As filed with the Securities and Exchange Commission on January 13, 1999
Registration No. 333-________
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
ALLOU HEALTH & BEAUTY CARE, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-2953972
------------------------------ ---------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
50 Emjay Boulevard
Brentwood, NY 11717
(516) 273-4000
-----------------------------------------------------------------
(Address, including zip code, and telephone
number, Including area code, of registrant's principal
executive offices)
Victor Jacobs
Chairman of the Board and Chief Executive Officer
50 Emjay Boulevard
Brentwood, NY 11717
(516) 273-4000
-----------------------------------------------------------------
(Name, address, including zip code, and telephone number,
Including area code, of agent for service)
Copy to:
Henry I. Rothman, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
(212) 704-6000
-----------------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box. |_|
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, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| __________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_| __________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
<PAGE>
<TABLE>
<CAPTION>
================================================================================
CALCULATION OF REGISTRATION FEE
Proposed Maximum Proposed Maximum Amount of
Title of Each Class Amount to be Offering Price Aggregate Offering Registration
of Securities to be Registered Registered (1) per Share(2)(3) Price Fee
<S> <C> <C> <C> <C>
Class A Common Stock, $.001 par value
per share............................ 1,533,334 11.688 $17,921,607 $4,982.21
Total Registration Fee...........................................................................................$4,982.21
================================================================================
</TABLE>
(1) Pursuant to Rule 416, the shares of Class A Common Stock offered hereby
also include such indeterminable number of shares of Class A Common
Stock as are issuable by the Company to the Selling Stockholders upon
exercise of Warrants to prevent dilution resulting from stock splits,
stock dividends or similar events.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and (g) of the Securities Act of 1933, as
amended (the "Securities Act"); based on the average bid and ask prices
on the American Stock Exchange on January 12, 1999.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(g) of the Securities Act.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment 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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>
The information in this Prospectus is not complete. We may not sell these
securities until the Registration Statement filed with the Securities and
Exchange Commission is effective. This Prospectus is not an offer to sell nor is
it seeking an offer to buy these securities in any State where the offer or sale
is not permitted.
SUBJECT TO COMPLETION, DATED JANUARY 13, 1999
PROSPECTUS
1,533,334 Shares
ALLOU HEALTH & BEAUTY CARE, INC.
Certain of the Stockholders of Allou Health & Beauty Care, Inc. are
selling 1,533,334 Shares of Class A Common Stock of the Company under this
Prospectus, of which 666,667 are issued and outstanding and 866,667 are issuable
upon the exercise of Warrants to purchase Class A Common Stock. We issued the
Warrants and 666,667 of the Shares covered by this Prospectus to the Selling
Stockholders in a private placement under a Securities Purchase Agreement in
December 1998.
The Selling Stockholders may offer its Shares of the Company on any
stock exchange, market or trading facility on which the Shares are traded or in
private transactions. These sales may be at fixed or negotiated prices.
The Selling Stockholders will receive all net proceeds from the sale of
the Shares. Accordingly, we will not receive any proceeds from the resale of the
Shares. We may receive proceeds from the exercise of the Warrants. We will use
such net proceeds for general corporate purposes. We may bear all expenses
relating to this registration except for brokerage commissions and expenses, if
any, which will be paid by the Selling Stockholders.
AMEX Stock Exchange Symbol: "ALU"
On January 12, 1999, the closing sale price of one share of our Class A
Common Stock on the AMEX Stock Exchange was $ 11 7/16.
Our executive offices are located at 50 Emjay Boulevard, Brentwood, New
York 11717 and our telephone number is (516) 273-4000.
----------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
YOU SHOULD CAREFULLY CONSIDER THE FACTORS DESCRIBED
UNDER THE CAPTION "INVESTMENT CONSIDERATIONS" ON PAGE 5
OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR
ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED THESE SECURITIES, OR DETERMINED
IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------
The Date of this Prospectus is ______, 1999
<PAGE>
------------------------
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
from the SEC's Website at "http://www.sec.gov."
We have filed with the SEC a registration statement on Form S-3 to
register shares of our Class A Common Stock. This Prospectus is part of that
registration statement and, as permitted by the SEC's rules, does not contain
all the information included in the registration statement. For further
information with respect to us and our Class A Common Stock, you may refer to
the registration statement and to the exhibits and schedules filed as part of
that registration statement. You can review and copy the registration statement
and its exhibits and schedules at the public reference facilities maintained by
the SEC as described above. The registration statement, including its exhibits
and schedules, is also available on the SEC's web site.
This Prospectus may contain summaries of contracts or other documents.
Because they are summaries, they will not contain all of the information that
may be important to you. If you would like complete information about a contract
or other document, you should read the copy filed as an exhibit to the
registration statement.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be a part of this prospectus, and information that we file later
with the SEC will automatically update or supersede this information. We
incorporate by reference the documents listed below and any future filing we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934:
1. Annual Report on Form 10-K for the fiscal year ended March 31, 1998;
and
2. Quarterly Reports on Form 10-Q for the period ended June 30,
1998 and September 30, 1998.
You may request a copy of these filings, at no cost, by writing to us
at 50 Emjay Boulevard, Brentwood, New York 11717, Attention: David Shamilzadeh.
-----------------------
This Prospectus contains certain forward-looking statements which
involve substantial risks and uncertainties. These forward-looking statements
can generally be identified because the context of the statement includes words
such as "may," "will," "except," "anticipate," "intend," "estimate," "continue,"
"believe," or other similar words. Similarly, statements that describe our
future plans, objectives and goals are also forward-looking statements. Our
factual results, performance or achievements could differ materially from those
expressed or implied in these forward-looking statements as a result of certain
factors, including those listed in "Risk Factors" and elsewhere in this
Prospectus.
- 2 -
<PAGE>
We have not authorized any dealer, salesperson or any other person to
give any information or to represent anything not contained in this Prospectus.
You must not rely on any unauthorized information. This Prospectus does not
offer to sell or buy any shares in any jurisdiction where it is unlawful. The
information in this Prospectus is current as of January __, 1999.
-------------------------
TABLE OF CONTENTS
Where You Can Find More Information About Us...............................2
Investment Considerations..................................................4
Use of Proceeds............................................................6
Dividend Policy............................................................6
Selling Stockholders ......................................................7
Description of Securities..................................................8
Plan of Distribution .....................................................10
Indemnification for Securities Act Liabilities............................11
Legal Matters.............................................................11
Experts ..................................................................11
- 3 -
<PAGE>
INVESTMENT CONSIDERATIONS
Before you buy shares of our Class A Common Stock, you should be aware
that there are various risks associated with such purchase, including those
described below. You should consider carefully these risk factors, together with
all of the other information in this Prospectus before you decide to purchase
shares of our Class A Common Stock.
Some of the information in this Prospectus may contain forward-looking
statements. Such statements can be identified by the use of forward-looking
words such as "may," "will," "except," "anticipate," "intend," "estimate,"
"continue," "believe," or other similar words. These statements discuss future
expectations, contain projections of our future results of operations or
financial condition or state other "forward-looking" information. When
considering such statements, you should keep in mind the risk factors and other
cautionary statements in this Prospectus. The risk factors noted in this section
and other factors noted in this Prospectus could cause our actual results to
differ materially from those contained in any forward-looking statements.
THE EXERCISE OF OUTSTANDING OPTIONS AND THE WARRANTS ISSUED IN THE DECEMBER 1998
PRIVATE PLACEMENT WILL DILUTE THE NET TANGIBLE VALUE OF YOUR SHARES
The net tangible value of your Shares will be diluted upon the exercise
of outstanding options and the issuance of Class A Common Stock upon exercise of
the Warrants we have issued in connection with the December 1998 Securities
Purchase Agreement. Specifically, the Warrants issued in connection with the
December 1998 Securities Purchase Agreement are exercisable into Class A Common
Stock at discounts from future market prices of the Class A Common Stock. Such
discounts could result in substantial dilution to existing holders of Class A
Common Stock. The sale of such Class A Common Stock acquired at a discount could
have a negative impact on the trading price of the Class A Common Stock and
could increase the volatility in the trading price of the Class A Common Stock.
At the date of this Prospectus, we have reserved an aggregate of
866,667 shares of Class A Common Stock for issuance upon exercise of the
Warrants which are exercisable at an exercise price of $.01 per share through
December 2002. The number of shares issuable upon exercise of the Warrants may
be adjusted depending upon the average of the twenty lowest closing bid prices
of the Class A Common Stock during the thirty trading days prior to the
applicable vesting date of the Warrant of the Class A Common Stock. The number
of shares offered hereby assumes that the average of the twenty lowest closing
bid prices in the thirty trading days prior to such vesting dates will equal
$4.50.
During the terms of the Warrants, we must give the holders the
opportunity to profit from a rise in the market price of the Class A Common
Stock. The existence of the Warrants may adversely affect the terms on which we
may obtain additional equity financing. Moreover, the holders are likely to
exercise their rights to acquire Class A Common Stock at a time when we would
otherwise be able to obtain capital with more favorable terms than we could
obtain through the exercise of such securities.
WE HAVE SIGNIFICANT DEBT
In order to finance our operations, we have incurred significant
indebtedness. Of the Company's total indebtedness of $165,663,223 outstanding at
September 30, 1998, $142,655,100 was outstanding under a working capital line of
credit with several banks. This line of credit is secured by substantially all
of the assets of the Company and its subsidiaries, which are co-borrowers under
the line of credit. The line of credit restricts our ability from incurring
additional indebtedness, pledging assets and declaring dividends or making
distributions to stockholders without the consent of the banks. In the event we
violate any loan covenants or we default on our obligations, the banks could
elect to declare our indebtedness immediately due and payable and foreclose on
our assets. As of the date of this Prospectus, we are in compliance with all of
the terms of our financing agreements.
- 4 -
<PAGE>
OUR BUSINESS IS SEASONAL
Our fragrance business has historically been seasonal, reflecting
traditional retail seasonality patterns, with significantly higher sales
representing approximately 33% of annual sales revenue, occurring in the third
fiscal quarter of each year. Significantly higher sales result from increased
purchases of fragrances as gifts during the holiday season. Additionally,
Internet usage and Internet growth may be expected to decline during the summer,
when people spend fewer hours inside. As a result, sales from our fragrance
business may be lower during the summer months than during other seasons.
WE ARE DEPENDENT UPON KEY MEMBERS OF OUR MANAGEMENT
Our business is greatly dependent upon the efforts of Mr. Victor
Jacobs, our Chairman of the Board and Chief Executive Officer, Mr. Herman
Jacobs, our President and Chief Operating Officer, Mr. David Shamilzadeh, our
Senior Vice President and Chief Financial Officer, Mr. Jack Jacobs, our Vice
President of Purchasing and Secretary and Mr. Ramon Montes, our Executive Vice
President of Sales. The loss of services of any of such individuals or other key
personnel could adversely affect the conduct of our business. We have obtained
"key man" life insurance on the lives of such persons for its benefit in the
amount of $1,000,000. Our success will also be dependent upon our ability to
attract and retain experienced management, marketing and industry personnel,
particularly those with knowledge of the Internet and online commerce. We face
considerable competition from other companies in our industries, as well as
other companies that market products via the Internet or online commerce. We
cannot assure you that we can attract and retain such personnel and our
inability to do so could have a material adverse effect on our business.
OUR CLASS B COMMON STOCK REPRESENTS A MAJORITY OF OUR VOTING POWER AND KEY
MEMBERS OF MANAGEMENT OWN ALL OF THE CLASS B STOCK
Messrs. Victor Jacobs, Herman Jacobs and Jack Jacobs collectively own
1,200,000 shares of our Class B Common Stock, which has five votes per share
(compared to the Class A Common Stock, which has one vote per share) which, in
the aggregate represents 18.4% of our outstanding capital stock and
approximately 53% of the total voting power. Accordingly, such persons are able
to control us and generally direct our affairs, including electing a majority of
our directors and causing an increase in our authorized capital causing our
dissolution, merger or sale of substantially all of our assets. The
disproportionate vote afforded the Class B Common Stock could also serve to
impede or prevent a change of control of us. As a result, potential acquires
will be discouraged from seeking to acquire control of us through the purchase
of Common Stock, which could have a depressive effect on the price of our
securities. See "Principal Shareholders" and "Description of Securities."
OUR PREFERRED STOCK MAY HAVE THE EFFECT OF PREVENTING OR DELAYING A
CHANGE OF CONTROL
Our Certificate of Incorporation authorizes the issuance of 1,000,000
shares of "blank check" preferred stock with such designations, rights and
preferences as may be determined from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without shareholder approval
(but subject to applicable government regulatory restrictions), to issue
preferred stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
our Class A Common Stock. In the event of issuance, the preferred stock could be
utilized, under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of us. Although we have no present intention to
issue any shares of our preferred stock, we cannot assure you that we will not
do so in the future. In addition, certain provisions of the Delaware General
Corporation Law prevent certain stockholders from engaging in certain business
combinations with us, subject to certain exceptions. See "Description of
Securities."
- 5 -
<PAGE>
YEAR 2000 ISSUES
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the our
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Based on a recent assessment, we determined that the costs to modify or
replace portions of our software so that our computer systems will properly
utilize dates beyond December 31, 1999 will not be material. We believe that we
can mitigate the Year 2000 Issue with modifications to existing software and
conversions to new software. However, if we fail to make such modifications and
conversions, or if we do not make them on a timely basis, the Year 2000 Issue
could have a material impact on our operations.
We have contacted all of our significant suppliers and large customers
to determine the possible effect on our operations of their inability or failure
to remediate their own Year 2000 Issue. Our estimate of the costs to remediate
our Year 2000 issue is based on presently available information. However, we
cannot guarantee that the systems of other companies on which our systems rely
will be timely converted, or that a failure to convert by another company, or a
conversion that is incompatible with our systems, would not have material
adverse effect on our operations. We have no exposure to contingencies related
to the Year 2000 Issue for the products we have sold.
SHARES THAT ARE ELIGIBLE FOR SALE IN THE FUTURE
Sales of a substantial number of shares of our Class A Common Stock in
the public market following this offering could adversely affect the market
price of the Class A Common Stock. Of the 6,179,714 shares of Class A Common
Stock that will be outstanding or registered for resale upon the completion of
this offering, all will be freely tradeable without restriction or further
registration under the Securities Act.
