<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 26, 1998
REGISTRATION NO. 333-43111
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
KRAUSE'S FURNITURE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5710 77-0310773
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYEE
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
200 NORTH BERRY STREET
BREA, CALIFORNIA 92821-3903
(714) 990-3100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PHILIP M. HAWLEY
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
KRAUSE'S FURNITURE, INC.
200 NORTH BERRY STREET
BREA, CALIFORNIA 92821-3903
(714) 990-3100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES OF ALL COMMUNICATIONS TO BE SENT TO:
<TABLE>
<S> <C>
JUDITH OLSON LASKER, ESQ. STEVEN D. PIDGEON, ESQ.
KRAUSE'S FURNITURE, INC. MICHAEL B. MALEDON, ESQ.
200 NORTH BERRY STREET, J. MICHAEL CHRISTOPHER, ESQ.
BREA, CALIFORNIA 92821-3903 SNELL & WILMER LLP
714-990-3100 ONE ARIZONA CENTER
AND PHOENIX, ARIZONA 85004-0000
MICHAEL J. CONNELL, ESQ. 602-382-6000
MORRISON & FOERSTER LLP
555 WEST FIFTH STREET
LOS ANGELES, CALIFORNIA 90013-1024
213-892-5200
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
=================================================================================================================================
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES AMOUNT TO BE PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PRICE PER UNIT(1) OFFERING PRICE(1) FEE(1)
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value
$.001..................... 4,840,000 shares $3.00 $14,520,000 $4,283.40
=================================================================================================================================
</TABLE>
(1) Estimated solely for purpose of calculating the amount of the registration
fee, based on the average of the high and low prices for the Common Stock as
reported on the Nasdaq SmallCap Market on December 18, 1997 in accordance
with Rule 457(c) under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
<TABLE>
<S> <C>
Registration Fee........................................ $ 4,283.40*
Printing and Engraving.................................. 100,000.00*
Legal Fees and Expenses................................. 250,000.00*
Underwriters' Non-accountable Expense Allowance......... 138,233.00* **
Accountants' Fees and Expenses.......................... 150,000.00*
AMEX Listing Fee........................................ 50,000.00*
-----------
Total***...................................... $692,516.40*
===========
</TABLE>
- ---------------
* Estimated.
** Calculated at 2% of total sales price at an assumed offering price of $3.00
per share, without giving effect to the Underwriters' over-allotment option.
*** All costs to be borne by the Company.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of 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 Delaware General Corporation Law (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 15. RECENT SALES OF UNREGISTERED SECURITIES
1. Within the past three years the Company sold an aggregate of 1,677
shares of Common Stock to one employee for consideration in the aggregate amount
of $5,150 pursuant to the Company's 1990 Employees Stock Option Plan.
2. From May 13, 1996, through June 19, 1996, the Company sold an aggregate
principal amount of $950,000 of its Series 1996-I and Series 1996-II Convertible
Promissory Notes (the "Notes") to certain directors, officers and 5%
stockholders of the Company and parties related to them. In connection with the
General Electric Capital Corporation ("GECC") financing, the holders of the
Notes converted the principle amount and accrued interest due under the Notes
into an aggregate of 970,140 shares of Common Stock at a conversion price of
$1.00 per share. The purchasers of the Notes were certain officers, directors
and affiliates of the Company.
II-1
<PAGE> 3
3. On May 21, 1996, the Company issued its Demand Promissory Note in the
principal amount of $1,500,000 to Edson Investments, Inc. ("Edson"). On July 2,
1996, the Company issued a second Demand Promissory Note in the principal amount
of $500,000 to Edson. In connection with the GECC financing, Edson acquired
2,096,111 shares of Common Stock at a price of $1.00 per share in consideration
for its cancellation of the Company's obligation to repay the principal and
accrued interest of the $96,111 owed under these Demand Promissory Notes. Edson
changed its name to Japan Omnibus Ltd. and is the Selling Stockholder in this
Registration Statement.
