SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: February 6, 1997
Date or earliest event report: January 31, 1997
PHARMHOUSE CORP.
(Exact Name of Registrant specified in its charter)
New York I-7090 13-2634868
(State of other (Commission File No.) (IRS Employer
jurisdiction of Identification No.)
incorporation)
860 Broadway
New York, New York 10003
(Address of principal executive offices)
(212)477-9400
(Registrant's telephone number, including area code)
Item 5. Other Events
On January 31, 1997, the Registrant and F.W. Woolworth Co. and
Woolworth Corporation (collectively, "Woolworth") and their respective
affiliates entered into a Mutual Release and Settlement Agreement
(the "Settlement Agreement"), pursuant to which the Registrant and Woolworth
resolved their outstanding disputes arising out of the sale by Woolworth
to the Registrant of the inventory, fixtures and leases relating to 24
deep discount The Rx Place stores (the "Rx Stores) pursuant to an
Asset Purchase Agreement dated April 13, 1995, as amended (the "Asset
Purchase Agreement").
Pursuant to the Settlement Agreement, the Registrant and
Woolworth agreed as follows:
(a) The legal action instituted between Registrant against
Woolworth arising out of the Asset Purchase Agreement and
pending in the New York Supreme Court has been dismissed
with prejudice and all claims asserted by Woolworth in a
related arbitration proceeding have been withdrawn with
prejudice.
(b) The Registrant (including its principal officers)
exchanged releases subject only to the continuing
obligations of the Registrant and Woolworth under the
Settlement Agreement described herein.
(c) Prior to the Settlement Agreement, Woolworth held
three promissory notes of the Registrant (which, as of
December 28, 1996, were in the aggregate amount, including
principal and accrued interest, of approximately $9.5
million, which represented the deferred portion of the
purchase price paid by the Registrant to Woolworth for the
assets of the Rx Stores under the Asset Purchase Agreement.
Woolworth has cancelled and surrendered two of those three
promissory notes pursuant to the Settlement Agreement. The
third promissory note (in the principal amount of approximately
$2.9 million and originally due April 28, 1998) was modified by
the terms of the Settlement Agreement (the "Modified Third Note")
and, as so modified, represents a remaining obligation of the
Registrant in the principal amount of $1 million. The
Modified Third Note does not bear any interest or other
finance charges and is only to be due and payable by the
Registrant to Woolworth in the event that on or prior to
July 30, 1998, the Registrant either liquidates
substantially all of its assets, ceases to conduct
substantially all of its operations (except in the event of
a merger, consolidation or sale of assets with or to third
parties) or files for bankruptcy. If no such event occurs
as of July 30, 1998, the Modified Third Note will be
surrendered by Woolworth to the Registrant for cancellation
and the $1 million obligation evidenced thereby will be
irrevocably forgiven. By reason of the foregoing
arrangements, the Registrant's indebtedness to Woolworth was
reduced by more than $8.5 million after giving effect to the
remaining contingent obligation represented by the Modified
Third Note.
(d) The Registrant and Woolworth agreed to the following
arrangements with respect to the leases and occupancy of the
premises of seven (the "Affected Stores") of the 24 Rx
Stores which were acquired by the Registrant under the
Asset Purchase Agreement.
(i) The lease of one of the Affected Stores has been
reassigned to Woolworth and such reassignment shall become
effective upon the Registrant's surrender of possession of
the premises of that store by not later than May 31, 1997.
(ii) The Registrant redelivered the lease governing a
second Affected Store upon execution of the Settlement
Agreement. That lease is the subject of a pending legal
action with the landlord and Woolworth has agreed both to
assume the defense and to defend the Registrant, at
Woolworth's cost, in such action. The Registrant has agreed
to surrender the premises of this Affected Store within the
earlier of 65 days from the date of the Settlement Agreement
or a court order.
(iii)With respect to the remaining five Affected
Stores, the Registrant has been granted the option by
Woolworth to surrender possession and reassign the lease
governing any one or more of these Affected Stores which
have not shown a store operating profit during the four
month period ending May 31, 1997 as calculated by Pharmhouse
(the "Profitability Test"). The option with respect to
these five Affected Stores is exercisable by the Registrant
up to July 31, 1997. Whether or not the Registrant elects
to exercise the foregoing option, Woolworth reserves the
right, at any time after the date of the Settlement
Agreement, to terminate Registrant's possession of the
premises of any one of these five Affected Stores and to
require reassignment by Registrant to Woolworth of leases to
any one or more of such Affected Stores. Whether the
Registrant exercises such option or Woolworth exercises its
reassigned right, the Registrant will be required to
surrender possession of the premises governing any one of
these five Affected Stores within a stipulated period after
the date of exercise by the Registrant of such option or by
Woolworth of such right of reassignment.
(iv) Woolworth has undertaken to pay rental and other
fixed monthly sums payable to the landlord under each of the
leases governing the seven Affected Stores described in
clauses (i) through (iii) of this paragraph (d) as well as
reimburse the Registrant for additional occupancy costs
payable to such landlords through the date of reassignment,
redelivery, or in the case of the five Affected Stores
referred to in clause (iii), July 31, 1997.
(v) While the Registrant remains in possession of any of
the seven Affected Stores, the Registrant shall be permitted
to retain all proceeds from the sale of inventory and other
asset sales effected in connection with such occupancy.
(e) With respect to the leases governing the remaining 17
Rx Stores acquired by the Registrant pursuant to the Asset
Purchase Agreement, Woolworth shall have no further
obligation under the special real estate indemnification
provisions in the Asset Purchase Agreement and, in the event
that the Registrant fails to perform its obligation under
the leases governing these 17 Rx Stores, Woolworth shall
have the right to cure any such defaults and to have
Registrant reassign such leases in the event that
Registrant does not reimburse Woolworth for amounts it
shall have paid to cure any such defaults.
(f) The Registrant has agreed to pay Woolworth certain
prior outstanding rentals and other charges through January
31, 1997 (previously accrued in the Registrant's financial
statements), subject to certain offsets in the Registrant's
favor, which, after giving effect to such offsets, equal
approximately $195,000. That amount is to be paid by the
Registrant within 120 days after the date of the Settlement
Agreement.
(g) Woolworth extended the term of the Registrant's license
to use the service mark "The Rx Place" for an additional
three year period beyond that set forth in the Asset
Purchase Agreement and the Trademark License Agreement
executed by the parties. As so extended, the Registrant's
license will extend through April 28, 2001 with the right on
the part of the Registrant to extend such license for one
additional year upon written notice from the Registrant to
Woolworth prior to the expiration of the extended license term.
(h) The Settlement Agreement contains certain other terms
and conditions providing for remedies in the event that
either one of the parties fails to perform its continuing
obligations with respect to the matters and transactions
described above.
For further information concerning:
(i) the terms and conditions of the Asset Purchase
Agreement between the Registrant and Woolworth, reference is
hereby made to the Registrant's Annual Report on Form 10-K
for its fiscal year ended January 28, 1995; and
(ii) the claims asserted by the Registrant in the legal
action and the claims asserted by Woolworth in the related
arbitration proceedings which have been dismissed pursuant
to the Settlement Agreement, reference is hereby made to
Note 6 to the Registrant's Consolidated Financial Statements
included in the Registrant's Form 10-Q Reports for the
fiscal quarters ended August 3, 1996 and November 2, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
PHARMHOUSE CORP.
By: /s/ Marcie B. Davis
--------------------------
Marcie B. Davis
Executive Vice President
February 6, 1997