OUR STOCK PRICE MAY BE VOLATILE
The trading price of our Class A Common Stock may be volatile. Such
trading price could be subject to wide fluctuations in response to our
announcements of business developments or those by our competitors, quarterly
variations in operating results, and other events or factors, including our
prospects and expectations by investors and securities analysts. In addition,
stock markets have experienced extreme price volatility in recent years. Such
broad market fluctuations may adversely affect the price of our Class A Common
Stock.
USE OF PROCEEDS
The Selling Stockholders are selling all of the Shares covered by this
Prospectus for their own account. Accordingly, we will not receive any proceeds
from the resale of the Shares. We will receive minimal proceeds from the
exercise of the Warrants. We will use such net proceeds for general corporate
purposes. We will bear all expenses relating to this registration except for
brokerage or underwriting commissions and expenses, if any, which will be paid
by the Selling Stockholders.
DIVIDEND POLICY
We have never declared or paid cash dividends on our Class A Common
Stock. We currently anticipate that we will retain all available funds for use
in the operation of our business. As such, we do not anticipate paying any cash
dividends on our Class A Common Stock in the foreseeable future.
- 6 -
<PAGE>
SELLING STOCKHOLDERS
We issued the Shares of Class A Common Stock covered by this Prospectus
to the Selling Stockholders under the terms of a Securities Purchase Agreement
dated as of December 14, 1998 between the Selling Shareholders and us. Under the
terms of the December 1998 Securities Purchase Agreement, we issued 666,667
shares of our Class A Common Stock to the Selling Stockholders.
The following table lists certain information regarding the Selling
Stockholders' ownership of Shares of our Class A Common Stock as of January 11,
1999, and as adjusted to reflect the sale of the Shares. Information concerning
the Selling Stockholders may change from time to time.
<TABLE>
<CAPTION> Shares of Class A Common Stock
Owned
after Offering (1)
--------------------------------------
Shares of Class
A Common
Stock Owned Shares
Prior to Registered
Offering (2) Hereby (3) Number (4) Percent
----------------- ------------------ ---------------- -----------------
<S> <C> <C> <C> <C>
Strong River Investments, Inc. 166,667 383,334 -0- -0-
Sovereign Partners, L.P. 200,000 460,000 -0- -0-
Dominion Capital Fund Ltd. 150,000 345,000 -0- -0-
Canadian Advantage Limited Partnership 38,889 89,445 -0- -0-
Westover Investments L.P. 33,333 76,666 -0- -0-
Montrose Investments, Ltd. 77,778 178,889 -0- -0-
Total 666,667 1,533,334 -0- -0-
======= ========= === ===
</TABLE>
- -----------------
(1) Assumes that all of the shares of Class A Common Stock offerred hereby
are sold.
(2) Does not include Shares issuable upon exercise of the Warrant issued
to each Selling Stockholder. Because the Warrants are not currently
exercisable and the number of shares of Class A Common Stock issuable
upon exercise of the Warrants is dependent in part upon the market
price of the Common Stock prior to each vesting date under the
Warrants, the actual number of shares of Class A Common Stock that will
be issued in respect of such exercise cannot be determined at this
time.
(3) Includes Shares issuable upon exercise of the Warrant issued to each
Selling Stockholder. Because the number of shares of Class A Common
Stock issuable upon exercise of the Warrants is dependent in part upon
the market price (i.e., the average of the twenty lowest closing bid
prices of the Class A Common Stock during the thirty trading days prior
to each vesting date under the Warrants) (the "Market Price"), the
actual number of shares of Class A Common Stock that will be issued in
respect of such exercise and, consequently, offered for sale under this
Registration Statement, cannot be determined at this time. In order to
provide a cushion for any fluctuations in the market price of the Class
A Common Stock, the Company has contractually agreed to include herein
the number of Shares owned by such Selling Stockholder plus such number
of shares of Class A Common Stock as would be issuable upon exercise in
full of the Warrants assuming the Market Price at each vesting date
were $4.50.
(4) Pursuant to the December 1998 Securities Purchase Agreement, each
Selling Stockholder has agreed to sell Shares only to the extent the
proceeds of such sales do not exceed 33 1/3% of the aggregate purchase
price paid by such Selling Stockholder on the closing date of the
December 1998 private placement. During the period commencing on the
first vesting date of the Warrants and ending on the day immediately
prior to the second vesting date of the Warrants, each Selling
Stockholder has agreed to sell Shares only to the extent the proceeds
of such sales do not exceed 66 2/3% of the purchase price paid by such
Selling Stockholder on the December 1998 private placement closing date
(minus any proceeds received by such Selling Stockholder from sales of
Shares during the first period described in the previous sentence).
Such limitations do not apply to any sales of Shares made on or after
the second vesting date or for Shares sold at a price per share equal
to or exceeding $11.25.
- 7 -
<PAGE>
DESCRIPTION OF SECURITIES
General
The Company is authorized to issue 15,000,000 shares of Class A Common
Stock, of which 5,313,047 were issued and outstanding on January 8, 1999 and
2,200,000 shares of Class B Common Stock, of which 1,200,000 are issued and
outstanding. The Company is also authorized to issue 1,000,000 shares of
Preferred Stock, $.001 par value ("Preferred Stock"). No shares of Preferred
Stock are currently outstanding.
Common Stock
The Holders of shares of Class A Common Stock and Class B Common Stock
have no preemptive rights and the shares are not subject to redemption. The
outstanding shares of Class B Common Stock and Class A Common Stock are duly and
validly issued and fully paid and non-assessable.
Holders of Class A Common Stock and Class B Common Stock are not
entitled to cumulative voting. Holders of Class B Common Stock are entitled to
five votes per share on every matter on which common stockholders of the Company
are entitled to vote. Holders of Class A Common Stock are entitled to one vote
per share on every matter on which common stockholders of the Company are
entitled to vote. Therefore, the holders of the Class B Common Stock
representing a majority of voting rights may elect all of the directors of the
Company and authorize certain corporate transactions without the concurrence of
the public stockholders.
Holders of Class B Common Stock may, at any time, convert their shares
into Class A Common Stock on a share for share basis. Each share of Class B
Common Stock shall automatically be converted into one share of Class A Common
Stock upon its sale or transfer (including its transfer upon the death of the
holder hereof) unless such sale or transfer is to one or more other holders of
Class B Common Stock, certain family members of the holders of Class B Common
Stock or certain trusts for their benefit.
Except for the aforementioned voting and conversion rights, the Class A
Common Stock and Class B Common Stock are identical in all respects.
The Company has reserved for issuance such number of shares of Class A
Common Stock as may be issuable upon exercise of the Warrants. Such shares, when
issued, will be duly and validly issued and fully paid and non-assessable.
Preferred Stock
The Company is authorized to issue 1,000,000 million shares of
Preferred Stock, in one or more classes or series as determined from time to
time by the Board of Directors.
In authorizing any class or series of Preferred Stock within the
limitations and restrictions contained in the Company's Certificate of
Incorporation, as amended, and without further action by the Company's
stockholders, the Board of Directors has the authority to issue shares of
Preferred Stock and to fix the number of shares and the relative rights,
conversion rights, voting rights and the terms of redemption, liquidation
preferences and any other preferences, special rights and qualifications of any
such series. Accordingly, the Board of Directors will be empowered, without
stockholder approval, to issue Preferred Stock with rights which could adversely
affect the voting power or other rights of the holders of the Common Stock. In
the event of issuance, the Preferred Stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company.
- 8 -
<PAGE>
Warrants
Each Warrant issued pursuant to the December 1998 Securities Purchase
Agreement entitles the holder to purchase a certain number of shares of Class A
Common Stock depending upon the average of the lowest twenty closing bid prices
of the Class A Common Stock during the thirty trading days prior to the
applicable vesting date of the Warrant. The Warrants are exercisable for $.01
per share and are exercisable until December 15, 2002. The Warrants are not
redeemable by the Company at any time. Each holder of a Warrant has agreed to
restrict its ability to exercise such Warrant to the extent that such exercise
would result in such holder owning in excess of 4.999% of the then issued and
outstanding shares of Class A Common Stock (including Shares issuable upon
exercise of the Warrants), provided, however,that the holders have the right to
waive such restriction upon not less than 75 days notice to the Company.
The exercise price and number of shares of Class A Common Stock or
other securities issuable on exercise of the Warrants are subject to adjustment
in certain circumstances, including in the event of a stock dividend,
recapitalization, reorganization, merger or consolidation of the Company.
Reference is made to the Warrant (which has been filed as an exhibit to this
Registration Statement) for a complete description of the terms and conditions
therein (the description herein contained being qualified in its entirety by
reference thereto).
Delaware Law Antitakeover Provision
The Company is subject to the provisions of Section 203 of the DGCL. In
general, this statute prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
becomes an interested stockholder, unless the business combination is approved
in a prescribed manner. An "interested stockholder" is a person who, together
with affiliates and associates, owns (or within the prior three years did own)
15% or more of the corporation's voting stock. Such provisions could render the
Company more difficult for such person to obtain control of the Company without
the approval of the Board of Directors.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Class A Common Stock is
Continental Stock Transfer and Trust Company.
- 9 -
<PAGE>
PLAN OF DISTRIBUTION
The Selling Stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of Class A Common Stock on any stock exchange, market or trading facility on
which the Shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. The Selling Stockholders may use any one or more of
the following methods when selling Shares:
o ordinary brokerage transactions and transactions in which the broker-
dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-
dealer for its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately negotiated transactions;
o short sales;
o broker-dealers may agree with the Selling Stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell Shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The Selling Stockholders may also engage in short sales against the
box, puts and calls and other transactions in securities of the Company or
derivatives of Company securities and may sell or deliver Shares in connection
with these trades. The Selling Stockholders may pledge their shares to their
brokers under the margin provisions of customer agreements. If a Selling
Stockholder defaults on a margin loan, the broker may, from time to time, offer
and sell the pledged Shares.
Broker-dealers engaged by the Selling Stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the Shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the Shares, including fees and disbursements of counsel to the
Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under Securities Act.
- 10 -
<PAGE>
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Section 145 of the DGCL provides, in general, that a corporation
incorporated under the laws of the State of Delaware, such as our company, 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, suit or proceeding (other than a
derivative action by or in the right of the corporation) by reason of the fact
that such person 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 enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person 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 such person's conduct was unlawful. In the case of a
derivative action, a Delaware corporation may indemnify any such person against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or any other court in which such action was brought determines such
person is fairly and reasonably entitled to indemnity for such expenses.
Our Certificate of Incorporation provides that directors shall not be
personally liable for monetary damages to us or our stockholders for breach of
fiduciary duty as a director, except for liability resulting from a breach of
the director's duty of loyalty to our stockholders, intentional misconduct or
wilful violation of law, actions or inactions not in good faith, an unlawful
stock purchase or payment of a dividend under Delaware law, or transactions from
which the director derives improper personal benefit. Such limitation of
liability does not affect the availability of equitable remedies such as
injunctive relief or rescission. Our Certificate of Incorporation also
authorizes us to indemnify our officers, directors and other agents, by bylaws,
agreements or otherwise, to the fullest extent permitted under Delaware law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer 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.
LEGAL MATTERS
Parker Chapin Flattau & Klimpl, LLP, New York, New York will pass upon
the validity of the securities offered hereby.
EXPERTS
The consolidated financial statements as of March 31, 1998 and 1997 and
for each of the two years in the period ended March 31, 1998 incorporated by
reference in this Prospectus have been so incorporated in reliance on the report
of Mayer Rispler & Company, P.C., independent certified public accountants,
given on the authority of said firm as experts in auditing and accounting.
- 11 -
<PAGE>
================================================================================
We have not authorized any dealer,
salesperson or any other person to give
any information or to represent anything
not contained in this Prospectus. You
must not rely on any unauthorized
information. This Prospectus does not
offer to sell or buy any shares in any
jurisdiction where it is unlawful. The
information in this Prospectus is 1,533,334 SHARES OF
current as of _____________, 1999. CLASS A COMMON STOCK
TABLE OF CONTENTS
Page PROSPECTUS
Where You Can Find More
Information About Us.........2
Investment Consideration .............4
Use of Proceeds.......................6
Dividend Policy.......................6
Selling Stockholders .................7 , 1999
Description of Securities.............8
Plan of Distribution ................10
Indemnification for Securities
Act Liabilities.............11
Legal Matters........................11
Experts .............................11
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses which will be paid
by the Company in connection with the issuance and distribution of the
securities being registered on this Registration Statement. The Selling
Stockholders will not incur any of the expenses set forth below. All amounts
shown are estimates.
Filing fee for registration statement.............$ 4,982.21
Legal fees and expenses...........................$10,000.00
Accounting expenses...............................$10,000.00
Miscellaneous $ 17.79
------------
Total........................................$25,000.00
============
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL") provides, in general, that a corporation incorporated under the
laws of the State of Delaware, such as the registrant, 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, suit or proceeding (other than a derivative action
by or in the right of the corporation) by reason of the fact that such person 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 enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding if such person
acted in good faith and in a manner such person 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 such person's
conduct was unlawful. In the case of a derivative action, a Delaware corporation
may indemnify any such person against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery of the State of Delaware or any other court in which such
action was brought determines such person is fairly and reasonably entitled to
indemnity for such expenses.
The Company's Certificate of Incorporation provides that directors
shall not be personally liable for monetary damages to the Company or its
stockholders for breach of fiduciary duty as a director, except for liability
resulting from a breach of the director's duty of loyalty to the Company or its
stockholders, intentional misconduct or wilful violation of law, actions or
inactions not in good faith, an unlawful stock purchase or payment of a dividend
under Delaware law, or transactions from which the director derives improper
personal benefit. Such limitation of liability does not affect the availability
of equitable remedies such as injunctive relief or rescission. The Company's
Certificate of Incorporation also authorizes the Company to indemnify its
officers, directors and other agents, by bylaws, agreements or otherwise, to the
fullest extent permitted under Delaware law. The Company has entered into an
Indemnification Agreement (the "Indemnification Agreement") with each of its
directors and officers which may, in some cases, be broader than the specific
indemnification provisions contained in the Company's Certificate of
Incorporation or as otherwise permitted under Delaware law.
