<PAGE>
As filed with the Securities and Exchange Commission on April 16, 1997
Registration No. 333-_________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------------
HORIZON PHARMACIES, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
Texas 5912 75-2441557
(State or Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation Industrial Classification Identification Number)
or Organization) Code Number)
275 W. PRINCETON DRIVE
PRINCETON, TEXAS 75407
(972) 736-2424
(Address and Telephone Number of Principal Executive Offices)
RICK D. MCCORD, PRESIDENT
HORIZON PHARMACIES, INC.
275 W. PRINCETON DRIVE
PRINCETON, TEXAS 75407
(972) 736-2424
(Name, Address and Telephone Number of Agent for Service)
----------------------
COPIES TO:
DOUGLAS A. BRANCH, ESQ. MARK A. ROBERTSON, ESQ.
Phillips McFall McCaffrey McVay & Murrah, P.C. Robertson & Williams, Inc.
211 North Robinson, 12th Floor 3033 N.W. 63rd, Suite 160
Oklahoma City, Oklahoma 73102 Oklahoma City, Oklahoma 73116
(405) 235-4100 (405) 848-1944
----------------------
Approximate Date of Commencement of Proposed Sale to the Public:
As soon as practicable after this Registration Statement becomes effective.
----------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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<TABLE>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE (1) OFFERING PRICE REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, $.01 par value 1,035,000(2) $5.00 $5,175,000 $1,784.48
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Underwriters' Warrants(3) 90,000 .001 $ 90 (4)
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Common Stock Issuable Upon Exercise
of Underwriters' Warrants(5) 90,000 6.00 $ 540,000 $ 186.21
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TOTAL $5,715,090 $1,970.68
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Includes 135,000 shares of Common Stock subject to the Underwriters'
over-allotment option.
(3) The Underwriters' Warrants entitle the Underwriters to purchase shares of
Common Stock equal to 10% of the total number of shares sold pursuant to
the Registration Statement, exclusive of any shares subject to the
Underwriters' over-allotment option.
(4) Pursuant to Rule 457(g), no registration fee is payable.
(5) Pursuant to Rule 416, this Registration Statement also covers an
indeterminate number of additional securities issuable upon future
anti-dilution adjustments in accordance with the terms of the Underwriters'
Warrants.
----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 16, 1997
PROSPECTUS
900,000 SHARES
HORIZON PHARMACIES, INC.
COMMON STOCK
All of the 900,000 shares of common stock, $.01 par value per share (the
"Common Stock"), offered hereby (the "Offering") are being sold by HORIZON
Pharmacies, Inc. (the "Company"). Prior to this Offering, there has been no
public market for the Company's Common Stock. It is currently anticipated
that the initial public offering price will be $5.00 per share. See
"Underwriting" for information relating to the method of determining the
initial public offering price. The Company has applied for inclusion of the
Common Stock on the Nasdaq Small Cap Market under the trading symbol "HRZN".
THESE SECURITIES ARE SPECULATIVE IN NATURE, INVOLVE A HIGH DEGREE OF
RISK AND SUBSTANTIAL DILUTION AND SHOULD BE CONSIDERED ONLY
BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS" ON PAGE 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
THE PUBLIC AND COMMISSIONS(1) COMPANY (2)(3)
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Per Share $5.00 $.50 $4.50
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Total(3) $4,500,000 $450,000 $4,050,000
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses in connection with this Offering payable by the
Company, including a nonaccountable expense allowance to be paid to the
Underwriters in the amount of $135,000 ($155,250 if the Underwriters'
over-allotment option is exercised in full). See "Use of Proceeds" and
"Underwriting."
(3) The Company has granted the Underwriters an option, exercisable within 45
business days from the date of this prospectus, to purchase up to 135,000
additional shares of Common Stock upon the same terms and conditions as
set forth above, solely to cover over-allotments, if any. If such
over-allotment option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$5,175,000, $517,500 and $4,657,500, respectively. See "Underwriting."
The Common Stock is being offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters and
subject to the approval of certain legal matters by counsel and to certain
other conditions. It is expected that delivery of certificates representing
the shares of Common Stock will be made against payment therefor at the
offices of Capital West Securities, Inc. ("Capital West"), Oklahoma City,
Oklahoma, on or about ______________, 1997.
CAPITAL WEST SECURITIES, INC.
THE DATE OF THIS PROSPECTUS IS __________________, 1997.
<PAGE>
--------------
The Company intends to furnish its shareholders with annual reports
containing audited financial statements certified by an independent public
accounting firm and with quarterly reports for the first three quarters of
each year containing unaudited financial information.
--------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT
OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF
THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
--------------
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS" AND FINANCIAL STATEMENTS, INCLUDING THE
NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, ALL INFORMATION CONTAINED IN THIS PROSPECTUS (i) ASSUMES AN
INITIAL OFFERING PRICE OF $5.00 PER SHARE; (ii) REFLECTS A 2-FOR-1 STOCK
SPLIT OF THE COMPANY'S COMMON STOCK; (iii) ASSUMES THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION IS NOT EXERCISED; AND (iv) ASSUMES THE FILING OF AN
AMENDED AND RESTATED ARTICLES OF INCORPORATION. EXCEPT FOR THE HISTORICAL
INFORMATION CONTAINED HEREIN, THIS PROSPECTUS CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS REGARDING THE COMPANY'S BUSINESS AND PROSPECTS
THAT ARE BASED UPON NUMEROUS ASSUMPTIONS ABOUT FUTURE CONDITIONS WHICH MAY
ULTIMATELY PROVE TO BE INACCURATE AND ACTUAL EVENTS AND RESULTS MAY
MATERIALLY DIFFER FROM ANTICIPATED RESULTS DESCRIBED IN SUCH STATEMENTS. THE
COMPANY'S ABILITY TO ACHIEVE SUCH RESULTS IS SUBJECT TO CERTAIN RISKS AND
UNCERTAINTIES, SUCH AS THOSE INHERENT GENERALLY IN THE RETAIL PHARMACY AND
HOME HEALTHCARE INDUSTRIES, THE IMPACT OF COMPETITION AND PRICING, CHANGING
MARKET CONDITIONS, THE RISKS DETAILED IN THE SECTIONS ENTITLED "RISK FACTORS"
AND "LEGAL PROCEEDINGS," AND OTHER RISKS DETAILED THROUGHOUT THIS PROSPECTUS.
THESE FORWARD-LOOKING STATEMENTS REPRESENT THE COMPANY'S JUDGMENT AS OF THE
DATE OF THE FILING OF THIS PROSPECTUS. THE COMPANY DISCLAIMS, HOWEVER, ANY
INTENT OR OBLIGATION TO UPDATE THESE FORWARD-LOOKING STATEMENTS.
THE COMPANY
The Company owns and operates a chain of 14 retail pharmacies, nine of
which are located in Texas, two in Virginia, and one each in New Mexico,
Oklahoma and Wisconsin. According to the October 21, 1996 issue of CHAIN
DRUG REVIEW, the Company is among the top 100 retail pharmacy chains in the
United States based on store count and dollar volume of sales. The Company
plans to acquire between eight and 12 pharmacies annually in each of 1997,
1998 and 1999. In March 1997, the Company consummated the purchase of three
pharmacies owned by True Quality Pharmacies, Inc. d/b/a Vista Pharmacy (the
"Vista Stores").
The Company began operating in February 1994 for the purpose of
acquiring and consolidating under the HORIZON Pharmacies, Inc. name high
volume, free-standing full-service retail pharmacies primarily located in
communities having populations of fewer than 50,000 persons. The Company
believes that its success is primarily due to its philosophy of retaining the
individual, time-proven customer service characteristics of the stores it
acquires, while enabling such stores to offer complete and competitively
priced inventories to their small town customers through enhanced technology
and the consolidation and management of such stores as a chain.
Currently, the Company's primary source of revenue is the sale of
prescription drugs. During 1996, sales of prescription drugs generated 81.5%
of the Company's net sales. Management expects the Company's prescription
drug business to continue to increase as a result of the demographic trends
towards an aging population and the continued development of new
pharmaceutical products. However, the Company anticipates that prescription
sales will continue to decrease as a percentage of the Company's overall
sales and gross margins as the Company continues to expand its home
healthcare and other non-pharmaceutical sales and services which have
historically provided higher margins.
In addition to prescription drugs and services, the Company's retail
pharmacies offer a broad range of over-the-counter medications, supplies and
equipment, health and beauty aids, cosmetics, gifts, greeting cards,
convenience foods, cameras, photo supplies and processing services and other
general merchandise. Some stores incorporate special features such as
drive-through windows and free home delivery for customer convenience,
optical departments, fax, copying and package delivery services and soda
fountains. In addition, the Company's Farmington, New Mexico store sells and
leases under the name HORIZON Home Care durable medical equipment ("DME") and
offers home healthcare services including, but not limited to, intravenous
("IV") infusion services and home oxygen therapy. The Company intends to
expand such products and services to other stores in which attractive market
opportunities exist.
3
<PAGE>
The Company's business strategy is (i) to expand by continuing to
acquire small chains and independent pharmacies primarily in communities
having populations of fewer than 50,000 persons; (ii) to improve
profitability for each store in its chain; and (iii) to expand home
healthcare and other non-pharmaceutical sales and services to certain of its
other stores. In implementing its business strategy, the Company intends to
maintain competitive pricing and a high level of customer service and
convenience, continue to control costs and take advantage of the available
economies of scale, improve the stores' use of technology and focus on
management procedures and policies and employee training. The Company also
plans to acquire and consolidate the inventory and pharmacy files of certain
retail pharmacies in its existing market areas to increase sales volumes in
existing stores in a cost-effective manner. Stores which are acquired by the
Company will not be remodeled to fit a standardized format, but will, to the
extent practicable, be permitted to retain their individual layouts,
locations and management styles.
As part of its marketing strategy, the Company plans to convert between
one and five of its existing stores into "healthcare centers" similar to that
currently operated by its store located in Farmington, New Mexico. Each such
center will offer home healthcare services and may lease to an unaffiliated
third party owner-operator a small clinic staffed by a physician's assistant
or nurse practitioner located adjacent to the store's traditional retail
pharmacy operations. The Company intends for such healthcare centers to
offer customers "one-stop shopping" at competitive prices for basic medical
and home healthcare services. The Company believes that providing such home
healthcare and basic medical services adjacent to its retail pharmacies will
result in increased sales and profits for such stores.
The Company was incorporated under the laws of the State of Texas on
August 31, 1992 and began operations under the name HORIZON Pharmacies, Inc.
in February 1994. The Company's principal office is located at 275 W.
Princeton Drive, Princeton, Texas 75407, and its telephone number is (972)
736-2424.
4
<PAGE>
THE OFFERING
Common Stock offered by the
Company . . . . . . . . . . . . . . . 900,000 shares
Shares of Common Stock to be
outstanding after the Offering. . . . 1,982,424 shares(1)
Use of Proceeds. . . . . . . . . . . . To repay certain existing
indebtedness, acquire additional
retail pharmacies and/or the
inventory and pharmacy files of
other retail pharmacies, make a
distribution to existing
shareholders primarily to
mitigate such shareholders'
expected state and Federal
income taxes associated with the
Company's present S corporation
status and for working capital
and general corporate purposes.
Nasdaq SmallCap Market Symbol . . . . . HRZN (proposed)
- --------------------
(1) Excludes 200,000 shares of Common Stock reserved for issuance pursuant
to the Company's 1997 Stock Option Plan (the "Option Plan"). See
"Management - Stock Option Plan" and "Description of Securities."
RISK FACTORS
Investment in the Common Stock offered hereby involves a high degree of
risk and immediate substantial dilution. See "Risk Factors" and "Dilution."
5
<PAGE>
SUMMARY - FINANCIAL AND OPERATING DATA
The following table sets forth historical and 1996 pro forma financial
information of the Company. The historical information is derived from the
audited financial statements of the Company for each of the two years in the
period ended December 31, 1996 appearing elsewhere in this prospectus, and
from the audited financial statements of the Company for the period from
February 28, 1994 to December 31, 1994, not presented herein. The following
financial information should be read in conjunction with such Financial
Statements including the Notes thereto. See "Selected Financial
Information," "Pro Forma Combined Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
YEARS ENDED DECEMBER 31,
---------------------------------
PERIOD FROM HISTORICAL PRO FORMA
FEBRUARY 28, 1994 ---------------- ---------
TO DECEMBER 31, 1994(1) 1995 1996 1996(2)
----------------------- ------ ------- ---------
(IN THOUSANDS, EXCEPT SHARE AND STORE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net Sales $1,671 $6,270 $13,136 $22,133
Gross Profit 595 1,898 4,194 6,686
Income from operations 169 279 551 1,024
Interest expense 16 110 253 227
Income before income taxes 154 176 302 801
Pro forma provision for taxes 54 62 106 278
Pro forma net income 100 114 196 523
Pro forma net income per
common share 0.27
Shares used in computation 1,969,856
BALANCE SHEET DATA:
Working capital $ 600 $1,029 $1,563 $4,518
Total assets 1,268 3,545 6,589 9,518
Long-term obligations 346 930 1,467 1,367
Total liabilities 576 2,266 4,839 4,412
Shareholders' equity 692 1,279 1,750 5,106
NUMBER OF STORES AT END OF YEAR 3 7 11 14
- ----------------------------
(1) The Company was organized August 31, 1992 but had no operations until February 28, 1994.
(2) See "Pro Forma Combined Financial Data" for information regarding the pro forma adjustments
made to the Company's historical financial data.
</TABLE>
6
<PAGE>
RISK FACTORS
An investment in the securities being offered hereby involves
substantial risk. Prospective investors should carefully consider the
following factors in addition to the other information set forth in this
prospectus.
DEPENDENCE ON ACQUISITIONS FOR GROWTH. The Company has grown rapidly in
recent periods and intends to continue to pursue an aggressive growth
strategy. The Company's growth strategy depends upon its ability to continue
to acquire, consolidate and operate existing free-standing pharmacies on a
profitable basis. During 1996, the Company acquired four pharmacies and
three pharmacies were acquired during the first quarter of 1997. By the end
of 1997, the Company plans to acquire an additional eight to 12 stores and
have in operation a total of approximately 24 stores. However, no assurance
can be given that the Company will be able to find attractive acquisition
candidates, consummate additional acquisitions or that it will successfully
integrate, convert or operate any acquired business. In the event that the
Company makes acquisitions, there can be no assurance that any such
acquisition expenses will not have a material adverse effect upon the
Company's operating results, particularly during the period in which such
operations are being integrated into the Company. Furthermore, the Company's
ability to make acquisitions may depend upon its ability to obtain financing.
There can be no assurance that the Company will be able to obtain financing
or, if available, that such financing will be on acceptable terms. The
Company continually reviews acquisition proposals and is currently engaged in
discussions with third parties with respect to possible acquisitions;
however, the Company has no agreement or commitments with respect to any
potential acquisition. The Company will compete for acquisition candidates
with buyers who have greater financial and other resources than the Company
and may be able to pay higher acquisition prices than the Company. To the
extent the Company is unable to acquire suitable retail pharmacies, or to
integrate such acquisitions successfully, its ability to expand its business
would be reduced significantly. See "- Possible Need for Additional
Capital," "- Substantial Indebtedness" and "Business - Expansion Strategy."
SALES TO THIRD-PARTY PAYORS. A growing percentage of the Company's
prescription drug volume has been accounted for by sales to customers who are
covered by third-party payment programs. Third-party reimbursement accounted
for approximately 52% of the Company's prescription sales in 1996, 46% in
1995 and 36% in 1994. It is anticipated that prescription sales to
third-party payors, in terms of both dollar volume and as a percentage of
total prescription sales, will continue to increase in the first quarter of
1997 and the Company expects this trend to continue. Although contracts with
third-party payors may increase the volume of prescription sales and gross
profits, third-party payors typically negotiate lower prescription prices
than those of non third-party payors. Accordingly, there has been downward
pressure on gross profit margins on sales of prescription drugs which is
expected to continue in future periods. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business - The
Retail Pharmacy Industry."
RELIANCE ON MEDICARE AND MEDICAID REIMBURSEMENTS. Substantially all of
the Company's home healthcare revenues are attributable to third-party
payors, including Medicare and Medicaid, private insurers, managed care plans
and HMOs. The amounts received from government programs and private
third-party payors are dependent upon the specific benefits included under
the program or the patient's insurance policies. Like other medical service
providers, the Company is subject to lengthy reimbursement delays as a result
of third-party payment procedures. Any substantial delays in reimbursement
could adversely affect the Company's business, financial condition, cash
flows and results of operations. Accordingly, management of accounts
receivable through effective billing and reimbursement procedures is critical
to the Company's results of operations.
Because alternate site health care is generally less costly to
third-party payors than hospital-based care, alternate site health care
providers have generally benefited from cost containment initiatives aimed at
reducing the costs of medical care. However, as the alternate site market
becomes a larger percentage of the total health care market, cost containment
initiatives aimed at reducing the costs of delivering services
7
<PAGE>
at non-hospital sites are increasing and may adversely affect the profitability
of alternate site health care providers. A significant reduction in the
coverage or payment rates of third-party payors, or from patients enrolled in
the Medicare or Medicaid programs, would have a material adverse effect on
the Company's revenues and profitability. The level of revenues and
profitability of the Company, like those of other health care companies, are
affected by the continuing efforts of third-party payors to contain or reduce
the costs of health care by lowering reimbursement rates, increasing case
management review of services and negotiating reduced contract pricing.
Government reimbursement programs are subject to statutory and
regulatory changes, retroactive rate adjustments, administrative rulings and
governmental funding restrictions, all of which may materially increase or
decrease the rate of program payments to the Company for its services. In
addition to being subject to frequent changes in Federal and state laws
governing Medicare and Medicaid coverage and reimbursement policies, the
Company is subject to governmental audit of the reimbursements it receives
under the Medicare and Medicaid programs. Any significant audit adjustment
could have a material adverse effect on the Company's business, financial
condition, cash flows or results of operations. There can be no assurance
that payments under governmental and private third-party payor programs will
remain at levels comparable to present levels or will, in the future, be
sufficient to cover the costs allocable to patients eligible for
reimbursement pursuant to such programs.
Payment reform for post-acute care services is a top Medicare priority.
The U.S. Department of Health and Human Services ("HHS") is studying, among
other things, the feasibility of changing the Medicare reimbursement system
for home health care from cost reimbursement to prospective payment (i.e., a
fixed fee for services rendered per episode of illness). The impact of such a
change, if implemented, on the Company's results of operations cannot be
predicted at this time and will depend, to a large extent, on the
reimbursement methodology ultimately established. The U.S. Congress and
President Clinton have each proposed significant reductions in Medicare and
Medicaid spending in connection with efforts to balance the budget of the
United States. Although the Company cannot predict whether these or other
Federal or state cost containment proposals will be adopted, the adoption of
any such proposals could have an adverse effect on the Company's business,
financial condition, cash flows and results of operations as it expands its
home healthcare services. See "Business - Home Healthcare Services."
EXPANSION. The Company's expansion will require the implementation and
integration of enhanced operational and financial systems and additional
management, operational and financial resources. Failure to implement and
integrate these systems and add these resources could have a material adverse
effect on the Company's results of operations and financial condition. There
can be no assurance that the Company will be able to manage its expanding
operations effectively or that it will be able to maintain or accelerate its
growth. While the Company experienced growth in net sales and net income in
1995 and 1996, there can be no assurance that the Company will continue to
experience growth in, or maintain the present level of, net sales or net
earnings. See "Business - Expansion Strategy."
GOVERNMENT REGULATION AND HEALTHCARE REFORM. The Company's pharmacists
and pharmacies are required to be licensed by the appropriate state boards of
pharmacy. The Company's pharmacies are also registered with the Federal Drug
Enforcement Administration. Under the Omnibus Budget Reconciliation Act of
1990, the Company's pharmacists are required to offer counseling to customers
covered by Medicaid about the medication, dosage, delivery system, common
side effects and other information deemed significant by the pharmacists.
The Company relies on prescription drug sales for a significant portion
of its revenues and profits, and prescription drug sales represent a
significant segment of the Company's business. These revenues are affected by
changes within the healthcare industry, including changes in programs
providing for reimbursement of the cost of prescription drugs by third-party
payment plans, such as government and private plans, and regulatory changes
relating to the approval process for prescription drugs. In recent years a
number of healthcare reform proposals have been introduced or proposed in
Congress and in some state
8
<PAGE>
legislatures that would effect major changes in the healthcare system, either
nationally or at the state level. The proposals ranged from the Clinton
Administration's comprehensive healthcare reform proposal that would have
restructured the financing and delivery of healthcare services through a
combination of managed competition and mandated employer coverage of
employees to less comprehensive proposals that would have required private
health insurance to be "portable" and eliminated coverage limitations for
pre-existing health conditions. No proposal was adopted by either house of
Congress. The Company anticipates that additional healthcare reform
proposals may continue to be introduced by Congress. It is difficult to
predict whether any proposal will be adopted or the effect on the Company of
any proposal that does become law. A number of states in which the Company
has operations have either adopted or are considering healthcare reform
proposals at the state level. These state reform laws have, in many cases,
not been fully implemented. See "Business - Government Regulation and
Healthcare Reform."