4. On August 26, 1996, and September 10, 1996, the Company completed a
private placement of 10,699,000 shares of Common Stock to 55 investors, some of
whom are related to each other, at a price of $1.00 per share. In addition, the
Company issued its subordinated note in the aggregate principal amount of
$5,000,000 and a warrant to purchase 1,400,000 additional shares of Common Stock
at a purchase price of $.001 per share to GECC. The purchasers of shares in this
private placement and the number of shares purchased are as follows:
<TABLE>
<CAPTION>
NO. OF SHARES NO. OF SHARES
NAME ON AUGUST 26, 1996 ON SEPTEMBER 10, 1996
---- -------------------- -----------------------
<S> <C> <C>
GECC........................... 5,000,000
Permal Noscal Ltd.............. 405,000
Zaxis Partners, L.P............ 40,000
Sidney Kimmel.................. 50,000
Quadra Appreciation Fund,
Inc.......................... 5,000
Branagh Revocable Trust........ 5,000
Sanford J. Colen............... 20,000
Jean R. Perrette............... 250,000
Isaac Robert Souede............ 250,000
Thomas M. DeLitto.............. 25,000
C. Redington Barrett, III...... 5,000
Hurley & Co.................... 35,000
United Gulf Bank............... 225,000
ATCO Holdings Ltd.............. 400,000
ATCO Development, Inc.......... 100,000
G(2) Investment Partners....... 60,000 30,000
Fairmont Services Ltd.......... 400,000
Carlton Securities N.V......... 100,000
Emmanual Bagdjian.............. 210,000
Heliopolis Inc................. 100,000
T. Michael Wallace............. 100,000 300,000
Gary S. Gladstein.............. 100,000 100,000
Peter L. Rhulen................ 100,000
Pollat, Evans & Co., Inc....... 15,000
Maureen Erin Hawley Trust I.... 112,500
Allison Booth Hawley Trust I... 112,500
Caitlin Hale Hawley Trust I.... 112,500
Shannon Follen Hawley Trust
I............................ 112,500
Hawley Family Trust............ 500,000
Philip M. Hawley............... 30,000
Dr. Philip M. Hawley, Jr....... 20,000
H.D. Investment Group, Inc..... 25,000
Morgan Adams, Inc.............. 50,000
Theodore D. Konopisos.......... 22,000
</TABLE>
II-2
<PAGE> 4
<TABLE>
<CAPTION>
NO. OF SHARES NO. OF SHARES
NAME ON AUGUST 26, 1996 ON SEPTEMBER 10, 1996
---- -------------------- -----------------------
<S> <C> <C>
William A. MacLaughlin IRA..... 25,000
Gregory M. Simon............... 20,000
Hugh H. Wilson, Jr............. 15,000
Codell Holdings Ltd............ 100,000
J. Stephen Emerson IRA......... 100,000
J. Stephen Emerson............. 100,000
Paul Marciano Trust............ 100,000
G. Tyler Runnels............... 50,000
Charles Perez.................. 100,000
JMG Capital Partners L.P....... 50,000
William C. Miller, IV.......... 25,000
Tendencia Investments
Overseas..................... 250,000
Lawrence S. Black.............. 50,000
Maureen Erin Hawley Trust II... 25,000
Allison Booth Hawley Trust
II........................... 25,000
Caitlan Hale Hawley Trust II... 25,000
Shannon Follen Hawley Trust
II........................... 25,000
Ian and Francine Jack.......... 10,000
Keith and Tanya Jacobs......... 10,000
J. Richard Cordsen............. 27,000
J.D. Yates..................... 10,000
</TABLE>
5. On August 14, 1997, the Company concluded a Supplemental Securities
Purchase Agreement (the "1997 Financing") among the Company, GECC and Japan
Omnibus Ltd. ("JOL"). Under the terms of the 1997 Financing, the Company sold
subordinated notes in an aggregate principal amount of $3,000,000 to GECC and
JOL. The Company issued warrants in conjunction with the notes, as follows: (i)
to GECC a warrant to purchase 600,000 shares of the Common Stock at a purchase
price of $1.25 per share and to JOL a warrant to purchase 140,000 shares of the
Common Stock at a purchase price of $1.25 per share; (ii) to GECC and JOL
warrants for the purchase of up to 1,000,000 shares of the Company's common
stock at a price of $0.01 per share (the "Performance Warrants"); the
Performance Warrants will be canceled if the Company meets certain economic
performance targets. The Company also agreed to issue additional warrants if it
draws on the standby credit facility. The Company borrowed funds pursuant to the
standby credit facility on December 30, 1997 and issued to GECC and JOL
additional warrants to purchase 400,000 and 160,000 shares of Common Stock,
respectively, at $1.25 per share.