II - 1
<PAGE>
ITEM 16. EXHIBITS.
NUMBER DESCRIPTION OF EXHIBIT
4.1 Form of Securities Purchase Agreement dated December 14, 1998
among Allou Health Beauty Care, Inc., Strong River Investments,
Inc., Sovereign Partners, L.P., Dominion Capital Fund Ltd.,
Canadian Advantage Limited Partnership, Westover Investments, L.P.
and Montrose Investments, Ltd.
4.2 Form of Warrant.
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP.
23.1 Consent of Mayer Rispler & Company, P.C.
23.2 Consent of Parker Chapin Flattau & Klimpl, LLP (included in their
opinion filed as Exhibit 5.1).
24.1 Power of Attorney (included on page II-4 to the 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;
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose 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.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer 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.
II - 2
<PAGE>
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
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 small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of the issue.
The undersigned small business issuer hereby undertakes that, for
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 section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II - 3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant 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 Brentwood, State of New York on January 7, 1999.
ALLOU HEALTH & BEAUTY CARE, INC.
By: /s/ Victor Jacobs
--------------------------------------
Victor Jacobs
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes David Shamilzadeh and Victor Jacobs, each acting
alone, 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 and all amendments (including post-effective
amendments) to this registration statement and to file the same with exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, 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 attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement on Form S-3 has been signed below by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Victor Jacobs Chairman of the Board, and January 7, 1999
- ---------------------------------- Chief Executive Officer
Victor Jacobs
/s/ Herman Jacobs President and Director January 7, 1999
- ----------------------------------
Herman Jacobs
/s/ Ramon Montes Director January 7, 1999
- ----------------------------------
Ramon Montes
/s/ David Shamilzadeh Chief Financial Officer, Chief January 7, 1999
- ---------------------------------- Accounting Officer and
David Shamilzadeh Director
II - 4
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Jack Jacobs Director January 7, 1999
- ----------------------------------
Jack Jacobs
/s/ Sol Naimark Director January 7, 1999
- ----------------------------------
Sol Naimark
/s/ Jeffrey Berg Director January 11, 1999
- ----------------------------------
Jeffrey Berg
</TABLE>
II - 5
<PAGE>
SECURITIES AND
EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
-------------
EXHIBITS
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------
ALLOU HEALTH & BEAUTY CARE, INC.
(EXACT NAME OF ISSUER AS SPECIFIED
IN ITS CHARTER)
January __, 1999
II - 6
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO./REF.
- ---------- ----------------------- -------------
4.1 Form of Securities Purchase Agreement dated December 14,
1998 among Allou Health Beauty Care, Inc., Strong
River Investments, Inc., Sovereign Partners, L.P.,
Dominion Capital Fund Ltd., Canadian Advantage
Limited Partnership, Westover Investments, L.P. and
Montrose Investments, Ltd.
4.2 Form of Warrant.
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP.
23.1 Consent of Mayer Rispler & Company, P.C.
23.2 Consent of Parker Chapin Flattau & Klimpl, LLP (included
in their opinion filed as Exhibit 5.1).
24.1 Power of Attorney (see page II-4 to the Registration
Statement).
II - 7
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT
Among
ALLOU HEALTH AND BEAUTY CARE, INC.,
STRONG RIVER INVESTMENTS, INC.,
SOVEREIGN PARTNERS, L.P.,
DOMINION CAPITAL FUND LTD.,
CANADIAN ADVANTAGE LIMITED PARTNERSHIP,
WESTOVER INVESTMENTS, L.P.
and
MONTROSE INVESTMENTS, LTD.
December 14, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SECURITIES PURCHASE AGREEMENT, dated as of December 14, 1998 (this
"Agreement"), among Allou Health and Beauty Care, Inc., a Delaware corporation
(the "Company"), Strong River Investment, Inc., a British Virgin Islands company
("Strong River"), Sovereign Partners, L.P., a Delaware limited partnership
("Sovereign"), Dominion Capital Fund Ltd., a corporation incorporated under the
laws of the Commonwealth of the Bahamas ("Dominion"), Canadian Advantage Limited
Partnership, an Ontario limited partnership ("Canadian"), Westover Investments,
L.P., a Delaware limited partnership ("Westover") and Montrose Investments Ltd.,
a Cayman Islands exempt limited partnership ("Montrose") (Strong River,
Sovereign, Dominion, Canadian, Westover and Montrose are each referred to herein
as a "Purchaser" and are collectively referred to herein as the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and the Purchasers, severally and not
jointly, desire to purchase, an aggregate of 666,667 shares (the "Shares") of
the Company's Class A Common Stock, par value $.001 per share (the "Common
Stock") in the respective amounts set forth opposite each Purchaser's name on
the Schedule I hereto.
NOW THEREFORE, the Company and each of the Purchasers hereby agree as
follows:
ARTICLE I
PURCHASE AND SALE OF COMMON STOCK
1.1 Purchase of Shares.
(a) The Closing. (i) The closing of the purchase and sale of
the Shares (the "Closing") shall take place at the offices of Robinson Silverman
Pearce Aronsohn & Berman, LLP ("Robinson Silverman"), 1290 Avenue of the
Americas, New York, New York 10104, immediately following the execution of this
Agreement or such other date and time as the parties hereto shall agree. The
date of the Closing is hereinafter referred to as the "Closing Date."
(ii) Deliveries at Closing. At the Closing (A) the
Company shall deliver to or cause to be delivered to each Purchaser (i) a stock
certificate, registered in the name of such Purchaser or such Purchaser's
designee, representing the number of Shares to be acquired at the Closing by
such Purchaser (which number is set forth opposite such Purchaser's name on
Schedule I hereto), (2) a Common Stock purchase warrant in the form of Exhibit A
attached hereto (each, a "Warrant," and collectively, the "Warrants"),
registered in such Purchaser's name or the name of such Purchaser's designee,
entitling the holder thereof to acquire Common Stock upon the terms set forth
therein, (3) the legal opinion of Parker, Chapin, Flattau & Klimpl, LLP, outside
counsel to the Company, addressed to the Purchasers, substantially in the form
of Exhibit B attached hereto and (4) all other documents, instruments and
writings required to have been delivered at or prior to the Closing by the
Company pursuant to this Agreement, including, without limitation, executed
originals of each of the Registration Rights Agreement, dated the date hereof,
among the Company and the Purchasers in the form of Exhibit C attached hereto
(the "Registration Rights Agreement")
<PAGE>
and the Irrevocable Transfer Agent Instructions, in the form of Exhibit D
attached hereto (the "Transfer Agent Instructions"), delivered to and
acknowledged by the Company and the Company's transfer agent; and (B) each
Purchaser shall deliver or cause to be delivered to the Company (i) by wire
transfer of immediately available funds the amount set forth opposite such
Purchaser's name on Schedule I hereto in accordance with wire instructions
delivered by the Company prior to the Closing for such purpose and (ii) all
documents, instruments and writings required to have been delivered at or prior
to the Closing by such Purchaser pursuant to this Agreement, including, without
limitation, an executed Registration Rights Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The
Company hereby makes the following representations and warranties to the
Purchaser:
(a) Organization and Qualification. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, with the requisite corporate
power and authority to own and use its properties and assets and to carry on its
business as currently conducted. The Company has no subsidiaries other than
those set forth in the most recent Form10-K filed by the Company with the
Commission (collectively the "Subsidiaries"). Each of the Subsidiaries is an
entity, duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted. The
only Subsidiaries of the Company that generate 5% or more of the aggregate gross
revenues of the Company and its Subsidiaries on a consolidated basis are Allou
Distributors, Inc. and M. Sobol, Inc. Each of the Company and the Subsidiaries
is duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could not,
individually or in the aggregate, (x) adversely affect the legality, validity or
enforceability of the Securities (as defined below) or any of this Agreement,
the Registration Rights Agreement or the Warrants (collectively, the
"Transaction Documents"), (y) have or result in a material adverse effect on the
results of operations, assets, prospects, or condition (financial or otherwise)
of the Company and the Subsidiaries, taken as a whole, or (z) adversely impair
the Company's ability to perform fully on a timely basis its obligations under
any of the Transaction Documents (any of (x), (y) or (z), a "Material Adverse
Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company, except for
any shareholder approval that may be required by Section 713 of the Listing
Standards, Policies and Requirements of the
-2-
<PAGE>
American Stock Exchange (the "AMEX"). Each of the Transaction Documents has been
duly executed by the Company and, when delivered in accordance with the terms
hereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms. Neither the
Company nor any Subsidiary is in violation of any of the provisions of its
respective certificate of incorporation, by-laws or other charter documents.
(c) Capitalization. The number of authorized, issued and
outstanding capital stock of the Company consists of: (i) 10,000,000 authorized
shares of its Common Stock, 4,644,380 shares of which are currently outstanding,
(ii) 2,200,000 authorized shares of its Class B Common Stock, par value $.001
per share (the "Class B Common Stock"), 1,200,000 shares of which are currently
outstanding and (iii) 1,000,000 shares of preferred stock, par value $.001 per
share, no shares of which are currently outstanding. No shares of Common Stock
and no shares of the Company's Class B Common Stock, par value $.001 per share
(the "Class B Common Stock") are entitled to preemptive or similar rights, nor
is any holder of the Common Stock or Class B Common Stock entitled to preemptive
or similar rights arising out of any agreement or understanding with the Company
by virtue of any of the Transaction Documents. Except as disclosed in Schedule
2.1(c), there are no outstanding options, warrants, script rights to subscribe
to, calls or commitments of any character whatsoever relating to, or, except as
a result of the purchase and sale of the Warrants, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire any shares of Common Stock or Class B Common Stock, or
contracts, commitments, understandings, or arrangements by which the Company or
any Subsidiary is or may become bound to issue additional shares of Common Stock
or Class B Common Stock, or securities or rights convertible or exchangeable
into shares of Common Stock or Class B Common Stock. To the knowledge of the
Company, except as specifically disclosed in the SEC Reports (as defined below)
or Schedule 2.1(c), no Person or group of related Persons beneficially owns (as
determined pursuant to Rule 13d-3 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) or has the right to acquire by
agreement with or by obligation binding upon the Company beneficial ownership of
in excess of 5% of the Common Stock. A "Person" means an individual or
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
(d) Issuance of the Securities. The Shares and the Warrants
are duly authorized. The Company is authorized to issue the number of Underlying
Shares that are issuable upon exercise of the Warrants, assuming that (i) the
Warrants are immediately exercisable and (ii) the Market Price (as defined in
the Warrant) is 50% of the Per Share Market Value (as defined in the
Registration Rights Agreement) of the Common Stock on the Closing Date. When
issued and paid for in accordance with the terms hereof, the Securities shall
have been validly issued, fully paid and nonassessable, free and clear of all
liens, encumbrances and rights of first refusal of any kind (collectively,
"Liens"). The Company has duly reserved the Shares for issuance. The Company has
on the date hereof and will, at all times while the Warrants are outstanding,
maintain an adequate reserve of duly authorized Common Stock, to enable it to
perform its exercise and other obligations under this Agreement and the
Warrants. Such number of reserved and available shares of Common Stock for
issuance upon exercise of the Warrants is not less than the number of shares of
Common Stock issuable upon exercise of Warrant, assuming the Market Price is 50%
of the Per Share Market
-3-
<PAGE>
Value of the Common Stock at the Closing Date (such number of shares, the
"Initial Minimum"). All such authorized shares of Common Stock shall be duly
reserved for issuance to the holders of the Warrants on a pro rata basis by
reference to the number of Shares acquired by each Purchaser hereunder. The
shares of Common Stock issuable upon exercise of the Warrants are referred to
herein as the "Underlying Shares." The Shares, the Warrants and the Underlying
Shares are collectively referred to as, the "Securities."
(e) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its Restated Certificate of Incorporation (as amended
through the date hereof), or (ii) subject to obtaining the Required Approvals
(as defined below), conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation (with
or without notice, lapse of time or both) of, any agreement, credit facility,
indenture or instrument (evidencing a Company debt or otherwise) to which the
Company or any Subsidiary is a party or by which any property or asset of the
Company or any Subsidiary is bound or affected, or (iii) result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company is
subject (including federal and state securities laws and regulations and the
rules and regulations of the principal market or exchange on which the Common
Stock is listed or traded), or by which any property or asset of the Company is
bound or affected, except in the case of each of clauses (ii) and (iii), as
could not, individually or in the aggregate, have or result in a Material
Adverse Effect. The business of the Company is not being conducted in violation
of any law, ordinance or regulation of any governmental authority, except for
violations which, individually or in the aggregate, could not have or result in
a Material Adverse Effect.
(f) Consents and Approvals. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
give any notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filings required pursuant to Section
3.13, (ii) the filing of the registration statement with the Securities and
Exchange Commission (the "Commission") meeting the requirements set forth in the
Registration Rights Agreement and covering the resale of the Shares and the
Underlying Shares by the Purchasers, (iii) the application(s) to the AMEX for
the listing of the Shares and the Underlying Shares with the AMEX (and with any
other national securities exchange or market on which the Common Stock is then
listed for trading), (iv) applicable Blue Sky filings, and (v) in all other
cases where the failure to obtain such consent, waiver, authorization or order,
or to give such notice or make such filing or registration could not have or
result in, individually or in the aggregate, a Material Adverse Effect (the
consents, waivers, authorizations, orders, notices and filings referred to in
(i)-(vi) of this Section are, collectively, the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically disclosed
in the Disclosure Materials (as hereinafter defined) or in Schedule 2.1(g),
there is no action, suit, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or
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affecting the Company or any of its Subsidiaries or any of their respective
properties before or by any court, governmental or administrative agency or
regulatory authority (federal, state, county, local or foreign) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, individually or in
the aggregate, have or result in a Material Adverse Effect.
(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of (and no event has occurred
which has not been waived which, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has the Company
or any Subsidiary received notice of a claim that it is in default under or that
it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound, (ii) is in violation of any order of any court, arbitrator
or governmental body, or (iii) is in violation of any statute, rule or
regulation of any governmental authority, except as could not individually or in
the aggregate, have or result in a Material Adverse Effect.
