SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D/A
Under the Securities Exchange Act of 1934
(Amendment No.12)*
Krause's Furniture, Inc.
(Name of Issuer)
Common Stock, $0.001 Par Value
(Title of Class of Securities)
500760202
(CUSIP Number)
Georgette Miller
900 Third Avenue
New York, NY 10022
(212) 418- 6500
---------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
January 17, 2000
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), Rule 13d-1(f) or Rule 13d-1(g), check the
following box [ ].
NOTE: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7(b) for other
parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
Page 1 of 37 Pages
<PAGE>
SCHEDULE 13D
- -------------------------------------------------------------------------------
CUSIP No. 500760202 Page 2 of 37
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Worms & Cie
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) / /
(b) /x/
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS
Not Applicable
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
/ /
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
France
- -------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER None
SHARES -----------------------------------------------------------
BENEFICIALLY
OWNED BY 8 SHARED VOTING POWER 2,006,024, including 312,015
EACH Shares issuable upon exercise of warrants
REPORTING -----------------------------------------------------------
PERSON WITH
9 SOLE DISPOSITIVE POWER None
-----------------------------------------------------------
10 SHARED DISPOSITIVE POWER 2,006,024, including 312,015
Shares issuable upon exercise of warrants
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
None
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
/x/
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
CO, HC
- -------------------------------------------------------------------------------
<PAGE>
SCHEDULE 13D
- -------------------------------------------------------------------------------
CUSIP No. 500760202 Page 3 of 37
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Permal Group SA
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) / /
(b) /x/
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS
Not Applicable
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
/ /
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
France
- -------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER 0
SHARES ----------------------------------------------------------
BENEFICIALLY
OWNED BY 8 SHARED VOTING POWER 2,006,024, including 312,045
EACH Shares issuable upon exercise of warrants
REPORTING
PERSON WITH ----------------------------------------------------------
9 SOLE DISPOSITIVE POWER 0
----------------------------------------------------------
10 SHARED DISPOSITIVE POWER 2,006,024, including 312,045
Shares issuable upon exercise of warrants
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
/x/
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
CO, HC
- -------------------------------------------------------------------------------
<PAGE>
SCHEDULE 13D
- -------------------------------------------------------------------------------
CUSIP No. 500760202 Page 4 of 37
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Worms & Co., Inc.
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) / /
(b) / x/
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS
WC
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
/ /
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York
- -------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER 19,640 Shares
SHARES -----------------------------------------------------------
BENEFICIALLY
OWNED BY 8 SHARED VOTING POWER 1,986,384, including 312,045
EACH Shares issuable upon exercise of warrants
REPORTING
PERSON WITH -----------------------------------------------------------
9 SOLE DISPOSITIVE POWER 19,640 Shares
10 SHARED DISPOSITIVE POWER 1,986,384, including 312,045
Shares issuable upon exercise of warrants
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
19,640 Shares
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
/x/
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
Less than 0.1%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
CO, HC
- -------------------------------------------------------------------------------
<PAGE>
SCHEDULE 13D
- -------------------------------------------------------------------------------
CUSIP No. 500760202 Page 5 of 37
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Permal Special Opportunities Ltd.
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) / /
(b) /x/
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS
WC
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
/ /
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
British Virgin Islands
- -------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER 170,103 Shares
SHARES ----------------------------------------------------------
BENEFICIALLY
OWNED BY 8 SHARED VOTING POWER 0
EACH ----------------------------------------------------------
REPORTING
PERSON WITH 9 SOLE DISPOSITIVE POWER 170,103 Shares
----------------------------------------------------------
10 SHARED DISPOSITIVE POWER 0
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
170,103 Shares
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
/ /
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.8%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
IV
- -------------------------------------------------------------------------------
<PAGE>
SCHEDULE 13D
- -------------------------------------------------------------------------------
CUSIP No. 500760202 Page 6 of 37
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Permal Capital Management, Inc.
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) / /
(b) /x/
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS
OO
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
/ /
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- -------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER 521,479 Shares, including
SHARES 12,045 Shares issuable upon exercise of warrants
BENEFICIALLY ------------------------------------------------------------
OWNED BY
EACH 8 SHARED VOTING POWER 765,779 Shares
REPORTING ------------------------------------------------------------
PERSON WITH
9 SOLE DISPOSITIVE POWER 521,479 Shares, including
12,045 Shares issuable upon exercise of warrants
------------------------------------------------------------
10 SHARED DISPOSITIVE POWER 765,779 Shares
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
521,479 Shares, including 12,045 Shares issuable upon exercise of
warrants
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
/x/
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
2.4%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
CO
- -------------------------------------------------------------------------------
<PAGE>
SCHEDULE 13D
- -------------------------------------------------------------------------------
CUSIP No. 500760202 Page 7 of 37
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Permal Services, Inc.
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) / /
(b) /x/
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS
Not Applicable
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
/ /
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- -------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER 1750 Shares
SHARES ----------------------------------------------------------
BENEFICIALLY
OWNED BY 8 SHARED VOTING POWER 765,779 Shares
EACH ----------------------------------------------------------
REPORTING
PERSON WITH 9 SOLE DISPOSITIVE POWER 1750 Shares
----------------------------------------------------------
10 SHARED DISPOSITIVE POWER 765,779 Shares
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1750 Shares
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
/x/
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
Less than 0.01%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
CO
- -------------------------------------------------------------------------------
<PAGE>
SCHEDULE 13D
- -------------------------------------------------------------------------------
CUSIP No. 500760202 Page 8 of 37
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Permal Management Corporation
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) / /
(b) /x/
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS
Not Applicable
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
/ /
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- -------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER 0
SHARES ----------------------------------------------------------
BENEFICIALLY
OWNED BY 8 SHARED VOTING POWER 0
EACH ----------------------------------------------------------
REPORTING
PERSON WITH 9 SOLE DISPOSITIVE POWER 0
-----------------------------------------------------------
10 SHARED DISPOSITIVE POWER 0
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
/x/
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
CO, IA
- -------------------------------------------------------------------------------
<PAGE>
SCHEDULE 13D
- -------------------------------------------------------------------------------
CUSIP No. 500760202 Page 9 of 37
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Permal Capital Partners, L.P.
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) / /
(b) /x/
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS
WC
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
/ /
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- -------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER 765,779 Shares
SHARES ----------------------------------------------------------
BENEFICIALLY
OWNED BY 8 SHARED VOTING POWER 0
EACH ----------------------------------------------------------
REPORTING
PERSON WITH 9 SOLE DISPOSITIVE POWER 765,779 Shares
-----------------------------------------------------------
10 SHARED DISPOSITIVE POWER 0
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
765,779 Shares
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
/ /
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
3.5%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
IV, PN
- -------------------------------------------------------------------------------
<PAGE>
SCHEDULE 13D
- -------------------------------------------------------------------------------
CUSIP No. 500760202 Page 10 of 37
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Hopewell Holdings, Inc.
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) / /
(b) /x/
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS
WC
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
/ /
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York
- -------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER 33,334 Shares
SHARES ----------------------------------------------------------
BENEFICIALLY
OWNED BY 8 SHARED VOTING POWER 0
EACH ----------------------------------------------------------
REPORTING
PERSON WITH 9 SOLE DISPOSITIVE POWER 33,334 Shares
-----------------------------------------------------------
10 SHARED DISPOSITIVE POWER 0
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
33,334 Shares
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
/ /
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.15%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
CO
- -------------------------------------------------------------------------------
<PAGE>
SCHEDULE 13D
- -------------------------------------------------------------------------------
CUSIP No. 500760202 Page 11 of 37
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Japan Omnibus Ltd.
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) / /
(b) /x/
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS
WC
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
/ /
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
British Virgin Islands
- -------------------------------------------------------------------------------
7 SOLE VOTING POWER 300,000 Shares issuable
NUMBER OF upon exercise of warrants
SHARES ----------------------------------------------------------
BENEFICIALLY
OWNED BY 8 SHARED VOTING POWER 0
EACH ----------------------------------------------------------
REPORTING
PERSON WITH 9 SOLE DISPOSITIVE POWER 300,000 Shares issuable
upon exercise of warrants
----------------------------------------------------------
10 SHARED DISPOSITIVE POWER 0
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
300,000 Shares issuable upon exercise of warrants
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
/ /
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.4%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
IV
- -------------------------------------------------------------------------------
<PAGE>
SCHEDULE 13D
- -------------------------------------------------------------------------------
CUSIP No. 500760202 Page 12 of 37
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Pilot Holdings L.P.
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) / /
(b) /x/
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS
WC
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
/ /
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Cayman Islands
- -------------------------------------------------------------------------------
7 SOLE VOTING POWER 5000 Shares Series A Convertible
Preferred immediately convertible
NUMBER OF into 227,273 Common Shares
SHARES ----------------------------------------------------------
BENEFICIALLY
OWNED BY 8 SHARED VOTING POWER 0
EACH ----------------------------------------------------------
REPORTING
PERSON WITH 9 SOLE DISPOSITIVE POWER 5000 Shares Series A
Convertible Preferred
immediately convertible into
227,273 Common Shares
----------------------------------------------------------
10 SHARED DISPOSITIVE POWER 0
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
5000 Shares Series A Convertible Preferred immediately convertible into
227,273 Common Shares
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
/ /
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
IC, PN
- -------------------------------------------------------------------------------
<PAGE>
SCHEDULE 13D
- -------------------------------------------------------------------------------
CUSIP No. 500760202 Page 13 of 37
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Shed Investments L.L.C.
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) / /
(b) /x/
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS
WC
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
/ /
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- -------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER 0
SHARES ----------------------------------------------------------
BENEFICIALLY
OWNED BY 8 SHARED VOTING POWER 5000 Shares Series A
EACH Convertible Preferred
REPORTING immediately convertible
PERSON WITH into 227,273 Shares Common
----------------------------------------------------------
9 SOLE DISPOSITIVE POWER 0
-----------------------------------------------------------
10 SHARED DISPOSITIVE POWER 5000 Shares Series A
Convertible Preferred immediately
convertible into 227,273 Shares
Common
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
/x/
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
IV
- -------------------------------------------------------------------------------
<PAGE>
SCHEDULE 13D
- -------------------------------------------------------------------------------
CUSIP No. 500760202 Page 14 of 37
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Jean R. Perrette
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) / /
(b) /x/
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS
BK, PF
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
/ /
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
France
- -------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER 698,512 Shares
SHARES ----------------------------------------------------------
BENEFICIALLY
OWNED BY 8 SHARED VOTING POWER 1,336,304 Shares, including
EACH 12,045 Shares issuable upon
REPORTING exercise of warrants
PERSON WITH ----------------------------------------------------------
9 SOLE DISPOSITIVE POWER 698,512 Shares
-----------------------------------------------------------
10 SHARED DISPOSITIVE POWER 1,336,304 Shares,
including 12,045 Shares
issuable upon exercise of
warrants
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
698,512 Shares
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
/x/
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
3.2%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
IN
- -------------------------------------------------------------------------------
<PAGE>
SCHEDULE 13D
- -------------------------------------------------------------------------------
CUSIP No. 500760202 Page 15 of 37
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Isaac R. Souede
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) / /
(b) /x/
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS
BK, PF
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
/ /
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- -------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER 556,194 Shares
SHARES ----------------------------------------------------------
BENEFICIALLY
OWNED BY 8 SHARED VOTING POWER 1,796,231 Shares, including
EACH 312,045 Shares issuable upon
REPORTING exercise of warrants
PERSON WITH ----------------------------------------------------------
9 SOLE DISPOSITIVE POWER 556,194 Shares
-----------------------------------------------------------
10 SHARED DISPOSITIVE POWER 1,796,231 Shares,
including 312,045
Shares issuable upon
exercise of warrants
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
556,194
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
/x/
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
2.6%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
IN
- -------------------------------------------------------------------------------
<PAGE>
SCHEDULE 13D
- -------------------------------------------------------------------------------
CUSIP No. 500760202 Page 16 of 37
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Thomas M. DeLitto
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) / /
(b) /x/
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS
PF, OO
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
/ /
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- -------------------------------------------------------------------------------
7 SOLE VOTING POWER 103,995 Shares, including
9998 Shares issuable upon
exercise of options and 18,959
NUMBER OF Shares of Deferred Stock
SHARES ----------------------------------------------------------
BENEFICIALLY
OWNED BY 8 SHARED VOTING POWER 1,516,281 Shares
EACH
REPORTING
PERSON WITH ----------------------------------------------------------
9 SOLE DISPOSITIVE POWER 103,995 Shares, including
9998 Shares issuable upon
exercise of options and
18,959 Shares of Deferred
Stock
-----------------------------------------------------------
10 SHARED DISPOSITIVE POWER 1,516,281 Shares
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
103,995 Shares, including 9,998 shares issuable upon exercise of options and
18,959 Shares of Deferred Stock
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
/x/
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.5
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
IN
- -------------------------------------------------------------------------------
<PAGE>
SCHEDULE 13D
- -------------------------------------------------------------------------------
CUSIP No. 500760202 Page 17 of 37
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
James R. Hodge
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) / /
(b) /x/
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS
Not Applicable
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
/ /
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- -------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER 0
SHARES ----------------------------------------------------------
BENEFICIALLY
OWNED BY 8 SHARED VOTING POWER 470,103 Shares, including
EACH 300,000 Shares issuable
REPORTING upon exercise of warrants
PERSON WITH ----------------------------------------------------------
9 SOLE DISPOSITIVE POWER 0
-----------------------------------------------------------
10 SHARED DISPOSITIVE POWER 470,103 Shares, including
300,000 Shares issuable
upon exercise of warrants
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
/x/
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
IA, IN
- -------------------------------------------------------------------------------
<PAGE>
This Amendment No. 12 amends the Schedule 13D dated December 31, 1990,
as previously amended (the "Schedule 13D"), filed in respect of the common
stock, par value $.001 per share (the "Shares"), of Krause's Furniture, Inc., a
Delaware corporation formerly known as Worth Corporation (the "Company"), by the
signatories hereto (the "Reporting Persons").
The number of Shares which may be acquired upon exercise of options
and warrants described herein has been adjusted to reflect any anti-dilution
adjustments made on or prior to January 17, 2000.
ITEM 1. SECURITY AND ISSUER.
This statement relates to the Common Stock, par value $.001 per share
(the "Shares"), of Krause's Furniture, Inc., a Delaware corporation (the
"Company"). The executive office of the Company is located at 200 North Berry
Street, Brea, CA, 92621.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(c) and (f) This Statement is being filed by (i) Worms & Cie, a
French [limited] company ("W&C"), (ii) Permal Group S.A., a French corporation
("PGSA"), (iii) Worms & Co., Inc., a New York corporation ("Worms"), (iv) Permal
Special Opportunities Ltd., an open-end investment company organized under the
laws of the British Virgin Islands ("PSO"), (v) Permal Capital Management, Inc.,
a Delaware corporation ("PCM"), (vi) Permal Services, Inc., a Delaware
corporation formerly known as Worms Services, Inc. ("PSI"), (vii) Permal
Management Corporation, a Delaware Corporation, (viii) Permal Capital Partners,
L.P., a Delaware limited Partnership ("PCP"), (ix) Hopewell Holdings, Inc., a
New York corporation ("Hopewell"), (x) Japan Omnibus Ltd., a British Virgin
Islands corporation ("JOL"), (xi) Pilot Holdings L.P., a Cayman Islands Exempted
Limited Partnership ("Pilot"), (xii) Shed Investments L.L.C., a Delaware Limited
Liability Company ("Shed"), (xiii) Jean R. Perrette ("Perrette"), (xiv) Isaac R.
Souede ("Souede"), (xv) Thomas M. DeLitto ("DeLitto"), and (xvi) James R. Hodge
("Hodge"). W&C, PGSA, Worms, PSO, PCM, PSI, PCP, Hopewell, JOL, Pilot, Shed,
Perrette, Souede, DeLitto, and Hodge are hereinafter referred to collectively as
the "Reporting Persons."
This Schedule is being filed because the Reporting Persons may be
deemed to constitute a "group" for purposes of Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Act"), by reason of the affiliations and
relationships among the Reporting Persons as described herein. However, the
filing of this Schedule shall not be deemed an admission by any Reporting Person
that such Reporting Person is part of a group or is required to file this
Schedule and, except as may otherwise be specifically stated herein, each
Reporting Person disclaims beneficial ownership of the Shares beneficially owned
by all of the other Reporting Persons. The information provided herein with
respect to each Reporting Person has been provided solely by that Reporting
Person and no Reporting Person is responsible for the accuracy and completeness
of the information included herein with respect to any other Reporting Person.
(i) W&C. W&C's principal business is investing. W&C is a
publicly-traded company organized under the laws of France, with its principal
business and principal office located at 25, avenue Franklin D. Roosevelt, 75008
Paris, France. The managing directors of W&C are Dominique Auburtin and
Ferruccio Luppi (the "W&C Managing Directors"). Schedule I hereto sets forth (A)
the name, (B) the business address, (C) the present principal employment and the
name and address of any corporation or other organization in which such
employment is conducted, and (D) the citizenship of each of the W&C Managing
Directors. The W&C Managing Directors may be deemed to control W&C and
therefore, through PGSA, Worms and its subsidiaries. For descriptions of the
relationships among W&C and Worms and its subsidiaries, see paragraphs
(iii)-(ix) under this Item 2(a)-(c) and (f).
(ii) PGSA. PGSA's principal business is investing. PGSA's
principal business and principal office are located at 25, avenue Franklin D.
Roosevelt, 75008 Paris, France. The directors of PGSA are Dominique Auburtin,
Ferruccio Luppi, Edmond de La Haye Jousselin, and Souede (the "PGSA Directors").
Schedule II hereto sets forth (A) the name, (B) the business address, (C) the
present principal employment and the name and address of any corporation or
other organization in which such employment is conducted, and (D) the
citizenship of each of the PGSA Directors other than Souede. The PGSA Directors
may be deemed to control PGSA and, therefore, Worms and its subsidiaries.
(iii) WORMS. Worms' principal business is holding the stock of
PCM and its subsidiaries and investment advisory and management services through
Permal Asset Management, formerly a subsidiary known as Worms Asset Management
and now a division of Worms ("PAM"). Worms' principal business and principal
office are located at 900 Third Avenue, New York, NY 10022. The executive
officers and directors of Worms are Souede, President, CEO and director,
DeLitto, Executive Vice President and CAO, Hodge, Senior Vice President and CIO,
Thomas P. Evans, Senior Vice President and COO, Nicholas Clive Worms, Chairman
and director, Edmond de La Haye Jousselin, Vice Chairman and director and
Lawrence C. Salameno, Executive Vice President of Marketing and Strategic
Development and director (collectively, the "Worms Executive Officers and
Directors"). Schedule III hereto sets forth (A) the name, (B) the business
address, (C) the present principal employment and the name and address of any
corporation or other organization in which such employment is conducted and (D)
the citizenship of each of the Worms Executive Officers and Directors other than
Souede, DeLitto and Hodge. For such information with respect to Souede, DeLitto
and Hodge, see paragraphs (xiv)-(xvi) under this Item 2(a)-(c) and (f). W&C,
through PGSA, owns 100% of the outstanding capital stock of Worms, and,
therefore, W&C may be deemed to control Worms.
(iv) PSO. PSO's principal business is to invest in a specialized
portfolio mainly comprised of United States securities. PSO's principal business
and principal office are located at The Tropic of Isle Building, P.O. Box 438,
Road Town, Tortola, British Virgin Islands. Hodge is the portfolio manager for
PSO and is authorized to invest PSO's funds.
(v) PCM. The principal business of PCM is investing. PCM's
principal business and principal office are located at 900 Third Avenue, New
York, NY 10022. The executive officers and directors of PCM are DeLitto,
President and director, Perrette, director, Souede, director, C. Reddington
Barrett III, Senior Vice President, COO and director and Paul-Louis Durand-Ruel,
director (collectively, the "PCM Executive Officers and Directors"). Schedule IV
hereto sets forth (A) the name, (B) the business address, (C) the present
principal employment and the name and address of any corporation or other
organization in which such employment is conducted and (D) the citizenship of
each of the PCM Executive Officers and Directors other than Perrette, Souede and
DeLitto. W&C, through PGSA and Worms, owns 100% of the outstanding capital stock
of PCM, and, therefore, W&C may be deemed to control PCM.
(vi) PSI. PSI's principal business is serving as the general
partner of, and holding its general partnership interest in, PCP. PSI's
principal business and principal office are located at Devonshire House, Queen
Street, P.O. Box 3918, Nassau, Bahamas. The executive officers and directors of
PSI are DeLitto, President and director, Perrette, director, C. Redington
Barrett, III, Senior Vice President and Paul-Louis Durand-Ruel, director
(together, the "PSI Executive Officers and Directors"). Schedule V hereto sets
forth (A) the name, (B) the business address, (C) the present principal
employment and the name and address of any corporation or other organization in
which such employment is conducted and (D) the citizenship of each of the PSI
Executive Officers and Directors other than DeLitto and Perrette. W&C, through
PGSA, Worms and PCM, owns 100% of the outstanding capital stock of PSI, and,
therefore, W&C may be deemed to control PSI.
(vii) PMC. PMC's principal business is investment management. In
September, 1998 PMC terminated its Investment Management Agreement with PCP.
Therefore, PMC is no longer a Reporting Person.
(viii) PCP. PCP'S principal business is investing. PCP's
principal business and principal office are located at Devonshire House, Queen
Street, P.O. Box 3918, Nassau, Bahamas. The general partner of PCP is PSI, and,
therefore, PSI may be deemed to control PCP.
(ix) HOPEWELL. Hopewell is a privately held corporation organized
by Perrette for the purpose of making investments. Hopewell's principal business
and principal office are c/o Worms & Co., Inc., 900 Third Avenue, New York, New
York 10022. The executive officers and directors of Hopewell are Perrette,
President and Director, Georgette Miller, Vice President and Director, and
Virginia S. Perrette, Director (the "Hopewell Executive Officers and
Directors"). Schedule VI hereto sets forth (A) the name, (B) the business
address, (C) the present principal employment and the name and address of any
corporation or other organization in which such employment is conducted and (D)
the citizenship of each of the Hopewell Executive Officers and Directors other
than Perrette. Perrette's spouse and children own 100% of the outstanding
capital stock of Hopewell. Therefore, Perette may be deemed to control Hopewell.
(x) JOL. JOL's principal business is investing. JOL's principal
business and principal office are located at The Tropic of Isle Building, P.O.
Box 438, Road Town, Tortola, British Virgin Islands. Hodge makes the investment
decisions for JOL and is authorized to invest JOL's funds.
(xi) PILOT. Pilot is an investment partnership. Pilot's principal
business and principal office are located at 177 Post Road West, Westport, CT
06880. Pilot's General Partner is Shed Investments L.L.C. and, therefore Shed
may be deemed to control Pilot.
(xii) SHED. Shed's principal business is serving as the general
partner of and holding its general partnership interest in Pilot. Shed's
principal business and principal office are located at 177 Post Road West,
Westport, CT 06880. DeLitto is the Managing Member of Shed. Other Members are
Souede, Thomas P. Evans, Hodge, J. Richard Cordson and Perrette.
(xiii) PERRETTE. Perrette's business address is 25 St. James's
Street, London SW1HA England. Perrette's present principal employment is as
Senior Executive Officer of Permal Investment Management Services Ltd. Effective
December 1999, Perrette ceased to be a director of Worms. Perrette remains a
director of PCM and PSI. Perrette is a citizen of France.
(xiv) SOUEDE. Souede's business address is 900 Third Avenue, New
York, NY 10022. Souede's present principal employment is as President and CEO of
Worms. Souede also is a director of Worms and holds various positions with
Worms' subsidiaries. Souede is a citizen of the United States.
(xv) DELITTO. DeLitto's business address is 900 Third Avenue, New
York, NY 10022. DeLitto's present principal employment is as Executive Vice
President and CAO of Worms and President of PCM. DeLitto also is a director of
PCM, and is the President and a director of PSI. Mr. DeLitto is Vice Chairman
and a director of the Company. DeLitto is a citizen of the United States.
(xvi) HODGE. Hodge's business address is 900 Third Avenue, New
York, NY 10022. Hodge's present principal employment is as Senior Vice President
and CIO of Worms. Hodge is a citizen of the United States.
The W&C Managing Directors, the PGSA Directors, the Worms Executive
Officers and Directors, the PCM Executive Officers and Directors, the PSI
Executive Officers and Directors, and the Hopewell Executive Officers and
Directors (in each case other than Perrette, Souede, DeLitto and Hodge, as the
case may be) are hereinafter collectively referred to as the "Other Persons."
(d) During the last five years, none of the Reporting Persons, and, to
the knowledge of the Reporting Persons, none of the Other Persons, have been
convicted in any criminal proceeding (excluding traffic violations or similar
misdemeanors).
(e) During the last five years, none of the Reporting Persons, and, to
the knowledge of the Reporting Persons, none of the Other Persons, have been a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction as a result of which it or he was subject to a judgment, decree or
final order enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws or finding any violation
with respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(i) W&C. W&C and, to the knowledge of W&C, the W&C Managing
Directors do not directly own any Shares. W&C and the W&C Managing Directors may
be deemed to control, directly or indirectly, PGSA and through PGSA, Worms, PSO,
PCM, PSI (and therefore PCP), JOL, Shed (and therefore Pilot). Accordingly, W&C
and the W&C Managing Directors may be deemed to share voting and dispositive
power with respect to, and therefore to beneficially own, the securities
beneficially owned by PGSA, Worms, PSO, PCM, PSI, PCP, JOL, and Pilot including
the Shares owned by such other Reporting Persons.
(ii) PGSA. PGSA and, to the knowledge of PGSA, the PGSA Directors
other than Souede do not directly own any Shares. PGSA and the PGSA Directors
may be deemed to control, directly or indirectly, Worms, and through Worms, PSO,
PCM, PSI (and, therefore PCP), JOL, Shed (and therefore Pilot). Accordingly,
PGSA and the PGSA Directors may be deemed to share voting and dispositive power
with respect to, and therefore to beneficially own, the securities beneficially
owned by PGSA, Worms, PSO, PCM, PSI, PCP, JOL, and Pilot, including the Shares
owned by such other Reporting Persons.
(iii) WORMS. Worms directly owns 19,640 Shares and such Shares
are referred to herein as the "Worms Shares."
(iv) PSO. PSO directly owns 170,103 Shares and such Shares are
referred to herein as the "PSO Shares."
(v) PCM. PCM directly owns 521,479 Shares (including warrants to
purchase 12,045 shares at $1.32 per share) and such Shares are referred to
herein as the "PCM Shares."
(vi) PSI. PSI is the general partner of PCP and, therefore, may
be deemed to share voting and dispositive power with respect to, and therefore
to beneficially own, securities owned by PCP, including Shares owned by PCP.
PSI directly owns 1,750 Shares and such Shares are referred to herein
as the "PSI Shares."
(vii) PCP. PCP directly owns 765,799 Shares and such Shares are
referred to herein as the "PCP Shares." The PCP shares included a warrant to
purchase 85,910 Shares which expired on May 30, 1999. (viii) HOPEWELL. Hopewell
directly owns 33,334 Shares (the "Hopewell Shares").
(ix) JOL. JOL owns warrants to purchase 300,000 Shares at an
exercise price of $1.25, and such shares are known as the "JOL Shares."
(x) PILOT. On January 17, 2000, pursuant to a Securities Purchase
Agreement ("Agreement") with the Company, the Pilot acquired an aggregate of
5000 shares of Series A Convertible Preferred Stock. The 5000 Shares of the
Series A Convertible Preferred Stock are immediately convertible into 227,273
shares of Common Stock at an initial conversion price of $1.10 per share. The
source of funds for the purchase of these shares of Series A Convertible
Preferred Stock was the working capital of Pilot.
(xi) SHED. Shed is the General Partner of Pilot, and therefore,
may be deemed to share voting and dispositive power with respect to, and
therefore to beneficially own, securities owned by Pilot, including the Shares
owned by Pilot.
(xii) PERRETTE. By reason of the fact that Perrette is a director
of PCM and PSI, Perrette may be deemed to control PCM and PSI and to share
voting and dispositive power with respect to, and therefore to beneficially own,
securities beneficially owned by PCM and PSI, including Shares beneficially
owned by PCM and PSI.
Perrette also may be deemed to share voting and dispositive power with
respect to, and therefore to beneficially own, an aggregate of 13,665 Shares
owned by his wife and four children, collectively hereinafter referred to as the
"Perrette Family Shares."
Perrette's shares also included a warrant to purchase 14,721 Shares
which expired on December 8, 1998.
The 712,177 Shares now owned by Perrette or his family are referred to
herein as the "Perrette Shares."
(xiii) SOUEDE. By reason of the fact that Souede is the
President, CEO and a director of Worms, Souede may be deemed to share voting and
dispositive power with respect to, and therefore to beneficially own, securities
beneficially owned by Worms, including Shares beneficially owned by Worms.
Souede also may be deemed to share voting and dispositive power with
respect to, and therefore to beneficially own, an aggregate of 17,480 Shares
owned by his wife (the "Souede Family Shares").
Souede's Shares also included a warrant to purchase 14,721 Shares
which expired on December 8, 1998.
The 573,674 Shares now owned by Souede or his family are referred to
herein as the "Souede Shares."
(xiv) DELITTO. By reason of the positions that DeLitto holds with
PCM, PSI and Shed (and therefore Pilot), DeLitto may be deemed to control such
Reporting Persons and to share voting and dispositive power with respect to, and
therefore to beneficially own, securities beneficially owned by such Reporting
Persons, including Shares beneficially owned by such Reporting Persons.
DeLitto also may be deemed to share voting and dispositive power with
respect to, and therefore to beneficially own, an aggregate of 15,971 Shares
owned jointly by DeLitto and his wife (the "DeLitto Family Shares").
DeLitto's Shares also included a warrant to purchase 14,721 Shares
which expired on December 8, 1998.
On January 20, 1997 DeLitto received 6,154 Shares of Deferred Stock at
a price of $1.625 per Share. On December 31, 1997 DeLitto received 3,416 Shares
of Deferred Stock at a price of $2.93 per Share. On December 31, 1998 DeLitto
received 5,917 Shares of Deferred Stock at a price of $1.69 per Share. On
December 31, 1999 DeLitto received 3,472 Shares of Deferred Stock at a price of
$2.88 per Share. Withdrawal of the Deferred Stock occurs following retirement or
termination.
The 103,995 Shares now owned by DeLitto or his family are referred to
herein as the "DeLitto Shares."
(xv) HODGE. Hodge no longer directly owns any shares. Hodge may
be deemed to share voting and dispositive power with respect to, and therefore
to beneficially own, securities beneficially owned by PSO and JOL, including
Shares owned by PSO and JOL.
Except as described in this Item 3 or as set forth in Schedules I
through VI attached hereto, to the knowledge of the Reporting Persons, none of
the Other Persons owns directly any Shares.
ITEM 4. PURPOSE OF TRANSACTION.
The Shares have been acquired for investment.
On January 11, 2000, the Company commenced a private placement of its
Series A Convertible Preferred Stock pursuant to a Series A Convertible
Preferred Stock Securities Purchase Agreement (the "Agreement"), attached hereto
as Exhibit 21 by and among the Company and the purchasers listed on the
signature pages thereto (the "Purchasers").
