New Junior Debt and the New Junior
Debt Documents are subject to the terms and conditions of the Subordination
Agreement.
KFI further acknowledges and confirms that the Guarantee and the
Subordination Agreement remain in full force and effect.
Although KFI has acknowledged and confirmed the matters set forth above,
KFI understands and agrees that Lender has no duty under the Subordination
Agreement, the Guarantee, the Senior Loan Agreement or any other agreement with
KFI or Borrower to seek such an acknowledgment or consent, and nothing contained
herein is intended to or shall create such a duty as to any advances or
transactions hereafter.
KRAUSE'S FURNITURE, INC.,
a Delaware corporation
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
CONGRESS FINANCIAL CORPORATION (WESTERN),
a California corporation
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
<PAGE> 1
EXHIBIT 10.4
GENERAL ELECTRIC CAPITAL CORPORATION
260 Long Ridge Road
Stamford, CT 06927
August 14, 1997
The Parties listed on Schedule A attached hereto (the "Permal Group")
c/o Thomas DeLitto
Permal Capital Management, Inc.
900 Third Avenue
New York, NY 10022
Ladies and Gentlemen:
Reference is hereby made to the Stockholders Agreement dated as of
August 26, 1996, by and among Krause's Furniture, Inc. (the "Company") and each
of the stockholders of the Company listed on the signature pages thereof (the
"Stockholders Agreement"), and the Registration Rights Agreement dated as of
August 26, 1996, by and among the Company and each of the stockholders of the
Company listed on the signature pages thereof (the "Registration Rights
Agreement").
By executing this letter agreement (this "Agreement"), each of the
undersigned signatories to the Stockholders Agreement and the Registration
Rights Agreement agree that, notwithstanding any provision of the Stockholders
Agreement and the Registration Rights Agreement, (i) Japan Omnibus Ltd.
(formerly known as Edson Investments, Inc., "JOL") shall be permitted to offer
for sale or sell a maximum of 2,000,000 shares in the aggregate and a minimum of
1,000,000 shares of the Company's Common Stock, par value $.001 per share
("Common Stock") and (ii) members of the Permal Group shall be permitted to
offer for sale or sell a maximum amount of shares of Common Stock in the
aggregate (with such shares being allocated among the members of the Permal
Group as JOL may determine) equal to (x) 2,000,000 minus (y) the amount of
shares of Common Stock that JOL elects to offer for sale or sell under this
paragraph, at any time after the date of this Agreement, pursuant to a
registration statement of the Company under the Securities Act of 1933. This
letter shall be construed as a consent of GECC under Section 2.8(a) of the
Registration Rights Agreement with respect to the matters described in this
paragraph.
Very truly yours,
GENERAL ELECTRIC CAPITAL CORPORATION
By:
------------------------------
Name:
Title:
<PAGE> 2
Please confirm your agreement with the foregoing by signing below:
KRAUSE'S FURNITURE, INC.
By:
------------------------------
Name:
Title:
JAPAN OMNIBUS LTD.
(formerly known as EDSON INVESTMENTS, INC.)
By:
------------------------------
Name:
Title:
-2-
<PAGE> 3
SCHEDULE A: THE PERMAL GROUP
---------------------------------
Permal Capital Management, Inc.
Permal Services, Inc.
Permal Capital Partners, L.P.
Permal Asset Management
Permal Special Opportunities, Ltd.
Japan Omnibus Ltd. (formerly known as Edson
Investments, Inc.)
Jean R. Perrette
Isaac Robert Souede
Thomas M. DeLitto
Thomas M. & Donna S. DeLitto
United Gulf Bank (B.S.C.) E.C.
Kuwait Investment Projects
ATCO Holdings Ltd.
ATCO Development, Inc.
-3-
<PAGE> 1
EXHIBIT 10.5
August 14, 1997
General Electric Capital Corporation
Equity Capital Group
260 Long Ridge Road
Stamford, CT 06927
Tom DeLitto
Permal Capital Management
900 Third Avenue
New York, NY 10022
Re: Warrants for Krause's Furniture, Inc.
Ladies and Gentlemen:
Reference is made to that certain Supplemental Securities Purchase
Agreement dated as of August 14, 1997 ("Supplemental Purchase Agreement") by
and among Krause's Furniture, Inc. ("Krause's"), General Electric Capital
Corporation ("GECC") and Japan Omnibus Ltd. ("JOL"). Capitalized terms used
herein without definition shall have the same meanings herein as when defined
in the Supplemental Purchase Agreement. "Old Warrants" as used herein means any
and all warrants to purchase common stock of Krause's other than the Existing
Warrants and the New Warrants (including the 1997 Warrants, the Standby Warrants
and the Performance Warrants).