(i) Private Offering. Assuming the accuracy of the
representations and warranties of the Purchasers set forth in Sections
2.2(b)-(g), the offer, issuance and sale of the Securities to the Purchasers as
contemplated hereby are exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"). Neither the Company
nor any Person acting on its behalf has taken any action could subject the
offering, issuance or sale of the Securities to the registration requirements of
the Securities Act.
(j) SEC Reports; Financial Statements. The Company has filed
all reports required to be filed by it under the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date
hereof (or such shorter period as the Company was required by law to file such
material) (the foregoing materials being collectively referred to herein as the
"SEC Reports" and, together with the Schedules to this Agreement the "Disclosure
Materials") on a timely basis or has received a valid extension of such time of
filing and has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the Exchange
Act and the rules and regulations promulgated thereunder and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, n light of the circumstances under which
they were made, not misleading. All material agreements to which the Company is
a party or to which the property or assets of the Company are subject have been
filed as exhibits to the SEC Reports to the extent required. The financial
statements of the Company included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis during the periods
involved, except as may be otherwise specified in such financial statements or
the notes thereto, and fairly present in all material respects the financial
position of the Company and its consolidated subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments. Since September 30, 1998,
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except as set forth in Schedule 2.1(j) and except as specifically disclosed in
the SEC Reports, (a) there has been no event, occurrence or development that has
had or that could have or result in a Material Adverse Effect, (b) the Company
has not incurred any liabilities (contingent or otherwise) other than (x)
liabilities incurred in the ordinary course of business consistent with past
practice and (y) liabilities not required to be reflected in the Company's
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (c) the Company has not altered its method of
accounting or the identity of its auditors and (d) the Company has not declared
or made any payment or distribution of cash or other property to its
stockholders or officers or directors (other than in compliance with existing
Company stock option plans) with respect to its capital stock, or purchased,
redeemed (or made any agreements to purchase or redeem) any shares of its
capital stock. The Company last filed audited financial statements with the
Commission on March 31, 1998, and has not received any comments from the
Commission in respect thereof.
(k) Investment Company. The Company is not, and is not an
Affiliate (as defined in Rule 405 under the Securities Act) of, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(l) Certain Fees. Except for certain fees payable by the
Company to Hambro America Securities, Inc., no fees or commissions will be
payable by the Company to any broker, financial advisor or consultant, finder,
placement agent, investment banker, or bank with respect to the transactions
contemplated by this Agreement. The Purchasers shall have no obligation with
respect to any fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by this Agreement. The Company
shall indemnify and hold harmless the Purchasers, their respective employees,
officers, directors, agents, and partners, and their respective Affiliates, from
and against all claims, losses, damages, costs (including the costs of
preparation and attorney's fees) and expenses suffered in respect of any such
claimed or existing fees, as such fees and expenses are incurred.
(m) Form S-3 Eligibility. The Company is eligible to register
securities for resale with the Commission under Form S-3 promulgated under the
Securities Act.
(n) Listing and Maintenance Requirements Compliance. The
Company has not, in the two years preceding the date hereof, received notice
(written or oral) from the AMEX or any other stock exchange, market or trading
facility on which the Common Stock is or has been listed (or on which it has
been quoted) to the effect that the Company is not in compliance with the
listing or maintenance requirements of such exchange or market. The Company is
currently in compliance with all such maintenance requirements and no fact or
circumstances currently exist which could reasonably be expected to result in
noncompliance with such maintenance requirements in the foreseeable future.
(o) Patents and Trademarks. The Company has, or has rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and rights (collectively, the
"Intellectual Property Rights") which are necessary or material for use in
connection with its business, and which the failure to so have would have a
Material
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Adverse Effect. To the best knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights.
(p) Registration Rights; Rights of Participation. Except as
set forth on Schedule 6(b) to the Registration Rights Agreement, (i) the Company
has not granted or agreed to grant to any Person any rights (including
"piggy-back" registration rights) to have any securities of the Company
registered with the Commission or any other governmental authority which has not
been satisfied and (ii) no Person, has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents.
(q) Regulatory Permits. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
Federal, state or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not, individually or in the aggregate, have or
result in a Material Adverse Effect ("Material Permits"), and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any Material Permit.
(r) Title. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property and personal property owned
by them which is material to the business of the Company and its Subsidiaries,
in each case free and clear of all Liens, except for liens, claims or
encumbrances as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its Subsidiaries. Any real property and facilities held under lease
by the Company and its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
(s) Disclosure. The Company confirms that it has not provided
either Purchaser or its respective agents or counsel with any information that
constitutes or might constitute material non-public information. The Company
understands and confirms that the Purchasers shall be relying on the foregoing
representations in effecting transactions in securities of the Company. All
disclosure provided to the Purchasers regarding the Company, its business and
the transactions contemplated hereby, including the Schedules to this Agreement,
furnished by or on behalf of the Company are true and correct and do not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(t) Class B Holders. Schedule 2.1(t) lists all of the holders
of the Class B Common Stock.
(u) Listing. The Shares are approved for listing on the AMEX.
2.2 Representations and Warranties of the Purchaser. Each Purchaser
hereby, severally and not jointly, represents and warrants to the Company as
follows:
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(a) Organization; Authority. Such Purchaser is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate power and authority, to enter into and
to consummate the transactions contemplated by the Transaction Documents and
otherwise to carry out its obligations thereunder. The purchase by such
Purchaser of the Securities hereunder has been duly authorized by all necessary
action on the part of such Purchaser. Each of this Agreement and the
Registration Rights Agreement has been duly executed and delivered by such
Purchaser and constitutes the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with its terms.
(b) Investment Intent. Such Purchaser is acquiring the
Securities as principal for its own account for investment purposes only and not
with a view to or for distributing or reselling such Securities or any part
thereof or interest therein, without prejudice, however, to such Purchaser's
right, subject to the provisions of this Agreement and the Registration Rights
Agreement, at all times to sell or otherwise dispose of all or any part of such
Securities pursuant to an effective registration statement under the Securities
Act and in compliance with applicable state securities laws or under an
exemption from such registration.
(c) Purchaser Status. At the time such Purchaser was offered
the Securities to be acquired hereunder by such Purchaser, it was, and at the
date hereof it is, and at the Closing Date, it will be, an "accredited investor"
as defined in Rule 501(a) under the Securities Act.
(d) Experience of the Purchaser. Such Purchaser, either alone
or together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.
(e) Ability of Purchaser to Bear Risk of Investment. Such
Purchaser is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such investment.
(f) Access to Information. Such Purchaser acknowledges receipt
of the Disclosure Materials and further acknowledges that it has reviewed the
Disclosure Materials and has been afforded (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, proper ties, management
and prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment and to verify the
accuracy and completeness of the information contained in the Disclosure
Materials. Neither such inquiries nor any other investigation conducted by or on
behalf of such Purchaser or its representatives or counsel shall modify, amend
or affect such Purchaser's right to rely on the truth, accuracy and completeness
of the Disclosure Materials and the Company's representations and warranties
contained in the Transaction Documents.
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(g) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of or subsequent to any advertisement, article, notice or
other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar.
(h) Reliance. Such Purchaser understands and acknowledges that
(i) the Securities are being offered and sold to it without registration under
the Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and such Purchaser hereby consents to such
reliance.
The Company acknowledges and agrees that the Purchasers makes
no representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from or in a transaction not
subject to the registration requirements of the Securities Act. In connection
with any transfer of Securities other than pursuant to an effective registration
statement or to the Company and except as otherwise set forth herein, the
Company may require the transferor thereof to provide to the Company an opinion
of counsel selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred securities under the
Securities Act. Notwithstanding the foregoing, the Company hereby consents to
and agrees to register on the books of the Company and with any transfer agent
for the securities of the Company any transfer of Securities (x) between
Purchasers and (y) by a Purchaser to an Affiliate of such Purchaser or to funds
under common management with such Purchaser or any transfer among any such
Affiliates or funds, provided that transferee certifies to the Company that it
is an "accredited investor" within the meaning of Rule 501(a) under the
Securities Act and that it is acquiring the Securities solely for investment
purposes. Any such transferee shall agree in writing to be bound by the terms of
this Agreement and shall have the rights of a Purchaser under this Agreement and
the Registration Rights Agreement.
(b) The Purchasers agrees to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE EXERCISABLE] HAVE BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"),
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AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN OPINION
OF COUNSEL THAT SUCH SALE MAY BE MADE PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS.
The legend set forth above shall be removed from the Shares
and the Company shall cause its transfer agent to issue a certificate or
certificates without any legend (upon surrender of the legended certificates
duly endorsed) to each holder of the Shares upon which it is stamped if (i) such
Securities are registered for resale under the Securities Act or (ii) such
legend is not required pursuant to Rule 144 promulgated under the Securities
Act. Underlying Shares shall not contain the legend set forth above nor any
other legend if the exercise of Warrants or other issuances of Underlying Shares
as contemplated by the Warrants occurs at any time while an Underlying
Securities Registration Statement covering the resale of such Underlying Shares
is effective under the Securities Act or in the event there is not an effective
Underlying Securities Registration Statement at such time if such legend is not
required under applicable requirements of the Securities Act. The Company shall
issue the Transfer Agent Instructions to the Company's transfer agent on the
Closing Date. The Company agrees that it will cause its transfer agent to
provide the Purchasers, upon request, with a certificate or certificates
representing Underlying Shares, free from such legend, at such time as such
legend is no longer required hereunder upon surrender of the legended
certificates duly endorsed. The Company may not make any notation on its records
or give instructions to any transfer agent of the Company which enlarge the
restrictions of transfer set forth in this Section. For purposes of this
Agreement, an "Underlying Securities Registration Statement" means any
registration statement filed with the Commission (including a replacement
registration statement filed upon the expiration of the initial registration
statement filed by the Company) that meets the requirements of the Registration
Rights Agreement and registers the resale of all the Underlying Shares by the
recipient thereof, who shall be named as a "selling stockholder" thereunder.
3.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Underlying Shares upon exercise of the Warrants may result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges
that its obligation to issue Underlying Shares upon exercise of the Warrants is
unconditional and absolute, regardless of the effect of any such dilution.
3.3 Furnishing of Information. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act. So long as any Purchaser owns Securities, if
the Company is not required to file reports pursuant to such laws, it will
prepare and furnish to each Purchaser and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act annual and quarterly
financial statements, together with a discussion and analysis of such financial
statements in form and substance substantially similar to those that would
otherwise be required to be included in reports required by Section 13(a) or
15(d) of the Exchange Act, as well as any other information
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required thereby, in the time period that such filings would have been required
to have been made under the Exchange Act. The Company further covenants that it
will take such further action as any holder of Securities may reasonably
request, all to the extent required from time to time to enable such Person to
sell Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act, including the legal opinion referenced above in this Section.
Upon the request of any such Person, the Company shall deliver to such Person a
written certification of a duly authorized officer as to whether it has complied
with such requirements.
3.4 Blue Sky Laws. In accordance with the Registration Rights
Agreement, the Company shall qualify or exempt the issuance and sale of the
Securities under the securities or Blue Sky laws of such jurisdictions as the
Purchasers may reasonably request and shall continue such qualification or
exemption at all times until each Purchaser notifies the Company in writing that
it no longer owns Securities; provided, however, that neither the Company nor
its Subsidiaries shall be required in connection therewith to qualify as a
foreign corporation where they are not now so qualified or to take any action
that would subject the Company to general service of process in any such
jurisdiction where it is not then so subject.
3.5 Integration. The Company shall not, and shall use its best efforts
to ensure that no Affiliate shall, sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in Section 2 of
the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchasers.
3.6 Stockholder Approval Under the Rules and Regulations of American
Stock Exchange. If the Company would be, if all Warrants were exercised on such
date, required under the Rules and Regulations of the AMEX to obtain the
approval of the stockholders of the Company to issue the Underlying Shares upon
such exercise (such date, the "Stockholder Approval Trigger Date"), then the
Company shall, (i) within 3 Business Days, notify the holders of Warrants of
such fact, (ii) within 15 days of the Stockholder Approval Trigger Date file
proxy materials relating to such stockholder approval with the Commission, and
(iii) use its best efforts to obtain as soon as possible, and in any event
within 90 days after the Stockholder Approval Trigger Date (the "Stockholder
Approval Deadline"), such stockholder approval for the issuance of all
Securities described in this Agreement (including the approval of issuances at a
discount to market as may be required by the Rules and Regulations of the
American Stock Exchange). Each holder of a Warrant may deliver a notice to the
Company regarding such requirement, in which event the time periods described
herein shall commence on the date of such notice. If the Company fails to obtain
the approval of the stockholders contemplated in this Section by the Stockholder
Approval Deadline, then, as partial relief (which remedy shall not be exclusive
of any other remedies available under this Agreement, at law or in equity), the
Company shall pay to each Purchaser at the election of such Purchaser, either
(i) an amount in cash, as liquidated damages and not as a penalty, equal to the
Mandatory Redemption Amount (defined below) or (ii) an amount in cash, as
liquidated damages and not as a penalty, equal to 2.0% of the aggregate purchase
price paid by such Purchaser on the Closing Date for Shares (which price is set
forth opposite such Purchaser's name on Schedule I hereto) (the "2% Payment").