Except for the issuance of the Series 1996-II Convertible Promissory Notes
and the shares of Common Stock acquired upon conversion thereof described in
item 2, the issuances of securities in the above transactions were deemed to be
exempt from registration under the Securities Act in reliance on Section 4(2)
thereof or Regulation D promulgated thereunder as transactions not involving a
public offering. The issuance of Series 1996-II convertible Promissory Notes and
the shares of Common Stock acquired upon conversion thereof described in item 2
above, were deemed exempt from registration under Securities Act in reliance on
Regulation S promulgated thereunder.
II-3
<PAGE> 5
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<S> <C>
1 Form of Underwriting Agreement.
* 3.1 Certificate of Incorporation.(1)
* 3.1a Certificate of Amendment of Certificate of Incorporation
dated November 28, 1994.(5)
* 3.1b Certificate of Amendment of Certificate of Incorporation
dated August 1, 1995.(6)
* 3.1c Certificate of Amendment of Certificate of Incorporation
dated June 7, 1996.(7)
* 3.1d Certificate of Amendment of Certificate of Incorporation
dated August 1, 1996.(7)
* 3.2 By-laws.(1)
* 4.1 Loan and Security Agreement dated January 20, 1995 by and
between Congress Financial Corporation (Western) and
Krause's Sofa Factory and Castro Convertible Corporation.(3)
* 4.1a First Amendment to Loan and Security Agreement dated May 10,
1996 by and between Congress Financial Corporation (Western)
and Krause's Sofa Factory and Castro Convertible
Corporation.(6)
* 4.1b Second Amendment to Loan and Security Agreement dated as of
August 26, 1996 by and between Congress Financial
Corporation (Western) and Krause's Sofa Factory and Castro
Convertible Corporation.(10)
* 4.1c Third Amendment to Loan and Security Agreement dated as of
November 25, 1996 by and between Congress Financial
Corporation (Western) and Krause's Sofa Factory and Castro
Convertible Corporation.(10)
* 4.1d Amended and Restated Subordination Agreement dated as of
August 26, 1996 by and between Congress Financial
Corporation (Western) and Krause's Furniture, Inc.(10)
* 4.1e Fourth Amendment to Loan and Security Agreement dated as of
August 14, 1997 by and between Congress Financial
Corporation (Western) and Krause's Sofa Factory and Castro
Convertible Corporation.(12)
* 4.1f Fifth Amendment to Loan and Security Agreement dated as of
December 11, 1997 by and between Congress Financial
Corporation (Western) and Krause's Custom Crafted Furniture
Corp. and Castro Convertible Corporation.(13)
* 4.1g Letter agreement between Krause's Furniture, Inc. and
Congress Financial Corporation (Western).(12)
* 4.2 Guarantee dated January 20, 1995 by Krause's Furniture, Inc.
to Congress Financial Corporation (Western).(3)
* 4.5 Certificate of Designations of Preferred Stock.(4)
5 Opinion of Morrison & Foerster LLP with respect to legality.
*10.1 1994 Directors Stock Option Plan.(5)
*10.2 1990 Employees Stock Option Plan.(2)
*10.3 Form of Securities Purchase Agreement between the Company
and GECC dated as of August 26, 1996.(8)
*10.4 Form of $5,000,000 10% Subordinated Pay-In-Kind Note due
August 31, 2001.(8)
*10.5 Form of Warrant to Purchase 1,400,000 Shares of Common
Stock. (8)
*10.6 Form of Securities Purchase Agreement between the Company
and Certain Stockholders dated as of August 26, 1996.(8)
*10.7 Form of Stockholders Agreement among the Company, GECC and
certain other stockholders of the Company dated as of August
26, 1996.(8)
*10.8 Form of Registration Rights Agreement among the Company and
GECC and certain other stockholders of the Company dated as
of August 26, 1996.(8)
*10.9 Employment Agreement with Philip M. Hawley.(8)
*10.10 1997 Stock Incentive Plan.(11)
*10.11 Supplemental Securities Purchase Agreement among Krause's
Furniture, Inc., General Electric Corporation and Japan
Omnibus Ltd., dated as of August 14, 1997.(12)
*10.12 Letter agreement dated August 14, 1997 regarding Permal
Group shares.(12)
</TABLE>
II-4
<PAGE> 6
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<S> <C>
*10.13 Letter agreement dated August 14, 1997 regarding warrant
dilution provisions.(12)
*10.14 Form of Amendment to Registration Rights Agreement and
Stockholders Agreement among the Company and GECC and
certain other stockholders of the Company dated as of August
14, 1997.
