<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
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Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended January 31, 1996
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Commission File No. 0-21486
HARRY'S FARMERS MARKET, INC.
A Georgia Corporation
(IRS Employer Identification No. 58-2037452)
1180 Upper Hembree Road
Roswell, Georgia 30076
(404) 664-6300
Securities Registered Pursuant to Section 12(b)
of the Securities Exchange Act of 1934:
None
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Securities Registered Pursuant to Section 12(g)
of the Securities Exchange Act of 1934:
Class A Common Stock, without par value
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Class A Common Stock of the registrant held by
nonaffiliates of the registrant on May 8, 1996 was $11,118,387. For the
purposes of this response, officers, directors and holders of 5% or more of the
registrant's common stock are considered affiliates of the registrant at that
date.
The number of shares outstanding of the registrant's Class A Common Stock,
without par value, as of May 6, 1996: 4,097,273 shares. The number of shares
outstanding of the registrant's Class B Common Stock, without par value, as of
May 6, 1996: 2,071,301 shares.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the registrant's definitive Proxy Statement for its Annual Meeting
of Stockholders to be held in 1996 are incorporated by reference in answer to
Part III of this report, with the exception of information regarding executive
officers required under Item 10 of Part III, which information is included in
Part I, Item 1.
<PAGE>
PART I
Item 1. Business.
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Harry's Farmers Market, Inc. ("Harry's" or the "Company") owns and operates
concept megastores and convenience stores specializing in perishable food
products -- fresh fruits and vegetables; fresh meats, poultry and seafood; fresh
bakery goods; freshly made ready-to-eat, ready-to-heat and ready-to-cook
prepared foods; and deli, cheese and dairy products. Harry's stores also
feature lines of specialty, hard-to-find and gourmet nonperishable food products
that are complementary to the fresh food offerings. In addition, the Company's
stores carry kitchen-oriented housewares, floral items, grocery items, natural
health and beauty aids, and a full line of wines and imported and domestic
beers. The Company's bakery and prepared foods departments are fully-integrated
food manufacturing operations. The Company presently owns and operates three
megastores and two Harry's In A Hurry convenience stores, all in the Atlanta,
Georgia, metropolitan area. In addition, the Company operates a
distribution/bakery facility that services its stores.
Harry's Megastores
Harry's megastores are presently located in Alpharetta, Georgia; Gwinnett
County, Georgia and Cobb County, Georgia. Each megastore is within 30 miles of
downtown Atlanta. The Alpharetta store is housed in a 132,500 square foot
facility with approximately 95,000 square feet devoted to retailing and
retailing support. The Alpharetta facility also houses the Company's meat, deli,
dairy, produce and seafood receiving and inspection operations, prepared foods
manufacturing plant and corporate offices. The Gwinnett County store, which was
expanded in 1994, is a 95,000 square foot facility devoted entirely to retailing
and retailing support. During the later part of fiscal 1996, the Company has
utilized the expanded square footage to stock a full line of perishable and
nonperishable ethnic foods. The Cobb County store, which opened in October
1993, is a 100,000 square foot facility, also entirely devoted to retailing and
retailing support.
Harry's stores utilize an open warehouse format with high ceilings and fully
stocked bins, cases and shelves. The store layout directs customers through each
department, maximizing buyer exposure to the full range of Harry's offerings.
Shopping aisles are two to three times wider than those of the typical grocery
store to accommodate a higher traffic volume. Fresh food work spaces (produce
preparation and meat and seafood cutting areas) are incorporated onto the
selling floor to enhance the open market atmosphere and animation, although such
areas are restricted from customer traffic flow. Each store has approximately
30 check-out stations.
Harry's In A Hurry Stores
To increase the retail outlets for Harry's manufactured products (bakery and
prepared food items), the Company operates two strategically located specialty
stores under the name "Harry's In A Hurry." A 3,700 square foot Harry's In A
Hurry opened in the Buckhead area of Atlanta in June 1993. A second 7,200
square foot Harry's In A Hurry opened in March 1994 approximately four miles
from the first Harry's In A Hurry. These stores carry a full range of Harry's
bakery goods and prepared food items, a limited line of fresh food products and
selected complementary foods. The Harry's In A Hurry stores are located in more
densely populated areas nearer to the city center to provide more convenient,
quick stop shopping for those customers less inclined to visit the suburban
megastores.
<PAGE>
Harry's Products and Departments
Harry's megastores are operationally divided into category-managed
departments, each of which is supervised by an experienced manager. Each
department operates independently and has its own procedures and methods for
purchasing, receiving, storage and handling and merchandising. The bakery and
prepared foods departments are fully integrated food manufacturing operations.
Substantial processing and food preparation are likewise involved in the
delicatessen, seafood, and meat and poultry departments. Fresh produce is the
largest department of Harry's megastores, generating between 25 to 35 percent of
the total revenue. Meat, seafood, bakery and staples are the next largest
departments. No other department makes up more than eight percent of any
megastore's sales. The following is an overview of major departments.
Perishable Products
Fresh Fruits and Vegetables. Harry's offers approximately 1,000 varieties of
fresh produce items during the year. In addition to the traditional selection
of domestically grown fruits and vegetables, Harry's offers exotic products from
around the world, a full line of organically grown produce, and produce
particular to ethnic cuisines.
Most fresh produce offered at Harry's is purchased directly from growers
through a network of field buyers, some of whom are full-time employees of the
Company and the remainder are independent buying brokers. Most of Harry's
produce is domestically grown, primarily in California, Arizona, Florida,
Washington, Texas and the East Coast, with the bulk of the remainder being
purchased from South American growers during off-growing season in the northern
hemisphere. Small amounts of products are also purchased from European and
Middle Eastern countries. Some produce is also grown under contract for
Harry's.
More than 75 percent of the produce offered at Harry's is transported from the
grower to the Company's receiving facility located at the Alpharetta megastore
under special arrangements with a single contract carrier, for whom Harry's
represented a majority of revenues for such carrier's most recent fiscal year.
Produce is picked up at the point of origin in, where appropriate, refrigerated
and temperature-monitored trucks. Transportation requirements usually are
communicated to the carrier within hours of the purchase commitment.
Incoming shipments are immediately off-loaded and directed to inspection
stations where trained produce inspectors sample and test incoming pallets for
quality and freshness. Shipments or lots which do not meet Harry's rigorous
quality standards are immediately rejected. In addition, incoming produce is
regularly sampled and tested by Nutriclean, an independent food testing
laboratory, for compliance with federal standards regarding toxic contamination
and pesticide and herbicide residues.
After inspection, the fresh produce is moved to storage in one of six separate
temperature-controlled environments appropriate for maintaining freshness of the
various products. The produce is also separated where there is a risk of cross-
contamination by taste or smell. Produce is transported to the stores as needed
in temperature-controlled trucks.
Fresh produce is displayed on the sales floor on movable bins/racks, with
temperature-sensitive items kept on beds of crushed ice. Floor display
quantities are intentionally limited and controlled so that temperature-
sensitive items turn three to four times per day. The produce displays are
continuously replenished from the temperature-controlled storage coolers and
hand-culled to remove bruised or damaged items. At the end of each selling day,
the movable produce racks are returned to the appropriate temperature-controlled
storage environment. To further ensure freshness, the entire selling floor is
maintained at temperatures substantially below normal room temperature.
-2-
<PAGE>
Fresh Meats and Poultry. Harry's meat department carries a full range of
beef, pork, veal, lamb, chicken, turkey and other poultry items. Harry's stores
feature Coleman(R) Natural Beef (Colorado grain-fed beef which utilizes no
antibiotics, growth stimulants or other additives) and Perdue(R) grain-fed
chicken. Harry's also regularly offers exotic meats and poultry such as
beefalo, venison, duck, goose, quail, free range chicken and capon, as well as a
variety of fresh processed meats such as sausage and ground beef. All meat and
poultry is purchased and sold fresh, except immediately before major holidays,
when demand upon the production facilities of Harry's suppliers requires fresh-
frozen shipments. Harry's maintains a strict maximum 48-hour "sell by" date on
all cut meat and poultry, and ground meat must be sold the day it is ground.
Meat is purchased by an experienced in-house buyer; delivered in refrigerated
trucks by Harry's independent contract carrier; and received, inspected and
stored at the Company's Alpharetta megastore which is presently being used as
the central Distribution Center. Beef, pork and veal are purchased in vacuum-
packed primal cuts; lamb is purchased in whole carcasses; and chicken and other
poultry products are purchased both as whole birds and in prepackaged, precut
pieces. Both full-service and self-service (precut and packaged) meat cases are
available in each megastore. Each megastore has its own meat-cutting room, and
all machinery is cleaned and sanitized twice each day. Meat cases are cleared
and cleaned nightly. Separate processing areas are maintained for beef, pork
and chicken to avoid cross-contamination, and meat and poultry cases are checked
hourly for proper temperature.
Fresh Fish and Seafood. Harry's carries one of the most extensive selections
of fresh fish and seafood in the country. Each megastore typically carries
between 250 and 300 seafood items, including whole and filleted fish (over 100
species); crustacea such as shrimp, lobster, crab and crayfish; and mollusks
such as oysters, clams, scallops, mussels, squid and octopus. Lobster, blue
crab, shellfish and crayfish are often offered live.
Seafood is purchased by the Company's in-house buyer from a variety of sources
including fishing boats, packers, processors and distributors. The Company
regularly purchases seafood from over 40 suppliers. Fish is purchased whole and
processed where appropriate (head-off, scaled, filleted, de-boned) in the store.
Harry's seafood department also makes daily fresh sushi, seafood dim sum and a
variety of marinated seafood items.
Generally, seafood requires the greatest degree of care to maintain freshness
and quality, and temperature control and handling are the most important aspects
of preserving quality. Seafood is centrally received at the Company's
Alpharetta store, where it is extensively inspected by an experienced staff of
seafood inspectors who examine it for conformity to species specification, the
presence of any foreign materials and apparent freshness (eyes clear, no odor,
no gill discoloration or trauma). Shipments are then sampled and tested by lot
for bacteriological and chemical contamination.
Harry's Seafood Department is certified by the United States Department of
Commerce to inspect and grade its own seafood. The Company currently has 21
HACCP (Hazard Accessment Critical Control Point) certified personnel who are
responsible for the grading and inspection.
Bakery. Harry's bakery department offers approximately 200 items which are
fresh baked daily at the Company's bakery facility. The baking facility is
fully equipped with state-of-the-art industrial baking equipment. Bakery
products currently include approximately 60 different breads, 15 different types
of hand-rolled bagels, more than a dozen varieties of cookies, 10 kinds of
muffins, and 35 different cakes, pies and desserts. Bakery items include
traditional recipes from around the world, as well as recipes developed
exclusively by Harry's.
More than 90 percent of the Company's manufactured bakery products are
produced fresh daily and removed from the shelves if not sold on the day made.
All bakery dough is made from scratch-blended ingredients (not from mixes) and
hand or machine shaped before being baked in commercial ovens.
-3-
<PAGE>
Prepared Foods. Harry's manufactures and sells a broad range of ready-to-
eat, ready-to-heat and ready-to-cook fresh prepared foods. This line of
approximately 300 products includes fresh pasta, ready-to-heat pizzas, pasta
sauces, fresh casseroles, lasagna, filled pastas, quiches and a line of
refrigerated (not frozen) microwaveable meals marketed under the name "Harry's
Hungry In A Hurry Meals."
Prepared foods facilities which serve more than two retail outlets with meat
or poultry products are subject to approval and inspection by the United States
Department of Agriculture ("USDA") as a food manufacturing facility. On June
27, 1993, the Company obtained approval and opened its USDA food manufacturing
facility located within the same building as the Alpharetta megastore. During
fiscal 1996, the Company had a USDA compliance inspection record better than
99.5%.
All of Harry's prepared foods are made fresh in the Company's 28,000 square
foot USDA-approved food manufacturing facility. Harry's kitchens make
approximately 30 varieties of prepared salad items (such as potato and pasta
salads). Recipes are developed in-house by Harry's product development staff.
They are then extensively documented for commercial production (including step-
by-step production instructions and quality control procedures) and tested for
customer acceptance.
Deli, Cheese and Dairy. Harry's carries more than 85 varieties of
delicatessen meats, and features the quality Boar's Head(R) brand. The deli
also prepares fresh rotisserie chicken, barbecue, roast beef, knishes and baked
hams. In addition, Harry's offers more than 300 varieties of cheeses from
around the world which are purchased in bulk from distributors and importers and
directly from cheese processors. The Company believes that its stores offer one
of the largest selections of cheeses in the southeastern United States. Harry's
also offers a broad range of dairy items such as milk, yogurt, cottage cheese,
ice cream and butter.
Nonperishable Products
Staples, Housewares, and Health and Beauty Aids. Harry's offers a selection
of nonperishable food products generally consisting of hard-to-find and gourmet
items, natural products and foods useful in the preparation of ethnic cuisines
that are complementary to its fresh food offerings. Harry's also carries a full
line of gourmet coffees.
A limited line of quality kitchen-oriented housewares is also offered at
Harry's, including food processing equipment, gourmet utensils and gadgets.
Harry's stores also feature more than 500 health and beauty aid items, primarily
natural products and products marketed to the environmentally sensitive
consumer. Additionally, Harry's stores feature a broad selection of blooming,
in-pot and fresh cut flowers and decorative plants which are purchased directly
from growers both domestically and abroad.
Wine and Beer. Harry's megastores offer a selection of more than 1,000
different foreign and domestic wines (including vintages) and more than 150
brands of domestic and imported beers, with Harry's in a Hurry stores offering a
somewhat smaller selection.
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<PAGE>
The following table indicates sales and percentage of total revenues
contributed by perishable and nonperishable products for each of the last three
fiscal years:
<TABLE>
<CAPTION>
Major Product Category Fiscal 1996 Sales % Fiscal 1995 Sales % Fiscal 1994 Sales %
<S> <C> <C> <C> <C> <C> <C>
Perishables(1) $117,530,491 81 $116,521,000 81 $95,677,000 82
Staples and Nonperishables(2) 28,407,728 19 27,293,000 19 21,040,000 18
</TABLE>
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(1) Includes fresh fruits, vegetables, meats and poultry, fish and seafood,
bakery and fresh prepared food items, cheeses, deli items, dairy products,
flowers and coffee.
(2) Includes nonperishable food items, wine and beer, housewares, health and
beauty aids and other complementary nonperishables.
Marketing and Advertising
The Company spends less on advertising than traditional supermarkets and
relies primarily on word-of-mouth recommendations from its customer base.
Advertising is undertaken primarily in the print media, on billboards and
occasionally by broadcast and is directed toward promoting the quality,
selection and value offered in its products. Harry's promotes its products in-
store by regular product sampling displays and through informational handouts.
During fiscal 1997, the Company plans to expand its marketing initiatives.
Employees and Employee Training
The Company currently employs 1,320 people, of whom 87 percent are full-time
employees. Approximately 216 employees are salaried, with the remainder being
paid on an hourly basis. The Company believes that it devotes more time and
expense to the training and education of its employees, both in the operations
process and in product information, than does the typical food retailer.
Accordingly, the Company stresses the importance of maintaining and retaining a
greater portion of its workforce as full-time employees. The Company has
devised, documented and implemented formal training procedures in areas such as
equipment operation, product handling and sanitation and product information.
None of the Company's employees are represented by a union, and the Company
believes its employee relations are satisfactory.
Competition
The Company competes in the Atlanta market area with traditional grocery
stores and supermarkets, other farmers market format retailers, specialty food
shops such as butchers, bakeries, produce stands and seafood shops, and club
stores. Competition for the consumer's food dollar is generally intense and has
increased in recent years with the entrance of two new regional chains in the
Company's market area. General food retailers such as grocers and supermarkets
compete primarily on the basis of promotional pricing, convenience to the
customer of location and one-stop shopping, and, to a lesser extent, product
selection and quality. Farmers markets and specialty food shops compete
primarily on the basis of quality and selection of products and, to a lesser
extent, price. Club stores compete primarily on the basis of price. Harry's
competitive strategy is to be unmatched in the freshness and quality of its
products and unequaled in the selection and overall pricing/value of its
products.
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<PAGE>
Government Regulation
The distribution and sale of meat, poultry and dairy products and fresh
produce are regulated and subject to inspection by the USDA under, among others,
the Federal Meat Inspection Act and the Federal Poultry Products Inspection Act
and by various state agencies under applicable state legislation. The USDA has
delegated its inspection responsibility to the states for fresh produce and
dairy products and for meat and poultry processing and handling facilities which
do not serve more than two retail outlets. Meat or poultry processing
facilities which serve more than two retail outlets are subject to direct
inspection and approval by the USDA.
The Company's seafood operations participate voluntarily in the United States
Department of Commerce self-inspection and rating program (HACCP), which
subjects it to standard specification and inspection by that agency.
Participation in the voluntary program permits the Company to label its fresh
seafood with the governmentally approved "Grade A" stamp. The Company currently
has approximately 21 HACCP (Hazard Accessment Critical Control Point) certified
personnel who are responsible for grading and inspection.
In May 1994, all preparers of packaged foods were required to comply with the
federal Nutrition Labeling and Education Act, which requires that the labeling
of all manufactured food items must display specific nutritional content
information. Compliance with that act requires the Company to conduct extensive
testing of its prepared food items to determine the nutritional content and
requires exact portion control of prepared food items. The Company complies
with all regulations under this act. Additionally, the Company voluntarily
complies with nonmandatory consumer information regulations under this act,
which provide for in-store posting of generic information on the nutritional
content of selected fruits and vegetables, meat, poultry and seafood.
The Company's relationship with its fresh food suppliers with respect to the
grading and commercial acceptance of product shipments is governed by the
federal Produce and Agricultural Commodities Act (P.A.C.A.), which specifies
standards for sale, shipment, inspection and rejection of agricultural products.
The Company is also subject to regulation by state authorities for accuracy of
its weighing and measuring devices.
Management believes that the Company is currently in substantial compliance
with all applicable government regulations.
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<PAGE>
Executive Officers
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Position with Company
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<S> <C>
Harry A. Blazer Chairman, President and Chief Executive Officer
Terry L. Ransom Executive Vice President and Chief Administrative Officer
Harold C. Weissman Treasurer
John L. Latham Corporate Secretary and General Counsel
</TABLE>
_______________
Harry A. Blazer, age 45, was the founder of the Company and served as the sole
General Partner of the predecessor to the Company and as Chief Executive Officer
from its inception in 1987. Upon the Company's incorporation in 1993, Mr.
Blazer was named a director and President and Chief Executive Officer. In June
1994, Mr. Blazer was elected to the additional office of Chairman. From 1979 to
1987, Mr. Blazer was employed at DeKalb Farmer's Market in Atlanta and served as
its General Manager from 1983 until he left to form the Company.
Terry L. Ransom, age 49, has extensive knowledge of information systems
integration and management. Prior to working for the Company, from October 1987
to June 1995 Mr. Ransom was employed as Director of Hospital Information
Services for the Scottish Rite Children's Medical Center in Atlanta, Georgia.
In addition to extensive information systems and management consulting
experience, Mr. Ransom has had more than ten years experience in various
positions with AT&T including nearly three years experience as national manager
for implementing and supporting information systems projects for AT&T's Overseas
Accounting Department. He also has experience launching new business ventures in
a variety of industries.
Harold C. Weissman, age 42, is a native of Atlanta, Georgia. Mr. Weissman
graduated in 1976 from the University of Georgia with a B.B.A. in Accounting.
Mr. Weissman acquired an extensive background in bank auditing while employed
with Grant Thornton, L.L.P. and ten years of experience as controller for
various manufacturing firms. Mr. Weissman joined the Company in 1990 spending
nearly one year in operations before becoming Director of Accounting in 1991.
Mr. Weissman was appointed Treasurer in 1995.
John L. Latham, age 41, was appointed Secretary and General Counsel for the
Company in September 1995. Since 1992, Mr. Latham has been a partner in the firm
of Nelson Mullins Riley & Scarbarough, L.L.P., which is the firm that serves as
general counsel for the Company.
Item 2. Properties.
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Each of the Company's three present megastore sites is owned by the Company.
The 132,500 square foot Alpharetta site houses the Alpharetta megastore, which
has 95,000 square feet devoted to retailing and retailing support, the Company's
corporate offices, meat, deli, dairy, produce and seafood receiving and
inspection operations and the prepared foods manufacturing plant. The Gwinnett
County site and the Cobb County site each house megastores, one of 95,000 square
feet (Gwinnett) and one of 100,000 square feet (Cobb). The Gwinnett
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<PAGE>
megastore was expanded in 1994 to its current size. Both the Gwinnett and Cobb
megastores are devoted entirely to retailing and retailing support.
The Company's baking operations, as well as nonperishables and cheese
receiving and distribution operations are housed in a 151,000 square foot
Company-owned facility located approximately two miles from the Alpharetta
store. The baking facility is equipped with state-of-the-art industrial baking
equipment.
The Company leases each of the two Harry's In A Hurry locations in Atlanta.
The first Harry's In A Hurry contains 3,700 square feet, is located on Peachtree
Road in the Buckhead area of Atlanta and is leased through 2002. The second
Harry's In A Hurry location, which is leased with options through 2019, contains
7,200 square feet and also is located in the Buckhead area of Atlanta,
approximately four miles north of the first location.
Item 3. Legal Proceedings.
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There are no (i) material legal proceedings to which the Company is a party or
to which its properties are subject; (ii) material proceedings known to the
Company to be contemplated by any governmental authority; (iii) material
proceedings known to the Company, pending or contemplated, in which any
director, officer or affiliate or any principal security holder of the Company,
or any associate of any of the foregoing is a party or has an interest adverse
to the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
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No matters were submitted to a vote of security holders of the Company during
the fourth quarter ended January 31, 1996.
-8-
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
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The Company's Class A Common Stock is traded on the NASDAQ Stock Market under
the symbol HARY. There is no established public trading market for the Company's
Class B common Stock. The following tables set forth, by fiscal quarter, the
high and low sales prices of the Class A Common Stock reported by the NASDAQ
Stock Market for the two most recent fiscal years.
<TABLE>
<CAPTION>
Fiscal Year Ended January 31, 1996 High Sale Low Sale
<S> <C> <C>
First Quarter ended May 3, 1995 $10.00 $ 8.00
Second Quarter ended August 2, 1995 8.00 7.00
Third Quarter ended November 1, 1995 4.75 2.875
Fourth Quarter ended January 31, 1996 3.25 2.625
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended February 1, 1995 High Sale Low Sale
<S> <C> <C>
First Quarter ended May 4, 1994 $17.25 $ 9.00
Second Quarter ended August 3, 1994 13.75 13.75
Third Quarter ended November 2, 1994 13.50 8.50
Fourth Quarter ended February 1, 1995 15.25 6.50
</TABLE>
On May 8, 1996, the closing sales price for the Class A Common Stock as
reported by NASDAQ was $3.00 per share. The Company had 925 record holders and
approximately 7,000 beneficial holders of its Class A Common Stock as of May 6,
1996, and two record and beneficial holders of its Class B Common Stock. The
Company has not declared or paid any cash dividend on either class of its Common
Stock. The policy of the Board of Directors of the Company is to retain future
earnings for use in operations and if available for the expansion and
development of the Company's business. The Company's primary credit facility
prohibits the payment of dividends without the consent of the lenders. Future
dividend policy and the payment of dividends, if any, will be determined by the
Board of Directors in light of circumstances then existing, including the
Company's earnings, financial condition, contractual restrictions and other
factors deemed relevant by the Board.
-9-
<PAGE>
Item 6. Selected Financial Data.
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The following selected financial data should be read in conjunction with the
Consolidated Financial Statements and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
Fiscal Year Ended
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January 31, February 1, February 2, January 31, February 2,
1996 1995 1994 1993 1992
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(in thousands, except per share data)
Statement of Operations Information:
- ------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales................................ $145,938 $143,814 $116,717 $98,870 $64,415
Cost of goods sold....................... 109,845 109,364 88,796 72,586 47,271
-------- -------- -------- ------- -------
Gross profits............................ 36,093 34,450 27,921 26,284 17,144
Operating expenses....................... 43,677 38,301 32,570 24,379 16,857
-------- -------- -------- ------- -------
Operating profit (loss).................. (7,584) (3,851) (4,649) 1,905 287
Interest expense......................... (3,198) (3,032) (840) (1,072) (921)
Other income............................. 906 159 656 877 2,464
-------- -------- -------- ------- -------
Earnings (loss) before income taxes...... (9,876) (6,724) (4,833) 1,710 1,830
Income taxes/1/.......................... - 0- - 0- - 0- 660 706
-------- -------- -------- ------- -------
Net earnings (loss)...................... (9,876) (6,724) (4,833) 1,050 1,124
Provision for Accretion of Warrants...... (229) (19) - 0- - 0- - 0-
-------- -------- -------- ------- -------
Net earnings (loss) applicable to common ======== ======== ======== ======= =======
shareholders............................ $(10,105) $ (6,743) $ (4,833) $ 1,050 $ 1,124
======== ======== ======== ======= =======
Net earnings (loss) per share/2/......... $(1.64) $(1.09) $(0.86) $.25 $.28
======== ======== ======== ======= =======
Weighted average shares outstanding/2/... 6,167 6,164 5,595 4,200 3,989
</TABLE>
<TABLE>
<CAPTION>
As of
January 31, February 1, February 2, January 31, February 2,
1996 1995 1994 1993 1992
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Information:
- --------------------------
Working capital (deficit)................ $ (110) $ 3,456 $ (4,312) $ 214 $(1,084)
Property and equipment, net.............. 49,380 59,145 65,157 23,246 21,517
Total assets............................. 66,760 76,102 78,870 30,553 28,590
Long-Term obligations, net of current
maturities.............................. 28,789 30,502 29,073 11,173 9,970
Notes payable to partners net of current
maturities.............................. -- -- -- 1,500 --
Limited partner capital contribution..... -- -- -- 2,500 2,500
Partnership equity....................... -- -- -- 8,400 7,096
Redeemable convertible preferred stock... 10,124 9,895 -- -- --
Stockholders' equity..................... 17,666 27,756 33,880 -- --
</TABLE>
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/1/ Income taxes and net earnings for 1992-1993 pro forma assuming the
Company's predecessor partnership had been a corporation
/2/ Earnings per share and weighted average shares for 1992-1993 are
pro forma based on the weighted average number of shares that would have been
outstanding had the partners been shareholders.
-10-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- ------ -----------------------------------------------------------------------
of Operations.
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General
The Company opened its first megastore, with an initial size of 63,000 square
feet, in July 1988 in Alpharetta, Georgia. In May 1991, the Company expanded
this facility to 132,500 square feet (approximately 95,000 square feet of
retailing space). In October 1991, the Company opened a 60,000 square foot
megastore in Gwinnett County, Georgia. In 1994, the Company expanded this
facility to 95,000 square feet. In October 1993, the Company opened its third
megastore, a 100,000 square foot facility located in Cobb County, Georgia. In
June 1993, the Company opened its first Harry's In A Hurry store, a 3,700 square
foot convenience store, and in March 1994, the Company opened its second Harry's
In A Hurry store, a 7,200 square foot convenience store. A fourth megastore
("the Clayton County megastore") was opened in May 1995 in Clayton County,
Georgia but was subsequently closed in November 1995 due to insufficient sales
volume to cover operating expenses of the store. Currently, the Company has
three megastores and two convenience stores in metropolitan Atlanta. Net sales
have increased from $64.4 million in fiscal 1992 to $146.0 million in fiscal
1996.
In fiscal 1994, the Company invested approximately $17.6 million in fixed
assets associated with manufacturing, distribution and corporate infrastructure
in anticipation of retail and manufacturing growth. The Company invested
approximately $10.8 million of such amount for the purchase and equipping of a
151,000 square foot production/warehouse facility of which approximately 55,000
square feet is utilized for bakery production, and approximately 40,000 square
feet is used for non-perishables distribution, and approximately 56,000 square
feet which was utilized until fiscal 1996 for produce inspection and
distribution, as well as meat, cheese, deli, and dairy distribution. The
Company invested approximately $3.0 million for building and equipping a 28,000
square foot USDA-approved prepared foods facility. These support facilities are
currently operating at an estimated 35% to 40% of capacity. In addition, the
Company also invested approximately $3.5 million in corporate infrastructure
which included corporate offices at the Alpharetta megastore and upgrades to
the Company's computer systems.
The increased costs associated with the start-up of these support facilities
and the inability of the Company to operate the manufacturing and distribution
facility at their optimum capacity resulted in the Company incurring losses in
fiscal 1994 and 1995. The loss in 1994 was primarily attributable to a 8.1%
increase in the fourth quarter cost of goods sold compared to the previous nine
months. The increase in cost of goods sold was largely due to increased
manufacturing cost (specifically payroll, depreciation and other fixed
manufacturing costs) associated with start-up of the manufacturing facility. Due
to insufficient funds to open new stores, the Company was unable to operate the
facilities at their optimum capacity. The operation of these facilities at below
their optimum capacity increased costs as a percentage of sales in 1995 and
resulted in a loss for fiscal 1995. It was during fiscal 1995 that management
also decided not to open a store in Nashville, Tennessee. The Company decided
to sell the 17 acres in order to raise additional cash and concentrate on the
existing stores in the Atlanta market.
In the fourth quarter of fiscal 1995, the Company received $10.3 million, net
of expenses, from a private placement of redeemable convertible preferred stock.
Concurrent with the closing of the preferred stock transaction, the Company also
restructured its bank credit facilities. The restructured credit facilities
consisted of a $26.7 million term loan facility and a working capital line of
credit (the restructured line of credit was originally $9.0 million but to
decrease expenses was voluntarily reduced in September 1995 to $5.0 million)
both of which have a maturity date of October 1, 1998.
The proceeds from the financing and the additional credit available under the
bank credit facility were used to construct the Clayton County megastore. The
Clayton County megastore was opened to improve the utilization of the Company's
manufacturing and distribution facilities while keeping the cannibalization of
the Company's other stores to a minimum. After six months of operations and
despite good execution by the store's management and a high level of
advertising and other types of sale promotions, the Clayton County megastore was
unable to generate an adequate sales volume to cover its
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<PAGE>
operating expenses which resulted in the store operating at a significant loss.
The Company concluded that the Clayton County megastore's performance would not
improve in the foreseeable future and that the losses would continue. To reduce
the burden on the Company's financial resources and to redirect management's
attention to more profitable parts of the Company's business, the Clayton County
megastore was closed in November 1995.
The closing of the Clayton County megastore combined with other factors
resulted in the Company having a loss for fiscal 1996. In order to reverse this
trend of losses as well as a decline in same store sales, the Company has taken
several actions. These actions include a reduction in the number of people
employed in the Company's general and administrative areas, consolidating the
produce inspection and distribution as well as meat, deli and dairy distribution
to the Alpharetta store, introduction of new prepared food items, an expanded
home replacement meal program, a hot bread program, new merchandising
initiatives, better operational performance at store level due to higher
employee morale, a more cohesive management team, and a focused effort to reduce
waste at the Company's manufacturing facilities and in its stores. Since
September 1995, the Company has introduced nearly 50 new prepared food products
which is more new products than in all of the last two years while at the same
time continuing to improve quality. Thirty to forty additional new prepared
food products are expected over the next year. The Company also has a newly
designed label to be used for bakery and prepared food items, new product
signage, and a totally new packaging system to ensure an even fresher, more
tamper resistant, and more cost efficient product. The Company is also actively
pursuing several significant outside contracts for the bakery and prepared foods
manufacturing facilities. Despite these efforts, a number of external factors
exist which are outside of management's control and could negatively impact the
Company's operations. These factors include, but are not limited to,
competition, availability of merchandise, weather and the metropolitan Atlanta
economy.
The statements which are not historical facts contained in this Annual Report
on Form 10-K are forward looking statements that involve risks and
uncertainties, including, but not limited to, the effect of weather, the effect
of economic conditions, the impact of competitive products, services and pricing
capacity and supply constraints or difficulties, the impact of advertising and
promotional activities and the effect of the Company's accounting policies.
The Company's fiscal year ends on the Wednesday nearest January 31. Fiscal
1996 ended on January 31, 1996, fiscal 1995 ended on February 1, 1995, and
fiscal 1994 ended on February 2, 1994.
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<PAGE>
Results of Operations
The following table sets forth the percentage relationship to net sales of the
listed items included in the Company's consolidated statements of operation:
<TABLE>
<CAPTION>
------------------------------------------
January 31, February 2, February 2,
1996 1995 1994
------------------------------------------
<S> <C> <C> <C>
Net sales..................................................................... 100.0% 100.0% 100.0%
Cost of goods sold............................................................ 75.3 76.0 76.1
----- ----- -----
Gross profit............................................................ 24.7 24.0 23.9
Operating expenses
Direct store expenses.................................................... 15.8 15.4 16.5
Selling, general and administrative expenses............................. 8.1 7.9 8.3
Depreciation and other amortization...................................... 2.6 2.8 2.2
Amortization of pre-opening expenses..................................... 0.3 0.6 0.9
Provision for Store Closing.............................................. 3.1 0.0 0.0
----- ----- -----
Operating Expenses....................................................... (5.2) (2.7) (4.0)
Other income (expense)
Interest expense......................................................... (2.2) (2.1) (0.7)
Other income............................................................. 0.6 0.1 0.6
Income taxes.................................................................. 0.0 0.0 0.0
----- ----- -----
Net (loss).................................................................... (6.8)% (4.7)% (4.1)%
===== ===== =====
</TABLE>
Comparison of Fiscal 1996 to Fiscal 1995
- ----------------------------------------
Net sales in fiscal 1996 increased 1.5% to $146.0 million from $143.8 million
in fiscal 1995. This is primarily attributable to the revenue generated by the
Clayton County megastore from the time it opened on May 17, 1995 until its
closing on November 5, 1995. Comparable store sales declined 4.5% for the
year. This decline can be attributed to several factors: poorly executed
ordering to minimize out-of-stocks in the early part of the fiscal year, growing
competition in the Atlanta area, extreme weather conditions towards the end of
the year and the discontinuance of instore promotions and demonstrations.
Gross profit as a percentage of sales in fiscal 1996 increased to 24.7% of
sales in fiscal 1996 from 24.0% in fiscal 1995. The improvement was
attributable primarily to operational efficiencies, in particular,
manufacturing, distribution, and procurement. Despite the continued
underutilization of manufacturing and distribution facilities, continued
improvement has occurred.
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<PAGE>
Direct store expenses increased as a percentage of net sales to 15.8% in
fiscal 1996 from 15.4% in fiscal 1995. The increase was primarily attributable
to higher labor costs resulting from the start up of the Clayton County
megastore.
Selling, general and administrative expenses in fiscal 1996 increased as a
percentage of sales to 8.1% from 7.9% in fiscal 1995. The increase is primarily
attributable to severance expenses and legal fees associated with Company's
restructuring of management. This restructuring was undertaken after Harry A.
Blazer, the chairman, founder and majority voting shareholder of the Company,
took action by consent in accordance with applicable Georgia law in September
1995, to remove four (4) previous directors and elect three (3) new directors.
Mr. Blazer took this action as a result of differences of opinion with the
removed directors in the management philosophies regarding the Company's
operations. The increase in selling, general and administrative expenses also
reflects intensified sales promotion and marketing efforts designed to generate
additional sales volume in the Clayton County megastore during its time open
between May 1995 and November 1995 as well as additional advertising after the
close of the Clayton County megastore to offset the impact of negative publicity
on the remaining megastores and Harry's In A Hurry stores.
Depreciation and other amortization, which includes depreciation and
amortization for the stores and the corporate facilities but not manufacturing
facilities (which are included in cost of goods sold) declined as a percentage
of sales to 2.6% in fiscal 1996 from 2.8% in fiscal 1995. This decline resulted
from certain assets becoming fully depreciated prior to or during fiscal 1996.
Amortization of pre-opening expenses during fiscal 1996 decreased to 0.3% of
sales from 0.6% of sales in fiscal 1995. The decrease in preopening expenses is
largely due to the opening of only one megastore in fiscal 1996 compared to the
opening of a megastore and a Harry's In A Hurry in fiscal 1995.
During the fiscal year 1996, the Company incurred a non-cash loss of $4.6
million or 3.1% of sales due to the closing of the Clayton County megastore. The
loss consisted of $4.2 million to write down property and equipment to its net
realizable value and $0.4 million for labor and other costs associated with the
closing of the store and transferring equipment to other facilities. In January
1996, the Company sold the Clayton County property for $4.4 million and used
the net proceeds to decrease long term debt.
Interest expense increased in fiscal 1996 to 2.2% of sales from 2.1% of sales
in fiscal 1995 as a result of the Company having greater borrowings outstanding
in support of operations and from the funds used for capital expansion to open
the Clayton County megastore.
Other income increased in fiscal 1996 to $906,000 or 0.6% of sales from
$159,000 or 0.1% of sales in fiscal 1995. Included in Other income is rental
income received from the shopping center the Company owns. The Company's Cobb
County megastore is a major component of the shopping center. Rent received
during fiscal 1996 and 1995 exceeded $825,000 and $625,000, respectively. These
amounts are net of the Cobb County megastore rent. The shopping center is
approximately 97% occupied at this time. The increase in Other income is
attributable primarily to increased rental income received during fiscal 1996.
Other income in fiscal 1995 was offset by a $505,000 write down of the Company's
Nashville property to reflect market value.
Income taxes in fiscal 1996 were zero as the Company incurred a net loss.
The Company has net operating loss carry forwards of approximately $21.0 million
which may be applied against future earnings.
As a result of the above, the Company's operations generated a net loss for
fiscal 1996 of $10.1 million, or ($1.64) per share, compared with a net loss of
$6.7 million, or ($1.09) per share, for fiscal 1995.
-14-
<PAGE>
Comparison of Fiscal 1995 to Fiscal 1994
Net sales in fiscal 1995 increased 23.2% to $143.8 million from $116.7
million in fiscal 1994. This increase is primarily attributable to the opening
of the Cobb County megastore on October 28, 1993, and the opening of the
Company's second Harry's In A Hurry convenience store on March 1, 1994.
Comparable store sales, consisting of the Alpharetta megastore and the Gwinnett
megastore, declined 7.6% as both stores experienced cannibalization from the
additional stores.
Gross profit as a percentage of sales in fiscal 1995 of 24.0% remained
virtually unchanged from 23.9% in fiscal 1994. Although the Company's efforts
to reduce its cost of goods sold yielded certain positive results, these
benefits were offset by the effects of the continued underutilization of its
manufacturing and distribution facilities. The adverse impact from the
underutilization of these facilities is expected to continue to depress gross
profits until the Company is able to increase sales to a higher level than was
achieved fiscal 1995.
Direct store expenses declined as a percentage of net sales to 15.4% in
fiscal 1995 from 16.5% in fiscal 1994. The decline was attributable to reduced
labor, and to reductions in a variety of other expenses, partially offset by
higher lease expense. The decline in labor resulted from a new labor scheduling
system which provides for more effective labor utilization. The reduction in
other expenses was the product of efforts aimed at overall cost control. Lease
expenses increased by 0.2% of net sales as the Company added manufacturing and
distribution capacity with operating leases.
Selling, general and administrative expenses in fiscal 1995 improved as a
percentage of sales to 7.9% from 8.3% in fiscal 1994. The improvement was
attributable to declines in advertising and discretionary expenses. Partially
offsetting this improvement were higher labor and consulting costs, mainly
associated with human resource development.
Depreciation and other amortization, which includes depreciation and
amortization for the stores and the corporate facilities but not manufacturing
facilities (which are included in cost of goods sold) increased as a percentage
of sales to 2.8% in fiscal 1995 from 2.2% in fiscal 1994. This increase was
primarily due to the purchase of additional equipment in all the stores and four
quarters of depreciation for the Cobb County megastore. Fiscal 1994 only
included one quarter of depreciation expense for the Cobb County megastore as
it opened during the fourth quarter of fiscal 1994.
Amortization of pre-opening expenses in fiscal 1995 was $816,000 compared
with $1.0 million in fiscal 1994. The pre-opening expenses in fiscal 1995 were
attributable to the opening of the Cobb County megastore and the second Harry's
In A Hurry convenience store. The pre-opening expenses in fiscal 1994 were
attributable to costs associated with opening the Cobb megastore and the first
Harry's In A Hurry convenience store. Pre-opening costs are capitalized and
amortized during the first six months of a store's operation.
