As filed with the Securities and Exchange Commission on May 29,1997
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Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-3
Registration Statement
UNDER THE SECURITIES ACT OF 1933
PHARMHOUSE CORP.
(Exact name of registrant as specified in its charter)
New York 13-2634868
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
860 Broadway
New York, New York 10003
(212) 477-9400
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Kenneth A. Davis, President and Chief Executive Officer
860 Broadway
New York, New York 10003
(212) 477-9400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Melvin Katz, Esq.
Maloney, Mehlman & Katz
405 Lexington Avenue
New York, New York 10174
(212) 973-6900
Approximate date of commencement of proposed sale to the
public: As soon as practicable after effective date of this
Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. X
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Title of Each Class of Amount to Offering Price Agregate Amount of
Securities to Be Registered Be Registered Per Share Offereing Price Registration Fee
- --------------------------- ------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Warrants to purchase
209,195 Common Shares,
$.01 par value 209,195 -- --(1) -- --(1) -- --(1)
Common Shares,
$.01 par value, issuable
upon exercise of warrants 209,195 $8.625(2) $1,804,306.875(2) $546.76(2)
Total -- -- -- --(1)(2) $1,804,306.875(1)(2) $546.76(1)(2)
</TABLE>
(1) Pursuant to Rule 457(g), no separate registration fee is required
for the Warrants. Total number of Warrants set forth above represents
aggregate of Class A, Class B and Class C Warrants exercisable at
different exercise prices as more fully described elsewhere in this
Registration Statement.
(2) These shares are to be sold by the Selling Shareholder at prices
not presently determinable. The offering price is estimated solely for
purposes of calculating the registration fee in accordance with Rule
457(c) using the $8.625 closing bid price of the Registrant's common shares
on The NASDAQ Small Cap Market on May 27, 1997.
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The Registrant hereby amends this Registration Statement on such dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to
said Section 8(a), may determine.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF
THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OF QUALIFICATION UNDER THE SECURITIES
LAW OF ANY SUCH STATE.
PROSPECTUS
PHARMHOUSE CORP.
Warrants to Purchase 209.195 Common Shares
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND INVOLVE A
HIGH DEGREE OF RISK. SEE "RISK FACTORS".
This Prospectus relates to (i) Warrants (the "Warrants") to purchase
209,195 Common Shares, $.01 par value per share (the "Common Shares" or the
"Shares"), of Pharmhouse Corp. (the "Company") and (ii) 209,195 Common
Shares issuable upon exercise of the Warrants (the "Shares"), all of which
may be offered from time to time by the Selling Shareholder named herein.
The Warrants were issued by the Company to the Selling Shareholder in
December 1991 in connection with the Selling Shareholder's extension of
a secured credit facility to the Company in December 1991 and the
Selling Shareholder's participation in previous secured lending arrangements
with the Company.
All of the Warrants expire on December 31, 1997 and consist of
Class A, Class B and Class C Warrants exercisable at exercise prices ranging
from $.1884 per Share to $1.914 per Share. For further information,
see "Description of Securities."
The Common Shares are quoted on the NASDAQ Small Cap Market under the
symbol "PHSE." The closing bid price of the Common shares on the NASDAQ
SmallCap Market on May 27, 1997 was $8.625. Prospective purchasers of
the Shares are urged to obtain a current price quotation. The Warrants are
not listed for trading on any exchange nor traded on any established trading
market or system. Therefore, there is no active trading market for
the Warrants and there is no assurance that any such market for the Warrants
will develop.
It is anticipated that the Selling Shareholder will offer the Shares
(when and if issued) for sale from time to time at the prices prevailing
on the NASDAQ Small Cap Market. The Selling Shareholder also may sell the
securities which are the subject of this Prospectus privately, either
directly to purchasers or through one or more brokers or dealers. See
"Plan of Distribution." The Company shall, at its expense, take such
actions, including filing post-effective amendments to the Registration
Statement of which this Prospectus is a part and/or preparing supplements
to this Prospectus, as shall be required to enable the Selling Shareholder
lawfully to sell the Shares during a period terminating on the 180th day
following the date hereof.
The Company will receive none of the proceeds from the sale of the
Shares and the Warrants offered hereby (other than the exercise prices of
the Warrants payable to the Company for the issuance of the Common Shares). All
selling and other expenses in connection with the registration and offer and
sale of the Shares and the Warrants will be borne by the Company.
The Selling Shareholder, and the brokers or dealers through whom
sales of the Shares or Warrants are made, if any, may be deemed to be
"underwriters" within the meaning of section 2(11) of the Securities Act
of 1933, as amended (the "Securities Act"). In addition, any profits
realized by the Selling Shareholder or such brokers or dealers may be
deemed to be underwriting compensation within the meaning of the Securities
Act.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is June __, 1997
No person is authorized to give any information or to make any
representation not contained or incorporated by reference in this
Prospectus and, if given or made, such information or representation must
not be relied upon as having been authorized by the Company or by the Selling
Shareholder. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities in any jurisdiction in which
such offer or solicitation is not authorized or in which the person making
such offer or solicitation is not qualified to do so or to any person to whom
it is unlawful to make such offer or solicitation. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that the information contained herein is correct as
of any time subsequent to the date hereof.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information can be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington D.C. 20549 and at the following Regional Offices of
the Commission: New York Regional Office, 7 World Trade Center, Suite 1300,
New York, New York 10048; Los Angeles Regional Office, 5757 Wilshire
Boulevard, Suite 500, Los Angeles, California 90036; and Chicago Regional
Office, Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act (together with all amendments, exhibits
and documents incorporated therein by reference, the "Registration
Statement") with respect to the Shares offered hereby. This Prospectus
does not contain all of the information set forth in the Registration
Statement, of which this Prospectus is a part, or any amendments thereto,
certain portions of which have been omitted pursuant to the Commission's
rules and regulations. The information so omitted may be obtained from
the Commission's principal office in Washington, D.C. upon payment of the
fees prescribed by the Commission. Any statements contained herein
concerning the provisions of any document are not necessarily complete and
in each instance reference is made to the copy of such document filed as
an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by
such reference. For further information with respect to the Company and
the Common Shares, reference is made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the
Commission (File No. 1-7090) are incorporated herein by reference:
(i) the Company's Annual Report on Form 10-K for its fiscal
year ended February 1, 1997; and
(ii) the description of the Common Shares contained in the Company's
Restated Certificate of Incorporation filed as Exhibit 3.1 to the
Company's Current Report on Form 8-K, dated December 24, 1991, as
amended by the Company's Certificate of Amendment of Certificate
of Incorporation filed as Exhibit 3.1 to the Company's Current
Report on Form 8-K, dated April 9, 1993.
All documents filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the termination of the offering of the
Shares pursuant to this Prospectus shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon such person's written or oral request, a
copy of any and all of the documents that have been incorporated by
reference in this Prospectus or the Registration Statement (other than
exhibits to such documents unless such exhibits are specifically incorporated
by reference into such documents). Any such request should be directed to
the Corporate Secretary of Pharmhouse Corp., 860 Broadway, New York, New
York 10003 (telephone number (212) 477-9400).
GENERAL AND RECENT DEVELOPMENTS
Pharmhouse Corp. (the "Company") currently operates a chain of 37
deep discount drugstores, 14 of which are operated under the name of
Pharmhouse (the "Pharmhouse Stores") and 23 of which are operated under
the name of The Rx Place (the "Rx Stores"). The Rx Stores were acquired
by the Company from F.W. Woolworth Co. in late April 1995 and, by reason
of a recent settlement of litigation between the Company and Woolworth
permitting the Company to return up to seven Rx Stores to Woolworth, one
of which has already been returned, and the closing of one Pharmhouse
Store, it is anticipated that the Company will be operating between 30
and 32 stores in the near future.
On January 31, 1997, the Company entered into an agreement with
F.W. Woolworth Co. and Woolworth Corporation (collectively "Woolworth")
pursuant to which the parties settled litigation instituted by the Company
against Woolworth in January 1996 and related arbitration proceedings
arising out of the Company's acquisition of the assets of 24 Rx Stores
from Woolworth in late April 1995 (the "Woolworth Settlement").
Among other matters, the Woolworth Settlement provided for the forgiveness
and cancellation of all then outstanding indebtedness owing by the Company
to Woolworth for the deferred portion of the purchase price of the Rx Stores'
assets (which, as of February 1, 1997, equaled approximately $9,500,000
including accrued interest) except for $1,000,000 which was converted to a
non interest bearing contingent obligation and which is to be canceled on
July 30, 1998, subject to certain conditions. Pursuant to the Woolworth
Settlement the Company also obtained the right to return to Woolworth up
to seven Rx Stores, two of which have already been reassigned or redelivered
to Woolworth, one of which recently closed and the other is currently closing,
and the remaining five of which may, at the Company's option and subject to
the conditions of the Woolworth Settlement, be reassigned to Woolworth by
July 31, 1997 if they do not show a store operating profit for a stipulated
period (as calculated by the Company) or such stores may be reacquired by
Woolworth. Woolworth further agreed to pay or reimburse the Company for the
rental and other carrying costs of these seven Rx Stores from January
15, 1997 through the date of the reassignment or redelivery of the leases
by the Company to Woolworth. Under the Woolworth Settlement, the Company
agreed to pay Woolworth approximately $195,000 for certain outstanding
rentals and other charges which had previously been accrued in the Company's
financial statements and the Company's right to use the service mark "The Rx
Place" has been extended to April 2001. For further information, see
"Risk Factors" and "The Company."
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE IN NATURE AND INVOLVE
A HIGH DEGREE OF RISK. PRIOR TO MAKING AN INVESTMENT DECISION WITH RESPECT
TO SECURITIES OF THE COMPANY, PROSPECTIVE INVESTORS SHOULD CAREFULLY
CONSIDER, ALONG WITH THE OTHER MATTERS DISCUSSED IN THIS PROSPECTUS, THE
FOLLOWING RISK FACTORS:
Results of Operations; Losses in Prior Years. For its fiscal year
ended February 1, 1997 ("fiscal 1997"), the Company earned $1,334,000 after
giving effect to an extraordinary gain of $7,142,000 (net of certain
provisions and expenses) resulting from the Woolworth Settlement described
elsewhere under this caption compared to a net loss sustained by
the Company of $2,507,000 for its fiscal year ended February 3, 1996
("fiscal 1996"). The Company also sustained net losses in each of its
three previous fiscal years. Its loss from operations, before interest
and extraordinary items, in fiscal 1997 was $1,578,000 and, except for
income from operations of $419,000 in fiscal 1996, the Company has
sustained operating losses from continuing operations since it commenced
operation of its first Pharmhouse Store in 1990. Management believes,
however, that, as a result of continuing improvements in its operations and
the terms of the recent Woolworth Settlement pursuant to which, among
other matters, the Company received the right to return to Woolworth up to
seven under-performing Rx Stores, the Company will be able to achieve
profitable operations in the future. There can be no assurance, however,
when or whether such profitable operations will be achieved and the
Company may continue to incur losses in future fiscal periods.
Effect of Woolworth Settlement. Management believes that, by reason
of the substantial cancellation of indebtedness pursuant to the Woolworth
Settlement, the Company's financial condition has improved significantly.
Management also believes that the Company's right to return up to seven Rx
Stores to Woolworth and not to continue to bear their increased rental and
other occupancy costs has and will have a material positive effect upon
the Company's cash flow as well as enhance the Company's ability to achieve
profitable operations in the future. Same store revenues of these seven
Rx Stores, as a group, declined by 12.6% during the last nine months of
fiscal 1997 compared to the same nine month period in fiscal 1996, whereas
same store revenues for the Company's remaining 17 Rx Stores, as a group,
declined during that nine month period by 7.9% before, and 5.6% after,
adjusting for the one week shorter period in fiscal 1997 compared to the
same period in fiscal 1996. However, management also estimates that same
store revenues of the Company's Pharmhouse Stores, one of which is currently
being closed, also declined in fiscal 1997 compared to fiscal 1996, although
the percentage of such decline (estimated by management at 3.3% before, and
1.3% after, adjustment for the one week shorter fiscal 1997) was
substantially less than that experienced by the Rx Stores. Furthermore,
despite improvements in the gross profit margins of the Pharmhouse Stores in
recent years, the Company has not experienced consistent revenue growth from
the operation of the Pharmhouse Stores in prior years and the sales revenues
generated by its remaining 17 Rx Stores have been disappointing since their
acquisition in 1995. Therefore, while management believes that the
financial and cash flow benefits derived from the Woolworth Settlement will
assist the Company in improving the results of its operations, the ability
of the Company's remaining Pharmhouse Stores and Rx Stores to generate such
levels of revenues as will enable the Company to achieve profitable results
of operations in future fiscal periods cannot now be determined.