In the event a Purchaser elects to receive the Mandatory Redemption Amount, the
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Company shall make the payment to such Purchaser within five days of the earlier
to occur of (I) the holding of the meeting of the Company's stockholders, the
failure of which resulted in the requirement to make such payment (the
"Stockholder Non-Approval Date") and (II) the Stockholder Approval Deadline. In
the event a Purchaser elects to receive the 2% Payment, the Company shall make
the 2% Payments within five days of (I) the Stockholder Non-Approval Date and
(II) the last day of each 30-day period beginning on the Stockholder Approval
Deadline. In the event the Company fails to make any such payments in a timely
manner, such payments shall bear interest at the lesser of (i) the rate of 2.0%
per month or (ii) the highest lawful rate (pro rated for partial months) until
paid in full. Notwithstanding any other provision of this Section 3.6, in the
event a holder of a Warrant delivers a Form of Election under such Warrant prior
to any approval of the stockholders contemplated in this Section having been
obtained, the Company shall issue to such holder the maximum number of
Underlying Shares that may be issued without approval of the stockholders of the
Company under the Rules and Regulations of the AMEX. For purposes of this
Agreement, (a) "Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close and (b) "Mandatory Redemption Amount" means the amount obtained by
multiplying (x) 125%, (y) the number of Underlying Shares issuable upon exercise
of the Warrant (excluding, however, those Underlying Shares that may be issued
without stockholder approval under the Rules and Regulations of AMEX to such
Purchaser on a pro rata basis by reference to the number of Shares acquired by
such Purchaser hereunder) and (z) the Per Share Market Value on the Trading Day
(defined in Section 3.13(c) hereof) immediately preceding the date a Purchaser
elects to receive the Mandatory Redemption Amount.
3.7 Increase in Authorized Shares. At such times as the Company would
be, if a notice of exercise were to be delivered on such date, precluded from
issuing such number of Underlying Shares as would be issuable upon exercise in
full of the Warrants (or, if greater, the number of Underlying Shares issuable
upon exercise of the Warrants assuming the Market Price (as defined in the
Warrant) is equal to 50% of the Per Share Market Value on the Closing Date)
(assuming in each case that the Warrants are immediately exercisable) due to the
unavailability of a sufficient number of shares of authorized but unissued or
reserved Common Stock, the Company shall promptly (and in any case, within 30
Business Days from such date) prepare and mail to the stockholders of the
Company proxy materials requesting authorization to amend the Company's Restated
Certificate of Incorporation to increase the number of shares of Common Stock
which the Company is authorized to issue to at least such number of shares as
reasonably requested by the Purchasers in order to provide for such number of
authorized and unissued shares of Common Stock to enable the Company to comply
with its exercise and reservation of shares obligations as set forth in this
Agreement and the Warrants (the sum of (x) the number of shares of Common Stock
then authorized, (y) the number of shares of Common Stock then outstanding plus
all shares of Common Stock issuable upon conversion of all the Class B Common
Stock and upon exercise of all outstanding options, warrants and convertible
instruments, and (z) the number of Underlying Shares issuable upon exercise in
full of the Warrants (or, if greater, the number of Underlying Shares issuable
upon exercise of the Warrants assuming the Market Price (as defined in the
Warrant) is equal to 50% of the Per Share Market Value on the Closing Date)
(assuming in each case that the Warrants are immediately exercisable), shall be
a reasonable number), shall be a reasonable number). In connection therewith,
the Board of Directors shall (a) adopt proper resolutions authorizing such
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increase, (b) recommend to and otherwise use its best efforts to promptly and
duly obtain stockholder approval to carry out such resolutions (and hold a
special meeting of the stockholders no later than the 60th day after delivery of
the proxy materials relating to such meeting) and (c) within five (5) Business
Days of obtaining such stockholder authorization, file an appropriate amendment
to the Company's Restated Certificate of Incorporation to evidence such
increase.
3.8 Listing and Reservation. (a) The Company shall (i) not later than
the fifth Business Day following the Closing Date prepare and file with the AMEX
(or such other national securities exchange or market or trading or quotation
facility on which the Common Stock is then listed) an additional shares listing
application covering a number of shares of Common Stock for issuance upon
exercise of the Warrants which is at least equal to the number of shares
required to be reserved pursuant to Section 2.1(d), (ii) take all steps
necessary to cause such shares to be approved for listing in the AMEX (as well
as on any such other national securities exchange or market or trading or
quotation facility on which the Common Stock is then listed) as soon as possible
thereafter, and (iii) provide to the Purchasers evidence of such listing, and
the Company shall maintain the listing of its Common Stock thereon. If the
number of Underlying Shares as are issuable upon exercise of the then
unexercised portion of the Warrant, exceeds 85% of the number of Underlying
Shares previously listed in accordance herewith on account thereof with AMEX
(and such other required exchanges), the Company shall take the necessary
actions to immediately list a number of Underlying Shares as equals the sum of
200% of the number of Underlying Shares then issuable upon exercise of the
Warrants (assuming the Warrants are immediately exercisable).
(b) The Company shall maintain a reserve of Common Stock for
issuance upon exercise of the Warrant in accordance with its terms, in such
amount as may be required to fulfill obligations in full under the Transaction
Documents, which reserve shall include a number of shares of Common Stock equal
to no less than the Initial Minimum.
3.9 Exercise Procedures. The Transfer Agent Instructions and Form of
Election to Purchase under the Warrant set forth the totality of the procedures
with respect to the exercise of the Warrant, including such other information
and instructions as may be reasonably necessary to enable the Purchasers to
exercise the Warrants in accordance with their terms.
3.10 Notice of Breaches. (a) Each of the Company and the Purchasers
shall give prompt written notice to the other of any breach by it of any
representation, warranty or other agreement contained in any Transaction
Document, as well as any events or occurrences arising after the date hereof
which would reasonably be likely to cause any representation or warranty or
other agreement of such party, as the case may be, contained therein to be
incorrect or breached as of the Closing Date. However, no disclosure by either
party pursuant to this Section shall be deemed to cure any breach of any
representation, warranty or other agreement contained in any Transaction
Document.
(b) Notwithstanding the generality of Section 3.10(a), the
Company shall promptly notify the Purchasers of any notice or claim (written or
oral) that it receives from any lender of the Company to the effect that the
consummation of the transactions contemplated by the Transaction Documents
violates or would violate any written agreement or understanding between
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such lender and the Company, and the Company shall promptly furnish by facsimile
to the holders of the Securities a copy of any written statement in support of
or relating to such claim or notice.
3.11 Exercise Obligations of the Company. The Company shall honor the
exercise of the Warrants and shall deliver Underlying Shares in accordance with
the terms, conditions and time periods set forth in the Warrants.
3.12 Right of First Refusal; Subsequent Registrations. (a) The Company
shall not, directly or indirectly, without the prior written consent of the
Purchasers, offer, sell, grant any option to purchase, or otherwise dispose of
(or announce any offer, sale, grant or any option to purchase or other
disposition) any of its or its Affiliates' (x) equity or equity-equivalent
securities the issuance price of which is less than the market price of the
Common Stock at the time of issuance of such security or instrument, or (y)
securities or any instrument that permits the holder thereof to acquire equity
or equity-equivalent securities at any time over the life of the security or
instrument at a price that is less than the market price of the shares of the
Common Stock at the time of issuance of such security or instrument or (z)
equity or equity-equivalent securities pursuant to agreements or instruments
under which the issuance price (including, based upon any conversion, exchange
or reset formula) of such securities changes at any time (a "Subsequent
Placement") for a period of 180 days after the Closing Date, except (i) the
granting of options or warrants to employees, officers and directors, and the
issuance of shares upon exercise of options granted, under any stock option plan
heretofore or hereinafter duly adopted by the Company, (ii) shares of Common
Stock issued upon exercise of any currently outstanding warrants and upon
conversion of any currently outstanding convertible securities of the Company,
in each case disclosed in Schedule 2.1(c), and (iii) shares of Common Stock
issued upon exercise of the Warrants in accordance with the Warrants unless (A)
the Company delivers to the Purchasers a written notice (the "Subsequent
Placement Notice") of its intention to effect such Subsequent Placement, which
Subsequent Placement Notice shall describe in reasonable detail the proposed
terms of such Subsequent Placement, the amount of proceeds intended to be raised
thereunder, the Person with whom such Subsequent Placement shall be effected,
and attached to which shall be a term sheet or similar document relating thereto
and (B) no Purchaser shall have notified the Company by 5:00 p.m. (New York City
time) on the tenth (10th) Trading Day after its receipt of the Subsequent
Placement Notice of its willingness to cause the Purchasers to provide (or to
cause its sole designee to provide), subject to completion of mutually
acceptable documentation, financing to the Company on substantially the terms
set forth in the Subsequent Placement Notice. If the Purchasers shall fail to
notify the Company of its intention to enter into such negotiations within such
time period, the Company may effect the Subsequent Placement substantially upon
the terms and to the Persons (or Affiliates of such Persons) set forth in the
Subsequent Placement Notice; provided, that the Company shall provide the
Purchasers with a second Subsequent Placement Notice, and the Purchasers shall
again have the right of first refusal set forth above in this paragraph (a), if
the Subsequent Placement subject to the initial Subsequent Placement Notice
shall not have been consummated for any reason on the terms set forth in such
Subsequent Placement Notice within thirty (30) Trading Days after the date of
the initial Subsequent Placement Notice with the Person (or an Affiliate of such
Person) identified in the Subsequent Placement Notice. If the Purchasers shall
indicate a willingness to provide financing in excess of the amount set forth in
the Subsequent Placement Notice, then each Purchaser shall be entitled to
provide financing pursuant to such Subsequent Placement Notice up to an amount
equal to such
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<PAGE>
Purchaser's pro rata portion of the aggregate purchase price paid by all the
Purchasers for the Shares on the Closing Date, but the Company shall not be
required to accept financing from the Purchasers in an amount in excess of the
amount set forth in the Subsequent Placement Notice.
(b) Except for (v) Underlying Shares, (w) other "Registrable
Securities" (as such term is defined in the Registration Rights Agreement) to be
registered, and securities of the Company permitted pursuant to Schedule 6(b) of
the Registration's Rights Agreement to be registered in the Underlying
Securities Registration Statement in accordance with the Registration Rights
Agreement, (x) shares of Common Stock to be registered for resale in connection
with financings permitted pursuant to paragraph (a)(i) and (iii) of Section
3.11(a), (y) shares of Common Stock to be registered for resale on Form S-8 (as
promulgated under the Securities Act) relating to issuances of Common Stock
solely in connection with shares issuable in connection with a stock option or
other employee benefit plan and (z) shares of Common Stock issued to a Person
who is not an Affiliate (as defined in Rule 405 under the Securities Act) of the
Company in connection with a strategic acquisition by the Company of any entity
or business from such Person, where such shares are used to pay all or a portion
of the consideration paid for such entity or business, the Company shall not,
without the prior written consent of the Purchasers (i) issue or sell any of its
or any of its Affiliates' equity or equity-equivalent securities pursuant to
Regulation S promulgated under the Securities Act, or (ii) register for resale
any securities of the Company for a period of not less than 90 Trading Days
after the date that the registration statement covering the resale of the Shares
and the Underlying Shares by the Purchasers meeting the requirement of the
Registration Rights Agreement is declared effective by the Commission. Any days
that any Purchaser is unable to sell Underlying Shares under such registration
statement shall be added to such 90 Trading Day period for the purposes of (i)
and (ii) above.
(c) For purposes of this Agreement, "Trading Day" shall mean
(a) a day on which the Common Stock is traded on the American Stock Exchange or
on any other stock market or trading facility on which the shares of Common
Stock are listed and quoted (each, a "Subsequent Market") on which the Common
Stock is then listed or quoted, as the case may be, or (b) if the Common Stock
is not listed on the American Stock Exchange or on a Subsequent Market, a day on
which the Common Stock is traded in the over-the-counter market, as reported by
the OTC Bulletin Board, or (c) if the Common Stock is not quoted on the OTC
Bulletin Board, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices); provided, however, that in the event that the Common Stock is
not listed or quoted as set forth in (a), (b) and (c) hereof, then Trading Day
shall mean any day except Saturday, Sunday and any day which shall be a legal
holiday or a day on which banking institutions in the State of New York are
authorized or required by law or other government action to close.
3.13 Certain Securities Laws Disclosures; Publicity. The Company shall:
(i) issue within one (1) Business Day of the Closing Date a press release
acceptable to the Purchasers disclosing the transactions contemplated hereby,
(ii) file within ten (10) Business Days after the Closing Date with the
Commission a Current Report on Form 8-K disclosing the transactions contemplated
hereby, and (iii) timely file with the Commission a Form D promulgated under the
Securities Act as required under Regulation D promulgated under the Securities
Act and provide a copy thereof to the
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Purchasers promptly after the filing thereof. The Company shall, no less than
two (2) Business Days prior to the filing of any disclosure document required by
clauses (ii) and (iii) above, provide a copy thereof to the Purchasers. No such
filing or disclosure may be made that mentions the Purchasers by name without
the prior written consent of the Purchasers, except a registration statement
filed with the Commission that meets the requirements of the Registration Rights
Agreement, provided that the Company complies with all of its obligations under
the Registration Rights Agreement.
3.14 Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of Company debt (including, without limitation, any
debt payable to Affiliates of the Company) or to redeem any Company equity or
equity-equivalent securities. Pending application of the proceeds of this
placement in the manner permitted hereby, the Company will invest such proceeds
in interest bearing accounts and/or short-term, investment grade interest
bearing securities.
3.15 Reimbursement. If (i) any Purchaser, other than by reason of its
gross negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by any stockholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by Transaction Documents, or if such Purchaser impleaded in any
such action, proceeding or investigation by any Person or (ii) any Purchaser,
other than by reason of its gross negligence or willful misconduct or by reason
of its trading of the Common Stock in a manner that is illegal under the federal
securities laws, becomes involved in any capacity in any action, proceeding or
investigation brought by the Commission against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if such Purchaser is impleaded in
any such action, proceeding or investigation by any Person, then in any such
case, the Company will reimburse such Purchaser for its reasonable legal and
other expenses (including the cost of any investigation and preparation)
incurred in connection therewith, as such expenses are incurred. In addition,
other than with respect to any matter in which such Purchaser is a named party,
the Company will pay such Purchaser the charges, as reasonably determined by
such Purchaser, for the time of any officers or employees of such Purchaser
devoted to appearing and preparing to appear as witnesses, assisting in
preparation for hearings, trials or pretrial matters, or otherwise with respect
to inquiries, hearings, trials, and other proceedings relating to the subject
matter of this Agreement. The reimbursement obligations of the Company under
this paragraph shall be in addition to any liability which the Company may
otherwise have, shall extend upon the same terms and conditions to any
Affiliates of the Purchasers who are actually named in such action, proceeding
or investigation, and partners, directors, agents, employees and controlling
persons (if any), as the case may be, of the Purchasers and any such Affiliate,
and shall be binding upon and inure to the benefit of any successors, assigns,
heirs and personal representatives of the Company, the Purchasers and any such
Affiliate and any such Person. The Company also agrees that neither any
Purchaser nor any such Affiliates, partners, directors, agents, employees or
controlling persons shall have any liability to the Company or any person
asserting claims on behalf of or in right of the Company in connection with or
as a result of the consummation of the Transaction Documents except to the
extent that any losses, claims, damages, liabilities or expenses incurred by the
Company result from the gross negligence or willful misconduct of such
Purchaser.