Interest expense increased in fiscal 1995 to $3.0 million from $840,000 in
fiscal 1994 as a result of the Company having greater borrowings outstanding in
support of operations, capital expansion and from an increase in effective
interest rates to 8.1% in fiscal 1995 from 6.7% in fiscal 1994.
Other income declined to $159,000 in fiscal 1995 from $656,000 in fiscal
1994. The decline principally resulted from a $505,000 write-down of the
Company's Nashville property to reflect current market value.
Income taxes in fiscal 1995 were zero as the Company incurred a net loss.
The Company has net operating loss carry forwards of approximately $12.0 million
which may be applied against future earnings.
As a result of the above, the Company's operations generated a net loss for
fiscal 1995 of $6.7 million, or $(1.09) per share, compared with a net loss of
$4.8 million, or $(0.86) per share, for fiscal 1994.
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<PAGE>
Liquidity and Capital Resources
The Company's operating activities (used) or provided net cash of
approximately ($1.2) million, $2.1 million and ($7.7) million in fiscal 1996,
1995, and 1994, respectively.
Cash used in investing activities in fiscal 1996, 1995, and 1994 was
approximately $1.3 million, $3.2 million and $45.2 million, respectively.
Investing activities consisted mainly of capital expenditures for property and
equipment relating to stores and distribution and manufacturing facilities.
During fiscal 1996 and 1995, the Company constructed the Clayton County
megastore which was subsequently closed and sold. Total capital expenditures net
of proceeds from the sale of property and equipment in fiscal 1996 and 1995,
were $1.3 million and $3.4 million, respectively.
Cash provided by financing activities in fiscal 1996, 1995 and 1994 was
approximately $1.3 million, $2.8 million and $51.9 million. In fiscal 1996,
financing activities consisted mainly of borrowings under the Company's long-
term debt and line of credit which was partially offset by repayments. At the
end of fiscal 1996, the Company was fully drawn on these credit facilities and
had no additional lines of credit.
The Company's working capital position in 1996 and 1995 was ($0.1) million
and $3.5 million respectively. The decrease in working capital in fiscal 1996 is
due largely to a mortgage note ("the Mortgage Loan") on the Company's
distribution center and baking facility maturing in June 1996. The note, at the
end of fiscal 1996, had a balance of $3.2 million and is classified as a current
liability in the Company's financial statements. During the third quarter of
fiscal 1996, the Company was in violation of a covenant under the Mortgage Loan.
This covenant was met for the fourth quarter. The lender has not granted a
waiver for the covenant violation nor taken any action to demand payment. The
Company continues to explore its alternatives with respect to
refinancing/repayment of the Mortgage Loan.
To increase liquidity and to concentrate on the existing stores in Atlanta,
the Company decided in 1995 to sell a 17 acre tract of land in Nashville,
Tennessee ("the Nashville Property"). The Nashville Property was originally
purchased in October 1993 to construct a store. The Company has now entered
into an agreement for the sale of the Nashville Property subject to various
zoning changes, which recently were approved. Management believes that the
sale will close in the second quarter of fiscal 1997. The contract for the
Nashville Property provides for net proceeds to the Company to be approximately
equal to book value. In addition, several out-parcels at the Gwinnett megastore
location are being negotiated. One is anticipated to close in the first quarter
of fiscal 1997 and the second to close in the second quarter of fiscal 1997.
Such sales are expected to impact profits positively by reducing the costs
associated with the carrying of such assets and by using the proceeds from the
sales to reduce the Company's indebtedness and, therefore, the related interest
expenses.
Subsequent to the end of the year the Company restructured its senior credit
facility. The restructuring eliminated certain financial and other loan
covenant violations of the senior credit facility. In addition, the
restructuring extended until maturity, or extension thereof, the lenders
agreement to forebear the declaration of a cross default as a result of the
breach of the covenant under the Mortgage Loan. The restructuring of the senior
credit facility will also, once the sale of the Nashville Property takes place,
allow the Company to borrow an additional $1.0 million for general corporate
purposes, including the repayment of indebtedness.
The Company's ability to fund its working capital and capital expenditure
requirements, make interest payments and meet its other cash requirements
depends, among other things, on internally generated funds and the continued
availability of and compliance with its credit facilities. Management believes
that internally generated funds and its available credit facilities, as
restructured, will provide the Company with sufficient sources of funds to
satisfy its anticipated cash requirements in fiscal 1997. However, if there is a
significant reduction of internally generated funds, the Company may require
funds from outside financing sources. In such event, there can be no assurance
that the Company would be able to obtain such funding as and when required or on
acceptable terms.
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<PAGE>
Seasonality
The Company's sales mix varies seasonally as the availability of fresh
product dictates and the Company generally experiences substantially increased
sales volume in the days immediately preceding major holidays. In addition, the
Company realizes increased sales during its second quarter due to greater
availability and demand for produce.
Effects of Inflation
The Company generally has been able to pass on increased costs attributable
to inflation through appropriate increases in selling prices of its products
and, accordingly, has not experienced any material adverse effect from
inflation.
Item 8. Financial Statements and Supplementary Data.
- ------ -------------------------------------------
The following financial statements are filed with this report:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets -- Fiscal Years Ended, January 31, 1996 and
February 1, 1995
Consolidated Statements of Operations -- Fiscal Years Ended, January
31, 1996, February 1, 1995, and February 2, 1994
Consolidated Statements of Changes in Equity -- Fiscal Years Ended,
January 31, 1996, February 1, 1995, and February 2, 1994
Consolidated Statements of Cash Flows -- Fiscal Years Ended, January
31, 1996, February 1, 1995, and February 2, 1994
Notes to Consolidated Financial Statements
Item 9. Changes in and Disagreements With Accountants on Accounting and
- ------ ---------------------------------------------------------------
Financial Disclosure.
- --------------------
There has been no occurrence requiring a response to this item.
PART III
Except as to information with respect to executive officers which is contained
in a separate heading under Item 1 to this Form 10-K, the information required
by Part III of Form 10-K is, pursuant to General Instruction G(3) of Form 10-K,
incorporated by reference from the Company's definitive proxy statement to be
filed pursuant to Regulation 14A for the Company's Annual Meeting of
Stockholders to be held on June 19, 1996 (the "Proxy Statement"). The Company
will, within 120 days of the end of its fiscal year, file with the Securities
and Exchange Commission a definitive proxy statement pursuant to Regulation 14A.
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<PAGE>
Item 10. Directors and Executive Officers of the Registrant.
- ------- --------------------------------------------------
The information responsive to this item is incorporated by reference from the
sections entitled "Election of Directors" and "Compliance with Section 16(a) of
the Securities Exchange Act of 1934" contained in the Proxy Statement.
Item 11. Executive Compensation.
- ------- ----------------------
The information responsive to this item is incorporated by reference from the
section entitled "Executive Compensation" contained in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- ------- --------------------------------------------------------------
The information responsive to this item is incorporated by reference from the
section entitled "Security Ownership of Certain Beneficial Owners and
Management" contained in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
- ------- ----------------------------------------------
The information responsive to this item is incorporated by reference from the
sections entitled "Certain Relationships and Related Transactions" and
"Compensation Committee Interlocks and Insider Participation" contained in the
Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
- ------- ---------------------------------------------------------------
(a) 1. Financial Statements and Auditors' Report.
-----------------------------------------
The following financial statements and auditors' report have been filed as
Item 8 in Part II of this report:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets --Fiscal Years Ended, January 31, 1996 and
February 1, 1995
Consolidated Statements of Operations -- Fiscal Years Ended, January
31, 1996, February 1, 1995, and February 2, 1994,
Consolidated Statements of Changes in Equity -- Fiscal Years Ended,
January 31, 1996, February 1, 1995, and February 2, 1994
Consolidated Statements of Cash Flows -- Fiscal Years Ended,
January 31, 1996, February 1, 1995, and February 2, 1994
Notes to Consolidated Financial Statements
2. Financial Statement Schedules.
-----------------------------
The following supporting financial statement schedule is filed with this
report:
Schedule II - Consolidated Schedule of Valuation and Qualifying
Accounts
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<PAGE>
All other schedules are omitted as the required information is inapplicable,
or the information is presented in the consolidated financial statements or
related notes.
3. Exhibits.
--------
The following exhibits are filed with or incorporated by reference into this
report. The exhibits which are denominated by an asterisk (*) were previously
filed as part of and are hereby incorporated by reference from either (i) the
Company's Form S-1 Registration Statement under the Securities Act of 1933,
Registration No. 33-60452,("Form S-1"), (ii) the Company's Annual Report on Form
10-K for the fiscal year ended February 2, 1994 ("1993 Form 10-K"), (iii) the
Company's Quarterly Report on Form 10-Q for the quarter ended August 3, 1994
("8/3/94 10-Q"), (iv) the Company's Quarterly Report on Form 10-Q for the
quarter ended November 2, 1994 ("11/2/94 10-Q"), (v) the Company's Current
Report on Form 8-K filed with the Securities and Exchange Commission on January
30, 1995 ("1/30/95 8-K"), (vi) the Company's Annual Report on Form 10-K for the
fiscal year ended February 1, 1995 ("1995 Form 10-K"), (vii) the Company's
Quarterly Report on Form 10-Q for the quarter ended August 2, 1995 ("8/2/95 10-
Q"), and (viii) the Company's Quarterly Report on Form 10-Q for the quarter
ended November 1, 1995 ("11/1/95 10-Q"). Unless otherwise indicated, exhibit
numbers correspond to exhibit numbers in the referenced document.
Exhibit No. Description of Exhibit
- ----------- ----------------------
*2.1 Transfer, Assignment and Assumption Agreement, dated March 31,
1993, between Harry's Farmers Market, Ltd. (the "Partnership") and
Harry's Farmers Market, Inc. (Form S-1, Exhibit 10.1)
*3(i) Articles of Incorporation of HFM, Inc. (Form S-1 Exhibit 3.1)
*3(i).1 Articles of Amendment to Articles of Incorporation of the Company
(Form S-1 Exhibit 3.2)
*3(i).2 Articles of Amendment to Articles of Incorporation of the
Registrant (1/30/95 8-K)
*3(ii) By-Laws of HFM, Inc. (Form S-1 Exhibit 3.3)
*4 Specimen Certificate of Class A Common Stock (Form S-1)
*4.2 Specimen Certificate of Series A Redeemable Preferred Stock
(1/30/95 8-K)
*4.3 Share and Warrant Purchase Agreement dated December 30, 1994,
among the Registrant and Robert Fleming Nominees Ltd., AXA
Equity & Law Life Assurance Society, Orbis Pension Trustees Ltd.,
Ashford Capital Partners, L. P. and Theodore H. Ashford
(1/30/95 8-K)
*4.4 Stockholders Agreement dated December 30, 1994, among the
Registrant, Harry A. Blazer and Robert Fleming Nominees, Ltd.
(1/30/95 8-K)
*4.5 Investors' Agreement dated December 30, 1994, by and among the
Registrant, AXA Equity & Law Life Assurance Society, Orbis Pension
Trustees Ltd., Ashford Capital Partners, L.P. and Theodore H.
Ashford (1/30/95 8-K)
*4.6 Registration Rights Agreement dated December 30, 1994, between the
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<PAGE>
Registrant and Robert Fleming Nominees Ltd. (1/30/95 8-K)
*4.7 Registration Rights Agreement dated December 30, 1994, between
the Registrant and AXA Equity & Law Life Assurance Society, Orbis
Pension Trustees Ltd., Ashford Capital Partners, L.P. and Theodore
H. Ashford (1/30/95 8-K)
*4.8 Form of Warrant Certificates issued to Robert Fleming Nominees
Ltd. (300,000 shares), AXA Equity & Law Life Assurance Society
(56,250 Shares), Orbis Pension Trustees Ltd. (37,500 shares),
Ashford Capital Partners, L.P. (15,000 shares) and Theodore H.
Ashford (3,750 shares) (1/30/95 8-K)
*4.9 Form of Performance Warrant Certificates issued to Robert Fleming
Nominees Ltd. (44,444 shares), AXA Equity & Law Life Assurance
Society (8,333 shares), Orbis Pension Trustees Ltd. (5,556 shares),
Ashford Capital Partners, L.P. (2,222 shares) and Theodore H.
H. Ashford (556 shares) (1/30/95 8-K)
4.10 Amended and Restated Bank Warrant Certificate issued to
NationsBank (144,000 shares)
4.10.1 Bank Warrant Certificate issued to NationsBank (72,000 shares)
4.11 Amended and Restated Bank Warrant Certificate issued to
Creditanstalt-Bankverein (96,000 shares)
4.11.1 Bank Warrant Certificate issued to Creditanstalt-Bankverein (48,000
shares)
*10.2 Harry's Farmers Market, Inc. 1993 Management Incentive Plan
(Form S-1)
*10.3 Harry's Farmers Market, Inc. 1993 Outside Directors' Incentive Plan
(Form S-1)
*10.4 Harry's Farmers Market, Inc. Employee Stock Purchase Plan
(Form S-1)
*10.6 Master Lease Agreement dated September 5, 1991, between the
Partnership and SouthTrust Bank of Alabama, N.A., as amended April
1, 1993 (Form S-1)
*10.6.2 Third Amendment to Master Lease Agreement dated as of June 8, 1994,
among the Registrant, Harry A. Blazer and SouthTrust Bank of
Alabama, N. A. (8/3/94 10-Q)
*10.6.3 Waiver dated April 17, 1995, of certain conditions of default under
Master Lease Agreement dated September 5, 1991 (as amended) (1995
Form 10-K).
*10.9 Lease Agreement dated July 1, 1992, between the Partnership and
James B. Cumming (Form S-1)
*10.11 Master Equipment Lease Agreement dated June 30, 1991, between the
Partnership and Sun Financial Group, Inc. (Form S-1)
*10.13 Lease Agreement dated October 1, 1991, between Marthasville Trading
Company, Inc. and Thomas Trucking Co., Inc. (Form S-1)
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<PAGE>
*10.14 Agreement to Dissolve and Liquidate Harry's Farmers Market,
Ltd. (L.P.), dated March 30, 1993 (Form S-1)
*10.15 Real Estate Note in the amount of $3,325,000 payable by the
Partnership to Citicorp Real Estate, Inc. (Form S-1)
*10.15.1 Waiver dated December 12, 1994, of certain conditions of default
under Real Estate Note dated March 18, 1993 (11/2/94 10-Q)
*10.16 Amended and Restated Credit Agreement dated as of December 30,
1994, among the Registrant, Marthasville Trading Company, Karalea,
Inc., NationsBank of Georgia, National Association ("NationsBank"),
as Agent, NationsBank and Creditanstalt-Bankverein, as Lenders
(1/30/95 8-K)
*10.16 (a) Amendment Number One and Waiver Agreement dated April 27, 1995,
relating to Amended and Restated Credit Agreement dated December
30, 1994, among the Registrant, Marthasville Trading Company,
Karalea, Inc., NationsBank, Creditanstalt-Bankverein and
NationsBank, as Agent (1995 Form 10-K)
*10.16.1 Revolving Credit Note of the Registrant dated December 30, 1994, in
the original principal amount of $3,600,000 payable to the order of
Creditanstalt-Bankverein (1/30/95 8-K)
*10.16.2 Revolving Credit Note of the Registrant dated December 30, 1994, in
the original principal amount of $5,400,000 payable to the order of
NationsBank (1/30/95 8-K)
*10.16.4 Term Loan Note of the Registrant dated December 30, 1994, in the
original principal amount of $16,017,000 payable to the order of
NationsBank (1/30/95 8-K)
*10.16.5 Warrant Agreement dated December 30, 1994, among the Registrant,
NationsBank and Creditanstalt-Bankverein (1/30/95 8-K)
*10.16.6 Marthasville Trading Company Amended and Restated Guaranty dated
December 30, 1994 (1/30/95 8-K)
*10.16.7 Karalea, Inc. Amended and Restated Guaranty dated December 30, 1994
(1/30/95 8-K)
*10.16.8 Harry's Farmers Market, Inc. Amended and Restated Security
Agreement dated December 30, 1994, in favor of NationsBank (1/30/95
8-K)
*10.16.9 Marthasville Trading Company Amended and Restated Security
Agreement dated December 30, 1994, in favor of NationsBank (1/30/95
8-K)
*10.16.10 Karalea, Inc. Amended and Restated Security Agreement dated
December 30, 1994, in favor of NationsBank (1/30/95 8-K)
*10.16.11 Trademark Collateral Assignment and Security Agreement dated
December 30, 1994, in favor of NationsBank (1/30/95 8-K)
-21-
<PAGE>
*10.16.12 Interpretation dated May 22, 1995 of the Amended and Restated
Credit Agreement dated as of December 30, 1994 (8/2/95 10-Q)
*10.16.13 Waiver dated May 30, 1995 of certain prohibitions on the incurrence
of indebtedness under the Amended and Restated Credit Agreement
dated as of December 30, 1994 (11/1/95 10-Q)
*10.16.14 Waiver dated July 14, 1995 regarding the Company's failure to meet
minimum inventory days on hand under the Amended and Restated
Credit Agreement dated as of December 30, 1994 (11/1/95 10-Q)
*10.16.15 Waiver dated September 6, 1995 relating to Harry A Blazer's
relinquishing of the title and responsibilities of Chief Executive
Officer under the Amended and Restated Credit Agreement dated as of
December 30, 1994 (11/1/95 10-Q)
*10.16.16 Second Amendment dated September 15, 1995 relating to the Amended
and Restated Credit Agreement dated as of December 30, 1994
(11/1/95 10-Q)
*10.16.17 Forbearance Agreement, dated December 14, 1995, by and among the
Company, NationsBank of Georgia, National Association and
Creditanstalt-Bankverein (11/1/95 10-Q)
10.16.18 Sixth Amendment, Waiver and Forbearance Agreement dated May 8,
1996, by and among the Company, NationsBank, N.A. (South) and
Creditanstalt-Bankverein
*10.21 Lease Agreement dated September 16, 1993, between the Registrant
and Metropolitan Life Insurance Company (1993 Form 10-K)
*10.22 Agreement for the Sale and Purchase of Property dated April 9,
1993, between Karalea, Inc. and MM Mooring #1 Corp., as amended by
the First Amendment to Agreement for the Sale and Purchase of
Property dated May 14, 1993, and the Second Amendment to Agreement
for the Sale and Purchase of Property dated May 28, 1993 (1993 Form
10-K)
*10.23 Agreement for the Sale of Property dated July 14, 1993, between the
Registrant and Liberty Place Associates, Ltd., as amended by the
First Amendment to Purchase Agreement dated September 10, 1993, and
the Second Amendment to Agreement for the Sale of Property dated
September 20, 1993 (1993 Form 10-K)
*10.24 Contract for Sale dated July 12, 1993, between the Registrant and
J. C. Penney Properties, Inc., as amended by the First Amendment to
Contract dated August 23, 1993 (1993 Form 10-K)
*10.26 Agreement for Sale of Real Estate dated April 19, 1995, between the
Registrant and Trammell Crow SE, Inc. (1995 Form 10-K)
*21 Subsidiaries of the Registrant (1993 Form 10-K)
27 Financial Data Schedule
-22-
<PAGE>
Report of Independent Certified Public Accountants
--------------------------------------------------
Board of Directors
Harry's Farmers Market, Inc.
We have audited the accompanying consolidated balance sheets of
Harry's Farmers Market, Inc. and Subsidiaries as of January 31, 1996 and
February 1, 1995, and the related consolidated statements of operations,
changes in equity, and cash flows for each of the three years in the
period ended January 31, 1996. These financial statements are the
responsibility of management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Harry's Farmers Market, Inc. and Subsidiaries as of January
31, 1996 and February 1, 1995, and the consolidated results of their
operations and their consolidated cash flows for each of the three years in
the period ended January 31, 1996, in conformity with generally accepted
accounting principles.
We have also audited Schedule II of Harry's Farmers Market, Inc.
and Subsidiaries, for each of the three years in the period ended January
31, 1996. In our opinion, this schedule presents fairly, in all materials
respects, the information required to be set forth therein.
GRANT THORNTON LLP
Atlanta, Georgia
March 29, 1996 (except for Note L,
as to which the date is May 8, 1996)
F-1
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
January 31, February 1,
1996 1995
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,041,556 $ 2,296,548
Trade accounts receivable, net of an
allowance for
doubtful accounts of $25,000 131,653 157,860
Inventories (Notes A-2 and C) 7,894,596 7,471,425
Prepaid expenses 828,885 1,406,820
Other current assets 174,028 71,839
------------ ------------
Total current assets 10,070,718 11,404,492
PROPERTY AND EQUIPMENT (Notes A-4 and C)
Buildings 34,328,704 37,830,422
Equipment 22,560,506 22,191,700
Vehicles 560,397 619,495
Construction in progress 23,985 2,117,380
------------ ------------
57,473,592 62,758,997
Accumulated depreciation (16,614,546) (13,414,754)
------------ ------------
40,859,046 49,344,243
Land 8,521,103 9,800,877
------------ ------------
49,380,149 59,145,120
OTHER ASSETS
Other property and equipment (Note B) 6,197,466 4,297,000
Deposits on equipment 454,274 444,922
Loan costs, net of accumulated amortization
of $264,211 in 1996 and $127,677 in 1995
(Note A-5) 326,087 462,620
Other 330,915 347,395
------------ ------------
7,308,742 5,551,937
------------ ------------
$ 66,759,609 $ 76,101,549
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
January 31, February 1,
1996 1995
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term obligations
(Note C) $ 3,791,950 $ 598,340
Accounts payable - trade 4,700,461 4,635,190
Accounts payable - construction and
equipment - 142,241
Accrued insurance 156,234 1,009,224
Accrued payroll and payroll taxes payable 611,677 657,857
Sales taxes payable 238,172 366,064
Other accrued liabilities 682,330 539,867
------------ ------------
Total current liabilities 10,180,824 7,948,783
LONG-TERM OBLIGATIONS, net of current
maturities (Note C) 28,789,202 30,501,522
COMMITMENTS AND CONTINGENCIES (Note D) - -
REDEEMABLE PREFERRED STOCK,
authorized 3,000,000 shares, issued and
outstanding 1,222,221 shares in 1996 and
1995, respectively (Note E) 10,123,928 9,895,388
STOCKHOLDERS' EQUITY
Common stock:
Class A, 22,000,000 shares authorized;
issued and outstanding, 4,095,410 shares
in 1996 and 4,092,200 in 1995 34,578,303 34,559,693
Class B, 3,000,000 shares authorized;
issued and outstanding, 2,071,301 in
1996 and 2,071,801 in 1995 3,975,889 3,980,109
Additional paid-in capital 371,555 600,095
Accumulated deficit (21,260,092) (11,384,041)
------------ ------------
Total stockholders' equity 17,665,655 27,755,856
------------ ------------
$ 66,759,609 $ 76,101,549
============ ============
</TABLE>
F-3
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended
<TABLE>
<CAPTION>
January 31, February 1, February 2,
1996 1995 1994
------------- ------------- ------------
<S> <C> <C> <C>
Net sales $145,938,219 $143,813,803 $116,717,105
Cost of goods sold 109,844,988 109,363,817 88,795,826
------------ ------------ ------------
Gross profit 36,093,231 34,449,986 27,921,279
Operating expenses
Direct store expenses 23,076,763 22,088,355 19,328,174
Selling, general and administrative expenses 11,797,273 11,447,975 9,676,358
Depreciation and other amortization 3,774,980 3,948,395 2,552,234
Amortization of pre-opening expenses (Note A-3) 427,703 816,097 1,013,467
Provision for store closing (Note H) 4,600,000 - -
------------ ------------ ------------
43,676,719 38,300,822 32,570,233
------------ ------------ ------------
Operating loss (7,583,488) (3,850,836) (4,648,954)
Other income (expense)
Interest expense (3,198,083) (3,032,688) (840,736)
Reduction in market value of land held for sale - (505,039) -
Other income 905,520 664,313 656,387
------------ ------------ ------------
(2,292,563) (2,873,414) (184,349)
------------ ------------ ------------
NET LOSS (9,876,051) (6,724,250) (4,833,303)
Provision for accretion of warrants (Note E) (228,540) (19,045) -
------------ ------------ ------------
Loss applicable to common
shareholders $(10,104,591) $ (6,743,295) $ (4,833,303)
============ ============ ============
Loss per common share $ (1.64) $ (1.09) $ (.86)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years ended January 31, 1996, February 1, 1995 and February 2, 1994
<TABLE>
<CAPTION>
Common Common Additional
Partnership stock stock paid-in Accumulated Total
equity Class A Class B capital deficit equity
----------- ------------ ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Partnership equity at
January 31, 1993 (Note A) $ 8,400,257 $ 8,400,257
Partnership activity, February 1 -
March 31, 1993
Net loss (173,512) (173,512)
Distributions (158,179) (158,179)
----------- ----------
Balance, March 31,1993 8,068,566 8,068,566
Conversion to corporation
(issued 1,938,100 Class A shares
and 2,261,901 Class B shares) (8,068,566) $ 3,723,259 $4,345,307 $ - $ - -
Corporate activity, April 1, 1993 -
February 2, 1994
Common stock offering
(1,964,000 shares),
net of costs 30,471,236 - - - 30,471,236
Conversion of 110,000
Class B shares to Class A
shares 211,319 (211,319) - - -
Net loss - - - - (4,659,791) (4,659,791)
----------- ----------- ---------- ---------- ------------ -----------
Balance, February 2, 1994 $ - 34,405,814 4,133,988 - (4,659,791) 33,880,011
===========
Conversion of 80,100 Class B
shares to Class A shares 153,879 (153,879) - - -
Issuance of warrants (Notes C and E) - - 619,140 - 619,140
Accretion of warrant value - - (19,045) - (19,045)
Net loss - - - (6,724,250) (6,724,250)
----------- ---------- ---------- ------------ -----------
Balance, February 1, 1995 34,559,693 3,980,109 600,095 (11,384,041) 27,755,856
Issuance of 2,710 shares of Class A
stock for employee stock purchase
plan 14,390 - - - 14,390
Conversion of 500 shares of Class B
shares to Class A shares 4,220 (4,220) - - -
Accretion of warrant value - - (228,540) - (228,540)
Net loss - - - (9,876,051) (9,876,051)
----------- ---------- ---------- ------------ -----------
Balance, January 31, 1996 $34,578,303 $3,975,889 $ 371,555 $(21,260,092) $17,665,655
=========== ========== ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended
<TABLE>
<CAPTION>
January 31, February 1, February 2,
1996 1995 1994
-------------- -------------- ---------------
<S> <C> <C> <C>
Changes in Cash
Cash flows from operating
activities:
Cash received from
customers $ 145,964,426 $ 143,753,453 $ 116,839,159
Cash paid for purchases
and operating expenses (144,223,497) (139,200,742) (123,318,734)
Interest paid, net of
capitalized interest of
$87,600 in 1996, $29,700
in 1995 and $278,083 in
1994 (2,956,091) (2,865,854) (836,029)
Income taxes (paid)
refunded - 414,000 (414,000)
Interest received 23,005 18,361 38,126
------------- ------------- -------------
Net cash provided
(used) by
operating activities (1,192,157) 2,119,218 (7,691,478)
------------- ------------- -------------
Cash flows from investing
activities:
Capital expenditures,
including capitalized
interest (6,129,479) (3,713,648) (45,188,221)
Increase in notes
receivable (11,662) - (56,000)
Proceeds from sale of
property and equipment 4,779,630 345,001 -
Payments on notes
receivable 14,260 137,351 19,214
------------- ------------- -------------
Net cash used by
investing activities (1,347,251) (3,231,296) (45,225,007)
------------- ------------- -------------
Cash flows from financing
activities:
Proceeds from issuance of
long-term debt, net
of costs 1,585,973 32,050,443 30,358,018
Line of credit 4,990,000 (4,523,899) 4,523,899
Principal payments on
long-term obligations (5,163,706) (31,350,544) (17,102,046)
Increase (decrease) in
construction line of
credit (142,241) (3,672,846) 3,815,087
Proceeds from employee
stock purchases 14,390 - -
Proceeds from issuance of
redeemable preferred stock,
net of costs - 10,257,619 -
Proceeds of public
offering, net of costs - - 30,471,236
Distributions to partners - - (158,179)
------------- ------------- -------------
Net cash provided by
financing activities 1,284,416 2,760,773 51,908,015
------------- ------------- -------------
Net increase (decrease) in
cash (1,254,992) 1,648,695 (1,008,470)
Cash at beginning of year 2,296,548 647,853 1,656,323
------------- ------------- -------------
Cash at end of year $ 1,041,556 $ 2,296,548 $ 647,853
============= ============= =============
</TABLE>
F-6
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended
<TABLE>
<CAPTION>
January 31, February 1, February 2,
1996 1995 1994
------------ ------------- ------------
<S> <C> <C> <C>
Reconciliation of Net Earnings (Loss) to
Cash Provided (Used) by Operating Activities:
Net loss $(9,876,051) $(6,724,250) $(4,833,303)
Adjustments to reconcile net loss to cash
provided (used) by operations:
Depreciation and amortization 5,602,604 6,111,875 4,319,139
Loss on store closing, net of costs
paid of $504,849 4,095,151 - -
Discount on bank debt 68,718 - -
(Gain) loss on sale of equipment (23,870) 17,344 -
(Increase) decrease in trade accounts receivable 26,207 (60,350) 117,054
Decrease (increase) in other receivables (163,700) - (39,481)
Decrease (increase) in pre-opening expenses (380,449) (47,253) (1,877,510)
Decrease (increase) in income taxes receivable - 414,000 (414,000)
Decrease (increase) in inventories (423,171) 988,775 (3,516,557)
Decrease (increase) in prepaid expenses 577,935 (469,555) (700,935)
Decrease (increase) in deposits on equipment (9,352) 1,304,379 (1,723,770)
Decrease (increase) in other assets 132,844 (610,826) (264,109)
Increase in trade accounts payable 65,271 445,138 674,456
Increase (decrease) in accrued liabilities (884,294) 749,941 567,538
----------- ----------- -----------
$(1,192,157) $ 2,119,218 $(7,691,478)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1996 and February 1, 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Harry's Farmers Market, Inc. ("the Company") is a corporation formed
pursuant to the laws of the State of Georgia. Harry's Farmers Market,
Inc., formerly Harry's Farmers market, Ltd., was converted from a
partnership to a corporation effective April 1, 1993. The Company is a
retailer in the Atlanta, Georgia metropolitan area for fresh fruits and
produce, seafood, poultry and meat, dairy products, baked goods, beer and
wine and other assorted grocery items.
1. Principles of Consolidation
---------------------------
The financial statements include the accounts of Harry's Farmers Market,
Inc., and its two wholly-owned subsidiaries, Karelea, Inc., and
Marthasville Trading Company, Inc. All material intercompany balances and
transactions have been eliminated in consolidation.
2. Inventories
-----------
Inventories consist primarily of grocery items and are stated at the lower
of cost or market. Cost is determined under the first-in, first-out
(FIFO) valuation method.
3. Pre-opening Expenses
--------------------
Significant expenses incurred in bringing new or expanded facilities into
operation are recorded as deferred charges and amortized to operations
over a six month period after the facility is placed in service. These
costs include labor (set-up, training, security, etc.), rent, utilities
and other significant costs incurred before the opening of the new
facility.
4. Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is provided for
in amounts sufficient to relate the cost of depreciable assets to
operations over their estimated service lives, principally on a straight-
line basis. The estimated lives used in determining depreciation are:
buildings, 31-39 years; equipment and vehicles, 3 to 10 years. The
portion of depreciation expense attributed to product cost is included
with cost of goods sold in the statements of operations. This
depreciation expense amounted to $1,399,921, $1,347,383 and $744,350 at
January 31, 1996, February 1, 1995 and February 2, 1994, respectively.
5. Loan Costs
----------
Costs of obtaining financing are being amortized over the term of the
related loans.
F-8
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 31, 1996 and February 1, 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
6. Advertising Expense
-------------------
All advertising costs are expensed in the period incurred. Advertising
expense for the years ended January 31, 1996, February 1, 1995 and
February 2, 1994 was $881,148, $446,201 and $775,670, respectively.
7. Income Taxes
------------
The Company follows the liability method of accounting for income taxes
which provides that deferred tax assets and liabilities are determined
based on the difference between the tax basis of the assets and
liabilities and their carrying amounts for financial reporting purposes,
referred to as "temporary differences." Deferred tax expense represents
the net change in deferred tax assets and liabilities during the year.
8. Fiscal Year
-----------
The Company is on a 52/53 week fiscal year ending on the Wednesday nearest
January 31. Fiscal year 1996 and fiscal year 1995 each include 52 weeks.
Fiscal year 1994 included 44 weeks as a corporation and 8-1/2 weeks as a
partnership.
9. Earnings Per Share
------------------
Loss per share is based upon the weighted average number of common and
common equivalent shares outstanding. Weighted average shares entering
into the computation are:
<TABLE>
<CAPTION>
<S> <C>
1996 6,166,711
1995 6,164,001
1994 5,595,193
</TABLE>
10. Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-9
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 31, 1996 and February 1, 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
11. Reclassifications
-----------------
Certain items have been reclassified from the prior years to conform with
the current year presentation.
NOTE B - OTHER PROPERTY AND EQUIPMENT
Other property and equipment includes the following at estimated net
realizable value:
<TABLE>
<CAPTION>
January 31, February 1,
1996 1995
----------- -----------
<S> <C> <C>
Land held for sale $4,297,000 $4,297,000
Equipment not in service 1,900,466 -
---------- ----------
$6,197,466 $4,297,000
========== ==========
</TABLE>
The equipment taken out of service was removed from a store which was
closed during fiscal 1996 (see Note H).
NOTE C - LONG-TERM OBLIGATIONS
1. Notes Payable
--------------
At the beginning of fiscal 1995, the Company had a short-term line of
credit agreement with a bank. The average short-term borrowings under
this line were $3,511,010. The weighted average interest rate during the
period was 8.2%. The maximum borrowings outstanding at any month end
during fiscal 1995 totaled $4,439,104. In December 1994, the Company
restructured its commercial bank credit facilities to obtain a $26,695,000
term loan and a $9,000,000 working capital line of credit which mature on
October 1, 1998. During fiscal 1996, the Company voluntarily reduced its
working capital line of credit to a maximum of $5,000,000.
In connection with the restructuring of the bank credit facilities in
fiscal 1995, the Company issued its lenders 240,000 warrants to purchase
240,000 Class A common stock at $10 per share. The value of these
warrants was recorded as a discount on debt and is being amortized to
interest expense over the term of the loans.
F-10
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 31, 1996 and February 1, 1995
NOTE C - LONG-TERM OBLIGATIONS - Continued
1. Notes Payable - Continued
--------------------------
Notes payable at year end consisted of:
<TABLE>
<CAPTION>
January 31, February 1,
1996 1995
----------- -----------
<S> <C> <C>
Term note payable to a bank, bearing interest at
LIBOR rate plus 3.5% or prime rate plus 1.50%
(effective rate of 9.4% for $13,395,000 and 9.3%
for $8,882,979 at January 31, 1996), due and
payable October 1, 1998, collateralized by
substantially all of the assets of the
Company. $22,277,979 $26,695,000
Line of credit agreement to a bank that allows
borrowing up to $5,000,000 bearing interest
at LIBOR plus 2.5% or prime plus .5% which
matures October 1, 1998. The average outstanding
short-term borrowings during fiscal 1996 were
$2,392,500. The weighted average interest rate
during the period was 9.3%. The maximum
borrowings outstanding at any month end during
fiscal 1996 totaled $4,990,000. Collateralized by
substantially all assets of the Company. 4,990,000 -
Mortgage note payable, bearing interest at a rate
that is fluctuating, based on the higher of a
published rate or 1.0% per annum above an
average rate for three-month certificates of
deposit (effective rate of 9.5% at January 31,
1996); interest and principal paid monthly with
full payment due June 30, 1996. Collateralized
by land, buildings and improvements with a net
book value of $7,942,921. 3,196,043 3,325,000
Note payable to a bank, bearing interest at a
variable rate not to exceed 11.9%, payable in
360 monthly installments of principal plus
interest with a final payment due in October,
2022. Collateralized by certain real estate
held by the Company with a net book value
of $287,096. 218,932 220,959
</TABLE>
F-11
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 31, 1996 and February 1, 1995
NOTE C - LONG-TERM OBLIGATIONS - Continued
1. Notes Payable - Continued
-------------------------
<TABLE>
<CAPTION>
January 31, February 1,
1996 1995
---------- ----------
<S> <C> <C>
Note payable to a bank, bearing interest at 9.25%,
payable in monthly principal and interest installments
of $28,096 commencing July 15, 1994, with the final
payment due June 15, 1997, collateralized by certain
equipment with a net book value of $616,202. 446,046 727,626
Capital lease obligations (see Note C-2) 1,528,864 103,527
Other 92,434 265,614
Discount on debt (169,146) (237,864)
----------- ------------
32,581,152 31,099,862
Less current maturities (3,791,950) (598,340)
----------- ------------
$28,789,202 $30,501,522
=========== ============
</TABLE>
Future maturities of notes payable as of January 31, 1996, were as follows:
<TABLE>
<CAPTION>
Years ending:
<S> <C>
1997 $ 3,525,785
1998 152,688
1999 27,283,601
2000 15,860
2001 16,119
Thereafter 227,381
-----------
31,221,434
Capital lease obligations (see
Note C-2) 1,528,864
Discount on debt (169,146)
-----------
$32,581,152
===========
</TABLE>
The bank loan agreements include various covenants which, among other
things, restrict incurring additional debt and lease obligations, restrict
dividend payments, require the Company to maintain positive net earnings,
a minimum tangible net worth, maximum debt to tangible net worth ratio,
and specified cash flow level and interest coverage. As of January 31,
1996, the Company was not in compliance with certain covenants but those
covenants were restructured subsequent to year end as discussed in Note L.
F-12
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 31, 1996 and February 1, 1995
NOTE C - NOTES PAYABLE - Continued
1. Notes Payable - Continued
-----------------------------
The mortgage note payable of $3,196,043, collateralized by the Company's
bakery and distribution center, is due June 30, 1996. During the third
quarter of fiscal 1996, the Company was in violation of a covenant as
required under this note. The covenant was met for the fourth quarter.
The lender has not granted a waiver for the covenant violation nor taken
any action to demand payment. The Company is attempting to arrange new or
extended financing but ultimate resolution of this matter is uncertain.
No provision has been made in the accompanying financial statements for
any loss that may be incurred should the Company be required to dispose of
this facility.
2. Capital Lease Obligations
-------------------------
The Company leases certain equipment under agreements which are classified
as capital leases. Most equipment leases have purchase options at the
end of the original lease term. The effective interest rate on these
leases range from 9.5% to 12.7%. Property and equipment includes the
following amounts for leases that have been capitalized:
<TABLE>
<CAPTION>
January 31, February 1,
1996 1995
------------ ------------
<S> <C> <C>
Equipment $1,687,721 $101,749
Accumulated depreciation (200,308) (10,175)
---------- --------
$1,487,413 $ 91,574
========== ========
</TABLE>
Future minimum payments of capital leases as of January 31, 1996, were as
follows:
<TABLE>
<CAPTION>
Years ending
<S> <C>
1997 $ 427,349
1998 422,571
1999 385,552
2000 355,127
2001 140,938
Thereafter 266,664
----------
Total minimum lease payments 1,998,201
Less amount representing interest (469,337)
----------
Present value of net minimum lease payments $1,528,864
==========
</TABLE>
F-13
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 31, 1996 and February 1, 1995
NOTE D - COMMITMENTS AND CONTINGENCIES
Operating Leases
----------------
The Company leases certain facilities and equipment under agreements
classified as operating leases. Total rental expense under all operating
lease arrangements was approximately $2,927,481, $2,884,000 and $1,322,000
for the years ended January 31, 1996, February 1, 1995 and February 2,
1994, respectively. Terms of the equipment leases range from four to five
years and include an option to terminate at the end of two or three years.
At the end of the maximum term, the Company has the option to continue
renting the equipment or purchase the equipment at fair market value.