REGULATION OF HOME HEALTH CARE SERVICES. The Company's Farmington, New
Mexico store currently offers home healthcare services under the name HORIZON
Home Care, and the Company expects to offer such services from certain of its
other stores. The Company's home healthcare business is subject to extensive
Federal and state regulation. Federal regulation covers, among other things,
Medicare and Medicaid billing and reimbursement, reporting requirements,
certification standards for certain home health agencies and other types of
health care providers, limitations on ownership and other financial
relationships between a provider and its referral sources and approval by the
Food and Drug Administration ("FDA") of the safety and efficacy of
pharmaceuticals and medical devices. In addition, the requirements that the
Company must satisfy to conduct its businesses vary from state to state. The
Company believes that its operations comply with applicable Federal and state
laws and regulations in all material respects. However, changes in the law or
new interpretations of existing laws can have a material effect on
permissible activities of the Company, the relative costs associated with
doing business and the amount of reimbursement for the Company's products and
services paid by government and other third-party payors.
Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change. Although Congress
has failed to pass comprehensive health care reform legislation, the Company
anticipates that Congress and state legislatures will continue to review and
assess alternative health care delivery and payment systems and may in the
future propose and adopt legislation effecting fundamental changes in the
health care delivery system. Legislative debate is expected to continue in
the future. The Company cannot predict the ultimate timing, scope or effect
of any legislation concerning health care reform. Any proposed Federal
legislation, if adopted, could result in significant changes in the
availability, delivery, pricing and payment for health care services and
products, including alternate site health care. Various state agencies also
have undertaken or are considering significant health care reform
initiatives. Although it is not possible to predict whether any health care
reform legislation will be adopted or, if adopted, the exact manner and the
extent to which the Company will be affected, it is likely that the Company
will be affected in some fashion, and there can be no assurance that any
health care reform legislation, if and when adopted, will not have a material
adverse effect on the Company's business, financial condition, cash flows or
results of operations.
Certain of the Company's facilities are subject to state licensure laws.
Federal laws require certain of the Company's facilities to comply with rules
applicable to controlled substances. These rules include an obligation to
register with the Drug Enforcement Administration of the United States
Department of Justice and to meet certain requirements concerning security,
record keeping, inventory controls, prescription and order forms and
labeling. The Company's pharmacists, nurses, and certain of its radiology
equipment also are subject to state licensing requirements. The Company
believes that it is in compliance with all applicable licensure requirements.
MALPRACTICE LIABILITY. The provision of home healthcare services
entails an inherent risk of claims of medical and professional malpractice
liability. The Company may be named as a defendant in such malpractice
lawsuits, and is subject to the attendant risk of substantial damage awards.
While the Company believes it has adequate professional liability insurance
coverage and is in the process of acquiring medical
9
<PAGE>
malpractice liability insurance, there can be no assurance that a future
claim or claims will not be successful or if successful will not exceed the
limits of available insurance coverage or that such coverage will continue to
be available at acceptable costs and on favorable terms. See "Business."
COMPETITION. The Company's business is highly competitive. In each of
its markets, the Company competes with one or more national retail pharmacy
chains (including Eckerd's and Revco), regional retail pharmacy chains, local
retail pharmacy chains, independent retail pharmacies, deep discount retail
pharmacies (including Walgreen's), supermarkets (including Kroger's and
Brookshire's), discount department stores (including Wal-Mart and K-Mart),
mass merchandisers and other retail stores and mail order operations. Most
of these competitors have financial resources that are substantially greater
than those of the Company. Competition among retail pharmacies generally
takes the form of price competition, store location, product selection and
customer service.
The Company has not yet implemented its plan to expand its home
healthcare services through its stores, but as such plan is implemented, the
Company's stores offering home healthcare services will compete with other
larger providers of home healthcare services including chain operations and
independent single unit stores which are more established in that market.
The market for home healthcare services is highly competitive. Many of the
Company's existing and potential competitors have substantially greater
financial, marketing and personnel resources than the Company and have
established generally greater name recognition in the home healthcare
industry. Most of the Company's competitors also offer more extensive home
healthcare services than the Company. There can be no assurance the Company
will be able to successfully compete with its competitors in the home
healthcare industry. See "Business - Competition."
SUBSTANTIAL INDEBTEDNESS. In connection with the Company's acquisition
of retail pharmacies, the Company has incurred substantial debt. At
December 31, 1996, the Company had long-term obligations (including current
maturities) of $1,722,786, notes payable of $1,215,000 and accounts payable
of $1,491,789, a substantial portion of which is payable under a 30-day
credit arrangement with its primary supplier. While the Company intends to
use a portion of the proceeds from this Offering to satisfy all of its notes
payable and $425,000 of its long-term obligations, the Company may incur
additional indebtedness in the future in connection with its planned
acquisition of additional stores. In addition, the Company's ability to make
cash payments to satisfy its substantial indebtedness will depend upon its
future operating performance, which is subject to a number of factors
including prevailing economic conditions and financial, business and other
factors beyond the Company's control. Based on the Company's ability to
generate cash flow from operating activities, management believes that the
Company will have the funds necessary to meet the principal and interest
payments on its debt as they become due and to operate and expand its
business. However, there can be no assurance that the Company will be able to
do so. If the Company is unable to generate sufficient earnings and cash
flow to meet its obligations with respect to its outstanding indebtedness,
refinancing of certain of these debt obligations or disposition of certain
assets may be required. In the event debt refinancing is required, there can
be no assurance that the Company can effect such refinancing on satisfactory
terms. Although the Company is current in its payments to its lenders, it is
in breach of one of the covenants under a loan agreement; the outstanding
amounts under such loan agreement will be repaid with the proceeds of this
Offering. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources" and "Use of
Proceeds."
POSSIBLE NEED FOR ADDITIONAL CAPITAL. Although the Company believes
that the proceeds from this Offering combined with operating revenues will be
adequate to satisfy its capital requirements for the foreseeable future,
circumstances, including the acquisition of additional stores, may require
the Company to obtain long or short-term financing to realize certain
business opportunities. No assurance can be made that such financing will be
obtained. See "- Substantial Indebtedness," "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
10
<PAGE>
RELIANCE ON SINGLE SUPPLIER. The Company currently purchases
approximately 83.6% of its inventory from Bergen Brunswig Drug Co. ("Bergen
Brunswig"). Bergen Brunswig also provides the Company with order entry
machines, shelf labels and other supplies used in connection with the
Company's purchase and sale of such inventory. The Company believes that the
wholesale pharmaceutical and non-pharmaceutical distribution industry is
highly competitive because of the consolidation of the retail pharmacy
industry and the practice of certain large retail pharmacy chains to purchase
directly from product manufacturers. Accordingly, the Company believes that
it could obtain its inventory through another similar distributor at
competitive prices and upon competitive payment terms in the event its
relationship with Bergen Brunswig was terminated. See "Business - Purchasing
and Distribution."
DEPENDENCE ON KEY PERSONNEL; KEY MAN INSURANCE. The Company's future
success will be highly dependent on the continued efforts of Rick D. McCord,
R.Ph., President and Chief Operating Officer; Sy S. Shahid, Executive Vice
President and Secretary; and David W. Frauhiger, Chief Financial Officer and
Treasurer. Although the Company has employment agreements with Messrs.
McCord, Shahid and Frauhiger, the Company presently does not own any key man
life insurance policies with respect to any of such individuals, and the loss
of the services of one or more of such key personnel could have a material
adverse effect upon the Company's results of operations. The Company is
presently reviewing the desirability of obtaining key man life insurance
policies with respect to Messrs. McCord, Shahid and Frauhiger.
The Company's success is also dependent upon its ability to attract and
retain experienced retail managers, pharmacists, and employees skilled in
home healthcare services, and the ability of the Company's personnel to
manage the Company's growth and integrate its operations. There can be no
assurance that the Company will be successful in attracting and retaining
such personnel. See "Management."
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY. The Company
expects to experience fluctuations in future quarterly operating results that
may be caused by many factors, including the number and timing of store
acquisitions, additional and existing competition, marketing programs,
weather, special or unusual events and national, regional and local economic
conditions that may affect retailers in general. Any concentration of
acquisitions near the end of a quarter could have an adverse effect on the
financial results for that quarter and could, in certain circumstances, lead
to fluctuations in quarterly financial results. Furthermore, the retail
pharmacy business is somewhat seasonal, with the highest net sales and net
income levels historically occurring during the fourth and following first
quarters of each year (which include the holiday selling season). The
Company's results of operations depend significantly upon the net sales
generated during the first and fourth quarters, and any decrease in net sales
for such periods could have a material adverse effect upon the Company's
profitability. As a result, the Company believes that period-to-period
comparisons of its results of operations are not and will not necessarily be
meaningful, and should not be relied upon as an indication of future
performance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
CONTROL BY MANAGEMENT. The Company's executive officers and directors
and their respective affiliates will beneficially own an aggregate of
approximately 37% of the Company's outstanding shares of Common Stock after
the Offering (approximately 35% if the Underwriters' over-allotment option is
exercised in full). Such shareholders, if voting together, may, as a
practical matter, have sufficient voting power to elect the board of
directors of the Company (the "Board of Directors"), exercise significant
control over the business, policies and affairs of the Company and, in
general, determine the outcome of any corporate transaction or other matters
submitted to the shareholders for approval, such as any amendment to the
Company's articles of incorporation (the "Articles of Incorporation"), any
merger, consolidation, sale of all or substantially all of the Company's
assets or "going private" transactions and prevent or cause a change in
control of the Company, all of which may adversely affect the market price of
the Common Stock. See "Principal Shareholders."
POSSIBLE ISSUANCES OF PREFERRED STOCK. The Company's Articles of
Incorporation authorize the Board of Directors, without shareholder approval,
to issue up to 1,000,000 shares of preferred stock, $.01
11
<PAGE>
per share par value (the "Preferred Stock"). The number of shares of each
series and the designations, powers, preferences, qualifications, limitations
or restrictions of each series shall be determined by the Board of Directors.
The possible effects of such issuances include the grant of voting rights to
holders of Preferred Stock superior to that of the holders of Common Stock,
the grant of preferences in the payment of dividends and upon liquidation of
the Company in favor of the holders of Preferred Stock, and the conferral of
conversion rights which entitle the holders of Preferred Stock to convert
their shares into Common Stock, thereby resulting in possible future dilution
to the holders of Common Stock. The issuance of the Preferred Stock could
have the effect of delaying or preventing a change in control of the Company.
See "Description of Securities - Preferred Stock."
ANTI-TAKEOVER PROVISIONS. Certain provisions of the Texas Business
Corporation Act (the "Texas Act") may delay, discourage or prevent a change
in control of the Company. Such provisions may discourage bids for the
Common Stock at a premium over the market price of the Common Stock and may
adversely affect the market price and the voting and other rights of the
holders of Common Stock. In addition, the Board of Directors has the
authority without action by the Company's shareholders to fix the rights,
privileges and preferences of and to issue shares of the Company's Preferred
Stock which may have the effect of delaying, deterring or preventing a change
in control of the Company. See "Description of Securities - Preferred Stock."
In addition to the authorization of Preferred Stock, the Company's
Articles of Incorporation and Bylaws include several other provisions which
may have the effect of inhibiting a change of control of the Company. These
include a classified Board of Directors, no shareholder action by written
consent and advance notice requirements for shareholder proposals and
director nominations. The provisions may discourage a party from making a
tender offer for or otherwise attempting to obtain control of the Company.
SUBSTANTIAL DILUTION. On the basis of an assumed offering price of
$5.00 per share, this Offering involves an immediate dilution of
approximately $3.12 per share of Common Stock (approximately 62% of the
offering price per share) between the offering price per share and the pro
forma net tangible book value per share of the Common Stock immediately after
the completion of this Offering. See "Dilution."
BENEFITS OF THE OFFERING TO CURRENT SHAREHOLDERS. The Company's current
shareholders will benefit from the Offering, principally through the creation
of a public market for the Common Stock and the potential unrealized gains in
the value of the Common Stock held by them. Based upon the difference
between the initial public offering price of $5.00 per share and the average
price per share of $1.64 paid by such current shareholders, the current
shareholders will have potential unrealized gains of $3.36 per share, or an
aggregate of $3,636,945. See "Dilution."
LIMITED UNDERWRITING EXPERIENCE. Capital West, one of the Underwriters,
was first registered as a broker-dealer in May 1995 and has participated in
only six public equity offerings as an underwriter. Prospective purchasers of
the securities offered hereby should consider this limited experience in
evaluating this Offering. See "Underwriting."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE.
Prior to the Offering, there has been no public market for the Common Stock.
The Company has applied for listing of the Common Stock on the Nasdaq
SmallCap Market under the trading symbol "HRZN." There can be no assurance,
however, that an active public market will develop for the Common Stock. The
initial public offering price was determined solely through negotiations
among the Company and representatives of the Underwriters based on several
factors, and may not be indicative of the market price for the Common Stock
after the completion of the Offering. Among the factors considered in such
negotiations were prevailing market conditions, the results of operations of
the Company in recent periods, the market capitalizations and stages of
development of other companies which the Company and the Underwriters believe
to be comparable to the Company, estimates of the business potential of the
Company and the present state of the Company's development. See
"Underwriting."
12
<PAGE>
Moreover, the trading price of the Company's Common Stock could be
subject to fluctuations in response to quarterly variations in results of
operations, announcements of new services or products by the Company or its
competitors, changes in financial estimates by securities analysts and other
events or factors. See "Business." Recent history relating to the market
prices of other newly public companies indicates that the market price of the
Company's Common Stock following the Offering may be highly volatile. At
various times, the stock market has experienced volatility that has
particularly affected the market prices for stock of particular industry
groups, such as retail-oriented companies, often without regard to a
particular company's operating results.
POSSIBLE DELISTING FROM NASDAQ SMALLCAP MARKET; DISCLOSURE RELATING TO
LOW PRICED STOCKS. Although the Company has applied for listing of the Common
Stock on the Nasdaq SmallCap Market, there can be no assurance that a trading
market will develop or, if developed, that it will be maintained. In
addition, there can be no assurance that the Company will in the future meet
the maintenance criteria for continued quotation of the securities on the
Nasdaq SmallCap Market. The maintenance criteria for the Nasdaq SmallCap
Market include, among other things, $2,000,000 in total assets, $1,000,000 in
capital and surplus, a public float of 100,000 shares with a market value
equal to $200,000, two market makers and a minimum bid price of $1.00 per
share of common stock. If an issuer does not meet the $1.00 minimum bid price
standard, it may, however, remain on the Nasdaq SmallCap Market if the market
value of its public float is at least $1,000,000 and the issuer has at least
$2,000,000 in equity. If the Company was removed from the Nasdaq SmallCap
Market, trading, if any, in the Common Stock would thereafter have to be
conducted in the over-the-counter market in the so-called "pink sheets" or,
if then available, the NASD's OTC Electronic Bulletin Board. As a result, an
investor would find it more difficult to dispose of, and to obtain accurate
quotations as to the value of, such securities.
In addition, if the Common Stock is delisted from trading on the Nasdaq
SmallCap Market and the trading price of the Common Stock is less than $5.00
per share at a time when the net tangible assets of the Company are less than
$5,000,000, trading in the Common Stock would also be subject to the
requirements of Rule 15g-9 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Under such rule, broker/dealers who
recommend such low-priced securities to persons other than established
customers and accredited investors must satisfy special sales practice
requirements, including a requirement that they make an individualized
written suitability determination for the purchaser and receive the
purchaser's written consent prior to the transaction. The Securities
Enforcement Remedies and Penny Stock Reform Act of 1990 also requires
additional disclosure in connection with any trades involving a stock defined
as a penny stock (generally, according to recent regulations adopted by the
Commission, any equity security not traded on an exchange or quoted on the
Nasdaq SmallCap Market that has a market price of less than $5.00 per share,
subject to certain exceptions), including the delivery, prior to any penny
stock transaction, of a disclosure schedule explaining the penny stock market
and the risks associated therewith. Such requirements could severely limit
the market liquidity of the Common Stock and the ability or purchasers in
this Offering to sell their securities in the secondary market. There can be
no assurance that the Common Stock will not be delisted or treated as a penny
stock.
SHARES ELIGIBLE FOR FUTURE SALE. Future sales of shares of Common Stock
by the Company or its existing shareholders, or the perception that such
sales may occur, could adversely affect the market price of the Common Stock.
Upon completion of the Offering, 1,982,424 shares of Common Stock will be
outstanding (2,117,424 shares outstanding assuming exercise of the
Underwriters' over-allotment option in full). Additionally, the Company may
in the future issue significant amounts of Common and/or Preferred Stock to
finance acquisition and development activities. Of the outstanding shares,
the 900,000 shares (1,035,000 shares assuming the Underwriters'
over-allotment option is exercised in full) sold in the Offering, and 753,994
shares held by existing shareholders, will be tradeable without restriction
by persons other than "affiliates" of the Company. The remaining 329,430
shares of Common Stock to be outstanding after the Offering are "restricted
securities" within the meaning of Rule 144 under the Securities Act of 1933,
as amended (the "Securities Act") and may not be publicly resold, except in
compliance with the registration
13
<PAGE>
requirements of the Securities Act or pursuant to an exemption from
registration, including that provided by Rule 144 promulgated under the
Securities Act.
The directors and executive officers of the Company collectively will
hold 741,352 shares (the "Affiliate Shares"), or approximately 37%, of the
outstanding shares of Common Stock after the Offering. Such individuals have
agreed not to, directly or indirectly, offer, sell, assign, transfer,
encumber, pledge, contract to sell, grant an option to purchase or otherwise
dispose of any Common Stock for a period of 24 months after the date of this
prospectus without the prior written consent of the Underwriters. Upon
expiration of the 24-month lockup period, the Affiliate Shares will be
eligible for immediate resale without restriction under the Securities Act,
subject, in certain cases, to certain volume, timing and other requirements
of Rule 144 promulgated under the Securities Act. Sales of substantial
amounts of Common Stock, or the perception that such sales could occur, could
adversely affect the prevailing market price of the Common Stock. See
"Shares Eligible for Future Sale" and "Underwriting."
DIVIDEND POLICY. Although the Company has previously made cash
distributions to its shareholders and intends to distribute $200,000 to its
existing shareholders out of the proceeds of this Offering primarily to
mitigate such shareholders' expected state and Federal income taxes payable
in connection with the Company's S corporation status from January 1, 1997 to
the date of the termination of such status, the Company does not anticipate
paying any cash dividends on the Common Stock in the foreseeable future. See
"Dividend Policy."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 900,000 shares of
Common Stock being offered hereby are estimated to be approximately
$3,705,000 (approximately $4,292,500 if the Underwriters' over-allotment
option is exercised in full), assuming an initial offering price of $5.00 per
share and after deducting the estimated underwriting discounts and
commissions and offering expenses. The Company expects to use the net
proceeds (assuming no exercise of the Underwriters' over-allotment option)
approximately as follows:
<TABLE>
Approximate Approximate Percentage
Use Dollar Amount of Net Proceeds
--- ------------- ----------------------
<S> <C> <C>
Repayment of certain existing indebtedness . . . . . . . . . . . $1,575,000 42.5%
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1,380,000 37.3%
Working capital and general corporate purposes . . . . . . . . . 550,000 14.8%
Distribution to existing shareholders. . . . . . . . . . . . . . 200,000 5.4%
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,705,000 100.0%
</TABLE>
The Company plans to use approximately $1.15 million of the net proceeds
to repay the principal amount expected to be outstanding at the close of this
Offering under the Company's credit agreement with Bergen Brunswig (the
"Bergen Brunswig Loan"). The proceeds of the Bergen Brunswig Loan were used
primarily for the acquisition of stores. The Bergen Brunswig Loan bears
interest at 2% above the prime rate announced from time to time by two banks.
As of December 31, 1996, the effective interest rate on the Bergen Brunswig
Loan was 10.25%. In addition, $325,000 will be paid to retire a portion of
the debt incurred in connection with the Company's acquisition of the Vista
Stores in March 1997, and $100,000 will be paid to retire certain debt
incurred in connection with the redemption of the Common Stock held by a
former shareholder.
The Company will use approximately $1.4 million of the net proceeds of
the Offering and may, in the future, incur additional debt, in connection
with the acquisition of additional stores. The Company continually reviews
acquisition proposals and is currently engaged in discussions with third
parties with respect to possible acquisitions; however, the Company has no
agreement or commitments with respect to any potential acquisition.
The Company will distribute $200,000 of the net proceeds to its existing
shareholders primarily for the purpose of mitigating such shareholders' 1997
state and Federal tax liabilities accruing as a result of the Company's S
corporation status from January 1, 1997 to the date such status will be
terminated.
Any remaining net proceeds are to be used for working capital and other
general corporate purposes. Pending application of the proceeds described
above, the net proceeds of the Offering will be invested in short-term,
investment grade, interest-bearing securities.
DIVIDEND POLICY
The Company does not intend to pay cash dividends on its Common Stock in
the foreseeable future. The Company intends to retain earnings in order to
provide funds for use in the operation and expansion of its business.
Although a distribution of $200,000 will be made from the proceeds of this
Offering primarily for the purpose of mitigating the state and Federal income
tax liability expected to be incurred by such shareholders in connection with
the Company's S corporation status from January 1, 1997 until the date of
15
<PAGE>
the termination of such status, the Company does not anticipate that future
dividends or distributions will be declared. See "Use of Proceeds."
The payment of dividends, if any, in the future is within the discretion
of the Board of Directors and will depend on the Company's earnings, its
capital requirements, restrictions imposed by lenders and financial
condition, and other relevant factors. The Company does not expect to
declare or pay any dividends on Common Stock in the foreseeable future.