Dependence Upon Secured Financing; Increased Interest Expense. In
connection with its acquisition of the Rx Stores in April 1995, the Company
(1) established a Revolving Credit Facility pursuant to which a secured
lender has agreed to provide the Company with up to $45,000,000 of secured
debt financing, limited to 60% of the defined cost value of the Company's
inventory (the "Revolving Credit Facility") for general corporate and working
capital purposes and (2) borrowed an additional $3,000,000, on a subordinated
secured basis, from an unaffiliated trade supplier (the "Subordinated Secured
Loan"). The Company had long-term indebtedness (including the current portion
thereof) as at February 1, 1997 of approximately $32,040,000, compared to
long-term indebtedness (including the current portion thereof) as at
February 3, 1996 of approximately $38,460,000. The Company's interest
expense for fiscal 1997 was $4,230,000 compared to the lesser interest
expense of $3,544,000, reflecting the costs of the operation of the Rx
Stores for but nine months of fiscal 1996. For the foreseeable future, the
Company will continue to rely upon the Revolving Credit Facility to fund
a significant portion of its operations and the Company and its shareholders
will remain subject to the risk that, in the event of a default by the
Company in the satisfaction of its secured debt obligations, the secured
lenders will be able to foreclose upon the assets of the Company to satisfy
such indebtedness through the forced liquidation of all or a substantial
portion of the Company and its operations. In addition, the initial term of
the Revolving Credit Facility expires on April 28, 1998 subject to renewal,
at the option of the secured lender or the Company, for successive one year
periods thereafter. The failure of the secured lender to elect to renew the
Revolving Credit Facility and of the Company to obtain alternative sources
of financing its operations would have a material adverse effect upon the
Company and its business.
Restrictive Financial and Other Covenants. The agreements governing
the Revolving Credit Facility and the Subordinated Secured Loan contain
covenants and conditions which place significant restrictions upon the
Company and its operations. It is anticipated that the terms governing such
secured indebtedness in the future will continue to prohibit or seriously
restrict the Company from, among other matters or transactions, incurring
additional indebtedness, expanding its operations or paying cash dividends
to its shareholders and will also require the Company to continue to satisfy
minimum tangible net worth requirements. Net losses, if any, from continuing
operations will render it increasingly difficult for the Company to continue
to satisfy these financial covenants. During the third and fourth quarters
of fiscal 1997, the Company's net worth fell below the minimum net worth
requirements under the Revolving Credit Facility. The lender waived the
Company's non-compliance and established a new minimum net worth requirement
of $6,000,000 for future fiscal quarters subject to future adjustment. The
inability of the Company to continue to satisfy such financial covenants in
future fiscal periods could result in a default under the agreements
governing such indebtedness and thereby adversely affect its financial
condition and cause serious disruptions in its business operations, although
the significant increase in its net worth resulting from the extraordinary
gain realized by the Company from the debt forgiveness pursuant to the
Woolworth Settlement should enhance the Company's ability to satisfy its net
worth covenant in future fiscal periods.
Uncertain Trade Credit Availability. In addition to the Revolving
Credit Facility, the Company funds its inventory purchases through trade
credit made available by merchandise suppliers. Such trade credit is made
available to the Company based upon several factors, including the Company's
prospects for future profitability and amounts of the Company's other
outstanding indebtedness. The Company has received increased trade credit
from a greater number of its merchandise suppliers since the closing of the
acquisition of the Rx Stores in late April 1995; however, there can be no
assurance concerning the continuing availability or amount of trade credit
in future fiscal periods. If the Company does not achieve profitability in
the near future, it may experience problems obtaining adequate amounts of
trade credit from merchandise suppliers. The absence of adequate trade credit
would have a material adverse impact on the Company's operations and results
of operations.
Competition. The sale at retail of health and beauty care products,
cosmetics, prescription drugs and general merchandise is highly competitive.
The Company competes with supermarkets and food stores, traditional drug
stores, discount mass merchants and other retailers, many of whom have a far
greater number of stores and far greater financial, marketing and
organizational resources than those available to the Company now or in the
foreseeable future. The competition presented by such competitors,
particularly mass merchants, is likely to continue and could have a material
adverse effect upon the Company's ability to generate increasing sales and
preserve gross profit margins from the operations of its Pharmhouse and Rx
Stores.
Effect of Economic and Other Conditions. Revenues generated by the
Company's Pharmhouse and Rx Stores have been, and will continue to be,
affected by general and local economic and other conditions, such as weather
conditions, prevailing from time to time. The current retail climate is
uncertain and future economic downturns of varying durations could have a
negative impact on the Company's sales and results of operations.
Inability to Pay Cash Dividends. The Company has not declared cash
dividends on its Common Shares since 1981 and management does not anticipate
the payment of cash dividends in the foreseeable future. In addition, the
Company is restricted under the terms of the agreements governing the
Revolving Credit Facility and the Subordinated Secured Loan from paying cash
dividends on its equity securities.
Material Dependence Upon Chief Executive Officer. The Company is
materially dependent upon the efforts of Kenneth A. Davis, its President and
Chief Executive Officer. The loss of Mr. Davis' services could have a
material adverse effect upon the Company's business and future prospects.
Mr. Davis' employment is governed by an employment agreement, the term of
which expires in January 1999.
Effective Control by Principal Shareholders. As of April 18, 1997,
Manfred Brecker, Chairman of the Board, and Kenneth A. Davis, President
and Chief Executive Officer of the Company (and son-in-law of Mr. Brecker)
and members of their families, owned, as a group, approximately 34.1% of
the outstanding Common Shares (not including the Shares issuable upon
exercise of the Warrants and which are the subject of this Prospectus or
other Common Shares issuable upon the exercise of outstanding stock
options), constituting the single largest block of the outstanding Common
Shares of the Company. (In addition, if Mr. Davis and his wife, Marcie B.
Davis, Executive Vice President and Secretary of the Company, were to
exercise all of their currently exercisable options, and assuming that
neither the Warrants nor other outstanding stock options were exercised,
the Brecker-Davis family would own approximately 45.9% of the outstanding
Common Shares of the Company.) In light of the fact that the Brecker-Davis
family will continue to own, as a group, the most significant percentage of
the outstanding voting shares of the Company, they will be able to exert
substantial influence upon its overall management, including election of
directors, and otherwise control its operations.
Limited Market for Company Securities. The Warrants will not be listed
for trading on any securities exchange or quoted on any interdealer
quotations system. There is no public trading market for the Warrants;
and no such market is expected to develop for the Warrants. The Shares, if
issued upon exercise of the Warrants, will be listed for trading on the
NASDAQ Small Cap Market. While there is an active trading market for the
Common Shares issuable upon exercise of the Warrants, the 209,195 Shares
issuable upon exercise of the Warrants represent approximately 8.1% of the
Company's currently outstanding Common Shares and the effect of the sale
thereof upon the prevailing market prices for its Common Shares cannot now be
determined, although it is anticipated that the sale of such a significant
number of such Shares might well result in a decline in such prevailing
market prices. Furthermore, by reason of the fact that the Company has a
relatively limited number of outstanding Common Shares which are free of
restrictions and which are currently trading on the NASDAQ Small Cap Market,
the sale of such Shares pursuant to this Prospectus may create further
volatility in the prevailing market prices for its outstanding Common
Shares. The Company believes that, in addition to fluctuations in the
price of the Company's securities resulting from factors related to the
operating performance of the Company, certain factors which are unrelated
to the Company's performance, such as general and regional economic
conditions and other market conditions in the deep discount retail market
generally and the perception thereof in the securities markets, could cause
volatility in the price of the Company's securities. Broad market
fluctuations may adversely affect the market price and liquidity of the
Company's securities in the future.
Dilutive and Market Effect of Outstanding Derivative Securities. As
of the date of this Prospectus, the Company has reserved, in addition
to the 209,195 Common Shares issuable upon exercise of the Warrants, an
aggregate of 916,170 Common Shares for issuance upon the exercise of (i)
outstanding stock options granted to executives and employees (collectively,
the "Outstanding Derivative Securities"). Most of the Common Shares
issuable pursuant to such options and warrants are issuable at exercise
prices which are significantly less than the currently prevailing market
prices of the Common Shares.
During the respective terms of the Outstanding Derivative Securities,
the holders thereof are given an opportunity to profit from a rise in the
market price of the Company's Common Shares with a resulting potential
dilution in the interests of its then existing shareholders. The holders of
the Outstanding Derivative Securities might be expected to exercise their
respective rights to acquire Common Shares at times when the Company would,
in all likelihood, be able to obtain required capital through a new offering
of securities on terms more favorable to the Company than those provided by
such Outstanding Derivative Securities. Furthermore, in the event that such
holders exercise their respective rights to acquire Common Shares at such
times, the net tangible book value per share of the Company's Common Shares
may be subject to further dilution.
Shares Eligible for Future Sale. Certain of the Common Shares
currently owned by management and certain other shareholders are subject to
certain resale restrictions in Rule 144 under the Securities Act of 1933.
As now in effect, Rule 144 provides generally that a person holding
securities that were acquired by such person or a predecessor purchaser(s)
from the issuer or an affiliate thereof more than one year prior to the date
of sale may sell in "brokers transactions" (as defined by the Rule) an amount
equal to the greater of 1% of the issuer's outstanding securities of such
class or the average weekly reported volume of trading in such securities
during the four calendar weeks preceding the sale within a three month
period if the conditions specified by the Rule are satisfied. If such person
is not an "affiliate" of the issuer, as such term is defined by Rule 144, he
may, after a holding period of two years, sell all of such restricted
securities without a limitation. (Affiliates of issuers whose securities
are not subject to holding period requirements are nonetheless subject to
the quantitative resale limitations described above).
DESCRIPTION OF SECURITIES
The following descriptions of certain terms of the Company's
securities, including the securities being offered by this Prospectus,
are intended as summaries only and are qualified in their entirety
by reference to the complete text of the instruments governing such
securities.
The Warrants
The Warrants consist of Class A, Class B and Class C Warrants, all
of which expire on December 31, 1997, but which are exercisable at the
following exercise prices with respect to the following respective number
of Common Shares:
Class of Number of Exercise Price
Warrants Shares Per Share
Class A 59,770 $ .1884
Class B 119,540 .435
Class C 29,885 1.914
All of the Warrants are subject to standard anti-dilution provisions set
forth in the Warrant Agreement, as amended, governing the issuance of the
Warrants. The Warrants may be exercised at any time or from time to time
until they expire on December 31, 1997.
The Preferred Shares
The Company's certificate of incorporation, as amended (the "Certificate
of Incorporation"), authorizes the issuance of up to 2,500,000 Preferred
Shares, $.10 par value, none of which has been issued to date. As
authorized, the Board of Directors of the Company has the power to issue
such Preferred Shares in such series and subject to such dividend,
redemption and conversion rights and such other rights, preferences and
limitations as it deems appropriate with respect to such series.
The Common Shares
The Company's Certificate of Incorporation, as amended, authorizes the
issuance of up to 25,000,000 Common Shares, $.01 par value. As of April 18,
1997, 2,374,443 Common Shares were issued and outstanding.
The holders of the Common Shares have equal ratable rights to dividends
from funds legally available therefor, when, as and if declared by the
Board of Directors and are entitled to share ratably in all of the assets of
the Company available for distribution to holders of Common Shares upon the
liquidation, dissolution or winding up of the affairs of the Company. (As
noted, however, under "Risk Factors", the Company is subject to restrictions
against the payment of cash dividends under the Revolving Credit Facility and
Subordinated Secured Loan.) Holders of Common Shares do not have preemptive,
subscription or conversion rights. Holders of Common Shares are entitled to
one vote per share on all matters which shareholders are entitled to vote
upon at all meetings of shareholders. All outstanding Common Shares are,
and those offered hereby will when issued be, validly issued, fully paid and
non-assessable. The holders of Common Shares do not have cumulative voting
rights, which means that the holders of more than 50% of such outstanding
shares of Common Stock can elect all of the directors of the Company.
Transfer Agent
American Stock Transfer Company, 40 Wall Street, New York, New York
10005, is the transfer agent and registrar for the Company's Common Shares.
THE COMPANY
Pharmhouse Corp. (the "Company") currently operates a chain of 37 deep
discount drugstores, 14 of which are operated under the name of Pharmhouse
(the "Pharmhouse Stores") and 23 of which are operated under the name of
The Rx Place (the "Rx Stores"). The Rx Stores were acquired by the Company
from F.W. Woolworth Co. in late April 1995 and, by reason of a recent
settlement of litigation between the Company and Woolworth permitting the
Company to return up to seven Rx Stores to Woolworth, one of which has
already been returned, and the closing of one Pharmhouse Store, it is
anticipated that the Company will be operating between 30 and 32 stores
in the near future.
