<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 1998
REGISTRATION NO. 333-_____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
KRAUSE'S FURNITURE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 77-0310773
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
</TABLE>
200 NORTH BERRY STREET
BREA, CALIFORNIA 92621-3903
(714) 990-3100
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
KRAUSE'S FURNITURE, INC.
1997 STOCK INCENTIVE PLAN
(Full Title of Plans)
---------------
PHILIP M. HAWLEY
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
KRAUSE'S FURNITURE, INC.
200 NORTH BERRY STREET
BREA, CALIFORNIA 92621-3903
(714) 990-3100
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
---------------
Copies to:
J. TIMOTHY SCOTT, ESQ. JUDITH OLSON LASKER, ESQ.
MORRISON & FOERSTER LLP GENERAL COUNSEL, SECRETARY
555 WEST FIFTH STREET KRAUSE'S FURNITURE, INC.
LOS ANGELES, CALIFORNIA 90013-1024 200 NORTH BERRY STREET
213-892-5200 BREA, CALIFORNIA 92821-3903
714-990-3100
--------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT TO OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED BE REGISTERED PER SHARE PRICE) FEE
------------------- ------------- ---------------- ------------------ ------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value per share......... 330,000 shares $ 1.62 (1) $ 534,600.00 (1)
Common Stock, $.001 par
value per share......... 417,000 shares 2.56 (1) 1,067,520.00 (1)
Common Stock, $.001 par
value per share......... 165,000 shares 3.25 (1) 536,250.00 (1)
Common Stock, $.001 par
value per share......... 1,088,000 shares $ 2.13 (2) 2,317,440.00 (2)
- ---------------- ---------------- ------------------- ----------
TOTAL 2,000,000 shares $4,455,810.00 $ 1,315.00
</TABLE>
(1) Pursuant to Rule 457(c) and Rule 457(h)(1) under the Securities Act of
1933, as amended (the "Securities Act"), for the purpose of calculating
the registration fee, the proposed maximum offering price per share and
the proposed maximum aggregate offering price for shares that are
subject to outstanding options is calculated based on the exercise price
of such options.
(2) Pursuant to Rule 457(c) and Rule 457(h)(1) under the Securities Act, the
proposed maximum offering price per share and the proposed maximum
aggregate offering price for shares subject to awards that have not been
issued have been determined on the basis of the average of the high and
low prices reported on the American Stock Exchange on July 14, 1998.
In addition, pursuant to Rule 416(c) under the Securities Act, this Registration
Statement also covers an indeterminate amount of interests to be offered or sold
pursuant to the employee benefit plan described herein.
Page 1 of 27 pages
The Index to Exhibits appears on page II-6
<PAGE> 2
PROSPECTUS
KRAUSE'S FURNITURE, INC.
1997 STOCK INCENTIVE PLAN
This Prospectus relates to shares of common stock (the "Common Stock") of
Krause's Furniture, Inc. (the "Company") offered to key employees, officers,
directors and consultants of the Company pursuant to options granted under the
Company's 1997 Stock Incentive Plan (the "1997 Plan"). The terms and conditions
of grants made pursuant to the 1997 Plan, including the prices of the shares of
Common Stock, are governed by the provisions of the 1997 Plan and the agreements
thereunder.
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING
SECURITIES THAT HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED.
The Company's executive offices are located at 200 North Berry Street, Brea,
California 92821-3903, and its telephone number at that location is (714)
990-3100.
The date of this Prospectus is July 17, 1998
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This Prospectus contains information concerning the Company and the 1997
Plan but does not contain all the information set forth in the Registration
Statement on Form S-8 for the 1997 Plan which the Company has filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Securities Act"). The Registration Statement, including the exhibits
thereto, may be inspected at the Commission's office in Washington, D.C. In
addition, the Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's Web site is
http:\\www.sec.gov.
The Company will undertake to provide without charge to each person to
whom a copy of this Prospectus is delivered, upon written or oral request of any
such person, (i) a copy of any and all of the information that has been or may
be incorporated by reference in this Prospectus, other than exhibits to such
documents, and (ii) a copy of any other documents required to be delivered to
optionees under the 1997 Plan pursuant to Rule 428(b) under the Securities Act,
including the Company's most recent Annual Report to Shareholders, proxy
statement and other communications distributed to its shareholders generally.
Requests for such copies and requests for additional information about the 1997
Plan and its Administrator should be directed to the Secretary, Krause's
Furniture, Inc., 200 North Berry Street Brea, California 92821-3903. The
Company's telephone number is (714) 990-3100.
Except for the person set forth in the foregoing paragraph, the Company
has not authorized any person to give any information or make any
representations, other than those contained in this Prospectus, in connection
with the 1997 Plan. If given or made, such information or representations must
not be relied upon as having been authorized by the Company. This Prospectus
does not constitute an offering in any state in which such offering may not
lawfully be made.
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<PAGE> 4
INTRODUCTION
Set forth below is some basic information describing the 1997 Stock
Incentive Plan (the "1997 Plan") of Krause's Furniture, Inc. (the "Company").
The Company from time to time may make awards under the 1997 Plan to selected
employees, officers, directors and consultants. The Company's goal in making
awards under the 1997 Plan is to link a portion of your financial success to the
financial success of the Company.
As a publicly-traded company, the Company's long-term financial success
can be gauged by the value of the Company's stock, which is traded on the
American Stock Exchange. The purpose of this information is to give you a basic
understanding of how some of the provisions of the 1997 Plan may apply to you if
you have received awards under the 1997 Plan. Since only you and your personal
financial and tax advisors will be able to determine the financial and tax
implications of your award, be sure to consult with them before exercising any
award or selling any stock you acquire under the 1997 Plan.
BASIC TERMS
To help you better understand the description below, some basic terms
associated with the 1997 Plan are defined below:
Award. An award means the grant of a stock option, stock appreciation
right, dividend equivalent right, restricted stock, performance unit,
performance share, deferred stock unit or other right or benefit under the 1997
Plan. Each type of award has different tax consequences.
Administrator. With respect to grants of awards to employees who are
also officers or directors of the Company, the 1997 Plan is administered by the
Board of Directors of the Company or a Committee designated by the Board which
is constituted in such a manner as to satisfy applicable laws and to permit such
grants and related transactions under the 1997 Plan to be exempt from Section
16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
in accordance with Rule 16b-3. With respect to grants of awards to employees who
are neither directors nor officers of the Company, the 1997 Plan is administered
by the Board or a Committee designated by the Board which is constituted in such
a manner as to satisfy applicable law (the Board or any of the Committees
appointed to administer the 1997 Plan are hereinafter referred to as the
"Administrator"). Notwithstanding the foregoing, grants of awards to any
employee who is a "covered employee" under Section 162(m)(3) of the Internal
Revenue Code of 1986, as amended (the "Code") intended to qualify as
performance-based compensation shall be made only by a Committee or
Sub-Committee which is composed solely of two or more directors eligible under
the Code to serve on a Committee making awards qualifying as performance-based
compensation. In the case of such awards granted to covered employees,
references to the "Administrator" shall be deemed references to such Committee
or Sub-Committee.
Stock Option. A stock option (sometimes referred to as an "option") is a
right to buy the common stock of the Company, $.001 par value ("Common Stock")
at a fixed price over a specified period of time as specified in the Award
Agreement (defined below) and the 1997 Plan.
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<PAGE> 5
There are two basic types of options which may be granted under the 1997 Plan:
incentive stock options (sometimes referred to as "ISOs") and non-qualified
stock options. Each type of option has different tax consequences. Check your
Award Agreement to determine which type of option was granted to you.
Incentive Stock Options or ISOs. Incentive Stock Options, or "ISO's,"
are Stock Options that qualify for preferred tax treatment under Section 422 of
the Internal Revenue Code of 1986, as amended ( the "Code").
Non-Qualified Stock Options. Non-Qualified Stock Options are stock
options that do not qualify as ISOs.
Stock Appreciation Right. A stock appreciation right (sometimes referred
to as an "SAR") is a right to shares of Common Stock or cash compensation
measured by appreciation in the value of Common Stock. An SAR may be awarded
separately or in conjunction with an award of a stock option.
Dividend Equivalent Right. A dividend equivalent right is a right to
compensation measured by dividends paid with respect to Common Stock.
Performance-Based Compensation. Performance-Based Compensation is
compensation qualifying as "performance-based compensation" under Section 162(m)
of the Code.
Restricted Stock. An award of restricted stock means an award of shares
of Common Stock for such consideration, if any, and subject to such restrictions
on transfer, rights of first refusal, repurchase provisions, forfeiture
provisions, and other terms and conditions as established by the Administrator
of the 1997 Plan.
Performance Unit. A performance unit may be earned in whole or in part
upon attainment of performance criteria established by the Administrator, and
may be settled for cash, securities or a combination of cash and securities, as
applicable.
Performance Share. A performance share is a share of or denominated by
Common Stock which may be earned in whole or in part upon attainment of
performance criteria established by the Administrator, and may be settled for
cash, securities or a combination of cash and securities, as applicable.
Grant. A "grant" is the act of the Administrator of the 1997 Plan to
authorize an award to an individual eligible to receive awards under the 1997
Plan.
Grant Date. The grant date is the date on which an award is granted.
Exercise Price or Purchase Price. The exercise or purchase price is the
amount of money you will pay for an applicable award if and when you exercise
such award. The exercise or purchase price is determined by the Administrator,
subject to certain limitations set forth in the 1997 Plan.
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<PAGE> 6
Award Agreement. This is a written agreement between you and the Company
evidencing the grant of an award. The Award Agreement will contain information
regarding the type of award (e.g., non-qualified or incentive stock option, SAR,
etc.), the grant date, the name of the grantee (i.e., the person to whom the
award is granted), the exercise price, if any, the vesting schedule and the
expiration date of the award. The Award Agreement you enter into may be called
an "Option Agreement" or have another title that refers to the specific type of
award granted.
Stock Incentive Plan. The 1997 Plan contains various terms and
provisions that apply to all stock awards and Award Agreements. A copy of the
1997 Plan is being provided to you with this prospectus. If you need an
additional copy please contact .
Judith Olson Lasker, Esq.
General Counsel, Secretary
Krause's Furniture, Inc.
200 North Berry Street
Brea, California 92821-3903
714-990-3100
Term of Award. The standard award term is ten years, although it may be
longer or shorter. This means that your right to exercise the rights granted
under the award lasts for the specified term. If you do not exercise your rights
under an award prior to expiration of its term, the award will expire. The
expiration date for each award you are granted will be stated in your Award
Agreement. Your award will also terminate in connection with termination of your
employment with the Company as described below.
It is important for you to know when your awards expire, because the
Company will not remind you, and if the awards expire without being exercised
you lose your right to exercise your rights under that award.
Vesting. Most awards require some period of time to pass before you are
eligible to exercise your award, and you must remain employed by the Company
during that period in order to exercise your award. This is often referred to as
"vesting," which refers to your right to exercise a percentage of your award
after a specified period of time. Your Award Agreement indicates the dates on
which your award vests.
While your vesting schedule may be different, as an example, an award
may vest on a quarterly basis over three years. This means that approximately 8
1/3% of your award will vest at the end of each quarter after the date of grant.