DILUTION
At December 31, 1996, net tangible book value of the Company's Common
Stock was approximately $767,000, or $.71 per share. Net tangible book value
per share of Common Stock is defined as total tangible assets of the Company
less total liabilities, divided by the total number of shares of Common Stock
outstanding. The consummation of this Offering will result in a pro forma
net tangible book value of $1.88 per share which will represent an immediate
dilution of $3.12 per share to new investors purchasing shares of Common
Stock in this Offering, assuming an initial public offering price of $5.00
per share.
The following table summarizes the number of shares of Common Stock
purchased from the Company, the total consideration paid to the Company and
the average price paid per share by existing shareholders and new investors
purchasing shares in this Offering:
<TABLE>
Shares Purchased Total Consideration
------------------- ------------------- Average Price
Number Percent Amount Percent Per Share
--------- ------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders (cash) 1,082,424 54.6% $1,771,127 28.2% $1.64
New investors 900,000 45.4% 4,500,000 71.8% 5.00
--------- ----------
Total 1,982,424 100.0% $6,271,127 100% $3.16
--------- ----------
--------- ----------
</TABLE>
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1996 and as adjusted to give effect to the sale of the 900,000
shares of Common Stock offered hereby at an assumed per-share price of $5.00
and the application of the estimated net proceeds as described under "Use of
Proceeds." This table should be read in conjunction with "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and Notes appearing elsewhere in
this prospectus.
<TABLE>
December 31, 1996
-----------------
Actual As Adjusted
------ -----------
<S> <C> <C>
Shareholders' Equity:
Common Stock; $.01 par value, 14,000,000 shares authorized;
1,082,424 shares issued and outstanding; 1,982,424
shares as adjusted(1)(2)................................... $ 10,824 $ 19,824
Preferred Stock; $.01 par value, 1,000,000 shares authorized,
no shares issued and outstanding, actual or adjusted........ -- --
Additional paid-in capital................................... 1,760,303 5,456,303
Accumulated deficit.......................................... (21,054) (370,054)
---------- ----------
Total capitalization.......................................$1,750,073 $5,106,073
---------- ----------
---------- ----------
</TABLE>
- --------------------
(1) Excludes 200,000 shares of Common Stock reserved for issuance pursuant to
the Company's 1997 Stock Option Plan. See "Management - 1997 Stock Option
Plan" and "Description of Securities."
(2) Reflects a 2-for-1 stock split for shares of Common Stock.
17
<PAGE>
SELECTED FINANCIAL INFORMATION
The following table sets forth the historical operating results and
selected balance sheet data of the Company since beginning operations in
February 1994 as an S corporation. The historical information has been
adjusted to provide pro forma charges for income taxes as explained below.
The information should be read in conjunction with the historical Financial
Statements and the Pro Forma Combined Financial Data included elsewhere in
this prospectus.
PERIOD FROM
FEBRUARY 28, 1994
TO DECEMBER 31, YEAR ENDED DECEMBER 31,
1994(1) 1995 1996
----------------- -----------------------
INCOME STATEMENT DATA:
NET SALES: (in thousands)
Prescription drugs $1,387 $5,235 $10,710
Other 284 1,035 2,426
------ ------- ------
Total net sales 1,671 6,270 13,136
COST OF SALES:
Prescription drugs 902 3,735 7,588
Other 174 637 1,354
------ ------- ------
Total cost of sales 1,076 4,372 8,942
------ ------- ------
Gross profit 595 1,898 4,194
Selling, general and
administrative expenses 396 1,519 3,471
Depreciation and
amortization 30 100 172
------ ------- ------
Income from operations 169 279 551
Interest expense and
other, net 15 103 249
------ ------- ------
Income before income
taxes (2) 154 176 302
Pro forma provision for
income taxes (2) 54 62 106
------ ------- ------
Pro forma net income (2) $ 100 $ 114 $ 196
------ ------- ------
------ ------- ------
DECEMBER 31,
1994 1995 1996
------ ------- ------
(in thousands)
BALANCE SHEET DATA:
Working capital $ 600 $1,029 $ 1,563
Total assets 1,268 3,545 6,589
Long-term obligations 346 930 1,467
Total liabilities 576 2,266 4,839
Shareholders' equity 692 1,279 1,750
- --------------------
(1) The Company was organized August 31, 1992 but had no operations until
February 28, 1994.
(2) The Company is organized as an S corporation and has not historically
included charges for income taxes. The pro forma provisions for income
taxes are based on a rate of 35% applied to pro forma income before income
tax in each of the periods presented.
18
<PAGE>
PRO FORMA COMBINED FINANCIAL DATA
The following unaudited Pro Forma Combined Condensed Statement of Income
for the year ended December 31, 1996 reflects the historical results of
operations of the Company, adjusted to give effect to the acquisition of the
Farmington, New Mexico store (the "Farmington Store") in April 1996 and the
Vista Stores in March 1997 as though such stores were acquired January 1,
1996 and to give pro forma effect to the Offering as though it occurred
January 1, 1996.
The Pro Forma Combined Condensed Balance Sheet as of December 31, 1996
reflects the historical financial position of the Company as of that date
adjusted to give pro forma effect to the acquisition of the Vista Stores and
the Offering as if they had occurred as of December 31, 1996.
The pro forma adjustments are based upon available information and
assumptions that management of the Company believes are reasonable. The Pro
Forma Combined Financial Data do not purport to represent the financial
position or results of operations which would have occurred had such
transactions been consummated on the dates indicated or the Company's
financial position or results of operations for any future date or period.
These Pro Forma Combined Condensed Financial Statements and notes thereto
should be read in conjunction with the historical financial statements and
notes included elsewhere herein.
19
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
Year ended December 31, 1996
(Dollars in thousands, except per share data)
<TABLE>
HISTORICAL
--------------------------------------------
PRO FORMA
FARMINGTON OTHER PRO FORMA ADJUSTMENTS
VISTA STORE STORES PRO FORMA FOR FOR THE
COMPANY STORES (NOTE A) (NOTE A) ADJUSTMENTS ACQUISITIONS OFFERING PRO FORMA
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $13,136 $4,229 $1,247 $3,521 $22,133 $ 22,133
Costs and expenses:
Cost of sales 8,942 3,021 826 2,658 15,447 15,447
Depreciation and
amortization 172 -- -- -- $ 48(1) 220 220
Selling, general and
administrative 3,471 785 299 790 5,345 $ 97(6) 5,442
------------------------------------------------------------------------------------------------
Total costs and expenses 12,585 3,806 1,125 3,448 48 21,012 97 21,109
------------------------------------------------------------------------------------------------
Income from operations 551 423 122 73 (48) 1,121 (97) 1,024
Interest expense and
other, net 249 -- -- -- 142(2) 391 (168)(5) 223
------------------------------------------------------------------------------------------------
Income before income
taxes $ 302 $ 423 $ 122 $ 73 (190) 730 71 801
-----------------------------------------
-----------------------------------------
Pro forma provision for
income taxes (Note B) 255(3) 255 23(7) 278
-------------------------------------------------
Pro forma net income
(Note B) $ (445) $ 475 $ 48 $ 523
-------------------------------------------------
-------------------------------------------------
Pro forma net income per
share (Note B) $ 0.27
----------
----------
Shares used in computation 1,969,856
----------
----------
</TABLE>
- --------------
Note A: The Farmington Store was acquired by the Company April 27, 1996.
The amounts shown for the Farmington Store are for the period
January 1, 1996 to April 26, 1996. Additionally, the Company
acquired three other stores in 1996 (one in July 1996 and two in
November 1996). The historical results of these stores are
included for the months in 1996 prior to their respective
acquisition.
Note B: The adjustments do not include a provision (non-recurring) for
deferred income taxes, resulting from a change in S corporation
status, related to the tax effect of cumulative differences in
financial and tax bases of net assets of approximately $131,000
($.07 per share) at January 1, 1996.
20
<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
December 31, 1996
(in thousands)
PRO FORMA
ADJUSTMENTS
COMPANY VISTA FOR THE
HISTORICAL STORES(NOTE) OFFERING PRO FORMA
----------------------------------------------------
ASSETS
Current assets:
Cash $ 153 $ 1,930(4) $2,083
Accounts receivable 1,460 $ 67 1,527
Inventories 3,291 482 3,773
Prepaid expenses 31 31
----------------------------------------------------
Total current assets 4,935 549 1,930 7,414
Property and equipment, net 671 60 731
Intangibles, net 983 390 1,373
----------------------------------------------------
Total assets $ 6,589 $ 999 $ 1,930 $9,518
----------------------------------------------------
----------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 248 $ 248
Accounts payable 1,492 1,492
Accrued liabilities 161 161
Notes payable 1,215 $ 999 $ (1,475)(4) 739
Current portion of
long-term obligations 256 256
----------------------------------------------------
Total current liabilities 3,372 999 (1,475) 2,896
Deferred income taxes -- 149 (8) 149
Long-term obligations 1,467 (100)(4) 1,367
Shareholders' equity:
Common stock 11 9 (4) 20
Additional paid-in
capital 1,760 3,696 (4) 5,456
Accumulated deficit (21) (149)(8)
(200)(4) (370)
----------------------------------------------------
Total shareholders' equity 1,750 3,356 5,106
----------------------------------------------------
Total liabilities and
shareholders' equity $ 6,589 $ 999 $ 1,930 $9,518
----------------------------------------------------
----------------------------------------------------
______________
Note: The Vista Stores were acquired in March 1997 for a total consideration
of $999 financed by notes payable and are included herein at the values
allocated to assets acquired.
21
<PAGE>
ADJUSTMENTS TO PRO FORMA FINANCIAL STATEMENTS
ACQUISITIONS OF STORES:
(1) Depreciation and amortization of acquired equipment and
intangibles:
Vista Stores $ 39,000
Farmington Store 4,000
Other stores 5,000
----------
$ 48,000
----------
----------
(2) Provide for interest expense on debt issued in Acquisitions:
Vista Stores $ 86,000
Farmington Store 17,000
Other stores 39,000
----------
$ 142,000
----------
----------
(3) Provide for income taxes on the historical income of the
Company and the Acquisitions, net of pro forma
adjustments $ 255,000
----------
----------
THE OFFERING:
(4) Record the issuance of 900,000 shares of Common Stock of
the Company in connection with this Offering and the
payment of debt and distributions to existing shareholders
from the proceeds:
Estimated Offering proceeds $4,500,000
Estimated expenses of Offering 795,000
----------
Estimated net proceeds of Offering 3,705,000
Repayment of existing indebtedness 1,575,000
Distributions to existing shareholders 200,000
----------
Estimated net cash proceeds $1,930,000
----------
----------
(5) Reduce interest expense related to repayment of debt $ 168,000
----------
----------
(6) Record incremental officer compensation in connection with
new employment agreements $ 97,000
----------
----------
(7) Record income tax effects of adjustments $ 23,000
----------
----------
(8) Record deferred income taxes on cumulative differences in
financial and tax bases of net assets at date of change
from S corporation status as a result of the Offering
assuming change of tax status at December 31, 1996 $ 149,000
----------
----------
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company's principal business strategy since commencing operations in
1994 has been to establish a chain of retail pharmacies through the
acquisition of free-standing full-line retail pharmacies. In each of 1994,
1995 and 1996 the Company acquired three, four and four retail pharmacies,
respectively. These acquisitions are the principal influence on the Company's
results of operations and financial condition. The primary measurement of the
effect of acquisitions on the Company's operating performance is the number
of store operating months, which is the number of months all stores were
owned by the Company during the relevant measuring period. Acquisitions are
expected to continue as the most significant factor in the Company's growth
strategy.
Currently, the Company's primary source of revenue is the sale of
prescription drugs. During 1996, sales of prescription drugs generated 81.5%
of the Company's net sales. Management expects the Company's prescription
drug business to continue to increase as a result of the demographic trends
towards an aging population and the continued development of new
pharmaceutical products. However, the Company anticipates that such sales
will decrease as a percentage of the Company's overall sales and gross
margins as the Company expands its home healthcare and other
non-pharmaceutical sales and services which have historically generated
higher margins.
The Company's sales and profits are higher during peak holiday periods
and from Christmas through Easter. Sales of health-related products peak
during seasonal outbreaks of cough and cold/flu viruses, which typically
occur during the winter and spring. Accordingly, sales and profits are
typically highest in the fourth quarter and the first quarter of the ensuing
year.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain
income statement data:
<TABLE>
PERIOD FROM YEAR ENDED DECEMBER 31,
FEBRUARY 28, 1994 TO --------------------------
INCOME STATEMENT DATA DECEMBER 31, 1994 1995 1996
-------------------- ------ ------
<S> <C> <C> <C>
NET SALES:
Prescription drugs 83.1% 83.5% 81.5%
Other 16.9% 16.5% 18.5%
----- ----- -----
Total net sales 100.0% 100.0% 100.0%
----- ----- -----
----- ----- -----
COSTS AND EXPENSES:
Cost of sales - prescription drugs(1) 65.0% 71.3% 70.8%
Cost of sales - other(2) 61.5% 61.5% 55.8%
Selling, general and administrative expenses(3) 23.7% 24.2% 26.4%
Depreciation and amortization(3) 1.7% 1.6% 1.3%
Interest expense(3) 0.9% 1.8% 1.9%
PRO FORMA NET INCOME(3)(4) 6.0% 1.8% 1.5%
</TABLE>
- ----------------------
(1) As a percentage of prescription drug sales.
(2) As a percentage of other sales.
(3) As a percentage of total net sales.
(4) After pro forma provisions for income taxes.
23
<PAGE>
NET SALES
Total net sales increased by $6,866,738 or 110%, to $13,136,319 in 1996,
from $6,269,581 in 1995. The increase was attributable primarily to the
increase in store operating months from 58 in 1995 to 101 in 1996.
Net sales of prescription drugs increased by $5,475,340, or 105% to
$10,710,586 for 1996 compared to $5,235,246 for 1995. Third-party reimbursed
sales accounted for approximately 52% of the Company's total prescription
sales in 1996, as compared to 46% in 1995. Higher reimbursement sales have
typically resulted in a decrease in gross margins due to the lower prices
negotiated by third party payors. This decrease has been more than offset,
however, by the Company's efforts to manage inventory levels and by
purchasing efforts, resulting in a slight margin percentage increase in 1996.
The following table shows the Company's prescription drug gross margins
and total sales margins for 1996 and 1995:
GROSS MARGINS
ON PRESCRIPTION DRUG SALES GROSS MARGINS ON TOTAL SALES
---------------------------- ------------------------------
YEAR AMOUNT PERCENTAGE AMOUNT PERCENTAGE
---- ---------- ---------- ---------- ----------
1996 $3,122,890 29.2% $4,194,614 31.9%
1995 1,499,954 28.7% 1,897,774 30.3%
Sales of prescription drugs decreased from 83.5% of total sales for 1995
to 81.5% of total sales for 1996. The Company expects that prescription drug
sales will continue to decrease as a percentage of total sales as the Company
expands its home healthcare and other non-pharmaceutical sales and services,
whose gross margins exceed those of pharmaceutical sales.
COSTS AND EXPENSES
Cost of sales increased $4,569,898 or 105%, to $8,941,705 in 1996 as
compared to $4,371,807 in 1995. This increase is primarily the result of
increased sales volume due to the increased number of store operating months.
Cost of total sales as a percentage of total sales decreased 1.6% from the
previous year. This decrease is primarily the result of more favorable
pricing terms from the Company's primary wholesaler, as well as management's
continual monitoring and adjusting of pricing.
The increase of selling, general and administrative expenses from
$1,519,439 in 1995 to $3,471,370 in 1996 is principally due to increased
store count and resulting increased store operating months. Such expenses,
expressed as a percentage of net sales, were 26.4% and 24.2% for 1996 and
1995, respectively. The percentage increase in expense was primarily due to
increases in payroll associated with the recruiting and hiring of personnel
and costs associated with the acquisition of the Company's corporate office
building in 1996.
Interest expense was $252,767 in 1996 compared to $109,828 in 1995.
The increase in interest expense resulted primarily from the increase in the
Company's indebtedness associated with the Company's acquisition of four
stores and its corporate office building in 1996 and higher interest rates.
NET INCOME
Net income for 1996 rose to $302,353 from $175,629 in 1995. Because
the Company has maintained S corporation status since 1994, no income taxes
have been included in the determination of historical net income.
24
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash flow provided by operating activities was $49,456 in 1996 and
$287,519 in 1995. Although earnings have increased, less cash was provided
by operations largely due to increases in inventory levels resulting from
store acquisitions. Typically, cash provided by operations is adequate to
supply working capital, and contribute to investing activities. External
sources of cash are used mainly to help finance store acquisitions. The
Company believes that the operating needs to be incurred in connection with
its capital expansion program, including growth in accounts receivable and
inventory, will be funded by cash flow from operations supplemented by the
approximately $550,000 of the proceeds from the Offering designated for
working capital.
The Company will have available approximately $1,380,000 from the
proceeds of the Offering which will be used to support an aggressive store
acquisition program. The Company believes that based on prior acquisitions,
the average acquisition cost per store will be approximately $500,000 to
$700,000 based on such variables as store sales and profits. Management
believes it will be able to obtain seller financing for approximately 50% of
the cost of each such acquisition.
In addition to the expansion capital expected to be available from the
proceeds of the Offering, Plano Bank and Trust, Plano, Texas has tentatively
agreed to provide the Company a $2,000,000 credit facility upon completion of
the Offering. The credit facility will bear an interest rate equal to 1.00%
over prime rate, adjusted semi-annually. No funds have been borrowed under
this credit facility. Based on the foregoing and with the expected
$1,380,000 of Offering proceeds available for acquisitions, the Company
expects to be able to meet its current expansion schedule without additional
borrowings assuming the contemplated seller financing is available.
Management expects that the proceeds generated from the Offering, combined
with the credit facility, will be sufficient to support the ongoing
activities of the business for the foreseeable future.
IMPACT OF INFLATION AND CHANGING PRICES
Though not significant, inflation continues to cause increases in
product, occupancy and operating expenses, as well as the cost of acquiring
capital assets. The effect of higher costs is minimized by achieving
operating efficiencies and passing vendor price increases along to the
consumers.
25
<PAGE>
BUSINESS
GENERAL
The Company owns and operates a chain of 14 retail pharmacies (including
the three Vista Stores acquired in March 1997), nine of which are located in
Texas, two in Virginia, and one each in New Mexico, Oklahoma and Wisconsin.
According to the October 21, 1996 issue of Chain Drug Review, the Company is
among the top 100 retail pharmacy chains in the United States based on store
count and dollar volume of sales. The Company plans to acquire between eight
and 12 pharmacies annually in each of 1997, 1998 and 1999.
The Company began operating in February 1994 for the purpose of acquiring
and consolidating under the HORIZON Pharmacies, Inc. name high volume,
free-standing full-service retail pharmacies primarily located in communities
having populations of fewer than 50,000 persons. The primary sources of the
Company's acquisitions are retiring pharmacists, small chains and the Federal
Trade Commission ("FTC"). The Company believes that its success is primarily
due to its philosophy of retaining the individual, time-proven customer
service characteristics of the stores it acquires, while enabling such stores
to offer complete and competitively priced inventories to their small town
customers through enhanced technology and the consolidation and management of
such stores as a chain. Furthermore, the Company believes that communities of
this size offer more competitive rent, advertising and labor costs.
In addition to prescription drugs and services, the Company's retail
pharmacies offer a broad range of over-the-counter medications, supplies and
equipment, health and beauty aids, cosmetics, gifts, greeting cards,
convenience foods, cameras, photo supplies and processing services and other
general merchandise. Some stores incorporate special features such as
drive-through windows and free home delivery for customer convenience, optical
departments, fax, copying and package delivery services and soda fountains.
In addition, the Company's Farmington, New Mexico store sells and leases DME,
IV infusion and home oxygen therapy, and offers home healthcare services under
the name HORIZON Home Care. The Company intends to expand such services to
certain of its other stores.
The Company also plans to acquire and consolidate the inventory and
pharmacy files of certain retail pharmacies in its existing market areas to
increase sales volume in existing stores in a cost-effective manner. Stores
which are acquired by the Company will not be remodeled to fit a standardized
format, but will, to the extent practicable, be permitted to retain their
individual layouts, locations and management styles.
As part of its marketing strategy, the Company plans to convert between
one and five of its existing stores into "healthcare centers" similar to that
currently operated by its store located in Farmington, New Mexico. Each such
center will offer home healthcare services and may lease to an unaffiliated
third party owner-operator a small clinic staffed by a physician's assistant
or nurse practitioner located adjacent to the store's traditional retail
pharmacy operations. The Company intends for such healthcare centers to offer
customers "one-stop shopping" at competitive prices for basic medical and home
healthcare services. The Company believes that providing such home healthcare
and basic medical services adjacent to its retail pharmacies will result in
increased sales and profits for such stores.
The Company was incorporated under the laws of the State of Texas on
August 31, 1992 and began operations under the name HORIZON Pharmacies, Inc.
in February 1994. The Company's principal office is located at 275 W.
Princeton Drive, Princeton, Texas 75407, and its telephone number is (972)
736-2424.