The Company's deep discount drug stores offer a broad variety of
merchandise and services at everyday deep discount prices. The stores offer
health and beauty care products, prescription drugs, cosmetics, stationery,
video rentals, housewares, pet supplies, greeting cards, food, snacks,
beverages and certain other merchandise. The Company's stores also offer
certain merchandise on a seasonal basis, such as garden, patio and Christmas
items. Such merchandise is sold at everyday deep discount prices. As of
April 18, 1997, the Company employed approximately 2,000 persons in its
operations, including a substantial number of part-time employees. The
Company is not a party to any collective bargaining agreements pertaining to
its employees.
Eleven Pharmhouse Stores are located in smaller communities and three
of such Stores are located in more densely populated areas, reflecting
management's decision to expand into such markets. The Rx Stores are also
located in more densely populated areas than the older Pharmhouse Stores. As
of the date hereof, most of the stores have pharmacies staffed by licensed
pharmacists and are open seven days per week. Merchandise is sold primarily
on a cash-and-carry basis although certain credit cards and checks are
accepted.
The Company's offices are located at 860 Broadway, New York, New York
10003 and its telephone number is (212) 477-9400.
SELLING SHAREHOLDER
The Warrants which are the subject of this Prospectus are owned by
Rosenthal & Rosenthal, Inc., a privately held asset based lending institution
based in New York City (the "Selling Shareholder"). The Shares are issuable
to the holder of the Warrants upon the exercise thereof. The Warrants were
issued to the Selling Shareholder in connection with the Selling
Shareholder's granting a secured revolving credit facility to the Company
in December 1991 and participating in a prior secured revolving credit
facility extended to the Company in 1990. For further information
concerning the Warrants, see "Description of Securities-TheWarrants."
PLAN OF DISTRIBUTION
It is anticipated that the Selling Shareholder will offer the Shares
(when and if issued) for sale from time to time at the prices prevailing on
the NASDAQ Small Cap Market on the date of sale. The Selling Shareholder
also may sell the securities which are the subject of this Prospectus
privately, either directly to purchasers or through one or more brokers or
dealers. The Company shall take such actions, including filing post-effective
amendments to the Registration Statement of which this Prospectus is a part
and/or preparing supplements to this Prospectus, as shall be required to
enable the Selling Shareholder lawfully to sell the Shares during a period
terminating on the 180th day following the date hereof.
All costs, expenses and fees incurred in connection with the
registration of the Warrants and the Shares and the offer and sale thereof,
including but not limited to all registration and filing fees, printing
expenses and fees of the Company's counsel and accountants, are being borne
by the Company.
The Selling Shareholder, and the brokers or dealers through whom sales of
the Warrants and the Shares are made, may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act of 1933, as
amended. In addition, any profits realized by the Selling Shareholder or
such brokers or dealers may be deemed to be underwriting commissions.
The Company has informed the Selling Shareholder that the
anti-manipulative provisions of Regulation M promulgated under the Exchange
Act may apply to its sales of Shares and has furnished the Selling
Shareholder with a copy of that regulation and has also informed the Selling
Shareholder of the rules governing the required delivery of copies of this
Prospectus in connection with the sale of such shares. There is no
assurance that the Selling Shareholder will offer for sale or sell any or
all of the Warrants or Shares offered pursuant to this Prospectus. In the
event Warrants or Shares are sold by the Selling Shareholder, the Company
will receive none of the proceeds from any such sale except for the
payment to the Company of the exercise prices of the Warrants as a condition
to the issuance of the Shares.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Company's Bylaws provide that the Company will indemnify any person
against judgments, fines, amounts paid in settlement and expenses actually
and reasonably incurred by him or her in connection with any action or
threatened action, suit or proceeding, whether civil or criminal,
administrative or investigative (other than an action by or in the right of
the Company to procure a judgment in its favor) by reason of the fact that
he or she was a director or officer of the Company or was serving any other
entity at the request of the Company, if such director or officer acted in
good faith and in a manner reasonably believed to be in the best interests
of the Company or, in the case of service to such other entity, not opposed
to the best interests of the Company and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his or her conduct
was unlawful.
In addition, the Company's Certificate of Incorporation provides that
no director shall be liable to the Company or its shareholders for damages
for any breach of duty in such capacity. However, such provision does not
eliminate or limit the liability of any director if a judgment or other
final adjudication adverse to him or her establishes that his or her acts or
omissions were in bad faith or involved intentional misconduct or a knowing
violation of law or that he personally gained in fact a financial profit or
other advantage to which he or she was not legally entitled or that his or
her acts violated Section 719 of the New York Business Corporation Law (the
"BCL") (relating to the making of illegal distributions to shareholders or
loans to directors).
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Company as to which
indemnification is being sought nor is the Company aware of any threatened
litigation that may result in claims for indemnification by any director,
officer, employee or other agent.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed
that, in the opinion of the Commission, such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for the
Company by Maloney, Mehlman & Katz, New York City.
EXPERTS
The Company's consolidated balance sheets at February 1, 1997 and
February 3, 1996 and consolidated statements of operations, cash flows
and shareholders' equity for the years ended February 1, 1997, February 3,
1996 and January 28, 1995, incorporated in this Prospectus by reference
to the Company's Annual Report on Form 10-K for its fiscal year ended
February 1, 1997, have been so incorporated in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses in connection
with the registration and distribution of the securities being registered,
all of which are to be borne by the Company:
SEC registration fee $ 547
Legal fees and expenses $ 7,500
Accounting fees and expenses $ 5,000
Filing and Miscellaneous $ 1,953
--------
Total $ 15,000
========
Item 15. Indemnification of Directors and Officers
Section 722 of the BCL permits a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation), by reason of the fact that he or she is or was a director
or officer of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
A corporation also may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he or she is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him
or her in connection with the defense or settlement of such action or suit if
he or she acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the corporation. However,
in such an action by or on behalf of a corporation, no indemnification may
be made in respect of any claim, issue or matter as to which the person is
adjudged liable to the corporation unless and only to the extent that the
court determines that, despite the adjudication of liability but in view
of all the circumstances, the person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
In addition, the indemnification provided by Section 722 shall not be
deemed exclusive of any other rights to which those seeking indemnification
may be entitled under any bylaw, agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
Section 726 of the BCL provides that a corporation may purchase and
maintain insurance to, among other matters, indemnify directors and officers
of the corporation as permitted by Section 722.
The Company's Bylaws provide that the Company will indemnify any person
against judgments, fines, amounts paid in settlement and expenses actually
and reasonably incurred by him or her in connection with any action or
threatened action, suit or proceeding, whether civil or criminal,
administrative or investigative (other than an action by or in the right of
the Company to procure a judgment in its favor) by reason of the fact that
he or she was a director or officer of the Company or was serving any other
entity at the request of the Company, if such director or officer acted in
good faith and in a manner reasonably believed to be in the best interests
of the Company or, in the case of service to such other entity, not opposed
to the best interests of the Company and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his or her conduct
was unlawful.
The Company's Certificate of Incorporation provides that no director
shall be liable to the Company or its shareholders for damages for any
breach of duty in such capacity. However, such provision does not eliminate
or limit the liability of any director if a judgment or other final
adjudication adverse to him or her establishes that his or her acts or
omissions were in bad faith or involved intentional misconduct or a knowing
violation of law or that he or she personally gained in fact a financial
profit or other advantage to which he or she was not legally entitled or
that his or her acts violated Section 719 of the New York Business
Corporation Law (the "BCL") (relating to the making of illegal distributions
to shareholders or loans to directors).
The Company has purchased and currently maintains directors and
officers liability insurance covering certain liabilities incurred by
its directors and officers in connection with the performance of their
duties to the Company and its affiliates.
Item 16. Exhibits
5.1 Opinion of Maloney, Mehlman & Katz
10.1 Warrant Agreement between the Company and
Rosenthal & Rosenthal, Inc., dated December 24, 1991
10.14 Amendment to Warrant Agreement between the Company and
Rosenthal & Rosenthal, Inc., dated July 17,1996.
23.1 Consent of Maloney, Mehlman & Katz (included in Exhibit 5.1)
23.2 Consent of Price Waterhouse LLP
24.1 Power of Attorney (see Signature Page of this Registration
Statement)
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to include
any material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change
to such information in the Registration Statement.
(2) That, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for the purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
that is incorporated by reference in this Registration Statement shall be
deemed to be a new Registration Statement relating to the securities
offered herein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(5) To deliver or cause to be delivered with the prospectus, to each
person to whom the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule
14c-3 under the Securities Exchange Act of 1934; and, where interim
financial information required to be presented by Article 3 of Regulation
S-X is not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the
latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described in Item 15, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and will be governed
by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on May 28, 1997.
PHARMHOUSE CORP.
By: /s/ Kenneth A. Davis
-----------------------------
Kenneth A. Davis
President and Chief Executive Officer
POWER OF ATTORNEY
Know all men by these presents that each person whose signature appears
below constitutes and appoints Kenneth A. Davis his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits hereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney in-fact and
agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the respective dates indicated below:
Signature Title
Date
/s/ Manfred Brecker Chairman of the Board May 29, 1997
- ---------------------
Manfred Brecker
/s/ Kenneth A. Davis President, Chief Executive May 29, 1997
- --------------------- Officer, Chief Operating
Kenneth A. Davis Officer (Principal
Executive Officer)
and Director
/s/ Marcie B. Davis Executive Vice President, May 29, 1997
- --------------------- Treasurer, Secretary and
Marcie B. Davis Director
/s/ Joseph Keller Senior Vice President- May 29, 1997
- --------------------- Administration & Operations
Joseph Keller and Director
/s/ Richard A. Davis Senior Vice President- May 29, 1997
- --------------------- Finance and Chief
Richard A. Davis Financial Officer
(Principal Financial
& Accounting Officer)
/s/ Melvin Katz Director May 29, 1997
- ---------------------
Melvin Katz
Director
- ---------------------
Raymond Steele
Director
- ---------------------
Michael A. Feder
Director
- ---------------------
Peter Gerard
EXHIBIT INDEX
5.1 Opinion of Maloney, Mehlman & Katz
10.1 Warrant Agreement between the Company and Rosenthal &
Rosenthal, Inc., dated December 24, 1991
10.14 Amendment to Warrant Agreement between the Company and
Rosenthal & Rosenthal, Inc., dated July 17,1996
23.1 Consent of Maloney, Mehlman & Katz (included in Exhibit 5.1)
23.2 Consent of Price Waterhouse LLP
24.1 Power of Attorney (see Signature Page of this Registration
Statement)
Exhibit 5.1
MALONEY, MEHLMAN & KATZ
405 Lexington Avenue
New York, New York 10174
May 29, 1997
Pharmhouse Corp.
860 Broadway
New York, New York 10003
RE: Pharmhouse Corp.
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to Pharmhouse Corp., a New York
corporation (the "Company"), in connection with the preparation
and filing of a registration statement on Form S-3 (the
"Registration Statement") filed with the Securities and Exchange
Commission for the purpose of registering for sale under the
Securities Act of 1933, as amended, of (1) Class A, B and C
warrants (collectively, the "Warrants") to purchase up to an
aggregate of 209,195 Common Shares, $.01 par value, of Pharmhouse
Corp. (the "Common Shares") held by Rosenthal & Rosenthal, Inc.
("Rosenthal") and (ii) 209,195 Common Shares issuable upon
exercise of such Warrants.
Based upon our review of relevant corporate documents of the
Company and of the Warrant Agreement between the Company and
Rosenthal, dated December 24, 1991 as amended July 17, 1996 (the
"Warrant Agreement"), we are of the opinion that (a) subject to
payment of the exercise prices thereunder and compliance with the
other terms of the Warrant Agreement by the holder thereof, the
Warrants (described in the prospectus constituting a part of the
Registration Statement (the "Prospectus")) represent legally
binding obligations of the Company, enforceable against the
Company in accordance with the terms of the Warrant Agreement,
except as enforceability thereof may be limited by laws of
bankruptcy, insolvency and similar laws affecting creditors'
rights generally and by general equitable principals, and (b)
all of the Common Shares to be issued upon exercise of the
Warrants and sold by Rosenthal will, when issued in accordance
with the Warrant Agreement, have been duly authorized, validly
issued, fully paid and nonassessable.