Following is a summary of approximate future minimum lease payments due
under operating lease agreements as of January 31, 1996:
<TABLE>
<CAPTION>
Fiscal year ending
<S> <C>
1997 $2,837,285
1998 2,682,960
1999 2,194,002
2000 920,864
2001 669,967
----------
$9,305,078
==========
</TABLE>
Claims and Litigation
---------------------
The Company is involved in various claims and litigation which arise in
the ordinary course of business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially
affect the financial position of the Company.
NOTE E - REDEEMABLE PREFERRED STOCK
-----------------------------------
During fiscal 1995, the Company issued 1,222,221 shares of redeemable,
convertible preferred stock with a stated value of $9 per share. The
preferred stock is mandatorily redeemable on December 1, 1999 at its
stated value (total redemption value of $11,000,000). At any time prior
to redemption, each share of preferred stock is convertible into one share
of Class A common stock at the option of the holder.
In connection with the issuance of the preferred stock, the Company issued
412,500 transferable warrants to purchase 412,500 shares of Class A common
stock at $10 per share. These warrants expire in December 2001.
F-14
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 31, 1996 and February 1, 1995
NOTE E - REDEEMABLE PREFERRED STOCK - Continued
The Company also issued transferable warrants to purchase an additional
61,111 shares of Class A common stock. These warrants are not exercisable
until June 15, 1998 and expire in December 2001. These warrants are
subject to repurchase by the Company for a nominal purchase price prior to
the exercise date upon the occurrence of certain events.
The preferred stock and warrants were recorded at their relative fair
values, net of issuance costs. The excess of redemption value over the
carrying value of the preferred stock is being accreted by periodic
charges to paid-in capital over the life of the issue.
NOTE F - CONCENTRATION OF CREDIT RISK
The Company operates retail grocery stores in the metropolitan Atlanta
area. The Company also sells to a limited number of commercial entities
and carries trade accounts receivable for these customers. Management
continually monitors these receivables to minimize the risk of loss.
NOTE G - EMPLOYEE BENEFIT PLANS
Stock Options
-------------
In March 1993, the Board of Directors approved a Management Incentive
Plan, a Directors Incentive Plan, and an Employee Stock Purchase Plan
which provides for the granting of 475,000, 75,000 and 300,000 shares of
Class A common stock options, respectively. As of January 31, 1996 and
February 1, 1995, 170,500 and 262,750 option shares were outstanding and
exercisable, respectively, at varying exercise prices ranging from $9.75
to $27 per share. Subsequent to year end, all outstanding options were
cancelled and reissued with a $6 exercise price.
Health Care Plan
----------------
The Company established a partially self-insured plan in November 1993 to
provide health, life and dental benefits to employees who elect
participation. The plan was terminated during fiscal 1995 and replaced
by a fully insured plan. Expenses charged to operations for the year
ended January 31, 1996 and February 1, 1995 totalled $958,825 and
$1,112,507, respectively.
F-15
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 31, 1996 and February 1, 1995
NOTE G - EMPLOYEE BENEFIT PLANS - Continued
Qualified Retirement Plan
-------------------------
The Company has a qualified retirement plan whereby all employees meeting
eligibility requirements based on number of hours worked and length of
service may elect to make tax-deferred contributions under Internal
Revenue Section 401(k). The Company's contribution is determined at the
discretion of the board of directors. There was no contribution by the
Company during the years ended January 31, 1996 and February 1, 1995.
Stock Purchase Plan
-------------------
The Company has an employee stock purchase plan whereby all employees
meeting eligibility requirements based on number of hours worked and
length of service may elect to make tax-deferred contributions which are
used to purchase shares of the Company's common stock. The purchase
price for shares is the lessor of 85% of the fair market value of common
stock at the beginning of the purchasing cycle or the stock price at the
end of the purchasing cycle. Employees purchased 2,710 shares under this
plan during fiscal 1996.
NOTE H - PROVISION FOR STORE CLOSING
In November 1995, the Company closed its Clayton County megastore
resulting in a charge of $4,600,000 at January 31, 1996. The charge
includes the following:
<TABLE>
<S> <C>
Adjustment of property and equipment to
net realizable value $4,170,000
Labor and other costs to transfer equipment
to storage and close down the store 430,000
----------
$4,600,000
==========
</TABLE>
F-16
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 31, 1996 and February 1, 1995
NOTE I - INCOME TAXES
As of January 31, 1996 and February 1, 1995, deferred tax assets and
liabilities are offsetting. These deferred assets and liabilities arise
from the significant temporary differences as follows:
<TABLE>
<CAPTION>
Estimated deferred
income tax effect
---------------------------
January 31, February 1,
1996 1995
------------ -------------
<S> <C> <C>
Deferred income tax assets
Inventories $ 80,000 $ 76,000
Accounts receivable allowance 10,000 10,000
Accrued liabilities not deductible
until paid 9,000 29,000
Allowance for decrease in market
value of asset 496,000 -
Net operating loss carryforward 8,247,000 4,620,000
----------- -----------
Total deferred income tax assets 8,842,000 4,735,000
Deferred income tax liabilities
Property and equipment (1,008,000) (1,171,000)
Preopening expenses - (18,000)
----------- -----------
Total deferred income tax liabilities (1,008,000) (1,189,000)
Valuation allowance (7,834,000) (3,546,000)
----------- -----------
Net deferred income taxes $ - $ -
=========== ===========
</TABLE>
The Company has net operating loss carryforwards of approximately
$21,000,000 which will expire beginning in the fiscal year ending in
2009. The Company has established a valuation allowance of $7,834,000
due to the uncertainty of the ultimate recoverability of the tax benefit
associated with the net operating loss carryforward.
Reconciliations of statutory Federal tax rates to the effective tax rate
for the years ended January 31, 1996, February 1, 1995 and February 2,
1994 are as follows:
<TABLE>
<CAPTION>
January 31, February 1, February 2,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Income tax benefit at 34% (34)% (34)% (34)%
State taxes, net of Federal
income tax effect (4) (4) (4)
Tax benefit of losses not
recognized 38 38 38
---- ---- ----
Effective tax rate - % - % - %
==== ==== ====
</TABLE>
F-17
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 31, 1996 and February 1, 1995
NOTE J - FINANCIAL INSTRUMENTS
The following relate to the disclosure of the estimated fair value of the
Company's financial instrument assets and liabilities:
Cash
----
The carrying amount approximates fair value because of the short maturity
of those instruments.
Long-term Debt
--------------
The carrying amount of the Company's long-term debt approximates fair
value because the debt has variable interest rates which reflect changes
in the fair value.
NOTE K - PLANS FOR FUTURE OPERATIONS AND FINANCING
Management believes that internally generated funds and its available
credit facilities will provide the Company with sufficient sources of
funds to satisfy its anticipated cash requirements in fiscal 1997. The
Company is taking steps to reduce its losses. Significant non-recurring
costs were experienced in fiscal 1996 related to opening and operating a
fourth megastore and then closing the store due to insufficient customer
volume. For fiscal 1997, the Company is implementing plans for new
merchandising initiatives, new prepared food products, strengthened
controls on product waste, improvements in manufacturing and distribution
efficiencies, and reductions in selling, general and administrative
costs.
NOTE L - RESTRUCTURE OF LOAN COVENANTS
Effective May 8, 1996, the Company's primary lender waived violations of
the loan covenants referred to in Note C and restructured the covenants
for fiscal 1997. The Company is in compliance with the restructured
covenants.
F-18
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 31, 1996 and February 1, 1995
NOTE M - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(Dollars in thousands, except per share amounts).
<TABLE>
<CAPTION>
Year ended January 31, 1996
--------------------------------------
1st 2nd 3rd 4th
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $34,916 $40,940 $36,697 $33,385
Cost of goods sold 26,266 30,941 28,053 24,585
------- ------- ------- -------
Gross profit 8,650 9,999 8,644 8,800
Direct store and general
expenses 8,987 10,648 10,867 8,575
Provision for store closing - - 4,430 170
Other expense 442 478 672 701
------- ------- ------- -------
Net loss (779) (1,127) (7,325) (646)
Provision for accretion of
warrants (57) (57) (57) (57)
------- ------- ------- -------
Loss applicable to common
shareholders $ (836) $(1,184) $(7,382) $ (703)
======= ======= ======= =======
Loss per share $(.14) $(.19) $(1.20) $(.11)
======= ======= ======= =======
<CAPTION>
Year ended February 1, 1995
---------------------------------------
1st 2nd 3rd 4th
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Net sales $35,084 $37,646 $35,016 $36,068
Cost of goods sold 27,005 28,535 26,377 27,447
------- ------- ------- -------
Gross profit 8,079 9,111 8,639 8,621
Direct store and general
expenses 9,855 9,484 9,394 9,568
Reduction in market value of
assets - 505 - -
Other expense 478 590 642 658
------- ------- ------- -------
Net loss (2,254) (1,468) (1,397) (1,605)
Provision for accretion of
warrants - - - (19)
------- ------- ------- -------
Loss applicable to common
shareholders $(2,254) $(1,468) $(1,397) $(1,624)
======= ======= ======= =======
Loss per share $(.37) $(.24) $(.23) $(.26)
======= ======= ======= =======
</TABLE>
The reduction in sales and direct stores and general expenses in the
fourth quarter of fiscal 1996 is primarily attributable to the closing of
the Clayton County megastore in November, 1995.
F-19
<PAGE>
HARRY'S FARMERS MARKET, INC. AND SUBSIDIARIES
SCHEDULE II
CONSOLIDATED SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Balance at Balance
Beginning End of
For the year ended Description of Period Additions Deductions Period
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
January 31, 1996 Allowance for doubtful
accounts receivable $ 25,000 $0 $0 $25,000
Valuation allowance -
Deferred tax asset $3,546,000 $4,288,000 $0 $7,834,000
===================================================
February 1, 1995 Allowance for doubtful
accounts receivable $25,000 $0 $0 $25,000
Valuation allowance -
Deferred tax asset $819,000 $2,727,000 $0 $3,546,000
===================================================
February 2, 1994 Allowance for doubtful
accounts receivable $20,000 $101,976 $(96,976) $25,000
Valuation allowance -
Deferred tax asset $0 $819,000 $0 $819,000
===================================================
</TABLE>
F-20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HARRY'S FARMERS MARKET, INC.
Dated: May 20, 1996 By: /s/ Harry A. Blazer
-------------------------------------------------
HARRY A. BLAZER
Chairman, President and Chief Executive
Officer (principal executive officer)
Dated: May 20, 1996 By: /s/ Harold C. Weissman
-------------------------------------------------
HAROLD C. WEISSMAN
Treasurer
(principal financial and accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
May 20, 1996 By: /s/ Harry A. Blazer
-------------------------------------------------
HARRY A. BLAZER, Chairman, President,
Chief Executive Officer and Director
May 20, 1996 By: /s/ Terry L. Ransom
-------------------------------------------------
TERRY L. RANSOM,
Executive Vice President, Chief Administrative
Officer and Director
May 20, 1996 By: /s/ Robert C. Glustrom
-------------------------------------------------
ROBERT C. GLUSTROM, Director
May 20, 1996 By: /s/ John D. Branch
-------------------------------------------------
JOHN D. BRANCH, Director
<PAGE>
<TABLE>
<CAPTION>
Sequential
Exhibit No. Description Page Number
- ----------- ----------- -----------
<S> <C> <C>
4.10 Amended and Restated Bank Warrant Certificate issued to
NationsBank (144,000 shares)
4.10.1 Bank Warrant Certificate issued to NationsBank (72,000 shares)
4.11 Amended and Restated Bank Warrant Certificate issued to
Creditanstalt-Bankverein (96,000 shares)
4.11.1 Bank Warrant Certificate issued to Creditanstalt-Bankverein (48,000
shares)
10.16.18 Sixth Amendment, Waiver and Forbearance dated as of May 8, 1996 by
and among the Company, NationsBank, N.A. (South) and Creditanstalt-
Bankverein
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 4.10
AMENDED AND RESTATED WARRANT CERTIFICATE
----------------------------------------
NEITHER THE WARRANT REPRESENTED BY THIS CERTIFICATE NOR THE CLASS A COMMON STOCK
ISSUABLE UPON THE EXERCISE HEREOF HAS BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND NEITHER MAY BE
SOLD OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAW UNLESS AN EXEMPTION FROM REGISTRATION IS THEN
AVAILABLE.
WARRANT TO PURCHASE CLASS A COMMON STOCK
OF
HARRY'S FARMERS MARKET, INC.
Date: December 30, 1994
This is to certify that, FOR VALUE RECEIVED, the registered holder hereof,
NATIONSBANK, N.A. (SOUTH) ("NationsBank", and together with any successors and
assigns hereunder, the "Holder" or the "Holders"), is entitled to purchase,
------ -------
subject to the provisions of this Warrant Certificate, from HARRY'S FARMERS
MARKET, INC., a Georgia corporation (the "Company"), 144,000 shares (as such
-------
number may be adjusted in accordance with Section 5 hereof) of the Company's
Class A Common Stock, no par value per share (such class of stock, together with
any capital stock of the Company into which such class of stock shall be
converted, being referred to herein as "Stock"), at $3.00 per share (as such
-----
number may be adjusted in accordance with Section 5 hereof) (the "Exercise
--------
Price"). The number of shares of Stock to be received upon the exercise of this
Warrant and the Exercise Price shall be adjusted from time to time as
hereinafter set forth. The shares of Stock or other securities or property
deliverable upon such exercise, as adjusted from time to time, are hereinafter
sometimes referred to as "Warrant Shares."
--------------
This Amended and Restated Warrant Certificate is one of the Warrant
Certificates (the "Warrants", which term includes all Warrants issued in
--------
substitution therefor) originally issued pursuant to the Warrant Agreement dated
as of December 30, 1994, as amended and restated as of May 8, 1996 (as amended,
restated, supplemented or otherwise modified from time to time, the "Warrant
-------
Agreement"). The Warrants originally so issued evidence rights to purchase an
- ---------
aggregate of 240,000 Warrant Shares at the Exercise Price. This Warrant is
subject to the provisions, and is entitled to the benefits, of the Warrant
Agreement. This Warrant amends and restates that certain Warrant Certificate
dated as of December 30, 1994 executed by the Company in favor of
the Holder.
-1-
<PAGE>
Section 1. Exercise of Warrant.
-------------------
1.1. Manner of Exercise. (a) This Warrant may be exercised by the Holder, in
------------------
whole or in part, at any time or from time to time through and including the
Expiration Date during normal business hours on any Business Day (as defined in
the Warrant Agreement) by surrender of this Warrant, together with the form of
subscription duly executed by such Holder in substantially the form attached as
Annex A hereto, to the Company at its office designated pursuant to Section 7.1
of the Warrant Agreement (or, if such exercise is in connection with an
underwritten public offering of Warrant Shares subject to this Warrant, at the
location at which the underwriting agreement requires that such Warrant Shares
be delivered).
(b) Payment of the Exercise Price for the Warrant Shares, if required, shall
be made, at the option of the Holder by certified or bank check or wire transfer
payable to the order of the Company, in any case, in an amount equal to (A) the
number of Warrant Shares specified in such form of subscription, multiplied by
(B) the then current Exercise Price. The Holder shall thereupon be entitled to
receive the number of Warrant Shares specified in such form of subscription
(plus cash in lieu of any fractional share as provided in Section 1.3 hereof).
(c) In lieu of exercising Warrants pursuant to the immediately preceding
clause (a), the Holder shall have the right to require the Company to convert
the Warrants, in whole or in part and at any time or times (the "Conversion
Right"), into Warrant Shares, by surrendering to the Company the Warrant
Certificate evidencing the Warrants to be converted, accompanied by a conversion
notice duly executed by the Holder substantially in the form of Annex C hereto.
Upon exercise of the Conversion Right, the Company shall deliver to the Holder
(without payment by the Holder of any Exercise Price) that number of Warrant
- --------
Shares which is equal to the quotient obtained by dividing (x) the value of the
number of Warrants being converted at the time the Conversion Right is exercised
(determined by subtracting the aggregate Exercise Price for all such Warrants
immediately prior to the exercise of the Conversion Right from the aggregate
current Market Price of that number of Warrant Shares purchasable upon exercise
of such Warrants immediately prior to the exercise of the Conversion Right
(taking into account all applicable adjustments pursuant to Section 5 hereof))
by (y) the Market Price of one share of Stock immediately prior to the exercise
of the Conversion Right. Any references in this Warrant Certificate or the
Warrant Agreement to the "exercise" of any Warrants, and the use of the term
"exercise" herein and therein, shall be deemed to include (without limitation)
any exercise of the
Conversion Right.
-2-
<PAGE>
1.2. Effective Date. Each exercise of this Warrant pursuant to Section 1.1
--------------
hereof shall be deemed to have been effected immediately prior to the close of
business on the Business Day on which this Warrant is surrendered to the Company
as provided in Section 1.1 hereof (except that if such exercise is in connection
with an underwritten public offering of Warrant Shares subject to this Warrant,
then such exercise shall be deemed to have been effected upon such surrender of
this Warrant). On each such day that an exercise of this Warrant is deemed
effected, the person or persons in whose name or names any certificate or
certificates for Warrant Shares are issuable upon such exercise (as provided in
Section 1.3 hereof) shall be deemed to have become the Holder or Holders of
record thereof.
1.3. Warrant Share Certificates, Cash for Fractional Warrant Shares and
------------------------------------------------------------------
Reissuance of Warrants. As promptly as practicable after the exercise of this
- ----------------------
Warrant, in whole or in part, and in any event within five (5) Business Days
thereafter (unless such exercise shall be in connection with a public offering
of Warrant Shares subject to this Warrant, in which event concurrently with such
exercise), the Company at its expense (including the payment by it of any
applicable issue, stamp or other taxes) will cause to be issued in the name of
and delivered to the Holder or, subject to Section 6 of the Warrant Agreement,
such other person as the Holder may direct:
(a) a certificate or certificates for the number of Warrant Shares to
which the Holder shall be entitled upon such exercise plus, in lieu of any
fractional share to which the Holder would otherwise be entitled, cash in an
amount equal to the same fraction of the Market Price (as defined in Section
5.1 hereof) per Warrant Share on the effective date of such exercise; and
(b) in case such exercise is in part only, a new Warrant or Warrants,
substantially identical hereto, representing the rights formerly represented
by this Warrant which have not expired or been exercised.
1.4. Acknowledgment of Obligation. The Company will, at the time of or at any
----------------------------
time after each exercise of this Warrant, upon the request of the Holder hereof
or of any Warrant Shares issued upon such exercise, acknowledge in writing its
continuing obligation to afford to such Holder all rights (including, without
limitation, any rights to registration of any such Warrant Shares pursuant to
the Registration Rights Annex of the Warrant Agreement (the "Registration
Rights Agreement")) to which such Holder shall continue to be entitled under
this Warrant Certificate, the Warrant Agreement and the Registration Rights
Agreement;
-3-
<PAGE>
provided, that if any such Holder shall fail to make any such request, the
- --------
failure shall not affect the continuing obligation of the Company to afford such
rights to such Holder.
1.5. Conditional Exercise. Notwithstanding any other provision hereof, if any
--------------------
exercise of any portion of this Warrant is to be made in connection with a
public offering of Warrant Shares or any transaction described in Section 5.9
hereof, the exercise of any portion of this Warrant may, at the election of the
Holder, be conditioned upon the consummation of the public offering or such
transaction, in which case such exercise shall not be deemed to be effective
until the consummation of such public offering or transaction.
Section 2. Reservation of Shares.
---------------------
The Company shall at all times after the date hereof and until the Expiration
Date reserve for issuance and delivery upon exercise of this Warrant the number
of Warrant Shares as shall be required for issuance and delivery upon exercise
in full of this Warrant.
Section 3. Transfer, Exchange, Assignment or Loss of Warrant.
-------------------------------------------------
3.1. Transfer. This Warrant may be assigned in whole or in part or
--------
transferred in whole or in part; subject, however, to compliance with the
provisions of the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (the "Act").
3.2. Procedure for Assignment or Transfer. Any assignment or transfer
------------------------------------
hereunder shall be made by surrender of this Warrant to the Company at its
office designated pursuant to Section 7.1 of the Warrant Agreement, together
with the form of assignment duly executed by the Holder in substantially the
form attached as Annex B hereto and funds sufficient to pay any required
transfer tax. In such event the Company shall, without charge, execute and
deliver a new Warrant or Warrants substantially identical hereto in the name of
the assignee or assignees named in such instrument of assignment and designate
the assignee or assignees as the registered holder or holders on the Company's
records and this Warrant shall promptly be cancelled. This Warrant may be
divided or combined with other Warrants which carry the same rights upon
presentation thereof at the principal office of the Company together with a
written notice signed by the holder thereof, specifying the names and
denominations in which new Warrants are to be issued.
3.3. Loss, Theft, Destruction or Mutilation. Upon receipt by the Company of
--------------------------------------
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and
-4-
<PAGE>
(in the case of loss, theft or destruction) of reasonably satisfactory
indemnification to the Company or (in the case of mutilation) presentation of
this Warrant for surrender and cancellation, the Company will execute and
deliver a new Warrant identical hereto and any such lost, stolen, destroyed or
mutilated Warrant shall thereupon become void.
Section 4. Warrant Certificate Holder Not Deemed a Stockholder.
---------------------------------------------------
Except as otherwise provided herein, the Holders shall not, solely because of
holding this Warrant, be entitled to vote, receive dividends or be deemed the
holder of Stock or any other securities of the Company which may at any time be
issuable on the exercise of the Warrant for any purpose whatsoever, nor shall
anything contained herein be construed to confer upon the Holders, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matters submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance of stock, reclassification of stock, change
of par value or change of stock to no par value, consolidation, merger,
conveyance or otherwise), or to receive notice of meetings or other actions
affecting stockholders, or to receive dividend or subscription rights, or
otherwise, until this Warrant shall have been exercised in accordance with the
provisions hereof.
Section 5. Anti-Dilution.
-------------
The number of Warrant Shares for which this Warrant is exercisable and/or the
Exercise Price at which such Warrant Shares may be purchased upon exercise of
this Warrant shall be subject to adjustment from time to time as set forth in
this Section 5. The Company shall give the Holders notice of any event described
below which requires an adjustment pursuant to this Section 5 at the time of
such event.
5.1. Special Definitions. For purposes of this Section 5 the following terms
-------------------
shall have the following meanings:
"Additional Shares of Stock" shall mean all shares of Stock issued by the
--------------------------
Company after the date hereof, other than (i) the Stock to be issued upon
exercise of any Warrants at any time issued in connection with the Warrant
Agreement, (ii) the Stock to be issued upon conversion of the Preferred Stock,
(iii) the Stock to be issued upon exercise of the Preferred Stock Warrants; (iv)
the Stock to be issued upon exercise of the Performance Warrants, (v) 200,000
shares of Stock to be issued pursuant to the Company's 1996 Directors Stock
Option Plan, (vi) 475,000 shares of Stock to be issued pursuant to the Company's
Management Incentive Plan and (vii) 300,000 shares of Stock issued or to be
issued pursuant to the Company's 1996 Employee Stock Purchase Plan.
-5-
<PAGE>
"Convertible Securities" shall mean evidences of indebtedness, shares of
----------------------
Preferred Stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
Additional Shares of Stock, either immediately or upon the occurrence of a
specified date or a specified event, other than the Preferred Stock issued
pursuant to the Share and Warrant Purchase Agreements dated December 30, 1994
between the Company, Robert Fleming Nominees Ltd., and certain other investors
(such Agreements to be referred to herein collectively as the "Purchase
--------
Agreements" and Robert Fleming Nominees Ltd. and such other investors to be
- ----------
referred to herein collectively as the "Purchasers".
----------
"Expiration Date" means May 8, 2002. If, on or before May 8, 1997, the
---------------
Company delivers to the Holders either a legal opinion in form and substance
acceptable to the Holders from a law firm acceptable to the Holders, or a no
action letter from the Securities and Exchange Commission, in each case to the
effect that the holding period under Rule 144 for the amended and restated
Warrants commenced on December 30, 1994 and not as of the effective date of such
amendment and restatement, then the Expiration Date shall be December 30, 2000.
"Market Price" shall mean, in respect of any share of Stock on the date of
------------
determination thereof, the average of the closing prices of sales of the Stock
on all principal United States securities exchanges on which the Stock may at
the time be listed, or, if there shall have been no sales on any such exchange
on any relevant day, the last trading price of such Stock on such day, or if
there is no such price, the average of the bid and asked prices at the end of
such day on the Nasdaq Stock Market, in each such case averaged for a period of
twenty (20) consecutive business days prior to the day as of which "Market
Price" is being determined. Notwithstanding the foregoing, with respect to the
issuance of Stock by the Company in an underwritten public offering, the Market
Price shall be the per share purchase price paid by the underwriters. If at any
time the Stock is not listed on any exchange or the Nasdaq Stock Market, the
"Market Price" shall be deemed to be the fair market value thereof determined by
an investment banking firm of nationally recognized standing selected by the
Board of Directors of the Company and acceptable to a majority of the Holders,
as of the most recent practicable date as of which the determination is to be
made, taking into account the value of the Company as a going concern, and
without taking into account any lack of liquidity of the Stock or any discount
for a minority interest.
"Performance Warrants" shall mean those performance warrants for 61,111 shares
--------------------
of Stock issued on December 30, 1994 to the Purchasers (as defined below).
-6-
<PAGE>
"Preferred Stock" shall mean those shares of the Company's Series A Redeemable
---------------
Convertible Preferred Stock with a stated value of $9.00 per share.
"Preferred Stock Warrants" shall mean those warrants originally issued in
------------------------
connection with the issue and sale by the Company of its Preferred Stock
pursuant to the Purchase Agreements.
5.2. Stock Dividends, Subdivisions and Combinations.
----------------------------------------------
If at any time the Company shall:
(i) take a record of the holders of its Stock for the purpose of
entitling them to receive a dividend payable in, or other distribution of,
Additional Shares of Stock,
(ii) subdivide its outstanding shares of Stock into a larger number of
shares of Stock, or
(iii) combine its outstanding shares of Stock into a smaller number of
shares of Stock,
then (I) the Warrant Shares for which this Warrant is exercisable immediately
after the occurrence of any such event shall be adjusted to equal the number of
shares of Stock which a record holder of the same number of shares of Stock for
which this Warrant is exercisable immediately prior to the occurrence of such
event would own or be entitled to receive after the happening of such event, and
(II) the Exercise Price shall be adjusted to equal (x) the Exercise Price
multiplied by the Warrant Shares for which this Warrant is exercisable
immediately prior to the adjustment divided by (y) the Warrant Shares for which
this Warrant is exercisable immediately after such adjustment.
5.3. Certain other Distributions. (a) Except as provided in Section 5.3(b), if
---------------------------
at any time the Company shall take a record of the holders of its Stock for the
purpose of entitling them to receive any dividend or other distribution of:
(i) cash,
(ii) any evidences of its indebtedness, any shares of its Stock or any
other securities or property of any nature whatsoever (other than cash or
Additional Shares of Stock), or
(iii) any warrants or other rights to subscribe for or purchase any
evidences of its indebtedness, any share of its Stock or any other securities
or property of any nature whatsoever (other than cash or Additional Shares
of Stock),
-7-
<PAGE>
then, (I) the Warrant Shares for which this Warrant is exercisable shall be
adjusted to equal the product of the Warrant Shares for which this Warrant is
exercisable immediately prior to such adjustment multiplied by a fraction (x)
the numerator of which shall be the Market Price per share of Stock at the date
of taking such record and (y) the denominator of which shall be such Market
Price per share of Stock minus the amount allocable to one share of Stock of any
such cash so distributable and of the fair value (as determined in good faith by
the Board of Directors of the Company) of any and all such evidences of
indebtedness, shares of stock, other securities or property or warrants or other
subscription or purchase rights so distributable, and (II) the Exercise Price
shall be adjusted to equal (x) the Exercise Price multiplied by the Warrant
Shares for which this Warrant is exercisable immediately prior to the adjustment
divided by (y) the Warrant Shares for which this Warrant is exercisable
immediately after such adjustment. A reclassification of the Stock (other than
a change in par value, or from par value to no par value or from no par value to
par value) into shares of Stock and shares of any other class of stock shall be
deemed a distribution by the Company to the Holders of its Stock of such shares
of such other class of stock within the meaning of this Section 5.3 and, if the
outstanding shares of the Stock shall be changed into a larger or smaller number
of shares of the Stock as part of such reclassification, such change shall be
deemed a subdivision or combination, as the case may be, of the outstanding
shares of the Stock within the meaning of Section 5.2.
(b) If at any time the Company shall take a record of the holders of its Stock
for the purpose of entitling them to receive any cash dividend or other
distribution of property of any nature whatsoever (other than Additional Shares
of Stock), and the amount of such cash dividend and the fair market value of any
property so distributed, when added to the amount of cash dividends paid and the
fair market value of any property so distributed during the twelve (12) months
prior to the date of such dividend or distribution, exceeds five percent (5%) of
the aggregate Market Price of the Stock of all of the Company's Stock then
outstanding on the Business Day immediately preceding the record date for such
dividend or distribution, the Holders of the Warrant shall be entitled to
participate in such dividend or distribution as if the Holder had already
exercised this Warrant in full, and such Holder shall receive, at the time such
dividend is paid or such property is distributed, the same kind and per-share
amount of cash or other property as is distributed to the holders of the
Company's Stock.
5.4. Issuance of Additional Shares of Stock. If at any
--------------------------------------
-8-
<PAGE>
time the Company shall (except as hereinafter provided) issue or sell any
Additional Shares of Stock either (A) in exchange for consideration in an amount
per Additional Share of Stock less than the Exercise Price in effect immediately
prior to such issuance or sale of Additional Shares of Stock or (B) in exchange
for consideration in an amount per Additional Share of Stock less than the
Market Price in effect immediately prior to such issuance or sale of Additional
Shares of Stock, then the Exercise Price as to the Warrant Shares for which this
Warrant is exercisable immediately prior to such adjustment shall be adjusted to
equal the price determined by multiplying the Exercise Price by a fraction, of
which
(x) the numerator shall be (1) the number of shares of Stock outstanding
immediately prior to such issuance or sale of Additional Shares of Stock plus
(2) the number of shares of Stock which the aggregate amount of
consideration, if any, received by the Company for the total number of such
Additional Shares of Stock so issued or sold would purchase at the greater of
(I) the Market Price in effect immediately prior to such issuance or sale of
Additional Shares of Stock or (II) the Exercise Price in effect immediately
prior to such issuance or sale of Additional Shares of Stock and
(y) the denominator shall be the number of shares of Stock outstanding
immediately after such issuance or sale of Additional Shares of Stock;
provided, however, that such adjustment shall be made only if the Exercise Price
determined from such adjustment shall be less than the Exercise Price in effect
immediately prior to the issuance of such Additional Shares of Stock. The
provisions of this Section 5.4 shall not apply to any issuance of Additional
Shares of Common Stock for which an adjustment is provided under Section 5.2 or
5.3.
5.5. Issuance of Warrants or Other Rights. If at any time the Company shall
------------------------------------
take a record of the holders of its Stock for the purpose of entitling them to
receive a distribution of, or shall in any manner (whether directly or by
assumption in a merger in which the Company is the surviving corporation) issue
or sell, any warrants or other rights to subscribe for or purchase any
Additional Shares of Stock or any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
consideration received for such warrants or other rights or such Convertible
Securities shall be less than the Exercise Price or the Market Price in effect
immediately prior to the time of such issue or sale, then the Exercise Price
shall be adjusted as provided in Section 5.4. No further adjustments of the
Exercise Price shall be made upon the actual issue of such Stock or of such
Convertible Securities upon exercise of such warrants or other rights or upon
the actual issue of such Stock upon such conversion or exchange of such
Convertible Securities.
5.6. Issuance of Convertible Securities. If at any time the Company shall
----------------------------------
take a record of the holders of its Stock for the purpose of entitling them to
receive a distribution of, or shall in any manner (whether directly or by
assumption in a merger in which the Company is the surviving corporation) issue
or sell, any Convertible Securities, whether or not the rights to convert
thereunder are immediately exercisable, and the consideration received for such
stock shall be less than the Exercise Price or the Market Price in effect
immediately prior to the time of such issue or sale, then the Exercise Price
shall be adjusted as provided in Section 5.4. No adjustment of the Exercise
Price shall be made under this Section 5.6 upon the issuance of any Convertible
Securities which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other rights
-9-
<PAGE>
pursuant to Section 5.5. No further adjustments of the Exercise Price shall be
made upon the actual issue of such Stock upon conversion of such Convertible
Securities and, if any issue or sale of such Convertible Securities is made upon
exercise of any warrant or other right to subscribe for or to purchase any such
Convertible Securities for which adjustments of the Exercise Price have been or
are to be made pursuant to other provisions of this Section 5, no further
adjustments of the Exercise Price shall be made by reason of such issue or sale.
5.7. Antidilution Adjustments Under Other Securities. Without limiting any
-----------------------------------------------
other rights available hereunder to the Holders of the Warrants, if there is an
antidilution adjustment (i) under any Convertible Securities, whether issued
prior to or after the date hereof or (ii) under any rights, options or warrants
to purchase Additional Shares of Stock, whether issued prior to or after the
date hereof which, in either case, results in a reduction in the exercise or
purchase price with respect to such security or rights or results in an increase
in the number of Additional Shares of Stock obtainable under such Convertible
Security, right, option or warrant, then an adjustment shall be made to the
Exercise Price hereunder. Any such adjustment pursuant to this Section 5.7
shall be whichever of the following results in a lower Exercise Price: (A) a
reduction in the Exercise Price equal to the percentage reduction in such
exercise or purchase price with respect to such Convertible Security, right,
option or warrant or (B) a reduction in the Exercise Price which will result in
the same percentage increase in the number of Warrant Shares available hereunder
as the percentage increase in the number of Additional Shares of Stock available
under such Convertible Security, right, option or warrant. Any such adjustment
under this Section 5.7 shall only be made if it would result in a lower Exercise
Price than that which would be determined pursuant to any other antidilution
adjustment otherwise required hereunder as a result of the event or circumstance
which triggered the adjustment to such Convertible Security, right, option or
warrant, and if an adjustment is made pursuant to this Section 5.7, such other
antidilution adjustment otherwise required hereunder shall not be made as a
result of such event or circumstance.
5.8. Other Provisions Applicable to Adjustments under this Section. The
-------------------------------------------------------------
following provisions shall be applicable to the making of adjustments of the
Warrant Shares for which this Warrant is exercisable and the Exercise Price at
which such Warrant Shares may be purchased upon exercise of this Warrant
provided for in this Section 5:
(a) Computation of Consideration. To the extent that any Additional
----------------------------
Shares of Stock or any Convertible Securities or any warrants or other rights
to subscribe for or purchase any Additional Shares of Stock or any
Convertible Securities shall be issued for cash consideration, the
consideration received by the Company therefor shall be the amount of the
cash received by the Company therefor, or, if such Additional Shares of Stock
or Convertible Securities are offered by the Company for subscription, the
subscription price, or, if such Additional Shares of Stock or Convertible
Securities are sold to underwriters or dealers for public offering without a
subscription offering, the public offering price (in any such case
subtracting any amounts paid or receivable for accrued interest or accrued
dividends and any compensation, discounts or expenses paid or incurred by the
Company for and in the underwriting of, or otherwise in connection with, the
issuance thereof). To the extent that such issuance shall be for a
consideration other than cash, then except as herein otherwise expressly
provided, the amount of such consideration shall be deemed to be the fair
value of such consideration at the time of such issuance as determined in
good faith by the Board of Directors of the Company. In case any Additional
Shares of Stock or any Convertible Securities or any warrants or other rights
to subscribe for or purchase such Additional Shares of Stock or Convertible
Securities shall be issued in connection with any merger in which the Company
issues any securities, the amount of consideration therefor shall be deemed
to be the fair value, as determined in good faith by the Board of Directors
of the Company, of such portion of the assets and business of the
nonsurviving corporation as such
-10-
<PAGE>
Board in good faith shall determine to be attributable to such Additional
Shares of Stock, Convertible Securities, warrants or other rights, as the
case may be. The consideration for any Additional Shares of Stock issuable
pursuant to any warrants or other rights to subscribe for or purchase the
same shall be the consideration received by the Company for issuing such
warrants or other rights plus the additional consideration payable to the
Company upon exercise of such warrants or other rights. The consideration for
any Additional Shares of Stock issuable pursuant to the terms of any
Convertible Securities shall be the consideration received by the Company for
issuing warrants or other rights to subscribe for or purchase such
Convertible Securities, plus the consideration paid or payable to the Company
in respect of the subscription for or purchase of such Convertible
Securities, plus the additional consideration, if any, payable to the Company
upon the exercise of the right of conversion or exchange in such Convertible
Securities. In case of the issuance at any time of any Additional Shares of
Stock or Convertible Securities in payment or satisfaction of any dividends
upon any class of stock other than Stock, the Company shall be deemed to have
received for such Additional Shares of Stock or Convertible Securities a
consideration equal to the amount of such dividend so paid or satisfied.
(b) When Adjustments to Be Made. The adjustments required by this Section
---------------------------
5 shall be made whenever and as often as any event requiring an adjustment
shall occur, except that any adjustment of the Warrant Shares for which this
Warrant is exercisable that would otherwise be required may be postponed
(except in the case of a subdivision or combination of shares of the Stock,
as provided for in Section 5.2) up to, but not beyond the date of exercise if
such adjustment either by itself or with other adjustments not previously
made adds or subtracts less than l% of the shares of the Stock for which this
Warrant is exercisable immediately prior to the making of such adjustment.
Any adjustment representing a change of less than such minimum amount (except
as aforesaid) which is postponed shall be carried forward and made as soon as
such adjustment, together with other adjustments required by this Section 5
and not previously made, would result in a minimum adjustment or on the date
of exercise. For the purpose of any adjustment, any event shall be deemed to
have occurred at the close of business on the date of its occurrence.
-11-
<PAGE>
(c) Fractional Interests. In computing adjustments under this Section 5,
--------------------
fractional interests in the Stock shall be taken into account to the nearest
1/10th of a share.
(d) When Adjustment Not Required. If the Company shall take a record of
----------------------------
the holders of the Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally
abandon its plan to pay or deliver such dividend, distribution, subscription
or purchase rights, then thereafter no adjustment shall be required by reason
of the taking of such record and any such adjustment previously made in
respect thereof shall be rescinded and annulled.
(e) Challenge to Good Faith Determination. Whenever the Board of
-------------------------------------
Directors of the Company shall be required to make a determination in good
faith of the fair value of any item under this Section 5, such determination
may be challenged in good faith by a Holder and any dispute shall be resolved
by an investment banking firm of recognized national standing selected by the
Company and acceptable to such Holder. The fees of such investment banker
shall be borne by the Holder if the Company's calculation is determined to be
correct and otherwise by the Company.
(f) Escrow of Property. If the Company shall take a record of the holders
------------------
of its Stock for the purpose of entitling them to receive any distribution of
any kind of property whatsoever, but prior to the payment of such
distribution the Holder exercises this Warrant, upon payment of the Exercise
Price, such property shall be held in escrow for the Holder by the Company to
be issued to the Holder upon the occurrence of such distribution and to the
extent such distribution actually takes place. Notwithstanding any other
provision to the contrary herein, if the distribution for which such record
was taken fails to occur or is rescinded, then such escrowed property shall
be returned to the Company.
5.9. Reorganization, Reclassification, Merger or Consolidation. If the
---------------------------------------------------------
Company shall at any time reorganize or reclassify the outstanding shares of
Stock (other than a change in par value, or from no par value to par value, or
from par value to no par value, or as a result of a subdivision or combination)
or consolidate with or merge into another corporation (where the Company is not
-12-
<PAGE>
the continuing corporation after such merger or consolidation), the Holders
shall thereafter be entitled to receive upon exercise of this Warrant in whole
or in part, the same kind and number of shares of stock and other securities,
cash or other property (and upon the same terms and with the same rights) as
would have been distributed to the Holder upon such reorganization,
reclassification, consolidation or merger had the Holder exercised this Warrant
immediately prior to such reorganization, reclassification, consolidation or
merger (subject to subsequent adjustments under Section 5 hereof). The Holders
shall pay upon such exercise the Exercise Price that otherwise would have been
payable pursuant to the terms of this Warrant. If any such reorganization,
reclassification, consolidation or merger results in a cash distribution in
excess of the Exercise Price provided by this Warrant, a Holder may, at the
Holder's option, exercise this Warrant without making payment of the Exercise
Price, and in such case the Company shall, upon distribution to the Holder,
consider the Exercise Price to have been paid in full, and in making settlement
to the Holder, shall deduct an amount equal to the Exercise Price from the
amount payable to the Holder. Notwithstanding anything herein to the contrary,
the Company will not effect any such reorganization, reclassification, merger or
consolidation unless prior to the consummation thereof, the corporation who may
be required to deliver any stock, securities or other assets upon the exercise
of this Warrant shall agree by an instrument in writing to deliver such stock,
cash, securities or other assets to the Holder. A sale, transfer or lease of all
or substantially all of the assets of the Company to another person shall be
deemed a reorganization, reclassification, consolidation or merger for the
foregoing purposes.