*10.15 Form of Succession Agreement by and between the Company and
Philip M. Hawley and certain other stockholders of the
Company.
10.16 Waiver of default in fiscal 1997 under financial covenant
with Congress Financial Corporation (Western) dated February
9, 1996.
10.17 Agreement of Congress Financial Corporation (Western) to
suspend EBITDA covenant for fiscal 1998 dated March 11,
1998.
10.18 Waiver of defaults in fiscal 1997 under certain financial
covenants with GECC dated February 26, 1998.
10.19 Agreement of GECC to suspend compliance with covenant
regarding debt-equity ratio for fiscal 1998 dated March 11,
1998.
*11 Statement regarding computation of per share earnings.
*21 Subsidiaries.
23.1 Consent of Morrison & Foerster LLP (included in its opinion
filed as Exhibit 5).
*23.2 Consent of Ernst & Young LLP, Independent Auditors.
*23.3 Consent of Arthur Andersen LLP, Independent Public
Accountants.
*24 Power of Attorney. Reference is made to page II-7 of
Registrant's Form S-1 dated December 23, 1997 (File No.
333-43111).
</TABLE>
- ---------------
(1) Incorporated herein by reference to Exhibits to Registrant's Form S-4 dated
June 19, 1992 (File No. 33-48725).
(2) Incorporated herein by reference to Exhibit 10.2 to Registrant's Form 10-K
for the year ended December 31, 1990 (File No. 0-17868).
(3) Incorporated herein by reference to Exhibit to Registrant's Form 8-K dated
as of January 20, 1995 (File No. 0-17868).
(4) Incorporated herein by reference to Exhibit 4.3 to Registrant's Form 8-K
dated as of October 7, 1993 (File No. 0-17868).
(5) Incorporated herein by reference to Exhibit 10.1 to Registrant's Form 10-K
dated as of December 31, 1994 (File No. 0-17868).
(6) Incorporated herein by reference to Exhibits to Registrant's Form 10-K
dated as of January 28, 1996 (File No. 0-17868).
(7) Incorporated herein by reference to Exhibits to Registrant's Form 10-Q
dated as of July 28, 1996 (File No. 0-17868).
(8) Incorporated herein by reference to Exhibits to Registrant's Form 8-K dated
as of August 26, 1996 (File No. 0-17868).
(9) Incorporated herein by reference to Exhibits to Registrant's Form S-1 dated
March 12, 1997 (File No. 333-19485).
(10) Incorporated herein by reference to Exhibits to Registrant's Form 10-K
dated May 2, 1997 (File No. 0-17868).
(11) Incorporated herein by reference to Exhibit A to Registrant's Proxy
Statement on Schedule 14A dated May 7, 1997 (File No. 0-17868).
(12) Incorporated herein by reference to Exhibits to Registrant's Form 8-K dated
August 14, 1997 (File No. 0-17868).
(13) Incorporated herein by reference to Exhibits to Registrant's Form 10-Q
dated as of December 17, 1997 (File No. 0-17868).
* Previously filed.
II-5
<PAGE> 7
- ---------------
(b)FINANCIAL STATEMENT SCHEDULES
Report of Arthur Andersen LLP, Independent Public Accountants
Report of Ernst & Young LLP, Independent Auditors.
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
In accordance with Rule 430A of Regulation C under the Securities Act of
1933, as amended (the "Securities Act"), each of the undersigned registrants
hereby undertakes:
(a) 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. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of Prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(b) That 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 under Item
15 above, or otherwise, the registrants have been advised that in the
opinion of the Securities and Exchange 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 against such
liabilities (other than the payment by the registrants of expenses incurred
or paid by a director, officer or controlling person of either registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrants will, unless in the opinion of
their 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.