We hereby consent to the reference to our firm under the
caption "Legal Matters" in the Prospectus. We further consent to
your filing a copy of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Maloney, Mehlman & Katz
Maloney, Mehlman & Katz
1
Exhibit 10.1
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of December 24, 1991, between
S.E. Nichols Inc. a New York Corporation (the "Company"),
and Rosenthal and Rosenthal Inc., a New York Corporation
("R&R").
WHEREAS, pursuant to the terms of a secured lending
agreement approved by final order of the Bankruptcy Court,
dated September 24, 1990, in the Company's Chapter 11 Case,
No. 90 B 125450 (the "Company's Chapter 11 Case"), the
Company is obligated to issued to R&R upon the date of
consummation of the Company's Plan of Reorganization
warrants to purchase 260,000 of its Common Shares at an
exercise price of $.0433 per share; and
WHEREAS, pursuant to the terms of the Revolving Credit
Agreement between the Company and R&R of even date herewith,
the Company is required to issue R&R upon the date of
consummation of the Company's Plan of Reorganization (i)
warrants to purchase 520,000 of its Common Shares at an
exercise price of $.10 per Share, and (ii) warrants to
purchase 130,000 of its Common Shares at an exercise price
of $.44 per Share;
WHEREAS, the purpose of this agreement is to set forth the
terms and conditions which shall govern the issuance of all
of the foregoing warrants, the purchase of Common Shares of
the Company upon the exercise thereof, the adjustments in
the terms and price of such warrants pursuant to the anti-
dilution provisions hereof and such other terms and
conditions as hereinafter set forth,
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereto agree
as follows:
Section 1. Definitions. For purposes of this
Agreement:
"Board Resolution" means a resolution by the Board of
Directors of the Company or the Executive Committee thereof
which shall be certified as being duly adopted and in full
force and effect by the Secretary or any Assistant Secretary
of the Company.
"Business Day" means any day other than a day on which banks
in the City of New York are required or authorized to be
closed by law.
"Class A Warrants" means warrants to purchase an aggregate
of 260,000 Shares of the Company at an exercise price of
$.0433 per Share expiring on December 31, 1998.
"Class B Warrants" means warrants to purchase an aggregate
of 520,000 Shares of the Company at an exercise price of
$.10 per Share expiring on December 31, 1996.
"Class C Warrants" means warrants to purchase an aggregate
of 130,000 Shares of the Company at an exercise price of
$.44 per Share expiring on December 31, 1996.
"Common Shares" or "Shares" means the Company's Common
Shares, par value $.01 per share, as constituted on the date
hereof or shares of any class or classes of the Company
resulting from any reclassification or reclassifications or
recapitalization or recapitilaiztions pertaining to the
Shares and which have no preference in respect of dividends
or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Company.
"Market Price" means the average of the closing prices per
Share on the principal national securities exchange or the
National Association of Securities Dealers, Inc. National
Market System ("NASDAQ/NMS") or the NASD Automated Quotation
System ("NASDAQ") or Electronic Bulletin Board, whichever of
the foregoing exchanges or systems is the principal market
or system on which the Shares are listed, admitted for
trading or quoted, as the case may be (or, if there be no
such closing prices, the mean between the bid and asked
prices reported n any such national securities exchange,
NASDAQ/NMS OR NASDAQ, Electronic Bulletin Board or on any
other over-the-counter market on which such quotations are
regularly available, as the case may be, on each of the ten
(10) trading days immediately preceding the date as of which
the determination of Market Price is to be made. If any
time the Common Shares are not listed, admitted for trading
or quoted on any of the foregoing markets or systems, the
Market Price shall be deemed to be the fair value thereof
determined in good faith by a reputable independent
brokerage or investment banking firm as of a date which is
within fifteen (15) days prior to the date as of which the
determination of Market Price is to be made.
"Registration Expenses" means the Company's expense incurred
in connection with the Company's performance of or
compliance with Section 9 the Agreement, including fees and
disbursements of counsel for the Company and of its
independent public accountants, expenses of printing the
Registration Statement and the prospectuses constituting a
part thereof, but excluding legal fees and disbursements of
R&R's counsel, registration or filing fees payable to the
Securities and Exchange Commission, NASD filing fees and any
state securities or blue sky filing fees, underwriters' or
brokers' discounts or commissions relating to the offer and
sale of any of the Securities held by R&R and any transfer,
income or gains taxes incurred by reason, or arising out, of
the sale or other disposition of any of such Securities by
R&R in a transaction governed by Section 9 hereof.
"Securities" means (a) any Class A Warrants, Class B.
Warrants and Class C Warrants, (b) any Common Shares issued
upon the exercise of such Class A Warrants, Class B Warrants
or Class C Warrants, (c) any Common Shares or other
securities of the company issued subsequent to the exercise
of the Warrants as a dividend or other distribution with
respect to, or resulting, from a subdivision of the
Company's outstanding Common Shares into a greater or lesser
number of Common Shares by recapitalization,
reclassification, stock splits, combinations of shares
otherwise, or in exchange for or in replacement of the
Common Shares issued upon such exercise and (d) unless the
context otherwise requires, any Common Shares issuable upon
the exercise of Warrants.
"SEC" means the United States Securities and Exchange
Commission.
"Warrant Expiration Date" means December ___ of the specific
calendar year upon which each of the Class A Warrants, Class
B Warrants, and Class C Warrants, respectively, expires.
"Warrant Price" means the respective exercise prices of each
of the Class A Warrants, Class B Warrants or Class C
Warrants set forth herein and in the Warrant Certificates
evidencing each such Class of Warrants, as any of such
exercise prices may be adjusted or readjusted in accordance
with the Provisions of Section 10 hereof.
"Warrant(s)" means the Class A Warrants, Class B Warrants
and Class C Warrants, collectively and in the aggregate,
being issued by the Company to R&R pursuant to the
Agreement, unless the context otherwise requires.
All other terms defined herein shall have the meanings
ascribed thereto in the parenthetical definitions appearing
in the various provisions of the Agreement.
Section 2. Issuance and Form of Warrants
On the date hereof, or within five (4) Business Days after
the date hereof, the Company shall execute and deliver to
R&R one or more Warrant Certificates evidencing each of the
Class A Warrants, Class B Warrants and Class C Warrants,
respectively.
The text of the certificates evidencing the Warrants (the
"Warrant Certificates") shall be substantially as set forth
in Exhibit "A" attached hereto. Each Warrant Certificate
shall entitle the Holder to purchase all or any portion of
the total number of the Shares evidenced by such Warrant
Certificate from the Company at any time from the date
hereof until 5:00 p.m., New York City time, on the
respective Warrant Expiration Dates of each of the Class A
Warrants, Class B Warrants and Class C Warrants at the
respective Warrant Prices. The respective Warrant Prices
and the number of Shares issuable upon exercise of the Class
A Warrants, Class B Warrants and Class C Warrants, as the
case may be, are subject to adjustment upon the occurrence
of certain events, all as herein provided. In the event
that a Warrant Expiration Date falls on a day which is not a
Business Day, then the Warrants shall expire at 5:00 p.m.,
New York City time, on the next succeeding Business Day.
The Warrant Certificates may contain such letters, numbers
or other marks of identification as the Company may deem
appropriate and such legends not inconsistent with the
provisions of this Agreement and as may be required to
comply with applicable law or with any rule or regulation of
any stock exchange on which the Warrants may be listed.
The Warrant Certificates shall be dated as of the date
hereof.
Upon the issuance of the Warrant Certificates, the Company
shall register the Warrants represented thereby in the name
of R&R.
Section 3. Execution
The Warrant Certificates shall be executed on behalf of the
Company by the President or a Vice President of the Company,
attested to by the Secretary or any Assistant Secretary of
the Company.
Section 4. Registration: Transfers and Exchanges
The Company shall maintain at its principal corporate office
in New York City, New York (the "Warrant Register Office") a
register for the registration of the Warrant Certificates
and of their transfer and exchange from time to time (the
"Warrant Register").
The Company shall deem and treat R&R or any registered
holder of a Warrant Certificate, in the case of a subsequent
transfer by R&R of Warrants, as the absolute owner of each
Warrant Certificate and of the Warrants represented thereby
for all purposes (notwithstanding any notation to the
contrary), except that if and when any Warrant Certificate
is properly assigned in blank, the Company may (but shall
not be obligated to)deem and treat the bearer thereof as the
absolute owner thereof and of the Warrants represented
thereby for all purposes (notwithstanding any notation to
the contrary). The Company shall record in the Warrant
Register the transfer, from time to time, of any outstanding
Warrant Certificate, upon surrender thereof for transfer at
the Warrant Register Office, together with a written
assignment of the Warrant Certificate (in the form annexed
hereto as Exhibit "A", duly endorsed by the registered
holder thereof or by his duly authorized attorney or legal
representative, together with funds to pay any transfer
taxes payable in connection with such transfer. Upon such
surrender and payment, a new Warrant Certificate or new
Warrant Certificates in the name of the assignee and in the
denomination or denominations specified in such instrument
of assignment, shall be issued and delivered. If less than
all of the Warrants evidenced by a Warrant Certificate are
being transferred, a new Warrant Certificate or Certificates
shall be issued for Warrants evidenced by such Warrant
Certificate not being so transferred. The Warrant
Certificate surrendered shall be cancelled by the Company.
The Warrants evidenced by a Warrant Certificate may be
divided into more than one Warrant Certificate or combined
with Warrants of the same Class evidenced by other Warrant
Certificates upon surrender of the Warrant Certificate or
Certificates, as the case may be, at the Company's Warrant
Register Office, together with a written notice specifying
the names and denominations in which new Warrant
Certificates are to be issued and properly endorsed in the
manner specified in the preceding paragraph. Upon such
surrender and payment by R&R or any subsequent holder of
such Warrant Certificate of any subsequent holder of such
Warrant Certificates of any applicable transfer tax, a new
Warrant Certificate or Certificates shall be issued and
delivered in accordance with such notice. The Warrant
Certificate or Certificates surrendered shall be cancelled
by the Company.
The Company shall impose no service or other charge in
connection with any such transfer or exchange of Warrant
Certificates, except for any transfer taxes payable in
connection therewith which shall be paid promptly by R&R or
any subsequent holder of the Warrant Certificates.
Warrant Certificates cancelled pursuant to any provision of
the Agreement shall, upon such cancellation, be destroyed by
the Company.
Section 5. Duration and Exercise of Warrants
Subject to the terms of this Agreement, the Class A
Warrants, Class B Warrants and Class C Warrants shall expire
at 5:00 p.m. New York City time on their respective Warrant
Expiration Dates. Each Warrant may be exercised on any
Business Day on or prior to 5:00 p.m. New York City time on
their respective Warrant Expiration Dates. Thereafter,
unexercised Warrants will become void in their entirety and
of no value or force or effect whatsoever.
Section 6. Exercise of Warrants
Subject to the provisions of this Agreement, R&R or any
subsequent registered holder of a Warrant Certificate shall
have the right, upon the exercise form time to time of the
Warrants evidenced thereby, commencing at the opening of
business on the date hereof, to purchase from the Company
(and the Company shall issue and sell to each registered
holder) the total or any lesser number fully paid and
nonassessble Shares issuable upon the exercise of such
warrants. To exercise such Warrants, R&R or such subsequent
registered holder shall surrender by delivery (in person or
by certified mail or express mail service which provides
proof of delivery at the Warrant Register Office) of the
Warrant Certificate evidencing such Warrants with the form
of election to purchase on the reverse thereof duly
completed and signed, accompanied by payment to the Company
of the Warrant Price in effect on such date for the number
of shares in respect of which such Warrants are then being
exercised. Payment of the Warrant Price shall be made in
cash or by certified check, money order or wire transfer to
the order of the Company.
As soon as practicable after the exercise of any Warrants,
the Company shall, subject to the provisions of Section 7
hereof, issue and cause to be delivered to or upon the
written order of R&R or any subsequent registered holder of
the Warrant Certificate evidencing such Warrants, and in
such name or names as R&R or such registered holder may
designate, a certificate or certificates for the number of
fully paid and nonassessable Shares so purchased upon the
exercise of such Warrants. Such certificate or certificates
for Shares shall be deemed to have been issued and any
person so designated to be named therein shall be deemed to
have become a holder of record of such Shares, as of the
date of the surrender of such Warrant Certificate and
payment of the Warrant Price as aforesaid.
The Warrants evidenced by a Warrant Certificate shall be
exercisable, at the election of R&R or any subsequent
registered holder thereof, either as an entirety or from
time to time for a part only of the integral number of
Warrants evidenced by the Warrant Certificate. In the event
that less than all of the Class A Warrants, Class B Warrants
or Class C Warrants evidenced by a Warrant Certificate
surrendered upon the exercise of Warrants are exercised at
any time prior to their respective Warrant Expiration Dates,
a new Warrant Certificate or Certificates shall be issued to
or upon the written order of R&R or a subsequent registered
holder for the remaining number of Warrants evidenced by the
Warrant Certificate so surrendered. The Company shall only
be required to execute and deliver the required new Warrant
Certificates in accordance with the provisions of this
Section.