5.10. Exceptions to Adjustment of Exercise Price and/or Warrant Shares.
----------------------------------------------------------------
Anything herein to the contrary notwithstanding, the Company shall not make any
adjustment of the Exercise Price or the Warrant Shares issuable upon the
exercise of this Warrant in the case of (i) the issuance of the Warrants or any
other Warrants at any time issued in connection with the Warrant Agreement or
the issuance of shares of the Stock upon exercise of any such Warrants, (ii) the
issuance of shares of Stock to holders of the Company's Preferred Stock upon
conversion of all or any portion of their shares of Preferred Stock, (iii) the
issuance of the Preferred Stock Warrants or the issuance of the shares of Stock
upon exercise of such Preferred Stock Warrants or (iv) the issuance of the
Performance Warrants or the issuance of the shares of Stock upon exercise of
such Performance Warrants.
5.11. Chief Financial Officer's Opinion. Upon each adjustment of the
---------------------------------
Exercise Price and upon each change in the Warrant Shares issuable upon the
exercise of this Warrant, and in the event of any change in the rights of a
Holder by reason of other events herein set forth, then and in each such case,
the Company will promptly obtain an opinion of the chief financial officer of
the Company, stating the adjusted Exercise Price and the new Warrant Shares so
issuable, or specifying the other shares of the Stock, securities or assets and
the amount thereof receivable as a result of such change in rights, and setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based. The Company will promptly mail a copy of such
opinion to the Holders. If a Holder disagrees with such calculation, the
Company agrees
-13-
<PAGE>
to obtain within thirty (30) business days an opinion of a firm of independent
certified public accountants selected by the Company's Board of Directors and
acceptable to such Holder to review such calculation and the opinion of such
firm of independent certified public accountants shall be final and binding on
the parties and shall be conclusive evidence of the correctness of the
computation with respect to any such adjustment of the Exercise Price and any
such change in the number of Warrant Shares so issuable. The fees of such
accountants shall be borne by the Holder if the Company's calculation is
determined by such accountants to be correct and otherwise by the Company.
5.12. Company to Prevent Dilution. In case at any time or from time to
---------------------------
time conditions arise by reason of action taken by the Company, which in the
good faith opinion of its Board of Directors or a majority of the Holders are
not adequately covered by the provisions of this Section 5, and which might
materially and adversely affect the exercise rights of the Holders, the Board of
Directors of the Company shall appoint such firm of independent certified public
accountants acceptable to a majority of the Holders, which shall give their
opinion upon the adjustment, if any, on a basis consistent with the standards
established in the other provisions of this Section 5, necessary with respect to
the Exercise Price, so as to preserve, without dilution (other than as
specifically contemplated by this Warrant), the exercise rights of the Holders.
Upon receipt of such opinion, the Board of Directors of the Company shall
forthwith make the adjustments described therein.
Section 6. Character of Shares of Stock.
----------------------------
All shares of the Stock issuable upon the exercise of this Warrant shall, when
issued to a Holder, be duly authorized, validly issued, fully paid and
nonassessable, free and clear of any lien or encumbrance and without any
preemptive rights.
Section 7. Notice to Holder.
----------------
So long as this Warrant shall be outstanding, (i) if the Company shall pay any
dividend or make any distribution upon the Stock otherwise than in cash, (ii) if
the Company shall offer to the holders of Stock, for subscription or purchase by
them, any shares of any class of stock of the Company or any other rights or
(iii) if there shall be any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company, voluntary or
involuntary dissolution, liquidation or winding up of the Company, then in any
such event, the Company shall cause to be mailed by certified mail to each
Holder, at least 30 days prior to the event
-14-
<PAGE>
described above, a notice containing a brief description of the proposed action
and stating the date or expected date on which a record is to be taken for the
purpose of such dividend, distribution or rights, or the date or expected date
such reclassification, reorganization, consolidation, merger, conveyance, lease
or transfer, dissolution, liquidation or winding up shall take place or be voted
upon by holders of the Stock of record, and the date or expected date as of
which the holders of Stock of record shall be entitled to exchange their shares
of Stock for securities or other property deliverable upon any such event.
Section 8. Disposition of Warrant Shares.
-----------------------------
The stock certificates of the Company that will evidence the Warrant Shares or
any other security issued or issuable upon exercise of this Warrant will be
imprinted with a conspicuous legend in substantially the following form:
The securities represented by this Certificate have not been registered
under the Securities Act of 1933 (the "Act") or any applicable state
securities laws and may not be sold, pledged, hypothecated, donated or
otherwise transferred (whether or not for consideration) unless registered
under the Act and any applicable state securities laws or in a transaction
exempt from such registrations.
Except as provided in the Registration Rights Agreement, the Company does not
agree to register any of the Warrant Shares for distribution in accordance with
the provisions of the Act or any applicable state securities laws, and the
Company has not agreed to comply with any exemption from registration under the
Act or any applicable state securities laws for the resale of the Warrant
Shares. Hence, it is the understanding of the Holder that by virtue of the
provisions of certain rules respecting "restricted securities" promulgated by
---------------------
the Securities and Exchange Commission, the Warrant Shares may be required to be
held indefinitely, unless and until registered under the Act and any applicable
state securities laws unless an exemption from such registration is available,
in which case the Holders may still be limited as to the number of Warrant
Shares that may be sold.
Section 9. Governing Law.
-------------
This Warrant shall be construed in accordance with the laws of the State of
Georgia applicable to contracts executed and to be performed wholly within such
state without regard to any conflicts of laws principles.
-15-
<PAGE>
Section 10. Notice.
------
Any notice, demand, document or other communication given or delivered
hereunder shall be in writing, and may be (i) personally delivered, (ii) given
or made by United States registered or certified mail, return receipt requested,
postage prepaid, or (iii) given or made by overnight courier, delivery charges
prepaid, addressed as follows:
If to the Company: Harry's Farmers Market, Inc.
- ------------------
1180 Upper Hembree Road
Roswell, GA 30076
Attention: Chief Financial Officer
With a Copy to: Nelson, Mullins, Riley & Scarborough, L.L.P.
- ---------------
400 Colony Square, Suite 2200
1201 Peachtree Street, Suite 2200
Atlanta, Georgia 30361
Attention: John Latham, Esq.
If to NationsBank: NationsBank, N.A. (South)
- ------------------
600 Peachtree Street, N.E.
Atlanta, Georgia 30308
Attention: Douglas E. Coltharp
With a Copy to: Alston & Bird
- ---------------
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Attention: H. Sadler Poe, Esq.
The Company and the Holder shall each have the right to designate a different
address for itself by notice similarly given. All such notices, demands,
documents or other communication will be deemed to be delivered (i) upon
receipt, if personally delivered, (ii) on the third full Business Day following
the day of mailing, if sent by United States registered or certified mail and
(iii) on the Business Day following the date it was sent, if sent by overnight
courier.
Section 11. Remedies.
--------
The Company stipulates that the remedies at law of the Holder in the event of
any default or threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant are not and will not be
adequate, and that such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise, in addition to any
other remedies which may be available at law or in equity.
-16-
<PAGE>
Section 12. Company Will Avoid Certain Actions.
----------------------------------
The Company will not, by amendment of its certificate of incorporation or
through any reorganization, transfer of assets, consolidation, merger, issue or
sale of securities or otherwise, avoid or take any action which would have the
effect of avoiding the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in carrying out all of the provisions of this Warrant Certificate
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holder of this Warrant Certificate against dilution
or other impairment, and in particular, will not cause the par value, if any, of
any share of Stock, to be or become greater than the then effective Exercise
Price.
Section 13. Company Will Not Close Books.
----------------------------
The Company will at no time close its transfer books against the transfer of
this Warrant or of any shares of Stock issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant.
Section 14. Successors and Assigns.
----------------------
This Warrant and the rights evidenced hereby shall inure to the benefit of and
be binding upon the successors of the Company and the successors and assigns of
the Holders hereof. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder.
Section 15. Amendment.
---------
This Warrant Certificate may be modified or amended and any provision hereof
may be waived by a writing executed by the Company and holders of Warrants
representing a majority of the Warrant Shares obtainable upon exercise of the
Warrants.
Section 16. Headings.
--------
Section headings in this Warrant are for reference only and shall not affect
the meaning or construction of any of the provisions hereof.
[Signature on following page]
-17-
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first
written above.
HARRY'S FARMERS MARKET, INC.
By:
------------------------------------
Name:
Title:
-18-
<PAGE>
ANNEX A
FORM OF SUBSCRIPTION
--------------------
(To be executed only upon exercise of the Warrant in whole or in part)
To HARRY'S FARMERS MARKET, INC.
The undersigned registered holder of the accompanying Warrant hereby
irrevocably exercises such Warrant or portion thereof for, and purchases
thereunder, _______/1/ Warrant Shares (as defined in such Warrant) and herewith
makes payment therefor of $________. The undersigned requests that the
certificates for such Warrant Shares be issued in the name of, and delivered to
______________________________, whose address is ___________________________.
Dated:
----------------------------------------
(Name must conform to name of holder as
specified on the face of the Warrant)
----------------------------------------
(Street Address)
----------------------------------------
(City) (State) (Zip Code)
- -----------------------
/1/ Insert the number of Warrant Shares as to which this Warrant is being
exercised. In the case of a partial exercise, a new Warrant or Warrants will be
issued and delivered, representing the unexercised portion of this Warrant, to
the holder surrendering the same.
-19-
<PAGE>
ANNEX B
FORM OF ASSIGNMENT
------------------
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers unto
_______________________________ [Name] of ____________________[Address] the
right represented by the within Warrant to purchase _________ shares of Class A
Common Stock of HARRY'S FARMERS MARKET, INC. to which the within Warrant
relates, and appoints _____________ Attorney to transfer such right on the books
of HARRY'S FARMERS MARKET, INC. with full power of substitution in the premises.
Dated: ________________
---------------------------------------
(Name must conform to name of holder as
specified on the face of the Warrant)
---------------------------------------
(Street Address)
---------------------------------------
(City) (State) (Zip Code)
Signed in the presence of:
- ----------------------------------
-20-
<PAGE>
ANNEX C
FORM OF CONVERSION NOTICE
-------------------------
(To be executed only upon conversion of the Warrant in whole or in part)
To HARRY'S FARMERS MARKET, INC.
The undersigned registered holder of the accompanying Warrant hereby
irrevocably elects to exercise its right to convert such Warrant or portion
thereof into _______/2/ Warrant Shares (as defined in such Warrant). The
undersigned requests that the certificates for such Warrant Shares be issued in
the name of, and delivered to ________________________________, whose address is
_________________________________.
Dated:
--------------------------------------
(Name must conform to name of holder as
specified on the face of the Warrant)
--------------------------------------
(Street Address)
--------------------------------------
(City) (State) (Zip Code)
- ----------------
/2/ Insert the number of Warrant Shares as to which this Warrant is being
exercised. In the case of a partial exercise, a new Warrant or Warrants will be
issued and delivered, representing the unexercised portion of this Warrant, to
the holder surrendering the same.
-21-
<PAGE>
EXHIBIT 4.10.1
WARRANT CERTIFICATE
-------------------
NEITHER THE WARRANT REPRESENTED BY THIS CERTIFICATE NOR THE CLASS A COMMON STOCK
ISSUABLE UPON THE EXERCISE HEREOF HAS BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND NEITHER MAY BE
SOLD OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAW UNLESS AN EXEMPTION FROM REGISTRATION IS THEN
AVAILABLE.
WARRANT TO PURCHASE CLASS A COMMON STOCK
OF
HARRY'S FARMERS MARKET, INC.
Date: May 8, 1996
This is to certify that, FOR VALUE RECEIVED, the registered holder hereof,
NATIONSBANK, N.A. (SOUTH) ("NationsBank", and together with any successors and
-----------
assigns hereunder, the "Holder" or the "Holders"), is entitled to purchase,
------ -------
subject to the provisions of this Warrant Certificate, from HARRY'S FARMERS
MARKET, INC., a Georgia corporation (the "Company"), 72,000 shares (as such
-------
number may be adjusted in accordance with Section 5 hereof) of the Company's
Class A Common Stock, no par value per share (such class of stock, together with
any capital stock of the Company into which such class of stock shall be
converted, being referred to herein as "Stock"), at $6.00 per share (as such
-----
number may be adjusted in accordance with Section 5 hereof) (the "Exercise
--------
Price"). The number of shares of Stock to be received upon the exercise of this
Warrant and the Exercise Price shall be adjusted from time to time as
hereinafter set forth. The shares of Stock or other securities or property
deliverable upon such exercise, as adjusted from time to time, are hereinafter
sometimes referred to as "Warrant Shares."
--------------
This Warrant Certificate is one of the Warrant Certificates (the "Warrants",
--------
which term includes all Warrants issued in substitution therefor) originally
issued in connection with the amendment and restatement on May 8, 1996 of the
Warrant Agreement dated as of December 30, 1994 (as amended, restated,
supplemented or otherwise modified from time to time, the "Warrant Agreement").
-----------------
The Warrants so issued in connection with such amendment and restatement
evidence rights to purchase an aggregate of 120,000 Warrant Shares at the
Exercise Price. This Warrant is subject to the provisions, and is entitled to
the benefits, of the Warrant Agreement.
-1-
<PAGE>
Section 1. Exercise of Warrant.
-------------------
1.1. Manner of Exercise. (a) This Warrant may be exercised by the Holder, in
------------------
whole or in part, at any time or from time to time through and including the
sixth (6th) anniversary of the date hereof (the "Expiration Date") during normal
---------------
business hours on any Business Day (as defined in the Warrant Agreement) by
surrender of this Warrant, together with the form of subscription duly executed
by such Holder in substantially the form attached as Annex A hereto, to the
Company at its office designated pursuant to Section 7.1 of the Warrant
Agreement (or, if such exercise is in connection with an underwritten public
offering of Warrant Shares subject to this Warrant, at the location at which the
underwriting agreement requires that such Warrant Shares be delivered).
(b) Payment of the Exercise Price for the Warrant Shares, if required, shall
be made, at the option of the Holder by certified or bank check or wire transfer
payable to the order of the Company, in any case, in an amount equal to (A) the
number of Warrant Shares specified in such form of subscription, multiplied by
(B) the then current Exercise Price. The Holder shall thereupon be entitled to
receive the number of Warrant Shares specified in such form of subscription
(plus cash in lieu of any fractional share as provided in Section 1.3 hereof).
(c) In lieu of exercising Warrants pursuant to the immediately preceding
clause (a), the Holder shall have the right to require the Company to convert
the Warrants, in whole or in part and at any time or times (the "Conversion
Right"), into Warrant Shares, by surrendering to the Company the Warrant
Certificate evidencing the Warrants to be converted, accompanied by a conversion
notice duly executed by the Holder substantially in the form of Annex C hereto.
Upon exercise of the Conversion Right, the Company shall deliver to the Holder
(without payment by the Holder of any Exercise Price) that number of Warrant
- --------
Shares which is equal to the quotient obtained by dividing (x) the value of the
number of Warrants being converted at the time the Conversion Right is exercised
(determined by subtracting the aggregate Exercise Price for all such Warrants
immediately prior to the exercise of the Conversion Right from the aggregate
current Market Price of that number of Warrant Shares purchasable upon exercise
of such Warrants immediately prior to the exercise of the Conversion Right
(taking into account all applicable adjustments pursuant to Section 5 hereof))
by (y) the Market Price of one share of Stock immediately prior to the exercise
of the Conversion Right. Any references in this Warrant Certificate or the
Warrant Agreement to the "exercise" of any Warrants, and the use of the term
"exercise" herein and thereon, shall be deemed to include (without limitation)
any exercise of the Conversion Right.
-2-
<PAGE>
1.2. Effective Date. Each exercise of this Warrant pursuant to Section 1.1
--------------
hereof shall be deemed to have been effected immediately prior to the close of
business on the Business Day on which this Warrant is surrendered to the Company
as provided in Section 1.1 hereof (except that if such exercise is in connection
with an underwritten public offering of Warrant Shares subject to this Warrant,
then such exercise shall be deemed to have been effected upon such surrender of
this Warrant). On each such day that an exercise of this Warrant is deemed
effected, the person or persons in whose name or names any certificate or
certificates for Warrant Shares are issuable upon such exercise (as provided in
Section 1.3 hereof) shall be deemed to have become the Holder or Holders of
record thereof.
1.3. Warrant Share Certificates, Cash for Fractional Warrant Shares and
------------------------------------------------------------------
Reissuance of Warrants. As promptly as practicable after the exercise of this
- ----------------------
Warrant, in whole or in part, and in any event within five (5) Business Days
thereafter (unless such exercise shall be in connection with a public offering
of Warrant Shares subject to this Warrant, in which event concurrently with such
exercise), the Company at its expense (including the payment by it of any
applicable issue, stamp or other taxes) will cause to be issued in the name of
and delivered to the Holder or, subject to Section 6 of the Warrant Agreement,
such other person as the Holder may direct:
(a) a certificate or certificates for the number of Warrant Shares to
which the Holder shall be entitled upon such exercise plus, in lieu of any
fractional share to which the Holder would otherwise be entitled, cash in an
amount equal to the same fraction of the Market Price (as defined in Section
5.1 hereof) per Warrant Share on the effective date of such exercise; and
(b) in case such exercise is in part only, a new Warrant or Warrants,
substantially identical hereto, representing the rights formerly represented
by this Warrant which have not expired or been exercised.
1.4. Acknowledgment of Obligation. The Company will, at the time of or at any
----------------------------
time after each exercise of this Warrant, upon the request of the Holder hereof
or of any Warrant Shares issued upon such exercise, acknowledge in writing its
continuing obligation to afford to such Holder all rights (including, without
limitation, any rights to registration of any such Warrant Shares pursuant to
the Registration Rights Annex of the Warrant Agreement (the "Registration
Rights Agreement")) to which such Holder shall continue to be entitled under
this Warrant Certificate, the Warrant Agreement and the Registration Rights
Agreement; provided, that if any such Holder shall fail to make any
--------
-3-
<PAGE>
such request, the failure shall not affect the continuing obligation of the
Company to afford such rights to such Holder.
1.5. Conditional Exercise. Notwithstanding any other provision hereof, if any
--------------------
exercise of any portion of this Warrant is to be made in connection with a
public offering of Warrant Shares or any transaction described in Section 5.9
hereof, the exercise of any portion of this Warrant may, at the election of the
Holder, be conditioned upon the consummation of the public offering or such
transaction, in which case such exercise shall not be deemed to be effective
until the consummation of such public offering or transaction.
Section 2. Reservation of Shares.
---------------------
The Company shall at all times after the date hereof and until the Expiration
Date reserve for issuance and delivery upon exercise of this Warrant the number
of Warrant Shares as shall be required for issuance and delivery upon exercise
in full of this Warrant.
Section 3. Transfer, Exchange, Assignment or Loss of Warrant.
-------------------------------------------------
3.1. Transfer. This Warrant may be assigned in whole or in part or
--------
transferred in whole or in part; subject, however, to compliance with the
provisions of the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (the "Act").
3.2. Procedure for Assignment or Transfer. Any assignment or transfer
------------------------------------
hereunder shall be made by surrender of this Warrant to the Company at its
office designated pursuant to Section 7.1 of the Warrant Agreement, together
with the form of assignment duly executed by the Holder in substantially the
form attached as Annex B hereto and funds sufficient to pay any required
transfer tax. In such event the Company shall, without charge, execute and
deliver a new Warrant or Warrants substantially identical hereto in the name of
the assignee or assignees named in such instrument of assignment and designate
the assignee or assignees as the registered holder or holders on the Company's
records and this Warrant shall promptly be cancelled. This Warrant may be
divided or combined with other Warrants which carry the same rights upon
presentation thereof at the principal office of the Company together with a
written notice signed by the holder thereof, specifying the names and
denominations in which new Warrants are to be issued.
3.3. Loss, Theft, Destruction or Mutilation. Upon receipt by the Company of
--------------------------------------
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification to the Company or (in the case of mutilation)
presentation of this Warrant for surrender and cancellation, the Company will
execute and deliver a new Warrant identical hereto and any such lost, stolen,
destroyed or mutilated Warrant shall thereupon become void.
-4-
<PAGE>
Section 4. Warrant Certificate Holder Not Deemed a Stockholder.
---------------------------------------------------
Except as otherwise provided herein, the Holders shall not, solely because of
holding this Warrant, be entitled to vote, receive dividends or be deemed the
holder of Stock or any other securities of the Company which may at any time be
issuable on the exercise of the Warrant for any purpose whatsoever, nor shall
anything contained herein be construed to confer upon the Holders, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matters submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance of stock, reclassification of stock, change
of par value or change of stock to no par value, consolidation, merger,
conveyance or otherwise), or to receive notice of meetings or other actions
affecting stockholders, or to receive dividend or subscription rights, or
otherwise, until this Warrant shall have been exercised in accordance with the
provisions hereof.
Section 5. Anti-Dilution.
-------------
The number of Warrant Shares for which this Warrant is exercisable and/or the
Exercise Price at which such Warrant Shares may be purchased upon exercise of
this Warrant shall be subject to adjustment from time to time as set forth in
this Section 5. The Company shall give the Holders notice of any event described
below which requires an adjustment pursuant to this Section 5 at the time of
such event.
5.1. Special Definitions. For purposes of this Section 5 the following terms
-------------------
shall have the following meanings:
"Additional Shares of Stock" shall mean all shares of Stock issued by the
--------------------------
Company after the date hereof, other than (i) the Stock to be issued upon
exercise of any Warrants at any time issued in connection with the Warrant
Agreement, (ii) the Stock to be issued upon conversion of the Preferred Stock ,
(iii) the Stock to be issued upon exercise of the Preferred Stock Warrants; (iv)
the Stock to be issued upon exercise of the Performance Warrants, (v) 200,000
shares of Stock to be issued pursuant to the Company's 1996 Directors Stock
Option Plan, (vi) 475,000 shares of Stock to be issued pursuant to the Company's
Management Incentive Plan and (vii) 300,000 shares of Stock issued or to be
issued pursuant to the Company's 1996 Employee Stock Purchase Plan.
-5-
<PAGE>
"Convertible Securities" shall mean evidences of indebtedness, shares of
----------------------
Preferred Stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
Additional Shares of Stock, either immediately or upon the occurrence of a
specified date or a specified event, other than the Preferred Stock issued
pursuant to the Share and Warrant Purchase Agreements dated December 30, 1994
between the Company, Robert Fleming Nominees Ltd., and certain other investors
(such Agreements to be referred to herein collectively as the "Purchase
--------
Agreements" and Robert Fleming Nominees Ltd. and such other investors to be
- ----------
referred to herein collectively as the "Purchasers".
----------
"Market Price" shall mean, in respect of any share of Stock on the date of
------------
determination thereof, the average of the closing prices of sales of the Stock
on all principal United States securities exchanges on which the Stock may at
the time be listed, or, if there shall have been no sales on any such exchange
on any relevant day, the last trading price of such Stock on such day, or if
there is no such price, the average of the bid and asked prices at the end of
such day on the Nasdaq Stock Market, in each such case averaged for a period of
twenty (20) consecutive business days prior to the day as of which "Market
Price" is being determined. Notwithstanding the foregoing, with respect to the
issuance of Stock by the Company in an underwritten public offering, the Market
Price shall be the per share purchase price paid by the underwriters. If at any
time the Stock is not listed on any exchange or the Nasdaq Stock Market, the
"Market Price" shall be deemed to be the fair market value thereof determined by
an investment banking firm of nationally recognized standing selected by the
Board of Directors of the Company and acceptable to a majority of the Holders,
as of the most recent practicable date as of which the determination is to be
made, taking into account the value of the Company as a going concern, and
without taking into account any lack of liquidity of the Stock or any discount
for a minority interest.
"Performance Warrants" shall mean those performance warrants for 61,111 shares
--------------------
of Stock issued on December 30, 1994 to the Purchasers (as defined below).
"Preferred Stock" shall mean those shares of the Company's Series A Redeemable
---------------
Convertible Preferred Stock with a stated value of $9.00 per share.
"Preferred Stock Warrants" shall mean those warrants originally issued in
------------------------
connection with the issue and sale by the Company of its Preferred Stock
pursuant to the Purchase Agreements.
5.2. Stock Dividends, Subdivisions and Combinations.
----------------------------------------------
If at any time the Company shall:
(i) take a record of the holders of its Stock for the purpose of
entitling them to receive a dividend payable in, or other distribution of,
Additional Shares of Stock,
(ii) subdivide its outstanding shares of Stock into a larger number of
shares of Stock, or
(iii) combine its outstanding shares of Stock into a smaller number of
shares of Stock,
-6-
<PAGE>
then (I) the Warrant Shares for which this Warrant is exercisable immediately
after the occurrence of any such event shall be adjusted to equal the number of
shares of Stock which a record holder of the same number of shares of Stock for
which this Warrant is exercisable immediately prior to the occurrence of such
event would own or be entitled to receive after the happening of such event, and
(II) the Exercise Price shall be adjusted to equal (x) the Exercise Price
multiplied by the Warrant Shares for which this Warrant is exercisable
immediately prior to the adjustment divided by (y) the Warrant Shares for which
this Warrant is exercisable immediately after such adjustment.
5.3. Certain other Distributions. (a) Except as provided in Section 5.3(b), if
---------------------------
at any time the Company shall take a record of the holders of its Stock for the
purpose of entitling them to receive any dividend or other distribution of:
(i) cash,
(ii) any evidences of its indebtedness, any shares of its Stock or any
other securities or property of any nature whatsoever (other than cash or
Additional Shares of Stock), or
(iii) any warrants or other rights to subscribe for or purchase any
evidences of its indebtedness, any share of its Stock or any other securities
or property of any nature whatsoever (other than cash or Additional Shares of
Stock),
then, (I) the Warrant Shares for which this Warrant is exercisable shall be
adjusted to equal the product of the Warrant Shares for which this Warrant is
exercisable immediately prior to such adjustment multiplied by a fraction (x)
the numerator of which shall be the Market Price per share of Stock at the date
of taking such record and (y) the denominator of which shall be such Market
Price per share of Stock minus the amount allocable to one share of Stock of any
such cash so distributable and of the fair value (as determined in good faith by
the Board of Directors of the Company) of any and all such evidences of
indebtedness, shares of stock, other securities or property or warrants or other
subscription or purchase rights so distributable, and (II) the Exercise Price
shall be adjusted to equal (x) the Exercise Price multiplied by the Warrant
Shares for which this Warrant is exercisable immediately prior to the adjustment
divided by (y) the Warrant Shares for which this Warrant is exercisable
immediately after such adjustment. A reclassification of the Stock (other than a
change in par value, or from par value to no par value or from no par value to
par value) into shares of Stock and shares of any other class of stock shall be
deemed a distribution by the Company to the Holders of its Stock of such shares
of such other class of stock within the meaning of this Section 5.3 and, if the
outstanding shares of the Stock shall be changed into a larger or smaller number
of shares of the Stock as part of such reclassification, such change shall be
deemed a subdivision or combination, as the case may be, of the outstanding
shares of the Stock within the meaning of Section 5.2.
-7-
<PAGE>
(b) If at any time the Company shall take a record of the holders of its Stock
for the purpose of entitling them to receive any cash dividend or other
distribution of property of any nature whatsoever (other than Additional Shares
of Stock), and the amount of such cash dividend and the fair market value of any
property so distributed, when added to the amount of cash dividends paid and the
fair market value of any property so distributed during the twelve (12) months
prior to the date of such dividend or distribution, exceeds five percent (5%) of
the aggregate Market Price of the Stock of all of the Company's Stock then
outstanding on the Business Day immediately preceding the record date for such
dividend or distribution, the Holders of the Warrant shall be entitled to
participate in such dividend or distribution as if the Holder had already
exercised this Warrant in full, and such Holder shall receive, at the time such
dividend is paid or such property is distributed, the same kind and per-share
amount of cash or other property as is distributed to the holders of the
Company's Stock.
5.4. Issuance of Additional Shares of Stock. If at any time the Company shall
--------------------------------------
(except as hereinafter provided) issue or sell any Additional Shares of Stock
either (A) in exchange for consideration in an amount per Additional Share of
Stock less than the Exercise Price in effect immediately prior to such issuance
or sale of Additional Shares of Stock or (B) in exchange for consideration in an
amount per Additional Share of Stock less than the Market Price in effect
immediately prior to such issuance or sale of Additional Shares of Stock, then
the Exercise Price as to the Warrant Shares for which this Warrant is
exercisable immediately prior to such adjustment shall be adjusted to
equal the price determined by multiplying the Exercise Price by a fraction, of
which
(x) the numerator shall be (1) the number of shares of Stock outstanding
immediately prior to such issuance or sale of Additional Shares of Stock plus
(2) the number of shares of Stock which the aggregate amount of
consideration, if any, received by the Company for the total number of such
Additional Shares of Stock so issued or sold would purchase at the greater of
(I) the Market Price in effect immediately prior to such issuance or sale of
Additional Shares of Stock or (II) the Exercise Price in effect immediately
prior to such issuance or sale of Additional Shares of Stock and
(y) the denominator shall be the number of shares of Stock outstanding
immediately after such issuance or sale of Additional Shares of Stock;
-8-
<PAGE>
provided, however, that such adjustment shall be made only if the Exercise Price
determined from such adjustment shall be less than the Exercise Price in effect
immediately prior to the issuance of such Additional Shares of Stock. The
provisions of this Section 5.4 shall not apply to any issuance of Additional
Shares of Common Stock for which an adjustment is provided under Section 5.2 or
5.3.
5.5. Issuance of Warrants or Other Rights. If at any time the Company shall
------------------------------------
take a record of the holders of its Stock for the purpose of entitling them to
receive a distribution of, or shall in any manner (whether directly or by
assumption in a merger in which the Company is the surviving corporation) issue
or sell, any warrants or other rights to subscribe for or purchase any
Additional Shares of Stock or any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
consideration received for such warrants or other rights or such Convertible
Securities shall be less than the Exercise Price or the Market Price in effect
immediately prior to the time of such issue or sale, then the Exercise Price
shall be adjusted as provided in Section 5.4. No further adjustments of the
Exercise Price shall be made upon the actual issue of such Stock or of such
Convertible Securities upon exercise of such warrants or other rights or upon
the actual issue of such Stock upon such conversion or exchange of such
Convertible Securities.
5.6. Issuance of Convertible Securities. If at any time the Company shall
----------------------------------
take a record of the holders of its Stock for the purpose of entitling them to
receive a distribution of, or shall in any manner (whether directly or by
assumption in a merger in which the Company is the surviving corporation) issue
or sell, any Convertible Securities, whether or not the rights to convert
thereunder are immediately exercisable, and the consideration received for such
stock shall be less than the Exercise Price or the Market Price in effect
immediately prior to the time of such issue or sale, then the Exercise Price
shall be adjusted as provided in Section 5.4. No adjustment of the Exercise
Price shall be made under this Section 5.6 upon the issuance of any Convertible
Securities which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other rights
pursuant to Section 5.5. No further adjustments of the Exercise Price shall be
made upon the actual issue of such Stock upon conversion of such Convertible
Securities and, if any issue or sale of such Convertible Securities is made upon
exercise of any warrant or other right to subscribe for or to purchase any such
Convertible Securities for which adjustments of the Exercise Price have been or
are to be made pursuant to other provisions of this Section 5, no further
adjustments of the Exercise Price shall be made by reason of such issue or sale.
-9-
<PAGE>
5.7. Antidilution Adjustments Under Other Securities. Without limiting any
-----------------------------------------------
other rights available hereunder to the Holders of the Warrants, if there is an
antidilution adjustment (i) under any Convertible Securities, whether issued
prior to or after the date hereof or (ii) under any rights, options or warrants
to purchase Additional Shares of Stock, whether issued prior to or after the
date hereof which, in either case, results in a reduction in the exercise or
purchase price with respect to such security or rights or results in an increase
in the number of Additional Shares of Stock obtainable under such Convertible
Security, right, option or warrant, then an adjustment shall be made to the
Exercise Price hereunder. Any such adjustment pursuant to this Section 5.7
shall be whichever of the following results in a lower Exercise Price: (A) a
reduction in the Exercise Price equal to the percentage reduction in such
exercise or purchase price with respect to such Convertible Security, right,
option or warrant or (B) a reduction in the Exercise Price which will result in
the same percentage increase in the number of Warrant Shares available hereunder
as the percentage increase in the number of Additional Shares of Stock available
under such Convertible Security, right, option or warrant. Any such adjustment
under this Section 5.7 shall only be made if it would result in a lower Exercise
Price than that which would be determined pursuant to any other antidilution
adjustment otherwise required hereunder as a result of the event or circumstance
which triggered the adjustment to such Convertible Security, right, option or
warrant, and if an adjustment is made pursuant to this Section 5.7, such other
antidilution adjustment otherwise required hereunder shall not be made as
a result of such event or circumstance.
5.8. Other Provisions Applicable to Adjustments under this Section. The
-------------------------------------------------------------
following provisions shall be applicable to the making of adjustments of the
Warrant Shares for which this Warrant is exercisable and the Exercise Price at
which such Warrant Shares may be purchased upon exercise of this Warrant
provided for in this Section 5:
(a) Computation of Consideration. To the extent that any Additional
----------------------------
Shares of Stock or any Convertible Securities or any warrants or other rights
to subscribe for or purchase any Additional Shares of Stock or any
Convertible Securities shall be issued for cash consideration, the
consideration received by the Company therefor shall be the amount of the
cash received by the Company therefor, or, if such Additional Shares of Stock
or Convertible Securities are offered by the Company for subscription, the
subscription price, or, if such Additional Shares of Stock or Convertible
Securities are sold to underwriters or dealers for public offering without a
subscription offering, the public offering price (in any such case
subtracting any amounts paid or receivable for accrued interest or accrued
dividends and any compensation, discounts or expenses paid or incurred by the
Company for and in the underwriting of, or otherwise in connection with, the
issuance thereof). To the extent that such issuance shall be for a
consideration other than cash, then except as herein otherwise expressly
provided, the amount of such consideration shall be deemed to be the fair
value of such consideration at the time of such issuance as determined in
good faith by the Board of Directors of the Company. In case any Additional
Shares of Stock or any Convertible Securities or any warrants or other rights
to subscribe for or purchase such Additional Shares of Stock or Convertible
Securities shall be issued in connection with any merger in which the Company
issues any securities, the amount of consideration therefor shall be deemed
to be the fair value, as determined in good faith by the Board of Directors
of the Company, of such portion of the assets and business of the
nonsurviving corporation as such Board in good faith shall determine to be
attributable to such Additional Shares of Stock, Convertible Securities,
warrants or other rights, as the case may be. The consideration for any
Additional Shares of Stock issuable pursuant to any warrants or other rights
to subscribe for or purchase the same shall be the consideration received by
the Company for issuing such warrants or other rights plus the additional
consideration payable to the Company upon exercise of such warrants or other
rights. The consideration for any Additional Shares of Stock issuable
pursuant to the terms of any Convertible Securities shall be the
-10-
<PAGE>
consideration received by the Company for issuing warrants or other rights to
subscribe for or purchase such Convertible Securities, plus the consideration
paid or payable to the Company in respect of the subscription for or purchase
of such Convertible Securities, plus the additional consideration, if any,
payable to the Company upon the exercise of the right of conversion or
exchange in such Convertible Securities. In case of the issuance at any time
of any Additional Shares of Stock or Convertible Securities in payment or
satisfaction of any dividends upon any class of stock other than Stock, the
Company shall be deemed to have received for such Additional Shares of Stock
or Convertible Securities a consideration equal to the amount of such
dividend so paid or satisfied.
(b) When Adjustments to Be Made. The adjustments required by this Section
---------------------------
5 shall be made whenever and as often as any event requiring an adjustment
shall occur, except that any adjustment of the Warrant Shares for which this
Warrant is exercisable that would otherwise be required may be postponed
(except in the case of a subdivision or combination of shares of the Stock,
as provided for in Section 5.2) up to, but not beyond the date of exercise if
such adjustment either by itself or with other adjustments not previously
made adds or subtracts less than l% of the shares of the Stock for which this
Warrant is exercisable immediately prior to the making of such adjustment.
Any adjustment representing a change of less than such minimum amount (except
as aforesaid) which is postponed shall be carried forward and made as soon as
such adjustment, together with other adjustments required by this Section 5
and not previously made, would result in a minimum adjustment or on the date
of exercise. For the purpose of any adjustment, any event shall be deemed to
have occurred at the close of business on the date of its occurrence.
-11-
<PAGE>
(c) Fractional Interests. In computing adjustments under this Section 5,
--------------------
fractional interests in the Stock shall be taken into account to the nearest
1/10th of a share.
(d) When Adjustment Not Required. If the Company shall take a record of
----------------------------
the holders of the Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally
abandon its plan to pay or deliver such dividend, distribution, subscription
or purchase rights, then thereafter no adjustment shall be required by reason
of the taking of such record and any such adjustment previously made in
respect thereof shall be rescinded and annulled.
(e) Challenge to Good Faith Determination. Whenever the Board of
-------------------------------------
Directors of the Company shall be required to make a determination in good
faith of the fair value of any item under this Section 5, such determination
may be challenged in good faith by a Holder and any dispute shall be resolved
by an investment banking firm of recognized national standing selected by the
Company and acceptable to such Holder. The fees of such investment banker
shall be borne by the Holder if the Company's calculation is determined to be
correct and otherwise by the Company.
(f) Escrow of Property. If the Company shall take a record of the holders
------------------
of its Stock for the purpose of entitling them to receive any distribution of
any kind of property whatsoever, but prior to the payment of such
distribution the Holder exercises this Warrant, upon payment of the Exercise
Price, such property shall be held in escrow for the Holder by the Company to
be issued to the Holder upon the occurrence of such distribution and to the
extent such distribution actually takes place. Notwithstanding any other
provision to the contrary herein, if the distribution for which such record
was taken fails to occur or is rescinded, then such escrowed property shall
be returned to the Company.
5.9. Reorganization, Reclassification, Merger or Consolidation. If the
---------------------------------------------------------
Company shall at any time reorganize or reclassify the outstanding shares of
Stock (other than a change in par value, or from no par value to par value, or
from par value to no par value, or as a result of a subdivision or combination)
or consolidate with or merge into another corporation (where the Company is not
the continuing corporation after such merger or consolidation), the Holders
shall thereafter be entitled to receive upon exercise of this Warrant in whole
or in part, the same kind and number of shares of stock and other securities,
cash or other property (and upon the same terms and with the same rights) as
would have been distributed to the Holder upon such reorganization,
reclassification, consolidation or merger had the Holder exercised this Warrant
immediately prior to such reorganization, reclassification, consolidation or
merger (subject to subsequent adjustments under Section 5 hereof). The Holders
shall pay upon such exercise the Exercise Price that otherwise would have been
payable pursuant to the terms of this Warrant. If any such reorganization,
reclassification, consolidation or merger results in a cash distribution in
excess of the Exercise Price provided by this Warrant, a Holder may, at the
Holder's option, exercise this Warrant without making payment of the Exercise
-12-
<PAGE>
Price, and in such case the Company shall, upon distribution to the Holder,
consider the Exercise Price to have been paid in full, and in making settlement
to the Holder, shall deduct an amount equal to the Exercise Price from the
amount payable to the Holder. Notwithstanding anything herein to the contrary,
the Company will not effect any such reorganization, reclassification, merger or
consolidation unless prior to the consummation thereof, the corporation who may
be required to deliver any stock, securities or other assets upon the exercise
of this Warrant shall agree by an instrument in writing to deliver such stock,
cash, securities or other assets to the Holder. A sale, transfer or lease of all
or substantially all of the assets of the Company to another person shall be
deemed a reorganization, reclassification, consolidation or merger for the
foregoing purposes.