Assuming that you were granted an award to purchase 300 shares of stock on
October 5, 1998 with this particular vesting schedule, you would be able to
exercise the award with respect to 25 shares (8 1/3% of 300 shares) on or after
January 5, 1999. An additional 8 1/3% of your award (or an additional 25 shares)
would vest on each April 5, July 5, October 5 and January 5 thereafter until
your award is fully vested (in this example, after three years). The vesting of
your award does not obligate you to exercise the award, and once your award is
vested it will remain exercisable until the award is terminated or
5
<PAGE> 7
expires in accordance with its terms. The foregoing was provided as an example
of how "vesting" works. Consult your Award Agreement for the vesting terms of
your award.
Award Overview. The fact that you have been granted an award, or that
you have signed a Award Agreement, in no way obligates you to exercise the
award. In particular, if the award is a stock option, you are not obligated to
purchase the Company's stock. It is your decision whether you elect to exercise
some or all of your awards, subject to the limitations set forth in the Award
Agreement and the 1997 Plan.
Depending on the type of award, your award may have potential value to
you. For example, an award of a stock option has potential value to you if the
price of the Company's stock has increased above the exercise price of the
option you hold. You are urged to consult with your financial advisor prior to
exercising an award.
Tax Information. Depending upon the type of award and the timing of a
sale of any stock acquired upon exercise of an award, your gain on any such sale
will either be taxed as ordinary income (that is, like normal salary or hourly
compensation) or as a capital gain. The attached APPENDIX A is a description of
the basic federal income tax consequences related to stock options and other
types of awards under the 1997 Plan.
Termination of Employment. Your Award Agreement is not an employment
agreement. If your employment with the Company is terminated by you (that is, if
you resign) or by the Company, you will have the period of time specified in
your Award Agreement to exercise your award or awards. For example, your Award
Agreement may provide that your awards expire three months after your employment
is terminated by you or the Company or 12 months after your employment is
terminated as a result of your retirement, permanent disability or death. You
should refer to your Award Agreement for the specific terms of your award.
You will not be able to exercise your award after the award term
expires.
How to Exercise Your Award. When you decide to exercise an award, you
should complete the form of Exercise Notice attached to the Award Agreement and
deliver the Exercise Notice, along with payment of any Exercise Price, to the
Company, in accordance with the instructions on the Exercise Notice and in the
Award Agreement.
If you decide to sell any stock purchased through the 1997 Plan, you can
do so by sending the stock certificates to a stock broker of your choice with
instructions to sell the stock. You will most often need to open an account and
will be responsible for the broker commissions and other charges relating to
such a sale.
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<PAGE> 8
QUESTIONS AND ANSWERS ABOUT THE 1997 PLAN
1. WHAT IS THE PURPOSE OF THE 1997 PLAN?
The 1997 Plan allows the Company to attract and retain the best
available personnel for positions of substantial responsibility, provides
additional incentives to employees, officers, directors and consultants of the
Company and its subsidiaries and promotes the success of the Company's business.
2. DO THE AWARDS EXPIRE?
Yes. Each award has an expiration date specified in your Award
Agreement. Typically, awards do not extend for terms beyond ten years.
3. IS THERE A LIMIT TO HOW MANY SHARES I CAN BUY?
Yes. You will be able to exercise only that portion of your awards that
has vested.
4. WHO IS ELIGIBLE TO PARTICIPATE IN THE 1997 PLAN?
You are eligible to participate if you have been selected by the
Administrator to participate and are a person, including an officer, director or
consultant, employed by the Company or any parent or subsidiary of the Company.
5. SHOULD I BE CONCERNED ABOUT TAXES?
Yes. You should review "Summary of Federal Income Tax Consequences
Relating to Awards Granted Under the 1997 Plan" attached hereto as APPENDIX A
for a summary of United States federal income tax rules applicable upon the
grant or exercise of awards. However, the discussion deals with typical
transactions and may not cover your special situation. Furthermore, there may be
other federal and state tax consequences to consider when disposing of shares.
If you have questions, you should consult your tax advisor.
6. WHAT HAPPENS TO MY RIGHTS UNDER THE 1997 PLAN IN THE EVENT OF A
STOCK SPLIT OR SIMILAR CHANGE IN ISSUED SHARES OF THE COMPANY?
If there is any increase or decrease in the number of issued shares of
Common Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of Common Stock, or any other similar event
resulting in an increase or decrease in the number of issued shares of Common
Stock, the Administrator shall make proportionate adjustments to the number of
shares covered by each outstanding award as well as to the price per share
covered by each such outstanding award.
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<PAGE> 9
7. WHAT HAPPENS TO MY RIGHTS UNDER THE 1997 PLAN IF A MERGER OR
CHANGE IN CONTROL OF THE COMPANY TAKES PLACE?
A merger of the Company, or a sale of substantially all of its assets,
or a reverse merger in which the Company survives but undergoes a change of more
than 50% of the control of its voting securities is defined as a "Corporate
Transaction" in the 1997 Plan. If the Company undergoes a "Corporate
Transaction," each outstanding award under the 1997 Plan will automatically
become fully vested and exercisable and will be released from any repurchase
rights or forfeiture conditions, unless a successor or parent corporation
assumes the outstanding awards or issues comparable awards. The Administrator
will determine in its discretion whether replacement awards offered by a
successor or parent company are comparable with those originally issued.
The Administrator can also provide for automatic full vesting and
exercisability of awards upon a "Change in Control" (as defined in the 1997
Plan). Generally, a Change in Control will occur for purposes of the 1997 Plan
when any person or other entity acquires beneficial ownership of 50% of the
voting power of the Company's voting securities without the approval of a
majority of "Continuing Directors" (directors who have served for more than 36
continuous months or newer directors appointed or nominated by a majority of
directors who have served for more than 36 continuous months) or when the Board
of Directors undergoes a change that replaces the majority of Continuing
Directors within a 36-month period. The Administrator can provide for vesting
upon a Change in Control either when the award is granted or at any time the
award is outstanding. If a Change in Control also fits the definition of a
Corporate Transaction under the 1997 Plan, the rules applying to Corporate
Transactions take precedence.
Upon a Change in Control, outside directors of the Company who
participate in the 1997 Plan will receive a lump sum cash payment of the amount
of awards received in their "Deferred Stock Unit Account" under the 1997 Plan.
In addition, the Administrator has the authority to provide for the
automatic full vesting and exercisability of one or more outstanding unvested
awards under the 1997 Plan and the termination of repurchase rights or
forfeiture conditions on such awards, in connection with a "Subsidiary
Disposition" (the disposition by the Company of its equity holdings in any
subsidiary corporation effected by a merger or consolidation involving that
subsidiary corporation, the sale of all or substantially all of the assets of
such subsidiary corporation or the Company's sale or distribution of
substantially all of the outstanding capital stock of such subsidiary
corporation).
Please see the discussion under the heading "Stock Subject to the 1997
Plan" on page 12 for a more detailed discussion of changes in ownership and
control under the 1997 Plan.
8. WILL I RECEIVE FINANCIAL INFORMATION PROVIDED TO STOCKHOLDERS?
Yes. If you are a participant in the 1997 Plan, you will receive a copy
of all reports, proxy statements and other communications distributed by the
Company to its stockholders. In addition, you can receive copies of the
Company's Annual Report to Stockholders and
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<PAGE> 10
documents filed by the Company with the Securities and Exchange Commission that
are incorporated by reference in the Company's Registration Statement relating
to the 1997 Plan. See "Additional Information" below.
9. HOW IS THE 1997 PLAN ADMINISTERED?
The 1997 Plan is administered by the Administrator. The Administrator
has the authority, subject to the terms of the 1997 Plan, to select the
employees, officers, directors and consultants to whom awards may be granted, to
determine whether and to what extent to grant awards and the number of shares to
be covered by each award, to approve forms of Award Agreements, and to determine
the terms and conditions of awards. The Administrator also has discretion to
determine the nature of the consideration to be paid upon the exercise or
purchase of an award granted under the 1997 Plan. All decisions, determinations
and interpretations of the 1997 Plan and Award Agreements by the Administrator
shall be binding on all grantees and any other holders of awards.
10. CAN I ASSIGN OR TRANSFER MY RIGHTS UNDER THE 1997 PLAN?
ISOs are yours alone and may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of descent and distribution. However, other awards may be transferable,
to the extent provided in the Award Agreement.
11. CAN THE 1997 PLAN BE CHANGED?
The 1997 Plan may be amended by the Board of Directors at any time,
subject to shareholder approval under certain circumstances described in the
1997 Plan.
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SUMMARY OF 1997 PLAN
Set forth below is a more detailed summary of certain provisions of the
1997 Plan, some of which has been described above:
GENERAL
The 1997 Plan was adopted by the Board of Directors of the Company on
January 20, 1997 and by the stockholders on May 29, 1997. The Administrator of
the 1997 Plan is authorized to grant any type of award to any person, including
officers and directors, employed by the Company or any parent or subsidiary of
the Company that is not inconsistent with the provisions of the 1997 Plan and by
its terms involves or might involve the issuance of "Awards" consisting of (i)
shares of Common Stock, (ii) a stock option, SAR or similar right with an
exercise or conversion privilege at a fixed or variable price related to Common
Stock and/or the passage of time, the occurrence of one or more events, or the
satisfaction of performance criteria or other conditions, or (iii) any other
security with a value based on the value of Common Stock. Such awards include,
without limitation, stock options, SARs, sales or bonuses of restricted stock,
dividend equivalent rights, performance units or performance shares, and an
award may consist of one such security or benefit, or two or more of them in any
combination or alternative. The 1997 Plan was amended, with the approval of the
Board of Directors on April 2, 1998 and approval of the Shareholders on May 28,
1998, to increase the number of shares issuable with respect to awards from
1,000,000 to 2,000,000.
PURPOSES OF THE 1997 STOCK INCENTIVE PLAN
The purpose of the 1997 Plan is to allow the Company to attract and
retain the best available personnel for positions of substantial responsibility,
provide additional incentives to employees, officers, directors and consultants
of the Company and its subsidiaries and to promote the success of the Company's
business. The 1997 Plan provides any person, including officers and directors,
employed by the Company or any parent or subsidiary of the Company an
opportunity to be granted awards consisting of stock options, SARs, restricted
stock, dividend equivalent rights, performance units or performance shares, or a
combination of the foregoing.
ADMINISTRATION
The 1997 Plan is administered by the Administrator. All decisions,
determination and interpretations of the Administrator are final and binding on
the optionee and any other holders of awards intended by the Administrator to be
affected thereby.
Subject to applicable laws, the provisions of the 1997 Plan, and except
as otherwise provided by the Board, the Administrator has the authority, in its
discretion, to do the following:
(i) to select the employees, officers, directors and consultants to
whom awards may from time to time be granted under the 1997
Plan;
(ii) to determine whether and to what extent awards are granted under
the 1997 Plan;
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<PAGE> 12
(iii) to determine the number of shares of Common Stock or the amount
of other consideration to be covered by each award granted under
the 1997 Plan;
(iv) to approve forms of Award Agreement for use under the 1997 Plan;
(v) to determine the terms and conditions of any award granted under
the 1997 Plan, including, but not limited to, the award vesting
schedule, repurchase provisions, rights of first refusal,
forfeiture provisions, form of payment (cash, stock, or other
consideration) upon settlement of the award, and payment
contingencies;
(vi) to amend the terms of any outstanding award granted under the
1997 Plan, provided that any amendment that would adversely
affect the grantee's rights under an outstanding award shall not
be made without the grantee's written consent;
(vii) to construe and interpret the terms of the 1997 Plan and awards
granted thereunder;
(viii) to establish additional terms, conditions, rules and procedures
to accommodate the rules or laws of applicable foreign
jurisdiction to afford grantees favorable treatment under those
laws; and
(ix) to take such other action, not inconsistent with the terms of
the 1997 Plan, as the Administrator deems appropriate.