THE RETAIL PHARMACY INDUSTRY
Prescription and over-the-counter medications have traditionally been
sold by independent retail pharmacies as well as conventional retail pharmacy
chains, and purchased by consumers with cash or credit cards. The retail
pharmacy industry has recently undergone significant changes as a result of
the following important trends: (i) the increase in third-party reimbursement
for prescription drugs; (ii) the consolidation within the retail
26
<PAGE>
pharmacy industry; (iii) the aging of the United States population; and (iv)
the increase in competition from non-traditional retailers of prescription and
over-the-counter drugs.
During the last several years, a growing percentage of prescription drug
volume throughout the industry has been accounted for by sales to customers
who are covered by third-party reimbursement plans. According to the 1995
NARD - Lilly Digest, in 1994, third-party reimbursement represented
approximately 56% of total prescription drug sales in the United States, an
increase of 4% over the previous year. In a typical third-party reimbursement
plan, the retail pharmacy has a contract with a third-party payor, such as an
insurance company, HMO, PPO, other managed care provider, government agency or
private employer, which agrees to pay for part or all of a customer's eligible
prescription purchases. Although these third-party payors often account for a
high volume of prescription sales, such sales typically generate lower gross
margins than non third-party payor sales due principally to the highly
competitive nature of this business and recent efforts by third-party payors
to contain costs.
As a result of the economies of scale from which larger retail chains
benefit as well as the trend toward third-party reimbursement, the number of
independent retail pharmacies and smaller retail pharmacy chains has decreased
as many of such retailers have been acquired by larger retail pharmacy chains
or gone out of business. This trend is expected to continue because larger
chains are better positioned to handle the increased third-party payor sales,
purchase inventory on more advantageous terms and achieve other economies of
scale with respect to their marketing, advertising, distribution and other
expenditures. The Company believes that the number of independent retail
pharmacies and smaller retail pharmacy chains remaining in operation may
provide significant acquisition opportunities for larger retail pharmacy
chains, such as the Company.
In 1996, retail pharmacy chains and independent retail pharmacies
represented approximately 39% and 27%, respectively, of all retail
prescription sales in the United States. In response to a number of factors,
including the aging population of the United States, mass merchants (including
discounters and deep discounters), supermarkets, combination food and retail
pharmacies, mail order distributors, hospitals, HMOs and other managed care
providers have entered the prescription industry. Supermarkets, including
combination food and retail pharmacies, and mass merchants each represented
approximately 11% of all prescription sales in the United States in 1995.
Although the Company currently faces increased competition from these
retailers, industry studies show that consumers in the over 65-age group tend
to make purchases at traditional retail pharmacies, such as HORIZON Pharmacy
stores, and maintain strong store loyalty.
27
<PAGE>
HORIZON PHARMACIES
As of April 14, 1997, the Company operated 14 stores. The following
table summarizes the number of stores operated by the Company and the year in
which each respective store was acquired by the Company.
Store Locations Year Acquired
--------------- -------------
Winnsboro, Texas 1994
Princeton, Texas** 1994
Cuero, Texas 1994
Bonham, Texas 1995
Uvalde, Texas 1995
Cleburne, Texas 1995
McLoud, Oklahoma 1995
Farmington, New Mexico* 1996
Tomah, Wisconsin 1996
Marion, Virginia 1996
Covington, Virginia 1996
Mineola, Texas 1997
Mt. Vernon, Texas 1997
McKinney, Texas 1997
_____________
* Indicates home healthcare services offered.
** Indicates the Company is in the process of submitting an application
for home healthcare license.
BUSINESS STRATEGY
The Company's business strategy is to continue to expand through
acquisitions and to increase individual store profitability. In implementing
its business strategy, the Company intends to continue cost-control programs,
continue and improve employee training, negotiate increases in vendor
rebates, maintain a high level of customer service and convenience, increase
sales in each department in each store and maintain competitive pricing. To
mitigate the effect of third-party reimbursement on pharmaceutical sales, the
Company also plans to expand its home healthcare and non-pharmaceutical sales
and services.
CUSTOMER SERVICE AND CONVENIENCE. The Company believes that customer
service and convenience are critical in positioning itself as an alternative
to mass merchandisers, supermarkets and other large format retailing channels.
The Company will continue to emphasize service and convenience through
pharmacy support services, home healthcare services, store location and
design, drive through pick-up and home delivery, merchandising programs and
operating hours geared to the needs of the particular market.
The Company offers a high level of professional pharmacy services, which
the Company believes provides added value to its customers. The Company
operates a computer software program which enables each of the Company's
stores to provide to each prescription drug customer a printout which advises
the customer of the specific dosages, contraindications and side effects of
his or her prescription medicine. See "- Merchandising and Marketing."
The Company will continue to arrange and merchandise its stores to
provide modern, well-identified stores, which are easily accessible to
customers. The Company's stores range in size from 3,600 to 12,000 square
feet and are located primarily in neighborhood strip shopping centers or free
standing locations in communities
28
<PAGE>
having populations of fewer than 50,000 persons. The Company's stores are
typically open Monday through Saturday from 8:00 a.m. until 6:00 p.m. and
certain stores are open from 11:00 a.m. to 5:00 p.m. on Sunday.
COMPETITIVE PRICING. While the Company believes that it competes
primarily on the basis of customer service and convenience, price is also an
important factor. The Company's policy is to price its prescription drug
products competitively. The Company believes that this policy has enhanced
its competitive position with retail pharmacies and other shopping formats.
COST CONTROLS. The Company's continued commitment to control costs and
maintain its competitive position in the marketplace focuses on decreasing
expenses without decreasing the level of services provided in its stores. The
Company continues to actively evaluate and pursue additional cost savings,
such as inventory control and computerized point of sale information, which
can be obtained without affecting the Company's customer service, quality or
sales growth potential. There can be no assurance, however, that any
additional cost reductions will be realized. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
EXPANSION STRATEGY
The Company intends to continue to expand its business by acquisitions of
smaller retail pharmacy chains and independent retail pharmacies primarily
located in communities having populations of fewer than 50,000 persons. In
identifying retail pharmacies for potential acquisition, the Company evaluates
a number of demographic considerations, including the size, growth pattern and
per capita income of the population, as well as the competitive environment
and the accessibility of a proposed site to the customer. The Company also
evaluates the respective store's historical financial performance, focusing on
stores having annual sales volumes between $1,500,000 and $5,000,000. The
Company has also acquired certain retail pharmacy stores from the FTC and will
continue to evaluate the purchase of other stores which may be offered for
sale by the FTC.
The Company's goal for the next three years is to acquire between eight
and 12 new retail pharmacies in each of 1997, 1998 and 1999. The Company
intends to use a portion of the proceeds of this Offering and cash flow from
operations to finance the cash costs of this growth, although borrowings may
also be available to finance such growth. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
PRODUCTS AND SERVICES
PHARMACY. The primary focus of the Company is the sale of prescription
and over-the-counter drugs. During 1996, the Company filled approximately
500,000 prescriptions, and sales of prescription drugs generated approximately
81.5% of the Company's net sales.
The Company believes that it is well positioned to take advantage of
certain demographic trends, including the aging of the United States
population. Nine of the Company's retail pharmacies are located in Texas, one
of the top three states experiencing the greatest migrations of persons over
age 65. According to industry studies, persons over age 65 purchase twice as
many prescription drugs and 50% more over-the-counter drugs than the national
average. The Company also believes that it is capable of meeting the needs of
the increasing volume of third-party prescription sales and is aggressively
marketing itself to third-party payors. See "Government Regulation and
Healthcare Reform" and "Third-Party Reimbursement."
The Company believes that new prescription drugs and drug therapies
provide an opportunity for increased demand for prescription drugs. In
addition, the FDA is approving an increasing number of prescription products
for sale over the counter. Prescription drugs which are approved for
over-the-counter distribution have historically shown significantly increased
sales.
NONPHARMACEUTICAL MERCHANDISE. HORIZON Pharmacy stores sell a wide
variety of nonpharmaceutical merchandise, including gifts, over-the-counter
drugs, health and beauty aids, greeting cards and numerous other convenience
products. The Company's stores offer a broad assortment of popular national
brand over-the-counter
29
<PAGE>
drugs and other products related to dental care, foot care, vitamins and
nutritional supplements, feminine hygiene, family planning and baby care.
The Company's stores provide a helpful environment in which consumers can
obtain product information from professional pharmacists, knowledgeable sales
employees and store managers or from literature available throughout the
store.
Each of the Company's stores also offers an assortment of popular brand
name cosmetics, fragrances and other beauty products. A wide selection of
gifts, greeting cards, gift wrap, bows and novelties are also offered.
Assorted convenience products including candy, food, tobacco products, books
and magazines, household products, seasonal merchandise and toys are also
offered.
Certain of the Company's stores also offer camera and photo accessories,
photo processing small electronics, batteries and audio and video tapes.
HOME HEALTHCARE SERVICES
The Company's Farmington, New Mexico store is currently licensed and
offers under the name HORIZON Home Care certain home healthcare services. The
Company is in the process of applying for a home healthcare services license
for its Princeton, Texas store and anticipates receiving such license within
the next 90 to 180 days. The home healthcare services offered by the Company's
Farmington store currently include (i) respiratory therapy; (ii) patient
services, including nursing and para-professional services; and (iii) infusion
therapy. The Company provides patients with a variety of services and related
products, many of which are essential to the proper implementation of a
physician's treatment plan.
RESPIRATORY THERAPY. The Company provides home respiratory services to
patients with a variety of conditions, including chronic obstructive pulmonary
disease (e.g., emphysema, chronic bronchitis and asthma), cystic fibrosis and
neurologically-related respiratory conditions. The Company contracts with
respiratory care professionals to provide support to its home respiratory
therapy patients. These professionals manage the needs of the Company's
patients according to physician-directed plans of care.
DURABLE MEDICAL EQUIPMENT. The Company also offers for sale and lease,
certain DME which primarily consists of patient room equipment (such as
hospital beds, patient lifts and commodes), ambulatory aids (such as walkers
and canes) and bathroom safety items. The Company's broad range of product
offerings provides patients requiring either infusion, nursing or respiratory
services access to needed DME through a single source.
NURSING AND PARA-PROFESSIONAL SERVICES. The Company offers a broad range
of professional nursing and para-professional services to meet a patient's
medical and personal needs, principally in the home. These services include
pediatric and adult care, such as ventilator care; administration of infusion
therapies, including chemotherapy, antibiotics, enteral and parenteral
feeding; standard skilled nursing services such as changing dressings,
injections, catheterization and administration of medication; physical,
respiratory, occupational and speech therapy; home health aide services, such
as assistance with personal hygiene, dressing and feeding; and homemaker
services, such as the preparation of meals and light house cleaning.
INFUSION THERAPY. Infusion therapy involves the intravenous
administration of nutrients, antibiotics or other medications to patients in
their homes usually as a continuation of treatment initiated in the hospital.
The infusion therapies provided by the Company include antibiotic and related
therapies (therapies used to treat various infections and diseases);
parenteral nutrition therapy (the intravenous feeding of life sustaining
nutrients to patients with impaired or altered digestive tracts due to
gastrointestinal illness, such as an intestinal obstruction or inflammatory
bowel disease); enteral nutrition therapy (the administration of nutrients
through a feeding tube to patients who cannot eat as a result of an
obstruction to the digestive tract or because they are otherwise unable to
feed themselves orally); chemotherapy (the intravenous administration of
cancer inhibiting drugs through either rapid or continuous infusion); pain
management (the administration of pain controlling drugs such as morphine and
Demerol to terminally or chronically ill patients); and other therapies.
30
<PAGE>
STORE OPERATIONS
The Company's current stores are generally located in free-standing
stores or in shopping centers located near the communities' main
thoroughfare. Although the Company does not remodel stores upon acquisition
to conform to a particular format, it arranges its stores to facilitate
customer movement and to maximize product visibility. The Company's pharmacy
departments are generally located near the back of its stores to maximize
customer exposure to the store. Most of the stores are equipped with modern
fixtures and equipment and range in size from 3,600 to 12,000 square feet.
The Company utilizes centrally prepared formats for the display and
stocking of its stores, while allowing individual store managers some
flexibility with regard to choice and display of the merchandise assortment
based upon the Company's strategy of tailoring its stores to the markets in
which the respective stores operate.
PURCHASING AND DISTRIBUTION
The Company centrally purchases most of its merchandise from Bergen
Brunswig and other vendors, enabling it to benefit from promotional programs
and volume discounts offered by such companies. All merchandise is shipped
directly to the Company's stores at prices negotiated at the corporate level.
The Company's primary vendor is Bergen Brunswig which supplied approximately
83.6% of the Company's inventory in 1996. Bergen Brunswig is also the
Company's primary creditor. See"Risk Factors - Reliance on Single Supplier"
and "Use of Proceeds."
MERCHANDISING AND MARKETING
The Company's merchandising strategy is to offer a broad selection of
traditional retail pharmacy items, including both nationally advertised and
private label products. Substantially all products are offered at
competitive prices. The Company emphasizes value and customer service in
attractive, conveniently located drugstores. It uses color, signs, packaging
and other merchandising aids to reinforce its name and low prices, and to
showcase its products.
The pharmacy department in each of the Company's store carries a
complete line of both brand name and generic drugs. The Company has been
expanding its prescription drug business by promoting the use of less costly
generic drugs whenever possible, and by entering into arrangements with
insurance companies, HMOs and other healthcare groups for the sale of
prescription drugs under third-party reimbursement programs.
Each of the Company's pharmacy departments utilizes a computer system
which includes software which enables the Company's pharmacists to recall a
customer's pharmacy history with a view to identifying possible allergies,
drug interactions or therapeutic duplication, and to provide customers with a
complete record of medication dispensed. The Company's computer software
system also enables the Company to identify generic equivalents of brand name
drugs, centrally control prescription prices, increase the speed of
processing prescriptions and reduce the paperwork normally involved in, and
thus expedite the collection of amounts due the Company under, third-party
reimbursement programs.
The Company sells certain private label products which enables the
Company to sell products, comparable in quality to name brand products, at
lower prices to its customers, but at higher gross margins for the Company.
Most photo processing services offered at Company stores are provided by
an independent contractor who provides the stores with a "drop box" into
which the customer places its film for processing. The independent
contractor collects the film, processes it and returns the printed photos to
the respective stores for pick-up and payment by the customer. One of the
Company's stores operates its own photo lab and processes customers' film
itself.
The Company advertises principally through the use of radio, newspaper,
direct mail and advertising circulars.
31
<PAGE>
GOVERNMENTAL REGULATION AND HEALTHCARE REFORM
All of the Company's pharmacists and pharmacies are required to be
licensed by the appropriate state boards of pharmacy. The Company's retail
pharmacies are also registered with the Federal Drug Enforcement
Administration. By virtue of these license and registration requirements,
the Company is obligated to observe certain rules and regulations, and a
violation of such rules and regulations could result in a suspension or
revocation of the licenses or registrations.
The Company relies on prescription drug sales for a significant portion
of its revenues and profits, and prescription drug sales represent a growing
segment of the Company's business. These revenues are affected by changes
within the healthcare industry, including changes in programs providing for
reimbursement of the cost of prescription drugs by third-party payment plans,
such as government and private plans, and regulatory changes relating to the
approval process for prescription drugs.
The Company has a number of third-party payor contracts pursuant to
which the Company is a provider of prescription drugs. "Freedom of Choice"
state statutes, pursuant to which all pharmacies would be entitled to be a
provider under such a contract, have been enacted in certain states,
including Alabama, Georgia, New Jersey, North Carolina, Louisiana, South
Carolina, Tennessee and Texas, and may be enacted in others. Although such
statutes may adversely affect certain of the Company's third-party contracts,
they may also provide the Company with opportunities regarding additional
third-party contracts.
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in some state legislatures that would
effect major changes in the health care system, either nationally or at the
state level. The Company cannot predict whether any Federal or state health
care reform legislation will eventually be passed, and if so, the impact
thereof on the Company's financial position or results of operations.
Healthcare reform, if implemented, could adversely affect the pricing of
prescription drugs or the amount of reimbursement from governmental agencies
and third-party payors, and consequently could be adverse to the Company.
However, to the extent health care reform expands the number of persons
receiving health care benefits covering the purchase of prescription drugs,
it may also result in increased purchases of such drugs and could thereby
have a favorable impact on both the Company and the retail drug industry in
general. Nevertheless, there can be no assurance that any future Federal or
state health care reform legislation will not adversely affect the Company or
the retail pharmacy industry generally.
In 1990, Congress enacted the Omnibus Budget Reconciliation Act of 1990
("OBRA 1990"), which includes a requirement that states implement
pharmaceutical drug use review programs for Medicaid beneficiaries receiving
covered out-patient prescription drugs. The OBRA 1990 legislation states that
pharmacists must offer to discuss with each Medicaid patient "common, severe
side or adverse effects or interactions and therapeutic contraindications
that may be encountered, including their avoidance and the action required if
they occur." In order to ensure reimbursement of out-patient prescription
drugs under Medicaid, states were required, pursuant to the OBRA 1990
legislation, to implement drug use review programs by January 1, 1993. In
all states where the Company operates, the State Pharmacy Practices Acts have
expanded the OBRA requirements to include all patients receiving
prescriptions in a retail setting. Pharmacists now have a duty to warn the
purchaser of a prescription drug if the warning could reduce or negate the
adverse effects of the use of such drug.
The Company's operations are also subject to Federal and state laws
governing such matters as wages, working conditions and overtime.
THIRD-PARTY REIMBURSEMENT
A growing percentage of the Company's prescription drug volume has been
accounted for by sales to customers who are covered by third-party payment
programs. Third-party reimbursement accounted for approximately 52% of the
Company's prescription sales in 1996, 46% in 1995 and 36% in 1994, and the
Company expects this trend to continue. Although contracts with third-party
payors may increase the volume of prescription sales and gross profits,
third-party payors typically negotiate lower prescription prices than those
of
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<PAGE>
non third-party payors. Accordingly, there has been downward pressure on
gross profit margins on sales of prescription drugs which is expected to
continue in future periods. Further, payments from Medicare and Medicaid
represent 29% of all third-party payor sales. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
COMPETITION
The Company's retail pharmacies operate in a highly competitive
industry, and compete primarily on the basis of customer service, convenience
of location and store design, price and product mix and selection. In
addition to traditional competition from independent retail pharmacies and
other retail pharmacy chains, the Company faces competition from mass
merchants (including discounters and deep discounters), supermarkets,
combination food and retail pharmacies, mail order distributors, hospitals
and HMOs. These other formats have experienced significant growth in their
market share of the prescription and over-the-counter drug business. The
Company's home healthcare services compete with certain chain operations and
independent single unit stores. Many of the Company's competitors have
greater financial resources than the Company.
TRADEMARKS AND SERVICE MARKS
No patent, trademark, license, franchise or concession is considered to
be of material importance to the business of the Company other than the trade
names under which the Company operates its retail businesses, including the
HORIZON Pharmacies and HORIZON Home Care names. The Company is in the
process of filing applications for Federal trademark protection of such
tradenames.
PROPERTIES
The Company's principal offices are currently located at 275 W.
Princeton Drive, Princeton, Texas, 75407, where it owns a 5,500 square foot
building. The Company also owns the furniture and fixtures in each of its
stores. However, the Company conducts substantially all of its retail
businesses under noncancelable leases, many of which expire within the next
eight years. In the normal course of business, however, it is expected that
leases will be renewed or replaced by leases on other properties. No single
lease is material to the Company's operations.
EMPLOYEES
At March 31, 1997, the Company employed approximately 180 employees,
approximately 110 on a full-time basis. None of the Company's employees are
represented by a labor union and the Company believes that its relations with
its employees are good.
LEGAL PROCEEDINGS
From time to time, the Company may be involved in litigation relating to
claims arising out of its normal business operation. The Company is not now
engaged in any legal proceedings.
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<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information regarding the
directors, executive officers and key employees of the Company.
NAME AGE POSITION
- ---- --- --------
Rick D. McCord, R.Ph. 42 Chairman of the Board of Directors,
President, Chief Operating Officer
Sy S. Shahid 46 Director, Executive Vice President, Secretary
David W. Frauhiger 35 Director, Chief Financial Officer, Treasurer
Charlie K. Herr, R.Ph. 57 Director, Southern Regional Manager
Robert D. Mueller, R.Ph. 39 Director, Western Regional Manager
RICK D. MCCORD, R.Ph., has served as Director, President and Chief
Operating Officer since the Company's inception. Mr. McCord, who has been a
licensed pharmacist in the State of Texas since 1977, was employed by True
Quality Pharmacies, Inc., a multi-location, multi-state retail pharmacy, from
1977 through 1993. During such time, Mr. McCord served as pharmacist and
store manager from 1977 to 1981, as district manager from 1982 to 1992, and
as a director from 1980 through 1990.
SY S. SHAHID has served as Director, Executive Vice President and
Secretary since the Company's inception. From February 1989 to February
1994, Mr. Shahid served full-time as the Director of Management Information
Systems of True Quality Pharmacies, Inc., and thereafter, until October 1996,
he served part-time in the same capacity. Mr. Shahid served as Financial
Systems Manager for 1st Texas Savings during 1988, and as Financial Systems
Manager for Lomas and Nettleton during 1987.
DAVID W. FRAUHIGER has served as Director, Controller and Treasurer
since the Company's inception and as Chief Financial Officer since March
1997. Mr. Frauhiger served as the full-time controller for True Quality
Pharmacies, Inc. from 1991 to February 1994, and as the part-time controller
from February 1994 until January 1997. Prior to such time Mr. Frauhiger
worked as an assistant controller for SunWest Companies, a commercial real
estate company, from September 1988 to June 1991 and as an accountant for
Jeffrey L. Harbin, CPA from January 1982 to September 1988.