The Company, GECC, THLi and several stockholders of the Company,
including certain of the Reporting Persons, entered into an Amended and Restated
Stockholders Agreement and an Amended and Restated Registration Rights
Agreement, each dated as of January 11, 2000 (the "Stockholders Agreement" and
the "Registration Rights Agreement," respectively), attached hereto as Exhibits
22 and 23, respectively. The Stockholders Agreement provides, among other
things, that:
- GECC, the "Permal Group" (as defined therein, and consisting of,
among others, certain of the Reporting Persons) and THLi shall
each have the right to designate one of the six members of the
Company's Board of Directors (the "Board"). GECC and THLi shall
unanimously designate one member of the Board and three members
shall be selected by the vote of the GECC Designee, the Permal
Designee and the THLi Designee. The right shall continue so long
as GECC, the Permal Group or THLi, as the case may be,
beneficially owns at least 2,000,000 Shares.
- The GECC and THLi Board Designees' approval is to be obtained
before the Company may take certain specified actions affecting
the Company including, among other things, actions affecting the
capital structure of the Company and actions relating to certain
certain parties (including certain related persons).
- Transfers of Shares are prohibited except as expressly permitted
under the Stockholders Agreement, which provides that any
stockholder (other than the Hawley Trust) proposing to transfer
the Shares must first offer such Shares to the other stockholder
parties to the Stockholders Agreement. Sales in registered public
offerings, and sales on NASDAQ or over a national securities
exchange aggregating (together with other sales of Shares by such
stockholder's group) not more than 1 million shares, would not be
subject to the right of first offer.
- Sales or proposed sales by GECC, the Permal Group or THLi in one
transaction or in a series of related transactions of Shares
aggregating more than 3,000,000 Shares will create a "tag-along"
right on the part of the other stockholders to sell a
proportionate share of its holdings of Shares upon the same terms
and conditions.
The Stockholders Agreement expires if GECC or THLi no longer
beneficially owns 2,000,000 or more Shares.
Under the Registration Rights Agreement, GECC, THLi and several
stockholders of the Company, including certain of the Reporting Persons, are
entitled to request from the Company the registration under the Securities Act
of 1933, as amended, of at least 1,000,000 shares of Common Stock, up to a
maximum of two such registrations in any 12-month period.
The Reporting Persons and the Other Persons may seek to acquire
additional Shares through open market or privately negotiated transactions from
time to time in their discretion. Any such purchases will depend upon the market
prices for the Shares, the number of Shares which may become available for
purchase at prices which the Reporting Persons, or the Other Persons, regard as
attractive and various other factors which the Reporting Persons, or the Other
Persons, may determine to be relevant. Alternatively, certain of the Reporting
Persons have, from time to time, disposed of a portion of the Shares by them and
the Reporting Persons, or the Other Persons, may in the future determine to
dispose of all or a portion of the Shares held by them, depending, among other
things, on the then market price for the Shares. Such sales may be in
transactions in the open market or in privately negotiated transactions.
Except as set forth in this Item 4, none of the Reporting Persons and,
to the knowledge of the Reporting Persons, none of the Other Persons, have any
present plans or proposals which relate to or would result in any of the actions
required to be enumerated under Item 4 of Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
The total number of Shares beneficially owned by all Reporting Persons
is 3,429,537 constituting approximately 15.5% of the total Shares outstanding.
The Share ownership figures set forth in this Schedule 13D total more than such
number of Shares, because the beneficial ownership of certain of the Shares may
be attributed to more than one Reporting Person.
(a) and (b)
(i) W&C. As of the close of business on January 17, 2000, W&C did
not directly own any Shares. By reason of its relationship to PGSA and, through
PGSA, to Worms, PSO, PCM, PSI (and therefore PCP), JOL, Shed (and therefore
Pilot), W&C may be deemed to beneficially own the Worms Shares, the PSO Shares,
the PCM Shares, the PSI Shares, the PCP Shares, the JOL Shares and the Pilot
Shares. As of the close of business on January 17, 2000, the Worms Shares, the
PSO Shares, the PCM Shares, the PSI Shares, the PCP Shares, the JOL Shares and
the Pilot Shares aggregated 2,006,024 Shares which constituted approximately
9.1% of the 22,050,328 Shares outstanding (the "Outstanding Shares"), as the
Company has reported to the Reporting Persons. By reason of their relationship
to W&C, the W&C Managing Directors also may be deemed to beneficially own the
Worms Shares, the PSO Shares, the PCM Shares, the PSI Shares, the PCP Shares,
the JOL Shares and the Pilot Shares. W&C and the W&C Managing Directors disclaim
beneficial ownership of the Worms Shares, the PSO Shares, the PCM Shares, the
PSI Shares, the PCP Shares, the JOL Shares and the Pilot Shares. Except as
indicated in this Item 5 or in Schedule I hereto, neither W&C nor, to the
knowledge of W&C, any of the W&C Managing Directors owns beneficially or has a
right to acquire beneficial ownership of any Shares.
(ii) PGSA. As of the close of business on January 17, 2000, PGSA
did not directly own any Shares. By reason of its relationship to Worms and,
through Worms, to PSO, PCM, PSI (and therefore PCP), JOL and Shed (and therefore
Pilot), PGSA may be deemed to beneficially own the Worms Shares, the PSO Shares,
the PCM Shares, the PSI Shares, the PCP Shares, the JOL Shares and the Pilot
Shares. As of the close of business on January 17, 2000, the Worms Shares, the
PSO Shares, the PCM Shares, the PSI Shares, the PCP Shares, the JOL Shares and
the Pilot Shares aggregated 2,006,024 Shares which constituted approximately
9.1% of the Outstanding Shares. By reason of their relationship to PGSA, the
PGSA Directors also may be deemed to beneficially own the Worms Shares, the PSO
Shares, the PCM Shares, the PSI Shares, the PCP Shares, the JOL Shares and the
Pilot Shares. PGSA and the PGSA Directors disclaim beneficial ownership of the
Worms Shares, the PSO Shares, the PCM Shares, the PSI Shares, the PCP Shares,
the JOL Shares and the Pilot Shares. Except as indicated in this Item 5 or in
Schedule II hereto, neither PGSA nor, to the knowledge of PGSA, any of the PGSA
Directors with the exception of Souede owns beneficially or has a right to
acquire beneficial ownership of any Shares.
(iii) WORMS. As of the close of business on January 17, 2000,
Worms directly owned the Worms Shares, which constituted less than 0.1% of the
Outstanding Shares. By reason of its relationships with PSO, PCM, PSI (and
therefore PCP), JOL and Shed (and therefore Pilot), Worms may be deemed to
beneficially own the PSO Shares, the PCM Shares, the PSI Shares, the PCP Shares,
the JOL Shares and the Pilot Shares. As of the close of business on January 17,
2000, the PCM Shares, the PSO Shares, the PSI Shares, the PCP Shares, the JOL
Shares and the Pilot Shares aggregated 1,986,384 Shares which constituted
approximately 9% of the Outstanding Shares. Worms disclaims beneficial ownership
of the PCM Shares, the PSO Shares, the PSI Shares, the PCP Shares, the JOL
Shares and the Pilot Shares. Except as indicated in this Item 5 or in Schedule
III hereto, neither Worms nor, to the knowledge of Worms, any of the Worms
Executive Officers and Directors with the exception of Souede and DeLitto owns
beneficially or has a right to acquire beneficial ownership of any Shares.
(iv) PSO. As of the close of business on January 17, 2000, PSO
directly owned the PSO Shares, which constituted approximately .8% of the
Outstanding Shares. Except as indicated in this Item 5, PSO does not own
beneficially or have a right to acquire beneficial ownership of any Shares.
(v) PSI. As of the close of business on January 17, 2000, PSI
directly owned the PSI Shares, which constituted less than .01% of the
Outstanding Shares. Because PSI is the general partner of PCP, PSI may be deemed
to share voting and dispositive power with respect to the PCP Shares and,
therefore, to beneficially own the PCP Shares. PSI disclaims beneficial
ownership of the PCP Shares. Except as indicated in this Item 5 or in Schedule V
hereto, neither PSI nor, to the knowledge of PSI, any of the PSI Executive
Officers and Directors with the exception of Perrette and DeLitto, owns
beneficially or has a right to acquire beneficial ownership of any Shares.
(vi) PCM. As of the close of business on January 17, 2000, PCM
directly owned the PCM Shares, which constituted approximately 2.4% of the
Outstanding Shares. Because PCM may be deemed to control PSI, PCM may be deemed
to share voting and dispositive power with respect to the PCP Shares and,
therefore, to beneficially own the PSI Shares and the PCP Shares. PCM disclaims
beneficial ownership of the PSI Shares and the PCP Shares. Except as indicated
in this Item 5 or in Schedule IV hereto, neither PCM nor, to the best of the
knowledge of PCM, any of the PCM Executive Officers and Directors, owns
beneficially or has a right to acquire beneficial ownership of any Shares.
(vii) PCP. As of the close of business on January 17, 2000, PCP
directly owned the PCP Shares, which constituted approximately 3.5% of the
Outstanding Shares. Except as indicated in this Item 5, PCP does not own
beneficially or have a right to acquire beneficial ownership of any Shares.
(viii) HOPEWELL. As of the close of business on January 17, 2000,
Hopewell directly owned the Hopewell Shares, which constituted approximately
.15% of the Outstanding Shares. Except as indicated in this Item 5 or in
Schedule VII hereto, neither Hopewell nor, to the best of the knowledge of
Hopewell, any of the Hopewell Executive Officers and Directors, owns
beneficially or has a right to acquire beneficial ownership of any Shares.
(ix) JOL. As of the close of business on January 17, 2000, JOL
directly owned the JOL Shares, which constituted approximately 1.4% of the
Outstanding Shares. Except as indicated in this Item 5, JOL does not own
beneficially or have a right to acquire beneficial ownership of any Shares.
(x) PILOT. As of the date of this Statement, Pilot is the direct
beneficial owner of 5000 shares of Series A Convertible Preferred Stock. Based
on the conversion ratio of 45.45 shares of Common Stock for each share of Series
A Convertible Preferred Stock and assuming conversion of all its Series A
Convertible Preferred Stock, the Partnership is the direct beneficial owner of
227,273, or approximately 1% of the Common Stock outstanding on January 17,
2000.
(xi) PERRETTE. As of the close of business on January 17, 2000,
Perrette owned the Perrette Shares, which constituted approximately 3.2% of the
Outstanding Shares. Because Perrette is a director of PCM and PSI, Perrette may
be deemed to beneficially own the PCM and PSI Shares and other Shares which may
be deemed to be beneficially owned by PCM and PSI, namely the PCM Shares, the
PCP Shares and the PSI Shares. Perrette disclaims beneficial ownership of the
PCM Shares, the PCP Shares and the PSI Shares. Perrette also disclaims
beneficial ownership of the Perrette Family Shares. Because Perrette is the
President and a Director of Hopewell, Perrette may be deemed to beneficially own
the Hopewell Shares. Except as set forth in this Item 5, Perrette does not
beneficially own or have a right to acquire beneficial ownership of any Shares.
(xii) SOUEDE. As of the close of business on January 17, 2000,
Souede owned the Souede Shares, which constituted approximately 2.6% of the
Outstanding Shares. Because Souede is President, CEO and a director of Worms,
Souede may be deemed to beneficially own the Worms Shares and other Shares which
may be deemed to be beneficially owned by Worms, namely the PCM Shares, the PSO
Shares, the PCP Shares, the PSI Shares and the JOL Shares. Souede disclaims
beneficial ownership of the Worms Shares, the PCM Shares, the PSO Shares, the
PCP Shares, the PSI Shares and the JOL Shares. Souede also disclaims beneficial
ownership of the Souede Family Shares. Except as set forth in this Item 5,
Souede does not beneficially own or have a right to acquire beneficial ownership
of any Shares.
(xiii) DELITTO. As of the close of business on January 17, 2000,
DeLitto directly owned the DeLitto Shares, which constituted approximately .5%
of the Outstanding Shares. Because of the various positions that DeLitto holds
with PCM, PSI and Shed, DeLitto may be deemed to beneficially own Shares which
may be deemed to be beneficially owned by such Reporting Persons, namely the PCM
Shares, the PCP Shares, the PSI Shares and the Pilot Shares. DeLitto disclaims
beneficial ownership of the PCM Shares, the PCP Shares, the PSI Shares and the
Pilot Shares. DeLitto shares beneficial ownership of the DeLitto Family Shares
with his wife. Except as set forth in this Item 5, DeLitto does not own
beneficially or have a right to acquire beneficial ownership of any Shares.
(xiv) HODGE. As of the close of business on January 17, 2000,
Hodge did not directly own any Hodge Shares. Because Hodge is investment adviser
to PSO and JOL, Hodge may be deemed to beneficially own the PSO Shares and the
JOL Shares. Hodge disclaims beneficial ownership of the PSO Shares and the JOL
Shares. Except as set forth in this Item 5, Hodge does not beneficially own or
have a right to acquire beneficial ownership of any Shares.
(c) Schedule A hereto describes transactions in the Shares effected
during the past sixty (60) days by the Reporting Persons. Except as otherwise
disclosed in Schedule A hereto, to the knowledge of the Reporting Persons, none
of the Other Persons have effected transactions in the Shares during the past
sixty (60) days.
(d) Except for (i) the Reporting Persons, (ii) the W&C Managing
Directors, (iii) the PGSA Directors, (iv) Mr. Souede's wife (with respect to the
Souede Family Shares), (v) Mr. Perrette's family members (with respect to the
Perrette Family Shares) and (vi) Mr. DeLitto's wife (with respect to all of the
DeLitto Family Shares) and except with respect to any Shares reported in any
Schedule hereto as beneficially owned by the Other Persons, no other person is
known to have the right to receive or the power to direct the receipt of
dividends from, or the proceeds from the sale of, any of the Shares reported on
this Statement.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
SECURITIES OF THE ISSUER.
By reason of the relationships described in this Statement among the
Reporting Persons and between certain of the Reporting Persons and certain of
the Other Persons, the Reporting Persons and certain of the Other Persons may
from time to time confer with one or more of the other Reporting Persons or
Other Persons with respect to the respective investments of the Reporting
Persons in the Shares. However, except as described herein under Item 4 and
other than the contractual relationships as between Hodge and PSO, and between
PSI and PCP, and the informal advisory arrangement between Hodge and JOL, the
Reporting Persons and the Other Persons do not have any written or other
contracts, arrangements, understandings or relationships with respect to the
Shares or any other securities of the Company, including, but not limited to,
transfer or voting of any of the securities, finder's fees, joint ventures, loan
or option agreements, puts or calls, guarantees of profits, division of profits
or loss, or the giving or withholding of proxies. A copy of the contract between
PSI and PCP was previously filed as Exhibit 9 to Amendment No. 1 to this
Schedule 13D and is incorporated herein by reference.
SIGNATURES
After reasonable inquiry and to the best of its knowledge and belief,
the undersigned certifies that the information set forth in this statement is
true, complete and correct.
Dated: January 17, 2000
/S/ ISAAC R. SOUEDE
-------------------
Isaac R. Souede, individually
and as attorney-in-fact for
certain of the other Reporting
Persons pursuant to a power
of attorney filed as an
Exhibit to the Schedule 13D
<PAGE>
SCHEDULE I
WORMS & CIE MANAGING DIRECTORS
1. DOMINIQUE AUBURTIN
Business address:
Worms & Cie
25, avenue Franklin D. Roosevelt
75008 Paris, France
Present principal employment:
Managing Director, Worms & Cie
Citizenship: France
2. FERRUCCIO LUPPI
Business Address:
Worms & Cie
25, avenue Franklin D. Roosevelt
75008 Paris, France
Present principal employment:
Managing Director, Worms & Cie
Citizenship: Italy
<PAGE>
SCHEDULE II
PGSA EXECUTIVE OFFICES & DIRECTORS
1. EDMOND DE LA HAYE JOUSSELIN
Business address:
Permal Group S.A.
25, avenue Franklin D. Roosevelt
75008 Paris, France
Present principal employment:
Chairman, Permal Group S.A.
Citizenship: France
2. DOMINIQUE AUBURTIN
Business address:
Worms & Cie
25, avenue Franklin D. Roosevelt
75008 Paris, France
Present principal employment:
Managing Director, Worms & Cie
Citizenship: France
3. FERRUCCIO LUPPI
Business Address:
Worms & Cie
25, avenue Franklin D. Roosevelt
75008 Paris, France
Present principal employment:
Managing Director, Worms & Cie
Citizenship: Italy
<PAGE>
SCHEDULE III
WORMS EXECUTIVE OFFICERS AND DIRECTORS
1. NICHOLAS CLIVE WORMS
Business address:
Worms & Cie
25, avenue Franklin D. Roosevelt
75008 Paris France
Present principal employment:
Chairman Worms & Cie
Citizenship: France
Reporting Person
2. EDMOND DE LA HAYE JOUSSELIN
Business address:
Permal Group S.A.
25, avenue Franklin D. Roosevelt
75008 Paris, France
Present principal employment:
Chairman, Permal Group S.A.
Citizenship: France
3. THOMAS P. EVANS
Business address:
Worms & Co., Inc.
900 Third Avenue
New York, New York 10022
Present principal employment:
Senior Vice President and COO, Worms & Co., Inc.
Citizenship: United States
4. LAWRENCE C. SALAMENO
Business address:
Worms & Co., Inc.
900 Third Avenue
New York, New York 10022
Present principal employment:
Executive Vice President of Marketing and Strategic
Development, Worms & Co., Inc.
Citizenship: United States
Shares beneficially owned at January 17, 2000: 3,000
<PAGE>
SCHEDULE IV
PCM EXECUTIVE OFFICERS AND DIRECTORS
1. PAUL-LOUIS DURAND-RUEL
Address:
19, avenue Leopold II
75017 Paris, France
Present principal employment:
Retired
Citizenship: France
Shares beneficially owned at January 17, 2000: 15,272
2.C. REDINGTON BARRETT, III
Business address:
Permal Capital Management, Inc.
118 Allied Drive
Dedham, MA 20206
Present principal employment:
Senior Vice President and COO, Permal
Capital Management, Inc.
Citizenship: United States
Shares beneficially owned at January 17, 2000: 6,026
<PAGE>
SCHEDULE V
PSI EXECUTIVE OFFICERS AND DIRECTORS
1.PAUL-LOUIS DURAND-RUEL
Address:
19, avenue Leopold II
75017 Paris, France
Present principal employment:
Retired
Citizenship: France
Shares beneficially owned at January 17, 2000: 15,272
2.C. REDDINGTON BARRETT III
Business address:
Permal Capital Management, Inc.
118 Allied Drive
Dedham, MA 20206
Present principal employment:
Senior Vice President and COO, Permal Capital
Management, Inc.
Citizenship: United States
Shares beneficially owned at January 17, 2000: 6,026
<PAGE>
SCHEDULE VI
HOPEWELL EXECUTIVE OFFICERS AND DIRECTORS
1.GEORGETTE MILLER
Business address:
Worms & Co., Inc.
900 Third Avenue
New York, New York 10022
Present principal employment:
Corporate Secretary, Worms & Co., Inc.
Citizenship: United States
Shares beneficially owned at January 17, 2000: 3,710 Shares
2.VIRGINIA S. PERRETTE
Residence:
25B, Route de Thonon
1222 Cologny
Geneva, Switzerland
Present principal employment:
Not Applicable
Citizenship: United States
<PAGE>
SCHEDULE A
Transactions in Securities
IN PRECEDING SIXTY DAYS
The following table sets forth certain information concerning the Shares
purchased or sold by or on behalf of the Reporting Persons and Other Persons
during the sixty-day period preceding the date of the Eleventh Amendment to the
Schedule 13D, to which this Schedule A is attached. Transactions occurring
within the above-mentioned sixty-day period that have been previously reported
on the Schedule 13D have been omitted.
<TABLE>
<CAPTION>
Number of Shares
Acquired or Sold and
Reporting Person or Date of Name of Acquisition or Sale
Other Person Transaction Transaction Price Per Share
- ------------ ----------- ----------- ---------------
<S> <C> <C> <C>
Pilot Holdings 1/17/00 Series A 5000 shares purchased
Convertible $50 per share
Preferred
</TABLE>
<PAGE>
EXHIBIT INDEX
- --------------
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Description Numbered Page
- ------------- ----------- ----------------
<S> <C> <C>
1* Joint Reporting Agreement and Power of Attorney
with respect to the joint filing of the Schedule
13D pursuant to Rule 13d-1(f)(1)(iii) promulgated
under the Securities Exchange Act of 1934.
2* Demand Note dated March 30, 1990 given by Souede
to Marine.
3* Bank Account Assignment or Pledge Security
Agreement dated March 27, 1991 given by Worms to
Marine for the benefit of Souede.
4* Letters dated August 22, 1986 and August 1, 1987
from Souede to Worms.
5* Demand Note dated March 30, 1990 given by Augur to
Marine.
6* Bank Account Assignment or Pledge Security
Agreement dated March 27, 1991 given by Worms to
Marine for the benefit of Augur.
7* Letter dated August 22, 1986 from Augur to Worms.
8* Financial Services Agreement dated April 1, 1987
between PSO and Worms Asset Management.
9* Amended and Restated Agreement of Limited
Partnership of PCP dated as of December 15, 1988
among PSI, as general partner, and the limited
partners listed from time to time on the books and
records of PCP.
10* Management Agreement dated December 15, 1991
between PMC and PCP.
11* Amended Joint Reporting Agreement and Power of
Attorney with respect to the joint filing of the
Statement on Schedule 13D pursuant to Rule
13d-1(f) (1)(iii) promulgated under the Securities
Exchange Act of 1934.
12* Promissory Note dated March 1, 1992 by Thomas M.
DeLitto in favor of Worms Asset Management, Inc.
13* Letter Agreement dated March 31, 1992 between
Thomas M. DeLitto and Worms Asset Management.
14* Form of Securities Purchase Agreement between the
Company and GECC dated as of August 26, 1996.
15* Form of Securities Purchase Agreement between the
Company and certain other stockholders of the
Company dated as of August 26, 1996.
16* Form of Stockholders Agreement among the Company
and GECC and certain other stockholders of the
Company dated as of August 26, 1996.
17* Form of Registration Rights Agreement among the
Company and GECC and certain other stockholders of
the Company dated as of August 26, 1996.
18* Joint Reporting Agreement and Power of Attorney
with respect to the joint filing of the Statement on
Schedule 13D pursuant to Rule 13d-1(f)(1)(iii)
promulgated under the Securities and Exchange Act of
1934.
19* Form of Underwriting Agreement in connection with
the public offering of Common Shares completed as of
April 3, 1998.
20** Joint Reporting Agreement and Power of Attorney
with respect to the joint filing of the Statement on
Schedule 13D pursuant to Rule 13d-1(f)(1)(iii)
promulgated under the Securities and Exchange Act of
1934.
21** Form of Series A Convertible Preferred Stock
Securities Purchase Agreement in connection with
the private placement of Preferred Stock commenced
as of January 11, 2000.
22** Form of Amended and Restated Stockholders
Agreement among the Company and certain other
stockholders of the Company dated as of January
11, 2000.
23** Form of Amended and Restated Registration Rights
Agreement among the Company and certain other
stockholders of the Company dated as of January
11, 2000.
* Previously filed.
** Filed herewith.
</TABLE>
Exhibit 20
JOINT REPORTING AGREEMENT
AND
POWER OF ATTORNEY
WHEREAS, the statement or amended statement of Schedule 13D (the
"Joint Statement") to which this joint reporting agreement and power of attorney
(the "Agreement") is an exhibit is being filed on behalf of two or more persons
(collectively, the "Reporting Persons"); and
WHEREAS, the Reporting Persons prefer to file the Joint Statement on
behalf of all of the Reporting Persons rather than individual statements on
Schedule 13D on behalf of each of the Reporting Persons;
NOW THEREFORE, the undersigned hereby agree as follows with each of
the other Reporting Persons:
1. Each of the Reporting Persons is individually eligible to use the
Joint Statement.
2. Each of the Reporting Persons is responsible for the timely filing
of the Joint Statement and any amendments thereto.
3. Each of the Reporting Persons is responsible for the completeness
and accuracy of the information concerning such Reporting Person contained in
the Joint Statement.
4. None of the Reporting Persons is responsible for the completeness
or accuracy of the information concerning the other Reporting Persons contained
in the Joint Statement, unless such Reporting Person knows or has reason to
believe that such information is inaccurate.
5. The undersigned agrees that the Joint Statement is, and any
amendment thereto will be, filed on behalf of each of the Reporting Persons.
6. The undersigned hereby appoints Jean R. Perrette, Isaac R. Souede,
and Thomas DeLitto, and each of them, as attorney-in-fact for the undersigned
with authority to execute and deliver on behalf of the undersigned (i) any and
all documents (including any amendments thereto) required to be filed by the
undersigned or otherwise executed and delivered by the undersigned pursuant to
the Securities Exchange Act of 1934, as amended, the Securities Act of 1933, as
amended, all other federal, state and local securities and corporation laws, and
all regulations promulgated thereunder and (ii) any and all amendments hereto
for the purpose of adding additional Reporting Person(s) hereto.
7. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same document.
<PAGE>
Dated: January 17, 2000
WORMS & CIE
By: /s/ FERRUCCIO LUPPI
-----------------------------
Name: Ferruccio Luppi
Title: Managing Director
PERMAL GROUP S.A.
By: /s/ E. DE LA HAYE JOUSSELIN
------------------------------
Name: E. de la Hay Jousselin
Title: Chairman
WORMS & CO., INC.
By: /s/ ISAAC R. SOUEDE
-------------------------------
Name: Isaac R. Souede
Title: President and Chief Executive Officer
PERMAL SPECIAL OPPORTUNITIES, LTD.
By: /s/ JAMES R. HODGE
--------------------------------
Name: James R. Hodge
Title: Portfolio Manager
PERMAL CAPITAL MANAGEMENT, INC.
By: /s/ THOMAS M. DELITTO
--------------------------------
Name: Thomas M. Delitto
Title: President
PERMAL SERVICES, INC.
By: /s/ THOMAS M. DELITTO
--------------------------------
Name: Thomas M. Delitto
Title: President
PERMAL MANAGEMENT CORPORATION
By: /s/ THOMAS M. DELITTO
--------------------------------
Name: Thomas M. Delitto
Title: President
Dated: January 17, 2000
PERMAL CAPITAL PARTNERS, L.P.
By: /s/ THOMAS M. DELITTO
--------------------------------
Name: Thomas M. Delitto
Title: General Partner; President, Permal
Services, Inc.
HOPEWELL HOLDINGS, INC.
By: /s/ JEAN R. PERRETTE
--------------------------------
Name: Jean R. Perrette
Title: President
JAPAN ONMIBUS LTD.
By: /s/ JAMES R. HODGE
--------------------------------
Name: James R. Hodge
Title: Portfolio Manager
PILOT HOLDINGS L.P.
By: /s/ THOMAS M. DELITTO
--------------------------------
Name: Thomas M. Delitto
Title: Managing Member, Shed Investments
L.L.C. (General Partner)
SHED INVESTMENTS L.L.C.
By: /s/ THOMAS M. DELITTO
--------------------------------
Name: Thomas M. Delitto
Title: Managing Member
/s/ JEAN R. PERRETTE
---------------------------------
Jean R. Perrette
/s/ ISAAC R. SOUEDE
---------------------------------
Isaac R. Souede
/s/ THOMAS M. DELITTO
---------------------------------
Thomas M. Delitto
/s/ JAMES R. HODGE
---------------------------------
James R. Hodge
Exhibit 21
KRAUSE'S FURNITURE, INC.
SERIES A CONVERTIBLE PREFERRED STOCK
SECURITIES PURCHASE AGREEMENT
Dated as of January 11, 2000
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1 PURCHASE AND SALE OF THE SERIES A PREFERRED STOCK.................1
1.1 Authorization to Sell the Series A Preferred Stock............1
1.2 Closings......................................................1
1.3 Deliveries at Closings........................................1
1.4 Restructuring of Certain Indebtedness.........................2
1.5 Definitions...................................................3
SECTION 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................3
2.1 Organization and Qualification................................3
2.2 Due Authorization.............................................3
2.3 Subsidiaries..................................................3
2.4 SEC Reports...................................................3
2.5 Financial Statements..........................................4
2.6 Actions Pending; Compliance with Laws.........................4
2.7 Title to Properties, Insurance................................4
2.8 Governmental Consents, etc....................................5
2.9 Holding Company Act and Investment Company Act................5
2.10 Taxes.........................................................5
2.11 Conflicting Agreements and Charter Provisions.................6
2.12 Capitalization................................................6
2.13 Issuance, Sale and Delivery of the Series A Preferred Stock...7
2.14 Registration Under Exchange Act...............................7
2.15 ERISA.........................................................7
2.16 Possession of Franchises, Licenses, Etc.......................8
2.17 Environmental and Other Regulations...........................8
2.18 Patents and Trademarks........................................8
2.19 Material Contracts and Obligations............................8
2.20 Books and Records.............................................9
2.21 Transactions with Related Parties.............................9
2.22 Brokers.......................................................9
2.23 Accuracy of Information.......................................9
2.24 Offering of Series A Preferred Stock.........................10
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS10
3.1 Organization and Qualification...............................10
3.2 Due Authorization............................................10
3.3 Conflicting Agreements and Other Matters.....................11
-
3.4 Acquisition for Investment...................................11
3.5 Brokers or Finders...........................................11
3.6 Accredited Investor..........................................11
SECTION 4 COVENANTS OF THE COMPANY........................................11
4.1 Limitation on Senior Equity Securities.......................11
4.2 Compliance with Laws.........................................11
4.3 Preservation of Franchises and Existence.....................12
4.4 Use of Proceeds..............................................12
4.5 Insurance....................................................12
4.6 Payment of Taxes and Other Charges...........................12
4.7 Effect of Breach.............................................12
4.8 ERISA........................................................13
4.9 Financial Statements and Other Reports.......................13
4.10 Inspection of Property.......................................15
4.11 Lost, Stolen, Damaged and Destroyed Stock Certificates.......15
4.12 Related Party Transactions...................................15
4.13 Operations in Accordance with Business Plan..................15
4.14 Reservation of Shares........................................15
4.15 Notice of Breach.............................................16
4.16 Limitation on Dividends......................................16
4.17 Right of First Refusal.......................................16
SECTION 5. RESTRICTIONS ON TRANSFER........................................17
SECTION 6 EVENT OF DEFAULT AND REMEDIES....................................17
6.1 Event of Default.............................................17
6.2 Remedies.....................................................17
6.3 Conduct no Waiver............................................18
6.4 Remedies Cumulative..........................................18
SECTION 7 CONDITIONS.......................................................18
7.1 Conditions to Each Party's Obligations to Effect the
Transactions Contemplated Hereby...........................18
7.2 Conditions to Purchasers' Obligations to Effect the
Transactions Contemplated Hereby...........................19
SECTION 8 INTERPRETATION...................................................20
8.1 Definitions..................................................20
8.2 Accounting Principles........................................22
SECTION 9 MISCELLANEOUS....................................................23
9.1 Severability.................................................23
9.2 Specific Enforcement.........................................23
9.3 Entire Agreement.............................................23
9.4 Counterparts.................................................23
9.5 Notices and other Communications.............................23
9.6 Amendments...................................................24
9.7 Cooperation..................................................25
9.8 Successors and Assigns.......................................25
9.9 Expenses and Remedies........................................25
9.10 Survival of Representations and Warranties...................27
9.11 Transfer of Series A Preferred Stock.........................27
9.12 Governing Law, Consent to Jurisdiction.......................27
9.13 Publicity....................................................28
9.14 Signatures...................................................28
Exhibit A - Form of Amended and Restated Stockholders' Agreement
Exhibit B - Form of Opinion of Morrison & Foerster LLP
Exhibit C - Form of Amended and Restated Registration Rights Agreement
Exhibit D - Form of Indebtedness Amendment
<PAGE>
This Securities Purchase Agreement, dated as of January 11, 2000 (this
"AGREEMENT"), between Krause's Furniture, Inc., a Delaware corporation
(including its predecessors, the "COMPANY") and the purchasers listed on the
signature pages hereto (each a "PURCHASER", and collectively, the "PURCHASERS").