DURATION, AMENDMENT AND TERMINATION
The 1997 Plan will continue in effect until January 19, 2007, unless
sooner terminated by the Board of Directors. The Board may at any time amend,
suspend or terminate the 1997 Plan. To the extent necessary and desirable to
comply with applicable laws, the corporate charter or the terms of the 1997
Plan, the Company must obtain stockholder approval of any amendment to the 1997
Plan.
No award may be granted during any suspension or after the termination
of the 1997 Plan. Any amendment, suspension or termination of the 1997 Plan will
not affect awards already granted and such awards will remain in full force and
effect as if the 1997 Plan had not been amended, suspended or terminated, unless
mutually agreed in writing otherwise by the grantee and the Company.
ELIGIBILITY
Awards may be granted to any employee, officer, director or consultant
of the Company or of a subsidiary of the Company.
STOCK SUBJECT TO THE 1997 PLAN
The maximum aggregate number of shares of Common Stock which may be
issued pursuant to awards granted under the 1997 Plan is 2,000,000.
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<PAGE> 13
If there is any increase or decrease in the number of issued shares of
Common Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of Common Stock, or any other similar event
resulting in an increase or decrease in the number of issued shares of Common
Stock, the Administrator will make proportionate adjustments to the number of
shares covered by each outstanding award as well as to the price per share
covered by each such outstanding award.
If the Company undergoes a "Corporate Transaction" (as defined below)
each outstanding Award under the 1997 Plan will automatically become fully
vested and exercisable and will be released from any repurchase rights or
forfeiture conditions, unless (i) such Award is, in connection with the
Corporate Transaction, either to be assumed by the successor corporation or
parent thereof or to be replaced with a comparable Award with respect to shares
of the capital stock of the successor corporation or parent thereof, (ii) such
Award is to be replaced with a cash incentive program of the successor
corporation which preserves the compensation element of such Award existing at
the time of the Corporate Transaction and provides for subsequent payout in
accordance with the same vesting schedule applicable to such Award or (iii) the
vesting, exercisability and release from such limitations of such Award is
subject to other limitations imposed by the Administrator at the time of the
grant of the Award. The Administrator will determine in its discretion whether
replacement awards offered by a successor or parent company are comparable with
those originally issued, and such determination shall be final, binding and
conclusive. The Administrator also has the authority to grant Awards under the
Plan that are to vest automatically and be fully exercisable and released from
such limitations in whole or in part immediately prior to the Corporate
Transaction or upon the subsequent termination of the grantee's Continuous
Status as an Employee or Consultant, even if the Award is otherwise to be
assumed or replaced in connection with the consummation of such Corporate
Transaction. Upon consummation of a Corporate Transaction, all outstanding
awards will terminate, unless assumed by the successor company or its parent.
Notwithstanding the foregoing, the Administrator, in its discretion, may prevent
the acceleration of vesting and the release from repurchase rights or forfeiture
conditions of any outstanding Award with respect to any Corporate Transaction.
The Administrator can also provide that an award automatically becomes
fully vested and exercisable and will be released from any repurchase rights or
forfeiture conditions either in advance of any actual or anticipated "Change in
Control" (as defined below) (other than a Change in Control which is also a
Corporate Transaction) or at the time of such a Change in Control. The
Administrator can provide for such automatic vesting upon a Change in Control
either when the award is granted or at any time the award is outstanding.
Upon a Change in Control, outside directors of the Company who
participate in the 1997 have a right to receive a lump sum cash payment of the
amount of their "Deferred Stock Unit Account" under the 1997 Plan.
Under the 1997 Plan, a "Corporate Transaction" means (a) a merger or
consolidation in which the Company is not the surviving entity, except for a
transaction the principal purpose of which is to change the state in which the
Company is incorporated; (b) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital stock of
12
<PAGE> 14
the Company's subsidiary corporations) in connection with the complete
liquidation or dissolution of the Company; or (c) any reverse merger in which
the Company is the surviving entity but in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Company's
outstanding securities are transferred to a person or persons different from
those who held such securities immediately prior to such merger.
Under the 1997 Plan, "Change in Control" means a change in ownership or
control of the Company effected through either of the following transactions:
(1) the direct or indirect acquisition by any person or related group of persons
(other than an acquisition from or by the Company or by a Company-sponsored
employee benefit plan or by a person that directly or indirectly controls, is
controlled by, or is under common control with, the Company) of beneficial
ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities
possessing more than fifty percent (50%) of the total combined voting power of
the Company's outstanding securities pursuant to a tender or exchange offer made
directly to the Company's stockholders which a majority of the Continuing
Directors who are not Affiliates or Associates of the offeror do not recommend
such stockholders accept, or (2) a change in the composition of the Board over a
period of thirty-six (36) months or less such that a majority of the Board
members are no longer Continuing Directors as a result of one or more contested
elections for Board membership.
"Continuing Directors" means, generally, members of the Board who either
(a) have been Board members continuously for a period of at least thirty-six
months or (b) have been Board members for less than thirty-six months and were
elected or nominated for election as Board members by at least a majority of the
Board members described in clause (a) who were still in office at the time such
election or nomination was approved by the Board.
In addition, the Administrator has the authority to provide for the
automatic full vesting and exercisability of one or more outstanding unvested
awards under the 1997 Plan and the termination of repurchase rights or
forfeiture conditions on such awards, in connection with a "Subsidiary
Disposition" (the disposition by the Company of its equity holdings in any
subsidiary corporation effected by a merger or consolidation involving that
subsidiary corporation, the sale of all or substantially all of the assets of
such subsidiary corporation or the Company's sale or distribution of
substantially all of the outstanding capital stock of such subsidiary
corporation).
TERMS OF AWARDS UNDER THE 1997 PLAN.
The following is a description of the terms and conditions of awards
permitted by the 1997 Plan. Such terms and conditions may change from time to
time, and the terms and conditions of separate options need not be identical. In
addition, each award will be subject to the terms and conditions of the
applicable Award Agreement.
13
<PAGE> 15
EXERCISE PRICE. The exercise or purchase price per share, if any, for an
award shall be as stated in the applicable Award Agreement, and is:
(i) in the case of an ISO, not less than 100% of the fair market
value per share on the date of grant, except that an ISO granted
under the 1997 Plan to a person who, at the time of the grant,
owns stock constituting more than 10% of the voting power of all
classes of stock of the Company or of any parent or subsidiary,
not less than 110% of the fair market value per share on the
date the option is granted;
(ii) in the case of a non-qualified stock option, not less than 100%
of the fair market value per share of the Common Stock subject
to the option on the date of grant unless otherwise determined
by the Administrator;
(iii) in the case of other Awards intended to qualify as
Performance-Based Compensation, if there is an exercise or
purchase price, that price shall be not less than 100% of the
fair market value per share on the date of the grant; and
(iv) in the case of other awards, including restricted stock, as
determined by the Administrator.
For purposes of the 1997 Plan, "fair market value" of a share of Common
Stock will be determined according to the following methodology. If a public
market exists for the Common Stock, the fair market value as of any date is the
closing sales price for a share for the last market trading day prior to the
time of the determination (or, if no sales were reported on that date, on the
last trading date on which sales were reported) on the American Stock Exchange
or other stock exchange or market system that the Administrator has determined
is the primary market for the Common Stock. If the Common Stock is not traded on
any such exchange or national market system, the fair market value as of any
date is the average of the closing bid and asked prices of a share on the Nasdaq
Small Cap Market for the three trading days prior to the time of determination
(or, if no such prices were reported on one or more of such days, on the last
three days on which such prices were reported), in each case as reported in The
Wall Street Journal or such other source as the Administrator deems reliable. If
no established public market exists for the Common Stock, the fair market value
is the price determined by the Administrator in good faith.
CONSIDERATION. Subject to applicable laws, the Administrator will
determine the consideration to be paid for shares of Common Stock to be issued
upon exercise or purchase of an award, including the method of payment (in the
case of an ISO, making the determination at the time of grant). In addition to
any other types of consideration the Administrator may determine, the
Administrator is authorized to accept (i) cash, (ii) check, (iii) delivery of a
promissory note, with such recourse, interest, security, and redemption
provisions as the Administrator in its discretion determines, (iv) surrender of
Shares (including withholding of Shares otherwise deliverable upon exercise of
the Award) which have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Award shall be exercised
(but only to the extent that such exercise of the Award would not result in an
accounting compensation charge with respect to the Shares used to pay the
exercise price unless otherwise determined by the Administrator) or (v) any
combination of the foregoing methods of
14
<PAGE> 16
payment. The Administrator will also require delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of the award and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price and/or related withholding taxes.
EXERCISE. Awards granted under the 1997 Plan are exercisable at such
times and under such conditions as determined by the Administrator under the
terms of the 1997 Plan and specified in the Award Agreement.
TERM. Each award will have the term stated in the Award Agreement;
provided, however, that (i) the term of an ISO may not be for more than ten
years from the grant thereof, and (ii) in the case of an ISO granted to a person
who, at the time the ISO is granted, owns stock representing more than 10% of
the voting power of all classes of stock of the Company or any parent or
subsidiary, the term of each ISO may not be for more than five years from the
date of grant.
NONTRANSFERABILITY. ISOs awarded under the 1997 Plan may not be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner other
than by will or by the laws of descent and distribution. Other Awards are
transferable to the extent provided in the Award Agreement.
LIMITATION. The maximum number of shares of Common Stock as to which
options and SARs may be granted to any employee in any fiscal year of the
Company is 200,000 shares, subject to a proportionate adjustment for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination,
reclassification or similar event. The aggregate fair market value of the Common
Stock, determined at the time an ISO is granted, with respect to which such ISOs
may become exercisable for the first time by the grantee during any calendar
year may not exceed $100,000. If the aggregate Fair Market Value of Shares
subject to Options designated as ISOs that become exercisable for the first time
by a Grantee during any calendar year (under all plans of the Company or any
parent or subsidiary) exceeds $100,000, the excess Options shall be treated as
Non-Qualified Stock Options. For this purpose, ISOs will be taken into account
in the order in which they were granted, and the Fair Market Value of the Shares
will be determined as of the date the Option with respect to such Shares is
granted. The maximum value of any award (other than an option or SAR) granted to
any employee in any fiscal year of the Company and intended to qualify as
"performance-based compensation" under Section 162(m) of the Code is $2,000,000,
calculated based upon the value of the award assuming the performance goal was
met on the date of grant of the award.
ADDITIONAL INFORMATION
The 1997 Plan is not subject to the Employee Retirement Income Security
Act of 1974.
A copy of the 1997 Plan and additional information about the 1997 Plan
and its administrators can be obtained by contacting the Company's General
Counsel at 200 North Berry Street, Brea, California 92821-3903, telephone number
(714) 990-3100.
15
<PAGE> 17
The Company has filed a Registration Statement with the Securities and
Exchange Commission with respect to the shares of Common Stock issuable pursuant
to its stock option plans. The following documents have been incorporated by
reference in the Registration Statement, and copies of these documents are
available without charge upon written or oral request to the Corporate Secretary
of the Company, 200 North Berry Street, Brea, California 92821-3903, telephone
number (714) 990-3100.