5.10. Exceptions to Adjustment of Exercise Price and/or Warrant Shares.
----------------------------------------------------------------
Anything herein to the contrary notwithstanding, the Company shall not make any
adjustment of the Exercise Price or the Warrant Shares issuable upon the
exercise of this Warrant in the case of (i) the issuance of the Warrants or any
other Warrants at any time issued in connection with the Warrant Agreement or
the issuance of shares of the Stock upon exercise of any such Warrants, (ii) the
issuance of shares of Stock to holders of the Company's Preferred Stock upon
conversion of all or any portion of their shares of Preferred Stock, (iii) the
issuance of the Preferred Stock Warrants or the issuance of the shares of Stock
upon exercise of such Preferred Stock Warrants or (iv) the issuance of the
Performance Warrants or the issuance of the shares of Stock upon exercise of
such Performance Warrants.
5.11. Chief Financial Officer's Opinion. Upon each adjustment of the
---------------------------------
Exercise Price and upon each change in the Warrant Shares issuable upon the
exercise of this Warrant, and in the event of any change in the rights of a
Holder by reason of other events herein set forth, then and in each such case,
the Company will promptly obtain an opinion of the chief financial officer of
the Company, stating the adjusted Exercise Price and the new Warrant Shares so
issuable, or specifying the other shares of the Stock, securities or assets and
the amount thereof receivable as a result of such change in rights, and setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based. The Company will promptly mail a copy of such
opinion to the Holders. If a Holder disagrees with such calculation, the
Company agrees to obtain within thirty (30) business days an opinion of a firm
of independent certified public accountants selected by the Company's Board of
Directors and acceptable to such Holder to review such calculation and the
opinion of such firm of independent certified public accountants shall be final
and binding on the parties and shall be conclusive evidence of the correctness
of the computation with respect to any such adjustment of the Exercise Price and
any such change in the number of Warrant Shares so issuable. The fees of such
accountants shall be borne by the Holder if the Company's calculation is
determined by such accountants to be correct and otherwise by the Company.
-13-
<PAGE>
5.12. Company to Prevent Dilution. In case at any time or from time to
---------------------------
time conditions arise by reason of action taken by the Company, which in the
good faith opinion of its Board of Directors or a majority of the Holders are
not adequately covered by the provisions of this Section 5, and which might
materially and adversely affect the exercise rights of the Holders, the Board of
Directors of the Company shall appoint such firm of independent certified public
accountants acceptable to a majority of the Holders, which shall give their
opinion upon the adjustment, if any, on a basis consistent with the standards
established in the other provisions of this Section 5, necessary with respect to
the Exercise Price, so as to preserve, without dilution (other than as
specifically contemplated by this Warrant), the exercise rights of the Holders.
Upon receipt of such opinion, the Board of Directors of the Company shall
forthwith make the adjustments described therein.
Section 6. Character of Shares of Stock.
----------------------------
All shares of the Stock issuable upon the exercise of this Warrant shall, when
issued to a Holder, be duly authorized, validly issued, fully paid and
nonassessable, free and clear of any lien or encumbrance and without any
preemptive rights.
Section 7. Notice to Holder.
----------------
So long as this Warrant shall be outstanding, (i) if the Company shall pay any
dividend or make any distribution upon the Stock otherwise than in cash, (ii) if
the Company shall offer to the holders of Stock, for subscription or purchase by
them, any shares of any class of stock of the Company or any other rights or
(iii) if there shall be any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company, voluntary or
involuntary dissolution, liquidation or winding up of the Company, then in any
such event, the Company shall cause to be mailed by certified mail to each
Holder, at least 30 days prior to the event described above, a notice containing
a brief description of the proposed action and stating the date or expected date
on which a record is to be taken for the purpose of such dividend, distribution
or rights, or the date or expected date such reclassification, reorganization,
consolidation, merger, conveyance, lease or transfer, dissolution, liquidation
or winding up shall take place or be voted upon by holders of the Stock of
record, and the date or expected date as of which the holders of Stock of record
shall be entitled to exchange their shares of Stock for securities or other
property deliverable upon any such event.
-14-
<PAGE>
Section 8. Disposition of Warrant Shares.
-----------------------------
The stock certificates of the Company that will evidence the Warrant Shares or
any other security issued or issuable upon exercise of this Warrant will be
imprinted with a conspicuous legend in substantially the following form:
The securities represented by this Certificate have not been registered
under the Securities Act of 1933 (the "Act") or any applicable state
securities laws and may not be sold, pledged, hypothecated, donated or
otherwise transferred (whether or not for consideration) unless registered
under the Act and any applicable state securities laws or in a transaction
exempt from such registrations.
Except as provided in the Registration Rights Agreement, the Company does not
agree to register any of the Warrant Shares for distribution in accordance with
the provisions of the Act or any applicable state securities laws, and the
Company has not agreed to comply with any exemption from registration under the
Act or any applicable state securities laws for the resale of the Warrant
Shares. Hence, it is the understanding of the Holder that by virtue of the
provisions of certain rules respecting "restricted securities" promulgated by
---------------------
the Securities and Exchange Commission, the Warrant Shares may be required to be
held indefinitely, unless and until registered under the Act and any applicable
state securities laws unless an exemption from such registration is available,
in which case the Holders may still be limited as to the number of Warrant
Shares that may be sold.
Section 9. Governing Law.
-------------
This Warrant shall be construed in accordance with the laws of the State of
Georgia applicable to contracts executed and to be performed wholly within such
state without regard to any conflicts of laws principles.
Section 10. Notice.
------
Any notice, demand, document or other communication given or delivered
hereunder shall be in writing, and may be (i) personally delivered, (ii) given
or made by United States registered or certified mail, return receipt requested,
postage prepaid, or (iii) given or made by overnight courier, delivery charges
prepaid, addressed as follows:
If to the Company: Harry's Farmers Market, Inc.
- ------------------
1180 Upper Hembree Road
Roswell, GA 30076
Attention: Chief Financial Officer
-15-
<PAGE>
With a Copy to: Nelson, Mullins, Riley & Scarborough, L.L.P
- ---------------
400 Colony Square, Suite 2200
1201 Peachtree Street, N.E.
Atlanta, Georgia 30361
Attention: John Latham, Esq.
If to NationsBank: NationsBank, N.A. (South)
- ------------------
600 Peachtree Street, N.E.
Atlanta, Georgia 30308
Attention: Douglas E. Coltharp
With a Copy to: Alston & Bird
- ---------------
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Attention: H. Sadler Poe, Esq.
The Company and the Holder shall each have the right to designate a different
address for itself by notice similarly given. All such notices, demands,
documents or other communication will be deemed to be delivered (i) upon
receipt, if personally delivered, (ii) on the third full Business Day following
the day of mailing, if sent by United States registered or certified mail and
(iii) on the Business Day following the date it was sent, if sent by overnight
courier.
Section 11. Remedies.
--------
The Company stipulates that the remedies at law of the Holder in the event of
any default or threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant are not and will not be
adequate, and that such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise, in addition to any
other remedies which may be available at law or in equity.
Section 12. Company Will Avoid Certain Actions.
----------------------------------
The Company will not, by amendment of its certificate of incorporation or
through any reorganization, transfer of assets, consolidation, merger, issue or
sale of securities or otherwise, avoid or take any action which would have the
effect of avoiding the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in carrying out all of the provisions of this Warrant Certificate
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holder of this Warrant Certificate against dilution
or other impairment, and in particular, will not cause the par value, if any, of
any share of Stock, to be or become greater than the then effective Exercise
Price.
-16-
<PAGE>
Section 13. Company Will Not Close Books.
----------------------------
The Company will at no time close its transfer books against the transfer of
this Warrant or of any shares of Stock issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant.
Section 14. Successors and Assigns.
----------------------
This Warrant and the rights evidenced hereby shall inure to the benefit of and
be binding upon the successors of the Company and the successors and assigns of
the Holders hereof. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder.
Section 15. Amendment.
---------
This Warrant Certificate may be modified or amended and any provision hereof
may be waived by a writing executed by the Company and holders of Warrants
representing a majority of the Warrant Shares obtainable upon exercise of the
Warrants.
Section 16. Headings.
--------
Section headings in this Warrant are for reference only and shall not affect
the meaning or construction of any of the provisions hereof.
[Signature on following page]
-17-
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first
written above.
HARRY'S FARMERS MARKET, INC.
By:
---------------------------
Name:
Title:
-18-
<PAGE>
ANNEX A
FORM OF SUBSCRIPTION
--------------------
(To be executed only upon exercise of the Warrant in whole or in part)
To HARRY'S FARMERS MARKET, INC.
The undersigned registered holder of the accompanying Warrant hereby
irrevocably exercises such Warrant or portion thereof for, and purchases
thereunder, _______/1/ Warrant Shares (as defined in such Warrant) and herewith
makes payment therefor of $________. The undersigned requests that the
certificates for such Warrant Shares be issued in the name of, and delivered to
________________________________, whose address is
_________________________________.
Dated:
--------------------------------------
(Name must conform to name of holder as
specified on the face of the Warrant)
---------------------------------------
(Street Address)
---------------------------------------
(City) (State) (Zip Code)
- --------------
/1/ Insert the number of Warrant Shares as to which this Warrant is being
exercised. In the case of a partial exercise, a new Warrant or Warrants will be
issued and delivered, representing the unexercised portion of this Warrant, to
the holder surrendering the same.
-19-
<PAGE>
ANNEX B
FORM OF ASSIGNMENT
------------------
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers unto
_______________________________ [Name] of ____________________[Address] the
right represented by the within Warrant to purchase _________ shares of Class A
Common Stock of HARRY'S FARMERS MARKET, INC. to which the within Warrant
relates, and appoints _____________ Attorney to transfer such right on the books
of HARRY'S FARMERS MARKET, INC. with full power of substitution in the premises.
Dated: ________________
--------------------------------------
(Name must conform to name of holder as
specified on the face of the Warrant)
--------------------------------------
(Street Address)
-------------------------------------
(City) (State) (Zip Code)
Signed in the presence of:
- -------------------------------------
-20-
<PAGE>
ANNEX C
FORM OF CONVERSION NOTICE
-------------------------
(To be executed only upon conversion of the Warrant in whole or in part)
To HARRY'S FARMERS MARKET, INC.
The undersigned registered holder of the accompanying Warrant hereby
irrevocably elects to exercise its right to convert such Warrant or portion
thereof into _______/2/ Warrant Shares (as defined in such Warrant). The
undersigned requests that the certificates for such Warrant Shares be issued in
the name of, and delivered to ________________________________, whose address is
_________________________________.
Dated:
---------------------------------------
(Name must conform to name of holder as
specified on the face of the Warrant)
---------------------------------------
(Street Address)
--------------------------------------
(City) (State) (Zip Code)
- -----------------
/2/ Insert the number of Warrant Shares as to which this Warrant is being
exercised. In the case of a partial exercise, a new Warrant or Warrants will be
issued and delivered, representing the unexercised portion of this Warrant, to
the holder surrendering the same.
-21-
<PAGE>
EXIBIT 4.11
AMENDED AND RESTATED WARRANT CERTIFICATE
----------------------------------------
NEITHER THE WARRANT REPRESENTED BY THIS CERTIFICATE NOR THE CLASS A COMMON STOCK
ISSUABLE UPON THE EXERCISE HEREOF HAS BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND NEITHER MAY BE
SOLD OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAW UNLESS AN EXEMPTION FROM REGISTRATION IS THEN
AVAILABLE.
WARRANT TO PURCHASE CLASS A COMMON STOCK
OF
HARRY'S FARMERS MARKET, INC.
Date: December 30, 1994
This is to certify that, FOR VALUE RECEIVED, the registered holder hereof,
CREDITANSTALT-BANKVEREIN, New York Branch ("Creditanstalt", and together with
any successors and assigns hereunder, the "Holder" or the "Holders"), is
------ -------
entitled to purchase, subject to the provisions of this Warrant Certificate,
from HARRY'S FARMERS MARKET, INC., a Georgia corporation (the "Company"), 96,000
-------
shares (as such number may be adjusted in accordance with Section 5 hereof) of
the Company's Class A Common Stock, no par value per share (such class of stock,
together with any capital stock of the Company into which such class of stock
shall be converted, being referred to herein as "Stock"), at $3.00 per share (as
-----
such number may be adjusted in accordance with Section 5 hereof) (the "Exercise
--------
Price"). The number of shares of Stock to be received upon the exercise of this
- -----
Warrant and the Exercise Price shall be adjusted from time to time as
hereinafter set forth. The shares of Stock or other securities or property
deliverable upon such exercise, as adjusted from time to time, are hereinafter
sometimes referred to as "Warrant Shares."
--------------
This Amended and Restated Warrant Certificate is one of the Warrant
Certificates (the "Warrants", which term includes all Warrants issued in
--------
substitution therefor) originally issued pursuant to the Warrant Agreement dated
as of December 30, 1994, as amended and restated as of May 8, 1996 (as amended,
restated, supplemented or otherwise modified from time to time, the "Warrant
-------
Agreement"). The Warrants originally so issued evidence rights to purchase an
- ---------
aggregate of 240,000 Warrant Shares at the Exercise Price. This Warrant is
subject to the provisions, and is entitled to the benefits, of the Warrant
Agreement. This Warrant amends and restates that certain Warrant Certificate
dated as of December 30, 1994 executed by the Company in favor of the Holder.
-1-
<PAGE>
Section 1. Exercise of Warrant.
-------------------
1.1. Manner of Exercise. (a) This Warrant may be exercised by the Holder, in
------------------
whole or in part, at any time or from time to time through and including the
Expiration Date during normal business hours on any Business Day (as defined in
the Warrant Agreement) by surrender of this Warrant, together with the form of
subscription duly executed by such Holder in substantially the form attached as
Annex A hereto, to the Company at its office designated pursuant to Section 7.1
of the Warrant Agreement (or, if such exercise is in connection with an
underwritten public offering of Warrant Shares subject to this Warrant, at the
location at which the underwriting agreement requires that such Warrant Shares
be delivered).
(b) Payment of the Exercise Price for the Warrant Shares, if required, shall
be made, at the option of the Holder by certified or bank check or wire transfer
payable to the order of the Company, in any case, in an amount equal to (A) the
number of Warrant Shares specified in such form of subscription, multiplied by
(B) the then current Exercise Price. The Holder shall thereupon be entitled to
receive the number of Warrant Shares specified in such form of subscription
(plus cash in lieu of any fractional share as provided in Section 1.3 hereof).
(c) In lieu of exercising Warrants pursuant to the immediately preceding
clause (a), the Holder shall have the right to require the Company to convert
the Warrants, in whole or in part and at any time or times (the "Conversion
Right"), into Warrant Shares, by surrendering to the Company the Warrant
Certificate evidencing the Warrants to be converted, accompanied by a conversion
notice duly executed by the Holder substantially in the form of Annex C hereto.
Upon exercise of the Conversion Right, the Company shall deliver to the Holder
(without payment by the Holder of any Exercise Price) that number of Warrant
- --------
Shares which is equal to the quotient obtained by dividing (x) the value of the
number of Warrants being converted at the time the Conversion Right is exercised
(determined by subtracting the aggregate Exercise Price for all such Warrants
immediately prior to the exercise of the Conversion Right from the aggregate
current Market Price of that number of Warrant Shares purchasable upon exercise
of such Warrants immediately prior to the exercise of the Conversion Right
(taking into account all applicable adjustments pursuant to Section 5 hereof))
by (y) the Market Price of one share of Stock immediately prior to the exercise
of the Conversion Right. Any references in this Warrant Certificate or the
Warrant Agreement to the "exercise" of any Warrants, and the use of the term
"exercise" herein and therein, shall be deemed to include (without
limitation) any exercise of the Conversion Right.
-2-
<PAGE>
1.2. Effective Date. Each exercise of this Warrant pursuant to Section 1.1
--------------
hereof shall be deemed to have been effected immediately prior to the close of
business on the Business Day on which this Warrant is surrendered to the Company
as provided in Section 1.1 hereof (except that if such exercise is in connection
with an underwritten public offering of Warrant Shares subject to this Warrant,
then such exercise shall be deemed to have been effected upon such surrender of
this Warrant). On each such day that an exercise of this Warrant is deemed
effected, the person or persons in whose name or names any certificate or
certificates for Warrant Shares are issuable upon such exercise (as provided in
Section 1.3 hereof) shall be deemed to have become the Holder or Holders of
record thereof.
1.3. Warrant Share Certificates, Cash for Fractional Warrant Shares and
------------------------------------------------------------------
Reissuance of Warrants. As promptly as practicable after the exercise of this
- ----------------------
Warrant, in whole or in part, and in any event within five (5) Business Days
thereafter (unless such exercise shall be in connection with a public offering
of Warrant Shares subject to this Warrant, in which event concurrently with such
exercise), the Company at its expense (including the payment by it of any
applicable issue, stamp or other taxes) will cause to be issued in the name of
and delivered to the Holder or, subject to Section 6 of the Warrant Agreement,
such other person as the Holder may direct:
(a) a certificate or certificates for the number of Warrant Shares to
which the Holder shall be entitled upon such exercise plus, in lieu of any
fractional share to which the Holder would otherwise be entitled, cash in an
amount equal to the same fraction of the Market Price (as defined in Section
5.1 hereof) per Warrant Share on the effective date of such exercise; and
(b) in case such exercise is in part only, a new Warrant or Warrants,
substantially identical hereto, representing the rights formerly represented
by this Warrant which have not expired or been exercised.
1.4. Acknowledgment of Obligation. The Company will, at the time of or at any
----------------------------
time after each exercise of this Warrant, upon the request of the Holder hereof
or of any Warrant Shares issued upon such exercise, acknowledge in writing its
continuing obligation to afford to such Holder all rights (including, without
limitation, any rights to registration of any such Warrant Shares pursuant to
the Registration Rights Annex of the Warrant Agreement (the "Registration
Rights Agreement")) to which such Holder shall continue to be entitled under
this Warrant Certificate, the
-3-
<PAGE>
Warrant Agreement and the Registration Rights Agreement; provided, that if any
--------
such Holder shall fail to make any such request, the failure shall not affect
the continuing obligation of the Company to afford such rights to such Holder.
1.5. Conditional Exercise. Notwithstanding any other provision hereof, if any
--------------------
exercise of any portion of this Warrant is to be made in connection with a
public offering of Warrant Shares or any transaction described in Section 5.9
hereof, the exercise of any portion of this Warrant may, at the election of the
Holder, be conditioned upon the consummation of the public offering or such
transaction, in which case such exercise shall not be deemed to be effective
until the consummation of such public offering or transaction.
Section 2. Reservation of Shares.
---------------------
The Company shall at all times after the date hereof and until the Expiration
Date reserve for issuance and delivery upon exercise of this Warrant the number
of Warrant Shares as shall be required for issuance and delivery upon exercise
in full of this Warrant.
Section 3. Transfer, Exchange, Assignment or Loss of Warrant.
-------------------------------------------------
3.1. Transfer. This Warrant may be assigned in whole or in part or
--------
transferred in whole or in part; subject, however, to compliance with the
provisions of the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (the "Act").
3.2. Procedure for Assignment or Transfer. Any assignment or transfer
------------------------------------
hereunder shall be made by surrender of this Warrant to the Company at its
office designated pursuant to Section 7.1 of the Warrant Agreement, together
with the form of assignment duly executed by the Holder in substantially the
form attached as Annex B hereto and funds sufficient to pay any required
transfer tax. In such event the Company shall, without charge, execute and
deliver a new Warrant or Warrants substantially identical hereto in the name of
the assignee or assignees named in such instrument of assignment and designate
the assignee or assignees as the registered holder or holders on the Company's
records and this Warrant shall promptly be cancelled. This Warrant may be
divided or combined with other Warrants which carry the same rights upon
presentation thereof at the principal office of the Company together with a
written notice signed by the holder thereof, specifying the names and
denominations in which new Warrants are to be issued.
3.3. Loss, Theft, Destruction or Mutilation. Upon receipt by the Company of
--------------------------------------
evidence satisfactory to it of the
-4-
<PAGE>
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification to the
Company or (in the case of mutilation) presentation of this Warrant for
surrender and cancellation, the Company will execute and deliver a new Warrant
identical hereto and any such lost, stolen, destroyed or mutilated Warrant shall
thereupon become void.
Section 4. Warrant Certificate Holder Not Deemed a Stockholder.
---------------------------------------------------
Except as otherwise provided herein, the Holders shall not, solely because of
holding this Warrant, be entitled to vote, receive dividends or be deemed the
holder of Stock or any other securities of the Company which may at any time be
issuable on the exercise of the Warrant for any purpose whatsoever, nor shall
anything contained herein be construed to confer upon the Holders, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matters submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance of stock, reclassification of stock, change
of par value or change of stock to no par value, consolidation, merger,
conveyance or otherwise), or to receive notice of meetings or other actions
affecting stockholders, or to receive dividend or subscription rights, or
otherwise, until this Warrant shall have been exercised in accordance with the
provisions hereof.
Section 5. Anti-Dilution.
-------------
The number of Warrant Shares for which this Warrant is exercisable and/or the
Exercise Price at which such Warrant Shares may be purchased upon exercise of
this Warrant shall be subject to adjustment from time to time as set forth in
this Section 5. The Company shall give the Holders notice of any event described
below which requires an adjustment pursuant to this Section 5 at the time of
such event.
5.1. Special Definitions. For purposes of this Section 5 the following terms
-------------------
shall have the following meanings:
"Additional Shares of Stock" shall mean all shares of Stock issued by the
--------------------------
Company after the date hereof, other than (i) the Stock to be issued upon
exercise of any Warrants at any time issued in connection with the Warrant
Agreement, (ii) the Stock to be issued upon conversion of the Preferred Stock,
(iii) the Stock to be issued upon exercise of the Preferred Stock Warrants; (iv)
the Stock to be issued upon exercise of the Performance Warrants, (v) 200,000
shares of Stock to be issued pursuant to the Company's 1996 Directors Stock
Option Plan, (vi) 475,000 shares of Stock to be issued pursuant to the Company's
Management Incentive Plan and (vii) 300,000 shares of Stock issued or to be
issued pursuant to the Company's 1996 Employee Stock Purchase Plan.
-5-
<PAGE>
"Convertible Securities" shall mean evidences of indebtedness, shares of
----------------------
Preferred Stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
Additional Shares of Stock, either immediately or upon the occurrence of a
specified date or a specified event, other than the Preferred Stock issued
pursuant to the Share and Warrant Purchase Agreements dated December 30, 1994
between the Company, Robert Fleming Nominees Ltd., and certain other investors
(such Agreements to be referred to herein collectively as the "Purchase
--------
Agreements" and Robert Fleming Nominees Ltd. and such other investors to be
- ----------
referred to herein collectively as the "Purchasers".
----------
"Expiration Date" means May 8, 2002. If, on or before May 8, 1997, the
---------------
Company delivers to the Holders either a legal opinion in form and substance
acceptable to the Holders from a law firm acceptable to the Holders, or a no
action letter from the Securities and Exchange Commission, in each case to the
effect that the holding period under Rule 144 for the amended and restated
Warrants commenced on December 30, 1994 and not as of the effective date of such
amendment and restatement, then the Expiration Date shall be December 30, 2000.
"Market Price" shall mean, in respect of any share of Stock on the date of
------------
determination thereof, the average of the closing prices of sales of the Stock
on all principal United States securities exchanges on which the Stock may at
the time be listed, or, if there shall have been no sales on any such exchange
on any relevant day, the last trading price of such Stock on such day, or if
there is no such price, the average of the bid and asked prices at the end of
such day on the Nasdaq Stock Market, in each such case averaged for a period of
twenty (20) consecutive business days prior to the day as of which "Market
Price" is being determined. Notwithstanding the foregoing, with respect to the
issuance of Stock by the Company in an underwritten public offering, the Market
Price shall be the per share purchase price paid by the underwriters. If at any
time the Stock is not listed on any exchange or the Nasdaq Stock Market, the
"Market Price" shall be deemed to be the fair market value thereof determined by
an investment banking firm of nationally recognized standing selected by the
Board of Directors of the Company and acceptable to a majority of the Holders,
as of the most recent practicable date as of which the determination is to be
made, taking into account the value of the Company as a going concern, and
without taking into account any lack of liquidity of the Stock or any discount
for a minority interest.
"Performance Warrants" shall mean those performance warrants for 61,111 shares
--------------------
of Stock issued on December 30, 1994 to the Purchasers (as defined below).
"Preferred Stock" shall mean those shares of the Company's Series A Redeemable
---------------
Convertible Preferred Stock with a stated value of $9.00 per share.
"Preferred Stock Warrants" shall mean those warrants originally issued in
------------------------
connection with the issue and sale by the Company of its Preferred Stock
pursuant to the Purchase Agreements.
-6-
<PAGE>
5.2. Stock Dividends, Subdivisions and Combinations.
----------------------------------------------
If at any time the Company shall:
(i) take a record of the holders of its Stock for the purpose of
entitling them to receive a dividend payable in, or other distribution of,
Additional Shares of Stock,
(ii) subdivide its outstanding shares of Stock into a larger number of
shares of Stock, or
(iii) combine its outstanding shares of Stock into a smaller number of
shares of Stock,
then (I) the Warrant Shares for which this Warrant is exercisable immediately
after the occurrence of any such event shall be adjusted to equal the number of
shares of Stock which a record holder of the same number of shares of Stock for
which this Warrant is exercisable immediately prior to the occurrence of such
event would own or be entitled to receive after the happening of such event, and
(II) the Exercise Price shall be adjusted to equal (x) the Exercise Price
multiplied by the Warrant Shares for which this Warrant is exercisable
immediately prior to the adjustment divided by (y) the Warrant Shares for which
this Warrant is exercisable immediately after such adjustment.
5.3. Certain other Distributions. (a) Except as provided in Section 5.3(b), if
---------------------------
at any time the Company shall take a record of the holders of its Stock for the
purpose of entitling them to receive any dividend or other distribution of:
(i) cash,
(ii) any evidences of its indebtedness, any shares of its Stock or any
other securities or property of any nature whatsoever (other than cash or
Additional Shares of Stock), or
(iii) any warrants or other rights to subscribe for or purchase any
evidences of its indebtedness, any share of its Stock or any other securities
or property of any nature whatsoever (other than cash or Additional Shares of
Stock),
then, (I) the Warrant Shares for which this Warrant is exercisable shall be
adjusted to equal the product of the Warrant Shares for which this Warrant is
exercisable immediately prior to such adjustment multiplied by a fraction (x)
the numerator of which shall be the Market Price per share of Stock at the date
of taking such record and (y) the denominator of which shall be such Market
-7-
<PAGE>
Price per share of Stock minus the amount allocable to one share of Stock of any
such cash so distributable and of the fair value (as determined in good faith by
the Board of Directors of the Company) of any and all such evidences of
indebtedness, shares of stock, other securities or property or warrants or other
subscription or purchase rights so distributable, and (II) the Exercise Price
shall be adjusted to equal (x) the Exercise Price multiplied by the Warrant
Shares for which this Warrant is exercisable immediately prior to the adjustment
divided by (y) the Warrant Shares for which this Warrant is exercisable
immediately after such adjustment. A reclassification of the Stock (other than
a change in par value, or from par value to no par value or from no par value to
par value) into shares of Stock and shares of any other class of stock shall be
deemed a distribution by the Company to the Holders of its Stock of such shares
of such other class of stock within the meaning of this Section 5.3 and, if the
outstanding shares of the Stock shall be changed into a larger or smaller number
of shares of the Stock as part of such reclassification, such change shall be
deemed a subdivision or combination, as the case may be, of the outstanding
shares of the Stock within the meaning of Section 5.2.
(b) If at any time the Company shall take a record of the holders of its Stock
for the purpose of entitling them to receive any cash dividend or other
distribution of property of any nature whatsoever (other than Additional Shares
of Stock), and the amount of such cash dividend and the fair market value of any
property so distributed, when added to the amount of cash dividends paid and the
fair market value of any property so distributed during the twelve (12) months
prior to the date of such dividend or distribution, exceeds five percent (5%) of
the aggregate Market Price of the Stock of all of the Company's Stock then
outstanding on the Business Day immediately preceding the record date for such
dividend or distribution, the Holders of the Warrant shall be entitled to
participate in such dividend or distribution as if the Holder had already
exercised this Warrant in full, and such Holder shall receive, at the time such
dividend is paid or such property is distributed, the same kind and per-share
amount of cash or other property as is distributed to the holders of the
Company's Stock.
-8-
<PAGE>
5.4. Issuance of Additional Shares of Stock. If at any time the Company
--------------------------------------
shall (except as hereinafter provided) issue or sell any Additional Shares of
Stock either (A) in exchange for consideration in an amount per Additional Share
of Stock less than the Exercise Price in effect immediately prior to such
issuance or sale of Additional Shares of Stock or (B) in exchange for
consideration in an amount per Additional Share of Stock less than the Market
Price in effect immediately prior to such issuance or sale of Additional Shares
of Stock, then the Exercise Price as to the Warrant Shares for which this
Warrant is exercisable immediately prior to such adjustment shall be adjusted to
equal the price determined by multiplying the Exercise Price by a fraction, of
which
(x) the numerator shall be (1) the number of shares of Stock outstanding
immediately prior to such issuance or sale of Additional Shares of Stock plus
(2) the number of shares of Stock which the aggregate amount of
consideration, if any, received by the Company for the total number of such
Additional Shares of Stock so issued or sold would purchase at the greater of
(I) the Market Price in effect immediately prior to such issuance or sale of
Additional Shares of Stock or (II) the Exercise Price in effect immediately
prior to such issuance or sale of Additional Shares of Stock and
(y) the denominator shall be the number of shares of Stock outstanding
immediately after such issuance or sale of Additional Shares of Stock;
provided, however, that such adjustment shall be made only if the Exercise Price
determined from such adjustment shall be less than the Exercise Price in effect
immediately prior to the issuance of such Additional Shares of Stock. The
provisions of this Section 5.4 shall not apply to any issuance of Additional
Shares of Common Stock for which an adjustment is provided under Section 5.2 or
5.3.
5.5. Issuance of Warrants or Other Rights. If at any time the Company shall
------------------------------------
take a record of the holders of its Stock for the purpose of entitling them to
receive a distribution of, or shall in any manner (whether directly or by
assumption in a merger in which the Company is the surviving corporation) issue
or sell, any warrants or other rights to subscribe for or purchase any
Additional Shares of Stock or any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
consideration received for such warrants or other rights or such Convertible
Securities shall be less than the Exercise Price or the Market Price in effect
immediately prior to the time of such issue or sale, then the Exercise Price
shall be adjusted as provided in Section 5.4. No further adjustments of the
Exercise Price shall be made upon the actual issue of such Stock or of such
Convertible Securities upon exercise of such warrants or other rights or upon
the actual issue of such Stock upon such conversion or exchange of such
Convertible Securities.
5.6. Issuance of Convertible Securities. If at any time the Company shall
----------------------------------
take a record of the holders of its Stock for the purpose of entitling them to
receive a distribution of, or shall in any manner (whether directly or by
assumption in a merger in which the Company is the surviving corporation) issue
or sell, any Convertible Securities, whether or not the rights to convert
thereunder are immediately exercisable, and the consideration received for such
stock shall be less than the Exercise Price or the Market Price in effect
immediately prior to the time of such issue or sale, then the Exercise Price
shall be adjusted as provided in Section 5.4. No adjustment of the Exercise
Price shall be made under this Section 5.6 upon the issuance of any Convertible
Securities which are issued pursuant to the exercise of any warrants or other
-9-
<PAGE>
subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other rights
pursuant to Section 5.5. No further adjustments of the Exercise Price shall be
made upon the actual issue of such Stock upon conversion of such Convertible
Securities and, if any issue or sale of such Convertible Securities is made upon
exercise of any warrant or other right to subscribe for or to purchase any such
Convertible Securities for which adjustments of the Exercise Price have been or
are to be made pursuant to other provisions of this Section 5, no further
adjustments of the Exercise Price shall be made by reason of such issue or sale.
5.7. Antidilution Adjustments Under Other Securities. Without limiting any
-----------------------------------------------
other rights available hereunder to the Holders of the Warrants, if there is an
antidilution adjustment (i) under any Convertible Securities, whether issued
prior to or after the date hereof or (ii) under any rights, options or warrants
to purchase Additional Shares of Stock, whether issued prior to or after the
date hereof which, in either case, results in a reduction in the exercise or
purchase price with respect to such security or rights or results in an increase
in the number of Additional Shares of Stock obtainable under such Convertible
Security, right, option or warrant, then an adjustment shall be made to the
Exercise Price hereunder. Any such adjustment pursuant to this Section 5.7
shall be whichever of the following results in a lower Exercise Price: (A) a
reduction in the Exercise Price equal to the percentage reduction in such
exercise or purchase price with respect to such Convertible Security, right,
option or warrant or (B) a reduction in the Exercise Price which will result in
the same percentage increase in the number of Warrant Shares available hereunder
as the percentage increase in the number of Additional Shares of Stock available
under such Convertible Security, right, option or warrant. Any such adjustment
under this Section 5.7 shall only be made if it would result in a lower Exercise
Price than that which would be determined pursuant to any other antidilution
adjustment otherwise required hereunder as a result of the event or circumstance
which triggered the adjustment to such Convertible Security, right, option or
warrant, and if an adjustment is made pursuant to this Section 5.7, such other
antidilution adjustment otherwise required hereunder shall not be made as a
result of such event or circumstance.
5.8. Other Provisions Applicable to Adjustments under this Section. The
-------------------------------------------------------------
following provisions shall be applicable to the making of adjustments of the
Warrant Shares for which this Warrant is exercisable and the Exercise Price at
which such Warrant Shares may be purchased upon exercise of this Warrant
provided for in this Section 5:
-10-
<PAGE>
(a) Computation of Consideration. To the extent that any Additional
Shares of Stock or any Convertible Securities or any warrants or other rights
to subscribe for or purchase any Additional Shares of Stock or any
Convertible Securities shall be issued for cash consideration, the
consideration received by the Company therefor shall be the amount of the
cash received by the Company therefor, or, if such Additional Shares of Stock
or Convertible Securities are offered by the Company for subscription, the
subscription price, or, if such Additional Shares of Stock or Convertible
Securities are sold to underwriters or dealers for public offering without a
subscription offering, the public offering price (in any such case
subtracting any amounts paid or receivable for accrued interest or accrued
dividends and any compensation, discounts or expenses paid or incurred by the
Company for and in the underwriting of, or otherwise in connection with, the
issuance thereof). To the extent that such issuance shall be for a
consideration other than cash, then except as herein otherwise expressly
provided, the amount of such consideration shall be deemed to be the fair
value of such consideration at the time of such issuance as determined in
good faith by the Board of Directors of the Company. In case any Additional
Shares of Stock or any Convertible Securities or any warrants or other rights
to subscribe for or purchase such Additional Shares of Stock or Convertible
Securities shall be issued in connection with any merger in which the Company
issues any securities, the amount of consideration therefor shall be deemed
to be the fair value, as determined in good faith by the Board of Directors
of the Company, of such portion of the assets and business of the
nonsurviving corporation as such Board in good faith shall determine to be
attributable to such Additional Shares of Stock, Convertible Securities,
warrants or other rights, as the case may be. The consideration for any
Additional Shares of Stock issuable pursuant to any warrants or other rights
to subscribe for or purchase the same shall be the consideration received by
the Company for issuing such warrants or other rights plus the additional
consideration payable to the Company upon exercise of such warrants or other
rights. The consideration for any Additional Shares of Stock issuable
pursuant to the terms of any Convertible Securities shall be the
consideration received by the Company for issuing warrants or other rights to
subscribe for or purchase such Convertible Securities, plus the consideration
paid or payable to the Company in respect of the subscription for or purchase
of such Convertible Securities, plus the additional consideration, if any,
payable to the Company upon the exercise of the right of conversion or
exchange in such Convertible Securities. In case of the issuance at any time
of any Additional Shares of Stock or Convertible Securities in payment or
satisfaction of any dividends upon any class of stock other than Stock, the
Company shall be deemed to have received for such Additional Shares of Stock
or Convertible Securities a consideration equal to the amount of such
dividend so paid or satisfied.
(b) When Adjustments to Be Made. The adjustments required by this Section
---------------------------
5 shall be made whenever and as often as any event requiring an adjustment
shall occur, except that any adjustment of the Warrant Shares for which this
Warrant is exercisable that would otherwise be required may be postponed
(except in the case of a subdivision or combination of shares of the Stock,
as provided for in Section 5.2) up to, but not beyond the date of exercise if
such adjustment either by itself or with other adjustments not previously
made adds or subtracts less than l% of the shares of the Stock for which this
Warrant is exercisable immediately prior to the making of such adjustment.
Any adjustment representing a change of less than such minimum amount (except
as aforesaid) which is postponed shall be carried forward and made as soon as
such adjustment, together with other adjustments required by this Section 5
and not previously made, would result in a minimum adjustment or on the date
of exercise. For the purpose of any adjustment, any event shall be deemed to
have occurred at the close of business on the date of its occurrence.
-11-
<PAGE>
(c) Fractional Interests. In computing adjustments under this Section 5,
fractional interests in the Stock shall be taken into account to the nearest
1/10th of a share.
(d) When Adjustment Not Required. If the Company shall take a record of
----------------------------
the holders of the Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally
abandon its plan to pay or deliver such dividend, distribution, subscription
or purchase rights, then thereafter no adjustment shall be required by reason
of the taking of such record and any such adjustment previously made in
respect thereof shall be rescinded and annulled.
(e) Challenge to Good Faith Determination. Whenever the Board of
-------------------------------------
Directors of the Company shall be required to make a determination in good
faith of the fair value of any item under this Section 5, such determination
may be challenged in good faith by a Holder and any dispute shall be resolved
by an investment banking firm of recognized national standing selected by the
Company and acceptable to such Holder. The fees of such investment banker
shall be borne by the Holder if the Company's calculation is determined to be
correct and otherwise by the Company.
(f) Escrow of Property. If the Company shall take a record of the holders
of its Stock for the purpose of entitling them to receive any distribution of
any kind of property whatsoever, but prior to the payment of such
distribution the Holder exercises this Warrant, upon payment of the Exercise
Price, such property shall be held in escrow for the Holder by the Company to
be issued to the Holder upon the occurrence of such distribution and to the
extent such distribution actually takes place. Notwithstanding any other
provision to the contrary herein, if the distribution for which such record
was taken fails to occur or is rescinded, then such escrowed property shall
be returned to the Company.
-12-
<PAGE>
5.9. Reorganization, Reclassification, Merger or Consolidation. If the
---------------------------------------------------------
Company shall at any time reorganize or reclassify the outstanding shares of
Stock (other than a change in par value, or from no par value to par value, or
from par value to no par value, or as a result of a subdivision or combination)
or consolidate with or merge into another corporation (where the Company is not
the continuing corporation after such merger or consolidation), the Holders
shall thereafter be entitled to receive upon exercise of this Warrant in whole
or in part, the same kind and number of shares of stock and other securities,
cash or other property (and upon the same terms and with the same rights) as
would have been distributed to the Holder upon such reorganization,
reclassification, consolidation or merger had the Holder exercised this Warrant
immediately prior to such reorganization, reclassification, consolidation or
merger (subject to subsequent adjustments under Section 5 hereof). The Holders
shall pay upon such exercise the Exercise Price that otherwise would have been
payable pursuant to the terms of this Warrant. If any such reorganization,
reclassification, consolidation or merger results in a cash distribution in
excess of the Exercise Price provided by this Warrant, a Holder may, at the
Holder's option, exercise this Warrant without making payment of the Exercise
Price, and in such case the Company shall, upon distribution to the Holder,
consider the Exercise Price to have been paid in full, and in making settlement
to the Holder, shall deduct an amount equal to the Exercise Price from the
amount payable to the Holder. Notwithstanding anything herein to the contrary,
the Company will not effect any such reorganization, reclassification, merger or
consolidation unless prior to the consummation thereof, the corporation who may
be required to deliver any stock, securities or other assets upon the exercise
of this Warrant shall agree by an instrument in writing to deliver such stock,
cash, securities or other assets to the Holder. A sale, transfer or lease of all
or substantially all of the assets of the Company to another person shall be
deemed a reorganization, reclassification, consolidation or merger for the
foregoing purposes.