(c) That, for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrants pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(d) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus 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.
II-6
<PAGE> 8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Brea, County of Orange, State of California, on March 26, 1998.
KRAUSE'S FURNITURE, INC.
By: /s/ ROBERT A. BURTON
------------------------------------
Robert A. Burton
Senior Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 3 to the Registration Statement on Form S-1 has been signed
on March 26, 1998 by the following persons or their respective attorneys-in-fact
in the capacities indicated.
<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,
Robert A. Burton Principal 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/ JOHN A. GAVIN * Director
- -----------------------------------------------------
John A. Gavin
</TABLE>
*By: /s/ ROBERT A. BURTON
-------------------------------
Robert A. Burton
Attorney-In-Fact
II-7
<PAGE> 9
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1 Form of Underwriting Agreement.
* 3.1 Certificate of Incorporation.(1)
* 3.1a Certificate of Amendment of Certificate of Incorporation
dated November 28, 1994.(5)
* 3.1b Certificate of Amendment of Certificate of Incorporation
dated August 1, 1995.(6)
* 3.1c Certificate of Amendment of Certificate of Incorporation
dated June 7, 1996.(7)
* 3.1d Certificate of Amendment of Certificate of Incorporation
dated August 1, 1996.(7)
* 3.2 By-laws.(1)
* 4.1 Loan and Security Agreement dated January 20, 1995 by and
between Congress Financial Corporation (Western) and
Krause's Sofa Factory and Castro Convertible Corporation.(3)
* 4.1a First Amendment to Loan and Security Agreement dated May 10,
1996 by and between Congress Financial Corporation (Western)
and Krause's Sofa Factory and Castro Convertible
Corporation.(6)
* 4.1b Second Amendment to Loan and Security Agreement dated as of
August 26, 1996 by and between Congress Financial
Corporation (Western) and Krause's Sofa Factory and Castro
Convertible Corporation.(10)
* 4.1c Third Amendment to Loan and Security Agreement dated as of
November 25, 1996 by and between Congress Financial
Corporation (Western) and Krause's Sofa Factory and Castro
Convertible Corporation.(10)
* 4.1d Amended and Restated Subordination Agreement dated as of
August 26, 1996 by and between Congress Financial
Corporation (Western) and Krause's Furniture, Inc.(10)
* 4.1e Fourth Amendment to Loan and Security Agreement dated as of
August 14, 1997 by and between Congress Financial
Corporation (Western) and Krause's Sofa Factory and Castro
Convertible Corporation.(12)
* 4.1f Fifth Amendment to Loan and Security Agreement dated as of
December 11, 1997 by and between Congress Financial
Corporation (Western) and Krause's Custom Crafted Furniture
Corp. and Castro Convertible Corporation.(13)
* 4.1g Letter agreement between Krause's Furniture, Inc. and
Congress Financial Corporation (Western).(12)
* 4.2 Guarantee dated January 20, 1995 by Krause's Furniture, Inc.
to Congress Financial Corporation (Western).(3)
* 4.5 Certificate of Designations of Preferred Stock.(4)
5 Opinion of Morrison & Foerster LLP with respect to legality.
*10.1 1994 Directors Stock Option Plan.(5)
*10.2 1990 Employees Stock Option Plan.(2)
*10.3 Form of Securities Purchase Agreement between the Company
and GECC dated as of August 26, 1996.(8)
*10.4 Form of $5,000,000 10% Subordinated Pay-In-Kind Note due
August 31, 2001.(8)
*10.5 Form of Warrant to Purchase 1,400,000 Shares of Common
Stock.(8)
*10.6 Form of Securities Purchase Agreement between the Company
and Certain Stockholders dated as of August 26, 1996.(8)
*10.7 Form of Stockholders Agreement among the Company, GECC and
certain other stockholders of the Company dated as of August
26, 1996.(8)
*10.8 Form of Registration Rights Agreement among the Company and
GECC and certain other stockholders of the Company dated as
of August 26, 1996.(8)
*10.9 Employment Agreement with Philip M. Hawley.(8)
*10.10 1997 Stock Incentive Plan.(11)
*10.11 Supplemental Securities Purchase Agreement among Krause's
Furniture, Inc., General Electric Corporation and Japan
Omnibus Ltd., dated as of August 14, 1997.(12)
*10.12 Letter agreement dated August 14, 1997 regarding Permal
Group shares.(12)
*10.13 Letter agreement dated August 14, 1997 regarding warrant
dilution provisions.(12)
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*10.14 Form of Amendment to Registration Rights Agreement and
Stockholders Agreement among the Company and GECC and
certain other stockholders of the Company dated as of August
14, 1997.