CHARLIE K. HERR, R.Ph., has served as Director and Southern Regional
Manager since the Company's inception. Mr. Herr has been a practicing
pharmacist since 1963, serving as Pharmacist in Charge (PIC) for True Quality
Pharmacies, Inc. from July 1969 to the present. Mr. Herr is licensed to
practice in Colorado, Kansas, Missouri, New Mexico, Oklahoma, Texas and
Virginia.
ROBERT D. MUELLER, R.Ph., has served as Director and Western Regional
Manager of the Company from August 1995 to the present. Mr. Mueller has
been a practicing pharmacist since 1980, and is licensed in New Mexico,
Oklahoma and Texas. Mr. Mueller served as Pharmacy Manager of True Quality
Pharmacies, Inc. from August 1983 through August 1996, and as Staff
Pharmacist from Eastland Memorial Hospital from September 1994 to August 1996.
KEY EMPLOYEE
NANCY J. PAPANERI, R.Ph., 47, has served as Northern Regional Manager
since the Company's inception. Ms. Papaneri is currently a licensed
pharmacist in New Mexico, Oklahoma, Texas, Virginia and Wisconsin. From
August 1990 to March 1995, Ms. Papaneri served as Pharmacist for True Quality
Pharmacies, Inc. From February
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<PAGE>
1976 to July 1990 Ms. Papaneri served in a variety of positions for Revco
Drug Stores, Inc., including clerk, intern, pharmacist and manager.
THE BOARD OF DIRECTORS
The Company's Articles of Incorporation and Bylaws provide for the
division of the Board of Directors into three classes, each class consisting
(as nearly as possible) of one-third of the whole. The term of office of one
class of directors expires each year, with each class of directors being
elected for a term of three years and until the shareholders elect their
qualified successors. The Company's Bylaws provide that the Board of
Directors by resolution from time to time may fix the number of directors
that shall constitute the whole Board of Directors. The Board of Directors
has set the number at seven and there are currently two vacancies.
EXECUTIVE COMPENSATION
During 1996, no executive officer was paid compensation in excess of
$100,000.
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of the compensation of the
Company's President and Chief Operating Officer for services rendered in all
capacities to the Company during the year ended December 31, 1996.
ANNUAL COMPENSATION
-------------------------------
NAME YEAR SALARY BONUS
---- ---- ------ -----
Rick D. McCord 1996 $66,000 $25,334
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
The following table sets forth information with respect to the exercise
of stock options during the year ended December 31, 1996, by the Company's
President and Chief Operating Officer.
SHARES ACQUIRED
ON EXERCISE VALUE
NAME (#) REALIZED
---- --------------- --------
Rick D. McCord 50,000 $225,000
DIRECTORS' COMPENSATION
Directors who are not officers of the Company are to be paid $1,000 for
each regularly scheduled Board of Directors meeting attended and $250 for
each special Board of Directors meeting attended.
STOCK OPTION PLAN
The Company's Board of Directors has approved the 1997 Stock Option
Plan, subject to approval by the Company's shareholders. The description in
this prospectus of the principal terms of the 1997 Stock Option Plan is a
summary, does not purport to be complete, and is qualified in its entirety by
the full text of the 1997 Stock Option Plan, a copy of which has been filed
as an exhibit to the Registration Statement of which this prospectus is a
part.
Pursuant to the 1997 Stock Option Plan, employees and directors of the
Company are eligible to receive awards of stock options. The 1997 Stock
Option Plan provides for grants of "incentive stock options" ("ISO's")
meeting the requirements of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), and "non-qualified stock options" ("NQSO's").
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<PAGE>
Under the 1997 Stock Option Plan, the Company has reserved 200,000
shares of Common Stock for issuance of awards under the 1997 Stock Option
Plan (subject to antidilution and similar adjustments).
The 1997 Stock Option Plan will be administered by a Compensation
Committee (the "Committee") composed of two or more directors of the Company
who are "Non-Employee Directors" as such term is used in Rule 16b-3
promulgated under the Exchange Act. Subject to the provisions of the 1997
Stock Option Plan, the Committee will determine the type of award, when and
to whom awards will be granted, the number of shares covered by each award
and the terms, provisions and kind of consideration payable with respect to
awards. The Committee may interpret the 1997 Stock Option Plan and may at any
time adopt such rules and regulations therefor as it deems advisable. The
Committee may, additionally, cancel or amend awards.
In determining the persons to whom awards shall be granted and the
number of shares covered by each award the Committee shall take into account
the duties of the respective persons, their present and potential
contribution to the success of the Company and such other factors as the
Committee shall deem relevant in connection with accomplishing the purposes
of the 1997 Stock Option Plan. Management intends to recommend to the
Committee that upon completion of the Offering all of the shares subject to
the 1997 Stock Option Plan be granted to the Company's current officers,
directors and key employee identified in this prospectus, with exercise
prices equal to $5.00 per share.
An option may be granted on such terms and conditions as the Committee
may approve, and generally may be exercised for a period of up to 10 years
from the date of grant. Generally, both NQSO's and ISO's will be granted
with an exercise price equal to the "Fair Market Value" (as defined in the
1997 Stock Option Plan) on the date of grant. In the case of ISO's, certain
limitations will apply with respect to the aggregate value of option shares
which can become exercisable for the first time during any one calendar year,
and certain additional limitations will apply to ISO's granted to an employee
who possesses more than 10% of the total combined voting power of all classes
of stock of the Company. The Committee may provide for the payment of the
option price in cash, by delivery of other Common Stock having a Fair Market
Value equal to such option price, by a combination thereof or by such other
manner as the Committee shall determine. Options granted under the 1997
Stock Option Plan will become exercisable at such times and under such
conditions as the Committee shall determine. Options generally may not be
exercised more than three months after an employee terminates employment with
the Company.
The Board may at any time and from time to time suspend, amend, modify
or terminate the 1997 Stock Option Plan; provided, however, that, to the
extent required by Rule 16b-3 promulgated under the Exchange Act or any other
law, regulation or stock exchange rule, no such change shall be effective
without the requisite approval of the Company's shareholders. In addition,
no such change may adversely affect any award previously granted, except with
the written consent of the grantee.
No awards may be granted under the 1997 Stock Option Plan after the
tenth anniversary of the approval of the 1997 Stock Option Plan.
EMPLOYMENT AGREEMENTS
The Company has Employment Agreements with Rick D. McCord, R.Ph., Sy S.
Shahid, David W. Frauhiger, Charlie K. Herr, R. Ph., Robert D. Mueller, R.Ph.
and Nancy J. Papaneri, R.Ph. (each an "Employee" and collectively, the
"Employees"). Each of these agreements runs for a term of three years and
automatically renews for additional three year terms unless terminated by
either the Company or the Employee. Under the respective agreements Mr.
McCord will receive an annual salary of $120,000 and an annual bonus of
$24,000; Mr. Shahid will receive an annual salary of $112,568 and an annual
bonus of $22,514; Mr. Frauhiger will receive an annual salary of $107,667 and
an annual bonus of $21,533; Messrs. Herr and Mueller will each receive an
annual salary of $101,757 and an annual bonus of $20,351; and Ms. Papaneri
will receive an annual salary of $80,136 and an annual bonus of $8,014. For
a period of two years following the termination of an Employee, the Employee
is prohibited from engaging in or assisting in any business which is
identical, competitive with or comparable to, the Company's business within
any area in which the employee rendered services to the Company.
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<PAGE>
Each agreement contains a provision prohibiting the Employee subsequent to
termination of employment from disclosing to third parties proprietary
information relating to the Company.
OFFICER AND DIRECTOR LIABILITY
As permitted by the provisions of the Texas Act, the Company's Articles
of Incorporation eliminate, in certain circumstances, the monetary liability
of directors of the Company for a breach of their fiduciary duty as
directors. These provisions do not eliminate the liability of a director (i)
for a breach of a director's duty of loyalty to the Company or its
shareholders; (ii) for acts or omissions by a director not in good faith or
which involve intentional misconduct or a knowing violation of law; or (iii)
for any transaction from which the director derived an improper personal
benefit. In addition, these provisions do not eliminate the liability of a
director for violations of Federal securities laws or limit the rights of the
Company or its shareholders, in appropriate circumstances, to seek equitable
remedies such as injunctive or other forms of non-monetary relief. Such
remedies may not be effective in all cases.
The Company's Articles of Incorporation provide that the Company shall
indemnify all directors and officers of the Company to the full extent
permitted by the Texas Act. Under such provisions, any director or officer,
who in his capacity as such, is made or threatened to be made, a party to any
suit or proceeding, may be indemnified if the Board of Directors determines
such director or officer acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interest of the Company. The
Articles and the Texas Act further provide that such indemnification is not
exclusive of any other rights to which such individuals may be entitled under
the Articles of Incorporation, the Bylaws, any agreement, vote of
shareholders or disinterested directors or otherwise.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, the Company has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
CERTAIN TRANSACTIONS
All future transactions between the Company and its directors, officers,
principal shareholders or affiliates will be on terms no less favorable to
the Company than may be obtained from unaffiliated third parties, and any
such transactions will be approved by a majority of disinterested directors
of the Company.
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PRINCIPAL SHAREHOLDERS
The following table sets forth information as of April 14, 1997 assuming
the proposed 2-for-1 stock split, and as adjusted to reflect the sale of the
900,000 shares of Common Stock offered hereby, concerning the beneficial
ownership of Common Stock by each of the Company's directors, each executive
officer named in the table under the heading "Management - Directors,
Executive Officers and Key Employees," and all directors and executive
officers of the Company as a group, and by each person who is known by the
Company to own more than 5% of the outstanding shares of Common Stock.
Unless otherwise indicated, the beneficial owner has sole voting and
investment power with respect to such stock.
<TABLE>
Percent Beneficially Owned (1)
------------------------------
Name and Address
of Beneficial Holder Number of Shares Before Offering After Offering
-------------------- ---------------- --------------- --------------
<S> <C> <C> <C>
Rick D. McCord, R.Ph.(2) 221,740 20.48% 11.19%
Charlie K. Herr, R.Ph.(2) 211,426 19.53% 10.67%
Sy S. Shahid(2) 209,748 19.38% 10.58%
David W. Frauhiger(2) 70,000 6.47% 3.53%
Robert D. Mueller, R.Ph.(2) 28,438 2.63% 1.43%
Directors and executive officers
as a group (five persons) 741,352 68.49% 37.40%
</TABLE>
- -----------------
(1) Unless otherwise noted, the Company believes that each person named
in the table has sole voting and investment power with respect to all
shares beneficially owned by such person.
(2) Address is c/o HORIZON Pharmacies, Inc., 275 W. Princeton Drive,
Princeton, Texas 75407.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company as approved by the Board of
Directors and pending approval by the Company's shareholders shall consist of
(i) 14,000,000 shares of Common Stock, having a par value of $.01 per share,
and (ii) 1,000,000 shares of Preferred Stock, having a par value of $.01 per
share. Immediately prior to this Offering, 1,082,424 shares of Common Stock
were issued and outstanding, and no shares of Preferred Stock were issued and
outstanding. A total of 200,000 shares of Common Stock has been reserved for
grants of options under the 1997 Stock Option Plan.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on
all matters submitted to a vote of shareholders. There is no cumulative
voting with respect to the election of directors. Accordingly, holders of a
majority of the shares entitled to vote in any election of directors may
elect all of the directors standing for election. Subject to preferences
that may be applicable to any then outstanding class of Preferred Stock, the
holders of Common Stock are entitled to receive such dividends, if any, as
may be declared by the Board of Directors from time to time out of legally
available funds. Upon liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled to share ratably in all assets of
the Company that are legally available for distribution, after payment of all
debts and other liabilities and subject to the prior rights of holders of any
class of Preferred Stock then outstanding. The holders of Common Stock have
no preemptive, subscription, redemption or conversion rights. The rights,
preferences and privileges of holders of Common Stock are subject to the
rights of the holders of shares of any series of Preferred Stock that the
Company may issue in the future.
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<PAGE>
PREFERRED STOCK
The Company's Articles of Incorporation provide that the Company may
issue from time to time up to 1,000,000 shares of Preferred Stock in one or
more series with such designations, voting powers, if any, preferences and
relative, participating, optional or other special rights, and such
qualifications, limitations and restrictions thereof, as are determined by
resolution of the Board of Directors of the Company. The issuance of
Preferred Stock, while providing flexibility in connection with possible
financing, acquisitions and other corporate purposes, could, among other
things, adversely affect the voting power of holders of Common Stock and,
under certain circumstances, be used as a means of discouraging, delaying or
preventing a change in control of the Company. Currently, the Company has no
shares of Preferred Stock outstanding.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Articles of Incorporation and Bylaws
may be deemed to have anti-takeover effects and may delay, defer or prevent a
tender offer or takeover attempt that a shareholder might consider to be in
such shareholder's best interest, including those attempts that might result
in a premium over the market price for the shares held by shareholders.
CLASSIFIED BOARD. The Company's By-laws provide that (i) the Board of
Directors is divided into three classes of as equal size as possible, (ii)
the number of directors is to be fixed from time to time by the Board of
Directors, and (iii) the term of office of each class expires in consecutive
years so that each year only one class is elected. These provisions may
render more difficult a change in control of the Company or the removal of
incumbent management.
NO SHAREHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS. The
Company's Articles of Incorporation provide that no action shall be taken by
shareholders except at an annual or special meeting of shareholders, and
prohibits action by written consent in of lieu of a meeting. The Company's
Bylaws provide that, unless otherwise proscribed by law, special meetings of
shareholders can only be held pursuant to a resolution of the Board of
Directors.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Bylaws establish an advance notice procedure for the
nomination, other than by or at the direction of the Board of Directors or a
committee thereof, of candidates for election as directors as well as for
other shareholder proposals to be considered at shareholders' meetings.
Notice of shareholder proposals and director nominations must be timely
given in writing to the Secretary of the Company prior to the meeting at
which the matters are to be acted upon or Directors are to be elected. In all
cases, to be timely, notice must be received at the principal offices of the
Company not less than 40 days before the meeting, or, if on the day notice of
the meeting is given to the shareholders less than 45 days remain until the
meeting, (i) five days after notice is given but not less than five days
prior to the meeting in the case of shareholder proposals, and (ii) 10 days
after notice is given in the case of director nominations.
Notice to the Company from a shareholder who proposes to nominate a
person at a meeting for election as a director must contain all information
about that person as would be required to be included in a proxy statement
soliciting proxies for the election of the proposed nominee (including such
person's written consent to serve as a Director if so elected) and certain
information about the shareholder proposing to nominate that person.
Shareholder proposals must also include certain specified information.
These limitations on shareholder proposals do not restrict a
shareholder's right to include proposals in the Company's annual proxy
materials pursuant to rules promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act").
TRANSFER AGENT
The transfer agent for the Common Stock is American Securities Transfer,
Inc.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the
Company's Common Stock. Sales of substantial amounts of Common Stock in the
public market could adversely affect the market price of the Common Stock.
Upon completion of the Offering, the Company will have outstanding
1,982,424 shares of Common Stock. Of these shares all of the 900,000 shares
sold in the Offering (assuming no exercise of the Underwriters'
over-allotment option) will be transferable without restriction or further
registration under the Securities Act, unless they are held by "affiliates"
of the Company within the meaning of Rule 144 promulgated under the
Securities Act. Of the remaining shares held by existing shareholders,
328,426 shares are "restricted shares" ("Restricted Shares") within the
meaning of amendments to Rule 144 which become effective April 29, 1997, and,
as such, may not be sold in the absence of registration under the Securities
Act or an exemption therefrom under Rules 144 and 701, and 753,994 shares are
eligible for sale without restriction or further registration under Rule
144(k), unless they are held by "affiliates" of the Company or subject to a
"lock-up" agreement summarized below.
Of the Restricted Shares held by existing shareholders, 100,006 shares
will be eligible for sale without restriction or further registration on
September 8, 1997, unless they are held by "affiliates" of the Company or
subject to a "lock-up" agreement summarized below. The remaining 228,424
Restricted Shares will be eligible for sale without restriction or further
registration on various dates in the fourth quarter of 1997, subject to the
volume limitations of Rule 144.
In general, under amendments to Rule 144 which become effective April
29, 1997, any person (or persons whose shares are aggregated for purposes of
Rule 144) who beneficially owns Restricted Shares with respect to which at
least one year has elapsed since the later of the date the shares were
acquired from the Company or from an affiliate of the Company, is entitled to
sell, within any three month period, a number of shares that does not exceed
the greater of (i) 1% of the then outstanding shares of Common Stock of the
Company, or (ii) the average weekly trading volume in Common Stock during the
four calendar weeks preceding such sale. Sales under Rule 144 are also
subject to certain manner-of-sale provisions and notice requirements, and to
the availability of current public information about the Company. A person
who is not an affiliate, has not been an affiliate within 90 days prior to
sale and who beneficially owns Restricted Shares with respect to which at
least two years have elapsed since the later of the date the shares were
acquired from the Company or from an affiliate of the Company, is entitled to
sell such shares under Rule 144(k) without regard to any of the volume
limitations or other requirements described above.
The Company can make no prediction as to the effect, if any, that sales
of shares of Common Stock or the availability of shares for sale will have on
the market price of Common Stock. Nevertheless, sales of significant amounts
of Common Stock could adversely affect the prevailing market price of Common
Stock, as well as impair the ability of the Company to raise capital through
the issuance of additional equity securities. Prior to this Offering, there
has been no trading market for the Common Stock. The Company anticipates that
the trading market in the Common Stock, if any, will be limited based upon
the number of shares currently outstanding and anticipated to be sold in this
Offering.
As of the date of this prospectus, the Company had reserved an aggregate
of 200,000 shares of Common Stock for issuance pursuant to the Option Plan,
and no options to purchase shares were outstanding under the 1997 Stock
Option Plan. As soon as practicable following the Offering, the Company
intends to file a registration statement under the Securities Act to register
shares of Common Stock reserved for issuance under the Option Plan. Such
registration statement will automatically become effective immediately upon
filing.
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<PAGE>
UNDERWRITING
Each of the underwriters named below (the "Underwriters") have severally
agreed, subject to the terms and conditions of the Underwriting Agreement, to
purchase from the Company the number of shares of Common Stock set forth
opposite their respective names below. The nature of the obligations of the
Underwriters is such that if any of such shares are purchased, all must be
purchased.
Name Number of Shares
---- ----------------
Capital West
Total 900,000
The Underwriters have advised the Company that they propose initially to
offer the shares of Common Stock offered hereby to the public at the price to
public set forth on the cover page of this prospectus. The Underwriters may
allow a concession to selected dealers who are members of the National
Association of Securities Dealers, Inc. ("NASD") not in excess of $
per share, and the Underwriters may allow, and such dealers may reallow, to
members of the NASD a concession not in excess of $ per share. After
the public offering, the price to public, the concession and the reallowance
may be changed by the Underwriters.
Capital West, one of the Underwriters, was first registered as a
broker-dealer in May 1995. Capital West has participated in only six public
equity offerings as an underwriter, although certain of its employees have
had experience in underwriting public offerings while employed by other
broker-dealers. Prospective purchasers of the securities offered hereby
should consider Capital West's limited underwriting experience in evaluating
this Offering.
The Company has granted an option to the Underwriters, exercisable
within 45 business days after the date of this prospectus, to purchase up to
an aggregate of 135,000 additional shares of Common Stock, at the initial
price to public, less the underwriting discount, set forth on the cover page
of this prospectus. The Underwriters may exercise the option only for the
purpose of covering over-allotments . To the extent that the Underwriters
exercise such option, each Underwriter will be committed, subject to certain
conditions, to purchase from the Company on a pro rata basis that number of
additional shares of Common Stock which is proportionate to such
Underwriters' initial commitment.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The Company has agreed to pay to the Underwriters a nonaccountable
expense allowance of 3% of the gross proceeds derived from the sale of the
shares of Common Stock underwritten (including the sale of any shares of
Common Stock subject to the Underwriters' over-allotment option), $45,000 of
which has been paid as of the date of this prospectus. The Company also has
agreed to pay all expenses in connection with qualifying the Common Stock
offered hereby for sale under the laws of such states as the Underwriters may
designate, including filing fees and fees and expenses of counsel retained
for such purposes by the Underwriters and registering the Offering with the
NASD.
In connection with this Offering, the Company has agreed to sell to the
Underwriters, for a price of $.001 per warrant, warrants (the "Underwriters'
Warrants") to purchase shares of Common Stock equal to 10% of the total
number of shares sold pursuant to this Offering, excluding shares subject to
the over-allotment option. The Underwriters' Warrants are exercisable at a
price equal to 120% of the initial public offering price ($6.00 assuming an
initial public offering price of $5.00 per share) for a period of four years
commencing one year from the date of this prospectus (the "Exercise Period").
The Underwriters' Warrants grant to the holders thereof, with respect to the
registration under the Securities Act of the securities directly and
indirectly issuable upon exercise
41
<PAGE>
of the Underwriters' Warrants, one demand registration right during the
Exercise Period, as well as piggyback registration rights at any time. The
Company and its executive officers and directors have agreed that for a
period of 24 months after the date of this prospectus, they will not offer,
sell or otherwise dispose of any shares of Common Stock beneficially owned or
controlled by them (including subsequently acquired shares) without the prior
written consent of Capital West which consent shall not be unreasonably
withheld.