WHEREAS, the Purchasers wish to severally purchase from the Company,
and the Company wishes to sell to the Purchasers, an aggregate of 380,000 shares
of the Company's Series A Convertible Preferred Stock, par value $.001 per share
(the "SERIES A PREFERRED STOCK"), at an aggregate purchase price of $19,000,000.
WHEREAS, in connection with the purchase and sale of the Series A
Preferred Stock, the Purchasers, the Company and the stockholders listed on the
signature pages thereof, will enter into an amended and restated Stockholders
Agreement, substantially in the form attached hereto as EXHIBIT A (the
"STOCKHOLDERS AGREEMENT").
WHEREAS, the Purchasers and the Company desire to provide for such
purchase and sale and to establish various rights and obligations in connection
therewith.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein set forth, the parties hereto agree as follows:
SECTION 1. PURCHASE AND SALE OF THE SERIES A PREFERRED STOCK.
1.1 AUTHORIZATION TO SELL THE SERIES A PREFERRED STOCK. Subject to the
terms and conditions of this Agreement, the Company has duly authorized the
issuance and sale of the Series A Preferred Stock.
1.2 CLOSINGS. The transactions contemplated hereby will take place in
two closings. The first closing shall be held on or prior to January 18, 2000
(the "First Closing") at the offices of Skadden, Arps, Slate, Meagher & Flom LLP
("SASM&F"), 300 South Grand Avenue, Suite 3400, Los Angeles, California
90071-3144 at 9:00 a.m., or at such place, date and time as shall be mutually
agreed by the Company and the Initial Purchasers (the "FIRST CLOSING DATE"). The
second closing shall be held on or prior to January 18, 2000 (the "SECOND
CLOSING" and together with the First Closing, the "CLOSINGS") at SASM&F, 300
South Grand Avenue, Los Angeles, California 90071-3144, at 9:00 a.m., or such
place, date and time as shall be mutually agreed by the Company and the
Individual Purchasers (the "SECOND CLOSING DATE" and together with the First
Closing Date, the "CLOSING DATES").
1.3 DELIVERIES AT CLOSINGS.
(a) At the First Closing:
(i) the Company shall execute and deliver an Amended and
Restated Stockholders Agreement in the form of EXHIBIT A hereto;
(ii) Morrison & Foerster LLP, counsel to the Company, shall
deliver to the Initial Purchasers an opinion dated the First
Closing Date substantially in the form of EXHIBIT B hereto;
(iii) the Company shall execute and deliver an Amended and
Restated Registration Rights Agreement substantially in the form
of EXHIBIT C hereto (the "REGISTRATION RIGHTS AGREEMENT");
(iv) the Company shall deliver to each Initial Purchaser
stock certificates representing the number of shares of Series A
Preferred Stock to be purchased by such Initial Purchaser, as set
forth under its signature on the signature pages hereto,
registered in the name of such Initial Purchaser or its designee
or nominee;
(v) each Initial Purchaser shall pay to the Company, by wire
transfer of immediately available funds, the purchase price for
the Series A Preferred Stock being purchased by such Initial
Purchaser; and
(vi) the Company shall deliver evidence of the restructuring
of certain indebtedness of the Company as described in Section
1.4 below in form and substance satisfactory to the Initial
Purchasers.
(b) At the Second Closing:
(i) Morrison & Foerster LLP, counsel to the Company, shall
deliver to the Individual Purchasers an opinion dated the Second
Closing Date substantially in the form of EXHIBIT B hereto;
(ii) the Company shall deliver to each Individual Purchaser
stock certificates representing the number of shares of Series A
Preferred Stock to be purchased by such Individual Purchaser, as
set forth under its signature on the signature pages hereto,
registered in the name of such Individual Purchaser or its
designee or nominee; and
(iii) each Individual Purchaser shall pay to the Company, by
wire transfer of immediately available funds, the purchase price
for the Series A Preferred Stock being purchased by such
Individual Purchaser.
1.4 RESTRUCTURING OF CERTAIN INDEBTEDNESS. On or before the First
Closing Date, the Company shall execute and deliver an Amendment to the Note
Agreement substantially in the form of EXHIBIT D hereto (the "INDEBTEDNESS
AMENDMENT").
1.5 DEFINITIONS. Certain capitalized terms used in this Agreement are
defined in Section 8 hereof.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants as follows:
2.1 ORGANIZATION AND QUALIFICATION. Each of the Company and its
Subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which it is incorporated and has the power to
own its respective property and to carry on its respective business as now being
conducted. Each of the Company and its Subsidiaries is duly qualified as a
foreign corporation to do business and in good standing in every jurisdiction in
which the nature of the respective business conducted or property owned by it
makes such qualification necessary and where the failure so to qualify would be
material to the Company or such Subsidiary, as the case may be.
2.2 DUE AUTHORIZATION. The execution and delivery of this Agreement,
the Stockholders Agreement and the Registration Rights Agreement, and the
issuance and sale of the Series A Preferred Stock by the Company and compliance
by the Company with all the provisions of this Agreement, the Stockholders
Agreement and the Registration Rights Agreement (i) are within the corporate
power and authority of the Company; (ii) do not and will not require any
approval or consent of the stockholders of the Company or any other Person,
other than approvals and consents which have been duly obtained or which will be
obtained pursuant to Section 4.14; and (iii) have been authorized by all
requisite corporate proceedings on the part of the Company. This Agreement, the
Stockholders Agreement and the Registration Rights Agreement have been duly
executed and delivered by the Company and constitute valid and binding
agreements of the Company, enforceable in accordance with their respective
terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights, and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. The Company has furnished to the Purchasers
true and correct copies of the Company's Certificate of Incorporation and
By-laws as in effect on the date of this Agreement.
2.3 SUBSIDIARIES. The Subsidiaries of the Company, all of which are
wholly owned by the Company, together with their jurisdiction of incorporation,
are as set forth on Schedule 2.3 hereto.
2.4 SEC REPORTS. The Company and its predecessor have filed all proxy
statements, reports and other documents required to be filed by it under the
Exchange Act, since December 31, 1996; and the Company has furnished the
Purchasers copies of its Annual Report on Form 10-K for the fiscal year ended
January 31, 1999, and all proxy statements and reports under the Exchange Act
filed by the Company after such date, each as filed with the Securities and
Exchange Commission (the "COMMISSION") (collectively, the "SEC REPORTS"). Each
SEC Report was in compliance in all material respects with the requirements of
its respective report form and did not on the date of filing contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. As of the date hereof
there is no fact not disclosed in the SEC Reports which is material to the
Company.
2.5 FINANCIAL STATEMENTS. The financial statements (including any
related schedules and/or notes) included in the SEC Reports have been prepared
in accordance with generally accepted accounting principles consistently
followed (except as indicated in the notes thereto) throughout the periods
involved and fairly present the consolidated financial condition, results of
operations, changes in stockholders' equity and cash flows of the Company and
its Subsidiaries as of the dates thereof and for the periods ended on such dates
(in each case subject, as to interim statements, to changes resulting from
year-end adjustments, which in the aggregate will not be material in amount or
effect). The Company and its Subsidiaries have no material liabilities,
contingent or otherwise, not reflected in the Company's balance sheet as of
January 31, 1999 that is included in the SEC Reports or otherwise referred to in
the SEC Reports or otherwise disclosed to the Purchasers in writing prior to the
date of this Agreement, other than any such liabilities incurred in the ordinary
course of business, consistent with past practice, since January 31, 1999. Since
January 31, 1999, the Company and its Subsidiaries have operated their
respective businesses only in the ordinary course, consistent with past
practice, and no event has occurred that has or is reasonably likely to have a
material adverse effect on the business, financial condition, operations,
results of operations, assets, liabilities or prospects of the Company or any of
its Subsidiaries (a "MATERIAL ADVERSE EFFECT"), other than changes disclosed or
referred to in the SEC Reports or otherwise disclosed to the Purchasers in
writing prior to the date of this Agreement.
2.6 ACTIONS PENDING; COMPLIANCE WITH LAWS. There is no action, suit,
investigation or proceeding pending or, to the knowledge of the Company,
threatened by any public official or governmental authority, against the Company
or any of its Subsidiaries or any of their respective properties or assets by or
before any court, arbitrator or governmental body, department, commission,
board, bureau, agency or instrumentality, which questions the validity or
enforceability of, or seeks to enjoin or in validate this Agreement, the
Stockholders Agreement, the Registration Rights Agreement or the Series A
Preferred Stock or any action taken or to be taken pursuant hereto or thereto,
or, except as set forth in the SEC Reports or as otherwise disclosed to the
Purchasers in writing, which is reasonably likely to be material to the Company
or any of its Subsidiaries, and neither the Company nor any of its Subsidiaries
is in default in any material respect with respect to any judgment, order, writ,
injunction, decree or award.
2.7 TITLE TO PROPERTIES; INSURANCE. The Company and each of its
Subsidiaries have good and valid title to, or, in the case of property leased by
any of them as lessee, a valid and subsisting leasehold interest in, their
respective properties and assets, free of all liens and encumbrances other than
those referred to in the financial statements of the Company (or the notes
thereto) for the fiscal year ended January 31, 1999, included in the SEC
Reports, except in each case for such defects in title and such other liens and
encumbrances which are disclosed in the SEC Reports or which do not in the
aggregate materially detract from the value to the Company and its Subsidiaries
of their respective properties and assets. The Company and its Subsidiaries
maintain insurance in such amounts (to the extent available in the public
market), including self-insurance, retainage and deductible arrangements, and of
such a character as is reasonable for companies engaged in the same or similar
business. All insurance policies of the Company and its Subsidiaries are
disclosed on SCHEDULE 2.7.
2.8 GOVERNMENTAL CONSENTS, ETC. The Company is not required to obtain
any consent, approval or authorization of, or to make any declaration or filing
with, any governmental authority or other Person as a condition to or in
connection with the valid execution, delivery and performance of this Agreement,
the Stockholders Agreement and the Registration Rights Agreement and the valid
offer, issue, sale or delivery of the Series A Preferred Stock, or the
performance by the Company of its obligations in respect thereof, except for any
filings required to effect any registration pursuant to the Registration Rights
Agreement and any filings required pursuant to state and federal securities laws
which will be timely made after the applicable Closing hereunder.
2.9 HOLDING COMPANY ACT AND INVESTMENT COMPANY ACT. Neither the
Company nor any Subsidiary is: (i) a "public utility company" or a "holding
company," or an "affiliate" or a "subsidiary company" of a "holding company," or
an "affiliate" of such a "subsidiary company," as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended, or (ii) a "public
utility," as defined in the Federal Power Act, as amended, or (iii) an
"investment company" or an "affiliated person" thereof or an "affiliated person"
of any such "affiliated person," as such terms are defined in the Investment
Company Act of 1940, as amended.
2.10 TAXES. (a) The Company and each of its Subsidiaries have filed or
caused to be filed all tax returns which are required to be filed by them, and
all such tax returns are true, complete and correct in all material respects.
The Company and each of its Subsidiaries have paid or caused to be paid all
taxes that have become due, except taxes the validity or amount of which is
being contested in good faith by appropriate proceedings and with respect to
which adequate reserves have been set aside in accordance with generally
accepted accounting principles. The federal income tax returns of the Company
and its Subsidiaries have been examined and reported on by the Internal Revenue
Service (or closed by applicable statutes) and all tax liabilities including
additional assessments have been satisfied for all fiscal years prior to and
including the fiscal year ended December 31, 1993 for the Company and its
Subsidiaries. The Company and its Subsidiaries have paid or caused to be paid,
or have established reserves in accordance with generally accepted accounting
principles that the Company reasonably believes are adequate, for all federal
income tax liabilities and state income tax liabilities applicable to the
Company or any of its Subsidiaries for all fiscal years which have not been
examined and reported on by the taxing authorities (or closed by applicable
statutes).
(b) As of January 31, 1999, the Company did not have any accumulated
"earnings and profits" as determined under section 312 of the Internal Revenue
Code of 1986, as amended (the "CODE"). To the best knowledge and belief of the
Company, the Company does not anticipate having any material current earnings
and profits, as determined under section 312 of the Code, for its current
taxable year. As of the date hereof, the Company is not a "United States real
property holding corporation" within the meaning of section 897(c)(2) of the
Code. The Company shall not become a United States real property holding
corporation.
2.11 CONFLICTING AGREEMENTS AND CHARTER PROVISIONS. Neither the
Company nor any of its Subsidiaries is a party to any contract or agreement or
subject to any charter or bylaw provision or judgment or decree which has or is
reasonably likely to have a Material Adverse Effect. None of (i) the execution
and delivery of this Agreement, the Shareholders Agreement and the Registration
Rights Agreement and the issuance of the Series A Preferred Stock and (ii) the
fulfillment of and compliance with the terms and provisions hereof and thereof
and of the Series A Preferred Stock will conflict with or result in a breach of
the terms, conditions or provisions of, or give rise to a fight of termination
under, or constitute a default under, or result in any violation of, the
Certificate of Incorporation or By-laws of the Company or any Subsidiary or any
mortgage, agreement, instrument, order, judgment, decree, statute, law, rule or
regulation to which the Company or any Subsidiary or any of their respective
properties is subject. Neither the Company nor any of its Subsidiaries (i) is in
default under any outstanding indenture or other debt instrument or with respect
to the payment of principal of or interest on any outstanding obligation for
borrowed money, or (ii) is in default under any of their respective contracts or
agreements, or under any instrument by which the Company or any of its
Subsidiaries is bound which default, in the case of this clause (ii),
individually or in the aggregate with all other such defaults, would be material
to the Company or any of its Subsidiaries.
2.12 CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of: (a) 35,000,000 shares of Common Stock, par
value $0.001 per share (the "COMMON STOCK" and, together with the Series A
Preferred Stock, the "STOCK"), of which 22,050,328 shares are validly issued and
outstanding, fully paid and nonassessable; (b) warrants to purchase 2,712,045
shares of Common Stock which are validly issued and outstanding, fully paid and
nonassessable; (c) options to purchase 2,823,458 shares of Common Stock and
deferred stock units representing the right to receive 85,225 shares of Common
Stock, all of which are validly issued and outstanding, fully paid and
nonassessable; and (d) 666,667 shares of Preferred Stock, par value $.001 per
share, of which no shares are outstanding, as of the date hereof, and 380,000
shares designated as Series A Convertible Preferred Stock will preemptive
rights. Except for the options and warrants listed above, there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, securities or rights
convertible into, shares of any class of capital stock of the Company, or
contracts, commitments, understandings, or arrangements by which the Company is
or may become bound to issue additional shares of its capital stock or options,
warrants or rights to purchase or acquire any shares of its capital stock. Since
August 1, 1996, the Company has not changed the amount of its authorized capital
stock or subdivided or otherwise changed any shares of any class of its capital
stock, whether by way of reclassification, recapitalization, stock split or
otherwise, or issued or reissued, or agreed to issue or reissue, any of its
capital stock.
2.13 ISSUANCE, SALE AND DELIVERY OF THE SERIES A PREFERRED STOCK. The
shares of Series A Preferred Stock being issued to the Initial Purchasers at the
First Closing and the shares of Series A Preferred Stock being issued to the
Individual Purchasers at the Second Closing are duly authorized and when issued
and delivered in accordance herewith will be, validly issued, fully paid and
nonassessable. The 17,272,727 shares of Common Stock to be issued upon
conversion of the Series A Preferred Stock, when issued and delivered upon such
conversion in accordance with the terms of the Certificate of Designation, will
be validly issued, fully paid and nonassessable. The Company will take all
action necessary to increase its authorized but unissued shares of Common Stock
to such number of shares as shall be sufficient to reserve shares of Common
Stock for issuance upon conversion of the Series A Preferred Stock, including,
without limitation, obtaining the requisite stockholder approval of any
necessary amendment to the Company's Certificate of Incorporation.
2.14 REGISTRATION UNDER EXCHANGE ACT. The Company has not registered
the Series A Preferred Stock as a class pursuant to Section 12 of the Exchange
Act.
2.15 ERISA. No accumulated funding deficiency (as defined in Section
302 of ERISA and Section 412 of the Code), whether or not waived, exists with
respect to any Pension Plan (as defined in Section 11) (other than a
Multiemployer Plan (as defined below)). No liability to the PBGC has been, or is
reasonably likely to be, incurred with respect to any Pension Plan (other than a
Multiemployer Plan) by the Company, any of its Subsidiaries or any ERISA
Affiliate (as defined below) which is or would be materially adverse to the
Company, its Subsidiaries and any ERISA Affiliate. Neither the Company nor any
of its Subsidiaries and any ERISA Affiliate has incurred, or is reasonably
likely to incur, any withdrawal liability under Title IV of ERISA with respect
to any Multiemployer Plan which is or would be materially adverse to the
Company, its Subsidiaries and its ERISA Affiliates and if the Company, its
Subsidiaries and ERISA Affiliates, were to completely withdraw as of the date
hereof from each Multiemployer Plan in which they participate, the Company, its
Subsidiaries and its ERISA Affiliates would not incur any material withdrawal
liability under Title IV of ERISA. Neither the Company nor any of its
Subsidiaries has any obligation to provide post-retirement health benefits to
any employee or former employee. No fiduciary of any employee benefit plan (as
defined in Section 3(3) of ERISA) maintained or contributed to by the Company or
any of its subsidiaries, for the benefit of their respective employees (each an
"EMPLOYEE PLAN") has engaged or caused any Employee Plan to engage in any
transaction prohibited by Section 4975 of the Code or Section 406 of ERISA which
is reasonably likely to subject the Company or any Subsidiary or any entity the
Company or any Subsidiary has an obligation to indemnify to any tax or penalty
imposed under Section 4975 of the Code or Section 502 of ERISA. Each Employee
Plan has been maintained and administered in compliance with all applicable law
including ERISA and the Code in all material respects. An "ERISA AFFILIATE" for
purposes of this Section is any trade or business, whether or not incorporated,
which, together with the Company, is under common control, as described in
Section 414(b) or (c) of the Code, and the term "MULTIEMPLOYER PLAN" shall mean
any Pension Plan which is a "multiemployer plan" (as such term is defined in
Section 4001(a)(3) of ERISA).
2.16 POSSESSION OF FRANCHISES, LICENSES, ETC. The Company and its
Subsidiaries possess all franchises, certificates, licenses, permits and other
authorizations from governmental or political subdivisions or regulatory
authorities and all patents, trademarks, service marks, trade names, copyrights,
licenses and other rights, free from burdensome restrictions, that are necessary
in any material respect to the Company or any of its Subsidiaries for the
ownership, maintenance and operation of their respective properties and assets,
and neither the Company nor any of its Subsidiaries is in violation of any
thereof in any material respect.
2.17 ENVIRONMENTAL AND OTHER REGULATIONS. The Company and its
Subsidiaries are in compliance with all applicable laws and regulations relating
to protection of the environment and human health, and are in compliance in all
material respects with all other applicable laws and regulations, including,
without limitation, those relating to equal employment opportunity and
employment safety. There are no claims, notices, civil, criminal or
administrative actions, suits, hearings, investigations, inquiries or
proceedings pending or, to the best knowledge of the Company, threatened against
the Company or any Subsidiary that are based on or related to any environmental
matters, including any disposal of hazardous substances at any place, or the
failure to have any required environmental permits, and there are no past or
present conditions that are likely to give rise to any liability or other
obligations of the Company or any Subsidiary under any environmental laws.
2.18 PATENTS AND TRADEMARKS. Set forth on SCHEDULE 2.18 is a true and
complete list of all patents, patent applications, trademarks, service marks,
trademark and service mark applications, trade names, copyrights and licenses
presently used by the Company or any Subsidiary or necessary for the conduct of
the business of the Company and its Subsidiaries as conducted and as proposed to
be conducted (the "INTELLECTUAL PROPERTY RIGHTS"). The Company owns, or has the
right to use under the agreements or upon the terms described on SCHEDULE 2.18,
all of the Intellectual Property Rights. To the best of the Company's knowledge,
the business conducted or proposed to be conducted by the Company and its
Subsidiaries does not infringe or violate any of the patents, trademarks,
service marks, trade names, copyrights, licenses, trade secrets or other
proprietary rights of any other Person. Except as set forth on SCHEDULE 2.18, to
the Company's knowledge, no other Person has any right to or interest in any
inventions, improvements, discoveries or other confidential in formation
utilized by the Company or any Subsidiary in its business.
2.19 MATERIAL CONTRACTS AND OBLIGATIONS. SCHEDULE 2.19 sets forth a
list of the following agreements or commitments of any nature to which the
Company or any Subsidiary is a party or by which it is bound: (a) any agreement
relating to material Intellectual Property Rights, (b) all employment and
consulting agreements, and all employee benefit, bonus, pension, profit-sharing,
stock option, stock purchase and similar plans and arrangements (other than
plans or arrangements providing for less than $10,000 per employee), (c) all
manufacturing, distributor and sales representative agreements and all
agreements with suppliers or vendors if the value of the payments thereunder is
in excess of $100,000, (d) all agreements or commitments that materially
restrict the ability of the Company or any Subsidiary or Affiliate to engage in
any business or line of business in any location, (e) all agreements or
commitments relating to indebtedness or guarantees of the Company or any
Subsidiary if the value of the payments thereunder is in excess of $100,000 and
(f) any other agreement or commitment which requires future payments by or to
the Company or any Subsidiary in excess of $100,000 or which is otherwise
material to the Company or any of its Subsidiaries. The Company has delivered or
made available to the Purchasers copies of all of the foregoing agreements and
commitments. To the best knowledge of the Company, all of such agreements and
commitments are valid, binding and in full force and effect.
2.20 BOOKS AND RECORDS. All the books, records and accounts of the
Company and its Subsidiaries are in all material respects true and complete, are
maintained in accordance with good business practice and all laws applicable to
its business, and accurately present and reflect in all material respects all of
the transactions therein described. The Company has previously delivered to the
Purchasers true and complete texts of all of the minutes relating to meetings of
the stockholders, boards of directors and committees of the Company and each
Subsidiary for the past five years.
2.21 TRANSACTIONS WITH RELATED PARTIES. SCHEDULE 2.21 sets forth a
true and complete list of the amounts and other essential terms of any contract,
arrangement or transaction currently in effect or effected during the past five
years between the Company or any Subsidiary and any Related Party, other than
(i) arrangements for the payment of salary, including bonuses, for services
rendered to the Company, which arrangements have previously been disclosed to
the Purchasers, (ii) other arrangements with any such Person which in the
aggregate do not involve more than $10,000 or (iii) as previously disclosed in
the SEC Reports.
2.22 BROKERS. Neither the Company nor any Subsidiary has engaged any
finder, broker or investment adviser, and has no obligation to pay any fees, in
connection with the transactions contemplated hereby.
2.23 ACCURACY OF INFORMATION. None of the representations and
warranties of the Company contained herein or the information, documents or
other materials (other than projections) which have been furnished in writing by
the Company or any of its representatives to the Purchasers in connection with
the transactions contemplated by this Agreement contains any material
misstatement of fact, or omits any material fact necessary to make the
statements herein and therein, in light of the circumstances under which they
were made, not misleading. All projections furnished in writing by the Company
(i) have been prepared by management of the Company after a careful analysis of
all material data, (ii) are based on reasonable assumptions by management of the
Company and (iii) represent the best estimate by management of the Company,
based upon current reasonable assumptions, as to the financial performance of
the Company and its Subsidiaries for the periods indicated, but do not represent
any guarantee or assurance of the future financial results of the Company and
its Subsidiaries.
2.24 OFFERING OF SERIES A PREFERRED STOCK. Neither the Company nor any
Person acting on its behalf has offered any of the Series A Preferred Stock or
any similar securities of the Company for sale to, solicited any offers to buy
any of the Series A Preferred Stock or any similar securities of the Company
from or otherwise approached or negotiated with respect to the Company with any
Person other than the Purchasers and other "ACCREDITED INVESTORS" (as defined in
Rule 501(a) under the Securities Act). Neither the Company nor any Person acting
on its behalf has taken or will take any action (including, without limitation,
any offering of any securities of the Company under circumstances which would
require the integration of such offering with the offering of any of the Series
A Preferred Stock under the Securities Act and the rules and regulations of the
Commission thereunder) which could reasonably be expected to subject the
offering, issuance or sale of any of the Series A Preferred Stock to the
registration requirements of Section 5 of the Securities Act.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser represents and warrants as follows:
3.1 ORGANIZATION AND QUALIFICATION. Such Purchaser is either (a) (i)
duly organized and existing in good standing under the laws of the jurisdiction
of its formation and has the power to own its respective property and to carry
on its respective business as now being conducted and (ii) duly qualified to do
business and in good standing in every jurisdiction in which the nature of the
respective business conducted or property owned by it makes such qualification
necessary, except where the failure to so qualify would not prevent consummation
of the transactions contemplated hereby or have a material adverse effect on
such Purchaser's ability to perform its obligations hereunder or (b) a natural
person with the capacity to enter into this Agreement and to consummate the
transactions contemplated hereby.
3.2 DUE AUTHORIZATION. Such Purchaser has all right, power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the
Purchaser and the consummation by such Purchaser of the transactions
contemplated hereby have been duly authorized by all necessary action on behalf
of such Purchaser. This Agreement has been duly executed and delivered by the
Purchaser and constitutes a valid and binding agreement of the Purchaser
enforceable in accordance with its terms, except that (i) such enforcement may
be subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors, rights, and (ii)
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
3.3 CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the execution
and delivery of this Agreement nor the performance by the Purchaser of its
obligations hereunder will conflict with, result in a breach of the terms,
conditions or provisions of, constitute a default under, or require any consent,
approval or other action by or any notice to or filing with any court or
administrative or governmental body pursuant to, the organizational documents or
agreements of the Purchaser or any mortgage, agreement, instrument, order,
judgment, decree, statute, law, rule or regulation to which the Purchaser or any
of its respective properties are subject.
3.4 ACQUISITION FOR INVESTMENT. The Purchaser is acquiring the Series
A Preferred Stock being purchased by it for its own account for the purpose of
investment and not with a view to or for sale in connection with any
distribution thereof, and the Purchaser has no present intention or plan to
effect any distribution thereof. The Purchaser acknowledges that the Series A
Preferred Stock has not been registered under the Securities Act and may be sold
or disposed of in the absence of such registration only pursuant to an exemption
from such registration.
3.5 BROKERS OR FINDERS. No agent, broker, investment banker or other
firm or Person, including any of the foregoing that is an Affiliate of the
Purchasers, is or will be entitled to any broker's fee or any other commission
or similar fee from the Purchaser in connection with any of the transactions
contemplated by this Agreement that the Company will be responsible for pursuant
to Section 9.9.
3.6 ACCREDITED INVESTOR. The Purchaser is an "Accredited Investor"
within the meaning of Rule 501 promulgated under the Securities Act.
SECTION 4. COVENANTS OF THE COMPANY.
4.1 LIMITATION ON SENIOR EQUITY SECURITIES. Without the consent of the
holders of a majority of the then outstanding shares of Series A Preferred
Stock, the Company will not issue any equity securities or any rights, options,
warrants or other securities which are exercisable for, exchangeable for or
convertible into shares of any class of capital stock ranking PARI PASSU or
senior as to dividends or upon liquidation to the Series A Preferred Stock.
4.2 COMPLIANCE WITH LAWS. The Company will, and will cause each
Subsidiary to, comply with all applicable statutes, rules, regulations and
orders of all governmental authorities, with respect to the conduct of its
business and the ownership of its properties, including without limitation,
those relating to protection of the environment and human health, equal
employment opportunity, employee safety, ERISA and international trade laws and
regulations, and apply for, obtain and maintain all permits necessary for the
conduct of its business and the ownership of its properties.
4.3 PRESERVATION OF FRANCHISES AND EXISTENCE. The Company will (i)
maintain its corporate existence, rights and franchises in full force and
effect, and (ii) cause the Subsidiaries to maintain their respective corporate
existences, rights and franchises in full force and effect; PROVIDED that
nothing in this Section 4.3 shall prevent the Company or any Subsidiary from
discontinuing its operations in any particular state or at any particular
location or locations within the state, or prevent the corporate existence,
rights and franchises of any Subsidiary from being terminated if, in the opinion
of the Board of Directors, the preservation thereof is no longer desirable in
the conduct of the business of the Company and its Subsidiaries and the loss
thereof is not disadvantageous in any material respect to the holders of Series
A Preferred Stock.
4.4 USE OF PROCEEDS. The Company will only use the Proceeds for
Permitted Proceeds Uses; PROVIDED that, in the case of Retail Proceeds, the
Company may, pending any Retail Proceeds Uses, use Retail Proceeds to pay down
long-term indebtedness so long as the Company has the right to immediately
reborrow such amounts.
4.5 INSURANCE. The Company will, and will cause each of the
Subsidiaries to, maintain with insurers believed by the Company to be
responsible such insurance, in such amounts and of such types as are customarily
carried under similar circumstances by companies engaged in the same or a
similar business or having similar properties similarly situated.
4.6 PAYMENT OF TAXES AND OTHER CHARGES. The Company will pay or
discharge, and will cause each of the Subsidiaries to pay or discharge, before
the same shall become delinquent, (i) all taxes, assessments and other
governmental charges or levies imposed upon it or any of its properties or
income (including, without limitation, such as may arise under Sections 4062,
4063, or 4064 of ERISA or any similar provision of law), and (ii) all claims or
demands of materialmen, mechanics, carriers, warehousemen, landlords and other
like Persons which, in the case of either clause (i) or clause (ii), if unpaid,
might result in the creation of a material lien upon any of its properties,
PROVIDED, HOWEVER, that the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith pursuant to
appropriate proceedings.
4.7 EFFECT OF BREACH. In addition to the rights of THLi under the
Stockholders Agreement, upon the occurrence of an Event of Default and
notification by THLi prior to the two-year anniversary of the First Closing Date
of its desire to add directors in accordance with Section 6.2, then the Board of
Directors shall take all necessary action to increase or decrease the size of
the Board of Directors and to appoint to the Board of Directors a number of
additional members (the "ADDITIONAL MEMBERS") designated by THLi that, when
added to any directors then in office designated solely by THLi, will result in
directors designated by THLi constituting a majority of the entire Board of
Directors. THLi shall be entitled to designate the Additional Members and, for
so long as such Event of Default continues, at each subsequent annual meeting,
THLi shall be entitled to propose (and the Board of Directors shall nominate and
recommend) Persons reasonably acceptable to the Board of Directors as the
Additional Members of the Board of Directors. In the event of any vacancy
arising by reason of the resignation, death, removal or inability to serve of
any Additional Member, THLi shall be entitled to designate a successor to fill
such vacancy for the remaining term of such director. At such times as such
Event of Default shall have been cured or waived, the rights of THLi under this
Section 4.7 shall terminate (and THLi shall cause such Additional Directors to
resign from the Board of Directors), subject to revesting in the event of each
and every subsequent Event of Default.