(a) The Company's Prospectus filed pursuant to Rule 424(b) of the
Securities Act of 1933, as amended (the "Securities Act"), related to the
Registration Statement on Form S-1 (the "Registration Statement") as declared
effective on March 30, 1998 (File No. 333-43111).
(b) The Company's Annual Report on Form 10-K for the fiscal year ended
February 1, 1998, as filed with the Commission on April 30, 1998 (File No.
000-17868).
(c) The description of the Company's Common Stock contained in its
Registration Statement on Form 8-A (File No. 001-13981).
(d) All other reports filed by the Company pursuant to Sections 13(a) or
15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") since the end
of the fiscal year covered by the audited financial statements described in (b)
above.
The 1997 Plan is intended to promote long-term investment in the
Company. However, the 1997 Plan does not impose any specific restrictions on the
resale of shares of Common Stock purchased under the 1997 Plan. The Company has
filed a Registration Statement with the Securities and Exchange Commission,
which satisfies most federal securities laws requirements with respect to resale
of such shares. If you are an affiliate (officer, director or 10% stockholder)
of the Company, any resales of shares purchased under the 1997 Plan must be
effected in accordance with Rule 144 or made pursuant to either a separate
resale registration statement or an available exemption under the Securities Act
of 1933, as amended. All participants must comply with Rule 10b-5 of the
Exchange Act, which prohibits trading in securities based on inside information.
In addition, officers and directors need to take the short-swing trading
liability provisions of Section 16(b) of the Exchange Act into account whenever
they sell shares.
Officers and directors of the Company should consult the Federal
Securities Law Memorandum provided to them for further information regarding
Section 16 and Rule 144 limitations on resale.
The Compensation Committee of the Board of Directors (the "Compensation
Committee") currently administers the 1997 Plan and is the "Administrator"
described in this Prospectus. The Compensation Committee has the authority to
interpret the 1997 Plan, and establish rules and regulations for it and resolve
all disputes concerning the 1997 Plan. The current members of the Compensation
Committee are Kamal G. Abdelnour, John A. Gavin and Peter H. Dailey (each is a
director of the Company). Other than as disclosed herein (including disclosures
in material incorporated into the Registration Statement by reference), members
of the Compensation Committee have no material relationships with the Company,
its employees or its affiliates. Members of the Board of Directors and the
Compensation Committee can be
16
<PAGE> 18
contacted by writing to them at the principal executive offices of the Company,
to the attention of Judith Olson Lasker, General Counsel and Secretary. Members
of the Compensation Committee are selected by and serve at the pleasure of the
Board of Directors. They do not receive separate compensation for administering
the 1997 Plan. The Company bears all expenses in connection with administration
of the 1997 Plan.
ADDITIONAL CONSIDERATIONS APPLICABLE TO SECTION 16 INSIDERS
All Section 16 Insiders are advised to consult with the Company's
general counsel and with their own personal advisors regarding reporting and
liability under Section 16 with respect to their transactions under the 1997
Plan.
CONCLUSION
The information provided above is intended as a summary of certain
provisions of the 1997 Plan. The 1997 Plan is governed by the plan document, and
anything in the foregoing summary that is inconsistent with the plan document or
your Award Agreement will be superseded by and governed by the plan document and
your Award Agreement.
Nothing set forth above or in the plan document or in your Award
Agreement should be construed to create or imply any contract of employment
between you and the Company. The Company may amend, suspend or terminate the
1997 Plan at any time.
The descriptions set forth herein are based on tax laws in effect on the
date set forth above. Check with your tax advisor to determine the specific tax
impact of the exercise of any options or the sale of any stock received by you
under the 1997 Plan.
17
<PAGE> 19
APPENDIX A
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES
RELATING TO AWARDS GRANTED UNDER THE 1997 PLAN
INCENTIVE OPTIONS
Incentive Stock Options ("ISOs") under the 1997 Plan are intended to be
eligible for the favorable federal income tax treatment accorded "incentive
stock options" under Section 422 of the Code. ISOs generally have the following
tax consequences:
There are generally no federal income tax consequences to the optionee
or the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an ISO may increase the optionee's alternative minimum
tax liability, if any.
If an optionee holds stock for more than two years from the date on
which the ISO is granted and more than one year from the date on which the
shares are transferred to the optionee upon exercise of the ISO, any gain or
loss on a disposition of such stock will be long term capital gain or loss. In
this event, the Company will not be allowed a business expense deduction with
respect to the disposition of shares. However, if the optionee disposes of the
stock before the expiration of either of the above-stated holding periods (a
"disqualifying disposition"), at the time of disposition the optionee will
realize taxable ordinary income equal to the lesser of (i) the excess of the
fair market value on the date of exercise over the exercise price, or (ii) the
optionee's actual gain, if any, on the purchase and sale. The optionee's
additional gain or any loss upon the disqualifying disposition will be a capital
gain or loss which will be long-term or short-term depending on whether the
stock was held for more than one year.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will be entitled (subject to the
requirement of reasonableness and perhaps, in the future, the satisfaction of a
withholding obligation) to a corresponding business expense deduction in the tax
year in which the disposition occurs.
NON-QUALIFIED STOCK OPTIONS
Non-Qualified Stock Options under the 1997 Plan generally have the
following federal income tax consequences:
There generally are no tax consequences to the optionee or the Company
by reason of the grant of a non-qualified stock option. Upon exercise of a
Non-Qualified Stock Option, the optionee will recognize taxable ordinary income
equal to the excess of the stock's fair market value on the date of exercise
over the exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness and the satisfaction of any withholding obligation, the Company
will be entitled to a business expense deduction equal to the taxable ordinary
income realized by the optionee. Upon disposition of stock, the optionee will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any amount recognized
as
18
<PAGE> 20
ordinary income upon exercise of the option. Such gain or loss will be long or
short term depending on whether the stock was held for more than one year.
STOCK PURCHASES AND BONUSES
Stock grants, restricted stock grants and restricted stock purchases
granted under the 1997 Plan have the following federal income tax consequences:
Generally, a recipient of stock under the 1997 Plan would recognize
ordinary income equal to the difference between the market value of the stock on
the grant or purchase date and any amount paid or required to be paid for the
stock. If the stock is restricted and subject to vesting, then the recipient of
the stock would recognize ordinary income as the restrictions are removed and
the stock vests. On each vesting date, the recipient would recognize ordinary
income equal to the difference between the fair market value of the shares of
stock that have vested on such date and any amount paid or required to be paid
for the shares of stock. The recipient of the stock would not recognize any
income to the extent the rights to the stock have not vested. A recipient of
stock under the 1997 Plan, however, may make a Section 83(b) election whereby
the recipient elects to be taxed at the grant date at ordinary income rates on
the difference between the fair market value of the stock on the grant or
purchase date (such valuation taking into account only those restrictions, if
any, on the stock and the risk of forfeiture thereof that will never lapse) and
any amount paid by the recipient for the stock.
With respect to employees, the Company is required to withhold from
regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness and the
satisfaction of any withholding obligation, the Company will be entitled to a
business expense deduction equal to the taxable ordinary income realized by the
recipient.
Upon disposition of stock, the recipient will recognize a capital gain
or loss equal to the difference between the selling price and the sum of the
amount paid for such stock plus any amount recognized as ordinary income. Such
gain or loss will be long or short term depending on whether the stock was held
for more than one year.
STOCK APPRECIATION RIGHTS, PERFORMANCE UNITS AND PERFORMANCE SHARES
Recipients of Stock Appreciation Rights, Performance Units and
Performance Shares generally should not recognize income until such rights are
exercised (assuming there is no ceiling on the value of the right). Upon
exercise, the participating individual will normally recognize ordinary
compensation income for federal income tax purposes equal to the amount of cash
and the fair market value of stock, if any, received upon such exercise.
Participating individuals who are employees will be subject to withholding with
respect to income recognized upon exercise of an Award.
The Company will be entitled to a tax deduction to the extent and in the
year that ordinary income is recognized by the participating individual, so long
as the Company withholds
19
<PAGE> 21
the appropriate taxes with respect to such income and the individual's total
compensation is deemed reasonable in amount.
Participating individuals will recognize gain upon the disposition of
any stock received on exercise of an award equal to the excess of (a) the amount
realized on such disposition over (b) the ordinary income recognized with
respect to such stock under the principles set forth above. That gain will be
taxable as long or short term capital gain depending on whether the stock was
held for more than one year.
OTHER TAX CONSEQUENCES
The foregoing summary of the federal income tax consequences to
participants and the Company of the grant of Awards and shares of Common Stock
pursuant thereto does not purport to be complete and participants should refer
to the applicable provisions of the Code. The summary does not address other
taxes that may affect a participant, such as state and local income taxes,
federal and state estate, inheritance and gift taxes, and foreign taxes. The
summary also does not address special tax considerations that may apply if a
participant uses stock, notes or consideration other than cash to exercise
Options granted under the 1997 Plan or to otherwise purchase shares of Common
Stock pursuant to Awards. Furthermore, the tax consequences of Awards are
complex and subject to change, and a taxpayer's personal situation may be such
that some variation of the described rule applies. Participants should consult
with their own tax advisors before the exercise of any Award and before the
disposition of any shares acquired upon the exercise of an Award.
20
<PAGE> 22
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
The following documents filed by Krause's Furniture, Inc. (the
"Registrant") with the Securities and Exchange Commission (the "Commission") are
incorporated by reference herein:
(a) The Registrant's Prospectus filed pursuant to Rule 424(b) of the
Securities Act of 1933, as amended (the "Securities Act"), related to the
Registration Statement on Form S-1 (the "Registration Statement") as declared
effective on March 30, 1998 (File No. 333-43111).
(b) The Registrant's Annual Report on Form 10-K for the fiscal year
ended February 1, 1998, as filed with the Commission on April 30, 1998 (File No.
000-17868).
(c) The description of the Registrant's Common Stock contained in its
Registration Statement on Form 8-A (File No. 001-13981).
(d) All other reports filed by the Registrant pursuant to Sections 13(a)
or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") since the
end of the fiscal year covered by the audited financial statements described in
(b) above.
All documents filed by the Registrant with the Commission pursuant to
Section 13(a), (13(c), 14 or 15(d) of the Exchange Act, filed after the date
hereof and prior to the filing of a post-effective amendment which indicates
that all securities offered have been sold or which deregisters all securities
then remaining unsold, shall be deemed to be incorporated by reference into this
Registration Statement and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Registration Statement to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Registration Statement.
ITEM 4. DESCRIPTION OF SECURITIES.
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
Not applicable.
II-1
<PAGE> 23
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL")
contains detailed provisions on indemnification of directors and officers
against expenses, judgments, fines and amounts paid in settlement, actually and
reasonably incurred in connection with legal proceedings. Section 102(a)(7) of
the DGCL permits a provision in the certificate of incorporation of each
corporation organized thereunder, such as the Company, eliminating or limiting,
with certain exceptions, the personal liability of a director of the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director. The Certificate of Incorporation of the Company eliminates the
liability of each of its directors to its stockholders or the Company for
monetary damages for breach of fiduciary duty to the full extent provided by the
DGCL, as such law exists or may hereafter be amended.