At the Company's request, the Underwriters have reserved up to 45,000
shares of Common Stock (the "Directed Shares") for sale at the public
offering price to approximately 20 persons who are directors, officers or
employees of, or otherwise associated with, the Company and who have advised
the Company of their desire to participate in its future growth. Each
director and executive officer who is a purchaser of Directed Shares will be
required to agree to restrictions on resale similar to those described in the
immediately preceding paragraph. However the Underwriters are not obligated
to sell any shares to any such persons. The number of shares of Common Stock
available for sale to the general public will be reduced to the extent of
sales of Directed Shares to any of the persons for whom they have been
reserved. Any shares not so purchased will be offered by the Underwriters on
the same basis as all other shares offered hereby.
Prior to this Offering, there has been no market for the Common Stock
and there can be no assurance that a regular trading market will develop upon
the completion of this Offering. The initial public offering price was
determined by negotiations between the Company and the Underwriters. The
primary factors considered in determining such offering price included the
history of and prospects for the Company's business and the industry in which
the Company competes, market valuation of comparable companies, market
conditions for public offerings, the prospects for future earnings of the
Company, an assessment of the Company's management, the general condition of
the securities markets, the demand for similar securities of comparable
companies and other relevant factors.
The Underwriters have advised the Company that the Underwriters do not
expect any sales by the Underwriters to accounts over which they exercise
discretionary authority.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered
hereby has been passed upon for the Company by Phillips McFall McCaffrey
McVay & Murrah, P.C., Oklahoma City, Oklahoma. Robertson & Williams, Inc. of
Oklahoma City, Oklahoma, has served as counsel to the Underwriters in
connection with this Offering.
EXPERTS
The financial statements of HORIZON Pharmacies, Inc. at December 31,
1996, and for the year then ended, appearing in this prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, and for the year ended December 31, 1995, by Herold, Howard &
Madsen P.C., independent auditors, as set forth in their respective reports
thereon appearing elsewhere herein, and are included in reliance upon such
reports given upon the authority of such firms as experts in accounting and
auditing.
The statements of operating revenues and direct operating expenses of
the Farmington Store Acquisition for the year ended December 31, 1995 and the
period from January 1, 1996 to April 26, 1996 and of the Vista Store
Acquisition for each of the two years in the period ended December 31, 1996,
appearing in this prospectus and Registration Statement have been audited by
Herold, Howard & Madsen P.C., independent auditors as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended. The Company
has filed a Registration Statement on Form SB-2 (the "Registration
Statement") with the Commission under the Securities Act with respect to the
Common Stock offered hereby.
42
<PAGE>
As permitted by the rules and regulations of the Commission, this prospectus
does not contain all of the information set forth in the Registration
Statement and in the exhibits and schedules thereto. For further information
with respect to the Company and the Common Stock offered hereby, reference is
made to the Registration Statement and the exhibits thereto. Statements
contained in this prospectus concerning the provisions of documents filed
with the Registration Statement as exhibits and schedules are necessarily
summaries of such documents, and each such statement is qualified in its
entirety by reference to the copy of the applicable document filed with the
Commission. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge and copied upon payment of the
charges prescribed by the Commission at the Public Reference Room of the
Commission, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission maintains a website that contains reports, proxy and information
statements and other information regarding issuers that file electronically
with the Commission at http://www.sec.gov.
43
<PAGE>
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF HORIZON PHARMACIES, INC........................... F-2
Report of Independent Auditors....................................... F-3
Independent Auditor's Report ........................................ F-4
Balance Sheet at December 31, 1996................................... F-5
Statements of Income for the years ended December 31, 1995 and 1996.. F-7
Statements of Shareholders'Equity for the years ended December 31,
1995 and 1996...................................................... F-8
Statements of Cash Flows for the years ended December 31, 1995
and 1996........................................................... F-9
Notes to Financial Statements........................................ F-11
FINANCIAL STATEMENTS OF MESA DRUG, INC. -- FARMINGTON STORE............... F-16
Report of Independent Auditors....................................... F-17
Statements of Operating Revenues and Direct Operating Expenses
for the year ended December 31, 1995 and the period from
January 1, 1996 to April 26, 1996.................................. F-18
Notes to Financial Statements........................................ F-19
FINANCIAL STATEMENTS OF TRUE QUALITY PHARMACIES, INC. -- VISTAS........... F-20
Report of Independent Auditors....................................... F-21
Statements of Operating Revenues and Direct Operating Expenses
for the years ended December 31, 1995 and 1996..................... F-22
Combined Statement of Net Assets Sold as of March 6, 1997............ F-23
Notes to Financial Statements........................................ F-24
F-1
<PAGE>
FINANCIAL STATEMENTS
HORIZON PHARMACIES, INC.
YEARS ENDED DECEMBER 31, 1995 AND 1996
WITH REPORTS OF INDEPENDENT AUDITORS
F-2
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
HORIZON Pharmacies, Inc.
We have audited the accompanying balance sheet of HORIZON Pharmacies, Inc. (an
S corporation) as of December 31, 1996, and the related statements of income,
shareholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HORIZON Pharmacies, Inc. at
December 31, 1996, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
Oklahoma City, Oklahoma
April 4, 1997,
except for the fourth paragraph of Note 6, as to which the date is
April __, 1997
The foregoing report is in the form that will be signed upon completion of the
reorganization of the capital accounts of the Company as described in the
fourth paragraph of Note 6 to the accompanying financial statements.
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
April 15, 1997
F-3
<PAGE>
To the Board of Directors and Shareholders
HORIZON Pharmacies, Inc.
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying statements of income, shareholders' equity
and cash flows of HORIZON Pharmacies, Inc. for the year ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of HORIZON
Pharmacies, Inc. for the year ended December 31, 1995, in conformity with
generally accepted accounting principles.
Dallas, Texas
April 24, 1996
except for the fourth paragraph of Note 6, as to which the date is
April __, 1997
The foregoing report is in the form that will be signed upon completion of
the reorganization of the capital accounts of the Company as described in the
fourth paragraph of Note 6 to the accompanying financial statements.
Herold, Howard & Madsen, P.C.
Dallas, Texas
April 15, 1997
F-4
<PAGE>
HORIZON Pharmacies, Inc.
Balance Sheet
<TABLE>
DECEMBER 31,
1996
------------
<S> <C>
ASSETS (NOTES 3 AND 4)
Current assets:
Cash $ 153,260
Accounts receivable, net of allowance for uncollectible accounts of $20,000:
Third-party providers 1,047,348
Others 412,709
Inventories, at the lower of specific identification cost or market 3,290,717
Prepaid expenses 31,071
----------
Total current assets 4,935,105
Property, equipment and capital lease assets:
Property and equipment, at cost:
Land 10,000
Building 193,220
Equipment 410,162
----------
613,382
Less accumulated depreciation 67,253
----------
Property and equipment, net 546,129
Equipment under capital leases 158,339
Less accumulated amortization 33,884
----------
Equipment under capital leases, net 124,455
----------
Property, equipment and capital lease assets, net 670,584
Intangibles, at cost (Note 2):
Noncompete covenants 146,788
Customer lists 211,605
Goodwill 814,107
----------
1,172,500
Less accumulated amortization 189,417
----------
Intangibles, net 983,083
----------
$6,588,772
----------
----------
</TABLE>
(CONTINUED ON FOLLOWING PAGE)
F-5
<PAGE>
HORIZON Pharmacies, Inc.
Balance Sheet (continued)
<TABLE>
DECEMBER 31,
1996
------------
<S> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 247,759
Accounts payable 1,491,789
Accrued liabilities 161,365
Notes payable (NOTE 3) 1,215,000
Current portion of long-term debt (NOTE 4) 228,759
Current obligations under capital leases (NOTE 5) 27,400
----------
Total current liabilities 3,372,072
Long-term debt (NOTE 4) 1,363,858
Obligations under capital leases (NOTE 5) 102,769
Commitments (NOTES 5 AND 7)
Shareholders' equity (NOTE 6):
Preferred stock, $.01 par value, authorized 1,000,000 shares; none issued
Common stock, $.01 par value, authorized 14,000,000 shares;
issued 1,082,424 shares 10,824
Additional paid-in capital 1,760,303
Accumulated deficit (21,054)
----------
Total shareholders' equity 1,750,073
----------
$6,588,772
----------
----------
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
HORIZON Pharmacies, Inc.
Statements of Income
YEAR ENDED DECEMBER 31,
1995 1996
------------------------
Net sales:
Prescription drugs $5,235,246 $ 10,710,586
Other 1,034,335 2,425,733
------------------------
Total net sales 6,269,581 13,136,319
Costs and expenses:
Cost of sales:
Prescription drugs 3,735,292 7,587,696
Other 636,515 1,354,009
Depreciation and amortization:
Property, equipment and capital lease assets 32,305 64,058
Intangibles 67,412 107,749
Selling, general and administrative expenses 1,519,439 3,471,370
------------------------
Total costs and expenses 5,990,963 12,584,882
------------------------
Income from operations 278,618 551,437
Other income (expense):
Interest and other income 6,839 3,683
Interest expense (109,828) (252,767)
------------------------
Total other income (expense) (102,989) (249,084)
------------------------
Net income $ 175,629 $ 302,353
------------------------
------------------------
SEE ACCOMPANYING NOTES.
F-7
<PAGE>
HORIZON Pharmacies, Inc.
Statements of Shareholders' Equity (NOTE 6)
<TABLE>
Retained
Common Stock Additional Earnings Total
------------------- Paid-in (Accumulated Shareholders'
Shares Amount Capital Deficit) Equity
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 554,482 $ 5,545 $ 672,178 $ 14,464 $ 692,187
Sale of common stock 355,518 3,555 743,609 -- 747,164
Redemption of common stock
for debt (56,000) (560) (75,320) -- (75,880)
Net income -- -- -- 175,629 175,629
Distributions to shareholders -- -- -- (260,000) (260,000)
----------------------------------------------------------
Balance at December 31, 1995 854,000 8,540 1,340,467 (69,907) 1,279,100
Sale of common stock 64,424 644 321,476 -- 322,120
Exercise of common stock options 160,000 1,600 78,400 -- 80,000
Issuance of common stock to reduce
long-term debt 4,000 40 19,960 -- 20,000
Net income -- -- -- 302,353 302,353
Distributions to shareholders -- -- -- (253,500) (253,500)
----------------------------------------------------------
Balance at December 31, 1996 1,082,424 $10,824 $1,760,303 $ (21,054) $1,750,073
----------------------------------------------------------
----------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-8
<PAGE>
HORIZON Pharmacies, Inc.
Statements of Cash Flows
YEAR ENDED DECEMBER 31,
1995 1996
---------------------------
OPERATING ACTIVITIES
Net income $ 175,629 $ 302,353
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization of
property, equipment and capital
lease assets 32,305 64,058
Amortization of intangibles 67,412 107,749
Provision for uncollectible
accounts receivable 19,876 21,241
Changes in operating assets and
liabilities, net of acquisitions
of businesses:
Accounts receivable (415,094) (847,494)
Inventories (199,330) (716,553)
Prepaid expenses (27,495) 4,302
Bank overdraft 130,830 116,929
Accounts payable 477,990 888,348
Accrued liabilities 25,396 108,523
---------------------------
Total adjustments 111,890 (252,897)
---------------------------
Net cash provided by operating activities 287,519 49,456
INVESTING ACTIVITIES
Purchases of property and equipment (33,129) (156,625)
Acquisitions of businesses:
Accounts receivable and other (24,967) 1,793
Inventories (801,000) (1,014,247)
Property and equipment (140,000) (85,000)
Intangibles (638,000) (165,000)
---------------------------
(1,603,967) (1,262,454)
Less portion financed with debt:
Notes payable 400,000 639,465
Long-term debt 658,967 622,989
---------------------------
1,058,967 1,262,454
---------------------------
(545,000) -
---------------------------
Net cash used in investing activities (578,129) (156,625)
(CONTINUED ON FOLLOWING PAGE)
F-9
<PAGE>
HORIZON Pharmacies, Inc.
Statements of Cash Flows (continued)
YEAR ENDED DECEMBER 31,
1995 1996
---------------------------
FINANCING ACTIVITIES
Borrowings on notes payable $ - $ 210,535
Borrowings on long-term debt 24,120 -
Principal payments on notes payable - (35,000)
Principal payments on long-term debt (128,869) (180,643)
Principal payments on obligations
under capital leases (5,562) (18,716)
Proceeds from sale of stock 747,164 402,120
Distributions to shareholders (260,000) (253,500)
---------------------------
Net cash provided by financing activities 376,853 124,796
---------------------------
Net increase in cash 86,243 17,627
Cash at beginning of year 49,390 135,633
---------------------------
Cash at end of year $ 135,633 $ 153,260
---------------------------
---------------------------
SUPPLEMENTAL DISCLOSURE OF INTEREST PAID $ 106,828 $ 240,767
NONCASH INVESTING AND FINANCING ACTIVITIES
Additions to property and equipment
for long-term debt $ - $ 150,000
Equipment leased under capital leases 32,692 88,208
Issuance of common stock to reduce
long-term debt - 20,000
Redemption of common stock for long-term
debt, excluding cash proceeds of $24,120 75,880 -
SEE ACCOMPANYING NOTES.
F-10
<PAGE>
HORIZON Pharmacies, Inc.
Notes to Financial Statements
December 31, 1995 and 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
HORIZON Pharmacies, Inc., a Texas corporation (the "Company"), was organized
on August 31, 1992. During the period from inception (August 31, 1992) to
February 27, 1994, the Company had no operations (NOTE 2).
NATURE OF OPERATIONS
The Company owns and operates eleven retail pharmacies located in five states
(NOTE 2). Purchases from the Company's largest supplier amounted to
$3,356,215 in 1995 and $8,077,406 in 1996. Accounts payable to this supplier
totaled $1,001,023 at December 31, 1996. Notes payable to this supplier were
$1,215,000 at December 31, 1996 (NOTE 3).
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of accounts receivable. Accounts
receivable are unsecured and consist principally of receivables from
third-party providers (insurance companies and government agencies) under
third-party payment plans. Certain of these receivables are recorded net of
any allowances provided under the respective plans. Since payments due from
certain third-party payers are sensitive to payment criteria changes and
legislative actions, the allowance is reviewed continually and adjusted for
accounts deemed uncollectible by management.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results inevitably will differ from those estimates, and such
differences may be material to the financial statements.
ADVERTISING
Advertising costs are charged to expense as incurred and amounted to $35,962
in 1995 and $84,057 in 1996.
DEPRECIATION AND AMORTIZATION
Depreciation of property and equipment is provided on a straight-line basis
over the estimated useful lives of the assets. Amortization of equipment
under capital leases is provided on a straight-line basis over the estimated
useful lives of the equipment or over the terms of the leases, whichever is
shorter. Amortization of intangibles, including noncompete covenants,
customer lists and goodwill are being amortized using the straight-line
method over 2 to 7 years, 5 years and 20 years, respectively.
The Company reviews each store for impairment of intangibles annually, based
upon expectations of undiscounted future cash flows.
F-11
<PAGE>
HORIZON Pharmacies, Inc.
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNT POLICIES (CONTINUED)
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
NOTES PAYABLE: The carrying amount reported in the balance sheet for
variable-rate notes payable approximates its fair value.
LONG-TERM DEBT: The carrying amount reported in the balance sheet for
variable-rate long-term debt approximates its fair value. The fair values
of the Company's fixed-rate long-term debt are estimated using discounted
cash flow analyses, based on the Company's current incremental borrowing
rates for similar types of borrowing arrangements. At December 31, 1996,
the fair value of the Company's long-term debt was approximately
$1,614,000.
INCOME TAXES
No provisions for income taxes have been included in the accompanying
financial statements as income taxes, if any, are payable by the shareholders
under provisions of subchapter S of the Internal Revenue Code. At December
31, 1996, the net bases of assets and liabilities for financial reporting
purposes exceeds such bases for tax purposes by $427,000.
2. ACQUISITIONS
At December 31, 1996, the Company operates eleven conventional, freestanding
retail pharmacies, all of which were acquired from third parties in purchase
transactions beginning February 27, 1994. Such acquisitions have each been
structured as asset purchases and generally have included inventories, store
fixtures and the assumption of store operating lease arrangements (NOTE 5).
The acquisitions generally have been financed by debt to the sellers and/or
an inventory supplier (NOTES 3 AND 4). A summary of acquisitions follows:
<TABLE>
ASSETS ACQUIRED
STORE PURCHASE ------------------------------------ DEBT
YEAR OPERATIONS PRICE INVENTORIES INTANGIBLES OTHER INCURRED
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994 3 $ 944,201 $ 506,680 $369,500 $ 68,021 $ 368,080
1995 4 1,603,967 801,000 638,000 164,967 1,058,967
1996 4 1,262,454 1,014,247 165,000 83,207 1,262,454
</TABLE>
The following unaudited pro forma results of operations data gives effect to
the acquisitions completed in 1995 and 1996 as if the transactions had been
consummated as of January 1, 1995 and 1996. The unaudited pro forma results
of operations data is presented for illustrative purposes and is not
necessarily indicative of the actual results that would have occurred had the
acquisitions been consummated as of January 1, 1995 or 1996, respectively, or
of future results of operations. The data reflects adjustments for
amortization of intangibles resulting from the purchases and incremental
interest expense resulting from borrowings to fund the acquisitions.
F-12
<PAGE>
HORIZON Pharmacies, Inc.
Notes to Financial Statements (continued)
2. ACQUISITIONS (CONTINUED)
YEAR ENDED DECEMBER 31,
1995 1996
-----------------------------
Unaudited pro forma information:
Net sales $16,177,000 $17,904,000
-----------------------------
-----------------------------
Net income $ 186,000 $ 432,000
-----------------------------
-----------------------------
In March 1997, the Company acquired three retail pharmacies in a purchase
transaction. The total purchase price of $998,642 was allocated to
inventories ($482,260), property and equipment ($60,000), intangibles
($390,000) and other assets ($66,382). The purchase was financed by an
advance by a shareholder of $100,000 and the issuance of a 8.5% note payable
to the seller for $898,642. The note is secured by the assets acquired and
guarantees by certain shareholders and is due in varying installments until
December 25, 1997.
3. NOTES PAYABLE
In October 1996, the Company entered into a Loan Agreement under the terms of
which a supplier committed until May 17, 1997 to loan to the Company a
maximum of $1,500,000 ($800,000 under Note A and $700,000 under Note B) to be
used to acquire specified operating assets of retail pharmacies. Borrowings
under the facility are secured by certain accounts receivable, inventories,
property and equipment, and guarantees by certain shareholders. The Loan
Agreement contains various covenants which limit, among other things, the
Company's ability to incur additional debt, redeem common stock, enter into
certain transactions with affiliates, pay dividends and sell assets. The
Company is also required to meet a specified debt to equity ratio.
Notes payable consist of the following at December 31, 1996:
<TABLE>
<S> <C>
Note A due on demand or on May 17, 1997, plus interest at a specified
bank's prime rate plus 2% (10.25% at December 31, 1996) $ 550,000
Note B due on demand or in monthly installments of $11,667 until
September 10, 2001, plus interest at a specified bank's prime rate plus
2% (10.25% at December 31, 1996) 665,000
----------
$1,215,000
----------
----------
</TABLE>
F-13
<PAGE>
HORIZON Pharmacies, Inc.
Notes to Financial Statements (continued)
4. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996:
Note payable to former shareholder, due on
March 1, 1998, interest at New York prime
plus 4% (12.25% at December 31, 1996) $ 100,000
Installment notes due in varying installments
(totaling $29,524 per month, as of December 31,
1996) including interest at rates ranging
from 8% to 10.25% and maturing on various dates
from November 1999 to June 2011 1,492,617
----------
1,592,617
Less current portion of long-term debt 228,759
----------
Long-term debt $1,363,858
----------
----------
Long-term debt is secured by certain accounts receivable, inventories and
property and equipment. Certain long-term debt is secured by guarantees of
certain shareholders.
Long-term debt maturing during the five years subsequent to 1996 is as
follows: 1997 $228,759; 1998 $350,622; 1999 $271,305; 2000 $227,585 and 2001
$207,657.
5. LEASES
The Company leases all of its retail store facilities under noncancelable
operating leases, many of which expire within eight years. These leases
require the Company to pay for taxes, maintenance and insurance and contain
renewal options, certain of which involve rent increases. Rent expense was
$100,725 in 1995 and $195,609 in 1996.
The Company leases most of its retail store pharmacy computer equipment under
capital lease agreements which expire from 1999 to 2001.
At December 31, 1996, the future minimum lease payments under operating and
capital leases are as follows:
OPERATING CAPITAL
YEAR LEASES LEASES
----------------------------------------------------------
1997 $203,951 $ 41,847
1998 164,309 41,847
1999 97,697 37,535
2000 77,596 27,605
2001 38,985 18,201
------------------------------
Total $582,538 167,035
--------
--------
Less amount representing interest 36,866
--------
Net present values 130,169
Current obligations under capital leases 27,400
--------
Obligations under capital leases $102,769
--------
--------
F-14
<PAGE>
HORIZON Pharmacies, Inc.
Notes to Financial Statements (continued)
6. SHAREHOLDERS' EQUITY
During 1995, the Company sold 255,512 and 100,006 shares of common stock at
$1.75 and $3.00 per share, respectively. In addition, the Company redeemed
56,000 shares of common stock at $1.36 per share and received cash of $24,120
in exchange for a note payable (Note 4).