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<PAGE>
3.16 Restrictions on Sale. Each Purchaser agrees that (i) during the
period (the "First Period") commencing on the Closing Date and ending on the day
immediately prior to the First Vesting Date (as defined in the Warrants), such
Purchaser may only sell shares of Common Stock to the extent the proceeds of
such sales do not exceed 33-1/3% of the aggregate purchase price paid by such
Purchaser on the Closing Date (which price is set forth opposite such
Purchaser's name on Schedule I attached hereto) and (ii) during the period
commencing on the First Vesting Date and ending on the day immediately prior to
the Second Vesting Date (as defined in the Warrants), such Purchaser may only
sell shares of Common Stock to the extent the proceeds of such sales do not
exceed 66-2/3% of the aggregate purchase price paid by such Purchaser on the
Closing Date (which price is set forth opposite such Purchaser's name on
Schedule I attached hereto) (minus any proceeds received by such Purchaser from
shares of Common Stock sold by such Purchaser during the First Period). The
limitation of sales of Common Stock set forth in this Section 3.16 shall not
apply to (i) sales of Common Stock made on or after the Second Vesting Date or
(ii) shares of Common Stock sold at a price per share equal to or exceeding
$11.25.
3.17 Limitations on Short Sales. Each Purchaser agrees that it will not
enter into any Short Sales (as hereinafter defined) from the period commencing
on the Closing Date and ending on the Second Vesting Date (as defined in the
Warrants) except to the extent such Short Sales are in compliance with the
limitations on sales of Common Stock set forth in Section 3.16. For purposes of
this Section 3.17, a "Short Sale" by a Purchaser shall mean a sale of Common
Stock by such Purchaser that is marked as a short sale and that is made at a
time when there is no equivalent offsetting long position in Common Stock held
by the Purchaser. For purposes of determining whether there is an equivalent
offsetting long position in Common Stock held by a Purchaser, Warrant Shares
that have not yet been issued on exercise of the Warrants shall be deemed to be
held long by the Purchaser, and the number of Warrant Shares then held by a
Purchaser on any particular date of computation shall be equal to (i) the number
of Warrant Shares then issuable on exercise of the Warrant held by such
Purchaser, and (ii) to the extent the Warrant is not fully exercisable on the
date of computation, the number of Warrant Shares that would be issuable on
exercise in full of the Warrant if each Vesting Date (as defined in the
Warrants) that has not then occurred had occurred on such date of computation.
ARTICLE IV
MISCELLANEOUS
4.1 Fees and Expenses. At the Closing the Company shall pay $15,000 to
Robinson Silverman (in addition to the $15,000 previously sent by the Company to
Robinson Silverman) in connection with the preparation and negotiation of the
Transaction Documents. Other than the amounts contemplated in the immediately
preceding sentence, each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other expenses incurred
by such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Securities.
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<PAGE>
4.2 Entire Agreement; Amendments. This Agreement, together with the
Exhibits and Schedules hereto, the Registration Rights Agreement, the Warrants
and the Transfer Agent Instructions contain the entire understanding of the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents, exhibits and
schedules.
4.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 8:00 p.m. (New York City
time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in the Purchase Agreement later than 8:00 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as follows:
If to the Company: Allou Health and Beauty Care, Inc.
50 Emjay Boulevard
Brentwood, NY 11717
Facsimile No.: (516) 293-5318
Attn: Chief Operating Officer
If to the Purchasers: At the addresses set forth on Schedule I
attached hereto
With copies to: Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson
- and -
Krieger & Prager
319 Fifth Avenue, 3rd Floor
New York, NY 10016
Facsimile No.: (212) 213-2077
Attn: Samuel M. Krieger
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.4 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by both the Company and the
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<PAGE>
Purchasers, or, in the case of a waiver, by the party against whom enforcement
of any such waiver is sought. No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right accruing
to it thereafter.
4.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
4.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Except as set forth in
Section 3.1(a), the Purchasers may not assign this Agreement or any of the
rights or obligations hereunder (other than to an Affiliate of such Purchaser)
without the consent of the Company, except that the Purchasers may assign their
respective rights hereunder and under the Transaction Documents without the
consent of the Company as long as such assignee demonstrates to the reasonable
satisfaction of the Company its satisfaction of the representations and
warranties set forth in Section 2.2. This provision shall not limit a
Purchaser's right to transfer its Securities or transfer or assign rights
hereunder or under the Registration Rights Agreement.
4.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
4.8 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
4.9 Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the exercise of the Warrants and
delivery of shares of Common Stock thereunder.
4.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become
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<PAGE>
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature page were an original
thereof.
4.11 Publicity. The Company and the Purchasers shall consult with each
other in issuing any press releases or otherwise making public statements or
filings and other communications with the Commission or any regulatory agency or
stock market or trading facility with respect to the transactions contemplated
hereby and neither party shall issue any such press release or otherwise make
any such public statement, filings or other communications without the prior
written consent of the other, which consent shall not be unreasonably withheld
or delayed, except that no prior consent shall be required if such disclosure is
required by law, in which such case the disclosing party shall provide the other
party with prior notice of such public statement, filing or other communication.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of the Purchasers, or include the name of the Purchasers in any filing with the
Commission, or any regulatory agency, trading facility or stock market without
the prior written consent of such Purchaser, except to the extent such
disclosure (but not any disclosure as to the controlling Persons thereof) is
required by law or by applicable rules, bylaws or policies of the AMEX, in which
case the Company shall provide the Purchasers and with prior notice of such
disclosure.
4.12 Severability. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
4.13 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchasers
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents. Each of the Company and the Purchasers agree that
monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of its obligations described in the foregoing sentence and
hereby agrees to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.
4.14 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser hereunder is several and not joint with the
obligations of the other Purchasers hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any Closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement
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<PAGE>
or out of the other Transaction Documents, and it shall not be necessary for any
other Purchaser to be joined as an additional party in any proceeding for such
purpose.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Securities Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
.
ALLOU HEALTH AND BEAUTY CARE, INC.
By:_________________________________
Name:
Title:
STRONG RIVER INVESTMENTS, INC.
By:_________________________________
Name:
Title:
SOVEREIGN PARTNERS, L.P.
By:_________________________________
Name:
Title:
DOMINION CAPITAL FUND LTD.
By: Citco Fund Services Ltd.
By:__________________________
Name:
Title:
By:__________________________
Name:
Title:
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<PAGE>
CANADIAN ADVANTAGE LIMITED PARTNERSHIP
By:___________________________________
Name:
Title:
WESTOVER INVESTMENTS, L.P.
By:___________________________________
Name:
Title:
MONTROSE INVESTMENTS, LTD.
By:___________________________________
Name:
Title:
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<PAGE>
SCHEDULE I
Purchaser Number of Shares Purchase Price for Shares
- ---------- ---------------- -------------------------
Strong River Investments, Inc. 166,667 $1,500,000
c/o Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson
Sovereign Partners, L.P. 200,000 $1,800,000
90 Grove Street
Suite 01
Ridgefield, CT 06877
Facsimile No.: (203) 431-8301
Attn: Steven Hicks
Dominion Capital Fund Ltd. 150,000 $1,350,000
c/o CITCO Fund Services Ltd.
Bahamas Financial Center
Nassau, Bahamas
Attn: Nina Ray
Canadian Advantage Limited Partnership 38,889 $ 350,000
365 Bay Street
Toronto, Ontario
Facsimile No.: (416) 860-6140
Attn: Mark Valentine
Westover Investments, L.P. 33,333 $ 300,000
300 Crescent Court, Suite 700
Dallas, TX 75201
Facsimile:(214) 758-1221
Attn: Will Rose
Montrose Investments Ltd. 77,778 $ 700,000
300 Crescent Court, Suite 700
Dallas, TX 75201
Facsimile:(214) 758-1221
Attn: Will Rose
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
ALLOU HEALTH AND BEAUTY CARE, INC.
WARRANT
-------
Warrant No. _ Dated: December 15, 1998
Allou Health and Beauty Care, Inc., a Delaware corporation (the
"Company"), hereby certifies that, for value received, [ ], or its registered
assigns ("Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company up to the total number of shares of Class A Common
Stock, $.001 par value per share (the "Common Stock"), of the Company (each such
share, a "Warrant Share" and all such shares, the "Warrant Shares") calculated
pursuant to Section 3 of this Warrant at an exercise price equal to $.01 per
share (as adjusted from time to time as provided in Section 8, the "Exercise
Price"), at the times set forth herein through and including December 15, 2002
(the "Expiration Date"), and subject to the following terms and conditions:
1. Registration of Warrant. The Company shall register this
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any
portion of this Warrant in the Warrant Register, upon surrender of this Warrant,
with the Form of Assignment attached hereto duly completed and signed, to the
Transfer Agent or to the Company at the office specified in or pursuant to
Section 3(g). Upon any such registration or transfer, a new warrant to purchase
Common Stock, in substantially the form of this Warrant (any such new warrant, a
"New Warrant"),
<PAGE>
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance of such transferee of all of the rights and obligations of a holder
of a Warrant.
(b) This Warrant is exchangeable, upon the surrender
hereof by the Holder to the office of the Company specified in or pursuant to
Section 3(g) for one or more New Warrants, evidencing in the aggregate the right
to purchase the number of Warrant Shares which may then be purchased hereunder.
Any such New Warrant will be dated the date of such exchange.
3. Duration, Exercise and Redemption of Warrants.
(a) The vesting of the Warrant Shares which the
Holder is permitted to acquire pursuant to this Warrant shall occur on the dates
set forth below. On each such date, this Warrant shall vest on a cumulative
basis with respect to a number of Warrant Shares calculated pursuant to Section
3(b) below. Only the Warrant Shares that have vested may be acquired upon
exercise of this Warrant.
(i) The first Vesting Date (the "First
Vesting Date") shall be the thirty-first (31st) calendar day following the
earlier to occur of (A) the Effectiveness Date and (B) the Effectiveness
Required Date (the Warrant Shares with respect to which this Warrant is
exercisable on the First Vesting Date are called the "Tranche A Warrant
Shares");
(ii) The second Vesting Date (the "Second
Vesting Date") shall be the seventy-first (71st) calendar day following the
earlier to occur of (A) the Effectiveness Date and (B) the Effectiveness
Required Date (the Warrant Shares with respect to which this Warrant is
exercisable on the Second Vesting Date are called the "Tranche B Warrant
Shares"); and
(iii) The third Vesting Date (the "Third
Vesting Date," and together with the First Vesting Date and the Second Vesting
Date, the "Vesting Dates") shall be the one hundred and tenth (110th) calendar
day following the earlier to occur of (A) the Effectiveness Date and (B) the
Effectiveness Required Date (the Warrant Shares with respect to which this
Warrant is exercisable on the Third Vesting Date are called the "Tranche C
Warrant Shares").
(b) Except as otherwise set forth in this Warrant,
this Warrant shall vest and become exercisable on each Vesting Date with respect
to the number of Warrant Shares calculated in accordance with the following
formula:
(Applicable Share Number) x [(9.0 x 1.15) - Market Price]
Market Price
If the number calculated in accordance with the foregoing formula is a negative
number, the Holder shall not be obligated to transfer any shares to the Company.
On each Vesting Date, the Company
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<PAGE>
shall send a notice to the Holder setting forth in reasonable detail its
calculation of the number of Warrant Shares which shall vest and be exercisable
on such Vesting Date.
For purposes of this Warrant,
(i) "Applicable Share Number" means (i) with
respect to the First Vesting Date, 34% of the number of shares of Common Stock
purchased by the Holder pursuant to the Securities Purchase Agreement (the
"Purchase Agreement"), dated as of December 14, 1998, among the Company, Strong
River Investments, Inc., Sovereign Partners, L.P., Dominion Capital Fund Ltd.,
Canadian Advantage Limited Partnership, Westover Investments, L.P. and Montrose
Investments, Ltd. and (ii) with respect to each of the Second Vesting Date and
the Third Vesting Date, 33% of the number of shares of Common Stock purchased by
the Holder pursuant to the Purchase Agreement.
(ii) "Effectiveness Date" means the
effective date of the registration statement (the "Registration Statement")
covering the Shares (as defined in the Purchase Agreement) purchased pursuant to
the Purchase Agreement and meeting the requirements of the Registration Rights
Agreement ("the Registration Rights Agreement"), dated as of December 14, 1998,
among the Company, Strong River Investments, Inc., Sovereign Partners, L.P.,
Dominion Capital Fund Ltd., Canadian Advantage Limited Partnership, Westover
Investments, L.P. and Montrose Investments, Ltd.
(iii) "Effectiveness Required Date" means
the 90th day following the closing under the Purchase Agreement;
(iv) "Market Price" means the average of the
lowest twenty (20) Per Share Market Values (which need not occur on consecutive
Trading Days) during the thirty (30) Trading Days immediately preceding the
first day of the applicable Vesting Date.