Warrants, represented by a properly assigned Warrant
Certificate, may be exercised by a subsequent holder thereof
without first having a new Warrant Certificate issued.
All Warrant Certificates surrendered upon the exercise of
Warrants shall be cancelled by the Company.
Section 7. Payment of Taxes
The Company will pay any issue or documentary stamp taxis,
if any attributable to the issuance of the Warrants or
Shares upon the exercise of any Warrant; provided, however,
the Company shall not be required to pay any tax which may
be payable in respect of any transfer of Warrant
Certificates or any transfer involved in the issue or
delivery of any certificates for Shares in a name other than
that of R&R or a subsequent registered holder of the Warrant
Certificate in respect of which such Shares are issued upon
exercise of the Warrants, in whole or part, and in such case
the Company shall not be required to issue or deliver any
Warrant Certificate or Certificate for Share until the
person requesting the same has paid to the Company the
amount of such tax or has established to the Company's
satisfaction that such tax has been paid.
Section 8. Mutilated or Missing Warrants
In case any of the Warrant Certificates shall be mutilated,
lost, stolen or destroyed, the Company, at the request of
R&R or any subsequent other registered holder thereof, shall
issue and deliver in exchange and substitution for and upon
cancellation of the mutilated Warrant Certificate, or in
lieu of and in substitution for the Warrant Certificate
lost, stolen or destroyed, a new Warrant Certificate
representing an equivalent right or interest, but only upon
receipt of evidence reasonably satisfactory to the Company
of such loss, theft or destruction and, in the case of a
lost, stolen or destroyed Warrant Certificate, indemnity, if
requested, also satisfactory to the Company, it being
understood that in the case of R&R its corporate indemnity
shall be satisfactory. Applicants for such substitute
Warrant Certificates shall also comply with such other
reasonable regulations and pay such reasonable charges as
the Company may prescribe.
Section 9. Reservation of Common Shares; Listing
and Registration; Indemnification
A. The Company hereby warrants, represents and covenants
that there have been reserved, and the Company shall keep
reserved throughout the respective terms of the Class A
Warrants, Class B Warrants and Class C Warrants, out of its
authorized and unissued Shares or its authorized and issued
Shared held in its treasury, for the purpose of enabling it
to satisfy any obligation to issue Shares upon the exercise
of the Class A Warrants, Class B Warrants or Class C
Warrants, as the case may be, the aggregate amount of Shares
deliverable upon the exercise of all outstanding Warrants
after giving effect to the adjustments set forth in Section
10 of this Agreement.
The Company covenants that all Shares which may be issued
upon the exercise of Warrants will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable and
free from all taxes, liens, charges and security interests
created or granted by the Company with respect to, or
arising out of, the issuance thereof.
Promptly upon the respective Warrants Expiration Dates of
the Class A Warrants, Class B Warrants and Class C Warrants,
as the case may be, the Company shall determine the
aggregate number of Warrants which have thereupon expired,
and thereafter no Shares shall be subject to reservation by
the Company in respect of any such expired Warrants.
(B) Upon the written request of R&R that the Company effect
the registration under the Securities Act of 1933, as
amended (the "Act"), of all or a designated portion of R&R's
Securities and specifying R&R's intended method of offer,
sale or other disposition thereof, the Company will use its
best efforts to effect the registration under the Act of
such Securities to permit their lawful offer, sale or other
disposition provided that:
(i) The Company shall not be required to use its best
efforts to effect the registration of R&R's Securities
under the Act pursuant to this Section 9(B) unless such
request is submitted by R&R not earlier than January 1,
1993; and
(ii) The Company is required to file periodic reports
under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") as of the date of such
registration request by R&R; and
(iii) The Company shall be required to effect not more
than a total of two (2) registrations under the Act pursuant
to this Section 9(B). Any registration requested pursuant
to this Section 9(B) shall be effected by the filing by the
Company of a registration statement on SEC Form S-1, S-2 or
S-3 (or any other SEC form that includes substantially the
same information as would be required to be included in a
registration statement on such forms as currently
constituted and on which the Securities shall then be
permitted to be so registered); and
(iv) The Registration Expenses incurred in connection
with the first registration under the act of Securities
requested by R&R pursuant to this Section 9(B) shall be
borne and paid in full by the Company; and the Registration
Expenses incurred in connection with the second registration
under the Act requested by R&R pursuant to this Section 9(B)
shall be borne and paid in full by R&R (other than the fees
and disbursements of the Company's independent auditors
incurred in preparing audited financial statements required
to be included in any registration statement to be filed by
the Company under the Act in compliance with such request);
and
(v) The Company shall not register Securities under the Act
for sale for the account of R&R in any registration
requested pursuant to this Section 9(B) unless R&R agrees in
writing to include in any such registration not less than
thirty-five percent (35%) of the total nine hundred ten
thousand (910,000) Shares issuable as of the date hereof to
R&R upon exercise of the Class A Warrants, Class B Warrants
and Class C Warrants, combined, subject to adjustment
pursuant to the provisions of Section 10 hereof.
(vi) A registration requested by R&R pursuant to this
Section 9(B) will not be deemed to have been effected unless
it has become effective under the Act, provided, further,
however, that a registration that does not become effective
after the Company has filed a registration statement with
respect thereto solely by reason of the refusal of R&R to
proceed with the offer and sale of the Securities included
therein (other than any refusal to proceed based upon the
advice of R&R's counsel that the registration statement, or
the prospectus included therein, contains an untrue
statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the
statement therein not misleading in the light of the
circumstances then existing) shall be deemed to have been
effected by the Company at the request of R&R and in
fulfillment of the Company's obligations to R&R in response
thereto; and
(vii) The company may delay the initiation of any
registration requested pursuant to this Section 9)B) for a
period of up to ninety (90) days if there is a pending
material transaction that would have to be disclosed in the
registration statement pursuant to which the Securities held
by R&R would be registered under the Act. The Company will
advise R&R of any such delay and the reasonably anticipated
duration thereof subject to the obligation of R&R to retain
information concerning such transaction strictly
confidential for such period as the Company shall reasonably
request; and
(viii) The Company shall have the right, in its sole
discretion, to include in the registration statements to be
filed under the Act with respect to the Securities of R&R
requested by R&R to be registered under the Act pursuant to
this Section 9(B) such additional Shares or other securities
of the Company to be offered and sold by the Company for its
own account or to be offered and sold by and for the account
of other securityholderss of the Company; and
(ix) All requests by R&R to have Securities registered
under the Act under this Section 9(B) and the Company's
obligations with respect to any registrations under the Act
in response to such requests by R&R shall be subject to the
terms and conditions set forth in Sections 9(D) through 9(J)
hereof, inclusive.
(C) If the Company shall at any time from and from after
January 1, 1993 propose to register for offer and sale under
the Act any of its Common Shares, whether or not for sale
for its own account (except for offers and sales of Common
Shares or options or other rights to acquire Common Shares
pursuant to the Company's employee benefit, bonus or
incentive plans or agreements required or permitted to be
registered on SEC Form S-8 or any successor SEC form
thereto) in a manner that would permit registration of R&R's
Securities for sale to the public under the Act, it will
give written notice to R&R of its intention to do so and,
upon the written request of R&R made within thirty (30) days
after the receipt of any such notice (which request shall
specify the number or amount of Securities intended to be
disposed of by R&R and the intended method of disposition
thereof), the Company will use its best efforts to effect
the registration under the Act of the Securities that the
Company has been so requested to register by R&R to permit
their disposition (in accordance with the intended method so
designed by R&R), provided that:
(i) R&R shall not be entitled to include any of its
Securities in any registration to be effected pursuant
to this Section 9(C) unless R&R agrees in writing to
register for offer and sale under the Act not less
than twenty percent (20%) of the total nine hundred
ten thousand (910,000) Shares issuable to R&R upon
exercise of the Class A Warrants, Class B Warrants and
Class C Warrants, combined, subject to adjustment
pursuant to Section 10 hereof; and
(ii) if, at any time after giving written notice of its
intention to register its Shares under the Act and prior to
the effective date of the registration statement filed in
connection with such registration, the Company determines
for any reason not to register such Common Shares, the
Company may, at its election, give written notice of such
determination to R&R and, thereupon, shall be relieved of
its obligation to register any of R&R's Securities in
connection with such registration (but not from its
obligation to pay the Registration Expenses in connection
therewith), without prejudice, however, to the rights of R&R
to request that such registration be effected by the Company
on behalf of R&R as a registration of the Securities held by
R&R pursuant to Section 9(B) hereof; and
(iii) if the Common Shares being registered under the
Act pursuant to this Section 9(C) for sale for the account
of the Company or any other securityholder of the Company
are to be distributed by or through one or more underwriters
on a "firm commitment" or "best efforts" basis (the
"Underwriting Transaction"), then either of the following
provisions, whichever is applicable, shall govern R&R's
right to have its Securities registered pursuant to this
Section 9(C);
(A) if R&R desires that the securities to be so registered
for R&R's account are to be included in the Underwriting
Transaction, and the managing underwriter(s) of such
Underwriting Transaction agrees that such Securities of R&R
may be sold and distributed pursuant to or as part of such
Underwriting Transaction, R&R shall be required to agree not
to sell or distribute in the public markets in which the
Company's Common shares are then traded any additional
Securities (beyond those Securities so registered and
included in such Underwriting Transaction) for such "lock
up" period and upon such terms and conditions as such
managing underwriter shall impose upon the company and for
any other securityholder of the Company and R&R's right to
include the Securities in such Underwriting Transaction
shall be subject to the provisions of Section (9)(G) (ii)
hereof,
(B) if R&R desires that the Securities to be so registered
for R&R's account not be included in the Underwriting
Transaction, and the managing underwriter(s) of the
Underwriting Transaction advised the Company in writing,
that, in its opinion, the distribution of R&R Securities
concurrently with the Common Shares being distributed by
such underwriter on behalf of the Company and/or any other
security holders of the Company might materially and
adversely affect the distribution of such Common Shares by
such underwriters, then the Company shall have the right to
require that R&R defer the distribution of its Securities
until the completion of the distribution by such
underwriters, but in no event later than one hundred twenty
(120)days after the effective date of the registration
statement under the Act pertaining to such distribution; and
(iv) If the Common Shares so being registered for sale
under the Act are not for the account of the Company and
such registration is being effected pursuant to registration
rights granted by the Company to holders of its Common
Shares or options, warrants, convertible securities or other
rights to acquire its Common Shares, and such registration
rights preclude incidental registrations on those
registrations initiated by such purchasers (or their
transferees), the provisions of this Section 9(C) shall be
inapplicable to such registration and the Company shall have
no obligation to include any of R&R's Securities in any
registration statement filed by the Company under the Act in
compliance with such other registration rights.
The Registration Expenses incurred in connection with each
registration under the Act of Securities requested by R&R
pursuant to this Section 9(C) shall be borne and paid in
full by the Company.
(D) If and whenever the Company is required to use its best
efforts to effect the registration of any Securities held by
R&R under the Act as provided in Section 9(B) and 9(C), as
the case may be, the Company will as promptly as
practicable:
(i) prepare and file with the Sec a registration statement
with respect to the Securities held by R&R and that the
securities held by any other proposed seller which are
included therein and use its best efforts to cause such
registration statement to become effective under the Act;
(ii) prepare and file with the SEC 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 Act with respect to the
disposition of all of R&R's Securities and all other Shares
or other securities of the Company covered by such
registration statement until such time as all of such
Securities have been disposed of in accordance with the
intended method of disposition by R&R and the intended
method of disposition of Shares or other securities of the
Company by any other seller thereof set forth in such
registration statement, but in no event for a period of more
than one hundred eighty days(180) days after such
registration statement shall have become effective under the
Act;
(iii) Furnish to R&R a conformed copy of such
registration statement and of each amendment and supplement
thereto, plus such number of copies of the prospectus
constituting a part of such registration statement
(including each preliminary prospectus and any summary
prospectus), in conformity with the requirements of the Act,
and such other documents, as R&R may reasonably request in
order to facilitate the disposition of the Securities owned
by R&R;
(iv) use its best efforts to register or qualify such
securities covered by such registration statement under such
other securities or blue sky laws of such jurisdictions as
R&R shall reasonably request, 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 is not so qualified or to subject itself to
taxation in any such jurisdiction or to consent to general
service of process in any such jurisdiction;
(v) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC and, if
required, make available to its securities 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 month of the first
quarter after the effective date of any such registration
statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Act; and
(vi) use its best efforts to list such Securities
held by R&R on any securities exchange on which
the Company's Common Shares are then listed, if
such Securities are not already so listed pursuant
to Section 11 and if such listing is then
permitted under the rules of such exchange.