*10.15 Form of Succession Agreement between the Company and Philip
M. Hawley and certain other stockholders of the Company.
10.16 Waiver of default in fiscal 1997 under financial covenant
with Congress Financial Corporation (Western) dated February
9, 1996.
10.17 Agreement of Congress Financial Corporation (Western) to
suspend EBITDA covenant for fiscal 1998 dated March 11,
1998.
10.18 Waiver of defaults in fiscal 1997 under certain financial
covenants with GECC dated February 26, 1998.
10.19 Agreement of GECC to suspend compliance with covenant
regarding debt-equity ratio for fiscal 1998 dated March 11,
1998.
*11 Statement regarding computation of per share earnings.
*21 Subsidiaries.
23.1 Consent of Morrison & Foerster LLP (included in its opinion
filed as Exhibit 5).
*23.2 Consent of Ernst & Young LLP, Independent Auditors.
*23.3 Consent of Arthur Andersen LLP, Independent Public
Accountants.
*24 Power of Attorney. Reference is made to page II-7 of
Registrant's Form S-1 dated December 23, 1997 (File No.
333-43111).
</TABLE>
- ---------------
(1) Incorporated herein by reference to Exhibits to Registrant's Form S-4 dated
June 19, 1992 (File No. 33-48725).
(2) Incorporated herein by reference to Exhibit 10.2 to Registrant's Form 10-K
for the year ended December 31, 1990 (File No. 0-17868).
(3) Incorporated herein by reference to Exhibit to Registrant's Form 8-K dated
as of January 20, 1995 (File No. 0-17868).
(4) Incorporated herein by reference to Exhibit 4.3 to Registrant's Form 8-K
dated as of October 7, 1993 (File No. 0-17868).
(5) Incorporated herein by reference to Exhibit 10.1 to Registrant's Form 10-K
dated as of December 31, 1994 (File No. 0-17868).
(6) Incorporated herein by reference to Exhibits to Registrant's Form 10-K
dated as of January 28, 1996 (File No. 0-17868).
(7) Incorporated herein by reference to Exhibits to Registrant's Form 10-Q
dated as of July 28, 1996 (File No. 0-17868).
(8) Incorporated herein by reference to Exhibits to Registrant's Form 8-K dated
as of August 26, 1996 (File No. 0-17868).
(9) Incorporated herein by reference to Exhibits to Registrant's Form S-1 dated
March 12, 1997 (File No. 333-19485).
(10) Incorporated herein by reference to Exhibits to Registrant's Form 10-K
dated May 2, 1997 (File No. 0-17868).
(11) Incorporated herein by reference to Exhibit A to Registrant's Proxy
Statement on Schedule 14A dated May 7, 1997 (File No. 0-17868).
(12) Incorporated herein by reference to Exhibits to Registrant's Form 8-K dated
August 14, 1997 (File No. 0-17868).
(13) Incorporated herein by reference to Exhibits to Registrant's Form 10-Q
dated as of December 17, 1997 (File No. 0-17868).
* Previously filed.
<PAGE> 1
EXHIBIT 5
March 26, 1998
Krause's Furniture, Inc.
200 North Berry Street
Brea, CA 92821-3903
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on
Form S-1 filed by Krause's Furniture, Inc., a Delaware corporation (the
"Company"), with the Securities and Exchange Commission on December 23, 1997,
Amendment No. 1 thereto filed on February 18, 1998, Amendment No. 2 thereto
filed on March 11, 1998 and Amendment No. 3 thereto filed March 26, 1998 (the
"Registration Statement"), relating to the registration under the Securities Act
of 1933, as amended, of up to 4,840,000 shares of the Company's common stock,
$.001 par value (the "Stock"), including 440,000 shares subject to the
underwriters' over-allotment option, which are to be offered and sold by the
Company. The Stock is to be sold to the underwriters named in the Registration
Statement for resale to the public.