(v) "Trading Day" means (a) a day on which
the Common Stock is traded on the American Stock Exchange or on any other stock
market or trading facility on which the shares of Common Stock are listed or
quoted (each, a "Subsequent Market"), as the case may be, or (b) if the Common
Stock is not listed on the American Stock Exchange or on a Subsequent Market, a
day on which the Common Stock is traded in the over-the-counter market, as
reported by the OTC Bulletin Board, or (c) if the Common Stock is not quoted on
the OTC Bulletin Board, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices); provided, however, that in the event that the Common Stock is
not listed or quoted as set forth in (a), (b) and (c) hereof, then Trading Day
shall mean any day except Saturday, Sunday and any day which shall be a legal
holiday or a day on which banking institutions in the State of New York are
authorized or required by law or other government action to close; and
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(vi) "Per Share Market Value" means on any
particular date (a) the closing bid price per share of the Common Stock on such
date on the American Stock Exchange ("AMEX") or on any Subsequent Market, or if
there is no such price on such date, then the closing bid price on the AMEX or
on such Subsequent Market on the date nearest preceding such date, or (b) if the
Common Stock is not then listed or quoted on the AMEX or a Subsequent Market,
the closing bid price for a share of Common Stock in the over-the-counter
market, as reported by the National Quotation Bureau Incorporated or similar
organization or agency succeeding to its functions of reporting prices) at the
close of business on such date, or (c) if the Common Stock is not then reported
by the National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices), then the average of the "Pink
Sheet" quotes for the relevant conversion period, as determined in good faith by
the Holder, or (d) if the Common Stock is not then publicly traded the fair
market value of a share of Common Stock as determined by an appraiser selected
in good faith by the Holders of a majority of the applicable Registrable
Securities.
(c) The vesting of the Warrant Shares in accordance
with this Section 3 shall not be affected by any failure by the Company to
maintain the effectiveness of the Registration Statement after it has been
declared effective by the Securities and Exchange Commission (the "Commission").
(d) Notwithstanding the foregoing provisions of this
Section 3, at any time within ten (10) Trading Days following the occurrence of
any of the following events (each, an "Event"), the Holder shall have the option
to elect by notice ("Vesting Notice") to the Company to have this Warrant vest
with respect to those Warrant Shares that have not yet already vested:
(i) upon the occurrence of any of (i) an
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(1) promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) of in excess of 40% of the voting
securities of the Company, (ii) a replacement of more than one-half of the
members of the Company's board of directors which is not approved by those
individuals who are members of the board of directors on the date hereof in one
or a series of related transactions, (iii) the merger of the Company with or
into another entity, consolidation or sale of all or substantially all of the
assets of the Company in one or a series of related transactions, unless
following such transaction or series of transactions, the holders of the
Company's securities prior to the first such transaction continue to hold at
least 40% of the securities of the surviving entity or acquirer of such assets
or (iv) the execution by the Company of an agreement to which the Company is a
party or by which it is bound, providing for any of the events set forth above
in (i), (ii) or (iii);
(ii) immediately prior to an assignment by
the Company for the benefit of creditors or commencement of a voluntary case
under the Federal Bankruptcy Code, or an entering into of an order for relief in
an involuntary case under the Federal Bankruptcy Code, or adoption by the
Company of a plan of liquidation or dissolution; or
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(iii) five Business Days prior to the
proposed consummation with respect to the Company of a "Rule 13e-3 transaction"
as defined in Rule 13e-3 under the Exchange Act (or, if necessary, such earlier
date as the Company shall determine in good faith to be required in order for
the Holder to be able to participate in such transaction), it being agreed that
the Holder will receive actual notice of the 13e-3 Statement filed with the
Commission on the date filed and actual notice of the date of acceleration
hereunder no later than such date, and that if such transaction is not
consummated, and this Warrant has been exercised, then the Holder (and to the
extent that this Warrant would not but for this paragraph be exercisable, the
Company) shall be entitled to declare the exercise null and void and the Holder
shall, upon return of the Warrant Shares to the Company, be entitled to receive
a refund of the Exercise Price and warrants identical to this Warrant, and such
acceleration shall become void ab initio, and the Warrants shall (as to any
remaining unexercised portion thereof) remain in full force and effect in
accordance with the terms hereof.
In the event the Holder delivers a Vesting Notice, this Warrant shall vest with
respect to the number of Warrant Shares calculated in accordance with the
formula set forth on Section 3(b); provided, however that for purposes of such
calculation, (i) the "Applicable Share Number" shall be deemed to mean (A) 100%
of the number of shares of Common Stock purchased by the Holder pursuant to the
Purchase Agreement (such number, the "Holder Purchased Shares"), if the Event
occurred prior to the First Vesting Date, (B) 67% of the Holder Purchased
Shares, if the Event occurred on or after the First Vesting Date but prior to
the Second Vesting Date and (C) 33% of the Holder Purchased Shares if the Event
occurred on or after the Second Vesting Date but prior to the Third Vesting
Date; and (ii) the "Market Price" shall be deemed to mean the average of the
lowest (20) Per Share Market Values (which need not occur on consecutive Trading
Days) during the thirty (30) Trading Days immediately preceding the date on
which the Event occurred.
(e) Subject to Sections 3(a) and (b), this Warrant
shall be exercisable by the registered Holder on any Business Day before 5:30
P.M., New York City time, at any time and from time to time on or after the date
hereof to and including the Expiration Date. At 5:30 P.M., New York City time on
the Expiration Date, the portion of this Warrant not exercised prior thereto
shall be and become void and of no value. For purposes of this Warrant,
"Business Day" means any day except Saturday, Sunday and any day which shall be
a legal holiday or a day on which banking institutions in the State of New York
are authorized or required by law or other government action to close.
(f) Subject to Sections 2(b), 6 and 10, upon
surrender of this Warrant, with the Form of Election to Purchase attached hereto
duly completed and signed, to the Company at its address for notice set forth in
Section 12 and upon payment of the Exercise Price multiplied by the number of
Warrant Shares that the Holder intends to purchase hereunder, in the manner
provided hereunder, all as specified by the Holder in the Form of Election to
Purchase, the Company shall promptly (but in no event later than 3 Trading Days
after the Date of Exercise (as defined herein)) issue or cause to be issued and
cause to be delivered to or upon the written order of the Holder and in such
name or names as the Holder may designate, a certificate for the Warrant Shares
issuable upon such exercise, free of restrictive legends, except (i) either in
the event that a
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registration statement covering the resale of the Warrant Shares and naming the
Holder as a selling stockholder thereunder is not then effective or the Warrant
Shares are not freely transferable without volume restrictions pursuant to Rule
144(k) promulgated under the Securities Act of 1933, as amended (the "Securities
Act"), or (ii) if this Warrant shall have been issued pursuant to a written
agreement between the original Holder and the Company, as required by such
agreement. Any person so designated by the Holder to receive Warrant Shares
shall be deemed to have become holder of record of such Warrant Shares as of the
Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the
Company shall have received (i) this Warrant (or any New Warrant, as
applicable), with the Form of Election to Purchase attached hereto (or attached
to such New Warrant) appropriately completed and duly signed, and (ii) payment
of the Exercise Price for the number of Warrant Shares so indicated by the
holder hereof to be purchased.
(g) If the Company fails to deliver to the Holder
certificate or certificates representing the Warrant Shares pursuant to Section
3(f) by the seventh (7th) Trading Day after the Date of Exercise, the Company
shall pay to such Holder, in cash, as liquidated damages and not as a penalty,
$1,000 for each day after such seventh (7th)Trading Day until such certificates
are delivered. Nothing herein shall limit the Holder's right to pursue actual
damages for the Company's failure to deliver certificates representing shares of
Common Stock upon exercise upon conversion within the period specified herein
and the Holder shall have the right to pursue all remedies available to it at
law or in equity including, without limitation, a decree of specific performance
and/or injunctive relief. The exercise of any such rights shall not prohibit the
Holder from seeking to enforce damages pursuant to any other Section hereof or
under applicable law.
(h) In addition to any other rights available to the
Holder, if the Company fails to deliver to the Holder certificate or
certificates representing the Warrant Shares pursuant to Section 3(f) by the
seventh (7th) Trading Day after the Date of Exercise, and if after such seventh
(7th) Trading Day the Holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Holder of the Warrant Shares which the Holder anticipated receiving upon such
exercise (a "Buy-In"), then the Company shall pay in cash to the Holder (in
addition to any remedies available to or elected by the Holder) the amount by
which (x) the Holder's total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased exceeds (y) the amount obtained
by multiplying (A) the number of Warrant Shares that the Holder is attempting to
acquire by delivery of the Notice to Purchase by (B) the Per Share Market Value
on the Trading Day (or if such date is not a Trading Day, on the immediately
succeeding Trading Day) the certificate representing such Warrant Shares are
delivered to the Holder by or on behalf of the Company (and if there is more
than one certificate representing the Warrant Shares and they are delivered on
different Trading Days, clause (y)(B) of this Section shall be the weighted
average of the Per Share Market Values on the Trading Days on which such
certificates are delivered, based on the number of Warrant Shares represented by
each such certificate) . For example, if the Holder purchases 10,000 shares of
Common Stock having a total purchase price of $90,000 to cover a Buy-In with
respect to an attempted exercise of this Warrant
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with respect to 10,000 Warrant Shares, and the Per Share Market Value on the
Trading Day the Holder receives the certificate representing such Warrant Shares
is $8.00 the Company shall be required to pay the Holder $10,000. The Holder
shall provide the Company written notice indicating the amounts payable to the
Holder in respect of the Buy-In. Notwithstanding anything contained herein to
the contrary, if a Holder requires the Company to make payment in respect of a
Buy-In for the failure to timely deliver certificates hereunder and the Company
timely pays in full such payment, the Company shall not be required to pay such
Holder liquidated damages under Section 3(h) in respect of the certificates
resulting in such Buy-In.
(i) Subject to Sections 3(a) and (b), this Warrant
shall be exercisable, either in its entirety or, from time to time, for a
portion of the number of Warrant Shares. If less than all of the Warrant Shares
which may be purchased under this Warrant are exercised at any time, the Company
shall issue or cause to be issued, at its expense, a New Warrant evidencing the
right to purchase the remaining number of Warrant Shares for which no exercise
has been evidenced by this Warrant.
4. Piggyback Registration Rights. During the term of this
Warrant, the Company may not file any registration statement with the Securities
and Exchange Commission (other than registration statements of the Company filed
on Form S-8 or Form S-4, each as promulgated under the Securities Act, pursuant
to which the Company is registering securities pursuant to a Company employee
benefit plan or pursuant to a merger, acquisition or similar transaction
including supplements thereto, but not additionally filed registration
statements in respect of such securities) at any time when there is not an
effective registration statement covering the resale of the Warrant Shares and
naming the Holder as a selling stockholder thereunder, unless the Company
provides the Holder with not less than 20 days notice of its intention to file
such registration statement and provides the Holder the option to include any or
all of the applicable Warrant Shares therein. The piggyback registration rights
granted to the Holder pursuant to this Section shall continue until all of the
Holder's Warrant Shares have been sold in accordance with an effective
registration statement or upon the Expiration Date. The Company will pay all
registration expenses in connection therewith.
5. Demand Registration Rights. At any time during the term of
this Warrant when the Warrant Shares are not registered pursuant to an effective
registration statement (but only after the applicable Effectiveness Date (as
defined in the Registration Rights Agreement)), the Holder may make a written
request for the registration under the Securities Act (a "Demand Registration"),
of all of the Warrant Shares (the "Registrable Securities"), and the Company
shall use its best efforts to effect such Demand Registration as promptly as
possible, but in any case within 90 days thereafter. Any request for a Demand
Registration shall specify the aggregate number of Registrable Securities
proposed to be sold and shall also specify the intended method of disposition
thereof. The right to cause a registration of the Registrable Securities under
this Section 5 shall be limited to one such registration. In any registration
initiated as a Demand Registration, the Company will pay all registration
expenses in connection therewith. A Demand Registration shall not be counted as
a Demand Registration hereunder until the registration statement filed pursuant
to the
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Demand Registration has been declared effective by the Securities and Exchange
Commission and maintained continuously effective for a period of at least 360
days or such shorter period when all Registrable Securities included therein
have been sold in accordance with such registration statement, provided, however
that any days on which such registration statement is not effective or on which
the Holder is not permitted by the Company or any governmental authority to sell
Warrant Shares under such registration statement shall not count towards such
360 day period.
6. Payment of Taxes. The Company will pay all documentary
stamp taxes attributable to the issuance of Warrant Shares upon the exercise of
this Warrant; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the
registration of any certificates for Warrant Shares or Warrants in a name other
than that of the Holder, and the Company shall not be required to issue or cause
to be issued or deliver or cause to be delivered the certificates for Warrant
Shares unless or until the person or persons requesting the issuance thereof
shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid. The Holder shall
be responsible for all other tax liability that may arise as a result of holding
or transferring this Warrant or receiving Warrant Shares upon exercise hereof.
7. Replacement of Warrant. If this Warrant is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
customary and reasonable indemnity, if requested. Applicants for a New Warrant
under such circumstances shall also comply with such other reasonable
regulations and procedures and pay such other reasonable charges as the Company
may prescribe.
8. Reservation of Warrant Shares. The Company covenants that
it will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holder (taking into account
the adjustments and restrictions of Section 9). The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in accordance with the terms
hereof, be duly and validly authorized, issued and fully paid and nonassessable.
9. Certain Adjustments. The Exercise Price and number of
Warrant Shares issuable upon exercise of this Warrant are subject to adjustment
from time to time as set forth in this Section 9. Upon each such adjustment of
the Exercise Price pursuant to this Section 9, the Holder shall thereafter prior
to the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise
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<PAGE>
of this Warrant immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend (except scheduled dividends paid on
outstanding preferred stock as of the date hereof which contain a stated
dividend rate) or otherwise make a distribution or distributions on shares of
its Common Stock (as defined below) or on any other class of capital stock
payable in shares of Common Stock, (ii) subdivide outstanding shares of Common
Stock into a larger number of shares, or (iii) combine outstanding shares of
Common Stock into a smaller number of shares, the Exercise Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding before such event
and of which the denominator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding after such event. Any adjustment
made pursuant to this Section shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision or combination, and shall apply to
successive subdivisions and combinations.
(b) In case of any reclassification of the Common
Stock, any consolidation or merger of the Company with or into another person,
the sale or transfer of all or substantially all of the assets of the Company or
any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event to
receive such amount of securities or property equal to the amount of Warrant
Shares such Holder would have been entitled to had such Holder exercised this
Warrant immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange. The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to continue to give to
the Holder the right to receive the securities or property set forth in this
Section 9(b) upon any exercise following any such reclassification,
consolidation, merger, sale, transfer or share exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute (a "Distribution") to all holders of Common Stock
(and not to holders of this Warrant) evidences of its indebtedness or assets or
rights or warrants to subscribe for or purchase any security (excluding those
referred to in Sections 9(a), (b) and (d)) (collectively, "Rights"), then in
each such case the Holder shall be entitled to receive, for each Warrant Share
with respect to which this Warrant is exercised after the record date fixed for
determination of stockholders entitled to receive such Distribution, the Rights
received by all holders of Common Stock with respect to one share of Common
Stock.