Indemnification applies to any threatened, pending or completed action,
suit or proceeding, whether, civil, criminal, administrative or investigative.
Indemnification may include all expenses (including attorneys' fees, judgments,
fines, ERISA excise taxes and amounts paid in settlement) reasonably incurred by
the indemnified person.
The Company maintains a directors' and officers' liability and
reimbursement insurance policy intended to reimburse the Company for any
payments made by it pursuant to its indemnification obligations.
The foregoing statements are subject to the detailed provisions of
Section 102(a)(7) of the DGCL and the Certificate of Incorporation of the
Company, as applicable.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
Not applicable.
ITEM 8. EXHIBITS.
4.1 Krause's Furniture, Inc., 1997 Stock Incentive Plan
5.1 Opinion of Morrison & Foerster LLP
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants
23.3 Consent of Morrison & Foerster LLP (contained in Exhibit 5.1)
24.1 Power of Attorney (See page II-5)
II-2
<PAGE> 24
ITEM 9. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the aggregate
represent a fundamental change in the information set forth in the Registration
Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in this Registration Statement
or any material change to such information in the Registration Statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Exchange Act that are
incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the provisions described in Item 6 above or
otherwise, the Registrant has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
II-3
<PAGE> 25
against such liabilities (other than the payment by the Registrant of expenses
incurred by a director, officer or controlling person of the Registrant in the
successful defense or any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Krause's Furniture, Inc., certifies that it has reasonable grounds
to believe that it meets all of the requirements for filing on Form S-8 and has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Brea, State of
California, on July 17, 1998.
KRAUSE'S FURNITURE, INC.
By: /s/ Robert A. Burton
-------------------------------
Robert A. Burton
Senior Vice President and Chief
Financial Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Philip M. Hawley, Robert
A. Burton and Judith O. Lasker, and each of them, as his true and lawful
attorneys-in-fact and agents, jointly and severally, with full power of
substitution and resubstitution, for and in his stead, in any and all
capacities, to sign on his behalf this Registration Statement on Form S-8 and to
execute any amendments thereto (including post-effective amendments) or
certificates that may be required in connection with this Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange Commission
and granting unto said attorneys-in-fact and agents, and each of them, jointly
and severally, the full power and authority to do and perform each and every act
and thing necessary or advisable to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, jointly or severally, or their or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on July 17, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
/s/ Philip M. Hawley Chairman of the Board and Chief Executive Officer
- -----------------------------------
Philip M. Hawley
/s/ Robert A. Burton Senior Vice President and Chief Financial Officer
- ----------------------------------- (Principal Financial Officer, Principal
Robert A. Burton Accounting Officer)
/s/ Thomas M. DeLitto Vice Chairman of the Board
- -----------------------------------
Thomas M. DeLitto
/s/ Kamal G. Abdelnour Director
- -----------------------------------
Kamal G. Abdelnour
/s/ Jeffrey H. Coats Director
- -----------------------------------
Jeffrey H. Coats
/s/ Peter H. Dailey Director
- -----------------------------------
Peter H. Dailey
/s/ Peter H. Dailey Director
- -----------------------------------
Peter H. Dailey
</TABLE>
II-5
<PAGE> 27
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------ --------
<S> <C>
4.1 Krause's Furniture, Inc. 1997 Stock Incentive Plan
5.1 Opinion of Morrison & Foerster LLP
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Arthur Andersen LLP, Independent Public Accountants
23.3 Consent of Morrison & Foerster LLP (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-5)
</TABLE>
II-6
<PAGE> 1
EXHIBIT 4.1
Dated: May 4, 1998
KRAUSE'S FURNITURE, INC.
1997 STOCK INCENTIVE PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Incentive Plan are
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Officers,
Directors and Consultants of the Company and its Subsidiaries and to promote the
success of the Company's business.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "Account" means a bookkeeping account established for a Participant
under Section 6.
(b) "Administrator" means the Board or any of the Committees appointed
to administer the Plan.
(c) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.
(d) "Applicable Laws" means the legal requirements relating to the
administration of stock incentive plans, if any, under applicable provisions of
federal securities laws, state corporate and securities laws, the Code, the
rules of any applicable stock exchange or national market system, and the rules
of any foreign jurisdiction applicable to Awards granted to residents therein.
(e) "Award" means the grant of an Option, SAR, Dividend Equivalent
Right, Restricted Stock, Performance Unit, Performance Share, Deferred Stock
Unit or other right or benefit under the Plan.
(f) "Award Agreement" means the written agreement evidencing the grant
of an Award executed by the Company and the Grantee, including any amendments
thereto.
(g) "Beneficiary" means a Grantee's beneficiary, designated in writing
and in a form and manner satisfactory to the Administrator, or if a Grantee
fails to designate a beneficiary, or if the Grantee's designated Beneficiary
predeceases the Grantee, the Grantee's estate.
(h) "Board" means the Board of Directors of the Company.
(i) "Change in Control" means a change in ownership or control of the
Company effected through either of the following transactions:
(1) the direct or indirect acquisition by any person or related
group of persons (other than an acquisition from or by the Company or by
a Company-sponsored employee benefit plan or by a person that directly
or indirectly controls, is controlled by, or is under common control
with, the Company) of beneficial ownership (within the meaning of Rule
13d-3 of the Exchange Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Company's
outstanding securities pursuant to a tender or exchange offer made
directly to the Company's stockholders which a majority of the
Continuing Directors who are not Affiliates or Associates of the offeror
do not recommend such stockholders accept, or
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(2) a change in the composition of the Board over a period of
thirty-six (36) months or less such that a majority of the Board members
ceases, by reason of one or more contested elections for Board
membership, to be comprised of individuals who are Continuing Directors.
(j) "Closing Price" shall mean, for any trading day, the closing price
of a Share on the market then used to determine Fair Market Value.
(k) "Code" means the Internal Revenue Code of 1986, as amended.
(l) "Committee" means any committee appointed by the Board to administer
the Plan.
(m) "Common Stock" means the common stock of the Company.
(n) "Company" means Krause's Furniture, Inc., a Delaware corporation.
(o) "Consultant" means any person who is engaged by the Company or any
Parent or Subsidiary to render consulting or advisory services as an independent
contractor and is compensated for such services.
(p) "Continuing Directors" means members of the Board who either (i)
have been Board members continuously for a period of at least thirty-six (36)
months or (ii) have been Board members for less than thirty-six (36) months and
were elected or nominated for election as Board members by at least a majority
of the Board members described in clause (i) who were still in office at the
time such election or nomination was approved by the Board.
(q) "Continuous Status as an Employee, Officer, Director or Consultant"
means that the employment, officer, director or consulting relationship with the
Company, any Parent, or Subsidiary, is not interrupted or terminated. Continuous
Status as an Employee, Director or Consultant shall not be considered
interrupted in the case of (i) any leave of absence approved by the Company or
(ii) transfers between locations of the Company or between the Company, its
Parent, any Subsidiary, or any successor. A leave of absence approved by the
Company shall include sick leave, military leave, or any other personal leave
approved by an authorized representative of the Company. For purposes of
Incentive Stock Options, no such leave may exceed the time permitted in the
Company's personnel policies published from time to time, unless reemployment
upon expiration of such leave is guaranteed by statute or contract.
(r) "Corporate Transaction" means any of the following
stockholder-approved transactions to which the Company is a party:
(1) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Company is incorporated;
(2) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital
stock of the Company's subsidiary corporations) in connection with the
complete liquidation or dissolution of the Company; or
(3) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent (50%)
of the total combined voting power of the Company's outstanding
securities are transferred to a person or persons different from those
who held such securities immediately prior to such merger.
(s) "Covered Employee" means an Employee who is a "covered employee"
under
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Section 162(m)(3) of the Code.
(t) "Deferred Stock Unit" means a hypothetical share of Common Stock as
described in Section 6.
(u) "Director" means a member of the Board.
(v) "Dividend Equivalent Right" means a right entitling the Grantee to
compensation measured by dividends paid with respect to Common Stock.
(w) "Effective Date" means the date when this Plan has been adopted by
the Board.
(x) "Employee" means any person, including an Officer or Director, who
is an employee of the Company or any Parent or Subsidiary of the Company for
purposes of Section 422 of the Code. The payment of a director's fee by the
Company shall not be sufficient to constitute "employment" by the Company.
(y) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(z) "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
(1) Where there exists a public market for the Common Stock, the
Fair Market Value shall be (A) the closing price for a Share for the
last market trading day prior to the time of the determination (or, if
no closing price was reported on that date, on the last trading date on
which a closing price was reported) on the stock exchange determined by
the Administrator to be the primary market for the Common Stock or the
NASDAQ National Market, whichever is applicable or (B) if the Common
Stock A-2 is not traded on any such exchange or national market system,
the average of the closing prices of a Share on the NASDAQ Small Cap
Market for the three trading days prior to the time of the determination
(or, if no such prices were reported on one or more of such days, on the
last three days on which such prices were reported), in each case, as
reported in The Wall Street Journal or such other source as the
Administrator deems reliable; or
(2) In the absence of an established market of the type
described in (1), above, for the Common Stock, the Fair Market Value
thereof shall be determined by the Administrator in good faith.
(aa) "Grantee" means an Employee, Director or Consultant who receives an
Award under the Plan.
(bb) "Incentive Stock Option" means an option intended to qualify as an
Incentive Stock Option under Section 422 of the Code.
(cc) "Non-Qualified Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(dd) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(ee) "Option" means a stock option granted pursuant to the Plan.
(ff) "Outside Director" means a Director who is not the beneficial owner
of ten percent (10%) or more of the Company's stock of any class or an employee
of the Company or of any Subsidiary.
(gg) "Parent" means a "parent corporation," whether now or hereafter
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existing, as defined in Section 424(e) of the Code.
(hh) "Participating Outside Director" means an Outside Director who has
not indicated in writing to the Company prior to the date of an Award under
Section 6 that he or she cannot or does not wish to participate in the deferred
stock program described in Section 6.
(ii) "Payment Commencement Date" means the first business day of the
Plan Year immediately following the Plan Year in which the Outside Director
terminates service as a member of the Board.
(jj) "Performance -- Based Compensation" means compensation qualifying
as "performance-based compensation" under Section 162(m) of the Code.
(kk) "Performance Shares" means Shares or an award denominated in Shares
which may be earned in whole or in part upon attainment of performance criteria
established by the Administrator.
(ll) "Performance Units" means an award which may be earned in whole or
in part upon attainment of performance criteria established by the Administrator
and which may be settled for cash, Shares or other securities or a combination
of cash, Shares or other securities as established by the Administrator.
(mm) "Plan" means this 1997 Stock Incentive Plan.
(nn) "Plan Year" means the calendar year.
(oo) "Restricted Stock" means Shares issued under the Plan to the
Grantee for such consideration, if any, and subject to such restrictions on
transfer, rights of first refusal, repurchase provisions, forfeiture provisions,
and other terms and conditions as established by the Administrator.
(pp) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor thereto.
(qq) "SAR" means a stock appreciation right entitling the Grantee to
Shares or cash compensation, as established by the Administrator, measured by
appreciation in the value of Common Stock.
(rr) "Share" means a share of the Common Stock.
(ss) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
(tt) "Subsidiary Disposition" means the disposition by the Company of
its equity holdings in any subsidiary corporation effected by a merger or
consolidation involving that subsidiary corporation, the sale of all or
substantially all of the assets of that subsidiary corporation or the Company's
sale or distribution of substantially all of the outstanding capital stock of
such subsidiary corporation.