During 1996, the Company issued 160,000 shares of common stock at $.50 per
share relating to the exercise of all stock options granted to the officers
and founders of the Company in 1994. Additionally, the Company sold 64,424
shares of common stock at $5.00 per share. The Company also issued 4,000
shares of common stock at $5 per share in exchange for a $20,000 reduction in
long-term debt.
In March 1997, the Board of Directors and shareholders approved The 1997
Stock Option Plan (the "Plan"). Options for up to 200,000 shares of common
stock may be granted until March 2007 to key employees and directors at
prices equal to the fair market values (as specified in the Plan) on the
dates the options are granted. Except as provided in the option agreements,
options are exercisable at any time during a ten-year term. No options have
been granted to date.
In April 1997, the Board of Directors of the Company approved a two-for-one
split of the Company's common stock. The split and an amendment to the
Company's articles of incorporation to change the authorized capitalization
from 1,000,000 shares of $1 par common stock to 14,000,000 shares of $.01 par
common stock and 1,000,000 shares of $.01 par preferred stock were approved
by the shareholders on April __, 1997. The Board of Directors has the
authority to issue preferred stock in one or more classes or series and to
fix from time to time the number of shares to be included in each such class
or series and the designations, preferences, qualifications, limitations,
restrictions and rights of the shares of each such class or series. The
effects of the stock split and recapitalization have been reflected
retroactively in the accompanying financial statements.
7. COMMITMENTS
The Company has employment agreements with certain store managers. In
addition to base salaries, the agreements provide for bonuses based on
specified earnings goals. Bonuses charged to expense were $23,879 in 1995
and $61,265 in 1996.
The Company has entered into employment agreements with six officers and key
employees of the Company, effective June 1, 1997. These agreements are for
three-year terms with renewal options of three years and provide for annual
base salaries, totaling approximately $624,000 annually, as well as incentive
bonuses totaling approximately $117,000 annually.
8. EMPLOYEE BENEFIT PLAN
Effective January 1, 1996, the Company adopted a profit sharing plan for
certain full-time employees. Each participant in the plan may contribute by
payroll deduction up to 15% of their earnings. The Company may make matching
contributions of a portion of each participant's contribution up to 6% of
their earnings. The Company may also make a profit sharing contribution. No
matching or profit sharing contributions were made in 1996.
F-15
<PAGE>
FINANCIAL STATEMENTS
MESA DRUG, INC. - FARMINGTON STORE
YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD
FROM JANUARY 1, 1996 TO APRIL 26, 1996
WITH REPORT OF INDEPENDENT AUDITORS
F-16
<PAGE>
The Board of Directors and Shareholders
HORIZON Pharmacies, Inc.
Report of Independent Auditors
We have audited the accompanying statements of operating revenues and direct
operating expenses for Mesa Drug, Inc. - Farmington Store for the year ended
December 31, 1995 and the period from January 1, 1996 to April 26, 1996.
These statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 accompanying statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the accompanying
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As described in Note 1, the accompanying statements were prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission and are not intended to be a complete presentation of the
revenues and expenses of Mesa Drug, Inc. - Farmington Store.
In our opinion, the statements referred to above present fairly, in all
material respects, the operating revenues and direct operating expenses of
Mesa Drug, Inc. - Farmington Store for the year ended December 31, 1995 and
the period from January 1, 1996 to April 26, 1996.
Herold, Howard & Madsen, P.C.
Dallas, Texas
March 28, 1997
F-17
<PAGE>
MESA DRUG, INC. - FARMINGTON STORE
STATEMENTS OF OPERATING REVENUES AND DIRECT OPERATING EXPENSES
YEAR ENDED PERIOD FROM JANUARY 1, 1996
DECEMBER 31, 1995 TO APRIL 26, 1996
----------------- ---------------------------
Sales - RX $2,342,399 $ 914,834
Sales - Other 1,265,463 332,156
---------- ----------
Total Sales 3,607,862 1,246,990
Cost of Goods Sold 2,357,352 826,053
---------- ----------
Gross Profit 1,250,510 420,937
Operating expenses:
Professional fees 64,122 16,940
Advertising 25,614 6,148
Bad debts 4,215 --
Rent 60,696 22,843
Security 1,163 639
Dues & Subscriptions 10,227 3,232
Repairs/Maintenance 8,724 4,760
Meals & Entertainment 4,185 3,614
Insurance 51,624 5,715
Janitorial 2,041 718
Miscellaneous 4,279 367
Office supplies 35,855 10,502
Supplies 64,263 24,781
Taxes 54,329 18,190
Telephone 32,260 7,924
Travel 3,622 80
Utilities 21,969 7,473
Wages 518,458 160,606
Auto expenses 23,172 4,273
Uniforms 385 --
Royalties 7,393 --
---------- ----------
Total operating expenses 998,596 298,805
---------- ----------
Operating profit $ 251,914 $ 122,132
---------- ----------
---------- ----------
See accompanying notes.
F-18
<PAGE>
Mesa Drug, Inc. - Farmington Store
Notes to the Financial Statements
Year Ended December 31, 1995 and
Period from January 1, 1996 to April 26, 1996
1. Summary of Significant Accounting Policies
Basis of Presentation
Mesa Drug, Inc. owns and operates retail pharmacies located in New Mexico.
The financial statements presented include only the operations of the retail
pharmacy located in Farmington, New Mexico for the year ended December 31,
1995 and the period from January 1, 1996 to April 26, 1996.
Basis of Accounting
The financial statements are prepared on the accrual basis of accounting and
accordingly reflect revenues at the time products are sold or services are
rendered. Expenses are recognized when the products are received or the
services are performed.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results inevitably will differ from those estimates, and such
differences may be material to the financial statements.
F-19
<PAGE>
FINANCIAL STATEMENTS
TRUE QUALITY PHARMACIES, INC. - VISTAS
YEARS ENDED DECEMBER 31, 1995 AND 1996
WITH REPORT OF INDEPENDENT AUDITORS
F-20
<PAGE>
The Board of Directors and Shareholders
HORIZON Pharmacies, Inc.
Report of Independent Auditors
We have audited the accompanying combined statements of operating revenues
and direct operating expenses for True Quality Pharmacies, Inc. - Vistas for
the years ended December 31, 1995 and 1996 and the Combined Statement of Net
Assets Sold as of March 6, 1997. These statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these 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 accompanying statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the accompanying
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As described in Note 1, the accompanying statements were prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission and are not intended to be a complete presentation of the
revenues and expenses nor the financial position of True Quality Pharmacies,
Inc. - Vistas.
In our opinion, the statements referred to above present fairly, in all
material respects, the combined operating revenues and direct operating
expenses of True Quality Pharmacies, Inc. - Vistas for the years ended
December 31, 1995 and 1996 and the net assets sold as of March 6, 1997.
Herold, Howard & Madsen, P.C.
Dallas, Texas
March 28, 1997
F-21
<PAGE>
TRUE QUALITY PHARMACIES, INC. - VISTAS
COMBINED STATEMENTS OF OPERATING REVENUES AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996
---------- ----------
Sales - RX $3,628,467 $3,726,405
Sales - Other 522,814 502,766
---------- ----------
Total Sales 4,151,281 4,229,171
Cost of Goods Sold 2,900,035 3,021,070
---------- ----------
Gross Profit 1,251,246 1,208,101
Operating expenses:
Inventory services 2,615 5,685
Commissions -- 600
Delivery 6,113 6,105
Advertising 40,118 29,167
Bank charges 3,201 3,269
Bad debt expense 14,878 5,274
Data processing 24,519 25,250
Rent 53,975 52,743
Credit card charges 2,062 2,211
Dues & Subscriptions 3,279 2,868
Repairs/Maintenance 9,669 12,953
Meals & Entertainment 459 531
Insurance 44,382 39,804
Professional fees 25,895 26,876
Miscellaneous 1,465 1,875
Office supplies 3,658 4,002
Postage 2,630 17,924
Supplies 4,069 2,411
Taxes/Licenses 35,383 50,130
Telephone 14,012 15,227
Travel 2,181 2,728
Utilities 17,198 17,523
Wages 431,504 434,817
Accounts receivable fee 10,322 12,180
Vials and labels 12,602 12,146
---------- ----------
Total Operating expenses 766,189 784,299
---------- ----------
Operating profit $ 485,057 $ 423,802
---------- ----------
---------- ----------
SEE ACCOMPANYING NOTES.
F-22
<PAGE>
TRUE QUALITY PHARMACIES, INC. - VISTAS
COMBINED STATEMENT OF NET ASSETS SOLD
MARCH 6,
1997
--------
ASSETS SOLD
Current assets:
Accounts receivable, net $ 66,494
Inventories, at cost 482,260
--------
Total current assets 548,754
Equipment, at cost 112,952
Less accumulated depreciation 94,893
--------
Equipment, net 18,059
--------
Total assets sold 566,813
Liabilities assumed --
--------
Net assets sold $566,813
--------
--------
SEE ACCOMPANYING NOTES.
F-23
<PAGE>
True Quality Pharmacies, Inc. - Vistas
Notes to the Financial Statements
As of March 6, 1997 and the
years ended December 31, 1995 and
December 31, 1996
1. Summary of Significant Accounting Policies
Basis of Presentation
True Quality Pharmacies, Inc. owns and operates retail pharmacies located in
Texas, Oklahoma and Kansas. The financial statements presented include
the operations of the retail pharmacies operating as Vistas and located in
Mineola, Mt. Vernon and McKinney, Texas for the years ended December 31, 1995
and 1996 on a combined basis and their combined net assets sold as of March 6,
1997, prior to the sale of such assets to HORIZON Pharmacies, Inc.
Basis of Accounting
The financial statements are prepared on the accrual basis of accounting and
accordingly reflect revenues at the time products are sold or services are
rendered. Expenses are recognized when the products are received or the
services are performed.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results inevitably will differ from those estimates, and such
differences may be material to the financial statements.
F-24
<PAGE>
========================================================================
No dealer, sales representative or any other person has been
authorized to give any information or to make any representations
in connection with this Offering other than those contained in this
prospectus, and, if given or made, such information or
representations must not be relied upon as having been authorized
by the Company or the Underwriters. This prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, any
securities other than the registered securities to which it relates or
an offer, to, or a solicitation of, any person in any jurisdiction where
such offer or solicitation would be unlawful. Neither the delivery
of this prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change
in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent
to the date hereof.
----------------------------
TABLE OF CONTENTS
Page
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . .3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . .7
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . 15
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . 15
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 17
Selected Financial Information . . . . . . . . . . . . . . . . 18
Pro Forma Combined Financial Data. . . . . . . . . . . . . . . 19
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . 23
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Management . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Certain Transactions . . . . . . . . . . . . . . . . . . . . . 37
Principal Shareholders . . . . . . . . . . . . . . . . . . . . 38
Description of Securities. . . . . . . . . . . . . . . . . . . 38
Shares Eligible for Future Sale. . . . . . . . . . . . . . . . 40
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . 41
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . 42
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Additional Information . . . . . . . . . . . . . . . . . . . . 44
Financial Statements . . . . . . . . . . . . . . . . . . . . .F-1
----------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
========================================================================
========================================================================
900,000 Shares
HORIZON PHARMACIES, INC.
Common Stock
---------
PROSPECTUS
---------
CAPITAL WEST
SECURITIES, INC.
____________, 1997
========================================================================
<PAGE>
HORIZON PHARMACIES, INC.
REGISTRATION STATEMENT ON FORM SB-2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 2.02 of the Texas Business Corporation Act provides broadly for
indemnification of directors and officers against claims and liabilities
against them in their capacities as such. The Company's bylaws also provide
for the indemnification of directors and officers by the Company. In
addition, the Company has purchased Directors' and Officers' Liability and
Company Reimbursement Liability Insurance which, in certain circumstances,
provide for payments to the directors and officers of the Company, in the
event of such liabilities.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with
the sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All expenses of registration will be
borne by the Company. All of the amounts shown are estimates, except the
registration fee, and assume exercise of the underwriters' over-allotment
option.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee. . . $ 1,970.68
NASD fees. . . . . . . . . . . . . . . . . . . . . . . . 1,300.00
Underwriters' non-accountable expense allowance. . . . . 155,250.00
Blue Sky Fees. . . . . . . . . . . . . . . . . . . . . . 20,000.00
Legal fees and expenses. . . . . . . . . . . . . . . . . 80,000.00
Accounting fees and expenses . . . . . . . . . . . . . . 65,000.00
Printing and engraving expenses. . . . . . . . . . . . . 35,000.00
Nasdaq application fees. . . . . . . . . . . . . . . . . 6,780.00
-----------
TOTAL EXPENSES . . . . . . . . . . . . . . . . . . $362,030.00
-----------
-----------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following sets forth certain information regarding sales of
securities of the Company issued within the past three years, which were not
registered pursuant to the Securities Act of 1933, as amended (the
"Securities Act"). The following information has been adjusted to reflect
the 2-for-1 split for all Common Stock approved by the Company's Board of
Directors on April 14, 1997:
On June 6, 1994, the Company sold 120,000 shares of Common Stock to five
officers, directors and an employee for an aggregate price of $150,000. The
Company sold an additional 136,000 shares to five officers and directors, one
person with whom the Company's officers and/or directors had a prior business
relationship ("Business Associate"), and one employee on August 9, 1994 for
an aggregate price of $170,000. The Company sold an additional 118,482 shares
of Common Stock on November 18, 1994 to its officers and directors, one
employee, one Business Associate, and one additional investor for an
aggregate of $177,723.
On February 27, 1995, the Company sold 255,512 shares of Common Stock to
five officers and directors, seven employees (one of whom was an existing
shareholder), two existing shareholders, three Business Associates and three
other investors for an aggregate of $447,146; on September 8, 1995 the
Company sold 100,006 shares of Common Stock for an aggregate of $300,018 to
five officers and directors, and 12 existing shareholders.
II-1
<PAGE>
On September 25, 1996, the Company sold 19,424 shares of Common Stock
for an aggregate $97,120 to 19 officers, directors and existing shareholders.
On September 26, 1996, the Company issued 160,000 shares of Common Stock for
an aggregate $80,000 in connection with the exercise of certain stock options
held by the Company s officers and directors. On September 30, 1996, the
Company sold 31,000 shares of Common Stock to certain relatives of its
officers and directors for an aggregate $155,000. On October 18, 1996, the
Company sold 14,000 shares of Common Stock to a relative of one of the
Company's directors for an aggregate price of $70,000, and on November 30,
1996 the Company issued 4,000 shares of Common Stock for an aggregate $20,000
to one of its lenders to reduce long-term debt.
No sales commissions were paid in connection with any of the sales of
securities described above. The Company believes that the securities were
issued in reliance on the exemption from registration provided by Section
4(2) of the Securities Act.
II-2
<PAGE>
ITEM 27. EXHIBITS.
Exhibit
Number Name of Exhibit
------- ---------------
* 1.1 Underwriting Agreement between the Company and
Capital West Securities, Inc.
3.1 Restated Articles of Incorporation
(filed electronically herewith).
* 3.2 Amended and Restated Articles of Incorporation.
* 3.3 Amended and Restated Bylaws.
* 4.1 Specimen Certificate of the Common Stock.
* 4.3 Form of Warrant Agreement between the Company and
the Underwriters.
* 4.4 Stock Option Plan.
* 5.1 Opinion of Phillips McFall McCaffrey McVay & Murrah, P.C.
as to the legality of the securities being registered.
10.1 Loan Agreement dated October 16, 1996, by and between
the Company and Bergen Brunswig Drug Company (filed
electronically herewith).
10.2 Purchase Agreement dated March 8, 1997 by and between
Mesa Drug, Inc. And Horizon Pharmacies, Inc. (filed
electronically herewith).
10.3 Asset Purchase Agreement dated March 4, 1997 by and between
True Quality Pharmacies, Inc. (d/b/a Vista Pharmacies) and
Horizon Pharmacies, Inc. (filed electronically herewith).
*10.4 Form of Employment Agreement by and between the Company
and each of Rick D. McCord, R.Ph., Sy S. Shahid and
David W. Frauhiger.
*10.5 Form of Lockup Agreement.
23.1 Consent of Herold, Howard & Madsen, P.C., Independent
Auditors (filed electronically herewith).
23.2 Consent of Ernst & Young LLP, Independent Auditors
(filed electronically herewith).
23.3 Consent of Phillips McFall McCaffrey McVay & Murrah, P.C.
(filed electronically herewith).
24 Power of Attorney (included on Signature Page filed herein).
- -----------------
* To be filed by amendment.
ITEM 28. UNDERTAKINGS.
1. The undersigned Registrant hereby undertakes:
(a) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit
prompt delivery to each purchaser.
II-3
<PAGE>
(b) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act as
part of this Registration Statement as of the time the Commission
declared it effective.
(c) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to:
(i) include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change
in the information in the registration statement; and
(iii) include any additional or changed material information on the
plan of distribution.
(d) That, for the purpose of determining liability under the Securities
Act, each post-effective amendment shall be deemed to be a new
registration statement of the securities offered, and the offering
of the securities at that time shall be deemed to be the initial
bona fide offering thereof.
(e) To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the termination or end of
the offering.
2. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will
be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements of filing on Form SB-2 and has duly caused this
Registration Statement on Form SB-2, to be signed on its behalf by the
undersigned, thereon duly authorized in the City of Princeton, State of Texas,
on April 15, 1997.
HORIZON PHARMACIES, INC.
a Texas corporation
By: /s/ RICK D. MCCORD, R.Ph.
---------------------------------------
Rick D. McCord, R.Ph.
President and Chief Operating Officer
Know all men by these presents, that each person whose signature appears
below constitutes and appoints Rick D. McCord, R.Ph. and David W. Frauhiger as
his true and lawful attorney-in-fact and agent, with full power of
substitution, for him, and in his name, place and stead, in any and all
capacities to sign any or all amendments or post-effective amendment to this
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto the said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitute, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Rick D. McCord, R.Ph. Chairman of the Board of April 15, 1997
- ----------------------------- Directors, President and
Rick D. McCord, R.Ph. Chief Operating Officer
PRINCIPAL EXECUTIVE OFFICER
/s/ Sy S. Shahid Executive Vice President, April 15, 1997
- ----------------------------- Secretary, Director
Sy S. Shahid
/s/ David W. Frauhiger
- ----------------------------- Chief Financial Officer, April 15, 1997
David W. Frauhiger Treasurer, Director
PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER
/s/ Charlie K. Herr Director April 15, 1997
- -----------------------------
Charlie K. Herr, R.Ph.
/s/ Robert D. Mueller Director April 15, 1997
- -----------------------------
Robert D. Mueller, R.Ph.
<PAGE>
INDEX TO EXHIBITS
<TABLE>
Exhibit
Number Name of Exhibit
- ------- ---------------
<S> <C>
* 1.1 Underwriting Agreement between the Company and Capital West Securities, Inc.
3.1 Restated Articles of Incorporation (filed electronically herewith).
* 3.2 Amended and Restated Articles of Incorporation.
* 3.3 Amended and Restated Bylaws.
* 4.1 Specimen Certificate of the Common Stock.
* 4.3 Form of Warrant Agreement between the Company and the Underwriters (filed electronically
herewith).
* 4.4 Stock Option Plan.
* 5.1 Opinion of Phillips McFall McCaffrey McVay & Murrah, P.C. as to the legality of the
securities being registered.
10.1 Loan Agreement dated October 21, 1996 by and between Bergen-Brunswig Drug Co. and
Horizon Pharmacies, Inc. (filed electronically herewith).
10.2 Purchase Agreement dated March 8, 1997 by and between Mesa Drug, Inc. and Horizon
Pharmacies, Inc. (filed electronically herewith).
10.3 Asset Purchase Agreement dated March 4, 1997 by and between True Quality Pharmacies,
Inc. (d/b/a Vista Pharmacies) and Horizon Pharmacies, Inc. (filed electronically herewith).
*10.4 Form of Employment Agreement by and between the Company and each of Rick D. McCord,
R.Ph., Sy S. Shahid and David W. Frauhiger.
*10.5 Form of Lockup Agreement.
23.1 Consent of Herold, Howard & Madsen, P.C., Independent Auditors (filed electronically
herewith).
23.2 Consent of Ernst & Young LLP, Independent Auditors (filed electronically herewith).
23.3 Consent of Phillips McFall McCaffrey McVay & Murrah, P.C.
(filed electronically herewith).
24 Power of Attorney (included on Signature Page filed herein).
</TABLE>
- -------------------
* To be filed by amendment.
<PAGE>
Exhibit 3.1
RESTATED ARTICLES OF INCORPORATION
OF
HORIZON PHARMACIES, INC.
ARTICLE ONE
HORIZON Pharmacies, Inc. (the "Corporation"), pursuant to the provisions
of Section 4.07 of the Texas Business Corporation Act does hereby adopt these
Restated Articles of Incorporation which accurately copy the Articles of
Incorporation and all amendments thereto that are in effect to date and such
Restated Articles of Incorporation contain no change in any provision thereof.
ARTICLE TWO
The Restated Articles of Incorporation were adopted by resolution of the
Board of Directors of the Corporation on the 14th day of April, 1997.