4.8 ERISA. Neither the Company nor any Subsidiary shall incur any
material liability with respect to retiree medical or death benefits or unfunded
benefits payable after termination of employment. All employee benefit plans and
arrangements maintained or contributed to by the Company, any Subsidiary or any
ERISA Affiliate shall be maintained in compliance in all material respects with
all applicable law, including any reporting requirements. With respect to any
plan maintained by or contributed to by the Company or any Subsidiary, neither
the Company nor any Subsidiary will fail to make any contribution due from it
under the terms of such plan or as required by law. Neither the Company nor any
ERISA Affiliate will permit a Pension Plan to incur an accumulated funding
deficiency (as such term is defined in Section 302 of ERISA or Section 412 of
the Code), whether or not waived, cause a lien or a security interest to attach
to any asset of the Company or any Subsidiary for the benefit of any Plan, or
incur any liability which would be material to the Company or any of its
Subsidiaries under Title IV of ERISA, including withdrawal liability (other than
the payment of premiums, none of which are overdue). Neither the Company nor any
Subsidiary, nor any other Person including any fiduciary, will engage in any
transaction prohibited by Section 406 of ERISA or Section 4975 of the Code which
is reasonably likely to subject the Company, any Subsidiary or any entity that
the Company or any Subsidiary has an obligation to indemnify to any tax or
penalty imposed under Section 4975 of the Code or Section 502 of ERISA.
4.9 FINANCIAL STATEMENTS AND OTHER REPORTS.
(a) The Company will, as soon as practicable and in any
event within 60 days after the end of each quarterly period
(other than the last quarterly period) in each fiscal year,
furnish to THLi statements of consolidated net income and cash
flows and a statement of changes in consolidated stockholders'
equity of the Company and its Subsidiaries for the period from
the beginning of the then current fiscal year to the end of such
quarterly period, and a consolidated balance sheet of the Company
and its Subsidiaries as of the end of such quarterly period,
setting forth in each case in comparative form figures for the
corresponding period or date in the preceding fiscal year, all in
reasonable detail and certified by an authorized financial
officer of the Company, subject to changes resulting from
year-end adjustments; PROVIDED, HOWEVER, that delivery pursuant
to clause (iii) below of a copy of the Quarterly Report on Form
10-Q of the Company for such quarterly period filed with the
Commission shall be deemed to satisfy the requirements of this
clause (i);
(b) The Company will, as soon as practicable and in any
event within 100 days after the end of each fiscal year, furnish
to THLi statements of consolidated net income and cash flows and
a statement of changes in consolidated stockholders' equity of
the Company and its Subsidiaries for such year, and a
consolidated balance sheet of the Company and its Subsidiaries as
of the end of such year, setting forth in each case in
comparative form the corresponding figures from the preceding
fiscal year, all in reasonable detail and examined and reported
on by independent public accountants of recognized national
standing selected by the Company; PROVIDED, HOWEVER, that
delivery pursuant to clause (iii) below of a copy of the Annual
Report on Form 10-K of the Company for such fiscal year filed
with the Commission shall be deemed to satisfy the requirements
of this clause (ii);
(c) The Company will, promptly upon transmission thereof,
furnish to each Purchaser copies of all such financial
statements, proxy statements, notices and reports as it shall
send to its stockholders and copies of all such registration
statements (without exhibits), other than registration statements
relating to employee benefit or dividend reinvestment plans, and
all such regular and periodic reports as it shall file with the
Commission;
(d) The Company will, promptly after such package becomes
available, furnish to THLi copies of all financial reporting
packages prepared for management of the Company; and
(e) Until the two-year anniversary of the First Closing
Date, the Company will, as soon as practicable, and in any event
within 5 days after the end of each month, furnish to THLi and
GECC detailed reports, and any other information THLi and GECC
may reasonably request, relating to (i) the use of Proceeds by
the Company and its Subsidiaries and (ii) the Company's
compliance with the Retail Plan and the E-Commerce Plan;
(f) The Company will promptly furnish to THLi copies of any
reports furnished to GECC pursuant to the Note Agreement; and
(g) The Company will promptly furnish to THLi copies of any
compliance certificates furnished to lenders in respect of
indebtedness of the Company and its Subsidiaries and, with
reasonable promptness, furnish to each Purchaser such other
financial and other data of the Company and its Subsidiaries as
such Purchaser may reasonably request, including, but not limited
to, operating financial information for each retail store owned
or operated by the Company or any of its Subsidiaries.
4.10 INSPECTION OF PROPERTY. The Company will permit representatives
of THLi to visit and inspect, at THLi's expense, any of the properties of the
Company and its Subsidiaries, to examine the corporate books and make copies or
extracts therefrom and to discuss the affairs, finances and accounts of the
Company and its Subsidiaries with the principal officers of the Company, all at
such reasonable times, upon reasonable notice and as often as such Purchaser may
reasonably request.
4.11 LOST, STOLEN, DAMAGED AND DESTROYED STOCK CERTIFICATES. Upon
receipt of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of any certificate for shares of Series A Preferred Stock (or any
certificate for the shares of Common Stock into which the Series A Preferred
Stock is convertible) and in the case of loss, theft or destruction, upon
delivery of an indemnity satisfactory to the Company (which, in the case of any
Purchaser, may be an undertaking by such Purchaser so to indemnify the Company),
or, in the case of mutilation, upon surrender and cancellation thereof, the
Company will issue a new certificate of like tenor for a number of shares of
Series A Preferred Stock (or, if applicable, shares of Common Stock into which
the Series A Preferred Stock is convertible) equal to the number of shares of
such stock represented by the certificate lost, stolen, destroyed or mutilated.
4.12 RELATED PARTY TRANSACTIONS. The Company shall not, directly or
indirectly, and shall not permit any of its Subsidiaries to, directly or
indirectly, enter into, amend or terminate any contract, arrangement or
transaction with a Related Party, other than (i) any action to terminate the
Consumer Credit Card Agreement by and among Krause's Sofa Factory, Castro
Convertible Corporation and Monogram Credit Bank of Georgia, dated as of April
27, 1997 and (ii) the payment of salary and benefits pursuant to employment
agreements entered into in the ordinary course of business.
4.13 OPERATIONS IN ACCORDANCE WITH BUSINESS PLAN. The business and
operations of the Company and its Subsidiaries shall be conducted in all
material respects in accordance with the Company's annual business plan as
approved by a majority of the Board of Directors, which majority must include
the GECC Designee and the THLi Designees (each as defined in the Stockholders
Agreement), except for such changes which shall have been approved in accordance
with Section 2.2(u) of the Stockholders Agreement. The Company shall submit the
E-Commerce Plan to the Board of Directors for approval no later than 90 days
from the First Closing Date.
4.14 RESERVATION OF SHARES. From and after the 15th day following the
first meeting of stockholders of the Company occurring on or after the First
Closing Date, the Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock solely for the purpose of
effecting the conversion of the shares of the Series A Preferred Stock, such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series A Preferred Stock.
4.15 NOTICE OF BREACH. As promptly as practicable, and in any event
not later than ten Business Days after senior management of the Company becomes
aware of any breach by the Company of any provision of this Agreement,
including, without limitation, this Article 4, the Company shall provide the
Purchasers with written notice specifying the nature of such breach and any
actions proposed to be taken by the Company to cure such breach.
4.16 LIMITATION ON DIVIDENDS. The Company shall not pay any dividends
on Common Stock so long as any shares of Series A Preferred Stock remain
outstanding.
4.17 RIGHT OF FIRST REFUSAL. Subject to the terms and conditions
specified in this Section 4.17, the Company hereby grants to THLi or any of its
designees (collectively, the "FIRST REFUSAL STOCKHOLDERS") a right of first
offer with respect to future sales by the Company of its Offered Shares (as
hereinafter defined).
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable or exchangeable for any shares of, any class of
its capital stock ("OFFERED SHARES"), the Company shall first make an offering
of such Offered Shares to the First Refusal Stockholders in accordance with the
following provisions:
(a) The Company shall deliver a notice in accordance with
Section 9.5 of this Agreement ("NOTICE") to THLi stating (i) its
BONA FIDE intention to offer such Offered Shares, (ii) the number
of such Offered Shares to be offered, and (iii) the price and
terms, if any, upon which it proposes to offer such Offered
Shares.
(b) Within 15 days after delivery of the Notice, the First
Refusal Stockholders may elect to purchase or obtain, at the
price and on the terms specified in the Notice, up to that
portion of such Offered Shares that equals the proportion that
the number of shares of Common Stock issued and held (or issuable
upon conversion and exercise of all convertible or exercisable
securities then held by THLi and its Affiliates) bears to the
total number of shares of Common Stock then outstanding (assuming
full conversion and exercise of all outstanding convertible or
exercisable securities).
(c) The right of first offer in this Section 4 shall not be
applicable to any issuance or sale of any of the following
securities:
(i) Common Stock issued pursuant to any stock split,
dividend or distribution payable in additional shares of
Common Stock or other securities or rights convertible into,
or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock without
payment of any consideration by such holder, PROVIDED that
all holders of capital stock of the Company and options or
warrants or other securities exercisable or exchangeable for
or convertible into, capital stock of the Company receive
their PRO RATA share (on a common equivalent basis) of such
Common Stock,
(ii) Common Stock issuable or issued to employees,
consultants or directors of the Company directly or pursuant
to a stock option plan or restricted stock plan, or other
similar arrangements related to compensation for services in
effect on the date of this Agreement, or thereafter approved
by a
(iii) Common Stock issued in a bona fide firm
commitment underwritten offering to the public.
SECTION 5. RESTRICTIONS ON TRANSFER.
Neither the Purchasers or any of their respective Affiliates shall,
directly or indirectly, sell, transfer, pledge, encumber or otherwise dispose of
(collectively, a "TRANSFER") any of the Series A Preferred Stock or Common Stock
received upon conversion of the Series A Preferred Stock, except for: (a)
Transfers to or between Affiliates who agree to be bound by the provisions of
this Agreement; (b) Transfers of Series A Preferred Stock or Common Stock
received upon conversion of the Series A Preferred Stock pursuant to the
exercise of the registration rights set forth in the Registration Rights
Agreement; or (c) other Transfers that comply with the provisions of the
Securities Act. The Company may require, in connection with any Transfer
pursuant to the preceding clause (c), an opinion of counsel to the Purchaser
that such Transfer complies with the provisions of the Securities Act.
SECTION 6. EVENT OF DEFAULT AND REMEDIES.
6.1 EVENT OF DEFAULT. The occurrence of any of the events set forth on
Schedule prior to the two-year anniversary of the First Closing Date shall
constitute an Event of Default under this Agreement.
6.2 REMEDIES. The Company shall notify the Purchasers immediately upon
becoming aware of any Event of Default. If an Event of Default occurs and is
continuing, then in every such case:
(a) THLi at its option, shall have the right to either:
(i) demand immediate redemption of up to its Maximum Number
(as such term is defined in the Certificate of Designation) of
shares of Series A Preferred Stock pursuant to paragraph 5(c) of
the Certificate of Designation, or
(ii) nominate and designate additional members of the Board
of Directors pursuant to Section 4.7 hereof; and
(b) without limiting the foregoing, any Purchaser may enforce its
rights by suit in equity, by action at law, or by any other appropriate
proceedings, whether for the specific performance (to the extent permitted by
law) of any covenant or agreement contained in this Agreement or the Certificate
of Incorporation or in aid of the exercise of any power granted in this
Agreement or the Certificate of Incorporation.
If THLi elects to demand redemption pursuant to clause (a)(i) above,
each other holder of Series A Preferred Stock shall also be entitled to demand
immediate redemption of such shares of Series A Preferred Stock permitted under
paragraph 5(c) of the Certificate of Designation.
6.3 CONDUCT NO WAIVER. No course of dealing on the part of any holder,
nor any delay or failure on the part of any holder to exercise any of its
rights, shall operate as a waiver of such right or otherwise prejudice such
holder's rights, powers and remedies.
6.4 REMEDIES CUMULATIVE. No right or remedy conferred upon or reserved
to the holders of Series A Preferred Stock under this Agreement is intended to
be exclusive of any other right or remedy, and every right and remedy shall be
cumulative and in addition to every other right and remedy given hereunder or
now and hereafter existing under applicable law. Every right and remedy given by
this Agreement or by applicable law to the holders of Series A Preferred Stock
may be exercised from time to time and as often as may be deemed expedient by
the holders.
SECTION 7. CONDITIONS.
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE TRANSACTIONS
CONTEMPLATED HEREBY. The respective obligations of each party to effect the
transactions contemplated by this Agreement shall be subject to the fulfillment
at or prior to the applicable Closing Date of the following conditions:
(a) No temporary restraining order, preliminary or permanent
injunction or other order or decree by any court of competent
jurisdiction which prevents the consummation of the transactions
contemplated hereby or imposes material conditions with respect
thereto shall have been issued and remain in effect (each party
agreeing to use its reasonable efforts to have any such injunction,
order or decree lifted).
(b) No Action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any State or Federal government
or governmental agency which would prevent the consummation of the
transactions contemplated by this Agreement or imposes material
conditions with respect thereto.
(c) All consents and approvals of governmental entities legally
required for the consummation of the transactions contemplated by this
Agreement shall have been obtained and be in effect at the applicable
Closing Date, except those for which failure to obtain such consents
and approvals would not, individually or in the aggregate, have a
Material Adverse Effect or materially impair the ability of any party
to this Agreement to consummate the transactions contemplated by this
Agreement.
7.2 CONDITIONS TO PURCHASERS' OBLIGATIONS TO EFFECT THE TRANSACTIONS
CONTEMPLATED HEREBY. The obligations of the Purchasers to effect the
transactions contemplated by this Agreement shall be subject to the fulfillment
at or prior to the applicable Closing Date of the following additional
conditions:
(a) The Company shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or
prior to the applicable Closing Date, and the representations and
warranties of the Company contained in this Agreement shall be true
and correct in all material respects (if not qualified by materiality)
and true and correct (if so qualified) on and as of the date of this
Agreement and at and as of the applicable Closing Date as if made at
and as of the applicable Closing Date, except to the extent that any
such representation or warranty expressly relates to another date (in
which case, as of such date).
(b) The consent or approval of each third party whose consent or
approval shall be required in connection with the transactions
contemplated hereby shall have been obtained.
(c) The Company and the stockholders listed on the signature
pages thereto shall have executed and delivered the Stockholders
Agreement substantially in the form attached hereto as EXHIBIT A.
(d) Purchasers shall have received an opinion of Morrison &
Foerster LLP, counsel to the Company, substantially in the form
attached hereto as EXHIBIT B.
(e) The Company and the stockholders listed on the signature
pages thereto shall have executed and delivered the Registration
Rights Agreement substantially in the form attached hereto as EXHIBIT
C.
(f) Since the date of this Agreement, there shall not have been
any change or events which have resulted or would in REASONABLE
probability result in a Material Adverse Effect.
(g) The Company, GECC and JOL shall have executed and delivered
the Indebtedness Amendment substantially in the form attached hereto
as EXHIBIT D.
(h) The Company shall have filed the Certificate of Designation
substantially in the form attached hereto as EXHIBIT E with the
Delaware Secretary of State.
(i) Purchasers shall have completed their business, legal and
financial due diligence review and the results of such review shall be
satisfactory to Purchasers in their sole judgment.
SECTION 8. INTERPRETATION.
8.1 DEFINITIONS
"AFFILIATE" and "ASSOCIATE" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act.
"BENEFICIALLY OWN" with respect to any Series A Preferred Stock shall
mean having "beneficial ownership" of such Series A Preferred Stock (as
determined pursuant to Rule 13d-3 under the Exchange Act), including pursuant to
any agreement, arrangement or understanding, whether or not in writing.
"BOARD OF DIRECTORS" shall mean the board of directors of the Company.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday, or a
day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"CERTIFICATE OF DESIGNATION" shall mean the Certificate of Designation
of Series A Convertible Preferred Stock of the Company substantially in the form
attached hereto as EXHIBIT E.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"CONSOLIDATED" or "CONSOLIDATED," when used with reference to any
financial term in this Agreement (but not when used with respect to any tax
return or tax liability), shall mean the aggregate for two or more Persons of
the amounts 2.16 signified by such term for all such Persons, with inter-company
items eliminated and, with respect to earnings, after eliminating the portion of
earnings properly attributable to minority interests, if any, in the capital
stock of any such Person or attributable to shares of preferred stock of any
such Person not owned by any other such Person.
"E-COMMERCE PLAN" shall mean a business plan setting forth the
Company's planned business to business and E-commerce activities, including
detailed information with respect to E- Commerce Proceed Uses, strategy,
implementation of strategy, milestone targets and a timeline with respect
thereto, as such business plan may be amended from time to time in accordance
with Section 2.2(u) of the Stockholders Agreement.
"E-COMMERCE PROCEED USES" shall mean the use of Proceeds to build
infrastructure and sales and marketing capabilities for (including the
recruitment of appropriate talent associated with) business-to-business
activities and e-commerce activities, including commerce related to transactions
on the Internet and such further uses described in the E-Commerce Plan.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any successor Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time. Reference
to a particular section of the Securities Exchange Act of 1934, as amended,
shall include reference to the comparable section, if any, of any such successor
Federal statute.
"GECC" shall mean, collectively, General Electric Capital Corporation,
a New York corporation and GE Capital Equity Investments, Inc., a Delaware
corporation.
"INDIVIDUAL PURCHASERS" shall mean the Purchasers other than THLi,
GECC and Permal.
"INITIAL PURCHASERS" shall mean TBLi, GECC and Permal.
"JOL" shall mean Japan Omnibus Ltd., an international business
corporation incorporated --- in the British Virgin Islands.
"NOTE AGREEMENT" shall mean, collectively, the Securities Purchase
Agreement dated as of August 26, 1996 between the Company and GECC and the
Supplemental Securities Purchase Agreement, dated as of August 14, 1997, among
the Company GECC and JOL, in each case, as amended.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto.
"PENSION PLAN" shall mean any multiemployer plan or single employer
plan, as defined in Section 4001 of ERISA, that is subject to Title IV of ERISA,
that the Company, any Subsidiary or any ERISA Affiliate maintains or is or ever
has been obligated to contribute to for the benefit of employees or former
employees of the Company, any Subsidiary or any ERISA Affiliate.
"PERMAL" shall mean those entities and individuals constituting the
Permal Group as set forth on Schedule C to the Stockholders Agreement.
"PERMITTED PROCEEDS USES" shall mean Retail Proceed Uses or E-Commerce
Proceed Uses.
"PERSON" shall mean any individual, firm, corporation, partnership or
other entity, and shall include any successor (by merger or otherwise) of such
entity.
"PROCEEDS" shall mean the proceeds from the sale of the Series A
Preferred Stock pursuant to this Agreement.
"RELATED PARTY" shall mean any officer, director or beneficial holder
of 3% or more of the outstanding shares of capital stock of the Company or any
Subsidiary, any spouse, former spouse, child, parent, parent of a spouse,
sibling or grandchild of any such officer, director or beneficial holder of the
Company or any Subsidiary, and any Affiliate or Associate of any of the
foregoing Persons; PROVIDED, HOWEVER, that neither THLi nor GECC shall be deemed
to be a Related Party.
"RETAIL PLAN" shall mean a business plan setting forth the Company's
planned retail activities, including detailed information with respect to Retail
Proceed Uses, Strategy, implementation of Strategy, milestone targets and a time
line with respect thereto, as such business plan may be amended from time to
time in accordance with section 2.2(a) of the Stockholders Agreement.
"RETAIL PROCEED USES" shall mean the use of Proceeds to (i) repay the
Loan and Security Agreement, dated as of January 20, 1995, as amended, by and
between Congress Financial Corporation (Western), Krause's Sofa Factory and
Castro Convertible Corporation (the "CREDIT AGREEMENT"), (ii) make capital
expenditures related to the opening of new stores, (iii) for working capital
purposes in connection with the Company's retail business and (iv) for such
further uses described in the Retail Plan.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"SUBSIDIARY" of any Person means any corporation or other entity of
which a majority of the voting power or the Voting Securities or equity interest
is owned, directly or indirectly, by such Person.
"THLI shall mean, collectively, TH Lee.Putnam Internet Partners, L.P.
and TH Lee.Putnam. Internet Parallel Partners, L.P., together with their
affiliates.
"VOTING SECURITIES" of any Person shall mean at any time shares of any
class of capital stock of such Person which are then entitled to vote generally
in the election of directors.
8.2 ACCOUNTING PRINCIPLES. The character or amount of any asset,
liability, capital account or reserve and of any item of income or expense
required to be determined pursuant to this Agreement, and any consolidation or
other accounting computation required to be made pursuant to this Agreement, and
the construction of any definition in this Agreement containing a financial
term, shall be determined or made, as the case may be, in accordance with
generally accepted accounting principles, to the extent applicable, unless such
principles are inconsistent with the express requirements of this Agreement.
References in this Agreement to a fiscal year refer to the period ending on the
last Sunday of January of the following calendar year as determined by the 52/53
retail fiscal year. (For example, 1998 fiscal year refers to the fiscal year
ending January 31, 1999.)
SECTION 9. MISCELLANEOUS.
9.1 SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement or any exhibit hereto is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement and such exhibits shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated. It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions, covenants
and restrictions without including any of such which may be hereafter declared
invalid, void or unenforceable.
9.2 SPECIFIC ENFORCEMENT. Each Purchaser, on the one hand, and the
Company, on the other, acknowledge and agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction to
prevent breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
thereof having jurisdiction, this being in addition to any other remedy to which
they may be entitled at law or equity.
9.3 ENTIRE AGREEMENT. This Agreement (including the documents set
forth in the exhibits hereto) contains the entire understanding of the parties
with respect to the transactions contemplated hereby.
9.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each party and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9.5 NOTICES AND OTHER COMMUNICATIONS. All notices, consents, requests,
instructions, approvals, financial statements, proxy statements, reports and
other communications provided for herein shall be in writing and shall be
delivered personally, by facsimile or sent by prepaid overnight courier service,
to:
The Company
Krause's Furniture, Inc.
200 North Berry Street
Brea, CA 92821-3903
Facsimile #: (714) 990-3561
Attention: Philip M. Hawley
With a copy to:
Krause's Furniture, Inc.
200 North Berry Street
Brea, CA 92821-3903
Facsimile #: (714) 990-3561
Attention: Judith O. Lasker, Esq.
and
Morrison & Foerster LLP
555 West 5th Street, Suite 3500
Los Angeles, CA 90013-1024
Facsimile #: (213) 892-5454
Attention: Charles Kaufman, Esq.
Each Purchaser:
At the address or facsimile number set forth on the
signature pages hereto.
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue Suite 3400
Los Angeles, California 90071
Facsimile #: (213) 687-5600
Attention: Michael A. Woronoff, Esq.
or to such other address as any party may, from time to time, designate in a
written notice given in a like manner.
9.6 AMENDMENTS. This Agreement may be amended as to the Purchasers and
their successors and assigns, and the Company may take any action herein
prohibited, or omit to perform any act required to be performed by it, if the
Company shall obtain (i) the written consent of the Purchasers and/or such
successors and assigns who are the registered holders of not less than a
majority of the outstanding shares of Series A Preferred Stock then held by the
Purchasers and their successors or assigns and (ii) the written consent of THLi;
PROVIDED, HOWEVER, that without the consent of each holder affected, however, no
amendment or waiver may (with respect to any shares of Series A Preferred Stock
held by a non consenting holder of shares of Series A Preferred Stock):
(a) reduce the aggregate number of shares of Series A Preferred
Stock whose holders must consent to an amendment or waiver of any
provision of this Agreement; or
(b) make any change in the foregoing amendment and waiver
provisions.
This Agreement may not be waived, changed, modified, or discharged
orally, but only by an agreement in writing signed by the party or parties
against whom enforcement of any waiver, change, modification or discharge is
sought or by parties with the right to consent to such waiver, change,
modification or discharge on behalf of such party.
9.7 COOPERATION. Each Purchaser and the Company agree to take, or
cause to be taken, all such further or other actions as shall reasonably be
necessary to make effective and consummate the transactions contemplated by this
Agreement.
9.8 SUCCESSORS AND ASSIGNS. All covenants and agreements contained
herein shall bind and inure to the benefit of the parties hereto and their
respective successors and assigns. Any Purchaser may (but shall not be required
to) assign any or all of its rights under this Agreement to any transferee of
any Series A Preferred Stock; PROVIDED that THLi may only assign its rights
under Section 4 to a transferee of at least 30% of the Stock held by THLi as of
the date of this Agreement (calculated as if all shares of Series A Preferred
Stock had been converted into shares of Common Stock as of the date of such
calculation). If THLi assigns any or all of its rights under Section 4, such
rights shall only be exercised by holders of more than 50% of the Stock held by
TBLi as of the date of this Agreement (calculated as if all shares of Series A
Preferred Stock had been converted into shares of Common Stock as of the date of
such calculation). This Agreement may not be assigned by the Company.
9.9 EXPENSES AND REMEDIES.
(a) The Company agrees to pay THLi for all reasonable outside
legal and consulting fees of THLi in connection with this Agreement
and the consummation of all transactions contemplated hereby, which
costs shall not exceed $50,000, and all costs and expenses relating to
any future amendment or supplement to this Agreement or the Series A
Preferred Stock (or any proposal by the Company for such amendment or
supplement) whether or not consummated or any waiver or consent with
respect thereto (or any proposal for such waiver or consent) whether
or not consummated, and all costs and expenses of THLi relating to the
enforcement of this Agreement, the Registration Rights Agreement or
the Series A Preferred Stock.
(b) The Company further agrees to indemnify and save harmless
each Purchaser and each Purchaser's officers, directors, partners,
employees, trustees and agents, each Person who controls such
Purchaser within the meaning of the Securities Act or the Exchange
Act, from and against any and all costs, expenses, damages or other
liabilities resulting from any breach of this Agreement by the Company
or any legal, administrative or other proceedings arising out of the
transactions contemplated hereby (other than such costs, expenses,
damages or other liabilities resulting, directly or indirectly, (i)
from the breach by such Purchaser of any of its representations,
warranties or other agreements contained herein, (ii) from the gross
negligence or willful misconduct of such Purchaser or any of its
officers, directors, partners, employees or agents, or any Person who
controls such Purchaser within the meaning of the Securities Act or
the Exchange Act or (iii) from an ERISA violation resulting from any
action or inaction by such Purchaser, other than an ERISA violation
resulting from a breach by the Company of this Agreement); PROVIDED,
HOWEVER, that, if and to the extent that such indemnification is
unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of such indemnified
liability which shall be permissible under applicable laws.
(c) The indemnified party under this Section 9.9 will, promptly
after the receipt of notice of the commencement of any action against
such indemnified party in respect of which indemnity may be sought
from the Company on account of an indemnity agreement contained in
this Section 9.9 notify the Company in writing of the commencement
thereof. The omission of any indemnified party so to notify the
Company of any such action shall not relieve the Company from any
liability which it may have to such indemnified party except to the
extent the Company shall have been prejudiced by the omission of such
indemnified party so to notify the Company, pursuant to this Section
9.9. In case any such action shall be brought against any indemnified
party and it shall notify the Company of the commencement thereof, the
Company shall be entitled to participate therein and, to the extent
that it may wish, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and after notice
from the Company to such indemnified party of its election so to
assume the defense thereof, the Company will not be liable to such
indemnified party under this Section 9.9 for any legal or other
expense subsequently incurred by such indemnified party in connection
with the defense thereof nor for any settlement thereof entered into
without the consent of the Company; PROVIDED, HOWEVER, that (i) if the
Company shall elect not to assume the defense of such claim or action
or (ii) if the indemnified party reasonably determines (x) that there
may be a conflict between the positions of the Company and of the
indemnified party in defending such claim or action or (y) that there
may be legal defenses available to such indemnified party different
from or in addition to those available to the Company, then separate
counsel for the indemnified party shall be entitled to participate in
and conduct the defense, in the case of (i) and (ii) (x), or such
different defenses, in the case of (ii)(y), and the Company shall be
liable for any reasonable legal or other expenses incurred by the
indemnified party in connection with the defense. The obligations of
the Company to each indemnified party hereunder shall be separate
obligations, and the Company's liability to any such indemnified party
hereunder shall not be extinguished solely because any other
indemnified party is not entitled to indemnity hereunder. The
obligations of the Company under this Section 9.9 shall survive the
redemption or purchase by the Company of the shares of Series A
Preferred Stock purchased by any Purchaser, any transfer of the Series
A Preferred Stock by any Purchaser and the termination of this
Agreement, the Series A Preferred Stock, the Stockholders Agreement
and any of the other documents executed in connection herewith.
9.10 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
issuance and de livery of the Series A Preferred Stock, regardless of any
investigation made by or on behalf of any party.
9.11 TRANSFER OF SERIES A PREFERRED STOCK. (a) Each Purchaser
understands and agrees that the Series A Preferred Stock has not been registered
under the Securities Act or the securities laws of any state and that they may
be sold or otherwise disposed of only in one or more transactions registered
under the Securities Act and, where applicable, such laws or transactions as to
which an exemption from the registration requirements of the Securities Act and,
where applicable, such laws are available. Each Purchaser acknowledges that,
except as provided in the Registration Rights Agreement, such Purchaser has no
right to require the Company to register the Series A Preferred Stock. Each
Purchaser understands and agrees that each certificate representing the Series A
Preferred Stock shall bear legends substantially in the form as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR
THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS."
"THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
IS RESTRICTED BY A STOCKHOLDERS AGREEMENT BY AND AMONG KRAUSE'S
FURNITURE, INC. (THE "COMPANY") AND THE STOCKHOLDERS PARTIES THERETO
(THE "STOCKHOLDERS AGREEMENT"), A COPY OF WHICH IS ON FILE AT THE
OFFICES OF THE COMPANY."
"IN ADDITION TO THE RESTRICTIONS SET FORTH IN THE STOCKHOLDERS
AGREEMENT, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO THE RESTRICTIONS SET FORTH IN A SECURITIES PURCHASE AGREEMENT BY
AND AMONG THE COMPANY AND THE PURCHASERS LISTED ON THE SIGNATURE PAGES
THERETO, A COPY OF EACH OF WHICH IS ON FILE AT THE OFFICES OF THE
COMPANY."
9.12 GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
including, without limitation, Sections 5-1401 and 5-1402 of the New York
General Obligations Law and New York Civil Practice Laws and Rules 327(b). Each
of the parties hereto hereby irrevocably and unconditionally consents to submit
to the exclusive jurisdiction of the courts of the State of New York and of the
United States of America, in each case located in the County of New York, for
any action, proceeding or investigation in any court or before any governmental
authority ("LITIGATION") arising out of or relating to this Agreement and the
transactions contemplated hereby (and agrees not to commence any litigation
relating thereto except in such courts), and further agrees that service of any
process, summons, notice or document by U.S. Registered Mail to its respective
address set forth in this Agreement shall be effective service of process for
any litigation brought against it in any such court. Each of the parties hereto
hereby irrevocably and unconditionally waives any objection to the laying of
venue of any litigation arising out of this Agreement or the transactions
contemplated hereby in the courts of the State of New York or the United States
of America, in each case located in the County of New York, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such litigation brought in any such court has been brought
in an inconvenient forum. Each of the parties irrevocably and unconditionally
waives, to the fullest extent permitted by applicable law, any and all rights to
trial by jury in connection with any litigation arising out of or relating to
this Agreement or the transactions contemplated hereby.