3. STOCK SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10, below, the maximum
aggregate number of Shares which may be issued pursuant to all Awards is two
million (2,000,000). The Shares to be issued pursuant to Awards may be
authorized, but unissued, or reacquired Common Stock.
(b) If an Award expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Award exchange program, or
if any unissued Shares are retained by the Company upon exercise of an Award in
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order to satisfy the exercise price for such Award or any withholding taxes due
with respect to such Award, such unissued or retained Shares shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that actually have been issued under the Plan pursuant to an
Award shall not be returned to the Plan and shall not become available for
future distribution under the Plan, except that if unvested Shares are
forfeited, or repurchased by the Company at their original purchase price, such
Shares shall become available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) Plan Administrator.
(1) Administration with Respect to Directors and Officers. With
respect to grants of Awards to Officers, Directors or Employees who are
also Officers or Directors of the Company, the Plan shall be
administered by (A) the Board or (B) a Committee designated by the Board
to serve at the pleasure of the Board, which Committee shall be
constituted in such a manner as to satisfy the Applicable Laws and to
permit such grants and related transactions under the Plan to be exempt
from Section 16(b) of the Exchange Act in accordance with Rule 16b-3.
Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. The Committee shall
select one of its members as chairman, and shall hold meetings at such
times and places as it may determine. A majority of the Committee shall
constitute a quorum and acts of the Committee at which a quorum is
present, or acts reduced to or approved in writing by all members of the
Committee, shall be the valid acts of the Committee.
(2) Administration With Respect to Consultants and Other
Employees. With respect to grants of Awards to Employees or Consultants
who are neither Directors nor Officers of the Company, the Plan shall be
administered by (A) the Board or (B) a Committee designated by the
Board, which Committee shall be constituted in such a manner as to
satisfy the Applicable Laws. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by
the Board. The Board may authorize one or more Officers to grant such
Awards and may limit such authority by requiring that such Awards must
be reported to and ratified by the Board or a Committee within six (6)
months of the grant date, and if so ratified, shall be effective as of
the grant date.
(3) Administration With Respect to Covered Employees.
Notwithstanding the foregoing, grants of Awards to any Covered Employee
intended to qualify as Performance-Based Compensation shall be made only
by a Committee (or subcommittee of a Committee) which is comprised
solely of two or more Directors eligible to serve on a committee making
Awards qualifying as Performance-Based Compensation. In the case of such
Awards granted to Covered Employees, references to the "Administrator"
or to a "Committee" shall be deemed to be references to such Committee
or subcommittee.
(4) Administration Errors. In the event an Award is granted in a
manner inconsistent with the provisions of this subsection (a), such
Award shall be presumptively valid as of its grant date to the extent
permitted by the Applicable Laws.
(5) Notwithstanding the foregoing and any designation of the
Administrator by the Board, Awards made under Section 6 shall be
administered exclusively by the Board, except as is specifically
otherwise provided in Section 6.
(b) Powers of the Administrator. Subject to Applicable Laws and the
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<PAGE> 6
provisions of the Plan (including any other powers given to the Administrator
hereunder), and except as otherwise provided by the Board, the Administrator
shall have the authority, in its discretion:
(1) to select the Employees, Officers, Directors and Consultants
to whom Awards may be granted from time to time hereunder;
(2) to determine whether and to what extent Awards are granted
hereunder;
(3) to determine the number of Shares or the amount of other
consideration to be covered by each Award granted hereunder;
(4) to approve forms of Award Agreement for use under the Plan;
(5) to determine the terms and conditions of any Award granted
hereunder;
(6) to amend the terms of any outstanding Award granted under
the Plan, including a reduction in the exercise price (or base amount on
which appreciation is measured) of any Award to reflect a reduction in
the Fair Market Value of the Common Stock since the grant date of the
Award, provided that any amendment that would adversely affect the
Grantee's rights under an outstanding Award shall not be made without
the Grantee's written consent; provided, however, that the Administrator
may not amend the terms of any outstanding option to reduce the purchase
price of the Shares covered by such option without the consent of the
stockholders then sufficient to approve the Plan in the first instance.
The Administrator may, with the Optionee's written consent, cancel any
outstanding stock option or accept any outstanding stock option in
exchange for a new option; provided, however, that the Administrator may
not cancel any outstanding option and replace such canceled option with
any option or options having a purchase price of the Shares covered by
such option or options which is lower than that of the canceled option
without the consent of the stockholders then sufficient to approve the
Plan in the first instance.
(7) to construe and interpret the terms of the Plan and Awards
granted pursuant to the Plan;
(8) to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable foreign
jurisdictions and to afford Grantees favorable treatment under such
laws; provided, however, that no Award shall be granted under any such
additional terms, conditions, rules or procedures with terms or
conditions which are inconsistent with the provisions of the Plan; and
(9) to take such other action, not inconsistent with the terms
of the Plan, as the Administrator deems appropriate.
(c) Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be conclusive and binding on all
persons.
5. ELIGIBILITY. Awards, other than Incentive Stock Options, may be
granted to Employees, Officers, Directors and Consultants. Incentive Stock
Options may be granted only to Employees. An Employee, Officer, Director or
Consultant who has been granted an Award may, if otherwise eligible, be granted
additional Awards; provided, however, Outside Directors shall not be eligible
for any award under this plan other than those provided for in Section 6. Awards
may be granted to such Employees of the Company and its subsidiaries who are
residing in foreign jurisdictions as the Administrator may determine from time
to time.
6. AUTOMATIC AWARDS OF DEFERRED STOCK UNITS TO OUTSIDE DIRECTORS.
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(a) As of the Effective Date and as of the last day of each Plan Year,
the Company shall credit Deferred Stock Units to each participating Outside
Director's Deferred Stock Unit Account equal to the number of Deferred Stock
Units determined by dividing Ten Thousand Dollars ($10,000) by the Fair Market
Value of a Share on the date of the Award. In the case of a Participating
Outside Director whose service as an Outside A-5 Director terminates during the
Plan Year, the applicable dollar amount shall be determined by multiplying Ten
Thousand Dollars ($10,000) by a fraction, the numerator of which shall be the
number of full calendar quarters of service as an Outside Director completed by
the Participating Outside Director during the Plan Year and the denominator of
which shall be four.
(b) A separate Account under the Plan shall be established for each
Participating Outside Director. Such Account shall be (i) credited with the
amounts credited in accordance with paragraph (a), (ii) credited (or charged, as
the case may be) with the investment results determined in accordance with
paragraph (c)and (iii) charged with the amounts paid by the Plan to or on behalf
of the Participating Outside Director in accordance with paragraph (e). Within
each Participating Outside Director's Account, separate subaccounts shall be
maintained to the extent the Administrator determines them to be necessary or
useful in the administration of the Plan.
(c) A Participating Outside Director's Deferred Stock Unit Account shall
be treated as if it were invested in Deferred Stock Units that are equivalent in
value to the fair market value of shares of Company Common Stock in accordance
with the following rules:
(1) Deemed Reinvestment Of Dividends. The number of Deferred
Stock Units credited to a Participating Outside Director's Deferred
Stock Unit Account shall be increased on each date on which a dividend
is paid on Company Common Stock. The number of additional Deferred Stock
Units credited to a Participating Outside Director's Deferred Stock Unit
Account as a result of such increase shall be determined by (i)
multiplying the total number of Deferred Stock Units (excluding
fractional Deferred Stock Units) credited to the Participating Outside
Director's Deferred Stock Unit Account immediately before such increase
by the amount of the dividend paid per share of Company Common Stock on
the dividend payment date, and (ii) dividing the product so determined
by the Fair Market Value of a Share on the dividend payment date.
(2) Conversion Out of Deferred Stock Units. The dollar value of
the Deferred Stock Units credited to a Participating Outside Director's
Deferred Stock Unit Account on any date shall be determined by
multiplying the number of Deferred Stock Units (including fractional
Deferred Stock Units) credited to the Participating Outside Director's
Deferred Stock Unit Account by the Fair Market Value of a Share on that
date.
(3) Effect of Recapitalization. In the event of a transaction or
event described in this subparagraph (3), the number of Deferred Stock
Units credited to a Participating Outside Director's Deferred Stock Unit
Account shall be adjusted in such manner as the Board, in its sole
discretion, deems equitable. A transaction or event is described in this
subparagraph (3) if (x) it is a dividend (other than regular quarterly
dividends) or other distribution (whether in the form of cash, shares,
other securities, or other property), extraordinary cash dividend,
recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, repurchase, or exchange of
shares or other securities, the issuance or exercisability of stock
purchase rights, the issuance of warrants or other rights to purchase
shares or other securities, or other similar corporate transaction or
event and (y) the Board determines that such transaction or event
affects the shares of Company Common Stock, such
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that an adjustment pursuant to this paragraph (3) is appropriate to
prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan.
(4) Change in Deemed Investment Election. A Participating
Outside Director who elects to receive distribution of his or her
Accounts in annual installments will continue to have his or her
Deferred Stock Unit Account credited with Deferred Stock Units during
the installment period.
(d) Each Account established under this Section 6 shall be maintained
for bookkeeping purposes only. Neither the Plan nor any of the Accounts
established under the Plan shall hold any actual funds or assets. The Deferred
Stock Units established hereunder shall be used solely to determine the amounts
to be paid hereunder, shall not be or represent an equity security of the
Company, shall not be convertible into or otherwise entitle a Participating
Outside Director to acquire an equity security of the Company and shall not
carry any voting or dividend rights.
(e) Payments shall be made as follows:
(1) Amounts credited to a Participating Outside Director's
Deferred Stock Unit Account shall be paid in shares of Company Common
Stock, except that a cash payment will be made with any final
installment for any fraction of a Deferred Stock Unit remaining in the
Participating Outside Director's Account. Such fractional Deferred Stock
Unit shall be valued at the Closing Price on the date of settlement. The
right of any person to receive one or more payments under this Section 6
shall be an unsecured claim against the general assets of the Company.
(2) Payments to a Participating Outside Director with respect to
the Participating Outside Director's Account shall begin as of the
Participating Outside Director's Payment Commencement Date; provided
that if a Participating Outside Director dies before the Participating
Outside Director's Payment Commencement Date, payment of the entire
value of the Participating Outside Director's Account shall be made to
the Participating Outside Director's Beneficiary in accordance with the
provisions of subparagraphs (3) or (4), whichever is applicable, after
the Administrator receives all documents and other information that it
requests in connection with the payment.
(3) Five Annual Installments. A Participating Outside Director
shall receive his or her Account in five annual installments unless the
Participating Outside Director elects to receive his or her benefits
under the Plan in the form of a lump-sum payment in accordance with
subparagraph (4), below. Annual installments shall be payable to the
Participating Outside Director beginning as of the Payment Commencement
Date and continuing as of each Payment Anniversary Date thereafter until
all installments have been paid. The first annual installment shall
equal one-fifth ( 1/5) of the value of the Participating Outside
Director's Account(s), determined as of the Payment Commencement Date.