As counsel to the Company, we have examined the proceedings taken
by the Company in connection with the issuance and sale by the Company of up to
2,743,889 shares of Stock. We have also examined the proceedings taken and
proposed to be taken by the Company in connection with the sale of 2,096,111
shares of Stock to be sold by a stockholder of the Company (the "Selling
Stockholder").
We are of the opinion that (a) the shares of Stock to be offered
and sold by the Company have been duly authorized and, when issued and sold by
the Company in the manner described in the Registration Statement and in
accordance with the resolutions adopted by the Board of Directors of the
Company, will be legally issued, fully paid and nonassessable, and (b) the
shares of Stock to be sold by the Selling Stockholder are legally and validly
issued, fully paid and nonassessable.
<PAGE> 2
Krause's Furniture, Inc.
March 26, 1998
Page 2
We consent to the use of this opinion as an exhibit to the
Registration Statement and further consent to all references to us in the
Registration Statement, the prospectus constituting a part thereof and any
amendments thereto.
Very truly yours,
Morrison & Foerster LLP
<PAGE> 1
EXHIBIT 10.16
[LETTERHEAD]
[CONGRESS LOGO]
February 9, 1998
Krause's Custom Crafted Furniture Corp.
Castro Convertible Corporation
200 North Berry Street
Brea, California 92821
Re: Waiver of Event of Default
--------------------------
Ladies and Gentlemen:
KRAUSE'S CUSTOM CRAFTED FURNITURE CORP., a California corporation, and
CASTRO CONVERTIBLE CORPORATION, a New York corporation (jointly and severally,
"Borrower") has requested that CONGRESS FINANCIAL CORPORATION (WESTERN), a
California corporation ("Lender") waive the Event of Default under that certain
Loan and Security Agreement, dated as of January 20, 1995, as amended to date,
between Lender and Borrower (the "Loan Agreement") resulting from Borrower's
noncompliance with the financial covenant pertaining to EBITDA for the fiscal
quarter ended January 1998. Capitalized terms used herein without definition
shall have the meanings ascribed to them in the Loan Agreement.
Lender hereby waives compliance by Borrower with the financial covenant
set forth in Section 9.15 of the Loan Agreement pertaining to EBITDA for the
fiscal quarter ended January 1998, and shall not exercise its rights and
remedies under the Loan Agreement or applicable law in respect of such Event of
Default; provided, however, that Lender shall be free to exercise all of its
rights and remedies under the Loan Agreement in the event of Borrower's
violation or breach after the fiscal quarter ended January 1998 of Section 9.15
of the Loan Agreement.
The foregoing waiver is not a continuing waiver, and Lender does not
hereby amend the terms and provisions of the Loan Agreement. Upon the
occurrence of any Event of Default after the date hereof, or in the event that
Lender learns of any Event of Default which occurred prior to the date hereof
(other than a breach of the financial covenant set forth in Section 9.15 of the
Loan Agreement for the fiscal quarter ended January 1998), Lender shall be free
to exercise any and all of its various rights and remedies under the Loan
Agreement and applicable law.
<PAGE> 2
Krause's Custom Crafted Furniture Corp.
Castro Convertible Corporation
February 9, 1998
Page 2
In consideration of Lender's waiver of the foregoing Event of Default,
Borrower shall pay to Lender a waiver fee of One Thousand Five Hundred Dollars
($1,500), which fee shall be fully earned and payable as of the date hereof.
Please indicate your agreement with the foregoing by signing in the
space provided below.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
(WESTERN)
a California corporation
By: /s/ Kelly Wu 2/10/98
--------------------------------
Title: Assistant Vice President
-----------------------------
ACKNOWLEDGED AND AGREED:
KRAUSE'S CUSTOM CRAFTED FURNITURE CORP.,
a California corporation
By: /s/ Robert A. Burton
---------------------------------
Title: Senior Vice President CFO
------------------------------
CASTRO CONVERTIBLE CORPORATION,
a New York corporation
By: /s/ Robert A. Burton
---------------------------------
Title: Senior Vice President CFO
------------------------------
<PAGE> 1
EXHIBIT 10.17
[Congress Financial Corporation Letterhead]
[CONGRESS LOGO]
March 11, 1998
Bob Burton
Senior Vice President
Chief Financial Officer
Krause's Custom Crafted Furniture Corp.