9.13 PUBLICITY. Each of the parties hereto agrees that it will make no
statement regarding the transactions contemplated hereby which is inconsistent
with the press release agreed to by the parties hereto. Notwithstanding the
foregoing, each of the parties hereto may, in document required to be filed by
it with the Commission or other regulatory bodies, make such statements with
respect to the transactions contemplated hereby as each may be advised is
legally necessary upon advice of its counsel.
9.14 SIGNATURES. This Agreement shall be effective upon delivery of
original signature pages or facsimile copies thereof executed by each of the
parties hereto.
IN WITNESS WHEREOF, the Company and the Purchasers have caused this
agreement to be executed and delivered by their respective officers thereunto
duly authorized.
KRAUSE'S FURNITURE, INC.
By: ----------------------
Name:
Title:
<PAGE>
TH LEE.PUTNAM INTERNET PARTNERS, L.P.
By: TH LEE.PUTNAM INTERNET FUND
ADVISORS, L.P., its GENERAL PARTNER
By: TH LEE.PUTNAM INTERNET FUND
ADVISORS, LLC, its GENERAL PARTNER
By: -------------------------------------
Name: Christine Kim
Title: Vice President
ADDRESS: 200 Madison Avenue, Suite 2225
New York, New York 10016
Facsimile #: (212) 951-8655
Attention: Christine Kim
NUMBER OF SHARES: 134,000
PURCHASE PRICE: $6,700,000
<PAGE>
TH LEE.PUTNAM INTERNET PARTNERS, L.P.
By: TH LEE.PUTNAM INTERNET FUND
ADVISORS, L.P., its GENERAL PARTNER
By: TH LEE.PUTNAM PARALLEL
INTERNET FUND ADVISORS, LLC,
its GENERAL PARTNER
By: --------------------------------------
Name: Christine Kim
Title: Vice President
ADDRESS: 200 Madison Avenue, Suite 2225
New York, New York 10016
Facsimile #: (212) 951-8655
Attention: Christine Kim
NUMBER OF SHARES: 126,000
PURCHASE PRICE: $6,300,000
<PAGE>
GE CAPITAL EQUITY INVESTMENTS, INC.
By:
------------------------------------
Name: George L. Hashbarger, Jr.
Title: Senior Vice President
ADDRESS: 260 Long Ridge Road
Stamford, Connecticut 06927
Facsimile #: (203)
Attention:
NUMBER OF SHARES: 20,000
PURCHASE PRICE: $1,000,000
<PAGE>
ASCEND PARTNERS, L.P.
By:
--------------------------------------
Name:
Title:
ADDRESS: One Valley High
Lafayette, California 94549
Facsimile #:
Attention: Malcolm Fairbairn,
c/o Emily Wang
NUMBER OF SHARES: 6,500
PURCHASE PRICE: $325,000
<PAGE>
ATCO DEVELOPMENT, INC.
By:
-------------------------------------
Name:
Title:
ADDRESS: 11777 Katy Freeway, Suite 175
Houston, Texas 77079
Facsimile #:
Attention: Kamal Abdelnour
NUMBER OF SHARES: 5,000
PURCHASE PRICE: $250,000
<PAGE>
LARRY BLACK
By:
-------------------------------------
ADDRESS: c/o Black and Company
One SW Columbia Street
Portland, Oregon 97258
Facsimile #:
NUMBER OF SHARES: 1,000
PURCHASE PRICE: $50,000
<PAGE>
BRANAGH REVOCABLE TRUST
By:
--------------------------------------
Name: Peter W. Branagh
Title: Trustee
By:
--------------------------------------
Name: Ramona Y. Branagh
Title: Trustee
ADDRESS: Apex Capital, LLC
Pine Grove
4 Orinda Way, Suite 240-B
Orinda, California 94563
Facsimile #:
Attention: Sanford J. Colen
NUMBER OF SHARES: 300
PURCHASE PRICE: $15,000
<PAGE>
MATTEW WILLIAM CLARKE - IRA
By:
-------------------------------------
Name:
Title:
ADDRESS: Apex Capital, LLC
Pine Grove
4 Orinda Way, Suite 240-B
Orinda, California 94563
Facsimile #:
Attention: Sanford J. Colen
NUMBER OF SHARES: 2,000
PURCHASE PRICE: $100,000
<PAGE>
SANFORD J. COLEN
By:
-------------------------------------
ADDRESS: Apex Capital, LLC
Pine Grove
4 Orinda Way, Suite 240-B
Orinda, California 94563
Facsimile #:
Attention: Sanford J. Colen
NUMBER OF SHARES: 900
PURCHASE PRICE: $45,000
<PAGE>
AARON J. COLEN, UTMA, CA
By:
-------------------------------------
Name: Sanford J. Colen
Title: Custodian
ADDRESS: Apex Capital, LLC
Pine Grove
4 Orinda Way, Suite 240-B
Orinda, California 94563
Facsimile #:
Attention: Sanford J. Colen
NUMBER OF SHARES: 250
PURCHASE PRICE: $12,500
<PAGE>
ELYSE L. COLEN, UTMA, CA
By:
-------------------------------------
Name: Sanford J. Colen
Title: Custodian
ADDRESS: Apex Capital, LLC
Pine Grove
4 Orinda Way, Suite 240-B
Orinda, California 94563
Facsimile #:
Attention: Sanford J. Colen
NUMBER OF SHARES: 250
PURCHASE PRICE: $12,500
<PAGE>
SARA K. COX
By:
-------------------------------------
ADDRESS: 101 South Las Palmas Avenue
Los Angeles, California 90004
Facsimile #:
NUMBER OF SHARES: 500
PURCHASE PRICE: $25,000
<PAGE>
JOHN DAVIES
By:
-------------------------------------
Name:
Title:
ADDRESS: c/o Tyler Runnels
1999 Avenue of the Stars,
Suite 2530
Los Angeles, California 90067
Facsimile #:
NUMBER OF SHARES: 1,250
PURCHASE PRICE: $62,500
<PAGE>
DIAMOND A. PARTNERS, L.P.
By:
-------------------------------------
Name:
Title:
ADDRESS: Lawndale Capital Management, L.L.C.
One Sansome Street, Suite 3900
San Francisco, California 94104
Facsimile #:
Attention: Andrew E. Shapiro
NUMBER OF SHARES: 2,625
PURCHASE PRICE: $131,250
<PAGE>
J. STEVEN EMERSON
By: -------------------------------------
Name:
Title:
ADDRESS: Emerson Investment Group
10506 Ilona Avenue, Suite 1410
Los Angeles, California 90064
Facsimile #:
Attention: J. Steven Emerson
NUMBER OF SHARES: 6,250
PURCHASE PRICE: $312,500
<PAGE>
EMILY FAIRBAIRN - IRA
By:
-------------------------------------
Name:
Title:
Address: One Valley High
Lafayette, California 94549
Facsimile #:
Attention: Emily Wang
NUMBER OF SHARES: 4,500
PURCHASE PRICE: $225,000
<PAGE>
MALCOLM FAIRBAIRN - IRA
By:
-------------------------------------
Name:
Title:
ADDRESS: One Valley High
Lafayette, California 94549
Facsimile:
Attention: Emily Wang
NUMBER OF SHARES: 1,500
PURCHASE PRICE: $75,000
<PAGE>
WILLIAM T. AND KATHLEEN P. GIBSON
By:
-------------------------------------
Name: William T. Gibson
By:
-------------------------------------
Name: Kathleen P. Gibson
Address: 109 La Plata
Santa Barbara, California 93109
Facsimile #:
NUMBER OF SHARES: 500
PURCHASE PRICE: $25,000
<PAGE>
JONATHAN & NANCY GLASER
FAMILY TRUST
By:
-------------------------------------
Name: Jonathan M. Glaser
Title: Trustee
By:
-------------------------------------
Name: Nancy Ellen Glaser
Title: Trustee
ADDRESS: 1999 Avenue of the Stars,
Suite 2530
Los Angeles, California 90067
Facsimile:
Attention:
NUMBER OF SHARES: 2,000
PURCHASE PRICE: $100,000
<PAGE>
Suite
By:
-------------------------------------
Name:
Title:
ADDRESS: 129 North Van Ness
Los Angeles, California 90004
Facsimile #:
NUMBER OF SHARES: 200
PURCHASE PRICE: $10,000
<PAGE>
GEORGE P. HAWLEY
By:
-------------------------------------
ADDRESS: 116 North Citrus Avenue
Los Angeles, California 90036
Facsimile #:
NUMBER OF SHARES: 200
PURCHASE PRICE: $10,000
<PAGE>
ALLISON BOOTH HAWLEY TRUST I
By:
-------------------------------------
Name: John F. Hawley
Title: Trustee
ADDRESS: 238 South Lorrainne
Los Angeles, California 90004
Facsimile #:
Attention: John F. Hawley
NUMBER OF SHARES: 2,500
PURCHASE PRICE: $125,000
<PAGE>
CAITLIN HALE HAWLEY TRUST I
By:
-------------------------------------
Name: John F. Hawley
Title: Trustee
ADDRESS: 238 South Lorrainne
Los Angeles, California 90004
Facsimile #:
Attention: John F. Hawley
NUMBER OF SHARES: 2,500
PURCHASE PRICE: $125,000
<PAGE>
HAWLEY FAMILY TRUST
By:
-------------------------------------
Name: John F. Hawley
Title: Trustee
ADDRESS: 238 South Lorrainne
Los Angeles, California 90004
Facsimile #:
Attention: John F. Hawley
NUMBER OF SHARES: 2,500
PURCHASE PRICE: $125,000
<PAGE>
MAUREEN ERIN HAWLEY TRUST I
By:
-------------------------------------
Name: John F. Hawley
Title: Trustee
ADDRESS: 238 South Lorrainne
Los Angeles, California 90004
Facsimile #:
Attention: John F. Hawley
NUMBER OF SHARES: 2,500
PURCHASE PRICE: $125,000
<PAGE>
SHANNON FOLLEN HAWLEY TRUST I
By:
-------------------------------------
Name: John F. Hawley
Title: Trustee
ADDRESS: 238 South Lorrainne
Los Angeles, California 90004
Facsimile #:
Attention: John F. Hawley
NUMBER OF SHARES: 2,500
PURCHASE PRICE: $125,000
<PAGE>
DR. PHILIP HAWLEY, JR.
By:
-------------------------------------
ADDRESS: 165 South Las Palmas
Los Angeles, California 90004-1085
Facsimile #:
NUMBER OF SHARES: 1,250
PURCHASE PRICE: $62,500
<PAGE>
VICTOR F. HAWLEY
By:
-------------------------------------
Name:
Title:
ADDRESS: 122 South Plymouth Boulevard
Los Angeles, California 90005
Facsimile #:
NUMBER OF SHARES: 200
PURCHASE PRICE: $10,000
<PAGE>
RICHARD HICKS
By:
-------------------------------------
ADDRESS: 21 Tanfield Road
Tiburon, California 94920
Facsimile #:
NUMBER OF SHARES: 6,000
PURCHASE PRICE: $300,000
<PAGE>
KATHRYN JERGENS TRUST
By:
-------------------------------------
Name:
Title:
ADDRESS: 1999 Avenue of the Stars,
Suite 2530
Los Angeles, California 90067
Facsimile #:
Attention: Kathryn Jergens
NUMBER OF SHARES: 250
PURCHASE PRICE: $12,500
<PAGE>
DIANE JOHNSON
By:
-------------------------------------
Name:
Title:
ADDRESS: 9901 Manassas Place
Tucson, Arizona 85748
Facsimile #:
NUMBER OF SHARES: 200
PURCHASE PRICE: $10,000
<PAGE>
RICHARD M. KELLER
By:
-------------------------------------
ADDRESS: 101 South Las Palmas Avenue
Los Angeles, California 90004
Facsimile #:
NUMBER OF SHARES: 500
PURCHASE PRICE: $25,000
<PAGE>
STEPHEN M. KELLER
By:
-------------------------------------
ADDRESS: 30 East 81st Street, Apt. 7E
New York, New York 10028
Facsimile #:
Attention: Elizabeth Hughes
NUMBER OF SHARES: 500
PURCHASE PRICE: $25,000
<PAGE>
STEPHEN F. KELLER PROFESSIONAL
CORPORATION DEFINED BENEFIT PLAN
By:
-------------------------------------
Name:
Title:
ADDRESS: 101 S. Las Palmas Avenue
Los Angeles, California 90004
Facsimile #:
Attention: Stephen F. Keller
NUMBER OF SHARES: 1,500
PURCHASE PRICE: $75,000
<PAGE>
PAUL KESSLER
By:
-------------------------------------
ADDRESS: 11777 San Vincente Boulevard,
Suite 702
Los Angeles, California 90049
Facsimile #:
Attention: Elizabeth Hughes
NUMBER OF SHARES: 3,750
PURCHASE PRICE: $187,500
<PAGE>
SIDNEY KIMMEL
By:
-------------------------------------
Name:
Title:
ADDRESS: Apex Capital, LLC
Pine Grove
4 Orinda Way, Suite 240-B
Orinda, California 94563
Facsimile #:
Attention: Sanford J. Colen
NUMBER OF SHARES: 125
PURCHASE PRICE: $6,250
<PAGE>
THEODORE D. KONOPISOS
By:
-------------------------------------
Name:
Title:
ADDRESS: 17291 Irvine Boulevard,
Suite 254
Tustin, California 92780
Facsimile #:
Attention: Elizabeth Hughes
NUMBER OF SHARES: 1,250
PURCHASE PRICE: $62,500
<PAGE>
PETER LAMM
By:
-------------------------------------
ADDRESS: 1655 El Camino Real
Palo Alto, California 94306
Facsimile #:
NUMBER OF SHARES: 2,000
PURCHASE PRICE: $100,000
<PAGE>
ROBERT LONDON
By:
-------------------------------------
ADDRESS: Cruttenden Roth
809 Presidio Avenue, Suite B
Santa Barbara, California 93101
Facsimile #:
Attention: Robert London
NUMBER of SHARES: 6,000
PURCHASE PRICE: $300,000
<PAGE>
JEFFREY S. MORGAN
By:
-------------------------------------
Address: Coldwell Banker
990 West 190th Street,
Suite 100
Torrance, California 90502
Facsimile #:
Attention: Jeffrey S. Morgan
NUMBER OF SHARES: 625
PURCHASE PRICE: $31,250
<PAGE>
THE MUHL FAMILY TRUST
By:
-------------------------------------
Name: Philip E. Muhl
Title: Trustee
By:
-------------------------------------
Name: Kristin A. Muhl
Title: Trustee
ADDRESS: 500 South Buena Vista
Burbank, California 91521-0312
Facsimile #:
Attention: Phillip E. Muhl
or Kristin A. Muhl
NUMBER OF SHARES: 625
PURCHASE PRICE: $31,250
<PAGE>
PACIFIC SECURITY GROUP, INC.
By:
-------------------------------------
Name:
Title:
ADDRESS: 2224 Walsh Tarlton, Suite 200
Austin, Texas 78746
Facsimile #:
Attention: Malcolm Fairbairn,
c/o Emily Wang
NUMBER OF SHARES: 500
PURCHASE PRICE: $25,000
<PAGE>
PERMAL U.S. OPPORTUNITIES LTD.
By:
-------------------------------------
Name:
Title:
ADDRESS: Apex Capital, LLC
Pine Grove
4 Orinda Way, Suite 240-B
Orinda, California 94563
Facsimile #:
Attention: Sanford J. Colen
NUMBER OF SHARES: 1,000
PURCHASE PRICE: $50,000
<PAGE>
PILOT HOLDINGS, L.P.
By: SHED INVESTMENTS, LLC,
ITS GENERAL PARTNER
By: -------------------------------------
Name: Thomas M. DeLitto
Title: Managing Member
ADDRESS: 177 Post Road West
Westport, Connecticut 96880
Facsimile #: (203) 222-7187
Attention: Thomas M. DeLitto
NUMBER OF SHARES: 5,000
PURCHASE PRICE: $250,000
<PAGE>
POINTE INVESTMENTS CAPITAL, LTD.
By:
-------------------------------------
Name:
Title:
ADDRESS: 638 N. Faring
Los Angeles, California 90077
Facsimile #:
Attention: Mohamed Hadid
NUMBER OF SHARES: 2,000
PURCHASE PRICE: $100,000
<PAGE>
POLLAT, EVANS & CO., INC.
By:
-------------------------------------
Name:
Title:
ADDRESS: Apex Capital, LLC
Pine Grove
4 Orinda Way, Suite 240-B
Orinda, California 94563
Facsimile #:
Attention: Sanford J. Colen
NUMBER OF SHARES: 175
PURCHASE PRICE: $8,750
<PAGE>
KEVIN AND ERIN PRZYBOCKI
By:
-------------------------------------
Name: Kevin Przybocki
By:
-------------------------------------
Name: Erin Przybocki
ADDRESS: 336 South Hudson Avenue
Los Angeles, California 90020
Facsimile #:
NUMBER OF SHARES: 200
PURCHASE PRICE: $10,000
<PAGE>
CHARLES B. RUNNELS, JR.
By:
-------------------------------------
ADDRESS: 2029 Avenue of the Stars,
Suite 2530
Los Angeles, California 90067
Facsimile #:
Attention: Tyler Runnels
NUMBER OF SHARES: 625
PURCHASE PRICE: $31,250
<PAGE>
CHARLES B. RUNNELS, III
By:
-------------------------------------
ADDRESS: 10095 East Charter Oak
Scottsdale, Arizona 85260
Facsimile #:
NUMBER OF SHARES: 625
PURCHASE PRICE: $31,250
<PAGE>
G. TYLER RUNNELS
By:
-------------------------------------
ADDRESS: 1999 Avenue of the Stars,
Suite 2530
Los Angeles, California 90067
Facsimile #:
NUMBER OF SHARES: 8,000
PURCHASE PRICE: $400,000
<PAGE>
LORD ROBIN RUSSELL
By:
-------------------------------------
ADDRESS: Park House
Woburn Park
Woburn
Milton Keynes
MK17 9PQ England
Facsimile #:
NUMBER OF SHARES: 250
PURCHASE PRICE: $12,500
<PAGE>
TIMOTHY MICHAEL WALLACE
By:
-------------------------------------
ADDRESS: 116 S. McCadden Place
Los Angeles, California 90004
Facsimile #:
Attention: Tyler Runnels
NUMBER OF SHARES: 2,500
PURCHASE PRICE: $125,000
<PAGE>
WAVE ENTERPRISES, INC.
By:
-------------------------------------
Name:
Title:
ADDRESS: 24255 Pacific Coast Highway
Malibu, California 90263-4458
Facsimile #:
Attention: Mike E. O'Neal
NUMBER OF SHARES: 250
PURCHASE PRICE: $12,500
<PAGE>
IRA WEINGARTEN
By:
-------------------------------------
ADDRESS: Equity Communications
1512 Grand Avenue, Suite 200
Santa Barbara, California 93103
Facsimile #:
Attention: Ira Weingarten
NUMBER OF SHARES: 625
PURCHASE PRICE: $31,250
<PAGE>
J.D. YATES
By:
-------------------------------------
Name:
Title:
ADDRESS: 1125 Lane 30 1/4
Pueblo, Colorado 81006
Facsimile #:
NUMBER OF SHARES: 250
PURCHASE PRICE: $12,500
<PAGE>
ZAXIS PARTNERS, L.P.
By:
-------------------------------------
Name:
Title:
ADDRESS: Apex Capital, LLC
Pine Grove
4 Orinda Way, Suite 240-B
Orinda, California 94563
Facsimile #:
Attention: Sanford J. Colen
NUMBER OF SHARES: 5,000
PURCHASE PRICE: $250,000
<PAGE>
SCHEDULE 6.1
EVENTS OF DEFAULT
(a) the Company's breach of the covenant contained in the last
sentence of Section 4.13 of the Agreement;
(b) the failure of the Company to receive approval of the
E-Commerce Plan in accordance with Section 2.2(u) of the Stockholders
Agreement within 120 days from the First Closing Date;
(c) failure to use at least $10,000,000 of the Proceeds for
E-Commerce Proceed Uses during the term of the E-Commerce Plan; and
(d) the Company's material variance (positive or negative) from
the aggregate projected expenditures contained in the E-Commerce Plan
for any calendar month and the continuance of a material variance for
the period beginning on the first day of such month and ending 60 days
after written notice is given to the Company by THLi.
THLi shall be deemed to waive any Event of Default pursuant to clause
(c) or (d) above unless THLi has notified the Company in writing of such Event
of Default within 15 days of the later of (i) THLi's becoming aware of such
Event of Default and (ii) THLi's receipt of the monthly report required by
Section 4.9(e) of the Agreement. In addition, THLi may approve deviations from
the E-Commerce Plan (and such deviations will not be deemed to be Events of
Default) or waive any of the defaults listed above, in each case by executing a
written instrument specifying such waiver.
EXHIBIT 22
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
by and among
KRAUSE'S FURNITURE, INC.
and
THE STOCKHOLDERS LISTED ON
THE SIGNATURE PAGES HEREOF
Dated as of January 14, 2000
<PAGE>
TABLE OF CONTENTS
PAGE
Section 1. Definitions .......................................... 2
Section 2. Corporate Governance ................................. 8
2.1 Board of Directors ................................... 8
2.2 Certain Actions Requiring Consent of the GECC
Designee and the THLi Fund Designee ................ 11
2.3 Management ........................................... 14
2.4 Directors' Indemnification ........................... 15
2.5 Expenses ............................................. 15
2.6 Cooperation .......................................... 16
Section 3. Restrictions on Transfers of Stock ................... 16
Section 4. Rights of First Offer ................................ 16
Section 4A. Hawley Trust Stock Rights of First Offer ............. 18
Section 5. Tag-Along Rights ..................................... 20
Section 6. Conflicting Agreements ............................... 21
Section 7. Legend ............................................... 21
Section 8. Representations and Warranties ....................... 22
Section 9. Duration of Agreement ................................ 23
Section 10. Further Assurances ................................... 24
Section 11. Amendment and Waiver ................................. 24
Section 12. Severability ......................................... 24
Section 13. Entire Agreement ..................................... 24
Section 14. Successors and Assigns ............................... 24
Section 15. Counterparts ......................................... 25
Section 16. Remedies ............................................. 25
Section 17. Notices and Other Communications ..................... 25
Section 18. Governing Law; Consent to Jurisdiction ............... 27
Section 19. Descriptive Headings ................................. 27
Section 20. Construction ......................................... 28
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
This Amended and Restated Stockholders Agreement (this "Agreement") is
made as of January 14, 2000 by and among Krause's Furniture, Inc., a Delaware
corporation (the "Company") and each of the stockholders of the Company listed
on the signature pages hereof (each, a "Signatory Stockholder" and collectively,
the "Signatory Stockholders").
W I T N E S S E T H :
WHEREAS, pursuant to a Securities Purchase Agreement between the
Company and General Electric Capital Corporation (collectively, with GE Capital
Equity Investments, Inc., "GECC") dated August 26, 1996 (the "1996 Securities
Purchase Agreement"), GECC purchased from the Company 5,000,000 shares of the
Company's common stock, par value $.001 per share (the "Common Stock"), for an
aggregate purchase price of $5,000,000, the Company's 10% Subordinated
Pay-in-Kind Notes due August 31, 2001, as described in the Securities Purchase
Agreement (the "Notes"), in the initial principal amount of $5,000,000, and, in
connection with the Notes, a warrant (the "First Warrant") to purchase 1,400,000
shares of Common Stock;
WHEREAS, concurrently with such purchase by GECC, (i) Hawley Group
purchased 1,000,000 shares of Common Stock for an aggregate purchase price of
$1,000,000, (ii) certain other investors purchased 3,000,000 shares of Common
Stock for an aggregate purchase price of $3,000,000 and (iii) Japan Omnibus Ltd.
(formerly named Edson Investments Inc.) and certain other holders of
indebtedness of the Company exchanged such indebtedness for shares of Common
Stock, as more fully described in the Securities Purchase Agreement;
WHEREAS, in connection with the 1996 Securities Purchase Agreement,
the Company entered into a Stockholders Agreement with certain stockholders
dated August 26, 1996 (the "Prior Stockholders Agreement");
WHEREAS, pursuant to a Supplemental Securities Purchase Agreement
between the Company, GECC and Japan Omnibus LTD. ("JOL"), dated August 14, 1997,
(i) the Company and GECC amended and restated the provisions of the Notes, (ii)
GECC and JOL purchased certain additional notes, (iii) in connection with the
Notes, GECC and JOL received warrants (the "Second Warrants") to purchase
1,300,000 shares of Common Stock and (iv) GECC and JOL received an additional
warrant (the "Performance Warrant," and collectively with the First Warrant and
the Second Warrants, the "Warrants") to purchase 1,000,000 shares of Common
Stock;
WHEREAS, pursuant to a Securities Purchase Agreement among the
Company, TH Lee.Putnam Internet Partners, L.P. and TH Lee.Putnam Internet
Parallel Partners, L.P. (collectively with their Affiliates, "THLi"), and the
purchasers listed on the signature pages thereto (collectively, the
"Purchasers"), dated the date hereof (the "2000 Securities Purchase Agreement,"
and, together with the 1996 Securities Purchase Agreement, the "Securities
Purchase Agreements"), the Purchasers are purchasing from the Company 380,000
shares of the Company's Series A Convertible Preferred Stock, par value $.001
per share (the "Series A Preferred Stock"), for an aggregate purchase price of
$19,000,000;
WHEREAS, pursuant to the 2000 Securities Purchase Agreement, the
Company will restructure the Notes, as more fully described in the 2000
Securities Purchase Agreement; and
WHEREAS, it is a condition to the consummation of the foregoing
transactions that the parties hereto enter into this Agreement to amend, restate
and supersede the Prior Stockholders Agreement in accordance with Section 11 of
the Prior Stockholders Agreement, and the parties hereto deem it to be in their
best interests to enter into this Agreement establishing and setting forth their
agreement with respect to certain rights and obligations associated with
ownership of shares of capital stock of the Company.
SECTION 1. DEFINITIONS. As used herein, the following terms shall have
the following meanings (capitalized terms used herein and not defined herein
shall have the meanings assigned to such terms in the 2000 Securities Purchase
Agreement):
"Affiliate" and "Associate" have the meanings ascribed to such terms
in Rule 12b-2 of the General Rules and Regulations under the Exchange Act.
"Beneficially Own" with respect to any securities shall mean having
"beneficial ownership" of such securities (as determined pursuant to Rule 13d-3
under the Exchange Act), including pursuant to any agreement, arrangement or
understanding, whether or not in writing.
"Board" has the meaning assigned to it in Section 2.1. "By-laws" means
the By-laws of the Company as in effect on the date hereof, as they may be
amended from time to time hereafter.
"Capitalized Lease" shall mean, with respect to any person, any lease
or any other agreement for the use of property which, in accordance with
generally accepted accounting principals, should be capitalized on the lessee's
or user's balance sheet.
"Capitalized Lease Obligation" of any person shall mean and include,
as of any date as of which the amount thereof is to be determined, the amount of
the liability capitalized or disclosed (or which should be disclosed) in a
balance sheet of such person in respect of a Capitalized Lease of such person.
"Certificate" means the Certificate of Incorporation of the Company as
in effect on the date stated hereof, as it may be amended from time to time
hereafter.
"Common Stock Equivalents" means rights, options, scrip, warrants or
other securities convertible into, or exchangeable or exercisable for, shares of
Common Stock.
"Company" has the meaning assigned to it in the first paragraph
hereof.
"Current Market Price", when used with reference to shares of Common
Stock for any given date, shall mean the closing price per share of Common Stock
on such date. The closing price for each day shall be the last quoted sale price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System or such other system then in use, or,
if on any such date the Common Stock or such other securities are not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Common Stock or
such other securities selected by the Board of Directors of the Company. If the
Common Stock is listed or admitted to trading on a national securities exchange,
the closing price shall be the last sale price, regular way, or, in case no such
sale takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Common Stock or such other
securities are not listed or admitted to trading on the New York Stock Exchange,
as reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on
which the Common Stock or such other securities are listed or admitted to
trading.
"E-Commerce Activities" shall mean business-to-business and e-commerce
activities, including commerce related to transactions on the Internet, related
to the E-Commerce Proceed Uses.
"Employment Agreement" shall mean the Employment Agreement dated as of
August 26, 1996, as amended, between the Company and Philip M. Hawley
("Hawley").
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor Federal statute, and the rules and regulations of the
omission thereunder, all as the same shall be in effect at the time. Reference
to a particular section of the Securities Exchange Act of 1934, as amended,
shall include reference to the comparable section, if any, of any such successor
Federal statute.
"Fully Diluted" shall mean, when used with reference to the Common
Stock, at any date as of which the number of shares thereof is to be determined,
(i) all shares of Common Stock outstanding at such date and (ii) all shares of
Common Stock issuable in respect of vested options or warrants to purchase, or
securities convertible into, exercisable for or exchangeable for, shares of
Common Stock outstanding on such date, the conversion, exercise or exchange
price of which is less than the Current Market Price.
<PAGE>
"Group" has the meaning assigned such term for purposes of Rule 13d-5
under the Exchange Act.
"Guarantee" by any Person shall mean all obligations (other than
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) of any Person guaranteeing, or in effect guaranteeing,
any Indebtedness, dividend or other obligation of any other Person (the "Primary
Obligor") in any manner, whether directly or indirectly, including, without
limitation, all obligations incurred through an agreement, contingent or
otherwise, by such Person: (i) to purchase such Indebtedness or obligation or
any property or assets constituting security therefor, (ii) to advance or supply
funds (x) for the purchase or payment of such Indebtedness or obligation, (y) to
maintain working capital or other balance sheet condition or otherwise to
advance or make available funds for the purchase or payment of such Indebtedness
or obligation, (iii) to lease property or to purchase securities or other
property or services primarily for the purpose of assuring the owner of such
Indebtedness or obligation of the ability of the primary obligor to make payment
of such Indebtedness or obligation, or (iv) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purposes of any computations made under this Agreement, a
Guarantee in respect of any Indebtedness for borrowed money shall be deemed to
be Indebtedness equal to the principal amount of the Indebtedness for borrowed
money which has been guaranteed, and a Guarantee in respect of any other
obligation or liability or any dividend shall be deemed to be Indebtedness equal
to the maximum aggregate amount of such obligation, liability or dividend.
"Hawley Group" shall mean those Persons listed on Schedule A attached
hereto.
"Hawley Trusts" shall mean the Hawley Group other than Philip M.
Hawley and Dr. Philip M. Hawley, Jr.
"Indebtedness" shall mean, with respect to any person, (i) all
obligations of such person for borrowed money, or with respect to deposits or
advances of any kind, (ii) all obligations of such person evidenced by bonds,
debentures, notes or similar instruments, (iii) all obligations of such person
under conditional sale or other title retention agreements relating to property
purchased by such person, (iv) all obligations of such person issued or assumed
as the deferred purchase price of property or services (other than accounts
payable to suppliers and similar accrued liabilities incurred in the ordinary
course of business and paid in a manner consistent with industry practice), (v)
all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any lien or security interest on property owned or acquired by such person
whether or not the obligations secured thereby have been assumed, but only to
the extent of such security, if such obligations have not been assumed, (vi) all
Capitalized Lease Obligations of such person, (vii) all Guarantees of such
person, (viii) all obligations (including but not limited to reimbursement
obligations) relating to the issuance of letters of credit for the account of
such person, (ix) all obligations arising out of foreign exchange contracts, and
(x) all obligations arising out of interest rate and currency swap agreements,
cap, floor and collar agreements, interest rate insurance, currency spot and
forward contracts and other agreements or arrangements designed to provide
protection against fluctuations in interest or currency exchange rates.