Each successive annual installment shall equal the value of the
Participating Outside Director's Account(s), determined as of the
Payment Anniversary Date, multiplied by a fraction, the numerator of
which is one, and the denominator of which is the excess of five over
the number of installment payments previously made (i.e., 1/4, 1/3,
etc.). If the Participating Outside Director dies before the
Participating Outside Director's Payment Commencement Date, or after the
Participating Outside Director's Payment Commencement Date but before
all five installments have been paid, the remaining installments shall
be paid to the Participating Outside Director's Beneficiary in
accordance with the schedule in this subparagraph (3).
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(4) Lump Sum. A Participating Outside Director may elect to
receive his or her Account under the Plan in the form of a lump-sum
payment in lieu of the five installment payments determined under
subparagraph (3), above. The lump sum shall be payable to the
Participating Outside Director in shares of Company Common Stock on the
Payment Commencement Date. An election under this subparagraph (4) shall
be made in a form and manner satisfactory to the Board and shall be
effective as to the Participating Outside Director only if made prior to
termination of service with the Board of Directors. If the Participating
Outside Director dies before his or her Payment Commencement Date having
elected to receive benefits in the form of a lump sum, a lump sum
payment shall be made to the Participating Outside Director's
Beneficiary on the Payment Commencement Date.
(f) Notwithstanding any other provision in this Section 6 or in any
other Section of the Plan to the contrary, the value of a Participating Outside
Director's Account shall be paid to the Participating Outside Director in a
lump-sum cash payment on the occurrence of a Change in Control or as soon
thereafter as practicable, but in no event later than five days after a Change
in Control. For purposes of payments under this paragraph (f), the value of a
Deferred Stock Unit shall be computed as the greater of (1) the Closing Price of
a Share on or nearest the date on which the Change of Control is deemed to
occur, or (2) the highest per Share price for Shares actually paid in connection
with the Change of Control.
(g) The Board may amend, suspend, or terminate the provisions of this
Section 6 at any time; provided that no amendment, suspension, or termination of
this Section 6 shall, without a Participating Outside Director's consent, reduce
the Participating Outside Director's benefits accrued under this Section 6
before the date of such amendment, suspension, or termination. If this Section 6
is terminated in accordance with this paragraph (g), the terms of the Plan as in
effect immediately before termination shall determine the right A-7 to payment
in respect of any amounts that remain credited to a Participating Outside
Director's Account upon termination.
(h) The Board shall furnish an annual statement to each Participating
Outside Director or, if the Participating Outside Director is deceased, the
Participating Outside Director's Beneficiary, reporting the value of the
Participating Outside Director's Account as of the end of the most recent Plan
Year.
(i) The Board may delegate to officers of the Company any and all
authority with which it is vested under this Section 6, and the Board may
allocate its responsibilities under this Section 6 among its members.
(j) No payment due under this Section 6 shall be subject in any manner
to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or
charge in any other way. Any attempt to anticipate, alienate, sell, transfer,
assign, pledge, encumber, or charge such payment in any other way shall be void.
No such payment or interest therein shall be liable for or subject to the debts,
contracts, liabilities, or torts of any Participating Outside Director or
Beneficiary. If any Participating Outside Director or Beneficiary becomes
bankrupt or attempts to anticipate, alienate, sell, transfer, assign, pledge,
encumber, or charge in any other way any payment under the Plan, the Board may
direct that such payment be suspended and that all future payments to which such
Participating Outside Director or Beneficiary otherwise would be entitled be
held and applied for the benefit of such person, the person's children or other
dependents, or any of them, in such manner and in such proportions as the Board
may deem proper.
(k) Nothing in this Section 6 shall confer upon any person the right to
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continue to serve as a member of the Board or to participate in the Plan,
including this Section 6, other than in accordance with its terms.
(l) The Board may make any appropriate arrangements to deduct from all
credits and payments under this Section 6 any taxes that the Board reasonably
determines to be required by law to be withheld from such credits and payments.
(m) If the Board determines, upon evidence satisfactory to the Board,
that any Participating Outside Director or Beneficiary to whom a benefit is
payable under this Section 6 is unable to care for his or her affairs because of
illness or accident or otherwise, any payment due under this Section 6 (unless
prior claim therefor shall have been made by a duly authorized guardian or other
legal representative) may be paid, upon appropriate indemnification of the Board
and the Company, to the spouse of the Participating Outside Director or
Beneficiary or other person deemed by the Board to have incurred expenses for
the benefit of and on behalf of such Participating Outside Director or
Beneficiary. Any such payment shall be a complete discharge of any liability
under this Section 6 with respect to the amount so paid.
(n) Each Participating Outside Director and Beneficiary entitled to
receive a payment under this Section 6 shall keep the Board advised of his or
her current address. If the Board is unable for a period of 36 months to locate
a Participating Outside Director or Beneficiary to whom a payment is due under
the Plan, commencing with the first day of the month as of which such payment
first comes due, the total amount payable to such Participating Outside Director
or Beneficiary shall be forfeited. Should such a Participating Outside Director
or Beneficiary subsequently contact the Board requesting payment, the Board
shall, upon receipt of all documents and other information that it might request
in connection with the payment, restore and pay the forfeited payment in a lump
sum, the value of which shall not be adjusted to reflect any interest or other
type of investment earnings or gains for the period of forfeiture.
(o) NOTWITHSTANDING ANY OTHER PROVISIONS OF THIS SECTION 6, THE
PROVISIONS OF THIS SECTION 6 SHALL NOT BE EFFECTIVE IF A MAJORITY OF THE
SHAREHOLDERS PRESENT IN PERSON OR BY PROXY AT A DULY CONVENED MEETING OF
SHAREHOLDERS OF THE COMPANY DO NOT APPROVE THE PLAN. IF SUCH APPROVAL IS NOT
OBTAINED WITHIN TWELVE MONTHS FOLLOWING THE EFFECTIVE DATE PARTICIPATING OUTSIDE
DIRECTORS SHALL HAVE NO RIGHTS HEREUNDER AND ALL GRANTS SHALL BE OF NO FORCE OR
EFFECT WHATSOEVER.
7. TERMS AND CONDITIONS OF AWARDS.
(a) Type of Awards. The Administrator is authorized under the Plan to
award any type of arrangement to an Employee, Officer, Director (other than an
Outside Director) or Consultant that is not inconsistent with the provisions of
the Plan and that by its terms involves or might involve the issuance of (i)
Shares, (ii) an Option, an SAR or similar right with an exercise or conversion
privilege at a fixed or variable price related to the Common Stock and/or the
passage of time, the occurrence of one or more events, or the satisfaction of
performance criteria or other conditions, or (iii) any other security with the
value derived from the value of the Common Stock. Such awards include, without
limitation, Options, SARs, sales or bonuses of Restricted Stock, Dividend
Equivalent Rights, Performance Units or Performance Shares, and an Award may
consist of one such security or benefit, or two or more of them in any
combination or alternative.
(b) Designation of Award. Each Award shall be designated in the Award
Agreement. In the case of an Option, the Option shall be designated as either an
Incentive Stock Option or a Non-Qualified Stock Option. However, notwithstanding
such designation, to the extent that the aggregate Fair Market Value of Shares
subject to Options designated as Incentive Stock Options which become
exercisable for the first time by a Grantee during any calendar year (under all
plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess
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Options, to the extent of the Shares covered thereby in excess of the foregoing
limitation, shall be treated as Non-Qualified Stock Options. For this purpose,
Incentive Stock Options shall be taken into account in the order in which they
were granted, and the Fair Market Value of the Shares shall be determined as of
the date the Option with respect to such Shares is granted.
(c) Conditions of Award. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, increase in share price, earnings per share, total stockholder
return, return on equity, return on assets, return on investment, net operating
income, cash flow, revenue, economic value added, personal management
objectives, or other measure of performance selected by the Administrator.
Partial achievement of the specified criteria may result in a payment or vesting
corresponding to the degree of achievement as specified in the Award Agreement.
(d) Deferral of Award Payment. The Administrator may establish one or
more programs under the Plan to permit selected Grantees the opportunity to
elect to defer receipt of consideration upon exercise of an Award, satisfaction
of performance criteria, or other event that absent the election would entitle
the Grantee to payment or receipt of Shares or other consideration under an
Award. The Administrator may establish the election procedures, the timing of
such elections, the mechanisms for payments of, and accrual of interest or other
earnings, if any, on amounts or Shares so deferred, and such other terms,
conditions, rules and procedures that the Administrator deems advisable for the
administration of any such deferral program.
(e) Award Exchange Programs. The Administrator may establish one or more
programs under the Plan to permit selected Grantees to exchange an Award under
the Plan for one or more other types of Awards under the Plan on such terms and
conditions as established by the Administrator from time to time.
(f) Individual Option and SAR Limit. The maximum number of Shares with
respect to which Options and SARs may be granted to any Employee in any fiscal
year of the Company shall be two hundred thousand (200,000) Shares. The
foregoing limitation shall be adjusted proportionately in connection with any
change in the Company's capitalization pursuant to Section 11, below. To the
extent required by Section 162(m) of the Code or the regulations thereunder, in
applying the foregoing limitation with respect to an Employee, if any Option or
SAR is canceled, the canceled Option or SAR shall continue to count against the
maximum number of Shares with respect to which Options and SARs may be granted
to the Employee. For this purpose, the repricing of an Option (or in the case of
an SAR, the reduction of the base amount on which the stock appreciation is
calculated to reflect a reduction in the Fair Market Value of the Common Stock)
shall be treated as the cancellation of the existing Option or SAR and the grant
of a new Option or SAR.
(g) Early Exercise. The Award may, but need not, include a provision
whereby the Grantee may elect at any time while an Employee, Officer, Director
or Consultant to exercise any part or all of the Award prior to full vesting of
the Award. Any unvested Shares received pursuant to such exercise may be subject
to a repurchase right in favor of the Company or to any other restriction the
Administrator determines to be appropriate.
(h) Term of Award. The term of each Award shall be the term stated in
the Award Agreement, provided, however, that the term of an Incentive Stock
Option shall be no more than ten (10) years from the date of grant thereof.
However, in
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the case of an Incentive Stock Option granted to a Grantee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Incentive Stock Option shall be five (5) years from the date of
grant thereof or such shorter term as may be provided in the Award Agreement.
(i) Transferability of Awards. Incentive Stock Options may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Grantee, only by the Grantee. Other Awards shall be
transferable to the extent provided in the Award Agreement.
(j) Time of Granting Awards. The date of grant of an Award shall for all
purposes be the date on which the Administrator makes the determination to grant
such Award, or such other date as is determined by the Administrator. Notice of
the grant determination shall be given to each Employee, Officer, Director or
Consultant to whom an Award is so granted within a reasonable time after the
date of such grant.
8. AWARD EXERCISE OR PURCHASE PRICE, CONSIDERATION, TAXES AND RELOAD
OPTIONS.
(a) Exercise or Purchase Price. The exercise or purchase price, if any,
for an Award shall be as follows:
(1) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of
the Company or any Parent or Subsidiary, the per Share exercise
price shall be not less than one hundred ten percent (110%) of
the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described
in the preceding paragraph, the per Share exercise price shall
be not less than one hundred percent (100%) of the Fair Market
Value per Share on the date of grant.
(2) In the case of a Non-Qualified Stock Option, the per Share
exercise price shall be not less than one hundred percent (100%) of the
Fair Market Value per Share on the date of grant unless otherwise
determined by the Administrator.
(3) In the case of Awards intended to qualify as
Performance-Based Compensation, the exercise or purchase price, if any,
shall be not less than one hundred percent (100%) of the Fair Market
Value per Share on the date of grant.