(E) (i) R&R shall furnish to the Company such
information regarding or pertaining to the offer,
sale and distribution of the Securities as the
Company may from time to time request in writing
and as shall be required by law or by the Sec in
connection therewith. R&R shall promptly notify
the Company, at any time when a prospectus
relating any such offer, sale or distribution id
required to be delivered under the Act, of the
happening of any change in R&R's intended method
of offering, selling or otherwise disposing of the
Securities as would require an amendment or
supplement to such prospectus or to the
registration statement of which it is a part.
(ii) In connection with each exercise by R&R of its
registration rights under this Section 9, R&R hereby agrees
that is should comply with all of the provisions of the Act
and the Exchange Act and all applicable rules and
regulations of the SEC pertaining to the offer, sale or
distribution by R&R of such Securities, including without
limitation the provisions of Rule 10-6 under the Exchange
Act as it may be amended from time to time hereafter.
(F) Whenever a registration under the Act requested by R&R
pursuant to Section 9(B) is for a distribution of the
Securities pursuant to an Underwriting Transaction, only
such Securities as are to be distributed by the underwriters
may be included in the registration statement pertaining
thereto. If the managing underwriter(s) determines that the
amount of the Securities to be sold in any such underwritten
offering should be limited, due to market conditions or
otherwise, the number or amount of the securities of the
Company, including the Securities held by R&R to be included
n the registration shall be reduced as follows:
(i) First, there shall be excluded Securities proposed to
be included by persons not possessing rights to include the
same pursuant to any agreement with the Company providing
for registration rights; and
(ii) Second, to the extent necessary, there shall be
excluded Securities proposed to be registered by or for the
account of each person, including R&R but excluding the
Company, seeking to include Securities in such registration
pursuant to rights granted to such person under an agreement
to have Securities registered on an incidental basis (i.e.,
a "piggypack" registration") in such proportion that the
number or amount of Securities sought to be included in such
registration by each such person bears to the number or
amount of Securities sought to be included in such
registration by all persons seeking to include Securities in
such registration on an incidental basis; and
(iii) Third, to the extent necessary, there shall be
excluded Securities proposed to be registered by or for the
account of each person, including R&R but excluding the
Company, seeking to include Securities in such registration
pursuant to rights granted to such person pursuant to an
agreement to have Securities registered on a demand basis
(i.e., a "demand" registration) in such proportion as the
number or amount of Securities sought to be registered by
each such person bears to the aggregate number or amount of
Securities sought to be included in such registration by all
persons seeking to include securities in such registration
on a demand basis:
provided, however, that there shall be no reduction in the
number of Securities to be include in any such registration
by the Company for sale for its own account.
(G) (i) If requested by the managing underwriter(s) for
any Underwriting Transaction of the Securities held by R&R
pursuant to a registration requested under Section 9(B)
hereof, the Company shall enter into an underwriting
agreement with such managing underwriter(s) for such
offering, provided, however, that R&R shall not offer, sell
and distribute the Securities pursuant to any such
Underwriting Transaction unless the managing underwriter(s)
thereof shall first be approved by the Company, which
approval shall not be unreasonably withheld. Such
underwriting agreement shall contain such representations
and warranties by the Company and such other terms and
provision as are customarily contained in agreements
contemplating an Underwriting Transaction, including
(without limitation) indemnities to the effect and to the
extent provided in Section 9(I) hereof. R&R and any other
securityholders whose Shares or other securities are to be
distributed by such underwriters shall be parties to such
underwriting agreement and the representations, warranties,
covenants and other conditions precedent to the obligations
of R&R under such underwriting agreement shall be
satisfactory to R&R. All indemnification agreements,
warranties, covenants, conditions and representations of the
Company contained therein shall be in form reasonably
satisfactory to the Company and its counsel.
(ii) If the Company at any time proposes to register
any of its Shares under the Act for sale for its own account
and such Shares are to be distributed by or through on or
more underwriters in an Underwriting Transaction, the
Company will use reasonable efforts, if requested by R&R,
pursuant to its incidental registration rights under Section
9(C) hereof, to arrange for such underwriters to include the
Securities to be offered and sold by R&R among those to be
distributed in such Underwriting Transaction. In such case,
R&R shall be required to become a party to the underwriting
agreement between the Company and the managing
underwriter(s) thereof and the representations and
warranties, representations, covenants and other conditions
precedent to the obligations of R&R with respect to the sale
of the Securities under such underwriting agreement shall be
approved by R&R, which approval shall not be unreasonably
withheld.
(H) (i) In the event of registration of the Securities
under the Act pursuant to this Section 9, the Company will
indemnify and hold harmless R&R and each other person, if
any who controls R&R within the meaning of the Securities
Act, against any losses, claims, damages or liabilities,
joint or several, to which R&R or such controlling person
may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of our are based upon any untrue
statement or alleged untrue statement of any material fact
contained in any registration statement under which the
Securities held by R&R were registered under the Act
pursuant to this Section 9, any preliminary prospectus or
final prospectus contained therein, or any amendment or
supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse R&R,
and each such controlling person for the reasonable legal
and other expenses incurred by them in connection with
investigating of defending any such loss, claim, damage,
liability or action; provided however, that the Company will
not be liable in any such case if and to the extent that any
such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement
or omission or alleged omission so made in conformity with
information furnished by R&R, its officers or directors, or
such controlling person, or their respective agents or
representatives, whether or not specifically for use in such
registration statement or prospectus.
(ii) In the event of a registration of any of the
Securities under the Act pursuant to this Section 9, R&R
shall indemnify and hold harmless the Company and each
person, who controls the Company within the meaning of the
Act, each officer of the Company who signs the Registration
Statement and each director of the Company, against all
losses, claims, damages or liabilities, joint or several, to
which the Company or such officer or director or controlling
person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any
material fact contained in the registration statement under
which such Securities were registered under the Act pursuant
to this Section 9, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company and
each such officer, director, underwriter and controlling
person for all reasonable legal and other expenses
reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or
action; provided however, that R&R will be liable hereunder
in any such case if and only to the extent that any such
loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in
conformity with information pertaining to, or furnished to
the Company by R&R or its agents or representatives whether
or not specifically for use in any such registration
statement or prospectus.
(iii) In order to provide for just and equitable
contribution in circumstances in which the
indemnification agreements provided for in subsections
(i)and (ii) of this Section 9(H) are unavailable to the
respective party entitled to indemnification thereunder
other than in accordance with their terms, the Company
and R&R shall contribute to the aggregate losses,
claims, damages or liabilities, of the nature
contemplated by such indemnification provisions,
incurred by the Company and R&R and the other persons
referred to therein, in such proportions so that R&R is
responsible for that portion represented by the
percentage that the public offering price appearing on
the cover page of the prospectus contained in the
relevant registration statement pertaining to the
Securities held by R&R bears to the public offering
price appearing on such cover sheet of all of the
Shares and other securities of the Company being sold
pursuant to such registration statement; provided,
however, that no person found guilty of fraudulent
misrepresentation within the meaning of Section 11 (f)
of the Act shall be entitled to contribution from any
person who is not guilty of such fraudulent
misrepresentation.
(I) In the event that the Company and R&R agree, upon the
advise of their respective counsel, or in the event that the
Company is advised by the SEC or the staff of the SEC
through an interpretive or "no action" letter, that the
intended method of offer, sale or distribution by R&R of the
Securities held by R&R at such time does not require
registration under the Act (as then in effect), then the
Company shall not be required to so register the Securities
held by R&R and intended by R&R to be so offered, sold or
distributed under the provisions of either Section 9(B) or
Section 9(C) hereof, provided, however, that if the Company
and R&R do not agree, based upon their respective counsel's
advice, whether or not such intended method of offer, sale
or distribution of R&R Securities requires registration
under the Act, then, in such event, the Company shall at its
cost and within fifteen (15) Business Days after written
request therefore by R&R, submit a request for a "no action"
or interpretive letter from the SEC or staff of the SEC with
respect to such question and both the Company and R&R agree
to be bound by any such "no action" or interpretive letter
concerning the need to register such Securities for offer,
sale or distribution so intended by R&R.
(J) Notwithstanding any other provisions of this Section 9,
the following terms and conditions shall govern the right of
R&R to have the Securities registered under the Act by the
Company:
(i) any registration statement prepared and filed by the
Company under the Act shall only be prepared and filed for
and on behalf of the Company by legal counsel designated by
the Company and final determination by the Company and its
legal counsel of the form and contents of any registration
statements, prospectuses, amendments or supplements thereto
shall be binding upon R&R; and
(ii) all rights of R&R to register Securities under the
Act pursuant to any of the provisions of the Section 9 shall
expire at 5:00 p.m. New York City time, on December 31, 1998
and shall be of no further force of effect thereafter; and
(iii) the right of R&R to have Securities registered
under the Act pursuant to Section 9(B) or Section 9(C)
hereof shall not be transferable or assignable, in whole or
in part, to any other party or parties except to officers,
directors or controlling persons (within the meaning of the
Act) of R&R, provided, however, that any such permitted
transferee or assignee shall acquire such registration
rights subject to all of the conditions and limitations set
forth in this Section 9, including without limitation the
condition that the calculation of the minimum percentages of
the Shares (issuable upon exercise of all of the Warrants)
required to be included in a registration under the Act in
order for any one, or more such permitted transferees or
assignees to exercise his or their registration rights
hereunder (whether or not in concert with R&R) shall be as
set forth in Section 9(B)(v) or 9(C)(i) hereof, whichever is
applicable.
Section 10. Adjustment of Warrant Price and Number of
Shares Purchasable
(A) In case the Company shall at any time after the date
hereof issue and sell for cash any Shares:
(i) Pursuant to a public offering of such Shares requiring
registration under the Act (the "Public Offering") at a
price per Share equal to less than seventy-five percent
(75&) of the Market Price determined as of the date
immediately preceding the effective date (within the meaning
of the act) of the registration statement pursuant to which
such public offering by the Company is undertaken, or
(ii) A price sale or placement of such Shares, within
the meaning of Section 4(2) of the Act or Regulation D
thereunder (the "Private Placement"), at a price per Share
equal to less than sixty percent (60%) of the Market Price
determined as of the date immediately preceding the date of
the consummation of such Private Placement, then, in either
such event, the Warrant Price shall be reduced by
multiplying such Warrants Price by a fraction , (i) the
numerator of which shall be the sum of (x) the number of
Shares outstanding at the close of business on the date
immediately preceding the date of such sale and issuance
plus (y) the number of Shares which the aggregate amount of
cash received or receivable in consideration of such sale
and issuance would purchase at such current Market Price per
Share, and (ii) the denominator of which shall be the total
number of Shares outstanding immediately after such sale and
issuance. Such adjustments shall be made successively
whenever such an issuance is made.
(B) In case the Company shall pay or make a dividend or
other distribution to its securityholders on any class of
shares of the Company in Shares or securities convertible
into or exchangeable for Shares (such convertible or
exchangeable shares or securities being hereinafter called
"Convertible Securities"), other than Convertible Securities
which require payments of cash to be made by the holder
thereof in connection with any conversion into or exchange
for Shares, the Warrant Price in effect at the close of
business on the day fixed for the determination of
shareholders entitled to receive such dividend or other
distribution shall be reduced by multiplying such Warrant
Price by a fraction of which the numerator shall be the
number of Shares outstanding at the close of business on the
date immediately preceding the date fixed for such
determination and the denominator of which shall be the sum
of each number of Shares and the total number of Shares
constituting such dividend or other distribution or the
maximum number of Shares issuable upon conversion or
exchange of all Convertible Securities constituting such
dividend or other distribution.