5.10. Exceptions to Adjustment of Exercise Price and/or Warrant Shares.
----------------------------------------------------------------
Anything herein to the contrary notwithstanding, the Company shall not make any
adjustment of the Exercise Price or the Warrant Shares issuable upon the
exercise of this Warrant in the case of (i) the issuance of the Warrants or any
other Warrants at any time issued in connection with the Warrant Agreement or
the issuance of shares of the Stock upon exercise of any such Warrants, (ii) the
issuance of shares of Stock to holders of the Company's Preferred Stock upon
conversion of all or any portion of their shares of Preferred Stock, (iii) the
issuance of the Preferred Stock Warrants or the issuance of the shares of Stock
upon exercise of such Preferred Stock Warrants or (iv) the issuance of the
Performance Warrants or the issuance of the shares of Stock upon exercise of
such Performance Warrants.
5.11. Chief Financial Officer's Opinion. Upon each adjustment of the
---------------------------------
Exercise Price and upon each change in the Warrant Shares issuable upon the
exercise of this Warrant, and in the event of any change in the rights of a
Holder by reason of other events herein set forth, then and in each such case,
-13-
<PAGE>
the Company will promptly obtain an opinion of the chief financial officer of
the Company, stating the adjusted Exercise Price and the new Warrant Shares so
issuable, or specifying the other shares of the Stock, securities or assets and
the amount thereof receivable as a result of such change in rights, and setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based. The Company will promptly mail a copy of such
opinion to the Holders. If a Holder disagrees with such calculation, the Company
agrees to obtain within thirty (30) business days an opinion of a firm of
independent certified public accountants selected by the Company's Board of
Directors and acceptable to such Holder to review such calculation and the
opinion of such firm of independent certified public accountants shall be final
and binding on the parties and shall be conclusive evidence of the correctness
of the computation with respect to any such adjustment of the Exercise Price and
any such change in the number of Warrant Shares so issuable. The fees of such
accountants shall be borne by the Holder if the Company's calculation is
determined by such accountants to be correct and otherwise by the Company.
5.12. Company to Prevent Dilution. In case at any time or from time to
---------------------------
time conditions arise by reason of action taken by the Company, which in the
good faith opinion of its Board of Directors or a majority of the Holders are
not adequately covered by the provisions of this Section 5, and which might
materially and adversely affect the exercise rights of the Holders, the Board of
Directors of the Company shall appoint such firm of independent certified public
accountants acceptable to a majority of the Holders, which shall give their
opinion upon the adjustment, if any, on a basis consistent with the standards
established in the other provisions of this Section 5, necessary with respect to
the Exercise Price, so as to preserve, without dilution (other than as
specifically contemplated by this Warrant), the exercise rights of the Holders.
Upon receipt of such opinion, the Board of Directors of the Company shall
forthwith make the adjustments described therein.
Section 6. Character of Shares of Stock.
----------------------------
All shares of the Stock issuable upon the exercise of this Warrant shall, when
issued to a Holder, be duly authorized, validly issued, fully paid and
nonassessable, free and clear of any lien or encumbrance and without any
preemptive rights.
Section 7. Notice to Holder.
----------------
So long as this Warrant shall be outstanding, (i) if the Company shall pay any
dividend or make any distribution upon the Stock otherwise than in cash, (ii) if
the Company shall offer to the holders of Stock, for subscription or purchase by
them, any shares of any class of stock of the Company or any other rights or
(iii) if there shall be any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company, voluntary or
involuntary dissolution, liquidation or winding up of the Company, then in any
such event, the Company shall cause to be mailed by certified
-14-
<PAGE>
mail to each Holder, at least 30 days prior to the event described above, a
notice containing a brief description of the proposed action and stating the
date or expected date on which a record is to be taken for the purpose of such
dividend, distribution or rights, or the date or expected date such
reclassification, reorganization, consolidation, merger, conveyance, lease or
transfer, dissolution, liquidation or winding up shall take place or be voted
upon by holders of the Stock of record, and the date or expected date as of
which the holders of Stock of record shall be entitled to exchange their shares
of Stock for securities or other property deliverable upon any such event.
Section 8. Disposition of Warrant Shares.
-----------------------------
The stock certificates of the Company that will evidence the Warrant Shares or
any other security issued or issuable upon exercise of this Warrant will be
imprinted with a conspicuous legend in substantially the following form:
The securities represented by this Certificate have not been registered
under the Securities Act of 1933 (the "Act") or any applicable state
securities laws and may not be sold, pledged, hypothecated, donated or
otherwise transferred (whether or not for consideration) unless registered
under the Act and any applicable state securities laws or in a transaction
exempt from such registrations.
Except as provided in the Registration Rights Agreement, the Company does not
agree to register any of the Warrant Shares for distribution in accordance with
the provisions of the Act or any applicable state securities laws, and the
Company has not agreed to comply with any exemption from registration under the
Act or any applicable state securities laws for the resale of the Warrant
Shares. Hence, it is the understanding of the Holder that by virtue of the
provisions of certain rules respecting "restricted securities" promulgated by
---------------------
the Securities and Exchange Commission, the Warrant Shares may be required to be
held indefinitely, unless and until registered under the Act and any applicable
state securities laws unless an exemption from such registration is available,
in which case the Holders may still be limited as to the number of Warrant
Shares that may be sold.
-15-
<PAGE>
Section 9. Governing Law.
-------------
This Warrant shall be construed in accordance with the laws of the State of
Georgia applicable to contracts executed and to be performed wholly within such
state without regard to any conflicts of laws principles.
Section 10. Notice.
------
Any notice, demand, document or other communication given or delivered
hereunder shall be in writing, and may be (i) personally delivered, (ii) given
or made by United States registered or certified mail, return receipt requested,
postage prepaid, or (iii) given or made by overnight courier, delivery charges
prepaid, addressed as follows:
If to the Company: Harry's Farmers Market, Inc.
- ------------------
1180 Upper Hembree Road
Roswell, GA 30076
Attention: Chief Financial Officer
With a Copy to: Nelson, Mullins, Riley & Scarborough, L.L.P.
- ---------------
400 Colony Square, Suite 2200
1201 Peachtree Street, Suite 2200
Atlanta, Georgia 30361
Attention: John Latham, Esq.
If to Creditanstalt: Creditanstalt-Bankverein
- --------------------
245 Park Avenue
New York, New York 10167
Attention: Dennis O'Dowd
With a Copy to: Creditanstalt-Bankverein
- ---------------
Two Ravinia Drive, N.E.
Suite 1680
Atlanta, Georgia 30346
Attention: Robert M. Biringer and Joseph Longosz
With a copy to: Troutman Sanders
- --------------
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308
Attention: Hazen Dempster, Esq.
-16-
<PAGE>
The Company and the Holder shall each have the right to designate a different
address for itself by notice similarly given. All such notices, demands,
documents or other communication will be deemed to be delivered (i) upon
receipt, if personally delivered, (ii) on the third full Business Day following
the day of mailing, if sent by United States registered or certified mail and
(iii) on the Business Day following the date it was sent, if sent by overnight
courier.
Section 11. Remedies.
--------
The Company stipulates that the remedies at law of the Holder in the event of
any default or threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant are not and will not be
adequate, and that such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise, in addition to any
other remedies which may be available at law or in equity.
Section 12. Company Will Avoid Certain Actions.
----------------------------------
The Company will not, by amendment of its certificate of incorporation or
through any reorganization, transfer of assets, consolidation, merger, issue or
sale of securities or otherwise, avoid or take any action which would have the
effect of avoiding the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in carrying out all of the provisions of this Warrant Certificate
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holder of this Warrant Certificate against dilution
or other impairment, and in particular, will not cause the par value, if any, of
any share of Stock, to be or become greater than the then effective Exercise
Price.
Section 13. Company Will Not Close Books.
----------------------------
The Company will at no time close its transfer books against the transfer of
this Warrant or of any shares of Stock issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant.
Section 14. Successors and Assigns.
----------------------
This Warrant and the rights evidenced hereby shall inure to the benefit of and
be binding upon the successors of the Company and the successors and assigns of
the Holders hereof. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder.
-17-
<PAGE>
Section 15. Amendment.
---------
This Warrant Certificate may be modified or amended and any provision hereof
may be waived by a writing executed by the Company and holders of Warrants
representing a majority of the Warrant Shares obtainable upon exercise of the
Warrants.
Section 16. Headings.
--------
Section headings in this Warrant are for reference only and shall not affect
the meaning or construction of any of the provisions hereof.
[Signature on following page]
-18-
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first
written above.
HARRY'S FARMERS MARKET, INC.
By: ----------------------------
Name:
Title:
-19-
<PAGE>
ANNEX A
FORM OF SUBSCRIPTION
--------------------
(To be executed only upon exercise of the Warrant in whole or in part)
To HARRY'S FARMERS MARKET, INC.
The undersigned registered holder of the accompanying Warrant hereby
irrevocably exercises such Warrant or portion thereof for, and purchases
thereunder, _______/3/ Warrant Shares (as defined in such Warrant) and herewith
makes payment therefor of $________. The undersigned requests that the
certificates for such Warrant Shares be issued in the name of, and delivered to
________________________________, whose address is __________________________.
Dated:
--------------------------------------
(Name must conform to name of holder as
specified on the face of the Warrant)
--------------------------------------
(Street Address)
---------------------------------------
(City) (State) (Zip Code)
- ------------
/3/ Insert the number of Warrant Shares as to which this Warrant is being
exercised. In the case of a partial exercise, a new Warrant or Warrants will be
issued and delivered, representing the unexercised portion of this Warrant, to
the holder surrendering the same.
-20-
<PAGE>
ANNEX B
FORM OF ASSIGNMENT
------------------
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers unto
_______________________________ [Name] of ____________________[Address] the
right represented by the within Warrant to purchase _________ shares of Class A
Common Stock of HARRY'S FARMERS MARKET, INC. to which the within Warrant
relates, and appoints _____________ Attorney to transfer such right on the books
of HARRY'S FARMERS MARKET, INC. with full power of substitution in the premises.
Dated: ________________
--------------------------------------
(Name must conform to name of holder as
specified on the face of the Warrant)
--------------------------------------
(Street Address)
--------------------------------------
(City) (State) (Zip Code)
Signed in the presence of:
- ----------------------------------
-21-
<PAGE>
ANNEX C
FORM OF CONVERSION NOTICE
-------------------------
(To be executed only upon conversion of the Warrant in whole or in part)
To HARRY'S FARMERS MARKET, INC.
The undersigned registered holder of the accompanying Warrant hereby
irrevocably elects to exercise its right to convert such Warrant or portion
thereof into _______/4/ Warrant Shares (as defined in such Warrant). The
undersigned requests that the certificates for such Warrant Shares be issued in
the name of, and delivered to ________________________________, whose address is
_________________________________.
Dated:
--------------------------------------
(Name must conform to name of holder as
specified on the face of the Warrant)
--------------------------------------
(Street Address)
--------------------------------------
(City) (State) (Zip Code)
- ----------
/4/ Insert the number of Warrant Shares as to which this Warrant is being
exercised. In the case of a partial exercise, a new Warrant or Warrants will be
issued and delivered, representing the unexercised portion of this Warrant, to
the holder surrendering the same.
-22-
<PAGE>
WARRANT CERTIFICATE
-------------------
NEITHER THE WARRANT REPRESENTED BY THIS CERTIFICATE NOR THE CLASS A COMMON STOCK
ISSUABLE UPON THE EXERCISE HEREOF HAS BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND NEITHER MAY BE
SOLD OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAW UNLESS AN EXEMPTION FROM REGISTRATION IS THEN
AVAILABLE.
WARRANT TO PURCHASE CLASS A COMMON STOCK
OF
HARRY'S FARMERS MARKET, INC.
Date: May 8, 1996
This is to certify that, FOR VALUE RECEIVED, the registered holder hereof,
CREDITANSTALT-BANKVEREIN ("Creditanstalt", and together with any successors and
-------------
assigns hereunder, the "Holder" or the "Holders"), is entitled to purchase,
------ -------
subject to the provisions of this Warrant Certificate, from HARRY'S FARMERS
MARKET, INC., a Georgia corporation (the "Company"), 48,000 shares (as such
-------
number may be adjusted in accordance with Section 5 hereof) of the Company's
Class A Common Stock, no par value per share (such class of stock, together with
any capital stock of the Company into which such class of stock shall be
converted, being referred to herein as "Stock"), at $6.00 per share (as such
-----
number may be adjusted in accordance with Section 5 hereof) (the "Exercise
--------
Price"). The number of shares of Stock to be received upon the exercise of this
- -----
Warrant and the Exercise Price shall be adjusted from time to time as
hereinafter set forth. The shares of Stock or other securities or property
deliverable upon such exercise, as adjusted from time to time, are hereinafter
sometimes referred to as "Warrant Shares."
--------------
This Warrant Certificate is one of the Warrant Certificates (the "Warrants",
--------
which term includes all Warrants issued in substitution therefor) originally
issued in connection with the amendment and restatement on May 8, 1996 of the
Warrant Agreement dated as of December 30, 1994 (as amended, restated,
supplemented or otherwise modified from time to time, the "Warrant Agreement").
-----------------
The Warrants so issued in connection with such amendment and restatement
evidence rights to purchase an aggregate of 120,000 Warrant Shares at the
Exercise Price. This Warrant is subject to the provisions, and is entitled to
the benefits, of the Warrant Agreement.
-1-
<PAGE>
Section 1. Exercise of Warrant.
-------------------
1.1. Manner of Exercise. (a) This Warrant may be exercised by the Holder, in
------------------
whole or in part, at any time or from time to time through and including the
sixth (6th) anniversary of the date hereof (the "Expiration Date") during normal
---------------
business hours on any Business Day (as defined in the Warrant Agreement) by
surrender of this Warrant, together with the form of subscription duly executed
by such Holder in substantially the form attached as Annex A hereto, to the
Company at its office designated pursuant to Section 7.1 of the Warrant
Agreement (or, if such exercise is in connection with an underwritten public
offering of Warrant Shares subject to this Warrant, at the location at which the
underwriting agreement requires that such Warrant Shares be delivered).
(b) Payment of the Exercise Price for the Warrant Shares, if required, shall
be made, at the option of the Holder by certified or bank check or wire transfer
payable to the order of the Company, in any case, in an amount equal to (A) the
number of Warrant Shares specified in such form of subscription, multiplied by
(B) the then current Exercise Price. The Holder shall thereupon be entitled to
receive the number of Warrant Shares specified in such form of subscription
(plus cash in lieu of any fractional share as provided in Section 1.3 hereof).
(c) In lieu of exercising Warrants pursuant to the immediately preceding
clause (a), the Holder shall have the right to require the Company to convert
the Warrants, in whole or in part and at any time or times (the "Conversion
Right"), into Warrant Shares, by surrendering to the Company the Warrant
Certificate evidencing the Warrants to be converted, accompanied by a conversion
notice duly executed by the Holder substantially in the form of Annex C hereto.
Upon exercise of the Conversion Right, the Company shall deliver to the Holder
(without payment by the Holder of any Exercise Price) that number of Warrant
- --------
Shares which is equal to the quotient obtained by dividing (x) the value of the
number of Warrants being converted at the time the Conversion Right is exercised
(determined by subtracting the aggregate Exercise Price for all such Warrants
immediately prior to the exercise of the Conversion Right from the aggregate
current Market Price of that number of Warrant Shares purchasable upon exercise
of such Warrants immediately prior to the exercise of the Conversion Right
(taking into account all applicable adjustments pursuant to Section 5 hereof))
by (y) the Market Price of one share of Stock immediately prior to the exercise
of the Conversion Right. Any references in this Warrant Certificate or the
Warrant Agreement to the "exercise" of any Warrants, and the use of the term
"exercise" herein and thereon, shall be deemed to include (without limitation)
any exercise of the Conversion Right.
-2-
<PAGE>
1.2. Effective Date. Each exercise of this Warrant pursuant to Section
--------------
1.1 hereof shall be deemed to have been effected immediately prior to the close
of business on the Business Day on which this Warrant is surrendered to the
Company as provided in Section 1.1 hereof (except that if such exercise is in
connection with an underwritten public offering of Warrant Shares subject to
this Warrant, then such exercise shall be deemed to have been effected upon such
surrender of this Warrant). On each such day that an exercise of this Warrant
is deemed effected, the person or persons in whose name or names any certificate
or certificates for Warrant Shares are issuable upon such exercise (as provided
in Section 1.3 hereof) shall be deemed to have become the Holder or Holders of
record thereof.
1.3. Warrant Share Certificates, Cash for Fractional Warrant Shares and
------------------------------------------------------------------
Reissuance of Warrants. As promptly as practicable after the exercise of this
- ----------------------
Warrant, in whole or in part, and in any event within five (5) Business Days
thereafter (unless such exercise shall be in connection with a public offering
of Warrant Shares subject to this Warrant, in which event concurrently with such
exercise), the Company at its expense (including the payment by it of any
applicable issue, stamp or other taxes) will cause to be issued in the name of
and delivered to the Holder or, subject to Section 6 of the Warrant Agreement,
such other person as the Holder may direct:
(a) a certificate or certificates for the number of Warrant Shares to
which the Holder shall be entitled upon such exercise plus, in lieu of any
fractional share to which the Holder would otherwise be entitled, cash in an
amount equal to the same fraction of the Market Price (as defined in Section
5.1 hereof) per Warrant Share on the effective date of such exercise; and
(b) in case such exercise is in part only, a new Warrant or Warrants,
substantially identical hereto, representing the rights formerly represented
by this Warrant which have not expired or been exercised.
1.4. Acknowledgment of Obligation. The Company will, at the time of or at any
----------------------------
time after each exercise of this Warrant, upon the request of the Holder hereof
or of any Warrant Shares issued upon such exercise, acknowledge in writing its
continuing obligation to afford to such Holder all rights (including, without
limitation, any rights to registration of any such Warrant Shares pursuant to
the Registration Rights Annex of the Warrant Agreement (the "Registration
Rights Agreement")) to which such Holder shall continue to be entitled under
this Warrant Certificate, the Warrant Agreement and the Registration Rights
Agreement; provided, that if any such Holder shall fail to make any such
--------
request, the failure shall not affect the continuing
obligation of the Company to afford such rights to such Holder.
1.5. Conditional Exercise. Notwithstanding any other provision hereof, if any
--------------------
exercise of any portion of this Warrant is to be made in connection with a
public offering of Warrant Shares or any transaction described in Section 5.9
hereof, the exercise of any portion of this Warrant may, at the election of the
Holder, be conditioned upon the consummation of the public offering or such
transaction, in which case such exercise shall not be deemed to be effective
until the consummation of such public offering or transaction.
-3-
<PAGE>
Section 2. Reservation of Shares.
---------------------
The Company shall at all times after the date hereof and until the Expiration
Date reserve for issuance and delivery upon exercise of this Warrant the number
of Warrant Shares as shall be required for issuance and delivery upon exercise
in full of this Warrant.
Section 3. Transfer, Exchange, Assignment or Loss of Warrant.
-------------------------------------------------
3.1. Transfer. This Warrant may be assigned in whole or in part or
--------
transferred in whole or in part; subject, however, to compliance with the
provisions of the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (the "Act").
3.2. Procedure for Assignment or Transfer. Any assignment or transfer
------------------------------------
hereunder shall be made by surrender of this Warrant to the Company at its
office designated pursuant to Section 7.1 of the Warrant Agreement, together
with the form of assignment duly executed by the Holder in substantially the
form attached as Annex B hereto and funds sufficient to pay any required
transfer tax. In such event the Company shall, without charge, execute and
deliver a new Warrant or Warrants substantially identical hereto in the name of
the assignee or assignees named in such instrument of assignment and designate
the assignee or assignees as the registered holder or holders on the Company's
records and this Warrant shall promptly be cancelled. This Warrant may be
divided or combined with other Warrants which carry the same rights upon
presentation thereof at the principal office of the Company together with a
written notice signed by the holder thereof, specifying the names and
denominations in which new Warrants are to be issued.
3.3. Loss, Theft, Destruction or Mutilation. Upon receipt by the Company of
--------------------------------------
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification to the Company or (in the case of mutilation)
presentation of this Warrant for surrender and cancellation, the Company will
execute and deliver a new Warrant identical hereto and any such lost, stolen,
destroyed or mutilated Warrant shall thereupon become void.
Section 4. Warrant Certificate Holder Not Deemed a Stockholder.
---------------------------------------------------
Except as otherwise provided herein, the Holders shall not, solely because of
holding this Warrant, be entitled to vote, receive dividends or be deemed the
holder of Stock or any other securities of the Company which may at any time be
issuable on the exercise of the Warrant for any purpose whatsoever, nor shall
anything contained herein be construed to confer upon the Holders, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matters submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance of stock, reclassification of stock, change
of par value or change of stock to no par value, consolidation, merger,
conveyance or otherwise), or to receive notice of meetings or other actions
affecting stockholders, or to receive dividend or subscription rights, or
otherwise, until this Warrant shall have been exercised in accordance with the
provisions hereof.
-4-
<PAGE>
Section 5. Anti-Dilution.
-------------
The number of Warrant Shares for which this Warrant is exercisable and/or the
Exercise Price at which such Warrant Shares may be purchased upon exercise of
this Warrant shall be subject to adjustment from time to time as set forth in
this Section 5. The Company shall give the Holders notice of any event described
below which requires an adjustment pursuant to this Section 5 at the time of
such event.
5.1. Special Definitions. For purposes of this Section 5 the following terms
-------------------
shall have the following meanings:
"Additional Shares of Stock" shall mean all shares of Stock issued by the
--------------------------
Company after the date hereof, other than (i) the Stock to be issued upon
exercise of any Warrants at any time issued in connection with the Warrant
Agreement, (ii) the Stock to be issued upon conversion of the Preferred Stock ,
(iii) the Stock to be issued upon exercise of the Preferred Stock Warrants; (iv)
the Stock to be issued upon exercise of the Performance Warrants, (v) 200,000
shares of Stock to be issued pursuant to the Company's 1996 Directors Stock
Option Plan, (vi) 475,000 shares of Stock to be issued pursuant to the Company's
Management Incentive Plan and (vii) 300,000 shares of Stock issued or to be
issued pursuant to the Company's 1996 Employee Stock Purchase Plan.
"Convertible Securities" shall mean evidences of indebtedness, shares of
----------------------
Preferred Stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
Additional Shares of Stock, either immediately or upon the occurrence of a
specified date or a specified event, other than the Preferred Stock issued
pursuant to the Share and Warrant Purchase Agreements dated December 30, 1994
between the Company, Robert Fleming Nominees Ltd., and certain other investors
(such Agreements to be referred to herein collectively as the "Purchase
--------
Agreements" and Robert Fleming Nominees Ltd. and such other investors to be
- ----------
referred to herein collectively as the "Purchasers".
----------
-5-
<PAGE>
"Market Price" shall mean, in respect of any share of Stock on the date of
------------
determination thereof, the average of the closing prices of sales of the Stock
on all principal United States securities exchanges on which the Stock may at
the time be listed, or, if there shall have been no sales on any such exchange
on any relevant day, the last trading price of such Stock on such day, or if
there is no such price, the average of the bid and asked prices at the end of
such day on the Nasdaq Stock Market, in each such case averaged for a period of
twenty (20) consecutive business days prior to the day as of which "Market
Price" is being determined. Notwithstanding the foregoing, with respect to the
issuance of Stock by the Company in an underwritten public offering, the Market
Price shall be the per share purchase price paid by the underwriters. If at any
time the Stock is not listed on any exchange or the Nasdaq Stock Market, the
"Market Price" shall be deemed to be the fair market value thereof determined by
an investment banking firm of nationally recognized standing selected by the
Board of Directors of the Company and acceptable to a majority of the Holders,
as of the most recent practicable date as of which the determination is to be
made, taking into account the value of the Company as a going concern, and
without taking into account any lack of liquidity of the Stock or any discount
for a minority interest.
"Performance Warrants" shall mean those performance warrants for 61,111 shares
--------------------
of Stock issued on December 30, 1994 to the Purchasers (as defined below).
"Preferred Stock" shall mean those shares of the Company's Series A Redeemable
---------------
Convertible Preferred Stock with a stated value of $9.00 per share.
"Preferred Stock Warrants" shall mean those warrants originally issued in
------------------------
connection with the issue and sale by the Company of its Preferred Stock
pursuant to the Purchase Agreements.
5.2. Stock Dividends, Subdivisions and Combinations.
----------------------------------------------
If at any time the Company shall:
(i) take a record of the holders of its Stock for the purpose of
entitling them to receive a dividend payable in, or other distribution of,
Additional Shares of Stock,
(ii) subdivide its outstanding shares of Stock into a larger number of
shares of Stock, or
(iii) combine its outstanding shares of Stock into a smaller number of
shares of Stock,
-6-
<PAGE>
then (I) the Warrant Shares for which this Warrant is exercisable immediately
after the occurrence of any such event shall be adjusted to equal the number of
shares of Stock which a record holder of the same number of shares of Stock for
which this Warrant is exercisable immediately prior to the occurrence of such
event would own or be entitled to receive after the happening of such event, and
(II) the Exercise Price shall be adjusted to equal (x) the Exercise Price
multiplied by the Warrant Shares for which this Warrant is exercisable
immediately prior to the adjustment divided by (y) the Warrant Shares for which
this Warrant is exercisable immediately after such adjustment.
5.3. Certain other Distributions. (a) Except as provided in Section 5.3(b), if
---------------------------
at any time the Company shall take a record of the holders of its Stock for the
purpose of entitling them to receive any dividend or other distribution of:
(i) cash,
(ii) any evidences of its indebtedness, any shares of its Stock or any
other securities or property of any nature whatsoever (other than cash or
Additional Shares of Stock), or
(iii) any warrants or other rights to subscribe for or purchase any
evidences of its indebtedness, any share of its Stock or any other securities
or property of any nature whatsoever (other than cash or Additional Shares of
Stock),
then, (I) the Warrant Shares for which this Warrant is exercisable shall be
adjusted to equal the product of the Warrant Shares for which this Warrant is
exercisable immediately prior to such adjustment multiplied by a fraction (x)
the numerator of which shall be the Market Price per share of Stock at the date
of taking such record and (y) the denominator of which shall be such Market
Price per share of Stock minus the amount allocable to one share of Stock of any
such cash so distributable and of the fair value (as determined in good faith by
the Board of Directors of the Company) of any and all such evidences of
indebtedness, shares of stock, other securities or property or warrants or other
subscription or purchase rights so distributable, and (II) the Exercise Price
shall be adjusted to equal (x) the Exercise Price multiplied by the Warrant
Shares for which this Warrant is exercisable immediately prior to the adjustment
divided by (y) the Warrant Shares for which this Warrant is exercisable
immediately after such adjustment. A reclassification of the Stock (other than a
change in par value, or from par value to no par value or from no par value to
par value) into shares of Stock and shares of any other class of stock shall be
deemed a distribution by the Company to the Holders of its Stock of such shares
of such other class of stock within the meaning of this Section 5.3 and, if the
outstanding shares of the Stock shall be changed into a larger or smaller number
of shares of the Stock as part of such reclassification, such change shall be
deemed a subdivision or combination, as the case may be, of the outstanding
shares of the Stock within the meaning of Section 5.2.
-7-
<PAGE>
(b) If at any time the Company shall take a record of the holders of its Stock
for the purpose of entitling them to receive any cash dividend or other
distribution of property of any nature whatsoever (other than Additional Shares
of Stock), and the amount of such cash dividend and the fair market value of any
property so distributed, when added to the amount of cash dividends paid and the
fair market value of any property so distributed during the twelve (12) months
prior to the date of such dividend or distribution, exceeds five percent (5%) of
the aggregate Market Price of the Stock of all of the Company's Stock then
outstanding on the Business Day immediately preceding the record date for such
dividend or distribution, the Holders of the Warrant shall be entitled to
participate in such dividend or distribution as if the Holder had already
exercised this Warrant in full, and such Holder shall receive, at the time such
dividend is paid or such property is distributed, the same kind and per-share
amount of cash or other property as is distributed to the holders of the
Company's Stock.
5.4. Issuance of Additional Shares of Stock. If at any time the Company shall
--------------------------------------
(except as hereinafter provided) issue or sell any Additional Shares of Stock
either (A) in exchange for consideration in an amount per Additional Share of
Stock less than the Exercise Price in effect immediately prior to such issuance
or sale of Additional Shares of Stock or (B) in exchange for consideration in an
amount per Additional Share of Stock less than the Market Price in effect
immediately prior to such issuance or sale of Additional Shares of Stock, then
the Exercise Price as to the Warrant Shares for which this Warrant is
exercisable immediately prior to such adjustment shall be adjusted to equal the
price determined by multiplying the Exercise Price
by a fraction, of which
(x) the numerator shall be (1) the number of shares of Stock outstanding
immediately prior to such issuance or sale of Additional Shares of Stock plus
(2) the number of shares of Stock which the aggregate amount of
consideration, if any, received by the Company for the total number of such
Additional Shares of Stock so issued or sold would purchase at the greater of
(I) the Market Price in effect immediately prior to such issuance or sale of
Additional Shares of Stock or (II) the Exercise Price in effect immediately
prior to such issuance or sale of Additional Shares of Stock and
(y) the denominator shall be the number of shares of Stock outstanding
immediately after such issuance or sale of Additional Shares of Stock;
-8-
<PAGE>
provided, however, that such adjustment shall be made only if the Exercise Price
determined from such adjustment shall be less than the Exercise Price in effect
immediately prior to the issuance of such Additional Shares of Stock. The
provisions of this Section 5.4 shall not apply to any issuance of Additional
Shares of Common Stock for which an adjustment is provided under Section 5.2 or
5.3.
5.5. Issuance of Warrants or Other Rights. If at any time the Company shall
------------------------------------
take a record of the holders of its Stock for the purpose of entitling them to
receive a distribution of, or shall in any manner (whether directly or by
assumption in a merger in which the Company is the surviving corporation) issue
or sell, any warrants or other rights to subscribe for or purchase any
Additional Shares of Stock or any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
consideration received for such warrants or other rights or such Convertible
Securities shall be less than the Exercise Price or the Market Price in effect
immediately prior to the time of such issue or sale, then the Exercise Price
shall be adjusted as provided in Section 5.4. No further adjustments of the
Exercise Price shall be made upon the actual issue of such Stock or of such
Convertible Securities upon exercise of such warrants or other rights or upon
the actual issue of such Stock upon such conversion or exchange of such
Convertible Securities.
5.6. Issuance of Convertible Securities. If at any time the Company shall
----------------------------------
take a record of the holders of its Stock for the purpose of entitling them to
receive a distribution of, or shall in any manner (whether directly or by
assumption in a merger in which the Company is the surviving corporation) issue
or sell, any Convertible Securities, whether or not the rights to convert
thereunder are immediately exercisable, and the consideration received for such
stock shall be less than the Exercise Price or the Market Price in effect
immediately prior to the time of such issue or sale, then the Exercise Price
shall be adjusted as provided in Section 5.4. No adjustment of the Exercise
Price shall be made under this Section 5.6 upon the issuance of any Convertible
Securities which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other rights
pursuant to Section 5.5. No further adjustments of the Exercise Price shall be
made upon the actual issue of such Stock upon conversion of such Convertible
Securities and, if any issue or sale of such Convertible Securities is made upon
exercise of any warrant or other right to subscribe for or to purchase any such
Convertible Securities for which adjustments of the Exercise Price have been or
are to be made pursuant to other provisions of this Section 5, no further
adjustments of the Exercise Price shall be made by reason of such issue or sale.
5.7. Antidilution Adjustments Under Other Securities. Without limiting any
-----------------------------------------------
other rights available hereunder to the Holders of the Warrants, if there is an
antidilution adjustment (i) under any Convertible Securities, whether issued
prior to or after the date hereof or (ii) under any rights, options or warrants
to purchase Additional Shares of Stock, whether issued prior to or after the
date hereof which, in either case, results in a reduction in the exercise or
purchase price with respect to such security or rights or results in an increase
in the number of Additional Shares of Stock obtainable under such Convertible
Security, right, option or warrant, then an adjustment shall be made to the
Exercise Price hereunder. Any such adjustment pursuant to this Section 5.7
shall be whichever of the following results in a lower Exercise Price: (A) a
reduction in the Exercise Price equal to the percentage reduction in such
exercise or purchase price with respect to such Convertible Security, right,
option or warrant or (B) a reduction in the Exercise Price which will result in
the same percentage increase in the number of Warrant Shares available hereunder
as the percentage increase in the number of Additional Shares of Stock available
under such Convertible Security, right, option or warrant. Any such adjustment
under this Section 5.7 shall only be made if it would result in a lower Exercise
Price than that which would be determined pursuant to any other antidilution
adjustment otherwise required hereunder as a result of the event or circumstance
which triggered the adjustment to such Convertible Security, right, option or
warrant, and if an adjustment is made pursuant to this Section 5.7, such other
antidilution adjustment otherwise required hereunder shall not be made as a
result of such event or circumstance.
-9-
<PAGE>
5.8. Other Provisions Applicable to Adjustments under this Section. The
-------------------------------------------------------------
following provisions shall be applicable to the making of adjustments of the
Warrant Shares for which this Warrant is exercisable and the Exercise Price at
which such Warrant Shares may be purchased upon exercise of this Warrant
provided for in this Section 5:
(a) Computation of Consideration. To the extent that any Additional
----------------------------
Shares of Stock or any Convertible Securities or any warrants or other rights
to subscribe for or purchase any Additional Shares of Stock or any
Convertible Securities shall be issued for cash consideration, the
consideration received by the Company therefor shall be the amount of the
cash received by the Company therefor, or, if such Additional Shares of Stock
or Convertible Securities are offered by the Company for subscription, the
subscription price, or, if such Additional Shares of Stock or Convertible
Securities are sold to underwriters or dealers for public offering without a
subscription offering, the public offering price (in any such case
subtracting any amounts paid or receivable for accrued interest or accrued
dividends and any compensation, discounts or expenses paid or incurred by the
Company for and in the underwriting of, or otherwise in connection with, the
issuance thereof). To the extent that such issuance shall be for a
consideration other than cash, then except as herein otherwise expressly
provided, the amount of such consideration shall be deemed to be the fair
value of such consideration at the time of such issuance as determined in
good faith by the Board of Directors of the Company. In case any Additional
Shares of Stock or any Convertible Securities or any warrants or other rights
to subscribe for or purchase such Additional Shares of Stock or Convertible
Securities shall be issued in connection with any merger in which the Company
issues any securities, the amount of consideration therefor shall be deemed
to be the fair value, as determined in good faith by the Board of Directors
of the Company, of such portion of the assets and business of the
nonsurviving corporation as such Board in good faith shall determine to be
attributable to such Additional Shares of Stock, Convertible Securities,
warrants or other rights, as the case may be. The consideration for any
Additional Shares of Stock issuable pursuant to any warrants or other rights
to subscribe for or purchase the same shall be the consideration received by
the Company for issuing such warrants or other rights plus the additional
consideration payable to the Company upon exercise of such warrants or other
rights. The consideration for any Additional Shares of Stock issuable
pursuant to the terms of any Convertible Securities shall be the
consideration received by the Company for issuing warrants or other rights to
subscribe for or purchase such Convertible Securities, plus the consideration
paid or payable to the Company in respect of the subscription for or purchase
of such Convertible Securities, plus the additional consideration, if any,
payable to the Company upon the exercise of the right of conversion or
exchange in such Convertible Securities. In case of the issuance at any time
of any Additional Shares of Stock or Convertible Securities in payment or
satisfaction of any dividends upon any class of stock other than Stock, the
Company shall be deemed to have received for such Additional Shares of Stock
or Convertible Securities a consideration equal to the amount of such
dividend so paid or satisfied.
-10-
<PAGE>
(b) When Adjustments to Be Made. The adjustments required by this Section
---------------------------
5 shall be made whenever and as often as any event requiring an adjustment
shall occur, except that any adjustment of the Warrant Shares for which this
Warrant is exercisable that would otherwise be required may be postponed
(except in the case of a subdivision or combination of shares of the Stock,
as provided for in Section 5.2) up to, but not beyond the date of exercise if
such adjustment either by itself or with other adjustments not previously
made adds or subtracts less than l% of the shares of the Stock for which this
Warrant is exercisable immediately prior to the making of such adjustment.
Any adjustment representing a change of less than such minimum amount (except
as aforesaid) which is postponed shall be carried forward and made as soon as
such adjustment, together with other adjustments required by this Section 5
and not previously made, would result in a minimum adjustment or on the date
of exercise. For the purpose of any adjustment, any event shall be deemed to
have occurred at the close of business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments under this Section 5,
--------------------
fractional interests in the Stock shall be taken into account to the nearest
1/10th of a share.
(d) When Adjustment Not Required. If the Company shall take a record of
----------------------------
the holders of the Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally
abandon its plan to pay or deliver such dividend, distribution, subscription
or purchase rights, then thereafter no adjustment shall be required by reason
of the taking of such record and any such adjustment previously made in
respect thereof shall be rescinded and annulled.
-11-
<PAGE>
(e) Challenge to Good Faith Determination. Whenever the Board of
-------------------------------------
Directors of the Company shall be required to make a determination in good
faith of the fair value of any item under this Section 5, such determination
may be challenged in good faith by a Holder and any dispute shall be resolved
by an investment banking firm of recognized national standing selected by the
Company and acceptable to such Holder. The fees of such investment banker
shall be borne by the Holder if the Company's calculation is determined to be
correct and otherwise by the Company.
(f) Escrow of Property. If the Company shall take a record of the holders
------------------
of its Stock for the purpose of entitling them to receive any distribution of
any kind of property whatsoever, but prior to the payment of such
distribution the Holder exercises this Warrant, upon payment of the Exercise
Price, such property shall be held in escrow for the Holder by the Company to
be issued to the Holder upon the occurrence of such distribution and to the
extent such distribution actually takes place. Notwithstanding any other
provision to the contrary herein, if the distribution for which such record
was taken fails to occur or is rescinded, then such escrowed property shall
be returned to the Company.
5.9. Reorganization, Reclassification, Merger or Consolidation. If the
---------------------------------------------------------
Company shall at any time reorganize or reclassify the outstanding shares of
Stock (other than a change in par value, or from no par value to par value, or
from par value to no par value, or as a result of a subdivision or combination)
or consolidate with or merge into another corporation (where the Company is not
the continuing corporation after such merger or consolidation), the Holders
shall thereafter be entitled to receive upon exercise of this Warrant in whole
or in part, the same kind and number of shares of stock and other securities,
cash or other property (and upon the same terms and with the same rights) as
would have been distributed to the Holder upon such reorganization,
reclassification, consolidation or merger had the Holder exercised this Warrant
immediately prior to such reorganization, reclassification, consolidation or
merger (subject to subsequent adjustments under Section 5 hereof). The Holders
shall pay upon such exercise the Exercise Price that otherwise would have been
payable pursuant to the terms of this Warrant. If any such reorganization,
reclassification, consolidation or merger results in a cash distribution in
excess of the Exercise Price provided by this Warrant, a Holder may, at the
Holder's option, exercise this Warrant without making payment of the Exercise
Price, and in such case the Company shall, upon distribution to the Holder,
consider the Exercise Price to have been paid in full, and in making settlement
to the Holder, shall deduct an amount equal to the Exercise Price from the
amount payable to the Holder. Notwithstanding anything herein to the contrary,
the Company will not effect any such reorganization, reclassification, merger or
consolidation unless prior to the consummation thereof, the corporation who may
be required to deliver any stock, securities or other assets upon the exercise
of this Warrant shall agree by an instrument in writing to deliver such stock,
cash, securities or other assets to the Holder. A sale, transfer or lease of
all or substantially all of the assets of the Company to another person shall be
deemed a reorganization, reclassification, consolidation or merger for the
foregoing purposes.