200 N. Berry St.
Brea, CA 92821-3903
Dear Bob:
We are pleased to inform you that we will temporarily suspend the EBITDA
covenant for your Company's fiscal year 1998. We will reinstate the EBITDA
covenant for fiscal year 1999 and reset the fiscal year 1999 EBITDA covenant
after receipt of the final fiscal year financial projections.
All other terms and conditions in the current credit facility will remain the
same.
Please let me know if you have any questions.
Sincerely,
/s/ Kelly Wu
Kelly Wu
Assistant Vice-President
<PAGE> 1
EXHIBIT 10.18
[GE Capital LETTERHEAD]
- ---------------------------------------------------------------
February 26, 1998
Krause's Furniture, Inc.
200 N. Berry St.
Brea, CA 92821
Gentlemen:
Reference is made to that certain Supplemental Securities Purchase Agreement
(the "Purchase Agreement"), dated as of August 14, 1997, by and among Krause's
Furniture, Inc. ("Borrower"), and General Electric Capital Corporation
("GECC"). Capitalized terms used herein that are not defined herein shall have
the meaning assigned to such terms in the Purchase Agreement.
GECC hereby waives with respect to requirements for fiscal year ended February
1, 1998, compliance by the Borrower with the following:
1. Covenant contained in Section 6.2b of the Purchase Agreement requiring
Borrower to maintain ratio of Consolidated Total Indebtedness to
Consolidated Net Worth no greater than 1.92 for the fiscal year ending
February 1, 1998;
2. Covenant contained in Section 6.2c of the Purchase Agreement requiring
Borrower to maintain Fixed Charge Ratio no less than .80 for the fiscal year
ending February 1, 1998; and
3. Covenant contained in Section 6.2d of the Purchase Agreement requiring
Borrower not to exceed $3,500,000 in Capital Expenditure for the fiscal year
ending February 1, 1998.
Except as specifically provided herein, the Purchase Agreement shall remain in
full force and effect and is hereby ratified and confirmed.
<PAGE> 2
Notwithstanding anything in this letter to the contrary, no waiver of any
default under breach of any provision of the Purchase Agreement shall be deemed
to be a waiver of any other subsequent similar or different default under or
breach of such or any other provision of the Purchase Agreement or of any
election of remedies available in connection with any of the foregoing.
Kindly confirm your acceptance of the terms hereof by signing and returning a
copy of this letter to the undersigned.
Very truly yours,
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ George Harshbarger, Jr.
----------------------------------
Title: Department Operations Manager
-------------------------------
Accepted as of the date first set forth above:
KRAUSE'S FURNITURE, INC.
By: /s/ Robert A. Burton
-----------------------------------
Title: Senior Vice President CFO
--------------------------------
<PAGE> 1
EXHIBIT 10.19
[GE Capital LETTERHEAD]
- ---------------------------------------------------------------
March 11, 1998
Krause's Furniture, Inc.
200 N. Berry St.
Brea, CA 92821
Ladies and Gentlemen:
This letter is to confirm that notwithstanding any provision of the
Supplemental Securities Purchase Agreement among Krause's Furniture, Inc. (the
"Company"), General Electric Capital Corporation ("GECC") and Japan Ominibus
Ltd. dated as of August 14, 1997 (the "Agreement"), GECC will not assert any
Event of Default (as defined in the Agreement) arising out of any breach by
the Company during its 1998 fiscal year of Section 6.2(b) of the Agreement, so
long as the ratio of the Consolidated Total Indebtedness to Consolidated Net
Worth does not exceed 110% of such amounts set forth in the Company's fiscal
year 1998 Business Plan, a draft of which is attached hereto.
Very truly yours,
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Tony Pantuso
---------------------------
Title: Senior Vice President
------------------------