(C) In case at any time the Company shall grant or issue
(whether directly or otherwise) any rights (other than the
Class A Warrants, Class B Warrants or Class C Warrants) to
subscribe for or to purchase, or any options for the
purchase of, Shares or Convertible Securities, whether or
not such rights or options or the right to convert or
exchange any such Convertible Securities are immediately
exercisable, and the price per Share for which Shares are
issuable upon the exercise of such rights or options or upon
conversion or exchange of such Convertible Securities
(determined by dividing (x) the total amount if any,
received or receivable by the Company as consideration for
the granting of such rights or options, plus the minimum
aggregate amount of additional consideration, required to be
paid payable to the Company upon the exercise of all such
rights or options, or, in the case of such rights or options
which related to Convertible Securities, the total amount,
if any, received or receivable by the Company as
consideration for the granting of such rights or options,
plus the minimum aggregate amount of additional
consideration, if any, payable upon the issuance and upon
the conversion or exchange thereof, by (y)the total maximum
number of Shares issuable upon the exercise of such rights
or options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such
rights or options) shall be less than (i) seventy-five
percent (75% of the Market Price, of the Shares if such
rights are granted or issued by the Company in a Public
Offering or (ii) sixty percent(60%) of the Market Price of
the Shares if such rights are granted or issued by the
Company in a Private Placement, the determination of such
Market Price, in either such case, to be made as of the date
immediately preceding the date of granting or issuing such
rights or options, the Warrant Price in effect at the close
of business on the date immediately preceding the date of
granting such rights or options shall be adjusted by
multiplying such Warrant Price by a fraction, (i) the
numerator of which shall be the sum of (x) the number of
Shares outstanding at the close of business on the date
immediately preceding the date of granting such rights or
options plus (y) the quotient obtained by dividing the
product of the price per Share, determined as set forth
above, and the maximum number of Shares issuable upon the
exercise of such rights or options or upon the conversion or
exchange of all such Convertible Securities issuable upon
the exercise of such rights of options by the Market Price
and (ii) the denominator of which shall be the sum of the
number of Shares outstanding at the close of business on the
date immediately preceding the date of granting such rights
or options and the maximum number of Shares issuable upon
the exercise of such rights or options or upon the
conversion or exchange of all such Convertible Securities
issuable upon the exercise of such rights or options.
Except, as provided in this subparagraph (C), no further
adjustments of the Warrant Price shall be made upon the
issuance of such Shares or of such Convertible Securities
upon exercise of such rights or options or upon the actual
issuance of such Shares upon conversion or exchange of such
Convertible Securities.
(D) In case the Company shall issue (whether directly or by
assumption in a merger or otherwise) or sell any Convertible
Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the price per
Share for which Shares are issuable upon such conversion or
exchange (determined by dividing (x) the total amount
received or receivable by the Company as consideration for
the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange
thereof, by (y) the total maximum number of Shares issuable
upon the conversion or exchange of all such Convertible
Securities) shall be less than seventy-five percent (75%) of
the Market Price of the Shares if such Convertible
Securities issued or sold by the Company in a Public
Offering or (ii) sixty percent (60%) of the Market Price of
the Shares if such Convertible Securities are issued or sold
by the Company in a private Placement, the determination of
such Market Price, in either such case, to be made as of the
date immediately preceding the date of such issuance or sale
of such Convertible Securities, shall be adjusted by
multiplying such Warrant Price by a fraction, (i) the
numerator of which shall be the sum of (x) the number of
Shares outstanding at the close of business on the date
immediately preceding the date of issuance or sale of such
Convertible Securities plus (y) the quotient obtained by
dividing the product of the price per Share, determined as
set forth above, and the maximum number of Shares issuable
upon conversion or exchange of all such Convertible
Securities by the Market Price and (ii) the denominator of
which shall be the sum of the number of Shares outstanding
at the close of business on the date immediately preceding
the date of issuance or sale of such Convertible Securities
and such maximum number of Shares issuable upon conversion
or exchange, provided that (1) except as provided in
subsection (E) of this Section 10, no further adjustments of
the Warrant Price shall be made upon the actual issuance of
such Shares upon conversion or exchange of such Convertible
Securities, and (2) if any such issuance or sale is made
upon exercise of any rights to subscribe for or to purchase
or any option to purchase any such Convertible Securities of
which adjustments of the Warrant Price have been or are to
be made pursuant to subsection (C) of this Section 10 or the
other provisions of this subparagraph (D), no further
adjustments of the Warrant Price shall be made by reason of
such issuance or sale.
(E) If (x) the purchase price provided for in any rights or
options referred to in subsection (c) of this Section 10, or
(y) the amount of additional consideration, if any, payable
upon the conversion or exchange of any Convertible
Securities referred to in subsections(C) and/or (D) of this
Section 10, or (z) the rate at which any Convertible
Securities referred to in subsection (C) and/or (D) are
convertible into or exchangeable for Shares shall change
(other than under or by reason of provisions contained in
the instruments governing such rights, options or
Convertible Securities that are designed to protect against
dilution), the Warrant Price in effect at the close of
business on the date of such event shall forthwith be
adjusted to the Warrant Price which would have been in
effect at such time had such rights, options or Convertible
Securities still outstanding provided for such changed
purchase price, additional consideration or conversion rate,
as the case may be, at the time initially granted, issued or
sold. On the expiration of any such right to convert or
exchange such Convertible Securities, the Warrant Price in
effect at the close of business on the date of expiration or
termination shall be readjusted to the Warrant Price which
would have been in effect at such time had such right,
option or Convertible Securities to the extent outstanding
immediately prior to the date of such expiration or
termination, never been granted, issued or sold.
(F) In case the Company shall, by dividend or otherwise,
declare a dividend or other distribution on its Shares
payable in evidences of its indebtedness or assets
(including securities, but excluding (i) any rights or
options referred to in subsection (C) of this Section 10,
(ii) any dividend or distribution paid in cash out of
consolidated retained earnings or consolidated earned
surplus, determined in accordance with generally accepted
accounting principles, including the making of appropriate
deductions for minority interests, if any, in subsidiaries,
and (iii) any dividend or distribution otherwise paid in
Shares or Convertible Securities), the Warrant Price in
effect at the close of business on the date fixed for the
determination of shareholders entitled to receive such
dividend or other distribution shall be adjusted so that the
same shall equal the price determined by multiplying the
Warrant Price in effect at the close of business on the date
fixed for the determination of shareholders entitled to
receive such dividend or other distribution by a fraction of
which the numerator shall be the current Market Price per
Share on the date fixed for such determination less the then
fair market value (as determined by the Company's board of
directors, whose determination shall be conclusive and
described in a Board Resolution) of the portion of the
assets or evidences of indebtedness so distributed
applicable to one Share and of which the denominator shall
be such current Market Price.
(G) In case the Company shall at any time subdivide its
outstanding Shares into a greater number of Shares, the
Warrant Price in effect immediately prior to such
subdivision shall be proportionately reduced, and
conversely, in case the outstanding Shares shall be combined
into a smaller number of Shares, the Warrant Price in effect
immediately prior to such combination shall be
proportionately increased, such reduction or increase, as
the case may be, to become effective immediately upon the
effectiveness of such subdivision or combination.
(H) In case of any consolidation of the Company with, or
merger of the Company into, any other corporation or other
entity, or in case of any merger of another corporation or
other entity into the Company (other than a merger which
does not result in any reclassification, conversion,
exchange or cancellation of outstanding Shares), or in any
case of any sale or transfer of all or substantially all of
the assets of the Company, or in the case of a capital
reorganization or recapitalization of the capital shares of
the Company in such a manner that holders of Shares shall be
entitled to receive securities, cash or assets with respect
to or in exchange for such Shares from the corporation or
other entity formed by such consolidation or resulting from
such merger or which acquires such assets, as the case may
be, or from the Company, in the case of a capital
reorganization or recapitalization not involving a
consolidation, merger or sale or transfer of all or
substantially all of the assets of the Company, such
corporation or other entity or the Company, as the case may
be, and the Company shall execute and deliver an amendment
to this Agreement providing that the holder of each Class A
Warrant, Class B Warrant and/or Class C Warrant then
outstanding shall have the right thereafter, during the
period such Warrant shall be exercisable, to exercise such
Warrant only for the kind and amount of securities, cash and
other property receivable upon such consolidation, merger,
sale, transfer, capital reorganization or recapitalization
by a holder of the number of Shares for which such Warrant
might have been exercised on the date immediately prior to
such consolidation, merger, sale, transfer, capital
reorganization ore recapitalization (provided that if the
kind of amount or securities, cash and other property
receivable upon such consolidation, merger, sale, transfer,
capital reorganization or recapitalization is not the same
for each Share in respect of which said rights of election
shall have not been exercised (the Non-electing Shares"),
then, for the purpose of this subparagraph (H), the kind and
amount of securities, cash and other properties, cash and
other property receivable upon such consolidation, merger,
sale, transfer, capital reorganization or recapitalization
by each Non-electing Share shall be deemed to be the kind
and amount so receivable per Share by a plurality of the Non-
electing Shares).
Such amendment shall provide for adjustments which, for
events subsequent to the effective date of such amendment,
shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 10. The foregoing
provisions of this subsection (H) shall similarly apply to
successive consolidations, mergers, sales, transfers,
capital reorganizations or recapitalizations.
The Company shall not effect any such consolidation,
merger, sale or transfer unless prior to or simultaneously
with the consummation thereof the successor corporation(if
other than the Company) resulting from such consolidation or
merger or the corporation purchasing or otherwise acquiring
such assets or other appropriate corporation or entity shall
assume, by written instrument executed and delivered to the
Company, the obligation to deliver to the holder of each
Warrant such shares of stock, securities, cash or assets as,
in accordance with the foregoing provisions, such holders
may be entitled to receive and the other obligations under
this Agreement.
(I) In case of an adjustment in the Warrant Price shall be
required by Section 10(A), (B), (C), (D) and/or (F) hereof,
the required adjustment shall become effective at the
opening of business on (i) the Business Day immediately
following the date fixed for the determination of
shareholders of the Company entitled to receive such
dividend or distribution, in the case of any adjustment
pursuant to Section 10(B) or (F) or (ii) the Business Day
immediately following the date of such sale and issuance or
the date of such granting of such rights or options, as the
case may be, in the case of an adjustment pursuant to
Section 10(A),(C) or (D).
(J) Notwithstanding any other provisions of this Section
10, no adjustments to the Warrant Price or the number of
Shares issuable upon exercise of the Class A Warrants, Class
B Warrants or Class C Warrants shall be made with respect to
or by reason of the following transactions of the Company
with respect to the Shares:
(i) (A) an aggregate of 3,250,000 Shares issued (or to be
issued) by the Company to the existing shareholders and to
the creditors of the Company pursuant to its Plan of
Reorganization in its Chapter 11 Case, (B) an aggregate of
4,036,839 Shares issued (or to be issued) by the Company for
cash to the investor group (including officers and directors
of the Company) as contemplated by and described in the
Company's Plan of Reorganization in its Chapter 11 Case, (C)
any and all of the 910,000 Shares reserved for issuance by
the Company upon exercise of the Class A Warrants, Class B
Warrants and Class C Warrants issued to R&R pursuant to the
provisions of this Agreement as the number of such Shares
may be adjusted from time to time in accordance with the
anti-dilution provisions of the Warrant Agreement, (D) an
aggregate of 780,000 Shares reserved for issuance pursuant
to the Senior Subordinated Secured Convertible Promissory
Note issued by the Company to The Zamoiski Company (the
"Zamoiski Convertible Note") as the number of such Shares
may be adjusted from time to time in accordance with the
anti-dilution provisions set forth in the Zamoiski
Convertible Note, (E) an aggregate of 3,524,525 Shares
issued or reserved for issuance by the Company pursuant to
the Company's existing 1991 Incentive Stock Option Plan,
Restricted Share Purchase Agreements and Non-Qualified Stock
Option-Salary Reduction Plan granted, issued or sold to
executives and key employees of the Company as of and
through the date hereof as the number of such Shares may be
adjusted from time to time hereafter in accordance with the
respective anti-dilution provisions set forth in each of
such plans, and (F) an aggregate of 488,636 Shares issuable
by the Company to Messrs. Hartman & Craven, Angel & Frankel
and Gro-Vest, Inc. for services rendered; and (ii) the
issuance, sale or grant by the Company after the date hereof
of any Shares, warrants, options or other rights to purchase
such Shares, or the exercise of such warrants, options or
other rights, to or by employees, officers and/or directors
of the Company pursuant to any employee, officer and/or
director stock option, bonus or incentive compensation
plans, arrangements or agreements (collectively the
"Management Plans"), provided that (A) such Shares are
issued, sold or granted by the Company (directly or upon the
exercise of such warrants, options or other rights) pursuant
to any such Management Plans at a price per Share equal to
not less than seventy-five percent (75%) of the Market Price
determined as of the date immediately preceding the date of
the issuance, sale or grant thereof or (B) if such Shares
are issued, sold or granted by the Company (directly or upon
exercise of such warrants, options or other rights) pursuant
to any such Management Plans at a price per Share of less
than seventy-five (75&) of the Market Price so determined,
then the total number of Shares so issued, sold or granted
by the Company (directly or upon exercise of any such
warrants, options or other rights) at such lesser price to
any such employees, officers and/or directors of the Company
pursuant to any such Management Plans shall not exceed, in
the aggregate, more than five percent (5%) of the Shares of
the Company outstanding and reserved for issuance (under
warrants, options, Convertible Securities or other rights
theretofore issued, sold or granted by the Company) as of
January 31, 1992.