-12-
<PAGE>
5.10. Exceptions to Adjustment of Exercise Price and/or Warrant Shares.
----------------------------------------------------------------
Anything herein to the contrary notwithstanding, the Company shall not make any
adjustment of the Exercise Price or the Warrant Shares issuable upon the
exercise of this Warrant in the case of (i) the issuance of the Warrants or any
other Warrants at any time issued in connection with the Warrant Agreement or
the issuance of shares of the Stock upon exercise of any such Warrants, (ii) the
issuance of shares of Stock to holders of the Company's Preferred Stock upon
conversion of all or any portion of their shares of Preferred Stock, (iii) the
issuance of the Preferred Stock Warrants or the issuance of the shares of Stock
upon exercise of such Preferred Stock Warrants or (iv) the issuance of the
Performance Warrants or the issuance of the shares of Stock upon exercise of
such Performance Warrants.
5.11. Chief Financial Officer's Opinion. Upon each adjustment of the
---------------------------------
Exercise Price and upon each change in the Warrant Shares issuable upon the
exercise of this Warrant, and in the event of any change in the rights of a
Holder by reason of other events herein set forth, then and in each such case,
the Company will promptly obtain an opinion of the chief financial officer of
the Company, stating the adjusted Exercise Price and the new Warrant Shares so
issuable, or specifying the other shares of the Stock, securities or assets and
the amount thereof receivable as a result of such change in rights, and setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based. The Company will promptly mail a copy of such
opinion to the Holders. If a Holder disagrees with such calculation, the
Company agrees to obtain within thirty (30) business days an opinion of a firm
of independent certified public accountants selected by the Company's Board of
Directors and acceptable to such Holder to review such calculation and the
opinion of such firm of independent certified public accountants shall be final
and binding on the parties and shall be conclusive evidence of the correctness
of the computation with respect to any such adjustment of the Exercise Price and
any such change in the number of Warrant Shares so issuable. The fees of such
accountants shall be borne by the Holder if the Company's calculation is
determined by such accountants to be correct and otherwise by the Company.
-13-
<PAGE>
5.12. Company to Prevent Dilution. In case at any time or from time to
---------------------------
time conditions arise by reason of action taken by the Company, which in the
good faith opinion of its Board of Directors or a majority of the Holders are
not adequately covered by the provisions of this Section 5, and which might
materially and adversely affect the exercise rights of the Holders, the Board of
Directors of the Company shall appoint such firm of independent certified public
accountants acceptable to a majority of the Holders, which shall give their
opinion upon the adjustment, if any, on a basis consistent with the standards
established in the other provisions of this Section 5, necessary with respect to
the Exercise Price, so as to preserve, without dilution (other than as
specifically contemplated by this Warrant), the exercise rights of the Holders.
Upon receipt of such opinion, the Board of Directors of the Company shall
forthwith make the adjustments described therein.
Section 6. Character of Shares of Stock.
----------------------------
All shares of the Stock issuable upon the exercise of this Warrant shall, when
issued to a Holder, be duly authorized, validly issued, fully paid and
nonassessable, free and clear of any lien or encumbrance and without any
preemptive rights.
Section 7. Notice to Holder.
----------------
So long as this Warrant shall be outstanding, (i) if the Company shall pay any
dividend or make any distribution upon the Stock otherwise than in cash, (ii) if
the Company shall offer to the holders of Stock, for subscription or purchase by
them, any shares of any class of stock of the Company or any other rights or
(iii) if there shall be any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company, voluntary or
involuntary dissolution, liquidation or winding up of the Company, then in any
such event, the Company shall cause to be mailed by certified mail to each
Holder, at least 30 days prior to the event described above, a notice containing
a brief description of the proposed action and stating the date or expected date
on which a record is to be taken for the purpose of such dividend, distribution
or rights, or the date or expected date such reclassification, reorganization,
consolidation, merger, conveyance, lease or transfer, dissolution, liquidation
or winding up shall take place or be voted upon by holders of the Stock of
record, and the date or expected date as of which the holders of Stock of record
shall be entitled to exchange their shares of Stock for securities or other
property deliverable upon any such event.
-14-
<PAGE>
Section 8. Disposition of Warrant Shares.
-----------------------------
The stock certificates of the Company that will evidence the Warrant Shares or
any other security issued or issuable upon exercise of this Warrant will be
imprinted with a conspicuous legend in substantially the following form:
The securities represented by this Certificate have not been registered
under the Securities Act of 1933 (the "Act") or any applicable state
securities laws and may not be sold, pledged, hypothecated, donated or
otherwise transferred (whether or not for consideration) unless registered
under the Act and any applicable state securities laws or in a transaction
exempt from such registrations.
Except as provided in the Registration Rights Agreement, the Company does not
agree to register any of the Warrant Shares for distribution in accordance with
the provisions of the Act or any applicable state securities laws, and the
Company has not agreed to comply with any exemption from registration under the
Act or any applicable state securities laws for the resale of the Warrant
Shares. Hence, it is the understanding of the Holder that by virtue of the
provisions of certain rules respecting "restricted securities" promulgated by
---------------------
the Securities and Exchange Commission, the Warrant Shares may be required to be
held indefinitely, unless and until registered under the Act and any applicable
state securities laws unless an exemption from such registration is available,
in which case the Holders may still be limited as to the number of Warrant
Shares that may be sold.
Section 9. Governing Law.
-------------
This Warrant shall be construed in accordance with the laws of the State of
Georgia applicable to contracts executed and to be performed wholly within such
state without regard to any conflicts of laws principles.
Section 10. Notice.
------
Any notice, demand, document or other communication given or delivered
hereunder shall be in writing, and may be (i) personally delivered, (ii) given
or made by United States registered or certified mail, return receipt requested,
postage prepaid, or (iii) given or made by overnight courier, delivery charges
prepaid, addressed as follows:
If to the Company: Harry's Farmers Market, Inc.
- ------------------
1180 Upper Hembree Road
Roswell, GA 30076
Attention: Chief Financial Officer
-15-
<PAGE>
With a Copy to: Nelson, Mullins, Riley & Scarborough, L.L.P
- ---------------
400 Colony Square, Suite 2200
1201 Peachtree Street, N.E.
Atlanta, Georgia 30361
Attention: John Latham, Esq.
If to Creditanstalt: Creditanstalt-Bankverein
- --------------------
245 Park Avenue
New York, New York 10167
Attention: Dennis O'Dowd
With a Copy to: Creditanstalt-Bankverein
- ---------------
Two Ravinia Drive, N.E.
Suite 1680
Atlanta, Georgia 30346
Attention: Robert M. Biringer and Joseph Longosz
With a Copy to: Troutman Sanders
- --------------
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308
Attention: Hazen Dempster, Esq.
The Company and the Holder shall each have the right to designate a different
address for itself by notice similarly given. All such notices, demands,
documents or other communication will be deemed to be delivered (i) upon
receipt, if personally delivered, (ii) on the third full Business Day following
the day of mailing, if sent by United States registered or certified mail and
(iii) on the Business Day following the date it was sent, if sent by overnight
courier.
Section 11. Remedies.
--------
The Company stipulates that the remedies at law of the Holder in the event of
any default or threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant are not and will not be
adequate, and that such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise, in addition to any
other remedies which may be available at law or in equity.
Section 12. Company Will Avoid Certain Actions.
----------------------------------
The Company will not, by amendment of its certificate of incorporation or
through any reorganization, transfer of assets, consolidation, merger, issue or
sale of securities or otherwise, avoid or take any action which would have the
-16-
<PAGE>
effect of avoiding the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in carrying out all of the provisions of this Warrant Certificate
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holder of this Warrant Certificate against dilution
or other impairment, and in particular, will not cause the par value, if any, of
any share of Stock, to be or become greater than the then effective Exercise
Price.
Section 13. Company Will Not Close Books.
----------------------------
The Company will at no time close its transfer books against the transfer of
this Warrant or of any shares of Stock issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant.
Section 14. Successors and Assigns.
----------------------
This Warrant and the rights evidenced hereby shall inure to the benefit of and
be binding upon the successors of the Company and the successors and assigns of
the Holders hereof. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder.
Section 15. Amendment.
---------
This Warrant Certificate may be modified or amended and any provision hereof
may be waived by a writing executed by the Company and holders of Warrants
representing a majority of the Warrant Shares obtainable upon exercise of the
Warrants.
Section 16. Headings.
--------
Section headings in this Warrant are for reference only and shall not affect
the meaning or construction of any of the provisions hereof.
[Signature on following page]
-17-
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first
written above.
HARRY'S FARMERS MARKET, INC.
By:
-----------------------------
Name:
Title:
-18-
<PAGE>
ANNEX A
FORM OF SUBSCRIPTION
--------------------
(To be executed only upon exercise of the Warrant in whole or in part)
To HARRY'S FARMERS MARKET, INC.
The undersigned registered holder of the accompanying Warrant hereby
irrevocably exercises such Warrant or portion thereof for, and purchases
thereunder, _______/3/ Warrant Shares (as defined in such Warrant) and herewith
makes payment therefor of $________. The undersigned requests that the
certificates for such Warrant Shares be issued in the name of, and delivered to
________________________________, whose address is
_________________________________.
Dated:
--------------------------------------
(Name must conform to name of holder as
specified on the face of the Warrant)
--------------------------------------
(Street Address)
--------------------------------------
(City) (State) (Zip Code)
- ------------------
/3/ Insert the number of Warrant Shares as to which this Warrant is being
exercised. In the case of a partial exercise, a new Warrant or Warrants will be
issued and delivered, representing the unexercised portion of this Warrant, to
the holder surrendering the same.
-19-
<PAGE>
ANNEX B
FORM OF ASSIGNMENT
------------------
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers unto
_______________________________ [Name] of ____________________[Address] the
right represented by the within Warrant to purchase _________ shares of Class A
Common Stock of HARRY'S FARMERS MARKET, INC. to which the within Warrant
relates, and appoints _____________ Attorney to transfer such right on the books
of HARRY'S FARMERS MARKET, INC. with full power of substitution in the premises.
Dated: ________________
--------------------------------------
(Name must conform to name of holder as
specified on the face of the Warrant)
--------------------------------------
(Street Address)
-------------------------------------
(City) (State) (Zip Code)
Signed in the presence of:
________________________
-20-
<PAGE>
ANNEX C
FORM OF CONVERSION NOTICE
-------------------------
(To be executed only upon conversion of the Warrant in whole or in part)
To HARRY'S FARMERS MARKET, INC.
The undersigned registered holder of the accompanying Warrant hereby
irrevocably elects to exercise its right to convert such Warrant or portion
thereof into _______/4/ Warrant Shares (as defined in such Warrant). The
undersigned requests that the certificates for such Warrant Shares be issued in
the name of, and delivered to ________________________________, whose address is
_________________________________.
Dated:
---------------------------------------
(Name must conform to name of holder as
specified on the face of the Warrant)
---------------------------------------
(Street Address)
--------------------------------------
(City) (State) (Zip Code)
- ---------------
/4/ Insert the number of Warrant Shares as to which this Warrant is being
exercised. In the case of a partial exercise, a new Warrant or Warrants will be
issued and delivered, representing the unexercised portion of this Warrant, to
the holder surrendering the same.
-21-
<PAGE>
SIXTH AMENDMENT, WAIVER AND FORBEARANCE AGREEMENT
This Sixth Amendment, Waiver and Forbearance Agreement dated as of May 8,
1996, is made by and among HARRY'S FARMERS MARKET, INC., a Georgia corporation
(the "Company"), NATIONSBANK, N.A. (SOUTH)(f/k/a NationsBank of Georgia,
National Association) and CREDITANSTALT-BANKVEREIN, New York Branch, a banking
company organized under the laws of Austria, (collectively the "Lenders") and
NATIONSBANK, N.A. (SOUTH) (f/k/a NationsBank of Georgia, National Association),
as Agent (the "Agent").
The Lenders, the Agent and the Company entered into the Amended and Restated
Credit Agreement dated as of December 30, 1994 (as amended, the "Credit
Agreement") pursuant to which the Lenders provided certain credit facilities to
the Company. The Company has violated certain financial covenants for the
fourth quarter of the Company's 1996 fiscal year contained in the Credit
Agreement, and has requested the Agent and the Lenders to waive certain Events
of Default resulting from those violations and to amend certain covenants in the
Credit Agreement relating to such financial covenants and to the use of proceeds
from the Disposition of the Brentwood Tennessee Property.
For the third quarter of the Company's 1996 fiscal year, the Company had
violated certain financial covenants contained in that certain Deed to Secure
Debt dated as of March 18, 1993 (as has been amended to date, the "Citicorp Deed
to Secure Debt") executed by the Company in favor of Citicorp Real Estate, Inc.
("Citicorp"). Events of default relating from those violations have not been
cured and remain outstanding. Accordingly, the Company has requested the Agent
and the Lenders to forbear from taking any action with respect to another Event
of Default arising under the Credit Agreement caused by the continuing default
under the Citicorp Deed to Secure Debt.
In addition, the Company has requested that the Agent and the Lenders consent
to the Company's issuance of certain stock options to its employees and
directors, to increase the Revolving Credit Commitment by $1,000,000 and to
waive the requirements that the proceeds of certain sales be applied pursuant to
Section 2.15.
In consideration of the agreements contained herein, the parties hereto agree
as follows:
Section 1. Waiver. (a) The Agent and the Lenders agree to waive the
------
Events of Default arising under Section 10.4(a) of the Credit Agreement caused
by the Company's failure to comply with the financial covenants in each of
Sections 9.1, 9.2, 9.3 and 9.4 of the Credit Agreement for the fourth quarter of
the 1996 fiscal year of the Company. Except as hereby waived, the Credit
Agreement shall remain in full force and effect.
<PAGE>
(b) The Agent and the Lenders hereby agree to waive the requirement of Section
2.15(c) and 2.15(e)(i) of the Credit Agreement that the Company prepay 100% of
the Net Available Proceeds from the sales of two certain residential properties,
one which was consummated on December 15, 1995 and resulted in gross proceeds of
$97,500 and one which was consummated on February 29, 1996 and resulted in gross
proceeds of $195,000.
Section 2. Amendment of Credit Agreement.
-----------------------------
(a) Amendment of Definition of "Warrant Agreement". The Credit Agreement is
----------------------------------------------
hereby amended by deleting the definition of "Warrant Agreement" in its entirety
from Section 1.1 and substituting in lieu thereof the following:
"Warrant Agreement" shall mean the Warrant Agreement dated December
-----------------
30, 1994, as amended and restated as of May 8, 1996 among the Company,
NationsBank and Creditanstalt-Bankverein pursuant to which the Company issued
to the Lenders Warrants to purchase an aggregate of 360,000 shares of the
Company's Class A Common Stock."
(b) Amendment of Section 2.1. The Credit Agreement is hereby further
------------------------
amended by deleting the definition of "Available Revolving Credit Commitment"
from Section 2.1 in its entirety and substituting in lieu thereof the following:
"'Available Revolving Credit Commitment' shall mean, on any date of
-------------------------------------
determination thereof, the aggregate Revolving Credit Commitments in effect
on such date minus (i) the aggregate outstanding principal amount of
-----
Revolving Credit Loans on such date and (ii) the undrawn stated amount of the
Letter of Credit."
(c) Amendment of Section 2.6. The Credit Agreement is hereby further
-------------------------
amended by deleting Section 2.6 in its entirety and substituting in lieu thereof
the following:
"2.6 VOLUNTARY REDUCTIONS OF REVOLVING CREDIT COMMITMENTS
The Company shall have the right to terminate or reduce the aggregate
amount of the Revolving Credit Commitments at any time or from time to time;
provided that: (i) the Company shall give notice of each such termination or
reduction as provided in Section 3.5., which notice when given shall be
irrevocable; (ii) each partial reduction shall be in an aggregate amount at
least equal to $100,000 or an integral multiple of $10,000 in excess of
$100,000; and (iii) in no event shall any reduction reduce the aggregate
amount of the Avaialble Revolving Credit Commitment below the aggregate
principle amount of Revolving Credit Loans then outstanding."
(d) Addition of Section 2.15(a). The Credit Agreement is hereby further
amended by adding a new subsection (a) to Section 2.15 as follows:
"(a) Sale of Brentwood Tennessee Property. Following the receipt by
the Company or any Subsidiary of Net Available Proceeds in respect of the
Disposition of the Brentwood Tennessee Property, the Company shall apply an
amount equal to the greater of (x) 100% of the Net Available Proceeds of such
Disposition less reasonable expenses for site preparation, zoning and
environmental impact fees of (y) $4,300,000 to the prepayment of the Loans.
Such prepayment shall be applied as provided in Section 2.15(e)."
(e) Amendment of Section 2.16. The Credit Agreement is hereby
-------------------------
further amended by deleting Section 2.16 in its entirety and substituting in
lieu thereof the following:
"2.16 USE OF PROCEEDS
(a) The proceeds of the Loans made on the Closing Date shall be used to
refinance the amounts advanced pursuant to the Existing Credit Agreement, the
Existing Loan Documents and the Existing Term Loan, and to pay all related
fees and expenses of the transactions contemplated in this Agreement. In
addition, such proceeds provided on the Closing Date, together with the
proceeds of the issuance of the Preferred Stock shall be used to pay in full
the Pattillo Construction Loan. Subject to subsections (b), and (c) below,
subsequent Revolving Credit Loans shall be utilized for working capital and
general corporate purposes of the Company and to pay drawings, if any, paid
on the Letter of Credit; provided however, that, except as provided in
subsection (b) below, in no event shall the proceeds of any Revolving Credit
Loan be used to pay any principal amount owing by the Company on the Citicorp
Note or any extension, renewal or refinancing thereof, without the prior
written consent of the Required Lenders.
(b) The Company may use the proceeds of Revolving Credit Loans in an
amount not to exceed $700,000 to refinance the Citicorp Note, subject to the
conditions in Section 5.3(b).
-2-
<PAGE>
(c) The Company may use the proceeds of Revolving Credit Loans in an
amount not to exceed $300,000 for the following expenses incurred in
connection with the opening of a Hurry Store (i) Capital Expenditures;
(ii) expenses incurred in connection with providing the initial inventory
(net of payables incurred in connection with the acquisition of such
inventory) necessary to fully stock a new Hurry Store and (iii) Pre-
opening Expenses, subject to the conditions of Section 5.4."
(g) Addition of Section 5.3. The Credit Agreement is hereby further
------------------------
amended to add a new Section 5.3 as follows:
"5.3 MINIMUM AVAILABLE REVOLVING CREDIT COMMITMENT
The Available Revolving Credit Commitment must at all times be greater
than $1,000,000 unless (a) voluntarily reduced pursuant to Section 2.6 or
(b) the following conditions have been satisfied: (i) the Disposition of
the Brentwood Tennessee Property results in Net Available Proceeds of at
least $4,300,000 which are applied as provided in Section 2.15; (ii) (A)
the Citicorp Note is extended or refinanced on terms satisfactory to the
Agent and the Lenders, in the exercise of their discretion or (B) the
Company has received at least $2,500,000 pursuant to a loan on terms
satisfactory to the Agent and the Lenders, in the exercise of their
discretion, the proceeds of which are used to refinance the Citicorp Note;
(iii) the Agent receives a second mortgage for the benefit of the Lenders
on the Company's bakery in Alpharetta, Georgia, on terms satisfactory to
the Agent and the Lenders, in the exercise of their discretion and (iv)
the Agent receives a mortgagee waiver for the benefit of the Lenders with
respect to the Company's bakery in Alpharetta, Georgia, on terms
satisfactory to the Agent and the Lenders in the exercise of their
discretion."
(h) Addition of Section 5.4. The Credit Agreement is hereby further
amended to add a new Section 5.4 as follows:
"5.4 REVOLVING CREDIT LOANS FOR A HURRY STORE
The Company may use the proceeds of Revolving Credit Loans for
expenses of opening a new Hurry Store as provided in Section 2.16(c) only
if: (i) all of the conditions in Section 5.3(b) are met;
-3-
<PAGE>
(ii) such Hurry Store has between 2,500 and 15,000 square feet of selling
space; (iii) such Hurry Store is located within 50 miles of the Megastore
located in Alpharetta, Georgia; (iv) such Hurry Store has opened or will
open within 120 days of the date of the request for such Revolving Credit
Loan and (v) no Default or Event of Default has occurred or is continuing."
(i) Amendment of Section 8.8. Section 8.8 of the Credit Agreement is
------------------------
hereby further amended by (i) deleting subsections (e) and (f) and
substituting in lieu thereof the following:
"(e) the Company may issue up to 300,000 shares of its Class A Common
Stock to its employees pursuant to its 1996 Employee Stock Purchase Plan, a
copy of which is attached hereto as Exhibit M;
(f) the Company may issue up to 200,000 shares of its Class A Common
Stock to its directors pursuant to its 1996 Directors Stock Option Plan, a
copy of which is attached hereto as Exhibit N; and"
and (ii) adding a new subsection (h) as follows:
"(h) the Company may issue shares of its Class A Common Stock upon the
exercise of the Warrants."
(j) Amendment of Section 9.1. The Credit Agreement is hereby further amended
------------------------
by deleting Section 9.1 in its entirety and inserting in lieu thereof the
following:
"9.1. INDEBTEDNESS TO TANGIBLE NET WORTH RATIO
Cause the Indebtedness to Tangible Net Worth Ratio for each period of
four consecutive fiscal quarters not to exceed the following respective
amounts:
<TABLE>
<CAPTION>
FISCAL QUARTERS ENDING DURING RATIO
THE FOLLOWING PERIODS --------
----------------------------------------
<S> <C>
First 1.35:1.0
quarter of fiscal year 1997
Second quarter of fiscal year 1.25:1.0
1997 through the end of the fourth
quarter of fiscal year 1997
From the first quarter of 1.15:1.0
fiscal year 1998 through the Maturity
Date
</TABLE>
The term 'Indebtedness to Tangible Net Worth Ratio' shall mean, for any
period, the ratio of the
-4-
<PAGE>
Indebtedness of the Company and its Subsidiaries (including current maturities
thereof) as of the end of such period to the Tangible Net Worth of the Company
and its Subsidiaries, as of the end such period, in each case determined on a
consolidated basis."
(k) Amendment of Section 9.2. The Credit Agreement is hereby further amended
------------------------
by deleting Section 9.2 in its entirety and inserting in lieu thereof the
following:
"9.2 INDEBTEDNESS TO EBITDA RATIO
Cause the Indebtedness to EBITDA Ratio for each period of four
consecutive fiscal quarters ending at the end of each of the following
fiscal quarters not to exceed the following respective amounts:
<TABLE>
<CAPTION>
FISCAL QUARTERS RATIO
--------------- -------
<S> <C>
First quarter of fiscal year 1997 10.00:1.00
Second quarter of fiscal year 1997 7.50:1.00
Third quarter of fiscal year 1997 6.50:1.00
Fourth quarter of fiscal year 1997 5.50:1.00
First quarter of fiscal year 1998 through the 4.50:1.0
Maturity Date
</TABLE>
The term 'Indebtedness to EBITDA Ratio' shall mean, for any period, the
-----------------------------
ratio of the Indebtedness of the Company and its Subsidiaries (including
current maturities thereof) as of the end of such period to EBITDA of the
Company and its Subsidiaries, for such period, in each case determined on
a consolidated basis."
(l) Amendment of Section 9.3. The Credit Agreement is hereby further
------------------------
amended by deleting Section 9.3 in its entirety and inserting in lieu thereof
the following:
"9.3 FIXED CHARGE COVERAGE RATIO
Cause the Fixed Charge Coverage Ratio for each period of four
consecutive fiscal quarters ending at the end of each of the following
fiscal quarters to be at least equal to the following respective ratios:
<TABLE>
<CAPTION>
FISCAL QUARTERS RATIO
--------------- ---------
<S> <C>
First quarter of fiscal year 1997 0.75:1.00
Second quarter of fiscal year 1997 0.90:1.00
Third quarter of fiscal year 1997 through the 1.00:1.00
end of the fourth quarter of fiscal year 1997
First quarter of fiscal year 1998 through the
Maturity Date 1:10:1.00
</TABLE>
The term 'Fixed Charge Coverage Ratio' shall mean, for any period, the
-----------------------------
ratio of EDITDAR of the Company and its Subsidiaries for such period, in
each case determined on a consolidated basis."
-5-
<PAGE>
(m) Amendment of Section 9.4. The Credit Agreement is hereby further
------------------------
amended by deleting Section 9.4 in its entirety and inserting in lieu thereof
the following:
"9.4 MAINTENANCE OF TANGIBLE NET WORTH
Cause the Tangible Net Worth of the Company and its Subsidiaries as of
the end of each of the Company's fiscal quarters beginning with the first
quarter of fiscal year 1997 to be at least equal to $24,750,000, as such
amount shall be increased by 100% of the Net Available Proceeds of any
Equity Issuance occurring after May 8, 1996 and by 80% of Company's
consolidated net income (determined on a cumulative basis without regard to
any net loss.)"
(n) Amendment of Section 9.5. The Credit Agreement is hereby further
------------------------
amended by deleting Section 9.5 in its entirety and inserting in lieu thereof
the following:
"9.5 Intentionally Omitted."
(o) Amendment of Section 9.6. The Credit Agreement is hereby further
------------------------
amended by deleting Section 9.6 in its entirety and inserting in lieu thereof
the following:
"9.6 Intentionally Omitted."
Section 3. Revolving Loan Commitments. The parties hereby agree that upon
--------------------------
the Amendment Date the Revolving Loan Commitment of NationsBank is $3,600,000
and the Revolving Loan Commitment of Creditanstalt-Bankverein is $2,400,000.
Section 4. Agreement to Forbear. So long as Citicorp takes no action to
--------------------
(a) accelerate any Indebtedness owed by the Company to Citicorp or (b) otherwise
collect the Indebtedness secured by the Citicorp Deed to Secure Debt, the Agent
and the Lenders hereby agree that they will not, prior to the maturity date of
the Citicorp Note (as the same may be extended), solely by reason of the
existence on this date of the Event of Default arising under Section 10.2 of the
Credit Agreement caused by the Company's failure to comply with Section 1.14 of
the Citicorp Deed to Secure Debt for the third quarter of the 1996 fiscal year
of the
-6-
<PAGE>
Company, accelerate the maturity of the Indebtedness evidenced by the Credit
Documents or otherwise take any action to enforce collection from the Company of
any such Indebtedness or to foreclose the Agent's security interest in any of
the Collateral. Neither this Agreement nor the Agent's and the Lenders'
forbearance hereunder shall be deemed to be a waiver of or a consent to such
Event of Default.
Section 5. Termination of Forbearance. Should Citicorp take any of the
--------------------------
actions listed in subsections (a) or (b) of Section 4 hereof at any time prior
to the maturity date of the Citicorp Note (as the same may be extended), the
provisions of Section 4 hereof shall terminate, and the Agent and the Lenders
shall thereupon have and may exercise from time to time all of the remedies
available to them under the Credit Agreement and the other Credit Documents and
all applicable law as a consequence of an Event of Default, without further
notice, demand or presentment. In any event, the provisions of Section 4 hereof
shall terminate on the maturity date of the Citicorp Note, and the Agent and the
Lenders shall have all of the remedies available to them under the Credit
Documents.
Section 6. Title Commitments. The Company hereby agrees to provide to
-----------------
the Agent and the Lenders an endorsement to each of the title policies for each
parcel of real property Collateral setting forth (i) a "date down" of the
Closing Date to the Amendment Date, (ii) revision of the exception for taxes and
assessments (payment of which taxes and assessments must be current), (iii)
listing all subordinate matters with respect to the title (none of which shall
evidence any violation of any of the Credit Documents), and (iv) acknowledging
that the Lenders are making available an advance of additional Indebtedness to
the Company in reliance thereonwithin 45 days of the Amendment Date. Nothing in
this paragraph is intended to affect the Agent's and the Lenders' acceptance of
the title policies originally accepted on the Closing Date.
Section 7. Reaffirmation. The Company hereby acknowledges and agrees
-------------
that all of the Credit Documents are fully enforceable and in full force and
effect and have not been waived or modified in any manner except as expressly
set forth in this Agreement and the other agreements entered into in connection
herewith, and that the Credit Documents, as modified by this Agreement and the
other agreements entered into in connection herewith, are fully enforceable and
are in full force and effect on the date of this Agreement. The Company further
hereby reaffirms all representations and warranties made by the Company to the
Lenders and the Agent in the Credit Agreement on and as of the date hereof with
the same force and effect as if such representations and warranties were set
forth in this Amendment in full.
-7-
<PAGE>
Section 8. No Claims. The Company hereby acknowledges that it has no
---------
claims, demands, causes of action of any kind (including, but not limited to,
any right of setoff) whether absolute or contingent, due or to become due,
disputed or undisputed, in law or in equity against any of the Lenders, the
Agent, or any of the officers, directors, employees of any of the Lenders or the
Agent in connection with this Agreement, any of the Credit Documents or
otherwise.
Section 9. Conditions Precedent. This Amendment shall be effective on
--------------------
the date (the "Amendment Date") that the Agent has received each of the
following, each to be in form and substance satisfactory to the Agent and its
counsel:
(a) This Amendment duly executed by the Company, the Lenders and the Agent;
(b) That certain Amended and Restated Warrant Agreement dated as of the date
hereof (the "Warrant Agreement") by and among the Company, NationsBank and
Creditanstalt-Bankverein, executed by all parties thereto;
(c) An Amended and Restated Warrant Certificate executed by the Company in
favor of NationsBank, substantially in the form of Exhibit A attached hereto;
(d) An Amended and Restated Warrant Certificate executed by the Company in
favor of Creditanstalt-Bankverein, substantially in the form of Exhibit A
attached hereto;
(e) A Warrant Certificate executed by the Company in favor of NationsBank,
substantially in the form of Exhibit A to the Warrant Agreement;
(f) A Warrant Certificate executed by the Company in favor of Creditanstalt-
Bankverein, substantially in the form of Exhibit A to the Warrant Agreement;
(g) An opinion of counsel to the Company, substantially in the form of Exhibit
B attached hereto; and
(h) The consent of Fleming to the transactions contemplated by this Agreement,
substantially in the form of Exhibit C attached hereto.
Section 10. References to the Credit Agreement and the Other Credit
-------------------------------------------------------
Documents. Each reference to the Credit Agreement and any of the Credit
- ---------
Documents shall be deemed to be a reference to the Credit Agreement as amended
by this Amendment and all prior amendments, and as each may from time to time be
further amended, supplemented, restated or
-8-
<PAGE>
otherwise modified in the future by one or more other written amendments or
supplemental or modification agreements entered into pursuant to the applicable
provisions of the Credit Agreement.
Section 11. Benefits. This Amendment shall be binding upon and shall
--------
insure to the benefit of the parties hereto and their respective successors and
assigns.
Section 12. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA.
Section 13. Effect. Except as expressly herein amended, the terms and
------
conditions of the Credit Agreement and the other Credit Documents shall remain
in full force and effect.
Section 14. Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and shall be
binding upon all parties, their successors and assigns.
Section 15. Definitions. All terms defined in the Credit Agreement which
-----------
are used herein shall have the meanings defined in the Credit Agreement, unless
specifically defined otherwise herein.
Section 16. Expenses. Pursuant to Section 12.3 of the Credit Agreement,
--------
the Company shall reimburse the Agent and the Lenders upon demand for all costs
and expenses (including attorneys' fees) incurred by the Agent or the Lenders in
the preparation, negotiation and execution of this Amendment and the other
agreements and documents executed and delivered in connection herewith.
[Signatures begin on following page]
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set forth their hands in one or
more counterparts this 8th day of May, 1996.
HARRY'S FARMERS MARKET, INC.
By:
-----------------------------------
Authorized Officer
Attest:
-------------------------------
Name:
---------------------
Title:
--------------------
[CORPORATE SEAL]
NATIONSBANK, N.A. (SOUTH), as a Lender
and as Agent
By:
-----------------------------------
Name:
----------------------------
Title:
---------------------------
CREDITANSTALT-BANKVEREIN, New York
Branch, as a Lender
By:
-----------------------------------
Name:
----------------------------
Title:
---------------------------
By:
---------------------------------
Name:
---------------------------
Title:
--------------------------
[Signatures continued on following page]
-10-
<PAGE>
ACKNOWLEDGMENT AND CONSENT OF THE GUARANTORS
Each of Marthasville Trading Company and Karalea, Inc. (collectively,
the "Guarantors") hereby consents to the foregoing execution and delivery of
this Sixth Amendment, Waiver and Forbearance Agreement (the "Agreement"), and to
the performance by the Company and to its agreements and obligations thereunder
and all agreements and documents entered into in connection therewith. All
capitalized terms not otherwise defined herein shall have the meanings set forth
in the Credit Agreement. Each of the Guarantors further affirms that neither
the Agreement nor the performance of the Credit Agreement and the other Credit
Documents as has been amended to date shall limit, restrict extinguish or
otherwise impair its liability to the Agent or the Lenders pursuant to its
respective Guaranty, whether such obligations are now existing or hereafter
arise. Each Guarantor acknowledges that all of the terms and conditions
contained in such Guarantor's respective Guaranty shall continue in full force
and effect.
Dated as of the 8th day of May, 1996.
MARTHASVILLE TRADING COMPANY
By:
-------------------------------
Title:
----------------------------
KARALEA, INC.
By:
------------------------------
Title:
---------------------------
-11-
<PAGE>
EXHIBIT A
FORM OF AMENDED AND RESTATED WARRANT CERTIFICATE
------------------------------------------------
NEITHER THE WARRANT REPRESENTED BY THIS CERTIFICATE NOR THE CLASS A COMMON STOCK
ISSUABLE UPON THE EXERCISE HEREOF HAS BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND NEITHER MAY BE
SOLD OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAW UNLESS AN EXEMPTION FROM REGISTRATION IS THEN
AVAILABLE.
WARRANT TO PURCHASE CLASS A COMMON STOCK
OF
HARRY'S FARMERS MARKET, INC.
Date: December 30, 1994
This is to certify that, FOR VALUE RECEIVED, the registered holder hereof,
[Holder] ("[NationsBank][Creditanstalt]", and together with any successors and
----------- -------------
assigns hereunder, the "Holder" or the "Holders"), is entitled to purchase,
------ -------
subject to the provisions of this Warrant Certificate, from HARRY'S FARMERS
MARKET, INC., a Georgia corporation (the "Company"), _________ shares (as such
-------
number may be adjusted in accordance with Section 5 hereof) of the Company's
Class A Common Stock, no par value per share (such class of stock, together with
any capital stock of the Company into which such class of stock shall be
converted, being referred to herein as "Stock"), at $3.00 per share (as such
-----
number may be adjusted in accordance with Section 5 hereof) (the "Exercise
--------
Price"). The number of shares of Stock to be received upon the exercise of this
- -----
Warrant and the Exercise Price shall be adjusted from time to time as
hereinafter set forth. The shares of Stock or other securities or property
deliverable upon such exercise, as adjusted from time to time, are hereinafter
sometimes referred to as "Warrant Shares."
--------------
This Amended and Restated Warrant Certificate is one of the Warrant
Certificates (the "Warrants", which term includes all Warrants issued in
--------
substitution therefor) originally issued pursuant to the Warrant Agreement dated
as of December 30, 1994, as amended and restated as of May 8, 1996 (as amended,
restated, supplemented or otherwise modified from time to time, the "Warrant
-------
Agreement"). The Warrants originally so issued evidence rights to purchase an
- ---------
-A-1-
<PAGE>
aggregate of 240,000 Warrant Shares at the Exercise Price. This Warrant is
subject to the provisions, and is entitled to the benefits, of the Warrant
Agreement. This Warrant amends and restates that certain Warrant Certificate
dated as of December 30, 1994 executed by the Company in favor of the Holder.
Section 1. Exercise of Warrant.
-------------------
1.1. Manner of Exercise. (a) This Warrant may be exercised by the Holder, in
------------------
whole or in part, at any time or from time to time through and including the
Expiration Date during normal business hours on any Business Day (as defined in
the Warrant Agreement) by surrender of this Warrant, together with the form of
subscription duly executed by such Holder in substantially the form attached as
Annex A hereto, to the Company at its office designated pursuant to Section 7.1
of the Warrant Agreement (or, if such exercise is in connection with an
underwritten public offering of Warrant Shares subject to this Warrant, at the
location at which the underwriting agreement requires that such Warrant Shares
be delivered).
(b) Payment of the Exercise Price for the Warrant Shares, if required, shall
be made, at the option of the Holder by certified or bank check or wire transfer
payable to the order of the Company, in any case, in an amount equal to (A) the
number of Warrant Shares specified in such form of subscription, multiplied by
(B) the then current Exercise Price. The Holder shall thereupon be entitled to
receive the number of Warrant Shares specified in such form of subscription
(plus cash in lieu of any fractional share as provided in Section 1.3 hereof).
(c) In lieu of exercising Warrants pursuant to the immediately preceding
clause (a), the Holder shall have the right to require the Company to convert
the Warrants, in whole or in part and at any time or times (the "Conversion
Right"), into Warrant Shares, by surrendering to the Company the Warrant
Certificate evidencing the Warrants to be converted, accompanied by a conversion
notice duly executed by the Holder substantially in the form of Annex C hereto.
Upon exercise of the Conversion Right, the Company shall deliver to the Holder
(without payment by the Holder of any Exercise Price) that number of Warrant
- --------
Shares which is equal to the quotient obtained by dividing (x) the value of the
number of Warrants being converted at the time the Conversion Right is exercised
(determined by subtracting the aggregate Exercise Price for all such Warrants
immediately prior to the exercise of the Conversion Right from the aggregate
current Market Price of that number of Warrant Shares purchasable upon exercise
of such Warrants immediately prior to the exercise of the Conversion Right
(taking into account all applicable adjustments pursuant to Section 5 hereof))
by (y) the Market Price of one share of
-A-2-
<PAGE>
Stock immediately prior to the exercise of the Conversion Right. Any references
in this Warrant Certificate or the Warrant Agreement to the "exercise" of any
Warrants, and the use of the term "exercise" herein and therein, shall be deemed
to include (without limitation) any exercise of the Conversion Right.
1.2. Effective Date. Each exercise of this Warrant pursuant to Section 1.1
--------------
hereof shall be deemed to have been effected immediately prior to the close of
business on the Business Day on which this Warrant is surrendered to the Company
as provided in Section 1.1 hereof (except that if such exercise is in connection
with an underwritten public offering of Warrant Shares subject to this Warrant,
then such exercise shall be deemed to have been effected upon such surrender of
this Warrant). On each such day that an exercise of this Warrant is deemed
effected, the person or persons in whose name or names any certificate or
certificates for Warrant Shares are issuable upon such exercise (as provided in
Section 1.3 hereof) shall be deemed to have become the Holder or Holders of
record thereof.
1.3. Warrant Share Certificates, Cash for Fractional Warrant Shares and
------------------------------------------------------------------
Reissuance of Warrants. As promptly as practicable after the exercise of this
- ----------------------
Warrant, in whole or in part, and in any event within five (5) Business Days
thereafter (unless such exercise shall be in connection with a public offering
of Warrant Shares subject to this Warrant, in which event concurrently with such
exercise), the Company at its expense (including the payment by it of any
applicable issue, stamp or other taxes) will cause to be issued in the name of
and delivered to the Holder or, subject to Section 6 of the Warrant Agreement,
such other person as the Holder may direct:
(a) a certificate or certificates for the number of Warrant Shares to
which the Holder shall be entitled upon such exercise plus, in lieu of any
fractional share to which the Holder would otherwise be entitled, cash in an
amount equal to the same fraction of the Market Price (as defined in Section
5.1 hereof) per Warrant Share on the effective date of such exercise; and
(b) in case such exercise is in part only, a new Warrant or Warrants,
substantially identical hereto, representing the rights formerly represented
by this Warrant which have not expired or been exercised.
1.4. Acknowledgment of Obligation. The Company will, at the time of or at any
----------------------------
time after each exercise of this Warrant, upon the request of the Holder hereof
or of any Warrant Shares issued upon such exercise, acknowledge in writing its
continuing obligation to afford to such Holder all rights (including, without
limitation, any rights to
-A-3-
<PAGE>
registration of any such Warrant Shares pursuant to the Registration Rights
Annex of the Warrant Agreement (the "Registration Rights Agreement")) to which
such Holder shall continue to be entitled under this Warrant Certificate, the
Warrant Agreement and the Registration Rights Agreement; provided, that if any
--------
such Holder shall fail to make any such request, the failure shall not affect
the continuing obligation of the Company to afford such rights to such Holder.