"Permal Group" shall mean those Persons listed on Schedule C attached
hereto.
"Permitted Transfer" shall mean any Transfer (i) by an individual
Stock holder to such Stockholder's spouse, former spouse, child, parent, parent
of a spouse, sibling or grandchild (collectively, "Relatives") or to or among a
trust of which there are no principal beneficiaries other than one or more
Relatives of such Stockholder; (ii) from a Relative of an individual Stockholder
to another Relative of that individual Stockholder or to that individual
Stockholder; (iii) by any Stockholder to any of its Affiliates or partners; or
(iv) by an Individual Stockholder pursuant to laws of descent or survivorship.
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivisions thereof.
"Proportionate Share" means, with respect to each Stockholder, a
number of shares of Common Stock which bears the same ratio to the number of
shares of Common Stock beneficially owned by such Stockholder on a Fully Diluted
basis as the Tag-Along Number bears to the number of shares of Common Stock
beneficially owned by the Selling Stockholders on a Fully Diluted basis.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date hereof, between the Company and the stockholders
listed on the signature page thereto as it may be amended from time to time.
"Related Party" shall mean any officer, director or beneficial holder
of 3% or more of the outstanding shares of capital stock of the Company or any
Subsidiary, any Relative of any such officer, director or beneficial holder of
the Company or any Subsidiary, and any Affiliate or Associate of any of the
foregoing persons.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Sell" as to any Stock, shall mean to sell, or in any other way
directly or indirectly transfer (including by operation of law, by merger or
consolidation, or sale of securities of a holding company), assign, distribute
or otherwise dispose of, such Stock; and the terms "Sale" and "Sold" shall have
meanings correlative to the foregoing. A Permitted Transfer shall not constitute
a Sale for purposes of this Agreement.
"Stock" means (i) any shares of Common Stock and (ii) any Common Stock
Equivalents (including, without limitation, the Common Stock issuable upon
conversion, exercise or exchange thereof), in each case, whether owned on the
date hereof or acquired hereafter.
"Stockholder" and "Stockholders" shall mean the stockholders listed on
Schedule B hereto; provided that any transferee of Stock pursuant to a Permitted
Transfer shall be treated as a Stockholder for purposes of this Agreement and
shall be entitled to the benefits of, and shall be bound by, the provisions of
this Agreement.
"Stockholder's Group" shall mean, with respect to any Stockholder who
is a member of the Hawley Group or the Permal Group, either the Hawley Group or
the Permal Group, as the case may be.
"Subsidiary" means with respect to any Person, (i) any corporation,
partnership or other entity of which shares of capital stock or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other similar managing body of such corporation, partnership or
other entity are at the time owned by such Person, or (ii) the management of
which is otherwise controlled, directly or indirectly, through one or more
intermediaries by such Person.
"Transfer" as to any Stock, means to Sell, or in any other way
directly or indirectly transfer, assign, distribute, pledge, encumber or
otherwise dispose of, either voluntarily or involuntarily, and whether or not
for value.
"Voting Shares" means shares of any class of capital stock of the
Company the holders of which are generally entitled to vote in the election of
members of the Board.
SECTION 2. CORPORATE GOVERNANCE.
2.1 BOARD OF DIRECTORS.
(a) Members. Subject to the provisions of Section 6.10 of the
1996 Securities Purchase Agreement and Section 4.7 of the 2000 Securities
Purchase Agreement, the Board of Directors of the Company (the "Board") shall
consist of nine members, of whom:
(i) one shall be designated by GECC (such person so
designated, and any successor thereto, being referred to herein as the
"GECC Designee");
(ii) one shall be designated by Permal Group (such person so
designated, and any successor thereto, being referred to herein as the
"Permal Designee");
(iii) one shall be Hawley, or, in the event of death or
incapacity of Hawley, shall be John Hawley, or, if John Hawley is
unavailable to serve as director or ceases to serve as director, then
an individual nominated by the trustee(s) of the Hawley Trusts, having
qualifications similar to those of John Hawley or any other director
of the Company shall serve as director under the same terms that would
have applied to John Hawley hereunder (the "Hawley Designee").
(iv) an E-commerce and/or business to business expert shall
be designated by THLi (the "THLi Internet Designee") and one
additional member shall be designated by THLi (the "THLi Fund
Designee" and, together with the THLi Internet Designee and any
successors to either of them, being referred to herein as the "THLi
Designees" );
(v) one shall be unanimously designated by GECC and THLi
(such person so designated, and any successor thereto, being referred
to herein as the "GECC/THLi Designee"); and
(vi) three shall be selected by the vote of the GECC
Designee, the Permal Designee, the THLi Fund Designee and the Hawley
Designee (such persons so designated, any successors thereto, being
referred to herein as the "Joint Designees" and, together with the
GECC Designee, the Permal Designee, the Hawley Designee, the THLi
Designees and the GECC/THLi Designee, the "Designees").
At each meeting of the stockholders of the Company held for the
purpose of electing directors, the Stockholders (other than the Hawley Trusts)
shall take such action as shall be necessary to cause the Designees (or any
successor to any such person designated in accordance with paragraph (b) of this
Section) to be elected as directors (including, in the case of GECC, Permal
Group and THLi, causing their respective designees on the Board to nominate, and
recommend to the stockholders of the Company the election of, the Designees to
the Board and opposing, and causing their respective designees on the Board to
oppose, any proposal to remove any Designee at each meeting of the stockholders
of the Company at which the election or removal of members of the Board is on
the agenda), and shall take no action which would diminish the prospects of any
Designee being elected to the Board or increase the prospects of any Designee
being removed from the Board. The Company shall take all necessary action to
reduce the size of the Board to the extent required by the first sentence of
this paragraph and shall cause the current members of the Board to resign from
office as necessary to implement the provisions of the first sentence of this
paragraph.
(b) Vacancies. Each of the GECC Designee, the Permal Designee,
the THLi Designees and the GECC/THLi Designee shall hold office until his death,
resignation or removal or until his successor shall have been duly elected and
qualified. If any GECC Designee shall cease to serve as a director of the
Company for any reason, the vacancy resulting thereby shall be filled by another
person designated by GECC. If any Permal Designee shall cease to serve as a
director of the Company for any reason, the vacancy resulting thereby shall be
filled by another person designated by Permal Group. If any of the THLi
Designees shall cease to serve as a director of the Company for any reason, the
vacancy resulting thereby shall be filled by another person designated by THLi.
If any GECC/THLi Designee shall cease to serve as a director of the Company for
any reason, the vacancy resulting thereby shall be filled by another person
unanimously designated by GECC and THLi. If the Hawley Designee shall cease to
serve as a director of the Company for any reason, the vacancy resulting thereby
shall be filled by another person unanimously designated by the Hawley Group. In
the event that at any time there exist vacancies on the Board such that there is
either no GECC Designee, no Permal Designee, no GECC/THLi Designee or less than
two THLi Designees, no action may be taken by the Board until such vacancy is
filled. GECC, Permal Group, the Hawley Group and THLi agree to use their best
efforts to designate successors to fill any such vacancies as promptly as
practicable.
(c) Removal. No GECC Designee may be removed from office except
by GECC, no Permal Designee may be removed from office except by Permal Group,
no THLi Designee may be removed from office except by THLi, no Hawley Designee
may be removed from office except by the Hawley Group; provided that such
limitation shall not apply to the removal of Hawley as Chairman so long as
Hawley remains a Director, no GECC/THLi Designee may be removed from office
except unanimously by GECC and THLi. GECC shall have the right to remove any
GECC Designee, Permal Group shall have the right to remove any Permal Designee,
THLi shall have the right to remove any THLi Designee, the Hawley Group shall
have the right to remove any Hawley Designee and GECC and THLi shall unanimously
have the right to remove any GECC/THLi Designee, with or without cause, at any
time.
(d) Quorum Requirements. Subject to Section 2.2, the quorum which
shall be required for action to be taken by the Board (other than an adjournment
of any meeting of the Board) shall be the GECC Designee, the Permal Designee,
the THLi Fund Designee and the Hawley Designee. Directors participating by
telephone conference in any meeting of the Board shall be considered in
determining whether a quorum of directors is present.
(e) Committees. The Company shall cause the GECC Designee, the
Permal Designee and at least one THLi Designee to be appointed to each of the
committees of the Board as may be requested at any time or from time to time by
GECC, Permal Group or THLi, as the case may be.
(f) Chairman of the Board. Hawley shall serve as Chairman of the
Board for as long as he is Chief Executive Officer. GECC, Permal Group and THLi
presently intend to continue to nominate Hawley to serve as a director and
Chairman of the Board after Hawley retires as Chief Executive Officer, provided
that Hawley shall not be obligated to accept such nomination.
(g) Board and Committee Meetings. The Company shall hold regular
meetings of its Board on at least a quarterly basis. The Company agrees, and
shall cause its By-laws to be amended to the extent necessary to provide, that
the GECC Designee, any THLi Designee and the GECC/THLi Designee shall have the
right, upon reasonable notice, to call meetings of the Board and of each
committee of the Board on which he or she is a member.
(h) Duration. The right of each of GECC, Permal Group and THLi to
designate directors pursuant to this Section shall continue only for so long as
GECC and its Affiliates, Permal Group, or THLi and its Affiliates, as the case
may be, beneficially owns at least 2,000,000 shares of Common Stock on a Fully
Diluted Basis, as adjusted for stock splits, combinations or similar
transactions. The right of the Hawley Group to designate directors pursuant to
this Section 2.1(h) shall continue only for so long as the Hawley Group
beneficially owns at least 1,000,000 shares of Common Stock on a Fully Diluted
Basis, as adjusted for stock splits, combinations or similar transactions.
(i) Observation. In addition to THLi's right to designate members
of the Board pursuant to Section 2.1(a), so long as THLi is the owner of any
Stock, it shall have the right to designate an observer to attend meetings of
the Board, but such observer shall not have a vote with respect to any matter
presented to the Board of Directors for action thereon. In connection with such
observer's right, THLi shall receive all notices and information provided to
Board members.
2.2 CERTAIN ACTIONS REQUIRING CONSENT OF THE GECC DESIGNEE AND THE
THLI FUND DESIGNEE. Notwithstanding any other provision of this Agreement,
without the approval, at a meeting of the Board or a committee thereof duly
called and held, (1) for so long as GECC is entitled to designate the GECC
Designee, of the GECC Designee and (2) for so long as THLi is entitled to
designate the THLi Fund Designee, of the THLi Fund Designee, the Company shall
not, directly or indirectly, and shall not permit any of its Subsidiaries to,
directly or indirectly, take any of the following actions (except to the extent
any such action is specifically authorized under this Agreement, the Securities
Purchase Agreements, the Registration Rights Agreement or an annual business
plan previously approved by the GECC Designee and the THLi Fund Designee in
accordance with this Section):
(a) merge with or into or consolidate with any other Person;
(b) voluntarily liquidate, dissolve or wind up or file any
voluntary petition in bankruptcy or for receivership or make any assignment for
the benefit of creditors;
(c) in any transaction or series of transactions, acquire
(including pursuant to a merger or consolidation) all or any substantial portion
of the business or assets of any Person;
(d) enter or commit to enter into any joint venture or
partnership or establish any non-wholly-owned subsidiaries or otherwise make any
debt or equity investment in any Person (other than extensions of credit in the
ordinary course of business);
(e) expand into new lines of business (it being understood that
"new lines of business" do not include (i) geographic expansion of the retail
operations conducted by the Company and its Subsidiaries as of the date of this
Agreement and (ii) E-Commerce Activities);
(f) assign to any other Person any rights of the Company under
this Agreement, the Registration Rights Agreement or the Securities Purchase
Agreements;
(g) in any transaction or series of transactions, sell, lease or
exchange any assets of the Company and/or any Subsidiary, except for (i) sales
of inventory in the ordinary course of business, (ii) subleasing of vacant
retail space on arm's-length terms and (iii) entering into or terminating leases
in the ordinary course of business pursuant to a procedure adopted by the Board
of Directors and approved by the GECC Designee and the THLi Fund Designee;
(h) adopt or change any material accounting policy of the Company
or any of its Subsidiaries, except as required by generally accepted accounting
principles;
(i) create, incur, assume or suffer to exist any Indebtedness
other than (a) Indebtedness in existence as of the date of this Agreement and
interest thereon, reduced to the extent such amounts are repaid or retired, and
any refinancing of such Indebtedness, (b) Indebtedness under the Loan and
Security Agreement dated as of January 20, 1995 between the Company and Congress
Financial Corporation (Western), as amended to the date of this Agreement,
including premium (if any), and interest thereon, (c) Indebtedness already
approved in accordance with this subsection, reduced to the extent such amounts
are repaid, refinanced or retired, and (d) other Indebtedness not to exceed in
the aggregate $200,000 at any time outstanding;
(j) mortgage, encumber, create, incur or suffer to exist, liens
on its assets (other than liens on assets under Indebtedness outstanding as of
the date hereof and materialmen's, mechanics' and other similar liens arising
for work performed in the ordinary course of business which are not overdue for
more than 30 days);
(k) pay, declare or set aside any sums for the payment of, any
dividends, or make any distribution on, any shares of its capital stock or
redeem, repurchase or otherwise acquire any outstanding shares of its capital
stock or any other of its outstanding securities or Indebtedness (except for
Indebtedness (other than indebtedness to any Related Party, excluding
indebtedness for expenses incurred in the ordinary course of business on behalf
of the Company and its Subsidiaries) to the extent it becomes due in accordance
with its terms);
(l) make or commit to make (with respect to the Company and all
of its Subsidiaries taken together) during (i) the calendar year ended December
31, 2000, any capital expenditure or capital expenditures in an amount in excess
of $8,000,000 with respect to the Company's retail business and $100,000 with
respect to the Company's E-commerce business and (ii) any other calendar year
any capital expenditure or capital expenditures in an amount in excess of
$100,000;
(m) issue or sell any shares of capital stock or rights, options,
warrants or other securities exercisable for, exchangeable for or convertible
into shares of capital stock of the Company or any of the Company's
Subsidiaries, other than upon the exercise of options or warrants outstanding on
the date of this Agreement or previously approved in accordance with this
Section, or grant, amend or terminate any stock appreciation right or other
stock-based award;
(n) enter into, adopt, amend or terminate any employment or
consulting agreement, or hire or retain any person who will report directly to
the Chief Executive Officer or to whom the Company shall pay total compensation
(including, without limitation, compensation in the form of benefits) in excess
of $150,000 per year, or enter into, adopt, amend or terminate any employee
benefit plan, policy or arrangement, except as required by law or generally
accepted accounting principles; provided that the renewal by the Company in the
ordinary course of its business of benefit plans applicable to employees of the
Company, generally, shall not require consent pursuant to this subparagraph (n);
(o) amend its Certificate or By-laws, including, without
limitation, any change in the number of directors comprising its Board of
Directors, or adopt, amend, redeem or terminate any shareholder rights plan or
similar plan or arrangement;
(p) amend, modify or waive an provision of this Agreement, the
Securities Purchase Agreements, the Registration Rights Agreement or the
agreements ancillary thereto, or become a party to any agreement which by its
terms restricts the Company's or any of its Subsidiaries', or any Stockholder's,
performance of the terms of any of such agreements;
(q) change its independent certified accountants or actuaries;
(r) register any securities under the Securities Act or grant any
registration rights therefor;
(s) enter into, amend or terminate, or waive any material rights
of the Company and its Subsidiaries under, any contract, arrangement or
transaction involving consideration in excess of $100,000 or which is otherwise
material to the Company or any of its Subsidiaries;
(t) enter into, amend or terminate any contract, arrangement or
transaction with a Related Party, other than (i) any action to terminate the
Consumer Credit Card Agreement by and among Krause's Sofa Factory, Castro
Convertible Corporation and Monogram Credit Bank of Georgia, dated as of April
27, 1997, and (ii) the payment of salary and benefits pursuant to employment
arrangements entered into in the ordinary course of business in compliance with
this Agreement;
(u) enter into, adopt, amend (whether by agreement or by conduct
of the business), except as required by law or generally accepted accounting
principles, or terminate any annual business plan;
(v) take any action required by law to be approved by the Board;
or
(w) agree or otherwise commit to take any of the actions set
forth in the foregoing subparagraphs (a) through (v).
2.3 MANAGEMENT.
(a) Chief Executive Officer. Subject to the provisions of this
Agreement and the Employment Agreement, Hawley shall be the Chief Executive
Officer of the Company. In the event of the death, resignation, removal or other
termination of Hawley's services as Chief Executive Officer, any successor Chief
Executive Officer (and any successor(s) thereto) shall be selected by a majority
of the Board; provided that no such person shall be selected without the
unanimous approval of the GECC Designee and the THLi Fund Designee.
(b) Appointment of Management. Subject to Section 2.2 hereof, all
members of management of the Company (other than the Chief Executive Officer)
shall be designated by, their compensation shall be determined by, and they may
be removed, promoted or demoted by, the Chief Executive Officer of the Company;
provided, however, that the designation of, setting of compensation for, or
removal, promotion or demotion of, any person who will report directly to the
Chief Executive Officer or earn total compensation (including benefits) from the
Company and its Subsidiaries of $150,000 or more per year shall be subject to
the prior approval of the Board.
2.4 DIRECTORS' INDEMNIFICATION.
(a) The Company shall obtain and cause to be maintained in
effect, with financially sound insurers, a policy of directors' and officers'
liability insurance covering the Designees (and their respective successors) in
an amount of at least $15,000,000 or such other amount the Board shall specify
(as such amount shall be increased from time to time at the request of GECC or
THLi).
(b) The Certificate, By-laws and other organizational documents
of the Company and each of its Subsidiaries shall at all times, to the fullest
extent permitted by law, provide for indemnification of, advancement of expenses
to, and limitation of the personal liability of, the members of the Board and
the members of the boards of directors or other similar managing bodies of each
of the Company's Subsidiaries and such other persons, if any, who, pursuant to a
provision of such Certificates, By-laws or other organizational documents,
exercise or perform any of the powers or duties otherwise conferred or imposed
upon members of the Board or the boards of directors or other similar managing
bodies of each of the Company's Subsidiaries. Such provisions may not be
amended, repealed or otherwise modified in any manner adverse to any member of
the Board or any member of the boards of directors or other similar managing
bodies of any of the Company's Subsidiaries, until at least six years following
the termination of this Agreement.
(c) Each of the Designees is intended to be a third-party
beneficiary of the obligations of the Company pursuant to this Section 2.4, and
the obligations of the Company pursuant to this Section 2.4 shall be enforceable
by the Designees.
2.5 EXPENSES. The Company shall pay the reasonable out-of-pocket
expenses incurred by each of the GECC designee, the Permal Designee, the THLi
Designees, the GECC/THLi Designees and the Joint Designees in connection with
performing his or her duties, including without limitation the reasonable
out-of-pocket expenses incurred by such person attending meetings of the Board
or any committee thereof or meetings of any board of directors or other similar
managing body (and any committee thereof) of any subsidiary of the Company.
2.6 COOPERATION. Each Stockholder (other than the Hawley Trusts) shall
vote all of its voting shares and shall take all other necessary or desirable
actions within its control (including, without limitation, attending all
meetings in person or by proxy for purposes of obtaining a quorum, executing all
written consents in lieu of meetings and voting to remove members of the Board
or to amend the Certificate, as applicable), and the Company shall take all
necessary and desirable actions within its control (including, without
limitation, calling special Board and stockholder meetings and voting to remove
members of the Board or to amend the Certificate, as applicable), to (a)
effectuate the provisions of Section 2.1 and (b) cause the Company to have a
sufficient number of authorized and unissued shares of Company Stock reserved
for issuance solely for the purpose of effecting conversion of outstanding
Series A Preferred Stock.
SECTION 3. RESTRICTIONS ON TRANSFERS OF STOCK.
(a) Notwithstanding anything to the contrary contained herein, no
Stockholder shall Transfer any Stock, except for Sales in bona fide transactions
for value complying with the provisions of this Section 3 and Permitted
Transfers. The Company shall not reflect on its books any Sale of Stock, unless
(a) the Sale is pursuant to an effective registration statement under the
Securities Act and under any applicable state securities or blue sky laws, or
(b) the Selling Stockholder shall have furnished the Company with evidence
reasonably satisfactory to the Company that no such registration is required
because of the availability of an exemption from registration under the
Securities Act and under applicable state securities or blue sky laws. A written
opinion of counsel of recognized standing to the effect set forth in clause (b)
of the preceding sentence shall satisfy the requirements of such clause.
(b) Any Transfer or attempted Transfer of Stock in violation of
any provision of this Agreement shall be void, and the Company shall not record
such Transfer on its books or treat any purported transferee of such Stock as
the owner of such Stock for any purpose.
SECTION 4. RIGHTS OF FIRST OFFER.
(a) If any Stockholder (other than the Hawley Trusts) intends to
Sell any Stock (other than (1) Sales pursuant to a registered public offering or
(2) Sales on a national securities exchange which, when aggregated with all
other Sales under this clause (2) by such Stockholder or, if such Stockholder is
a member of a Stockholder Group, all other Sales under this clause (2) by the
members of such Stockholder Group from and after the date of this Agreement,
would represent, in the aggregate, not more than 1,000,000 shares of Common
Stock on a Fully Diluted Basis, as adjusted for stock splits, combinations or
similar transactions):
(i) The Stockholder intending to transfer such Stock (the
"Proposing Seller") shall give each other Stockholder (each an
"Offeree") written notice of its intent to Sell such Stock, specifying
the number of securities to be sold and the minimum price and terms
and conditions of such sale and offering to Sell to such Offeree, at
such minimum price and on such terms and conditions, its pro rata
share of such Stock (based on the number of shares of Common Stock
beneficially owned by each Offeree on a Fully Diluted basis); provided
that any Offeree may, by written notice to the Proposing Seller, elect
to purchase, in addition to its pro rata share of such Stock, all or
any portion of the Stock (if any) with respect to which any other
Offeree fails to exercise its right of first offer under this Section
4, and such additional Stock shall be pro-rated among such Offerees in
the manner described above to the extent such additional Stock is
oversubscribed;
(ii) if any Offeree shall not, within 15 days after receipt of
the notice given pursuant to clause (i) above, accept such offer in
writing with respect to the Stock specified in such notice, then the
Proposing Seller shall be free to Sell the Stock specified in the
notice to such Offeree (but only those securities covered by the
notice of intention to Sell which no other Offeree shall have agreed
to purchase) at a price equal to or above the minimum price and on
other terms and conditions no less favorable to the Proposing Seller
than those specified in such notice, at any time within 90 days of the
expiration of such 15-day period;
(iii) if the Proposing Seller shall not have consummated the
proposed Sale within 90 days after the expiration of the 15-day period
referred to in clause (ii) above, then the Proposing Seller may not
thereafter Sell such Stock without complying with the provisions of
this Section 4; and
(iv) if any Offeree shall accept such offer within 15 days after
the notice given pursuant to clause (i) above, then such Offeree shall
purchase the Stock specified in such notice as promptly as is
reasonably practicable, but in any event within 45 days after the
notice given pursuant to clause (i) above or such later date as the
Proposing Seller may designate within the 90-day period referred to in
clause (iii) above.
(b) THLi, GECC and each of the members of the Hawley Group, each
in favor of the others, covenants that if any of them (for purposes of this
Section, a "Permal Offeree") has the opportunity to purchase any Common Stock
("Offered Shares") owned by any member of the Permal Group, whether by offer to
the Permal Offeree from a member of the Permal Group or due to a solicitation by
the Permal Offeree, or otherwise, the Permal Offeree shall promptly notify the
parties subject to (and entitled to the benefits of) this Section 4(b)(v) of the
opportunity and shall allow them the right to participate in such purchase and
acquire Offered Shares. The number of Offered Shares that may be purchased by
each of them, respectively, shall be (i) as among GECC, THLi and all of the
members of the Hawley Group together, in proportion to the number of shares of
Common Stock owned by GECC, THLI or the Hawley Group, respectively, as a
percentage of the aggregate number of shares of Common Stock then owned by GECC,
THLi and all members of the Hawley Group together, and (ii) as among the members
of the Hawley Group, in proportion to the number of shares of Common Stock owned
by such member as a percentage of the number of shares of Common Stock then
owned by all Hawley Group members electing to purchase Common Stock hereunder.
The rights in this Section 4(b) are in addition to and subordinate to the other
provisions of this Stockholders Agreement. Any failure to exercise the rights in
the Section within 15 days of receipt of notice shall be deemed a waiver of such
rights.
SECTION 4A. HAWLEY TRUST STOCK RIGHTS OF FIRST OFFER. If any of the
Hawley Trusts intends to sell any Stock (other than (1) Sales pursuant to a
registered public offering or (2) Sales on a national securities exchange which,
when aggregated with all other Sales under this clause (2) by the Hawley Group
from and after the date of this Agreement, would represent, in the aggregate,
not more than 1,000,000 shares of Common Stock on a Fully Diluted Basis, as
adjusted for stock splits, combinations or similar transactions):
(i) the Hawley Trust intending to transfer such Stock (the
"Hawley Trust Seller") shall give the Company, GECC, THLi and the
Permal Group written notice (the "Hawley Trust Seller Notice") of its
intent to Sell such Stock, specifying the number of securities to be
sold and the minimum price and terms and conditions of such sale, and
offering to Sell to the Company, GECC, THLi and the Permal Group, at
such minimum price and on such terms and conditions. The Company shall
provide a copy of any Hawley Trust Seller Notice to each Stockholder
within two days after receipt by it of the Hawley Trust Seller Notice.
The Company shall have the right to purchase all or any part of such
Stock by giving written notice to the Hawley Trust Seller, GECC, THLi
and the Permal Group within two days after receipt by it of the Hawley
Trust Seller Notice, specifying the number of shares of such Stock to
be so purchased by the Company. If the Company elects to purchase none
of, or less than all, the Stock that is the subject of the proposed
Transfer by the Hawley Trust Seller, then GECC, THLi and the Permal
Group shall have the right to purchase their pro rata share of any or
all of the available Stock (and, if either elects not to purchase its
full pro rata share, the Stock not so purchased) by giving written
notice to the Hawley Trust Seller and the Company within seven days
after receipt by it of the Hawley Trust Seller Notice (the "Notice
Period"); provided that any other Stockholder (each, an "Electing
Stockholder") may, by written notice to GECC, THLi and the Permal
Group prior to the expiration of the Notice Period elect to purchase
its pro rata share of the available Stock, and any such Electing
Stockholder may elect to purchase, in addition to its pro rata share
of the available Stock, all or any portion of the Stock (if any) with
respect to which GECC, THLi, the Permal Group or any other Stockholder
fails to exercise its right under this Section 4A, and such additional
Stock shall be pro-rated among such Electing Stockholders in the
manner described above to the extent such additional Stock is
oversubscribed;
<PAGE>
(ii) GECC shall act as agent for the Electing Stockholders in
connection with any exercise by an Electing Stockholder of its rights
under this Section and the Hawley Trust Seller shall not be obligated
to deal with any Stockholder other than GECC in connection with any
purchase and sale under this Section 4A; provided that GECC shall have
no liability to the Hawley Trust Seller if GECC fails to purchase any
Stock which GECC disclosed in writing to the Hawley Trust Seller at
the time of delivery of GECC's election to purchase was being
purchased by GECC solely as agent for one or more Electing
Stockholders; and GECC shall have no liability to any other
Stockholder for any act or omission by GECC under this Section 4A;
(iii) if the Company, GECC, THLi and the Permal Group fail to
elect to purchase all the Stock specified in the Hawley Trust Seller
Notice, then the Hawley Trust Seller shall be free to sell, pursuant
to a Shelf Registration Statement, the portion of such Stock as to
which no election to purchase has been made by the Company, GECC, THLi
or the Permal Group at a price equal to or above the minimum price and
on other terms and conditions no less favorable to the Hawley Trust
Seller than those specified in the Hawley Trust Seller Notice, at any
time within 90 days of the expiration of the seven-day period referred
to in clause (i) above;
(iv) if the Hawley Trust Seller shall not have consummated the
proposed Transfer within 90 days after the expiration of the seven-day
period referred to in clause (ii) above, then the Hawley Trust Seller
may not thereafter Transfer such Stock without complying with the
provisions of this Section 4A;
(v) any Electing Stockholder shall provide to GECC all funds
required, and shall execute and deliver to GECC all documents
reasonably requested by GECC, in connection with the purchase by GECC
of any Stock as agent for such Electing Stockholder, and GECC shall
deliver certificates representing the Stock acquire by such Electing
Stockholder to such Stockholder promptly following the consummation of
any purchase under this Section 4A and the satisfaction by such
Electing Stockholder of his obligations under this clause (v).
SECTION 5. TAG-ALONG RIGHTS.
(a) If GECC, any member of Permal Group, or THLi whether acting
alone or in concert with any other Stockholder (collectively, the "Selling
Stockholders") pursuant to a common plan, understanding or arrangement, shall
enter into an agreement to Sell or otherwise propose to Sell to any Person or
Group (other than pursuant to a registered public offering) (such Person or
Group, the "Tag-along Transferee"), in one transaction or a series of related
transactions, any Stock, such that immediately following the consummation of
such Sale, the Selling Stockholders would have Sold to such Person or Group in
the aggregate Stock representing in excess of 3,000,000 shares of Common Stock
on a Fully Diluted Basis, as adjusted for stock splits, combinations or similar
transactions (a "Tag-along Sale") (such number of shares of Stock being referred
to herein as the "Tag-along Number"), then each of the other Stockholders (each
a "Tag-along Offeree") shall have the right to participate in such Tag-Along
Sale by selling a number of shares of Common Stock equal to such Stockholder's
Proportionate Share, as part of the Tag-Along Sale by the Selling Stockholders,
on the same terms as those applicable to the Tag-Along Sale (except that, if the
Tag-Along Sale involves Common Stock Equivalents, the economic terms of such
Sale shall be appropriately adjusted to reflect that the Tag-Along Offerees are
selling Common Stock).
(b) The Selling Stockholders shall provide to each Tag-Along
Offeree written notice of any Tag-Along Sale (the "Tag-along Notice"), not more
than 45 and not less than 15 days prior to the Tag-Along Sale, setting forth the
terms of the Tag-Along Sale and specifically identifying the Tag-Along
Transferee of the Stock, and shall give each Tag-Along Offeree at least 10 days
after delivery of the Tag-Along Notice within which to exercise its rights
contained in this Section 5, by written notice thereof to the Selling
Stockholder.
SECTION 6. CONFLICTING AGREEMENTS. Each Stockholder represents and
warrants that such Stockholder has not granted and is not a party to any proxy,
voting trust or other agreement which is inconsistent with or conflicts with any
provision of this Agreement, and no holder of Stock shall grant any proxy or
become party to any voting trust or other agreement which is inconsistent with
or conflicts with any provision of this Agreement.
SECTION 7. LEGEND. (a) Each Stockholder and the Company shall take all
such action necessary (including exchanging with the Company certificates
representing shares of Stock issued prior to the date hereof) to cause each
certificate representing outstanding shares of Stock (other than shares which
have been registered under the Securities Act, to which the first paragraph of
such legends shall not apply) to bear legends substantially in the form as
follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH LAWS."
"THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED BY A STOCKHOLDERS AGREEMENT BY AND AMONG KRAUSE'S FURNITURE, INC.
(THE "COMPANY") AND THE STOCKHOLDERS PARTIES THERETO (THE "STOCKHOLDERS
AGREEMENT"), A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE COMPANY."
"IN ADDITION TO THE RESTRICTIONS SET FORTH IN THE STOCKHOLDERS
AGREEMENT, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
RESTRICTIONS SET FORTH IN A SECURITIES PURCHASE AGREEMENT BETWEEN THE COMPANY
AND GENERAL ELECTRIC CAPITAL CORPORATION AND A SECURITIES PURCHASE AGREEMENT BY
AND AMONG THE COMPANY AND THE PURCHASERS LISTED ON THE SIGNATURE PAGES THERETO,
A COPY OF EACH OF WHICH IS ON FILE AT THE OFFICES OF THE COMPANY."
The first paragraph of the legends shall be removed from certificates
for shares transferred pursuant to Rule 144 under the Securities Act or when
such shares are transferred in any other transaction, in each case if the seller
delivers to the Company an opinion of its counsel, which counsel and opinion
shall be reasonably satisfactory to the Company, or a "no-action" letter from
the staff of the Securities and Exchange Commission, in either case to the
effect that such legend is no longer necessary in order to protect the Company
against a violation by it of the Securities Act upon any Sale or other
disposition of such shares without registration thereunder. The requirement that
the above legend regarding this Agreement be placed upon certificates evidencing
shares of Stock shall cease and terminate upon the Sale of such shares, other
than pursuant to a Permitted Transfer. Upon the consummation of any event
requiring the removal of a legend hereunder, the Company, upon the surrender of
certificates containing such legend, shall, at its own expense, deliver to the
holder of any such shares as to which the requirement for such legend shall have
terminated, one or more new certificates evidencing such shares not bearing such
legend.
(b) Any provision herein to the contrary notwithstanding,
certificates for up to 1,000,000 shares of Common Stock held by the Hawley
Trusts shall not be required to bear legends required by this Agreement so long
as such shares may sold under Rule 144(k) under the Securities Act or are not
"restricted securities" within the meaning of Rule 144 under the Securities Act.
SECTION 8. REPRESENTATIONS AND WARRANTIES.
(a) Each party hereto represents and warrants to the other
parties hereto as follows:
(i) it has full power and authority to execute, deliver and
perform its obligations under this Agreement;
(ii) this agreement has been duly and validly authorized,
executed and delivered by it, and constitutes a valid and binding
obligation of it, enforceable against it in accordance with its terms
except to the extent that enforceability may be limited by bankruptcy,
insolvency or other similar laws affecting creditors' rights
generally;
(iii) the execution, delivery and performance of this Agreement
by it does not (x) violate, conflict with, or constitute a breach of
or default under its organizational documents, if any, or any
agreement to which it is a party or by which it is bound or (y)
violate any law, regulation, order, writ, judgment, injunction or
decree applicable to it;
(iv) no consent or approval of, or filing with, any governmental
or regulatory body is required to be obtained or made by it in
connection with the transactions contemplated hereby; and
(v) it is not a party to any agreement which is inconsistent with
the rights of any party hereunder or otherwise conflicts with the
provisions hereof.
(b) each Signatory Stockholder severally represents and warrants
to GECC and THLi with respect only to GECC and THLi and not any other
Stockholder as follows:
(i) Schedule B hereto sets forth a list of all securities of the
Company (including, without limitation, shares of capital stock,
convertible securities, debentures, etc.) held of record or
beneficially owned by it immediately after the date hereof; and
(ii) except as set forth on Schedule B hereto and other than this
Agreement and the Registration Rights Agreement, it is not a party to
any contract or agreement, written or oral, with respect to the voting
or transfer of securities of the Company (including, without
limitation, any voting agreement, voting trust, stockholder's
agreement, registration rights agreement, etc.).
SECTION 9. DURATION OF AGREEMENT. Subject to the last sentence of this
Section, the rights and obligations of a Stockholder under this Agreement shall
terminate at such time as such Stockholder no longer is the beneficial owner of
any shares of Stock. As to any of GECC's rights or obligations under this
Agreement, this Agreement shall terminate at such time as GECC no longer is the
beneficial owner of 2,000,000 or more of the outstanding shares of Common Stock
on a Fully Diluted Basis, subject to adjustment for stock splits, combinations
or similar transactions, or at such earlier time as may be agreed by GECC,
Permal Group and THLi (or, if applicable, THLi's transferee pursuant to Section
14(ii)).
As to any of THLi's rights or obligations under this Agreement, this
Agreement shall terminate at such time as THLi (and any transferee's assigned
rights under this Agreement pursuant to Section 14) no longer beneficially owns
2,000,000 or more of the outstanding shares of Common Stock on a Fully Diluted
Basis, subject to adjustment for stock splits, combinations or similar
transactions, or at such earlier time as may be agreed by GECC, Permal Group and
THLi (or such transferee, if applicable).
This Agreement (other than Section 4A), shall terminate as to any
member of the Hawley Group six months after Hawley ceases to be a Director of
the Company.
Any provision herein to the contrary notwithstanding, the provisions
of Sections 3, 4, 4A, 5 and 7 of this Agreement shall not be applicable to any
shares of Stock first acquired by any member of the Hawley Group after August
26, 1996 or by any member of the Permal Group, GECC or THLi after the date
hereof.
SECTION 10. FURTHER ASSURANCES. At any time or from time to time after
the date hereof, the parties agree to cooperate with each other, and at the
request of any other party, to execute and deliver any further instruments or
documents and to take all such further action as the other party may reasonably
request in order to evidence or effectuate the consummation of the transactions
contemplated hereby and to otherwise carry out the intent of the parties
hereunder.
SECTION 11. AMENDMENT AND WAIVER. Except as otherwise provided herein,
no modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or any Stockholder unless such modification,
amendment or waiver is approved in writing by the Company, Stockholders holding
at least a majority of the Common Stock, and, so long as it holds any shares of
Stock, by GECC or THLi. The failure of any party to enforce any of the
provisions of this Agreement shall in no way be construed as a waiver of such
provisions and shall not affect the right of such party thereafter to enforce
each and every provision of this Agreement in accordance with its terms.
SECTION 12. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
SECTION 13. ENTIRE AGREEMENT. Except as otherwise expressly set forth
herein, this document and the other documents dated the date hereof executed in
connection herewith embody the complete agreement and understanding among the
parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
SECTION 14. SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, this Agreement shall bind and inure to the benefit of and be enforceable
by the Company and its successors and assigns and each Stockholder and their
respective successors, assigns, heirs and personal representatives, so long as
they hold Stock. No Stockholder shall have the right to assign its rights and
obligations under this Agreement, except pursuant to (i) a Permitted Transfer or
(ii) a transfer by THLi of more than 50% of the Stock (calculated as if all
shares of Series A Preferred Stock had been converted into shares of Common
Stock as of the date of such calculation) held by THLi as of the date of this
Agreement (in which case the transferee shall be entitled to exercise all
rights, and shall be bound by all obligations, of its transferor under this
Agreement).
SECTION 15. COUNTERPARTS. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
SECTION 16. REMEDIES. Each Stockholder shall be entitled to enforce
its rights under this Agreement specifically to recover damages by reason of any
breach of any provision of this Agreement and to exercise all other rights
existing in their favor. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that each party may in its sole discretion apply to any court of
law or equity of competent jurisdiction for specific performance and/or
injunctive relief (without posting a bond or other security) in order to enforce
or prevent any violation of the provisions of this Agreement.
SECTION 17. NOTICES AND OTHER COMMUNICATIONS. All notices, consents,
requests, instructions, approvals, financial statements, proxy statements,
reports and other communications provided for herein shall be in writing and
shall be delivered personally, by facsimile or sent by prepaid overnight courier
service, to the Company and to each Stockholder as set forth below and to any
subsequent holder of Stock subject to this Agreement at such address as
indicated by the Company's records, or at such address or to the attention of
such other person as the recipient party has specified by written notice to the
sending party:
The Company:
Krause's Furniture, Inc.
200 North Berry Street
Brea, CA 92821-3903
Facsimile #: (714) 990-3561
Attention: Philip M. Hawley
with copies to:
Krause's Furniture, Inc.
200 North Berry Street
Brea, CA 92821-3903
Facsimile #: (714) 990-3561
Attention: Judith O. Lasker, Esq.
and
Morrison & Foerster LLP
555 West 5th Street, Suite 3500
Los Angeles, CA 90013-1024
Facsimile #: (213) 892-5454
Attention: Charles Kaufman, Esq.
To each Stockholder:
At the address for such Stockholder set forth on Schedule B
attached hereto.
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Facsimile #: (212) 859-4000
Attention: Warren de Wied, Esq.
and
Stroock & Stroock & Lavan LLP
7 Hanover Square
New York, New York 10004
Facsimile #: (212) 806-6006
Attention: David Kaufman, Esq.
and
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Suite 3400
Los Angeles, California 90071
Facsimile #: (213) 687-5600
Attention: Michael A. Woronoff, Esq.
SECTION 18. GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York, including, without limitation, Sections 5-1401 and 5-1402 of the New
York General Obligations Law and New York Civil Practice Laws and Rules 327(b).
Each of the parties hereto hereby irrevocably and unconditionally consents to
submit to the exclusive jurisdiction of the courts of the State of New York and
of the United States of America, in each case located in the County of New York,
for any action, proceeding or investigation in any court or before any
governmental authority ("litigation") arising out of or relating to this
Agreement and the transactions contemplated hereby (and agrees not to commence
any litigation relating thereto except in such courts), and further agrees that
service of any process, summons, notice or document by U.S. Registered Mail to
its respective address set forth in this Agreement shall be effective service of
process for any litigation brought against it in any such court. Each of the
parties hereto hereby irrevocably and unconditionally waives any objection to
the laying of venue of any litigation arising out of this Agreement or the
transactions contemplated hereby in the courts of the State of New York or the
United States of America, in each case located in the County of New York, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such litigation brought in any such court has
been brought in an inconvenient forum. Each of the parties irrevocably and
unconditionally waives, to the fullest extent permitted by applicable law, any
and all rights to trial by jury in connection with any litigation arising out of
or relating to this Agreement or the transactions contemplated hereby.
SECTION 19. DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
SECTION 20. CONSTRUCTION. Where specific language is used to clarify
by example a general statement contained herein, such specific language shall
not be deemed to modify, limit or restrict in any manner the construction of the
general statement to which it relates. The language used in this Agreement shall
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement on the day and year first above written.
KRAUSE'S FURNITURE, INC.
By: /s/ Robert A. Burton
-----------------------------------------
Name: Robert A. Burton
Title: Executive Vice President and
Chief Financial Officer
GE CAPITAL EQUITY INVESTMENTS, INC.
By:
-----------------------------------------
Name: George L. Hashbarger, Jr.
Title: Senior Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
By:
-----------------------------------------
Name: George L. Hashbarger, Jr.
Title: Department Operations Manager
PERMAL CAPITAL MANAGEMENT, INC.
By: /s/ Thomas M. DeLitto
-----------------------------------------
Name:
Title:
PERMAL SERVICES, INC.
By: /s/ Thomas M. DeLitto
-----------------------------------------
Name:
Title:
PERMAL CAPITAL PARTNERS, L.P.
By: PERMAL MANAGEMENT CORPORATION,
its Investment Manager
By: /s/ Thomas M. DeLitto
-----------------------------------------
Name:
Title:
PERMAL ASSET MANAGEMENT
By: /s/ Thomas M. DeLitto
-----------------------------------------
Name:
Title:
PERMAL SPECIAL OPPORTUNITIES, LTD.
By: /s/ James R. Hodge
-----------------------------------------
Name:
Title:
JAPAN OMNIBUS LTD.
By: /s/ James R. Hodge
-----------------------------------------
Name:
Title:
JEAN R. PERRETTE
By: /s/ Jean R. Perrette
-----------------------------------------
ISAAC ROBERT SOUEDE
By: /s/ Isaac Robert Souede
-----------------------------------------
THOMAS M. DELITTO
By: /s/ Thomas M. Delitto
-----------------------------------------
THOMAS M. AND DONNA S. DELITTO
By: /s/ Thomas M. Delitto
-----------------------------------------
Name: Thomas M. DeLitto
By:
-----------------------------------------
Name: Donna S. DeLitto
UNITED GULF BANK (B.S.C.) E.C.
By:
-----------------------------------------
Name:
Title:
KUWAIT INVESTMENT PROJECTS COMPANY
By:
-----------------------------------------
Name:
Title:
ATCO HOLDINGS, LTD.
By:
-----------------------------------------
Name:
Title:
ATCO DEVELOPMENT, INC.
By:
-----------------------------------------
Name:
Title:
PILOT HOLDINGS, L.P.
By: SHED INVESTMENTS, LLC, its
General Partner
By: /s/ Thomas M. DeLitto
-----------------------------------------
Name: Thomas M. DeLitto
Title: Managing Member
ALLISON BOOTH HAWLEY TRUST I
By:
-----------------------------------------
Name:
Title:
CAITLIN HALE HAWLEY TRUST I
By:
-----------------------------------------
Name:
Title:
MAUREEN ERIN HAWLEY TRUST I
By:
-----------------------------------------
Name:
Title:
<PAGE>
SHANNON FOLLEN HAWLEY TRUST I
By:
-----------------------------------------
Name:
Title:
HAWLEY FAMILY TRUST
By:
-----------------------------------------
Name:
Title:
DR. PHILIP M. HAWLEY, JR.
By:
-----------------------------------------
PHILIP M. HAWLEY
By:
-----------------------------------------
TH LEE.PUTNAM INTERNET PARTNERS, L.P.
By: TH LEE.PUTNAM INTERNET FUND AD
VISORS, L.P., its General Partner
By: TH LEE.PUTNAM INTERNET FUND
ADVISORS, LLC, its General Partner
By:
-----------------------------------------
Name: Christine Kim
Title:
TH LEE.PUTNAM INTERNET PARALLEL
PARTNERS, L.P.
By: TH LEE.PUTNAM INTERNET FUND AD
VISORS, L.P., its General Partner
By: TH LEE.PUTNAM INTERNET FUND
ADVISORS, LLC, its General Partner
By:
-----------------------------------------
Name: Christine Kim
Title:
ASCEND PARTNERS, L.P.
By:
-----------------------------------------
Name:
Title:
<PAGE>
LARRY BLACK
By:
-----------------------------------------
BRANAGH REVOCABLE TRUST
By:
-----------------------------------------
Name: Peter W. Branagh
Title: Trustee
By:
-----------------------------------------
Name: Ramona Y. Branagh
Title: Trustee
MATTHEW WILLIAM CLARKE - IRA
By:
-----------------------------------------
Name:
Title:
SANFORD J. COLEN
By:
-----------------------------------------
AARON J. COLEN, UTMA, CA
By:
-----------------------------------------
Name: Sanford J. Colen
Title: Custodian
ELYSE L. COLEN, UTMA, CA
By:
-----------------------------------------
Name: Sanford J. Colen
Title: Custodian
SARA K. COX
By:
-----------------------------------------
JOHN DAVIES
By:
-----------------------------------------
DIAMOND A. PARTNERS, L.P.
By:
-----------------------------------------
Name:
Title:
J. STEVEN EMERSON
By:
-----------------------------------------
EMILY FAIRBAIRN - IRA
By:
-----------------------------------------
Name:
Title:
MALCOLM FAIRBAIRN - IRA
By:
-----------------------------------------
Name:
Title:
WILLIAM T. AND KATHLEEN P. GIBSON
By:
-----------------------------------------
Name: William T. Gibson
By:
-----------------------------------------
Name: Kathleen P. Gibson
JONATHAN & NANCY GLASER FAMILY TRUST
By:
-----------------------------------------
Name: Jonathan M. Glaser
Title: Trustee
By:
-----------------------------------------
Name: Nancy Ellen Glaser
Title: Trustee
EDWARD M. HAWLEY
By:
-----------------------------------------
GEORGE P. HAWLEY
By:
-----------------------------------------
VICTOR F. HAWLEY
By:
-----------------------------------------
RICHARD HICKS
By:
-----------------------------------------
KATHRYN JERGENS TRUST
By:
-----------------------------------------
Name:
Z Title:
DIANE JOHNSON
By:
-----------------------------------------
RICHARD M. KELLER
By:
-----------------------------------------
STEPHEN M. KELLER
By:
-----------------------------------------
STEPHEN F. KELLER PROFESSIONAL
CORPORATION DEFINED BENEFIT PLAN
By:
-----------------------------------------
Name:
Title:
PAUL KESSLER
By:
-----------------------------------------
SIDNEY KIMMEL
By:
-----------------------------------------
THEODORE D. KONOPISOS
By:
-----------------------------------------
PETER LAMM
By:
-----------------------------------------
ROBERT LONDON
By:
-----------------------------------------
JEFFREY S. MORGAN
By:
-----------------------------------------
THE MUHL FAMILY TRUST
By:
-----------------------------------------
Name: Phillip E. Muhl
Title: Trustee
By:
-----------------------------------------
Name: Kristin A. Muhl
Title: Trustee
PACIFIC SECURITY GROUP, INC.
By:
-----------------------------------------
Name:
Title:
POINTE INVESTMENTS CAPITAL, LTD.
By:
-----------------------------------------
Name:
Title:
POLLAT, EVANS & CO., INC.
By:
-----------------------------------------
Name:
Title:
KEVIN AND ERIN PRZYBOCKI
By:
-----------------------------------------
Name: Kevin Przybocki
By:
-----------------------------------------
Name: Erin Przybocki
CHARLES B. RUNNELS, JR.
By:
-----------------------------------------
CHARLES B. RUNNELS, III
By:
-----------------------------------------
G. TYLER RUNNELS
By:
-----------------------------------------
LORD ROBIN RUSSELL
By:
-----------------------------------------
<PAGE>
TIMOTHY MICHAEL WALLACE
By:
-----------------------------------------
WAVE ENTERPRISES, INC.
By:
-----------------------------------------
Name:
Title:
IRA WEINGARTEN
By:
-----------------------------------------
J.D. YATES
By:
-----------------------------------------
ZAXIS PARTNERS, L.P.
By:
-----------------------------------------
Name:
Title:
SCHEDULE A
HAWLEY GROUP CONSISTS OF:
Allison Booth Hawley Trust I
Caitlin Hale Hawley Trust I
Maureen Erin Hawley Trust I
Shannon Follen Hawley Trust I
Hawley Family Trust
Dr. Philip M. Hawley, Jr.
Philip M. Hawley
SCHEDULE B
STOCKHOLDER INFORMATION
[FINAL VERSION TO COME]
SCHEDULE C
PERMAL GROUP CONSISTS OF:
Permal Capital Management, Inc.
Permal Services, Inc.
Permal Capital Partners, L.P.
Permal Asset Management
Permal Special Opportunities, Ltd.
Japan Omnibus Ltd.
Jean R. Perrette
Isaac Robert Souede
Thomas M. DeLitto
Thomas M. & Donna S. DeLitto
United Gulf Bank (B.S.C.) E.C.
Kuwait Investment Projects
ATCO Holdings Ltd.
ATCO Development, Inc.
EXHIBIT 23
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
by and among
KRAUSE'S FURNITURE, INC.
and
THE STOCKHOLDERS LISTED ON THE SIGNATURE PAGES HEREOF
Dated as of January 14, 2000
<PAGE>
Amended and Restated Registration Rights Agreement (this "Agreement"),
dated as of January 14, 2000, by and among Krause's Furniture, Inc., a Delaware
corporation (the "Company"), and each of the stockholders of the Company listed
on the signature pages hereto (the "Investors").
1. Background. The Investors own shares of either the Company's common
stock, par value $.001 per share (the "Common Stock") or the Company's Series A
Convertible Preferred Stock, par value $.0001 per share, (the "Series A
Preferred Stock"), which is convertible into Common Stock. In connection with a
Securities Purchase Agreement between the Company and the purchasers listed
thereto, dated August 26, 1996, the Company entered into a Registration Rights
Agreement with certain stockholders dated August 26, 1996 (the "Prior
Registration Rights Agreement").
Pursuant to a Securities Purchase Agreement among the Company and the
purchasers listed thereto, dated the date hereof, the Company and the Investors
have entered into this Agreement to amend, restate and supersede the Prior
Registration Rights Agreement.
2. Registration Under Securities Act, Etc.
2.1 Registration on Request.
(a) Request. Subject to Section 2.8 hereof, at any time and from
time to time upon the written request of Holders (the "Initiating Holders") of
not less than the Required Number of Shares that the Company effect the
registration under the Securities Act (other than pursuant to a Shelf
Registration Statement) of all or part of such Initiating Holders' Registrable
Securities (provided that the Company shall not be obligated to register less
than the Required Number of Shares pursuant to such request), the Company will
promptly give written notice of such requested registration to all registered
Holders, and thereupon the Company will use its best efforts to effect the
registration under the Securities Act of:
(i) the Registrable Securities (representing not less than the
Required Number of Shares) which the Company has been so requested to
register by such Initiating Holders, and
(ii) all other Registrable Securities which the Company has been
requested to register by the Holders thereof (such Holders together
with the Initiating Holders are hereinafter referred to as the
"Selling Holders") by written request given to the Company within 20
days after the giving of such written notice by the Company, all to
the extent required to permit the disposition of the Registrable
Securities so to be registered.
(b) Registration of Other Securities. Whenever the Company shall
effect a registration pursuant to this Section 2.1 in connection with an
underwritten offering by one or more Selling Holders, no securities other than
Registrable Securities shall be included among the securities covered by such
registration unless (i) the managing underwriter of such offering shall have
advised each Selling Holder to be covered by such registration in writing that
the inclusion of such other securities would not adversely affect such offering
or (ii) the Selling Holders of not less than a majority of all Registrable
Securities to be covered by such registration shall have consented in writing to
the inclusion of such other securities.
(c) Registration Statement Form. Registrations under this Section
2.1 shall be on such appropriate registration form of the Commission as shall be
selected by the Company.
(d) Expenses. The Company will pay the Registration Expenses in
connection with any registration requested pursuant to this Section 2.1.
(e) Effective Registration Statement. A registration requested
pursuant to this Section 2.1 shall not be deemed to have been effected:
(i) unless a registration statement with respect thereto has
become effective,
(ii) if after it has become effective, such registration is
interfered with by any stop order, injunction or other order or requirement of
the Commission or other governmental agency or court for any reason not
attributable to the Selling Holders and such registration has not thereafter
become effective, or
(iii) if the conditions to closing specified in the underwriting
agreement, if any, entered into in connection with such registration are not
satisfied or waived, other than by reason of a failure on the part of the
Selling Holders.
(f) Selection of Underwriters. The underwriter or underwriters of
each underwritten offering of the Registrable Securities shall be selected by
the mutual agreement of the Company and the Selling Holders of a majority of the
Registrable Securities so to be registered.
(g) Priority in Requested Registration. If the managing
underwriter of any underwritten offering shall advise the Company in writing
(with a copy to each Selling Holder) that, in its opinion, the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering within a price range acceptable to the
Selling Holders of a majority of the Registrable Securities requested to be
included in such registration, the Company will include in such registration, to
the extent of the number which the Company is so advised can be sold in such
offering, Registrable Securities requested to be included in such registration,
pro rata among the Selling Holders on the basis of the percentage of the
Registrable Securities of such Selling Holders requested so to be registered. In
connection with any such registration to which this Section 2.1(g) is
applicable, no securities other than Registrable Securities shall be covered by
such registration.
(h) Limitations on Registration on Request. Notwithstanding
anything in this Section 2.1 to the contrary, the Company shall not be required
to effect, in the aggregate pursuant to this Section 2.1, without regard to the
Holder making such request, more than two registrations during any twelve month
period.
2.2 Incidental Registration.
(a) Right to Include Registrable Securities. If the Company
proposes at any time to register any of its securities under the Securities Act
(other than a Shelf Registration Statement) by registration on Forms S-1, S-2 or
S-3 or any successor or similar form(s) (except registrations on such Forms or
similar form(s) solely for registration of securities in connection with an
employee benefit plan or dividend reinvestment plan or a merger, reorganization,
or consolidation), whether or not for sale for its own account, it will, subject
to Section 2.8 hereof, each such time give prompt written notice to all
registered Holders of its intention to do so and of such Holders' rights under
this Section 2.2. Upon the written request of any such Holder (a "Requesting
Holder") made as promptly as practicable and in any event within 20 days after
the receipt of any such notice (10 days if the Company states in such written
notice or gives telephonic notice to all registered Holders, with written
confirmation to follow promptly thereafter, that (i) such registration will be
on Form S-3 and (ii) such shorter period of time is required because of a
planned filing date) (which request shall specify the Registrable Securities
intended to be disposed of by such Requesting Holder), the Company will, subject
to Section 2.8 hereof, use its best efforts to effect the registration under the
Securities Act of all Registrable Securities which the Company has been so
requested to register by the Requesting Holders thereof; provided, that if, at
any time after giving written notice of its intention to register any securities
and prior to the effective date of the registration statement filed in
connection with such registration, the Company shall determine for any reason
not to register or to delay registration of such securities, the Company may, at
its election, give written notice of such determination to each Requesting
Holder and (i) in the case of a determination not to register, shall be relieved
of its obligation to register any Registrable Securities in connection with such
registration (but not from any obligation of the Company to pay the Registration
Expenses in connection therewith), without prejudice, however, to the rights of
any Holder or Holders entitled to do so to request that such registration be
effected as a registration under Section 2.1 and (ii) in the case of a
determination to delay registering, shall be permitted to delay registering any
Registrable Securities, for the same period as the delay in registering such
other securities. No registration effected under this Section 2.2 shall relieve
the Company of its obligation to effect any registration upon request under
Section 2.1. The Company will pay all Registration Expenses in connection with
registration of Registrable Securities requested pursuant to this Section 2.2.
(b) Priority in Incidental Registrations. If the managing
underwriter of any underwritten offering shall inform the Company (or, in the
case of a secondary offering, the selling stockholders initiating such offering)
of its belief that the number or type of Registrable Securities requested to be
included in such registration would materially adversely affect such offering,
then the Company will include in such registration, to the extent of the number
and type which the Company is (or the selling stockholders initiating such
offering are) so advised can be sold in (or during the time of) such offering,
first, all securities proposed by the Company (or, in the case of a secondary
offering, the selling stockholders initiating such offering) to be sold for its
(or their) own account, and second, such Registrable Securities and any other
securities of the Company requested to be included in such registration, pro
rata among all such Holders on the basis of the estimated gross proceeds of the
securities of such Holders requested to be so included.
(c) Selection of Managing Underwriter. The managing underwriter
of any underwritten offering pursuant to this Section 2.2 shall be selected by
the Company at its sole discretion.
2.3 Registration Procedures. If and whenever the Company is required
to use its best efforts to effect the registration of any Registrable Securities
under the Securities Act as provided in Section 2.1, 2.2 or 2.8, the Company
will as expeditiously as possible:
(a) in the case of a registration pursuant to Section 2.1 or 2.2,
prepare and (as soon as practicable, and in any event within 75 days in the case
of Form S-1 or S-2 and 30 days in the case of a registration requested on Form
S-3 after the end of the period within which requests for registration may be
given to the Company) file with the Commission the requisite registration
statement to effect such registration and thereafter use its best efforts to
cause such registration statement to become effective; provided, that the
Company may discontinue any registration of its securities which are not
Registrable Securities (and, under the circumstances specified in Section
2.2(a), its securities which are Registrable Securities) at any time prior to
the effective date of the registration statement relating thereto;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities covered by such registration statement
for such period as shall be required for the disposition of all of such
Registrable Securities, provided, that in the case of a registration pursuant to
Section 2.1 or 2.2, such period need not exceed 90 days;
(c) furnish to each seller of Registrable Securities covered by
such registration statement, such number of conformed copies of such
registration statement and of each such amendment and supplement thereto (in
each case including all exhibits), such number of copies of the prospectus
contained in such registration statement (including each preliminary prospectus
and any summary prospectus) and any other prospectus filed under Rule 424 under
the Securities Act, in conformity with the requirements of the Securities Act,
and such other documents, as such seller may reasonably request;
(d) use its best efforts:
<PAGE>
(i) to register or qualify all Registrable Securities and
other securities covered by such registration statement under such other
securities or blue sky laws of such states of the United States of America where
an exemption is not available and as the sellers of Registrable Securities
covered by such registration statement shall reasonably request;
(ii) to keep such registration or qualification in effect
for so long as such registration statement remains in effect; and
(iii) to take any other action which may be reasonably
necessary or advisable to enable such sellers to consummate the disposition in
such jurisdictions of the securities to be sold by such sellers, except that the
Company shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it would not but
for the requirements of this subdivision (d) be obligated to be so qualified or
to consent to general service of process in any such jurisdiction;
(e) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or approved by such
other federal or state governmental agencies or authorities as may be necessary
in the opinion of counsel to the Company and counsel to the seller or sellers
thereof to consummate the disposition of such Registrable Securities;
(f) in the case of a registration pursuant to Section 2.1 or 2.2,
furnish to each seller of Registrable Securities a signed counterpart of (i) an
opinion of counsel for the Company and (ii) a "comfort" letter signed by the
independent public accountants who have certified the Company's financial
statements included or incorporated by reference in such registration statement
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountant's comfort letter, with respect to events subsequent to the date of
such financial statements, as are customarily covered in opinions of issuer's
counsel and in accountant's comfort letters delivered to the underwriters in
underwritten public offerings of securities (and dated the dates such opinions
and comfort letters are customarily dated) and, in the case of the accountant's
comfort letter, such other financial matters, and in the case of the legal
opinion, such other legal matters, as the sellers of a majority of the
Registrable Securities covered by such registration statement, or the
underwriters, may reasonably request;
(g) notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, upon discovery that, or upon
the happening of any event as a result of which, in the judgment of the Company,
the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, in the light of the circumstances under which they were made,
and at the request of any such seller promptly prepare and furnish to it a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, in the judgment of the Company, as
thereafter delivered to the purchasers of such securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were made;
(h) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering the
period of at least twelve months, but not more than eighteen months, beginning
with the first full calendar month after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 promulgated thereunder, and promptly
furnish to each such seller of Registrable Securities a copy of any amendment or
supplement to such registration statement or prospectus;
(i) provide and cause to be maintained a transfer agent and
registrar (which, in each case, may be the Company) for all Registrable
Securities covered by such registration statement from and after a date not
later than the effective date of such registration; and
(j) use its best efforts to list all Registrable Securities
covered by such registration statement on any national securities exchange or
national quotations system on which Registrable Securities of the same class
covered by such registration statement are then listed.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish the Company in writing as
promptly as reasonably practicable such information regarding such seller and
the distribution of such securities as the Company may from time to time
reasonably request in writing.