(4) In the case of other Awards, such price as is determined by
the Administrator.
(b) Consideration. Subject to Applicable Laws, the consideration to be
paid for the Shares to be issued upon exercise or purchase of an Award including
the method of payment, shall be determined by the Administrator. In addition to
any other types of consideration the Administrator may determine, the
Administrator is authorized to accept as consideration for Shares issued under
the Plan the following:
(1) cash;
(2) check;
(3) delivery of Grantee's promissory note with such recourse,
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interest, security, and redemption provisions as the Administrator
determines is appropriate;
(4) surrender of Shares (including withholding of Shares
otherwise deliverable upon exercise of the Award) which have a Fair
Market Value on the date of surrender equal to the aggregate exercise
price of the Shares as to which said Award shall be exercised (but only
to the extent that such exercise of the Award would not result in an
accounting compensation charge with respect to the Shares used to pay
the exercise price unless otherwise determined by the Administrator);
(5) delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Award and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price; or
(6) any combination of the foregoing methods of payment.
(c) Taxes. No Shares shall be delivered under the Plan to any Grantee or
other person until such Grantee or other person has made arrangements acceptable
to the Administrator for the satisfaction of any foreign, federal, state, or
local income and employment tax withholding obligations. Upon exercise of an
Award, the Company shall withhold or collect from Grantee an amount sufficient
to satisfy such tax obligations. Upon an Optionee's exercise of a stock option,
the Company may satisfy its withholding by withholding from such Optionee or
requiring the Optionee to surrender Shares sufficient to satisfy federal, state
and local income and employment tax withholding obligations.
(d) Reload Options. In the event the exercise price or tax withholding
of an Option is satisfied by the Company or the Grantee's employer withholding
Shares otherwise deliverable to the Grantee, the Administrator may issue the
Grantee an additional Option, with terms identical to the Award Agreement under
which the Option was exercised, but at an exercise price as determined by the
Administrator in accordance with the Plan.
9. EXERCISE OF AWARD.
(a) Procedure for Exercise; Rights as a Stockholder.
(1) Any Award granted hereunder shall be exercisable at such
times and under such conditions as determined by the Administrator under
the terms of the Plan and specified in the Award Agreement.
(2) An Award shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the
terms of the Award by the person entitled to exercise the Award and full
payment for the Shares with respect to which the Award is exercised has
been received by the Company. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such
Shares, no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to Shares subject to an Award,
notwithstanding the exercise of an Option or other Award. The Company
shall issue (or cause to be issued) such stock certificate promptly upon
exercise of the Award. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock
certificate is issued, except as provided in the Award Agreement or
Section 11, below.
(b) Exercise of Award Following Termination of Employment, Officer,
Director or Consulting Relationship.
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(1) An Award may not be exercised after the termination date of
such Award set forth in the Award Agreement and may be exercised
following the termination of a Grantee's Continuous Status as an
Employee, Officer, Director or Consultant only to the extent provided in
the Award Agreement.
(2) Where the Award Agreement permits a Grantee to exercise an
Award following the termination of the Grantee's Continuous Status as an
Employee, Officer, Director or Consultant for a specified period, the
Award shall terminate to the extent not exercised on the last day of the
specified period or the last day of the original term of the Award,
whichever occurs first.
(c) Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Award previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Grantee at the time that such offer is made.
10. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Shares shall not be issued pursuant to the exercise of an Award
unless the exercise of such Award and the issuance and delivery of such Shares
pursuant thereto shall comply with all Applicable Laws, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) As a condition to the exercise of an Award, the Company may require
the person exercising such Award to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
Applicable Laws.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
Subject to any required action by the stockholders of the Company, the
number of Shares covered by each outstanding Award, and the number of Shares
which have been authorized for issuance under the Plan but as to which no Awards
have yet been granted or which have been returned to the Plan, as well as the
price per share of Common Stock covered by each such outstanding Award, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
similar event resulting in an increase or decrease in the number of issued
shares of Common Stock. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason hereof shall be
made with respect to, the number or price of Shares subject to an Award.
12. CORPORATE TRANSACTIONS/CHANGES IN CONTROL/SUBSIDIARY DISPOSITIONS.
(a) In the event of any Corporate Transaction, each Award which is at
the time outstanding under the Plan automatically shall become fully vested and
exercisable and be released from any restrictions on transfer and repurchase or
forfeiture rights, immediately prior to the specified effective date of such
Corporate Transaction, for all of the Shares at the time represented by such
Award. However, an outstanding Award under the Plan shall not so fully vest and
be exercisable and released from such limitations if and to the extent: (i) such
Award is, in connection with the Corporate Transaction, either to be assumed by
the successor corporation or Parent thereof or to be replaced with a comparable
Award with respect to shares of the capital stock of the successor corporation
or Parent thereof, (ii) such Award is to be replaced with a cash incentive
program of the successor corporation which preserves the compensation element of
such Award existing at the time of the Corporate Transaction and provides for
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subsequent payout in accordance with the same vesting schedule applicable to
such Award or (iii) the vesting, exercisability and release from such
limitations of such Award is subject to other limitations imposed by the
Administrator at the time of the grant of the Award. The determination of Award
comparability under clause (i) above shall be made by the Administrator, and its
determination shall be final, binding and conclusive. The Administrator also
shall have the authority to grant Awards under the Plan that are to
automatically vest and be fully exercisable and released from such limitations
in whole or in part immediately prior to the Corporate Transaction or upon the
subsequent termination of the Continuous Status as an Employee or Consultant of
the Grantee, whether or not the Award is otherwise to be assumed or replaced in
connection with the consummation of such Corporate Transaction.
(b) Effective upon the consummation of the Corporate Transaction, all
outstanding Awards under the Plan shall terminate and cease to remain
outstanding, except to the extent assumed by the successor company or its
Parent. Notwithstanding the foregoing, the Administrator, in its discretion, may
prevent the acceleration of vesting and release from any restrictions on
transfer and repurchase or forfeiture rights of any outstanding Award with
respect to any Corporate Transaction.
(c) The Administrator shall have the authority, exercisable either in
advance of any actual or anticipated Change in Control (other than a Change in
Control which is also a Corporate Transaction) or at the time of an actual
Change in Control and either at the time of the grant of an Award or at any time
while an Award remains outstanding, to provide for the automatic full vesting
and exercisability of one or more outstanding unvested Awards under the Plan and
the termination of restrictions on transfer and repurchase or forfeiture rights
on such Awards, in connection with a Change in Control. The Administrator also
shall have the authority to condition any such Award vesting and exercisability
or release from such limitations upon the subsequent termination of the
Continuous Status as an Employee or Consultant of the Grantee within a specified
period following the effective date of the Change in Control. The Administrator
may provide that any Awards so vested or released from such limitations in
connection with a Change in Control, shall remain fully exercisable until the
expiration or sooner termination of the Award.
(d) The Administrator shall have the authority, exercisable either in
advance of any actual or anticipated Subsidiary Disposition or at the time of an
actual Subsidiary Disposition and either at the time of the grant of an Award or
at any time while an Award remains outstanding, to provide for the automatic
full vesting and exercisability of one or more outstanding unvested Awards under
the Plan and the termination of restrictions on transfer and repurchase or
forfeiture rights on such Awards, in connection with a Subsidiary Disposition,
but only with respect to those Grantees who are at the time engaged primarily in
Continuous Service as an Employee or Consultant with the subsidiary corporation
involved in such Subsidiary Disposition. The Administrator also shall have the
authority to condition any such Award vesting and exercisability or release from
such limitations upon the subsequent termination of the affected Grantee's
Continuous Service as an Employee or Consultant with that subsidiary corporation
within a specified period following the effective date of the Subsidiary
Disposition. The Administrator may provide that any Awards so vested or released
from such limitations in connection with a Subsidiary Disposition, shall remain
fully exercisable until the expiration or sooner termination of the Award.
13. TERM OF PLAN.
Subject to approval of the Plan by the stockholders of the Company
within twelve months of the date of its adoption by the Board, the Plan shall
become effective immediately upon its adoption by the Board. The Plan shall
continue in
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effect for a term of ten (10) years unless sooner terminated.
14. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN.
(a) The Board may at any time amend, suspend or terminate the Plan. To
the extent necessary to comply with Applicable Laws, the Company shall obtain
stockholder approval of any Plan amendment in such a manner and to such a degree
as required.
(b) No Award may be granted during any suspension of the Plan or after
termination of the Plan.
(c) Any amendment, suspension or termination of the Plan shall not
affect Awards already granted, and such Awards shall remain in full force and
effect as if the Plan had not been amended, suspended or terminated, unless
mutually agreed otherwise between the Grantee and the Administrator, which
agreement must be in writing and signed by the Grantee and the Company.
15. RESERVATION OF SHARES.
(a) The Company, during the term of the Plan, will at all times reserve
and keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
(b) The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
16. NO EFFECT ON TERMS OF EMPLOYMENT.
The Plan shall not confer upon any Grantee any right with respect to
continuation of employment or consulting relationship with the Company, nor
shall it interfere in any way with his or her right or the Company's right to
terminate his or her employment or consulting relationship at any time, with or
without cause.
17. STOCKHOLDER APPROVAL.
The grant of Incentive Stock Options under the Plan shall be subject to
approval of the Plan by the stockholders of the Company within twelve (12)
months before or after the date the Plan is adopted by the Board. Such
stockholder approval shall be obtained in the degree and manner required under
Applicable Laws. The Administrator may grant Incentive Stock Options under the
Plan prior to approval by the stockholders, but until such approval is obtained,
no such Incentive Stock Option shall be exercisable. In the event that
stockholder approval is not obtained within the twelve (12) month period
provided above, all Incentive Stock Options previously granted under the Plan
shall terminate.
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EXHIBIT 5.1
[Morrison & Foerster LLP Letterhead]
July 16, 1998
Krause's Furniture, Inc.
200 North Berry Street
Brea, California 92621-3903
Re: Registration Statement for Offering of an aggregate of
2,000,000 Shares of Common Stock
Ladies and Gentlemen:
We refer to your registration on Form S-8 (the "Registration Statement")
under the Securities Act of 1933, as amended, of 2,000,000 shares of Common
Stock issuable pursuant to the Company's 1997 Stock Incentive Plan (the
"Plan"). We advise you that, in our opinion, when such shares have been issued
and sold pursuant to the provisions of the Plan and in accordance with the
Registration Statement, such shares will be duly authorized, validly issued,
fully paid and non-assessable shares of the Company's Common Stock.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Morrison & Foerster LLP
<PAGE> 1
EXHIBIT 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8) pertaining to the 1997 Stock Incentive Plan of Krause's Furniture,
Inc. of our report dated March 28, 1997, except for Note 2, as to which the
date is December 17, 1997, with respect to the consolidated financial
statements and schedule of Krause's Furniture, Inc. included in its Annual
Report (Form 10-K) for the year ended February 1, 1998, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Orange County, California
July 14, 1998
<PAGE> 1
EXHIBIT 23.2
[ARTHUR ANDERSEN LLP LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated March 11, 1998
included in Krause's Furniture, Inc. Form 10-K for the year ended February 1,
1998 and to all references to our Firm included in this registration statement.
/s/ Arthur Anderson LLP
ARTHUR ANDERSON LLP
Orange County, California
July 14, 1998