1.5. Conditional Exercise. Notwithstanding any other provision hereof, if any
--------------------
exercise of any portion of this Warrant is to be made in connection with a
public offering of Warrant Shares or any transaction described in Section 5.9
hereof, the exercise of any portion of this Warrant may, at the election of the
Holder, be conditioned upon the consummation of the public offering or such
transaction, in which case such exercise shall not be deemed to be effective
until the consummation of such public offering or transaction.
Section 2. Reservation of Shares.
---------------------
The Company shall at all times after the date hereof and until the Expiration
Date reserve for issuance and delivery upon exercise of this Warrant the number
of Warrant Shares as shall be required for issuance and delivery upon exercise
in full of this Warrant.
Section 3. Transfer, Exchange, Assignment or Loss of Warrant.
-------------------------------------------------
3.1. Transfer. This Warrant may be assigned in whole or in part or
--------
transferred in whole or in part; subject, however, to compliance with the
provisions of the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (the "Act").
3.2. Procedure for Assignment or Transfer. Any assignment or transfer
------------------------------------
hereunder shall be made by surrender of this Warrant to the Company at its
office designated pursuant to Section 7.1 of the Warrant Agreement, together
with the form of assignment duly executed by the Holder in substantially the
form attached as Annex B hereto and funds sufficient to pay any required
transfer tax. In such event the Company shall, without charge, execute and
deliver a new Warrant or Warrants substantially identical hereto in the name of
the assignee or assignees named in such instrument of assignment and designate
the assignee or assignees as the registered holder or holders on the Company's
records and this Warrant shall promptly be cancelled. This Warrant may be
divided or combined with other Warrants which carry the same rights upon
presentation thereof at the principal office of the Company together with a
written notice signed by the holder thereof, specifying the names and
-A-4-
<PAGE>
denominations in which new Warrants are to be issued.
3.3. Loss, Theft, Destruction or Mutilation. Upon receipt by the Company of
--------------------------------------
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification to the Company or (in the case of mutilation)
presentation of this Warrant for surrender and cancellation, the Company will
execute and deliver a new Warrant identical hereto and any such lost, stolen,
destroyed or mutilated Warrant shall thereupon become void.
Section 4. Warrant Certificate Holder Not Deemed a Stockholder.
---------------------------------------------------
Except as otherwise provided herein, the Holders shall not, solely because of
holding this Warrant, be entitled to vote, receive dividends or be deemed the
holder of Stock or any other securities of the Company which may at any time be
issuable on the exercise of the Warrant for any purpose whatsoever, nor shall
anything contained herein be construed to confer upon the Holders, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matters submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance of stock, reclassification of stock, change
of par value or change of stock to no par value, consolidation, merger,
conveyance or otherwise), or to receive notice of meetings or other actions
affecting stockholders, or to receive dividend or subscription rights, or
otherwise, until this Warrant shall have been exercised in accordance with the
provisions hereof.
Section 5. Anti-Dilution.
-------------
The number of Warrant Shares for which this Warrant is exercisable and/or the
Exercise Price at which such Warrant Shares may be purchased upon exercise of
this Warrant shall be subject to adjustment from time to time as set forth in
this Section 5. The Company shall give the Holders notice of any event described
below which requires an adjustment pursuant to this Section 5 at the time of
such event.
5.1. Special Definitions. For purposes of this Section 5 the following terms
-------------------
shall have the following meanings:
"Additional Shares of Stock" shall mean all shares of Stock issued by the
--------------------------
Company after the date hereof, other than (i) the Stock to be issued upon
exercise of any Warrants at any time issued in connection with the Warrant
Agreement, (ii) the Stock to be issued upon conversion of the Preferred Stock,
(iii) the Stock to be issued upon exercise of the Preferred Stock Warrants; (iv)
the Stock to be issued upon exercise of the Performance Warrants, (v) 200,000
shares of
-A-5-
<PAGE>
Stock to be issued pursuant to the Company's 1996 Directors Stock Option Plan,
(vi) 475,000 shares of Stock to be issued pursuant to the Company's Management
Incentive Plan and (vii) 300,000 shares of Stock issued or to be issued pursuant
to the Company's 1996 Employee Stock Purchase Plan.
"Convertible Securities" shall mean evidences of indebtedness, shares of
----------------------
Preferred Stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
Additional Shares of Stock, either immediately or upon the occurrence of a
specified date or a specified event, other than the Preferred Stock issued
pursuant to the Share and Warrant Purchase Agreements dated December 30, 1994
between the Company, Robert Fleming Nominees Ltd., and certain other investors
(such Agreements to be referred to herein collectively as the "Purchase
--------
Agreements" and Robert Fleming Nominees Ltd. and such other investors to be
- ----------
referred to herein collectively as the "Purchasers".
----------
"Expiration Date" means May 8, 2002. If, on or before May 8, 1997, the
---------------
Company delivers to the Holders either a legal opinion in form and substance
acceptable to the Holders from a law firm acceptable to the Holders, or a no
action letter from the Securities and Exchange Commission, in each case to the
effect that the holding period under Rule 144 for the amended and restated
Warrants commenced on December 30, 1994 and not as of the effective date of such
amendment and restatement, then the Expiration Date shall be December 30, 2000.
"Market Price" shall mean, in respect of any share of Stock on the date of
------------
determination thereof, the average of the closing prices of sales of the Stock
on all principal United States securities exchanges on which the Stock may at
the time be listed, or, if there shall have been no sales on any such exchange
on any relevant day, the last trading price of such Stock on such day, or if
there is no such price, the average of the bid and asked prices at the end of
such day on the Nasdaq Stock Market, in each such case averaged for a period of
twenty (20) consecutive business days prior to the day as of which "Market
Price" is being determined. Notwithstanding the foregoing, with respect to the
issuance of Stock by the Company in an underwritten public offering, the Market
Price shall be the per share purchase price paid by the underwriters. If at any
time the Stock is not listed on any exchange or the Nasdaq Stock Market, the
"Market Price" shall be deemed to be the fair market value thereof determined by
an investment banking firm of nationally recognized standing selected by the
Board of Directors of the Company and acceptable to a majority of the Holders,
as of the most recent practicable date as of which the determination is to be
made, taking into account the value of the Company as a going concern, and
without taking into account any lack of liquidity of the Stock or
-A-6-
<PAGE>
any discount for a minority interest.
"Performance Warrants" shall mean those performance warrants for 61,111 shares
--------------------
of Stock issued on December 30, 1994 to the Purchasers (as defined below).
"Preferred Stock" shall mean those shares of the Company's Series A Redeemable
---------------
Convertible Preferred Stock with a stated value of $9.00 per share.
"Preferred Stock Warrants" shall mean those warrants originally issued in
------------------------
connection with the issue and sale by the Company of its Preferred Stock
pursuant to the Purchase Agreements.
5.2. Stock Dividends, Subdivisions and Combinations.
----------------------------------------------
If at any time the Company shall:
(i) take a record of the holders of its Stock for the purpose of
entitling them to receive a dividend payable in, or other distribution of,
Additional Shares of Stock,
(ii) subdivide its outstanding shares of Stock into a larger number of
shares of Stock, or
(iii) combine its outstanding shares of Stock into a smaller number of
shares of Stock,
then (I) the Warrant Shares for which this Warrant is exercisable immediately
after the occurrence of any such event shall be adjusted to equal the number of
shares of Stock which a record holder of the same number of shares of Stock for
which this Warrant is exercisable immediately prior to the occurrence of such
event would own or be entitled to receive after the happening of such event, and
(II) the Exercise Price shall be adjusted to equal (x) the Exercise Price
multiplied by the Warrant Shares for which this Warrant is exercisable
immediately prior to the adjustment divided by (y) the Warrant Shares for which
this Warrant is exercisable immediately after such adjustment.
5.3. Certain other Distributions. (a) Except as provided in Section 5.3(b), if
---------------------------
at any time the Company shall take a record of the holders of its Stock for the
purpose of entitling them to receive any dividend or other distribution of:
(i) cash,
(ii) any evidences of its indebtedness, any shares of its Stock or any
other securities or property of any nature whatsoever (other than cash or
Additional Shares of Stock), or
-A-7-
<PAGE>
(iii) any warrants or other rights to subscribe for or purchase any
evidences of its indebtedness, any share of its Stock or any other securities
or property of any nature whatsoever (other than cash or Additional Shares of
Stock),
then, (I) the Warrant Shares for which this Warrant is exercisable shall be
adjusted to equal the product of the Warrant Shares for which this Warrant is
exercisable immediately prior to such adjustment multiplied by a fraction (x)
the numerator of which shall be the Market Price per share of Stock at the date
of taking such record and (y) the denominator of which shall be such Market
Price per share of Stock minus the amount allocable to one share of Stock of any
such cash so distributable and of the fair value (as determined in good faith by
the Board of Directors of the Company) of any and all such evidences of
indebtedness, shares of stock, other securities or property or warrants or other
subscription or purchase rights so distributable, and (II) the Exercise Price
shall be adjusted to equal (x) the Exercise Price multiplied by the Warrant
Shares for which this Warrant is exercisable immediately prior to the adjustment
divided by (y) the Warrant Shares for which this Warrant is exercisable
immediately after such adjustment. A reclassification of the Stock (other than
a change in par value, or from par value to no par value or from no par value to
par value) into shares of Stock and shares of any other class of stock shall be
deemed a distribution by the Company to the Holders of its Stock of such shares
of such other class of stock within the meaning of this Section 5.3 and, if the
outstanding shares of the Stock shall be changed into a larger or smaller number
of shares of the Stock as part of such reclassification, such change shall be
deemed a subdivision or combination, as the case may be, of the outstanding
shares of the Stock within the meaning of Section 5.2.
(b) If at any time the Company shall take a record of the holders of its Stock
for the purpose of entitling them to receive any cash dividend or other
distribution of property of any nature whatsoever (other than Additional Shares
of Stock), and the amount of such cash dividend and the fair market value of any
property so distributed, when added to the amount of cash dividends paid and the
fair market value of any property so distributed during the twelve (12) months
prior to the date of such dividend or distribution, exceeds five percent (5%) of
the aggregate Market Price of the Stock of all of the Company's Stock then
outstanding on the Business Day immediately preceding the record date for such
dividend or distribution, the Holders of the Warrant shall be entitled to
participate in such dividend or distribution as if the Holder had already
exercised this Warrant in full, and such Holder shall receive, at the time such
dividend is paid or such property
-A-8-
<PAGE>
is distributed, the same kind and per-share amount of cash or other property as
is distributed to the holders of the Company's Stock.
5.4. Issuance of Additional Shares of Stock. If at any time the Company shall
--------------------------------------
(except as hereinafter provided) issue or sell any Additional Shares of Stock
either (A) in exchange for consideration in an amount per Additional Share of
Stock less than the Exercise Price in effect immediately prior to such issuance
or sale of Additional Shares of Stock or (B) in exchange for consideration in an
amount per Additional Share of Stock less than the Market Price in effect
immediately prior to such issuance or sale of Additional Shares of Stock, then
the Exercise Price as to the Warrant Shares for which this Warrant is
exercisable immediately prior to such adjustment shall be adjusted to equal the
price determined by multiplying the Exercise Price by a fraction, of which
(x) the numerator shall be (1) the number of shares of Stock outstanding
immediately prior to such issuance or sale of Additional Shares of Stock plus
(2) the number of shares of Stock which the aggregate amount of
consideration, if any, received by the Company for the total number of such
Additional Shares of Stock so issued or sold would purchase at the greater of
(I) the Market Price in effect immediately prior to such issuance or sale of
Additional Shares of Stock or (II) the Exercise Price in effect immediately
prior to such issuance or sale of Additional Shares of Stock and
(y) the denominator shall be the number of shares of Stock outstanding
immediately after such issuance or sale of Additional Shares of Stock;
provided, however, that such adjustment shall be made only if the Exercise Price
determined from such adjustment shall be less than the Exercise Price in effect
immediately prior to the issuance of such Additional Shares of Stock. The
provisions of this Section 5.4 shall not apply to any issuance of Additional
Shares of Common Stock for which an adjustment is provided under Section 5.2 or
5.3.
5.5. Issuance of Warrants or Other Rights. If at any time the Company shall
------------------------------------
take a record of the holders of its Stock for the purpose of entitling them to
receive a distribution of, or shall in any manner (whether directly or by
assumption in a merger in which the Company is the surviving corporation) issue
or sell, any warrants or other rights to subscribe for or purchase any
Additional Shares of Stock or any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately
-A-9-
<PAGE>
exercisable, and the consideration received for such warrants or other rights or
such Convertible Securities shall be less than the Exercise Price or the Market
Price in effect immediately prior to the time of such issue or sale, then the
Exercise Price shall be adjusted as provided in Section 5.4. No further
adjustments of the Exercise Price shall be made upon the actual issue of such
Stock or of such Convertible Securities upon exercise of such warrants or other
rights or upon the actual issue of such Stock upon such conversion or exchange
of such Convertible Securities.
5.6. Issuance of Convertible Securities. If at any time the Company shall
----------------------------------
take a record of the holders of its Stock for the purpose of entitling them to
receive a distribution of, or shall in any manner (whether directly or by
assumption in a merger in which the Company is the surviving corporation) issue
or sell, any Convertible Securities, whether or not the rights to convert
thereunder are immediately exercisable, and the consideration received for such
stock shall be less than the Exercise Price or the Market Price in effect
immediately prior to the time of such issue or sale, then the Exercise Price
shall be adjusted as provided in Section 5.4. No adjustment of the Exercise
Price shall be made under this Section 5.6 upon the issuance of any Convertible
Securities which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other rights
pursuant to Section 5.5. No further adjustments of the Exercise Price shall be
made upon the actual issue of such Stock upon conversion of such Convertible
Securities and, if any issue or sale of such Convertible Securities is made upon
exercise of any warrant or other right to subscribe for or to purchase any such
Convertible Securities for which adjustments of the Exercise Price have been or
are to be made pursuant to other provisions of this Section 5, no further
adjustments of the Exercise Price shall be made by reason of such issue or sale.
5.7. Antidilution Adjustments Under Other Securities. Without limiting any
-----------------------------------------------
other rights available hereunder to the Holders of the Warrants, if there is an
antidilution adjustment (i) under any Convertible Securities, whether issued
prior to or after the date hereof or (ii) under any rights, options or warrants
to purchase Additional Shares of Stock, whether issued prior to or after the
date hereof which, in either case, results in a reduction in the exercise or
purchase price with respect to such security or rights or results in an increase
in the number of Additional Shares of Stock obtainable under such Convertible
Security, right, option or warrant, then an adjustment shall be made to the
Exercise Price hereunder. Any such adjustment pursuant to this Section 5.7
shall be whichever of the following results in a lower Exercise Price: (A) a
reduction
-A-10-
<PAGE>
in the Exercise Price equal to the percentage reduction in such exercise or
purchase price with respect to such Convertible Security, right, option or
warrant or (B) a reduction in the Exercise Price which will result in the same
percentage increase in the number of Warrant Shares available hereunder as the
percentage increase in the number of Additional Shares of Stock available under
such Convertible Security, right, option or warrant. Any such adjustment under
this Section 5.7 shall only be made if it would result in a lower Exercise Price
than that which would be determined pursuant to any other antidilution
adjustment otherwise required hereunder as a result of the event or circumstance
which triggered the adjustment to such Convertible Security, right, option or
warrant, and if an adjustment is made pursuant to this Section 5.7, such other
antidilution adjustment otherwise required hereunder shall not be made as a
result of such event or circumstance.
5.8. Other Provisions Applicable to Adjustments under this Section. The
-------------------------------------------------------------
following provisions shall be applicable to the making of adjustments of the
Warrant Shares for which this Warrant is exercisable and the Exercise Price at
which such Warrant Shares may be purchased upon exercise of this Warrant
provided for in this Section 5:
(a) Computation of Consideration. To the extent that any Additional
----------------------------
Shares of Stock or any Convertible Securities or any warrants or other rights
to subscribe for or purchase any Additional Shares of Stock or any
Convertible Securities shall be issued for cash consideration, the
consideration received by the Company therefor shall be the amount of the
cash received by the Company therefor, or, if such Additional Shares of Stock
or Convertible Securities are offered by the Company for subscription, the
subscription price, or, if such Additional Shares of Stock or Convertible
Securities are sold to underwriters or dealers for public offering without a
subscription offering, the public offering price (in any such case
subtracting any amounts paid or receivable for accrued interest or accrued
dividends and any compensation, discounts or expenses paid or incurred by the
Company for and in the underwriting of, or otherwise in connection with, the
issuance thereof). To the extent that such issuance shall be for a
consideration other than cash, then except as herein otherwise expressly
provided, the amount of such consideration shall be deemed to be the fair
value of such consideration at the time of such issuance as determined in
good faith by the Board of Directors of the Company. In case any Additional
Shares of Stock or any Convertible Securities or any warrants or other rights
to subscribe for or purchase such Additional Shares of Stock or Convertible
Securities shall be issued in connection with any merger in which the
-A-11-
<PAGE>
Company issues any securities, the amount of consideration therefor shall be
deemed to be the fair value, as determined in good faith by the Board of
Directors of the Company, of such portion of the assets and business of the
nonsurviving corporation as such Board in good faith shall determine to be
attributable to such Additional Shares of Stock, Convertible Securities,
warrants or other rights, as the case may be. The consideration for any
Additional Shares of Stock issuable pursuant to any warrants or other rights
to subscribe for or purchase the same shall be the consideration received by
the Company for issuing such warrants or other rights plus the additional
consideration payable to the Company upon exercise of such warrants or other
rights. The consideration for any Additional Shares of Stock issuable
pursuant to the terms of any Convertible Securities shall be the
consideration received by the Company for issuing warrants or other rights to
subscribe for or purchase such Convertible Securities, plus the consideration
paid or payable to the Company in respect of the subscription for or purchase
of such Convertible Securities, plus the additional consideration, if any,
payable to the Company upon the exercise of the right of conversion or
exchange in such Convertible Securities. In case of the issuance at any time
of any Additional Shares of Stock or Convertible Securities in payment or
satisfaction of any dividends upon any class of stock other than Stock, the
Company shall be deemed to have received for such Additional Shares of Stock
or Convertible Securities a consideration equal to the amount of such
dividend so paid or satisfied.
(b) When Adjustments to Be Made. The adjustments required by this Section
---------------------------
5 shall be made whenever and as often as any event requiring an adjustment
shall occur, except that any adjustment of the Warrant Shares for which this
Warrant is exercisable that would otherwise be required may be postponed
(except in the case of a subdivision or combination of shares of the Stock,
as provided for in Section 5.2) up to, but not beyond the date of exercise if
such adjustment either by itself or with other adjustments not previously
made adds or subtracts less than l% of the shares of the Stock for which this
Warrant is exercisable immediately prior to the making of such adjustment.
Any adjustment representing a change of less than such minimum amount (except
as aforesaid) which is postponed shall be carried forward and made as soon as
such adjustment, together with other adjustments required by this Section 5
and not previously made, would result in a minimum adjustment or on the date
of exercise. For the purpose of any adjustment, any event shall be deemed to
have occurred at the close of business on the date of its occurrence.
-A-12-
<PAGE>
(c) Fractional Interests. In computing adjustments under this Section 5,
--------------------
fractional interests in the Stock shall be taken into account to the nearest
1/10th of a share.
(d) When Adjustment Not Required. If the Company shall take a record of the
----------------------------
holders of the Stock for the purpose of entitling them to receive a dividend or
distribution or subscription or purchase rights and shall, thereafter and before
the distribution to stockholders thereof, legally abandon its plan to pay or
deliver such dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the taking of such
record and any such adjustment previously made in respect thereof shall be
rescinded and annulled.
(e) Challenge to Good Faith Determination. Whenever the Board of Directors
-------------------------------------
of the Company shall be required to make a determination in good faith of the
fair value of any item under this Section 5, such determination may be
challenged in good faith by a Holder and any dispute shall be resolved by an
investment banking firm of recognized national standing selected by the Company
and acceptable to such Holder. The fees of such investment banker shall be borne
by the Holder if the Company's calculation is determined to be correct and
otherwise by the Company.
(f) Escrow of Property. If the Company shall take a record of the holders
------------------
of its Stock for the purpose of entitling them to receive any distribution of
any kind of property whatsoever, but prior to the payment of such distribution
the Holder exercises this Warrant, upon payment of the Exercise Price, such
property shall be held in escrow for the Holder by the Company to be issued to
the Holder upon the occurrence of such distribution and to the extent such
distribution actually takes place. Notwithstanding any other provision to the
contrary herein, if the distribution for which such record was taken fails to
occur or is rescinded, then such escrowed property shall be returned to the
Company.
5.9. Reorganization, Reclassification, Merger or Consolidation. If the
---------------------------------------------------------
Company shall at any time reorganize or reclassify the outstanding shares of
Stock (other than a change in par value, or from no par value to par value, or
from par value to no par value, or as a result of a subdivision or combination)
or consolidate with or merge into another corporation (where the Company is not
the continuing corporation after such merger or consolidation), the Holders
shall thereafter be entitled to receive upon exercise of this Warrant in whole
or in part, the same kind and number of shares of stock and other securities,
cash or other property (and upon the same terms and with the same rights) as
would have been distributed to the Holder upon
-A-13-
<PAGE>
such reorganization, reclassification, consolidation or merger had the Holder
exercised this Warrant immediately prior to such reorganization,
reclassification, consolidation or merger (subject to subsequent adjustments
under Section 5 hereof). The Holders shall pay upon such exercise the Exercise
Price that otherwise would have been payable pursuant to the terms of this
Warrant. If any such reorganization, reclassification, consolidation or merger
results in a cash distribution in excess of the Exercise Price provided by this
Warrant, a Holder may, at the Holder's option, exercise this Warrant without
making payment of the Exercise Price, and in such case the Company shall, upon
distribution to the Holder, consider the Exercise Price to have been paid in
full, and in making settlement to the Holder, shall deduct an amount equal to
the Exercise Price from the amount payable to the Holder. Notwithstanding
anything herein to the contrary, the Company will not effect any such
reorganization, reclassification, merger or consolidation unless prior to the
consummation thereof, the corporation who may be required to deliver any stock,
securities or other assets upon the exercise of this Warrant shall agree by an
instrument in writing to deliver such stock, cash, securities or other assets to
the Holder. A sale, transfer or lease of all or substantially all of the assets
of the Company to another person shall be deemed a reorganization,
reclassification, consolidation or merger for the foregoing purposes.
5.10. Exceptions to Adjustment of Exercise Price and/or Warrant Shares.
----------------------------------------------------------------
Anything herein to the contrary notwithstanding, the Company shall not make any
adjustment of the Exercise Price or the Warrant Shares issuable upon the
exercise of this Warrant in the case of (i) the issuance of the Warrants or any
other Warrants at any time issued in connection with the Warrant Agreement or
the issuance of shares of the Stock upon exercise of any such Warrants, (ii) the
issuance of shares of Stock to holders of the Company's Preferred Stock upon
conversion of all or any portion of their shares of Preferred Stock, (iii) the
issuance of the Preferred Stock Warrants or the issuance of the shares of Stock
upon exercise of such Preferred Stock Warrants or (iv) the issuance of the
Performance Warrants or the issuance of the shares of Stock upon exercise of
such Performance Warrants.
5.11. Chief Financial Officer's Opinion. Upon each adjustment of the
---------------------------------
Exercise Price and upon each change in the Warrant Shares issuable upon the
exercise of this Warrant, and in the event of any change in the rights of a
Holder by reason of other events herein set forth, then and in each such case,
the Company will promptly obtain an opinion of the chief financial officer of
the Company, stating the adjusted Exercise Price and the new Warrant Shares so
issuable, or specifying the other shares of the Stock, securities or assets and
the amount thereof receivable as a
-A-14-
<PAGE>
result of such change in rights, and setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based. The
Company will promptly mail a copy of such opinion to the Holders. If a Holder
disagrees with such calculation, the Company agrees to obtain within thirty (30)
business days an opinion of a firm of independent certified public accountants
selected by the Company's Board of Directors and acceptable to such Holder to
review such calculation and the opinion of such firm of independent certified
public accountants shall be final and binding on the parties and shall be
conclusive evidence of the correctness of the computation with respect to any
such adjustment of the Exercise Price and any such change in the number of
Warrant Shares so issuable. The fees of such accountants shall be borne by the
Holder if the Company's calculation is determined by such accountants to be
correct and otherwise by the Company.
5.12. Company to Prevent Dilution. In case at any time or from time to
---------------------------
time conditions arise by reason of action taken by the Company, which in the
good faith opinion of its Board of Directors or a majority of the Holders are
not adequately covered by the provisions of this Section 5, and which might
materially and adversely affect the exercise rights of the Holders, the Board of
Directors of the Company shall appoint such firm of independent certified public
accountants acceptable to a majority of the Holders, which shall give their
opinion upon the adjustment, if any, on a basis consistent with the standards
established in the other provisions of this Section 5, necessary with respect to
the Exercise Price, so as to preserve, without dilution (other than as
specifically contemplated by this Warrant), the exercise rights of the Holders.
Upon receipt of such opinion, the Board of Directors of the Company shall
forthwith make the adjustments described therein.
Section 6. Character of Shares of Stock.
----------------------------
All shares of the Stock issuable upon the exercise of this Warrant shall, when
issued to a Holder, be duly authorized, validly issued, fully paid and
nonassessable, free and clear of any lien or encumbrance and without any
preemptive rights.
Section 7. Notice to Holder.
----------------
So long as this Warrant shall be outstanding, (i) if the Company shall pay any
dividend or make any distribution upon the Stock otherwise than in cash, (ii) if
the Company shall offer to the holders of Stock, for subscription or purchase by
them, any shares of any class of stock of the Company or any other rights or
(iii) if there shall be any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or
-A-15-
<PAGE>
transfer of all or substantially all of the property and assets of the Company,
voluntary or involuntary dissolution, liquidation or winding up of the Company,
then in any such event, the Company shall cause to be mailed by certified mail
to each Holder, at least 30 days prior to the event described above, a notice
containing a brief description of the proposed action and stating the date or
expected date on which a record is to be taken for the purpose of such dividend,
distribution or rights, or the date or expected date such reclassification,
reorganization, consolidation, merger, conveyance, lease or transfer,
dissolution, liquidation or winding up shall take place or be voted upon by
holders of the Stock of record, and the date or expected date as of which the
holders of Stock of record shall be entitled to exchange their shares of Stock
for securities or other property deliverable upon any such event.
Section 8. Disposition of Warrant Shares.
-----------------------------
The stock certificates of the Company that will evidence the Warrant Shares or
any other security issued or issuable upon exercise of this Warrant will be
imprinted with a conspicuous legend in substantially the following form:
The securities represented by this Certificate have not been registered
under the Securities Act of 1933 (the "Act") or any applicable state
securities laws and may not be sold, pledged, hypothecated, donated or
otherwise transferred (whether or not for consideration) unless registered
under the Act and any applicable state securities laws or in a transaction
exempt from such registrations.
Except as provided in the Registration Rights Agreement, the Company does not
agree to register any of the Warrant Shares for distribution in accordance with
the provisions of the Act or any applicable state securities laws, and the
Company has not agreed to comply with any exemption from registration under the
Act or any applicable state securities laws for the resale of the Warrant
Shares. Hence, it is the understanding of the Holder that by virtue of the
provisions of certain rules respecting "restricted securities" promulgated by
---------------------
the Securities and Exchange Commission, the Warrant Shares may be required to be
held indefinitely, unless and until registered under the Act and any applicable
state securities laws unless an exemption from such registration is available,
in which case the Holders may still be limited as to the number of Warrant
Shares that may be sold.
Section 9. Governing Law.
-------------
This Warrant shall be construed in accordance with the laws of the State of
Georgia applicable to contracts
-A-16-
<PAGE>
executed and to be performed wholly within such state without regard to any
conflicts of laws principles.
Section 10. Notice.
------
Any notice, demand, document or other communication given or delivered
hereunder shall be in writing, and may be (i) personally delivered, (ii) given
or made by United States registered or certified mail, return receipt requested,
postage prepaid, or (iii) given or made by overnight courier, delivery charges
prepaid, addressed as follows:
If to the Company: Harry's Farmers Market, Inc.
- ------------------
1180 Upper Hembree Road
Roswell, GA 30076
Attention: Chief Financial Officer
With a Copy to: Nelson, Mullins, Riley & Scarborough, L.L.P.
- ---------------
400 Colony Square, Suite 2200
1201 Peachtree Street, Suite 2200
Atlanta, Georgia 30361
Attention: John Latham, Esq.
If to [Holder]: [Holder's Address]
- ---------------
With a Copy to:
- ---------------
The Company and the Holder shall each have the right to designate a different
address for itself by notice similarly given. All such notices, demands,
documents or other communication will be deemed to be delivered (i) upon
receipt, if personally delivered, (ii) on the third full Business Day following
the day of mailing, if sent by United States registered or certified mail and
(iii) on the Business Day following the date it was sent, if sent by overnight
courier.
Section 11. Remedies.
--------
The Company stipulates that the remedies at law of the Holder in the event of
any default or threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant are not and will not be
adequate, and that such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise, in addition to any
other remedies which may be available at law or in equity.
Section 12. Company Will Avoid Certain Actions.
----------------------------------
-A-17-
<PAGE>
The Company will not, by amendment of its certificate of incorporation or
through any reorganization, transfer of assets, consolidation, merger, issue or
sale of securities or otherwise, avoid or take any action which would have the
effect of avoiding the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in carrying out all of the provisions of this Warrant Certificate
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holder of this Warrant Certificate against dilution
or other impairment, and in particular, will not cause the par value, if any, of
any share of Stock, to be or become greater than the then effective Exercise
Price.
Section 13. Company Will Not Close Books.
----------------------------
The Company will at no time close its transfer books against the transfer of
this Warrant or of any shares of Stock issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant.
Section 14. Successors and Assigns.
----------------------
This Warrant and the rights evidenced hereby shall inure to the benefit of and
be binding upon the successors of the Company and the successors and assigns of
the Holders hereof. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder.
Section 15. Amendment.
---------
This Warrant Certificate may be modified or amended and any provision hereof
may be waived by a writing executed by the Company and holders of Warrants
representing a majority of the Warrant Shares obtainable upon exercise of the
Warrants.
Section 16. Headings.
--------
Section headings in this Warrant are for reference only and shall not affect
the meaning or construction of any of the provisions hereof.
[Signature on following page]
-A-18-
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date
first written above.
HARRY'S FARMERS MARKET, INC.
By:
-----------------------------
Name:
Title:
-A-19-
<PAGE>
ANNEX A
FORM OF SUBSCRIPTION
--------------------
(To be executed only upon exercise of the Warrant in whole or in part)
To HARRY'S FARMERS MARKET, INC.
The undersigned registered holder of the accompanying Warrant hereby
irrevocably exercises such Warrant or portion thereof for, and purchases
thereunder, _______/1/ Warrant Shares (as defined in such Warrant) and herewith
makes payment therefor of $________. The undersigned requests that the
certificates for such Warrant Shares be issued in the name of, and delivered to
________________________________, whose address is ___________________________.
Dated:
--------------------------------------
(Name must conform to name of holder as
specified on the face of the Warrant)
--------------------------------------
(Street Address)
--------------------------------------
(City) (State) (Zip Code)
- ------------
/1/ Insert the number of Warrant Shares as to which this Warrant is being
exercised. In the case of a partial exercise, a new Warrant or Warrants will be
issued and delivered, representing the unexercised portion of this Warrant, to
the holder surrendering the same.
-A-20-
<PAGE>
ANNEX B
FORM OF ASSIGNMENT
------------------
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers unto
_______________________________ [Name] of ____________________[Address] the
right represented by the within Warrant to purchase _________ shares of Class A
Common Stock of HARRY'S FARMERS MARKET, INC. to which the within Warrant
relates, and appoints _____________ Attorney to transfer such right on the books
of HARRY'S FARMERS MARKET, INC. with full power of substitution in the premises.
Dated: ________________
--------------------------------------
(Name must conform to name of holder as
specified on the face of the Warrant)
-------------------------------------
(Street Address)
-------------------------------------
(City) (State) (Zip Code)
Signed in the presence of:
- ------------------------------
-A-21-
<PAGE>
ANNEX C
FORM OF CONVERSION NOTICE
-------------------------
(To be executed only upon conversion of the Warrant in wholeor in part)
To HARRY'S FARMERS MARKET, INC.
The undersigned registered holder of the accompanying Warrant hereby
irrevocably elects to exercise its right to convert such Warrant or portion
thereof into _______/2/ Warrant Shares (as defined in such Warrant). The
undersigned requests that the certificates for such Warrant Shares be issued in
the name of, and delivered to ________________________________, whose address is
_________________________________.
Dated:
--------------------------------------
(Name must conform to name of holder as
specified on the face of the Warrant)
--------------------------------------
(Street Address)
--------------------------------------
(City) (State) (Zip Code)
- --------------
/2/ Insert the number of Warrant Shares as to which this Warrant is being
exercised. In the case of a partial exercise, a new Warrant or Warrants will be
issued and delivered, representing the unexercised portion of this Warrant, to
the holder surrendering the same.
-A-22-
<PAGE>
EXHIBIT B
FORM OF OPINION OF COMPANY'S COUNSEL
May 8, 1996
NationsBank, N.A. (South),
in its individual capacity and as Agent
600 Peachtree Street
21st Floor
Atlanta, Georgia 30308
Creditanstalt-Bankverein
Two Ravinia Drive
Suite 1680
Atlanta, Georgia 30346
Ladies and Gentlemen:
We have acted as counsel to Harry's Farmers Market, Inc., a Georgia
corporation (the "Company"), in connection with the negotiation, execution and
delivery of that certain Sixth Amendment, Waiver and Forbearance Agreement dated
as of the date hereof (the "Amendment") by and among the Company, NationsBank,
N.A. (South), as Lender ("NationsBank"), Creditanstalt-Bankverein, New York
Branch, as Lender ("Creditanstalt") and NationsBank, N.A. (South), as Agent.
All capitalized terms used but not defined herein shall have the meanings set
forth in the Amendment.
In these capacities, we have reviewed the following:
(a) the Amendment;
(b) the Amended and Restated Warrant Certificate executed by the
Company in favor of NationsBank (the "1994 NationsBank Warrants");
(d) the Amended and Restated Warrant Certificate executed by the
Company in favor of Creditanstalt-Bankverein (the 1994 Creditanstalt Warrants;
together with the 1994 NationsBank Warrants, the "1994 Warrants");
(e) the Warrant Agreement executed by the Company and the Lenders (the
"Warrant Agreement");
(f) the Warrant Certificate executed by the Company in favor of
NationsBank (the "1996 NationsBank Warrants"); and
(g) the Warrant Certificate executed by the
B-1
<PAGE>
Company in favor of Creditanstalt-Bankverein (the "1996 Creditanstalt Warrants";
together with the 1996 NationsBank Warrants, the "1996 Warrants").
The documents set forth in items (a) through (g) above are referred herein as
the "Amendment Documents".
In addition to the foregoing we have reviewed the articles of
incorporation and by-laws of the Company and certain resolutions of the board of
directors of the Company (collectively, the "Organizational Documents") and have
also examined originals or copies, certified or otherwise identified to our
satisfaction, of such documents, corporate records and other instruments, and
made such other investigations, as we have deemed necessary or advisable for the
purposes of rendering this opinion. We have also made such examinations of law
as we have deemed necessary to our rendering the opinions set forth herein. In
our examinations of documents, we assumed the genuineness of all signatures on
documents presented to us as originals (other than the signatures of officers of
the Company) and the conformity to originals of documents presented to us as
conformed or reproduced copies.
Based upon the foregoing, and subject to all of the qualifications and
assumptions set forth herein, we are of the opinion that:
1. The Company (i) is duly organized as a corporation, and is validly
existing and in good standing under the laws of its jurisdiction of
incorporation and (ii) has the corporate power to execute, deliver and perform
the Amendment Documents to which it is a party, to own and use its assets, and
to conduct its business as presently conducted and as proposed to be conducted
immediately following the consummation of the transactions contemplated by the
Amendment.
2. The execution, delivery and performance by the Company of the
Amendment Documents (including, without limitation, the issuance of the 1996
Warrants, as contemplated by the Warrant Agreement, the amendment and
restatement of the 1994 Warrants and the 1994 Warrants and the 1996 Warrants)
are within its corporate powers, have been duly authorized by all necessary
corporate action, and do not (a) contravene any law, rule, or regulation of the
State of Georgia or of the United States, or to the extent that we have
knowledge thereof, any order, writ, judgment, injunction, decree, determination
or award presently in effect which affects or binds it or any of its properties
(b) conflict with or result in a breach of any of the provisions of its articles
of incorporation
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<PAGE>
or bylaws, (c) conflict with or result in a breach of or default under any of
the Material Contracts to which such corporation is a party or by which any of
its respective properties may be bound, or (d) except as contemplated by the
Amendment, result in the creation or imposition of any lien, security interest
or other charge or encumbrance upon any of its properties pursuant to any
Material Contract.
3. No authorization, consent or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required to be obtained or made by the Company for the due execution, delivery
and performance by the Company of the Amendment Documents, except such as have
been duly obtained or made.
4. Each Amendment Document has been duly and validly executed and
delivered by the Company and each such Amendment Document is an enforceable
obligation of the Company in accordance with its terms, except as the same may
be limited by bankruptcy, insolvency or similar laws and legal or equitable
principles affecting the enforcement of creditors' rights generally.
5. The Company has duly reserved for issuance upon exercise of the
1994 Warrants and the 1996 Warrants an aggregate of 360,000 shares of its
authorized Class A Common Stock. The shares of Class A Common Stock reserved
for issuance upon exercise of the 1994 Warrants and the 1996 Warrants have been
duly authorized, and upon issuance thereof upon exercise of the 1994 Warrants
and the 1996 Warrants in accordance with the terms thereof and upon payment
therefor, will be validly issued, fully paid and non-assessable.
The opinions rendered herein are limited to the federal laws of the United
States and the laws of the State of Georgia.
This opinion letter has been delivered solely for the benefit of the
Agent and the Lenders in connection with the transactions contemplated by the
Amendment Documents and may not be relied upon by any other person or entity or
for any other purpose without our express prior written permission. We
expressly disclaim any duty to update this opinion letter in the future in the
event there are any changes in relevant fact or law that may change or otherwise
affect any of the opinions expressed herein.
Very truly yours,
NELSON, MULLINS, RILEY &
SCARBOROUGH, L.L.P.
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EXHIBIT C
FORM OF CONSENT OF FLEMING HOLDERS
May 8, 1996
NationsBank, N.A. (South)
600 Peachtree Street, N.E.
Atlanta, Georgia 30308
Creditanstalt-Bankverein
Two Ravinia Drive, N.E., Suite 1680
Atlanta, Georgia 30346
Harry's Farmers Market, Inc.
1180 Upper Hembree Road
Roswell, Georgia 30076
Ladies and Gentlemen:
Reference is made to that certain Warrant Agreement dated as of December 30,
1994, as amended and restated as of the date hereof (the "Warrant Agreement") by
and among Harry's Farmers Markets, Inc. (the "Company"), NationsBank, N.A.
(South), formerly known as NationsBank of Georgia, National Association
("NationsBank") and Creditanstalt-Bankverein ("Creditanstalt"; Creditanstalt
together with NationsBank, collectively referred to as the "Holders").
Capitalized terms used herein and not defined herein are used with the
definitions given such terms in the Warrant Agreement.
The undersigned, Robert Fleming Nominees Ltd., hereby consents to (i) the
execution and delivery of the Warrant Agreement, and to the performance by the
Company of its agreements and obligations thereunder and to all agreements and
documents entered into in connection therewith; (ii) the amendment and
restatement of the Existing Warrants for the purchase of 240,000 shares of the
Class A Common Stock of the Company which were issued to the Holders on December
30, 1994, which amendment and restatement includes a reduction of the exercise
price of such warrants from $10.00 per share to $3.00 per share; and (iii) the
issuance of New Warrants on the date hereof for the purchase of 120,000 shares
of Class A Common Stock of the Company to the Holders providing for an exercise
price of $6.00 per share.
Very truly yours,
ROBERT FLEMING NOMINEES LTD.
By:
Title:
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