Krause's requests that each of GECC and JOL, each with respect to all
Existing Warrants and New Warrants issued or issuable to them, waive any
anti-dilution protections or adjustments contained in any of the Existing
Warrants or the New Warrants, including any adjustment either in number of
shares of common stock of Krause's that may be purchased on exercise of any of
the Existing Warrants or the New Warrants, or in the exercise price for which
shares may be purchased thereunder, to the extent such anti-dilution change or
adjustment would result from the execution and delivery of, or the consummation
of the transactions contemplated by, the Supplemental Purchase Agreement,
including (i) the issuance of the 1997 Warrants, the Standby Warrants and the
Performance Warrants and (ii) the later determination of the number of shares
for which the Performance Warrants are exercisable, which determination shall
be made in the manner provided in the Performance Warrant.
1
<PAGE> 2
As a material inducement to GECC and JOL in granting this waiver,
Krause's hereby represents and warrants to GECC and JOL that, with respect to
the anti-dilution adjustments and protections contained in the Old Warrants,
the transactions contemplated by the Supplemental Purchase Agreement shall not
result in an increase by more than 8,602 shares in the number of shares of
Krause's common stock issuable on exercise of the Old Warrants. If the
foregoing representation and warranty is incorrect and GECC, JOL and Krause's,
acting in good faith, agree that any anti-dilution protections or adjustments
with respect to the Old Warrants (in excess of the 8,602 share adjustment
referenced above) have a material adverse effect on the interests of GECC and
JOL, GECC and JOL shall have the benefits accorded to them as set forth in the
Existing Warrants and the New Warrants and, if no such benefits are available,
GECC, JOL and Krause's shall use their best efforts in good faith to negotiate
an equitable adjustment.
Please acknowledge your agreement to waive any such anti-dilution
protection or adjustment by executing this letter in the appropriate space
below. Such waiver will be effective as of the Closing under the Supplemental
Purchase Agreement.
Very truly yours,
KRAUSE'S FURNITURE, INC.
By:_______________________________
Judith Olson Lasker
General Counsel and Secretary
Acknowledged and agreed to as of August 14, 1997
GENERAL ELECTRIC
CAPITAL CORPORATION
By:_____________________________
Name:___________________________
Title:__________________________
JAPAN OMNIBUS LTD.
By:_____________________________
Name:___________________________
Title:__________________________
2
<PAGE> 1
EXHIBIT 99.1
Copyright 1997 Business Wire, Inc.
Business Wire
August 18, 1997, Monday
DISTRIBUTION: Business Editors
LENGTH: 588 words
HEADLINE: Krause's Furniture Announces Major Expansion Program; $ 7.5 Million in
New Financing
DATELINE: BREA, Calif.
BODY:
Aug. 18, 1997--Krause's Furniture Inc. (Nasdaq:SOFA) Monday announced a
major expansion and remodeling program, phase one of which will take place over
the next 30 months.
The program will be supported in part by a new $ 7.5 million financing
arrangement.
The first phase will include the addition of approximately three dozen
new stores, as well as the remodeling of almost two-thirds of the company's
existing stores. Current plans call for a total of four new stores and 13
remodels by the end of fiscal 1997. It is anticipated that by the end of fiscal
1999, the program will have increased by 45 percent the number of showrooms
under the Krause's(R) and Castro Convertibles(R) banners.
Three recently remodeled stores -- whose sales increases continue to
exceed management's expectations -- will serve as prototypes for future remodels
and new stores. "The fresher, more contemporary look has been well received by
customers," said Philip M. Hawley, chairman and chief executive officer of
Krause's Furniture.
"We have always had an excellent product, but in recent years sales
have unquestionably been hurt by the dated and austere look of our stores --
many of which have changed little since the company was founded as a
factory-direct retailer more than two decades ago. Now, with the use of bright
colors, imaginative lighting and diverse lifestyle groupings, we are creating an
environment in which Krause's' hallmarks -- choice, customization and
craftsmanship -- really stand out."
<PAGE> 2
The company intends to remodel within the next 30 months more than 50
of its older stores. The new stores program will be concentrated in existing
markets where economies of scale, logistics and name recognition are expected to
result in an attractive return on investment.
With the payback on a typical remodel estimated at 12 to 14 months, the
company anticipates that the program as a whole will be funded primarily from
internally generated cash.
The $ 7.5 million in new financing -- underwritten by GE Capital
Services, the Permal Group and Congress Financial Corp. (Western) -- consists of
$3 million in long-term debt, which will be used to pay down existing revolver
balances, a $ 3.5 million standby credit facility and a $ 1 million increase in
credit available under an existing revolving-credit line.
Krause's Furniture is a leading manufacturer and retailer of
custom-crafted furniture, which it sells under the names Krause's(R) and Castro
Convertibles(R) through 80 company-owned retail showrooms in 12 states.
"Safe Harbor" Statement under the Private Securities Litigation Reform
Act of 1995: Any statements set forth above that are not historical in nature
are forward-looking statements that involve risks and uncertainties that could
cause actual results to differ materially from those in the forward-looking
statements.
Potential risks and uncertainties include such factors as demand for
and acceptance of the company's products, change in the retail environment and
the ability of the company to execute its operating strategies, the success of
planned marketing and promotional campaigns, and other risks identified in
documents filed by the company with the Securities and Exchange Commission.
CONTACT: Silverman Heller Associates, Los Angeles
Eugene G. Heller/Philip Bourdillon, 310/208-2550