(K) For purposes of this Section 10, the number of Shares
outstanding at any given time shall not include Shares owned
or held by or for the account of the Company or of any of
its wholly or majority owned subsidiaries.
(L) Upon each adjustment of the Warrant Price pursuant to
this Section 10, each Warrant outstanding at the time of and
immediately prior to such adjustment shall give the holder
thereof the right to purchase, at the Warrant Price
resulting from such adjustment, the number of Shares
obtained by multiplying the Warrant Price in effect
immediately prior to such adjustment by the number of Shares
issuable upon exercise of such Warrant immediately prior to
such adjustment and dividing the product thereof by the
Warrant Price resulting from such adjustment.
(M) No adjustment in the Warrant Price shall be required
unless such adjustment would require an increase or decrease
of a least one percent (1%) in such Warrant Price; provided,
however, that any one or more such adjustments which, by
reason of this subsection (M) is not required to be made,
shall be carried forward on a cumulative basis and fully
taken into account in any subsequent adjustment. All
calculations under this Section shall be made to the nearest
cent or to the nearest 1/100 of a Share, as the case may be.
The provisions of this Section 10(L) shall also apply to
readjustments provided for in subparagraph (E).
(N) The certificate of any independent firm or public
accountants of recognized standing selected by the Board of
Directors of the Company shall be conclusive of the
correctness of any computation of any adjustment required to
be made under this Section 10.
(O) Whenever any adjustment is required in the Warrant
Price, the Company shall forthwith (1) prepare a statement
describing in reasonable detail the adjustment and the
method of calculation used and (2) cause a copy of such
statement to be mailed to R&R as of the effective date of
such adjustment at its address as the same shall appear on
the books on the Company.
(P) The Company shall be obligated to issue any additional
Shares which become issuable upon exercise of Warrants as a
result of any event described in this Section 10 which
requires an adjustment in the Warrant Price and the number
of shares issuable upon exercise of the Warrants.
Section 11. Avoidance of Certain Actions
The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of
assets, consolidation, merger, issue or sale of securities
or otherwise, avoid or take any action which would have the
effect of breaching this Warrant in any material respect or
precluding the performance by the Company of its obligations
hereunder, but will at all times in good faith assist in
implementing the provisions of this Warrant Agreement and in
taking of all such actions as may be reasonably necessary or
appropriate in order to protect the rights of R&R against
material dilution or other impairment of its rights
hereunder.
Section 12. Fractional Interest
Notwithstanding anything contained herein to the contrary,
the Warrants may only be exercised to purchase full Shares
and the Company shall not be required to issue fractions of
Shares on the exercise of Warrants. To the extent that a
holder would otherwise be entitled to a fractional share,
the Company shall return to such holder a portion of the
purchase price paid by such holder upon exercise of the
Warrants held by such holder determined by multiplying the
price per Share calculated at the Warrant Price by such
fraction.
Section 13. Notices to Company and R&R
Any notice given pursuant to this Agreement shall be
sufficiently given if sent by first-class mail, postage
prepaid, addressed (until another address is filed in
writing with R&R or, in the case of a change in address of
R&R, with the Company) as follows:
If to the Company:
S.E. Nichols Inc.
860 Broadway
New York, New York 10003
Attention: Kenneth A. Davis, President
Copy to:
Melvin Katz, Esq.
Hartman & Craven
460 Park Avenue
New York, New York 10022
If to R&R
Rosenthal & Rosenthal, Inc.
1370 Broadway
New York, New York 10018
Attention: Imre J. Rosenthal, President
Copy to:
Stanley Pollack, Esq.
Vice-President and General Counsel
Rosenthal & Rosenthal, Inc.
1370 Broadway
New York, New York 10018
Section 14. Notices to Warrant Holders
Upon any adjustment of the Warrant Price or the number of
shares issuable upon the exercise of Warrants pursuant to
this Agreement, the Company shall promptly thereafter cause
to be forwarded to R&R a certificate of the principal
financial or principal accounting officer of the Company
setting forth the respective Warrant Prices of each of the
Class A Warrants, Class B Warrants and/or Class C Warrants
then outstanding after such adjustment or the adjusted
number of Shares purchasable upon exercise of each such
Class of Warrants and setting forth in reasonable detail the
method of calculation and the facts upon which the
calculations are based.
Section 15. Entire Agreement; Supplements and Amendments
This Agreement is an integrated document and represents the
entire understanding of the parties with respect to the
subject matter hereof, contains all representations,
warranties, covenants and conditions, expressed or implied,
which have been made by the Company and R&R; and cancels and
supersedes all previous and/or contemporaneous written and
oral agreements, understandings, statements, promises,
inducements and memoranda by or between the parties or their
affiliates relating to the subject matter hereof. The
Company and R&R may from time to time supplement or amend
this Agreement in writing without the approval of any
subsequent holders of Warrant Certificates in order to cure
any ambiguity or to correct or supplement any provision
contained herein which may be defective or inconsistent with
any other provision herein, or to make any other provisions
in regard to matters or questions arising hereunder which
the Company and R&R may deem necessary or desirable and
which shall not be inconsistent in any material respect with
the provisions of the Warrant Certificates and which shall
not adversely affect in any material respect the interests
of R&R hereunder, provided, however, that in the event of
any conflicts or inconsistencies between the provisions of
any of the Warrant Certificates issued hereunder, the
provisions of this Agreement shall govern and be deemed
controlling.
Section 16. New York Contact; Jurisdiction
This Agreement and each Warrant Certificate issued hereunder
shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to the
choice of law provisions thereof. The Company and R&R
hereby consent, unconditionally and irrevocable, to the
jurisdiction of the state and federal courts located in the
Borough of Manhattan, City of New York, State of New York
for the adjudication of any actions arising out of this
Agreement.
Section 17. Benefits of this Agreement
Nothing in this Agreement shall be construed to give to any
person or corporation other than the Company and R&R and any
subsequent registered holders of the Warrants and legal or
equitable right, remedy or claim under or by reason of this
Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, R&R and such subsequent
registered holders of the Warrants.
Section 18. Successors
Subject to the terms and conditions of this Agreement, all
the covenants and provisions of this Agreement by or for the
benefit of the Company, the holders of the Warrants, and/or
R&R shall bind and inure to the benefit of each of the
parties hereto and their respective successors and assigns
hereunder.
Section 19. References and Captions
Unless otherwise expressly noted, all references to
Sections, subsections or clauses herein shall be deemed to
refer solely to the provisions of this Agreement so
designated.
The captions of the Sections of this Agreement have been
inserted for convenience only and have no substantive
effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first
above written.
S.E. Nichols Inc.
By: _____________________
Title
Rosenethal & Rosenthal
By: ____________________
Title
SEC Reporting/R&R Form S-3/Warrant Amendment Exhibit 10.14
EXHIBIT 10.14
AMENDMENT NO. 1 TO WARRANT AGREEMENT BETWEEN
PHARMHOUSE CORP. (FORMERLY S.E. NICHOLS INC.)
AND ROSENTHAL & ROSENTHAL, INC.
Agreement made this 17th day of July 1996 between Pharmhouse
Corp., a New York corporation (formerly named S.E. Nichols Inc.
and hereinafter referred to as the "Company"), and Rosenthal &
Rosenthal, Inc., a New York Corporation ("R&R").
W I T N E S S E T H
WHEREAS, the Company and R&R are parties to a Warrant
Agreement, dated as of December 24, 1991 (the "Warrant
Agreement"), pursuant to which the Company (a) issued to R&R
Class A Warrants, Class B Warrants and Class C Warrants (as
therein defined) to purchase (after giving effect to the 1-4.35
reverse stock split effected by the Company in April 1993, the
"Reverse Split"), an aggregate of 209,195 Common Shares, $.01 par
value, of the Company (the "Common Shares"), at the respective
exercise prices and for the respective terms of each such Class
of Warrants set forth in the Warrant Agreement (adjusted to
reflect the Reverse Split) and (b) granted R&R certain rights
respecting the registration of the Securities under the Act (as
therein defined); and
WHEREAS, the Class A Warrants to purchase 59,770 Common
Shares expire on December 31, 1998 and the Class B Warrants to
purchase 119,540 Common Shares and the Class C Warrants to
purchase 29,885 Common Shares both expire on December 31, 1996;
and
WHEREAS, the Company and R&R have agreed to amend the
Warrant Agreement by accelerating the Warrant Expiration Date (as
defined therein) of the Class A Warrants to December 31, 1997 and
extending the respective Warrant Expiration Dates of the Class B
Warrants and the Class C Warrants to December 31, 1997 in
consideration of the agreement by R&R not to exercise any of its
demand or "piggyback" registration rights prior to January 1,
1997;
NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereby agree as follows:
1. DEFINED TERMS AND REFERENCES. Except as otherwise
defined herein, all capitalized terms used in this Amendment
shall have the meanings ascribed thereto in the Warrant
Agreement.
2. EVIDENCE OF TERM OF CLASS B AND CLASS C WARRANTS. To
evidence the acceleration to December 31, 1997 of the Warrant
Expiration Date of the Class A Warrants and the extension to
December 31, 1997 of the respective Warrant Expiration Dates of
the Class B Warrants and Class C Warrants, the definitions of the
Class A Warrants, the Class B Warrants and the Class C Warrants
set forth in Section 1 of the Warrant Agreement are hereby
amended to read as follows, it being understood that the number
and exercise price of such warrants reflect the Reverse Split:
"Class A Warrants" means warrants to purchase an
aggregate of 59,770 Shares of the Company at an
exercise price of $.1884 per Share expiring on
December 31, 1997."
"Class B Warrants" means warrants to purchase an
aggregate of 119,540 Shares of the Company at an
exercise price of $.435 per Share expiring on
December 31, 1997."
"Class C Warrants" means warrants to purchase an
aggregate of 29,885 Shares of the Company at an
exercise price of $1.914 per Share expiring on
December 31, 1997."
3. FORBEARANCE FROM EXERCISING REGISTRATION RIGHTS. In
consideration of the modification of the Warrant Expiration Dates
of the Class A Warrants, Class B Warrants and Class C Warrants,
respectively, set forth in paragraph 2 of this Amendment, R&R
hereby agrees to forbear from exercising, or seeking to exercise,
its right to have any of the Securities included, on a "Demand"
or "piggyback" basis, in any registration statement of the
Company to be filed under the Act pursuant to the relevant
provisions of Section 9 of the Warrant Agreement until the period
commencing on January 1, 1997 (the "Registration Rights
Forbearance"). Pursuant to the Registration Rights Forbearance,
R&R hereby:
(a) withdraws its request dated January 23, 1996, to
have any of the Securities registered by the Company under the
Act, and relinquishes any and all claims or causes of action
against the Company arising therefrom; and
(b) waives and relinquishes its right to include any
Securities in a pending Form S-3 Registration Statement to be
filed by the Company under the Act with respect to certain
warrants and underlying Common Shares (issuable upon exercise of
such warrants) held by Brenner Securities Corporation.
4. EXCHANGE OF WARRANT CERTIFICATES. To implement the
changes in the Warrant Registration Dates of the Class A
Warrants, Class B Warrants and the Class C Warrants,
respectively, provided for herein, simultaneously with and upon
the execution and delivery of this Amendment, R&R shall surrender
to the Company the Warrant Certificates evidencing the Class A
Warrants, Class B Warrants and Class C Warrants in exchange for
the issuance by the Company of new certificates evidencing the
Class A Warrants, Class B Warrants and Class C Warrants which
certificates reflect (a) the changes in the respective Warrant
Expiration Dates of each such Class of Warrants and (b) the
Reverse Split.
5. SCOPE OF AMENDMENT. Except as expressly amended hereby,
all of the provisions of the Warrant Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereby have caused this
Amendment to be duly executed as of the day and year first above
written.
PHARMHOUSE CORP.
By: /s/ Marcie B. Davis
------------------------
Title: Secretary
ROSENTHAL & ROSENTHAL, INC.
By: /s/ Imre J. Rosenthal
-------------------------
Title: Chairman
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectus constituting part of this Registration Statement
on Form S-3 of our report dated May 2, 1997 appearing on page
F-1 of Pharmhouse Corp.'s Annual Report on Form 10-K for the
year ended February 1, 1997. We also consent to the
incorporation by reference of our report on the Financial
Statement Schedule, which appears on page F-20 of such Annual
Report on Form 10-K. We also consent to the reference to us
under the heading "Experts."
Price Waterhouse LLP
New York, New York
May 27, 1997