Each Holder agrees that upon receipt of any notice from the Company of
the happening of any event of the kind described in subdivision (g) of this
Section 2.3, such Holder will forthwith discontinue such Holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (g) of this
Section 2.3 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such Holder's possession, of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
2.4 Underwritten Offerings.
(a) Requested Underwritten Offerings. If requested by the
underwriters for any underwritten offering by Holders pursuant to a registration
requested under Section 2.1, the Company will enter into an underwriting
agreement with such underwriters for such offering, such agreement to be
reasonably satisfactory in substance and form to the Company, each such Holder
and the underwriters and to contain such representations and warranties by the
Company and such other terms as are generally prevailing in agreements of that
type, including, without limitation, indemnities to the effect and to the extent
provided in Section 2.7. The Holders of the Registrable Securities proposed to
be distributed by such underwriters will cooperate with the Company in the
negotiation of the underwriting agreement and will give consideration to the
reasonable suggestions of the Company regarding the form thereof. Such Holders
to be distributed by such underwriters shall be parties to such underwriting
agreement and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such Holders and that any or all of the conditions precedent
to the obligations of such underwriters under such underwriting agreement be
conditions precedent to the obligations of such Holders. Any such Holder shall
not be required to make any representations or warranties to or agreements with
the Company or the underwriters other than representations, warranties or
agreements regarding such Holder, such Holder's Registrable Securities, such
Holder's intended method of distribution and any other representations required
by law.
(b) Incidental Underwritten Offerings. If the Company proposes to
register any of its securities under the Securities Act as contemplated by
Section 2.2 and such securities are to be distributed by or through one or more
underwriters, the Company will, subject to Section 2.8 hereof, if requested by
any Requesting Holder arrange for such underwriters to include all the
Registrable Securities to be offered and sold by such Requesting Holder among
the securities of the Company to be distributed by such underwriters. The
Holders of Registrable Securities to be distributed by such underwriters shall
be parties to the underwriting agreement between the Company and such
underwriters and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such Holders and that any or all of the conditions precedent
to the obligations of such underwriters under such underwriting agreement be
conditions precedent to the obligations of such Holders. Any such Requesting
Holder shall not be required to make any representations or warranties to or
agreements with the Company or the underwriters other than representations,
warranties or agreements regarding such Requesting Holder, such Requesting
Holder's Registrable Securities and such Requesting Holder's intended method of
distribution or any other representations required by law. Notwithstanding the
foregoing provisions of this Section 2.4(b), the Company need not include any
Registrable Securities of any such Requesting Holder in an underwritten offering
of the Company's securities if the inclusion of such Requesting Holder's
securities, in the opinion of the managing underwriter for such offering by the
Company, might adversely affect such offering by the Company.
(c) Hold-back Agreements.
(i) In the case of any underwritten public offering by the
Company of shares of Common Stock, each Holder agrees not to effect
any disposition (other than a disposition of Registrable Securities
under such underwritten public offering or a bona fide pledge or a
disposition to an Affiliate of such Holder who agrees to be bound by
the provisions of this paragraph) (a "Disposition") of any Registrable
Securities, and not to effect any such Disposition of any other equity
security of the Company or of any security convertible into or
exchangeable or exercisable for any equity security of the Company (in
each case, other than as part of such underwritten public offering)
during the 15 days prior to, and during the 90-day period (or such
longer period as may be reasonably requested by the underwriter of
such offering) beginning on, the effective date of such registration
statement (except as apart of such registration); provided that each
Holder has received written notice of such registration at least 15
days prior to such effective date.
(ii) If any registration of Registrable Securities shall be in
connection with an underwritten public offering, the Company agrees
(x) not to effect any public sale or distribution of any of its equity
securities or of any security convertible into or exchangeable or
exercisable for any equity security of the Company (other than any
such sale or distribution of such securities in connection with any
merger or consolidation by the Company or any subsidiary of the
Company of the capital stock or substantially all the assets of any
other person or in connection with an employee stock option or other
benefit plan) during the 90 days prior to, and during the 180-day
period beginning on, the effective date of such registration statement
(except as part of such registration) and (y) that any agreement
entered into after the date of this Agreement pursuant to which the
Company issues or agrees to issue any privately placed equity
securities shall contain a provision under which Holders of such
securities agree not to effect any Disposition of any such securities
during the period referred to in the foregoing clause (x) (except as
part of such registration, if permitted).
2.5 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the Holders of Registrable
Securities registered under such registration statement, their underwriters, if
any, and their respective counsel and accountants the opportunity to participate
in the preparation of such registration statement, each prospectus included
therein or filed with the Commission, and, to the extent practicable, each
amendment thereof or supplement thereto, and give each of them such access to
its books and records (to the extent customarily given to underwriters of the
Company's securities) and such opportunities to discuss the business of the
Company with its officers and the independent public accountants who have
certified its financial statements as shall be necessary, in the opinion of such
Holders' and such underwriters' respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
<PAGE>
2.6 Limitations, Conditions and Qualifications to Obligations Under
Registration Covenants. The obligation of the Company to use its best efforts to
cause the Registrable Securities to be registered under the Securities Act is
subject to the following limitations, conditions and qualifications.
(a) The Company shall be entitled to postpone for a reasonable
period of time (but not exceeding 180 days, in the case of a registration
pursuant to Section 2.1 or 2.2, and 30 days in the case of a registration
pursuant to Section 2.8) the filing of any registration statement otherwise
required to be prepared and filed by it pursuant to Section 2.1, if the Company
determines, in its reasonable judgment, that such registration and offering (i)
would interfere with any financing, acquisition, merger, consolidation, material
joint venture, corporate reorganization or other material transaction involving
the Company or any of its Affiliates, or (ii) would require premature disclosure
of any of the foregoing transactions (or of the existence of negotiations,
discussions or pending proposals with respect thereto) or of any pending or
threatened litigation, claim, assessment or governmental investigation which
would be material to the Company, and promptly gives the Holders requesting
registration thereof pursuant to Section 2.1 written notice of such delay. If
the Company shall so postpone the filing of a registration statement, such
Holders of Registrable Securities requesting registration thereof pursuant to
Section 2.1 shall have the right to withdraw the request for registration by
giving written notice to the Company within 30 days after receipt of the notice
of postponement and, in the event of such withdrawal, such request shall not be
counted for purposes of the requests for registration to which Holders are
entitled pursuant to Section 2.1 hereof.
(b) The Company shall not be obligated to effect the registration
of Registrable Securities of any Holder pursuant to Section 2.1, 2.2 or 2.8
unless such Holder consents to reasonable conditions imposed by the Company,
including without limitation:
(i) conditions prohibiting the sale of shares by such Holder
until the registration shall have been effective for a specified
period of time;
(ii) conditions requiring such Holder to comply with all
prospectus delivery requirements of the Securities Act and with all
anti-stabilization, anti-manipulation and similar provisions of
Section 10 of the Exchange Act and any rules issued thereunder by the
Commission, and to furnish to the Company information about sales made
in such public offering;
(iii) conditions prohibiting such Holder from effecting the
sale of shares upon receipt of telegraphic or written notice from the
Company (until further notice) given to permit the Company to correct
or update a registration statement or prospectus; and
(iv) conditions requiring that at the end of the period
during which the Company is obligated to keep the registration
statement effective under Section 2.3(b) or 2.8(c), such Holder shall
discontinue sales of shares pursuant to such registration statement
upon receipt of notice from the Company of its intention to remove
from registration the shares covered by such registration statement
that remain unsold, and requiring such Holder to notify the Company of
the number of Registrable Securities registered that remain unsold
promptly upon receipt of notice from the Company.
(c) Holders shall use their reasonable best efforts to effect as
wide a distribution of such Registrable Securities as reasonably practicable,
and in no event shall any sale of Registrable Securities be made knowingly to
(i) any Person (including its Affiliates) or (ii) any Persons or entities which
are to the knowledge of such Holders (or to the knowledge of any underwriter for
such Holders) part of any "group" within the meaning of Regulation 13D of the
Exchange Act which includes such purchaser or any of its Affiliates that, after
giving effect to such sale, would beneficially own securities representing more
than 5% of the aggregate voting power of all outstanding voting securities of
the Company. The Holders of such Registrable Securities shall secure the
agreement of their underwriter or underwriters, if any, for such offering to
comply with the foregoing.
2.7 Indemnification.
(a) Indemnification by the Company. In the event of any
registration of any securities of the Company under the Securities Act, the
Company will, and hereby does, indemnify and hold harmless, in the case of any
registration statement filed pursuant to Section 2.1, 2.2 or 2.8, each seller of
any Registrable Securities covered by such registration statement, its
directors, officers, partners, agents and Affiliates and each other Person who
participates as an underwriter in the offering or sale of such securities and
each other Person, if any, who controls such seller or any such underwriter
within the meaning of the Securities Act (a "Controlling Person"), insofar as
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances in which they were made not misleading, and the Company will
reimburse such seller and each such director, officer, partner, agent or
affiliate, underwriter and Controlling Person for any legal or any other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided, that
the Company shall not be liable in any such case to the extent that any such
loss, claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
any such preliminary prospectus, final prospectus, summary prospectus, amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company through an instrument executed by or on behalf of such
seller or underwriter, as the case may be, specifically stating that it is for
use in the preparation thereof; and provided further, that the Company shall not
be liable to any Person who participates as an underwriter in the offering or
sale of Registrable Securities or any other Person, if any, who controls such
underwriter within the meaning of the Securities Act, in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of such Person's failure to send or give
a copy of the final prospectus, as the same may be then supplemented or amended,
to the Person asserting an untrue statement or alleged untrue statement or
omission or alleged omission at or prior to the written confirmation of the sale
of Registrable Securities to such Person if such statement or omission was
corrected in such final prospectus so long as such final prospectus, and any
amendments or supplements thereto, have been furnished to such underwriter. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such seller or any such director, officer, partner,
agent or affiliate or Controlling Person and shall survive the transfer of such
securities by such seller.
(b) Indemnification by the Sellers. As a condition to including
any Registrable Securities in any registration statement, the Company shall have
received an undertaking satisfactory to it from the prospective seller of such
Registrable Securities, to indemnify and hold harmless (in the same manner and
to the same extent as set forth in subdivision (a) of this Section 2.7) the
Company, and each director of the Company, each officer of the Company and each
other Person, if any, who controls the Company within the meaning of the
Securities Act (a "Company Controlling Person"), with respect to any statement
or alleged statement in or omission or alleged omission from such registration
statement, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, if such statement or
alleged statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company through an
instrument duly executed by such seller specifically stating that it is for use
in the preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement; provided, however, that
the liability of such indemnifying party under this Section 2.7(b) shall be
limited to the amount of proceeds received by such indemnifying party in the
offering giving rise to such liability. Such indemnity shall remain in full
force and effect, regardless of any investigation made by or on behalf of the
Company or any such director, officer or Company Controlling Person and shall
survive the transfer of such securities by such seller.
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section 2.7,
such indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the commencement of
such action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under the preceding subdivisions of this Section 2.7, except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party,
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties is reasonably likely to exist
in respect of such claim, the indemnifying party shall be entitled to
participate in and, to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation unless in such indemnified party's reasonable judgment a conflict
of interest between such indemnified and indemnifying parties arises in respect
of such claim after the assumption of the defense thereof and the indemnified
party notifies the indemnifying party of such indemnified party's judgment and
the basis therefor. No indemnifying party shall be liable for any settlement of
any action or proceeding effected without its written consent, which consent
shall not be unreasonably withheld. No indemnifying party shall, without the
consent of the indemnified party, consent to entry of any judgment or enter into
any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect of such claim or litigation.
(d) Contribution. If the indemnification provided for in this
Section 2.7 shall for any reason be held by a court to be unavailable to an
indemnified party under subparagraph (a) or (b) hereof in respect of any loss,
claim, damage or liability, or any action in respect thereof, then, in lieu of
the amount paid or payable under subparagraph (a) or (b) hereof, the indemnified
party and the indemnifying party under subparagraph (a) or (b) hereof shall
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating the
same), (i) in such proportion as is appropriate to reflect the relative fault of
the Company and the prospective sellers of Registrable Securities covered by the
registration statement which resulted in such loss, claims, damage or liability,
or action in respect thereof, with respect to the statements or omissions which
resulted in such loss, claim, damage or liability, or action in respect thereof,
as well as any other relevant equitable considerations or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as shall be appropriate to reflect the relative benefits received by
the Company and such prospective sellers from the offering of the securities
covered by such registration statement. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. Such prospective sellers' obligations to
contribute as provided in this subparagraph (d) are several in proportion to the
relative value of their respective Registrable Securities covered by such
registration statement and not joint. In addition, no Person shall be obligated
to contribute hereunder any amounts in payment for any settlement of any action
or claim effected without such Person's consent, which consent shall not be
unreasonably withheld.
(e) Other Indemnification. Indemnification and contribution
similar to that specified in the preceding subdivisions of this Section 2.7
(with appropriate modifications) shall be given by the Company and each seller
of Registrable Securities with respect to any required registration or other
qualification of securities under any Federal or state law or regulation of any
governmental authority other than the Securities Act.
(f) Indemnification Payments. The indemnification and
contribution required by this Section 2.7 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as and
when bills are received or expense, loss, damage or liability is incurred. In
any case in which it shall be judicially determined that a party is not entitled
to indemnification or contribution, any payments previously received by such
party hereunder shall be promptly reimbursed.
2.8 Shelf Registration Statements.
(a) Within 120 days of the date hereof, the Company shall have
filed with the Commission and shall use its best efforts to cause to be declared
effective within 180 days from the date hereof, a Shelf Registration Statement,
relating to the offer and sale of the Registrable Securities owned by the
Holders listed on Schedule A hereto.
(b) The Company will use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the prospectus
forming part thereof to be usable by such Holders for a period of three years
from the date such Shelf Registration Statement is first declared effective by
the Commission, or for such shorter period that will terminate when all
Registrable Securities covered by such Shelf Registration Statement have been
sold pursuant thereto or cease to be outstanding or otherwise to be Registrable
Securities.
(c) The Company will pay the Registration Expenses in connection
with any Shelf Registration Statement pursuant to this Section 2.8.
3. Definitions. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings (capitalized terms
used but not defined herein having the meanings set forth in the Stockholders
Agreement):
"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2
of the General Rules and Regulations under the Exchange Act.
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Exchange Act of 1934, as amended, shall
include a reference to the comparable section, if any, of any such similar
Federal statute.
"Holder" means any holder of Registrable Securities.
"Person" means a corporation, an association, a partnership, an
organization, a business, an individual, a governmental or political subdivision
thereof or a governmental agency.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with Section 2, including, without limitation, all
registration, filing and fees of the National Association of Securities Dealers,
Inc., all listing fees, all fees and expenses of complying with securities or
blue sky laws (including, without limitation, reasonable fees and disbursements
of counsel for the underwriters in connection with blue sky qualifications of
the Registrable Securities), all word processing, duplicating and printing
expenses, messenger and delivery expenses, the fees and disbursements of counsel
for the Company and of its independent public accountants, including the
expenses of "cold comfort" letters required by or incident to such performance
and compliance, any fees and disbursements of underwriters (including, without
limitation, fees and expenses of counsel to the underwriters) customarily paid
by issuers or sellers of securities and the reasonable fees and expenses of one
counsel to the Selling Holders (selected by Selling Holders representing at
least a majority of the Registrable Securities covered by such registration);
provided, however, that Registration Expenses shall exclude, and the sellers of
the Registrable Securities being registered shall pay, underwriters' fees and
underwriting discounts and commissions and transfer taxes in respect of the
Registrable Securities being registered.
"Registrable Securities" means (i) the shares of Common Stock and the
shares of Common Stock issuable upon conversion of the Series A Preferred Stock
held or otherwise acquired by the Investors (including by way of issuance upon
exercise or conversion of any warrants or other securities) and (ii) any Common
Stock of the Company issuable or issued with respect to the Common Stock, the
Series A Preferred Stock and/or warrants or other securities referred to in
clause (i) by way of a merger, consolidation, stock split, stock dividend,
recapitalization of the Company or similar transaction. As to any particular
Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (a) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such registration
statement, (b) they shall have been sold as permitted by, and in compliance
with, Rule 144 (or successor provision) promulgated under the Securities Act,
(c) they shall have been otherwise transferred, new certificates for them not
bearing a legend restricting further transfer under the Securities Act shall
have been delivered by the Company and subsequent public distribution of them
shall not require registration of them under the Securities Act, or (d) they
shall have ceased to be outstanding.
"Required Number of Shares" means shares of Common Stock (or
securities convertible into or exchangeable or exercisable for Common Stock)
representing a total of 1,000,000 shares of Common Stock, subject to adjustment
as provided in Section 12.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Securities Act of 1933, as amended, shall include a
reference to the comparable section, if any, of any such similar Federal
statute.
"Shelf Registration Statement" means either Shelf Registration
Statement No. 1 or Shelf Registration Statement No. 2.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company filed pursuant to Section 2.8, on an appropriate form
under Rule 415 under the Securities Act, or any similar rule that may be adopted
by the Commission, and all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"Stockholders Agreement" shall mean the Amended and Restated
Stockholders Agreement dated the date hereof between the Company and the
stockholders listed on the signature pages thereof.
4. Rule 144. The Company shall take all actions reasonably necessary
to enable Holders of Common Stock or Series A Preferred Stock to sell such
securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the Commission including, without limiting the generality
of the foregoing, filing on a timely basis all reports required to be filed by
the Exchange Act. Upon the request of any Holder of Common Stock or Series A
Preferred Stock, the Company will deliver to such Holder a written statement as
to whether it has complied with such requirements.
5. Amendments and Waivers. This Agreement may be amended with the
consent of the Company and the Company may take any action herein prohibited, or
omit to perform any act herein required to be performed by it, only if the
Company shall have obtained the written consent to such amendment, action or
omission to act, of:
(i) the Holders of at least a majority of the Registrable
Securities (calculated on a fully diluted basis);
(ii) GE Capital Equity Investments, Inc. (collectively, with
General Electric Capital Corporation, "GECC"), in the event GECC beneficially
owns at least 2,000,000 shares of Registrable Securities; and
(iii) TH Lee.Putnam Internet Partners, L.P. and TH Lee.Putnam
Internet Parallel Partners, L.P. (collectively with their affiliates, "THLi"),
in the event THLi beneficially owns at least 2,000,000 shares of Registrable
Securities.
Each beneficial owner of any Registrable Securities at the time or thereafter
outstanding shall be bound by any consent authorized by this Section 5, whether
or not such Registrable Securities shall have been marked to indicate such
consent.
6. Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election in writing delivered to the
Company, be treated as the Holder of such Registrable Securities for purposes of
any request or other action by any Holder or Holders pursuant to this Agreement
or any determination of any number or percentage of Registrable Securities held
by any Holder or Holders contemplated by this Agreement. If the beneficial owner
of any Registrable Securities so elects, the Company may require assurances
reasonably satisfactory to it of such owner's beneficial ownership of such
Registrable Securities.
7. Notices. All communications provided for hereunder shall be sent by
courier or other overnight delivery service, shall be effective upon receipt,
and shall be addressed as follows:
(a) if to an Investor, at such address as the Investor shall have
furnished to the Company in writing;
(b) if to any other Holder, at the address that such Holder
shall have furnished to the Company in writing, or, until any such other holder
so furnishes to the Company an address, then to and at the address of the last
Holder of such Registrable Securities who has furnished an address to the
Company; or
(c) if to the Company, addressed to it at Krause's Furniture,
Inc. 200 North Berry Street, Brea, CA 92821-3903, Attention: Judith O. Lasker,
Esq. or at such other address as the Company shall have furnished to each Holder
at the time outstanding.
8. Assignment; Calculation of Interests in Registrable Securities.
(a) This Agreement shall be binding upon and inure the benefit of
and be enforceable by the parties hereto and, with respect to the Company, its
respective successors and assigns and, with respect to the Investors, any
beneficial owner of any Registrable Securities, subject to the provisions
respecting the minimum number or proportion of shares of Registrable Securities
required in order to be entitled to certain rights, or take certain actions,
contained herein.
(b) All references to Registrable Securities shall be calculated
as if all shares of Series A Preferred Stock had been converted into shares of
Common Stock as of the date of such calculation; provided, that any proportion
of the Registrable Securities necessary to be determined in connection with a
specific registration shall be calculated based upon the number of Registrable
Securities participating in such registration only (assuming any shares of
Series A Preferred Stock had been converted into shares of Common Stock.)
9. Descriptive Headings. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
10. Governing Law; Consent to Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
including, without limitation, Sections 5-1401 and 5-1402 of the New York
General Obligations Law and New York Civil Practice Laws and Rules 327(b). Each
of the parties hereto hereby irrevocably and unconditionally consents to submit
to the exclusive jurisdiction of the courts of the State of New York and of the
United States of America, in each case located in the County of New York, for
any action, proceeding or investigation in any court or before any governmental
authority ("litigation") arising out of or relating to this Agreement and the
transactions contemplated hereby (and agrees not to commence any litigation
relating thereto except in such courts), and further agrees that service of any
process, summons, notice or document by U.S. Registered Mail to its respective
address set forth in this Agreement shall be effective service of process for
any litigation brought against it in any such court. Each of the parties hereto
hereby irrevocably and unconditionally waives any objection to the laying of
venue of any litigation arising out of this Agreement or the transactions
contemplated hereby in the courts of the State of New York or the United States
of America, in each case located in the County of New York, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such litigation brought in any such court has been brought
in an inconvenient forum. Each of the parties irrevocably and unconditionally
waives, to the fullest extent permitted by applicable law, any and all rights to
trial by jury in connection with any litigation arising out of or relating to
this Agreement or the transactions contemplated hereby.
11. No Inconsistent Agreements. The Company will not hereafter enter
into any agreement with respect to its securities which is inconsistent with the
rights granted to the Holders in this Agreement.
12. Recapitalizations, etc. In the event that any capital stock or
other securities are issued in respect of, in exchange for, or in substitution
of, any Registrable Securities by reason of any reorganization,
recapitalization, reclassification, merger, consolidation, spin-off, partial or
complete liquidation, stock dividend, split-up, sale of assets, distribution to
stockholders or combination of the shares of Registrable Securities or any other
change in the Company's capital structure, appropriate adjustments shall be made
in this Agreement so as to fairly and equitably preserve, to the extent
practicable, the original rights and obligations of the parties hereto under
this Agreement. At the request of the Selling Holders of a majority of
Registrable Securities in connection with any registration pursuant to Section
2.1 hereof, the Company will effect such adjustments to the outstanding Common
Stock, by way of stock split or stock dividend as the Selling Holders may
reasonably request to facilitate the registration and sale of the Common Stock.
13. Attorneys' Fees. In any action or proceeding brought to enforce
any provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the prevailing party to such action or proceeding shall
be entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be executed and delivered by their respective officers thereunto
duly authorized as of the date first above written.
KRAUSE'S FURNITURE, INC.
By: /s/ Robert A. Burton
-----------------------------------
Name: Robert A. Burton
Title: Executive Vice President and
Chief Financial Officer
GE CAPITAL EQUITY INVESTMENTS, INC.
By:
-------------------------------------
Name:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By:
-------------------------------------
Name:
Title:
PERMAL CAPITAL MANAGEMENT, INC.
By: /s/ Thomas M. DeLitto
-------------------------------------
Name:
Title:
PERMAL SERVICES, INC.
By: /s/ Thomas M. DeLitto
-------------------------------------
Name:
Title:
PERMAL CAPITAL PARTNERS, L.P.
By: PERMAL MANAGEMENT
CORPORATION, its Investment
Manager
By: /s/ Thomas M. DeLitto
-------------------------------------
Name:
Title:
PERMAL ASSET MANAGEMENT
By: /s/ Thomas M. DeLitto
-------------------------------------
Name:
Title:
PERMAL SPECIAL OPPORTUNITIES, LTD.
By: /s/ James R. Hodge
-------------------------------------
Name:
Title:
JAPAN OMNIBUS LTD.
By: /s/ James R. Hodge
-------------------------------------
Name:
Title:
JEAN R. PERRETTE
By: /s/ Jean R. Perrette
-------------------------------------
ISAAC ROBERT SOUEDE
By: /s/ Isaac Robert Souede
-------------------------------------
THOMAS M. DELITTO
By: /s/ Thomas M. DeLitto
-------------------------------------
THOMAS M. AND DONNA S. DELITTO
By: /s/ Thomas M. DeLitto
-------------------------------------
Name: Thomas M. DeLitto
By:
-------------------------------------
Name: Donna S. DeLitto
UNITED GULF BANK (B.S.C.) E.C.
By:
-------------------------------------
Name:
Title:
KUWAIT INVESTMENT PROJECTS COMPANY
By:
-------------------------------------
Name:
Title:
ATCO HOLDINGS, LTD.
By:
-------------------------------------
Name:
Title:
ATCO DEVELOPMENT, INC.
By:
-------------------------------------
Name:
Title:
PILOT HOLDINGS, L.P.
By: SHED INVESTMENTS, LLC, its General
Partner
By: /s/ Thomas M. DeLitto
-------------------------------------
Name: Thomas M. DeLitto
Title: Managing Member
ALLISON BOOTH HAWLEY TRUST I
By:
-------------------------------------
Name:
Title:
CAITLIN HALE HAWLEY TRUST I
By:
-------------------------------------
Name:
Title:
MAUREEN ERIN HAWLEY TRUST I
By:
-------------------------------------
Name:
Title:
SHANNON FOLLEN HAWLEY TRUST I
By:
-------------------------------------
Name:
Title:
HAWLEY FAMILY TRUST
By:
-------------------------------------
Name:
Title:
DR. PHILIP M. HAWLEY, JR.
By:
-------------------------------------
PHILIP M. HAWLEY
By:
-------------------------------------
ASCEND PARTNERS, L.P.
By:
-------------------------------------
Name:
Title:
LARRY BLACK
By:
-------------------------------------
BRANAGH REVOCABLE TRUST
By:
-------------------------------------
Name: Peter W. Branagh
Title: Trustee
By:
-------------------------------------
Name: Ramona Y. Branagh
Title: Trustee
MATTHEW WILLIAM CLARKE - IRA
By:
-------------------------------------
Name:
Title:
SANFORD J. COLEN
By:
-------------------------------------
AARON J. COLEN, UTMA, CA
By:
-------------------------------------
Name: Sanford J. Colen
Title: Custodian
ELYSE L. COLEN, UTMA, CA
By:
-------------------------------------
Name:
Title:
SARA K. COX
By:
-------------------------------------
JOHN DAVIES
By:
-------------------------------------
DIAMOND A. PARTNERS, L.P.
By:
-------------------------------------
Name:
Title:
J. STEVEN EMERSON
By:
-------------------------------------
EMILY FAIRBAIRN - IRA
By:
-------------------------------------
Name:
Title:
MALCOLM FAIRBAIRN - IRA
By:
-------------------------------------
Name:
Title:
WILLIAM T. AND KATHLEEN P. GIBSON
By:
-------------------------------------
Name: William T. Gibson
By:
-------------------------------------
Name: Kathleen P. Gibson
JONATHAN & NANCY GLASER FAMILY TRUST
By:
-------------------------------------
Name: Jonathan M. Glaser
Title: Trustee
By:
-------------------------------------
Name: Nancy Ellen Glaser
Title: Trustee
EDWARD M. HAWLEY
By:
-------------------------------------
Name:
Title:
GEORGE P. HAWLEY
By:
-------------------------------------
VICTOR F. HAWLEY
By:
-------------------------------------
RICHARD HICKS
By:
-------------------------------------
KATHRYN JERGENS TRUST
By:
-------------------------------------
Name:
Title:
DIANE JOHNSON
By:
-------------------------------------
RICHARD M. KELLER
By:
-------------------------------------
STEPHEN M. KELLER
By:
-------------------------------------
STEPHEN F. KELLER PROFESSIONAL
CORPORATION DEFINED BENEFIT
PLAN
By:
-------------------------------------
Name:
Title:
PAUL KESSLER
By:
-------------------------------------
SIDNEY KIMMEL
By:
-------------------------------------
THEODORE D. KONOPISOS
By:
-------------------------------------
<PAGE>
PETER LAMM
By:
-------------------------------------
ROBERT LONDON
By:
-------------------------------------
JEFFREY S. MORGAN
By:
-------------------------------------
THE MUHL FAMILY TRUST
By:
-------------------------------------
Name: Phillip E. Muhl
Title: Trustee
By:
-------------------------------------
Name: Kristin A. Muhl
Title: Trustee
PACIFIC SECURITY GROUP, INC.
By:
-------------------------------------
Name:
Title:
POINTE INVESTMENTS CAPITAL, LTD.
By:
-------------------------------------
Name:
Title:
POLLAT, EVANS & CO., INC.
By:
-------------------------------------
Name:
Title:
KEVIN AND ERIN PRZYBOCKI
By:
-------------------------------------
Name: Kevin Przybocki
By:
-------------------------------------
Name: Erin Przbocki
CHARLES B. RUNNELS, JR.
By:
-------------------------------------
CHARLES B. RUNNELS, III
By:
-------------------------------------
G. TYLER RUNNELS.
By:
-------------------------------------
LORD ROBIN RUSSELL
By:
-------------------------------------
TIMOTHY MICHAEL WALLACE
By:
-------------------------------------
WAVE ENTERPRISES, INC.
By:
-------------------------------------
Name:
Title:
IRA WEINGARTEN
By:
-------------------------------------
Name:
Title:
J.D. YATES
By:
-------------------------------------
Name:
Title:
ZAXIS PARTNERS, L.P.
By:
-------------------------------------
Name:
Title:
TH LEE.PUTNAM INTERNET PARTNERS, L.P.
By: TH LEE.PUTNAM INTERNET FUND
ADVISORS, L.P., its General Partner
By: TH LEE.PUTNAM INTERNET FUND
ADVISORS, LLC, its General Partner
By:
-------------------------------------
Name: Christine Kim
Title: Vice President
TH LEE.PUTNAM INTERNET PARALLEL
PARTNERS, L.P.
By: TH LEE.PUTNAM INTERNET FUND
ADVISORS, L.P., its General Partner
By: TH LEE.PUTNAM INTERNET FUND
ADVISORS, LLC, its General Partner
By:
-------------------------------------
Name: Christine Kim
Title: Vice President
SCHEDULE A
Ascend Partners, L.P.
Larry Black
Branagh Revocable Trust
Matthew William Clarke - IRA
Sanford J. Colen
Aaron J. Colen, UTMA, CA
Elyse L. Colen, UTMA, CA
Sara K. Cox
John Davies
Diamond A. Partners, L.P.
J. Steven Emerson
Emily Fairbairn - IRA
Malcolm Fairbairn - IRA
William T. and Kathleen P. Gibson
Jonathan & Nancy Glaser Family Trust
George P. Hawley
Allison Booth Hawley Trust I
Caitlin Hale Hawley Trust I
Hawley Family Trust
Maureen Erin Hawley Trust I
Shannon Follen Hawley Trust I
Edward M. Hawley
Philip M. Hawley
Dr. Philip Hawley, Jr.
Victor F. Hawley
Richard Hicks
Kathryn Jergens Trust
Diane Johnson
Richard M. Keller
Stephen M. Keller
Stephen F. Keller Professional Corporation Defined Benefit Plan
Paul Kessler
Sidney Kimmel
Theodore D. Konopisos
Peter Lamm
Robert London
Jeffrey S. Morgan
The Muhl Family Trust
Pacific Security Group, Inc.
Pilot Holdings, L.P.
Pointe Investments Capital, Ltd.
Pollat, Evans & Co., Inc.
Kevin and Erin Przybocki
Charles B. Runnels, Jr.
Charles B. Runnels, III
G. Tyler Runnels.
Lord Robin Russell
Timothy Michael Wallace
Wave Enterprises, Inc.
Ira Weingarten
J.D. Yates
Zaxis Partners, L.P.