(d) If, at any time while this Warrant is
outstanding, the Company shall issue or cause to be issued rights or warrants to
acquire or otherwise sell or distribute shares of
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Common Stock for a consideration per share less than the Current Market Price on
the date of issuance of such rights or warrants, then, forthwith upon such issue
or sale, the Exercise Price shall be reduced to the price (calculated to the
nearest cent) determined by multiplying the Exercise Price in effect immediately
prior thereto by a fraction, the numerator of which shall be the sum of (i) the
number of shares of Common Stock outstanding immediately prior to such issuance,
and (ii) the number of shares of Common Stock which the aggregate consideration
received (or to be received, assuming exercise or conversion in full of such
rights, warrants and convertible securities) for the issuance of such additional
shares of Common Stock would purchase at the Current Market Price, and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares. Such
adjustment shall be made successively whenever such an issuance is made. For
purposes of this Section 9(d), "Current Market Price," with respect to any date,
means the average of the Per Share Market Values during the ten (10) Trading
Days immediately preceding such date.
(e) For the purposes of this Section 9, the following
clauses shall also be applicable:
(i) Record Date. In case the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them (A)
to receive a dividend or other distribution payable in Common Stock or in
securities convertible or exchangeable into shares of Common Stock, or (B) to
subscribe for or purchase Common Stock or securities convertible or exchangeable
into shares of Common Stock, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(ii) Treasury Shares. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by or
for the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(f) All calculations under this Section 9 shall be
made to the nearest 1/100th of a share.
(g) Whenever the Exercise Price is adjusted pursuant
to Section 9(c) above, the Holder, after receipt of the determination by the
Appraiser, shall have the right to select an additional appraiser (which shall
be a nationally recognized accounting firm), in which case the adjustment shall
be equal to the average of the adjustments recommended by each of the Appraiser
and such appraiser. The Holder shall promptly mail or cause to be mailed to the
Company, a notice setting forth the Exercise Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment. Such
adjustment shall become effective immediately after the record date mentioned
above.
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(h) If:
(i) the Company shall declare a
dividend (or any other
distribution) on its Common
Stock; or
(ii) the Company shall declare a
special nonrecurring cash
dividend on or a redemption of
its Common Stock; or
(iii) the Company shall authorize
the granting to all holders of
the Common Stock rights or
warrants to subscribe for or
purchase any shares of capital
stock of any class or of any
rights; or
(iv) the approval of any
stockholders of the Company
shall be required in
connection with any
reclassification of the Common
Stock of the Company, any
consolidation or merger to
which the Company is a party,
any sale or transfer of all or
substantially all of the
assets of the Company, or any
compulsory share exchange
whereby the Common Stock is
converted into other
securities, cash or property;
or
(v) the Company shall authorize
the voluntary dissolution,
liquidation or winding up of
the affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
10. Payment of Exercise Price. The Holder may pay the Exercise
Price in one of the following manners:
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(a) Cash Exercise. The Holder shall deliver
immediately available funds;
or
(b) Cashless Exercise. The Holder shall surrender
this Warrant to the Company together with a notice of cashless exercise, in
which event the Company shall issue to the Holder the number of Warrant Shares
determined as follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be
issued to the Holder.
Y = the number of Warrant Shares with
respect to which this Warrant is being
exercised.
A = the average of the closing sale prices
of the Common Stock for the five (5) trading
days immediately prior to (but not
including) the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
11. Stockholder Approval Under the Rules and Regulations of
American Stock Exchange. If the Company would be, if this Warrant and the other
Warrant (together with any replacements thereto, the "Other Warrant") issued
pursuant to the Purchase Agreement were exercised in full on such date, required
under the Rules and Regulations of the AMEX Exchange to obtain the approval of
the stockholders of the Company to issue the Warrant Shares upon such exercise
(such date, the "Stockholder Approval Trigger Date"), then the Company shall,
(i) within 3 Business Days, notify the Holder of such fact, (ii) within 15 days
of the Stockholder Approval Trigger Date file proxy materials relating to such
stockholder approval with the Commission, and (iii) use its best efforts to
obtain as soon as possible, and in any event within 90 days after the
Stockholder Approval Trigger Date (the "Stockholder Approval Deadline"), such
stockholder approval for the issuance of all the Warrant Shares and the shares
of Common Stock issuable upon exercise of the Other Warrant (including the
approval of issuances at a discount to market as may be required by the Rules
and Regulations of the American Stock Exchange). The Holder may deliver a notice
to the Company regarding such requirement, in which event the time periods
described herein shall commence on the date of such notice. If the Company fails
to obtain the approval of the stockholders contemplated in this Section by the
Stockholder Approval Deadline, then, as partial relief (which remedy shall not
be exclusive of any other remedies available under this Warrant, at law or in
equity), the Company shall pay to the Holder at its election, either (i) an
amount in cash,
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as liquidated damages and not as a penalty, equal to the Mandatory Redemption
Amount (defined below) or (ii) an amount in cash, as liquidated damages and not
as a penalty, equal to 2.0% of the aggregate purchase price paid by the Holder
on the Closing Date under the Purchase Agreement for the Common Stock purchased
by the Holder (which price is set forth opposite such Purchaser's name on
Schedule I to the Purchase Agreement) (the "2% Payment"). In the event the
Holder elects to receive the Mandatory Redemption Amount, the Company shall make
the payment to the Holder within five days of the earlier to occur of (I) the
holding of the meeting of the Company's stockholders, the failure of which
resulted in the requirement to make such payment (the "Stockholder Non-Approval
Date") and (II) the Stockholder Approval Deadline. In the event the Holder
elects to receive the 2% Payment, the Company shall make the 2% Payments within
five days of (I) the Stockholder Non-Approval Date and (II) the last day of each
30-day period beginning on the Stockholder Approval Deadline. In the event the
Company fails to make any such payments in a timely manner, such payments shall
bear interest at the lesser of (i) the rate of 2.0% per month or (ii) the
highest lawful rate (pro rated for partial months) until paid in full.
Notwithstanding any other provision of this Section 11, in the event the Holder
delivers a Form of Election under this Warrant prior to any approval of the
stockholders contemplated in this Section having been obtained, the Company
shall issue to the Holder the maximum number of Warrant Shares that may be
issued without approval of the stockholders of the Company under the Rules and
Regulations of the AMEX. Notwithstanding anything to the contrary contained in
this Warrant, the Company shall not be obligated to issue Warrant Shares to the
Holder upon exercise of this Warrant if such issuance requires the approval of
the stockholders contemplated in this Section and such approval has not been
obtained. For purposes of this Warrant, "Mandatory Redemption Amount" means the
amount obtained by multiplying (x) 125%, (y) the number of Warrant Shares
issuable upon exercise of this Warrant (not including, however, Warrant Shares
that may be issued without stockholder approval under the Rules and Regulations
of AMEX) and (z) the Per Share Market Value on the Trading Day (each as defined
in Section 3 hereof) immediately preceding the date the Holder elects to receive
the Mandatory Redemption Amount.
12. Certain Exercise Restrictions.
(a) The Holder agrees not to exercise this Warrant to
the extent such exercise would result in the Holder beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and the rules
thereunder) in excess of 4.999% of the then issued and outstanding shares of
Common Stock, including shares issuable upon exercise of this Warrant after
application of this Section. The Holder shall have the sole authority and
obligation to determine whether the restriction contained in this Section
applies. The provisions of this Section may be waived by the Holder (but only as
to itself and not to any other holders of the other Warrant) upon not less than
75 days prior notice to the Company (in which case, the Holder shall make such
filings with the Commission, including under Regulation 13D or 13G, as are
required by applicable law). The holders of the Other Warrant shall be
unaffected by any such wavier.
(b) The Holder also agrees not to exercise this
Warrant to the extent such exercise would result in the Holder beneficially
owning (as determined in accordance with Section
-13-
<PAGE>
13(d) of the Exchange Act and the rules thereunder) in excess of 9.999% of the
then issued and outstanding Common Stock, including shares issuable upon
exercise of this Warrant after application of this Section. The Holder shall
have the sole authority and obligation to determine whether the restriction
contained in this Section applies. The provisions of this Section may be waived
by the Holder (but only as to itself and not to any other holders of the Other
Warrant) upon not less than 75 days prior notice to the Company. The holders of
the Other Warrant shall be unaffected by any such waiver.
13. Fractional Shares. The Company shall not be required to
issue or cause to be issued fractional Warrant Shares on the exercise of this
Warrant. The number of full Warrant Shares which shall be issuable upon the
exercise of this Warrant shall be computed on the basis of the aggregate number
of Warrant Shares purchasable on exercise of this Warrant so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 13,
be issuable on the exercise of this Warrant, the Company shall pay an amount in
cash equal to the Exercise Price multiplied by such fraction.
14. Notices. Any and all notices or other communications or
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section prior to 8:00 p.m. (New York City time) on a Business Day, (ii) the
Business Day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 8:00 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the Business Day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required to be
given. The addresses for such communications shall be: (i) if to the Company, to
50 Emjay Boulevard, Brentwood, New York 11717, facsimile number (516) 273-5318,
attention Chief Operating Officer, or (ii) if to the Holder, to the Holder at
the address or facsimile number appearing on the Warrant Register or such other
address or facsimile number as the Holder may provide to the Company in
accordance with this Section 14.
15. Warrant Agent.
(a) The Company shall serve as warrant agent under
this Warrant. Upon thirty (30) days' notice to the Holder, the Company may
appoint a new warrant agent.
(b) Any corporation into which the Company or any new
warrant agent may be merged or any corporation resulting from any consolidation
to which the Company or any new warrant agent shall be a party or any
corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business shall
be a successor warrant agent under this Warrant without any further act. Any
such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed (by first class mail, postage prepaid) to the Holder
at the Holder's last address as shown on the Warrant Register.
-14-
<PAGE>
16. Miscellaneous.
(a) This Warrant shall be binding on and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. This Warrant may be amended only in writing signed by the Company and
the Holder and their successors and assigns.
(b) Subject to Section 16(a), above, nothing in this
Warrant shall be construed to give to any person or corporation other than the
Company and the Holder any legal or equitable right, remedy or cause under this
Warrant. This Warrant shall inure to the sole and exclusive benefit of the
Company and the Holder.
(c) This Warrant shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do
not constitute a part of this Warrant and shall not be deemed to limit or affect
any of the provisions hereof.
(e) In case any one or more of the provisions of this
Warrant shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
-15-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its authorized officer as of the date first indicated above.
ALLOU HEALTH AND BEAUTY CARE, INC.
By:
Name:
Title:
-16-
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To Allou Health and Beauty Care, Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of Common Stock ("Common Stock"), $.01 par value per share, of Allou
Health and Beauty Care, Inc. and, if such Holder is not utilizing the cashless
exercise provisions set forth in this Warrant, encloses herewith $________ in
cash, certified or official bank check or checks, which sum represents the
aggregate Exercise Price (as defined in the Warrant) for the number of shares of
Common Stock to which this Form of Election to Purchase relates, together with
any applicable taxes payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
(Please print name and address)
Dated: , Name of Holder:
(Print)
(By:)
(Name:)
(Title:)
( Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)
<PAGE>
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Allou Health and
Beauty Care, Inc. to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of Big
Entertainment, Inc. with full power of substitution in the premises.
Dated:
- ---------------, ----
--------------------------------------------
( Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
---------------------------------------
Address of Transferee
---------------------------------------
---------------------------------------
In the presence of:
- --------------------------
PARKER CHAPIN FLATTAU & KLIMPL LLP.
1211 Avenue of the Americas
New York, NY 10036
(212) 704-6000
Exhibit 5.1
January 13, 1999
Allou Health & Beauty Care, Inc.
50 Emjay Boulevard
Brentwood, New York 11717
Gentlemen:
We have acted as counsel to Allou Health & Beauty Care, Inc., a
Delaware corporation (the "Company"), in connection with the Registration
Statement on Form S-3 (the "Registration Statement") being filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
relating to the offering of 1,533,334 shares (the "Shares") of Class A Common
Stock, par value $.001 per share (the "Common Stock") of the Company.
Capitalized terms used herein and not defined shall have the meanings
given to them in the Registration Statement.
In connection with the foregoing, we have examined originals or copies,
satisfactory to us, of the Company's (i) Certificate of Incorporation, as
amended (ii) By-laws and (iii) resolutions of the Company's board of directors.
We have also reviewed such other matters of law and examined and relied upon all
such corporate records, agreements, certificates and other documents as we have
deemed relevant and necessary as a basis for the opinion hereinafter expressed.
In such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
with the original documents of all documents submitted to us as copies or
facsimiles. As to any facts material to such opinion, we have, to the extent
that relevant facts were not independently established by us, relied on
certificates of public officials and certificates of officers or other
representatives of the Company.
<PAGE>
Based upon and subject to the foregoing, we are of the opinion that:
(a) the 666,667 Shares that were issued in December 1998
pursuant to the December 1998 Subscription Agreement have been
validly issued and are fully paid and nonassessable; and
(b) the 866,667 Shares issuable upon exercise of the Warrants
in accordance with the terms thereof will be validly issued,
fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference made to us under the caption "Legal
Matters" in the prospectus constituting part of the Registration Statement.
Very truly yours,
/s/ Parker Chapin Flattau & Klimpl, LLP
PARKER CHAPIN FLATTAU & KLIMPL, LLP
-2-
Exhibit 23.1
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
June 18, 1998 appearing on page F-1 of Allou Health & Beauty Care, Inc.'s Annual
Report on Form 10-K for the year ended March 31, 1998. We also consent to the
reference to us under the heading "Experts" in such prospectus.
/s/ Mayer Rispler & Company, P.C.
- -------------------------------------
Mayer Rispler & Company, P.C.
New York, NY
January 12, 1999
II - 9