ARTICLE THREE
The Articles of Incorporation and all amendments and supplements thereto
are hereby superseded by the following Restated Articles of Incorporation
which accurately copy the entire text thereof:
RESTATED ARTICLES OF INCORPORATION
OF
HORIZON PHARMACIES, INC.
ARTICLE I
The name of corporation is: HORIZON Pharmacies, Inc.
ARTICLE II
The period of the Corporation's duration is perpetual.
<PAGE>
ARTICLE III
The purposes for which the Corporation is organized are as follows:
1) To engage in the retail pharmacy business
2) Also to engage in any and all lawful business transactions for
which corporations may be incorporated under the Texas Business Corporation
Act.
ARTICLE IV
The aggregate number of shares which the Corporation shall have
authority to issue is one million (1,000,000) shares. The par value of each
share shall be one dollar ($1.00).
ARTICLE V
The Corporation will not commence business until it has received for the
issuance of shares consideration of the value of not less than one thousand
dollars ($1,000) consisting of money, services, or property actually received.
ARTICLE VI
The address of the Corporation's registered office in the State of Texas
is 275 W. Princeton Drive, Princeton, Collin County, Texas 75407. The name
of its registered agent at such address is Sy S. Shahid.
ARTICLE VII
The number of directors constituting the Board of Directors of the
Corporation on the date hereof is five (5) and the following sets forth the
names and addresses of the persons serving as directors on the date hereof:
Rick D. McCord 275 W. Princeton Drive, Princeton, Texas 75407
Sy S. Shahid 275 W. Princeton Drive, Princeton, Texas 75407
David W. Frauhiger 275 W. Princeton Drive, Princeton, Texas 75407
Charlie K. Herr 275 W. Princeton Drive, Princeton, Texas 75407
Robert D. Mueller 275 W. Princeton Drive, Princeton, Texas 75407
2
<PAGE>
Dated this 14th day of April, 1997.
HORIZON PHARMACIES, INC.
By: /s/ RICK D. MCCORD
-----------------------------------
Rick D. McCord, President
STATE OF TEXAS )
)
COUNTY OF COLLIN )
Before me, a notary public, on this day personally appeared Rick D.
McCord, known to me to be the person whose name is subscribed to the
foregoing document and, being by me first duly sworn, declared that the
statements therein contained are true and correct.
Given under my hand and seal of office this ___ day of April, A.D. 1997.
(Notarial Seal)
- ----------------------------------
Notary Public, State of Texas
My commission expires:
,
-------------------- ------
3
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LOAN AGREEMENT
Borrower: Horizon Pharmacies, Inc. Lender: Bergen Brunswig Drug Company
275 West Princeton Dr. 4000 Metropolitan Drive
Princeton, TX 75407 Orange, California 92868
This Agreement is made as of 10/16/96 between the Borrower and Lender and
outlines the specific terms and conditions governing the credit facilities
extended by the Lender to the Borrower and is a supplement to the promissory
notes, security agreements and other documents and instruments required by
this Agreement, all of which are incorporated herein and made a part hereof
by reference.
In consideration of the mutual terms and provisions contained herein, and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties agree as follows:
1. CERTAIN DEFINITIONS. When used in this Agreement, the following
terms shall have the following meanings:
1.1 "AFFILIATE" shall mean with respect to Borrower or Lender, a
Person which controls, is controlled by, or is under common control with
Borrower or Lender, respectively.
1.2 "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
1.3 "COLLATERAL" shall mean at any time all property and rights
that secure the obligations of Borrower and Guarantors under this agreement.
1.4 "COLLATERAL DOCUMENTS" shall means the Security Agreement,
Financing Statements and any other agreement or instrument in which Collateral
is being or has been provided to Lender to secure the obligations of Borrower or
Guarantors under any of the Loan Documents.
1.5 "EVENT OF DEFAULT" shall means any of the events described
in paragraph 7.1.
1.6 "FINANCIAL STATEMENTS" shall mean a Balance Sheet and a
Statement of Income and Expense reflecting profit or loss for the periods
covered, a Statement of Cash Flow and a Statement of Changes in Equity,
maintained on generally accepted accounting principles and a consistent basis.
1.7 "GUARANTORS" shall mean Ricky D. McCord, Sy, S. Shahid and
Charlie K. Herr.
1.8 "GUARANTY" shall mean the guaranty to be furnished pursuant
to paragraph 3.3.
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1.9 "LOAN DOCUMENTS" shall mean this Agreement, the Notes, the
Collateral Documents and the Guaranties.
1.10 "OBLIGATIONS" shall mean all obligations, now or hereafter
owed by Borrower to Lender or an Affiliate of Lender under this Agreement or
otherwise, including without limitation the indebtedness evidenced by the Notes,
and any indebtedness evidenced by check, note, draft or open account obligations
of Borrower for inventory purchases, and all obligations arising under franchise
agreements and service agreements, and all other agreements between Borrower and
Lender.
1.11 "NOTE" shall mean the Promissory Notes executed and delivered by
Borrower pursuant to paragraph 3.1.
1.12 "PERMITTED LIENS" shall mean (a) current taxes not delinquent or
taxes being contested in good faith by appropriate proceedings and for which
appropriate reserves have been established as required by Lender, (b) the
security interests and pledges to be granted by Borrower and the Guarantors
under the Collateral Documents, and (c) liens, mortgages or security interests
in favor of third parties which Borrower and the Guarantors have disclosed to
Lender in writing and which Lender has approved in writing.
1.13 "PERSON" shall means any natural person, corporation, firm, joint
venture or other unincorporated association, trust, government or governmental
agency.
1.14 "PRIME RATE" shall mean the rate of interest announced from time
to time by Bank of America, Illinois.
1.15 "SECURITY AGREEMENT" shall mean the security agreement furnished
by Borrower pursuant to paragraph 3.2..
1.16 "STORE" shall mean the drug store or stores owned by Borrower
wherever located.
1.17 "UNMATURED EVENT OF DEFAULT" shall mean any event which if it
continues uncured will, with lapse of time or note, or both, constitute an Event
of Default.
2.0 LOAN
2.1 COMMITMENT. Subject to the terms and conditions of this
Agreement, Lender hereby agrees to lend to Borrower and Borrower agrees to
borrow from Lender the amount of One Million Five Hundred Thousand and 00/100
Dollars ($1,500,000.00) of which $950,000 has been disbursed prior to the date
of this Agreement, but which disbursements are subject to the terms and
conditions of this Agreement.
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2.2 PURPOSE. The purpose of the Loan is to provide funds to acquire
inventory, furniture, fixtures and equipment of retail pharmacy, and the
proceeds of the Loan shall be used for such purpose.
2.3 TERMS. Funds may be drawn under the loan beginning at such time
as all conditions of lending described herein have been satisfied and all other
terms of this agreement have been met. This commitment shall expire on May
17, 1997, if by that time the borrow has not satisfied the conditions of
lending, accepted the Lender's commitment and drawn the Loan the Lender has
made available.
2.4 PREPAYMENT PENALTY. There shall be no prepayment penalty if part
of the entire balance of principal and interest under the Note is repaid sooner
than the maturity date of the Note.
2.5 RENEWAL, EXTENSION AND REARRANGEMENT. All the provisions of this
Agreement and the documents and the instruments delivered in connection herewith
shall apply with equal force and effect to each and all promissory notes
hereinafter executed which in whole or in part represent a renewal, extension
for any period, increase or rearrangement of any part of the obligations
originally represented by the Notes or of any part of such other obligations.
2.6 INTEREST RATE. The interest rate for the Loan shall be set at a
rate per annum equal to the Prime Rate from time to time plus (two percent) 2%
per annum calculated on the basis of a 365 day year actual days elapsed. The
term "Prime Rate" shall mean the rate of interest most recently announced by
Bank of America, Illinois ("Bank") at its principal office in Chicago, Illinois
as its Prime Rate, with the understanding that the Prime Rate is one of its base
rates and serves as the basis upon which effective rates of interest are
calculated for those loans making reference thereto, and is evidenced by the
recording thereof after its announcement in such internal publication or
publications as the Bank may designate. Any change in the interest rate
resulting from a change in the Prime Rate shall become effective at 12:00 a.m.
on the date on which such change in such Prime Rate becomes effective.
2.7 GUARANTIES. The Loans shall be jointly and severally guaranteed
without limitation by Ricky D. McCord, Sy S. Shahid and Charlie K. Herr and
shall be on the Lender's standard form.
3.0 NOTE AND COLLATERAL DOCUMENTS
3.1 NOTE. The Loan shall be evidenced by a promissory note (the
"Note") substantially in the form of Exhibit A and A-1, with appropriate
insertions, payable to the order of Lender in the principal amount of the Loan.
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3.2 SECURITY AGREEMENT. The obligations shall be secured by Security
Agreements substantially in the form of Exhibit B, B-1 and B-2 (the "Security
Agreement") from Borrower to Lender.
3.3 GUARANTY. The obligations shall be guaranteed by the Guarantors
under a Guaranty substantially in the form of Exhibit C, C-1, C-2 (the
"Guaranty").
3.4 FINANCING STATEMENTS. Borrower has and shall execute and deliver
to Lender such financing statements as may be required under the Collateral
Documents to perfect Lender's security interest in the Collateral.
4.0 CONDITIONS OF LENDING
4.1 DOCUMENTS. The obligation of Lender to make each advance under
the Loan is subject to the delivery by Borrower to Lender of all of the
following, each duly executed by the appropriate parties and acknowledged, where
required, all in form and substance satisfactory to Lender.
(a) LOAN DOCUMENTS. The Loan Documents.
(b) ORGANIZATIONAL DOCUMENTS. Certified copies of the
organizational documents of Borrower, including the Certificate of Incorporation
and Bylaws, and a Certificate of Good Standing from the Secretary of State or
other appropriate authority of the state of Borrower's incorporation.
(c) RESOLUTIONS. Certified copies of resolutions of the Board of
Directors of Borrower authorizing the execution, delivery and performance of
this Agreement, all of the Loan Documents, and all other agreements and
documents required in this Agreement.
(d) OTHER DOCUMENTS. Such other documents and instruments as
Lender may reasonably require, including signed purchase agreements, equipment
leases and license agreements, if required by Lender.
4.2 OTHER CONDITIONS. The obligation of Lender to make each advance
under the Loan is further subject to all of the following conditions:
(a) ACCURACY OF WARRANTIES. All of the representations and
warranties of Borrower and the Guarantors made to Lender under this Agreement or
otherwise in connection with the Loan shall have been true and correct at the
time they were made, and they shall continue to be true and correct the time
Lender advances the funds to Borrower under this Agreement.
(b) FINANCIAL STATEMENTS. Borrower and each of the Guarantors
shall have submitted to Lender current Financial Statements, for a fiscal period
ended not more than ninety (90) days prior to the date such Financial Statements
are submitted to Lender, certified in writing by Borrower and the Guarantors,
respectively, as to
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their accuracy and completeness as of the date thereof. Such financial
statements must be satisfactory to Lender.
(c) TITLE SEARCH. Lender shall have received such Uniform
Commercial Code searches, tax and judgment lien searches and other information
it may require in order to satisfy itself that the Collateral is free and clear
of all liens and security interests other than the Permitted Liens.
(d) INSURANCE. Lender shall have received evidence satisfactory
to Lender that the insurance required to be obtained and maintained by Borrower
hereunder or under any of the other Loan Documents has been obtained and is in
full force and effect.
(e) ADDITIONAL EQUITY INVESTMENT - Prior to the disbursement of
any portion of the remaining $550,000 of the loan, Lender shall have received
evidence that an additional equity investment of no less than $400,000
consisting of at least $200,000 in the form of cash with no increase in amounts
due to or from Shareholders has been made.
(f) TAX RETURN - Lender shall have received a copy of the 1995
Federal and State Tax Returns of Horizon Pharmacies, Inc.
5. REPRESENTATION OF WARRANTIES. To induce Lender to enter into this
Agreement, Borrower represents and warrants to Lender that:
5.1 ORGANIZATION. Borrower is a corporation duly organized, validly
existing in good standing under the laws of the state of its incorporation and
is duly qualified and in good standing as a foreign corporation authorized to do
business in each jurisdiction where, because of the nature of its activities or
properties, such qualification is required. Borrower has no subsidiaries.
5.2 AUTHORIZATION; NO CONFLICT. The execution and delivery of the
Loan Documents, the borrowings hereunder, and the performance by Borrower of its
obligations under the Loan Documents, are within Borrower's corporate powers,
have been duly authorized by all necessary corporate action, have received all
necessary governmental approvals, if any are required, and do not and will not
contravene or conflict with any provision of law or of the certificate of
incorporation or bylaws of Borrower or of any agreement binding upon Borrower.
5.3 VALIDITY AND BINDING NATURE. The Loan Documents, when executed
and delivered, are and will be legal and binding obligations of Borrower and the
Guarantors, respectively, enforceable against Borrower and the Guarantors in
accordance with their respective terms.
5.4 FINANCIAL INFORMATION. All Financial Statements and information
furnished by Borrower and Guarantors to Lender fairly present the financial
condition of Borrower and Guarantors as of the respective dates thereof. Neither
Borrower nor any of the Guarantors has any contingent liability for taxes or
other commitments which is not reflected therein.
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5.5 NO ADVERSE CHANGES. Since the dates of the Financial Statements
furnished to Lender by Borrower and Guarantors, there has been no change in the
business, operations, properties or condition (financial or otherwise) of
Borrower or Guarantors which has been materially adverse.
5.6 LITIGATION AND CONTINGENT LIABILITIES. No litigation,
arbitration proceedings or governmental proceedings are pending or threatened
against Borrower or any of the Guarantors, and Borrower and the Guarantors have
no material contingent liabilities, other than as set forth in their Financial
Statements furnished to Lender, except as follows:
5.7 TITLE TO PROPERTIES. Borrower and/or Guarantors own all the
Collateral.
5.8 LIENS. None of the Collateral is subject to any mortgage,
security interest, pledge, title retention lien or other encumbrance, except the
Permitted Liens.
5.9 LEASES AND LICENSES. Each lease and each license to which
Borrower is a party covering real or personal property, including any lease in
which Borrower leases the premises of the Store and any equipment lease for
personal property used in the Store, is a valid and binding lease or license, as
the case may be, enforceable in accordance with its terms. There is no default
by any part under any such lease or license, nor has any event occurred which,
with notice or lapse of time, or both, could constitute a default.
5.10 STORE. Retailer owns all assets, including licenses and permits,
necessary to operate the store.
5.11 PAYMENT OF TAXES. All tax returns and reports of Borrower and
Guarantors required to be filed by any of them have been timely filed, and all
taxes, assessments, fees and other governmental charges upon Borrower or
Guarantors and upon their respective properties, assets and income which are due
and payable have been paid.
5.12 EMPLOYEE BENEFIT PLANS. Borrower is in compliance with all
applicable provisions of the Employee Retirement Income Security Act and the
regulations and published interpretations thereunder with respect to all
employee benefit plans maintained by Borrower. No event has occurred which would
give rise to any unanticipated liability under such Act with respect to any such
plan.
5.13 DISCLOSURE. No representation or warranty of Borrower or any of
the Guarantors contained in this Agreement or in any other document, certificate
or written statement furnished to Lender by or on behalf of Borrower or any of
the Guarantors for use in connection with the Loan contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained herein or therein not misleading. There is no fact
know to Borrower or any of the Guarantors which materially, adversely affects or
would affect the business, operations, property, assets or condition (financial
or otherwise) of Borrower, or any of the Guarantors which has not been disclosed
herein or in such other documents or certificates furnished to Lender for use in
connection with the Loan.
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6.0 BORROWER'S COVENANTS. Until all obligations of Borrower hereunder and
under the Note and Collateral Documents are paid and satisfied in full, Bergen
agrees that, unless at any time Lender shall otherwise expressly consent in
writing, Borrower will:
6.1 FINANCIAL STATEMENTS, CERTIFICATES AND OTHER INFORMATION. Furnish
to Lender:
(a) ANNUAL FINANCIAL STATEMENTS. Within Ninety (90) calendar
days after each fiscal year of Borrower, a copy of the Financial Statements of
Borrower, which fairly present the financial condition of Borrower as of the
date thereof.
(b) INTERIM FINANCIAL STATEMENTS. Within Sixty (60) calendar days
after each quarter (excluding the last quarter) of each fiscal year of Borrower,
a copy of the unaudited Financial Statements of Borrower prepared in the same
manner as the annual Financial Statements referred to in subparagraph (a),
signed by the President of Horizon Pharmacies, Inc.
(c) CERTIFICATES. Contemporaneously with the furnishing of the
Financial Statements provided in subparagraphs (a) and (b), a certificate dated
the date of such Financial Statements and signed by the Borrower to the effect
that no Event of Default or Unmatured Event of Default has occurred and is
continuing or, if there is any such event, describing it and the actions, if
any, being taken to correct it, and that the Borrower is in compliance with all
terms of the Loan Documents.
(d) NOTICE OF DEFAULT, LITIGATION. Immediately upon learning of
the occurrence of any of the following, written notice thereof, describing the
same and the actions being taken by Borrower with respect thereto: (i) the
occurrence of any Event of Default or any Unmatured Event of Default; or (ii)
the institution of, or any adverse determination in, any litigation, arbitration
or other proceeding, which is material to Borrower.
(e) TAX RETURNS. Within 30 days of filing, a copy of the Federal
and State Income Tax Returns.
(f) OTHER INFORMATION. From time to time, such other information
concerning Borrower as Lender may reasonably request, including Financial
Statements of each of the Guarantors on an annual basis.
6.2 BOOKS, RECORDS AND INSPECTIONS. Maintain complete and accurate
books and records of Borrower's operations.
6.3 INSPECTION. Permit any authorized representatives of Lender to
visit and inspect the properties of Borrower, including financial and accounting
records, and make copies and take extracts therefrom, and discuss Borrower's
affairs, finances and accounts with its officers and accountants, all upon
reasonable notice and at such reasonable times during normal business hours and
as often as may be reasonably requested.
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6.4 CONTINUOUS OPERATION. Continue to operate the Store throughout
the term of the Loan and maintain all licenses and permits necessary for such
operation.
6.5 SINGLE LINE OF BUSINESS. Not enter into or conduct any business
or operation other than the operation of the Store and other than the making of
investments specifically permitted herein.
6.6 LEASES AND LICENSES. Comply in all respects with all terms and
provisions of the leases, subleases and licenses pertaining to the premises of
the Store, equipment used in the Store and software and other property licensed
to Borrower for use in the operation of the Store.
6.7 INVENTORY. Conduct a physical count of merchandise in the Store
at the end of each quarter, by inventory crews acceptable to Lender and
supervised by Borrower and in connection therewith, permit Lender to count
Borrower's cash on hand, reconcile the actual cash to the amount of cash
indicated to be on hand by the books and records, and make a detailed analysis
of items counted as cash on hand; and to permit Lender to conduct at its expense
such counting, reconciling and analyzing on an unannounced basis as requested by
the Lender.
6.8 MAINTENANCE OF PROPERTIES. Maintain or cause to be maintained in
good repair, working order and condition all properties used or useful in the
operation of the Store, and from time to time make or cause to be made all
appropriate repairs, renewals and replacements thereof.
6.9 COMPLIANCE WITH LAWS. Comply with the requirements of all
applicable laws, rules, regulations and orders of any governmental authority,
including those relating to the environment.
6.10 INSURANCE. Maintain the following insurance coverage in such
amounts and with such carriers as may be approved by Lender: (a) comprehensive
general liability, (b) non-owned automobile, (c) all-risk insurance on the
contents of the Store, (d) business interruption, (e) crime, including
embezzlement, or theft by employees, (f) worker's compensation, and (g) umbrella
liability; and furnish to Lender upon request evidence of such insurance
coverage. Such insurance coverage shall designate Lender as the mortgagee under
a standard mortgage clause.
6.11 TAXES AND LIABILITIES. Pay when due all taxes, assessments and
other liabilities except as contested in good faith and by appropriate
proceedings and for which appropriate reserves have been established if required
in accordance with generally accepted accounting principles.
6.12 INDEBTEDNESS. Not incur or permit to exist any indebtedness for
borrowed money or liability on account of property or services except (a) the
Loan, and (b) current accounts payable arising in the ordinary course of
business and indebtedness contemplated by this Agreement.
6.13 LIENS. Not create or permit to exist any mortgage, pledge, title
retention line, or other line, encumbrance or security interest with respect to
any assets now owned or hereafter acquired, except the Permitted Liens.
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6.14 GUARANTEES, LOANS, ADVANCES OR INVESTMENTS. Not become or be a
guarantor or surety of, or otherwise become or be responsible in any manner
(whether by agreement to purchase any obligations, stock, assets, goods or
services, or to supply or advance any funds, assets, goods or services, or
otherwise) with respect to any undertaking of any Person or entity, or make or
permit to exist any loans or advances to, or investment in, any other Person,
except for (a) the endorsement, in the ordinary course of collection, of
instruments payable to it or to its order, (b) investments in direct obligations
for which the full faith and credit of the United States or any agency thereof
is pledged to provide for the payment of principal and interest or certificates
of deposit of any bank having its principal office in the United States.
6.15 COLLECTION OF ACCOUNTS RECEIVABLE. If an Event of Default or
Unmatured Event of Default has occurred and is continuing, take or cause to be
taken such action as Lender may direct so that immediately upon receipt by
Borrower of cash, checks, drafts, chattel paper and other instruments or
writings for the payment of money which may be received by Borrower at any time
in full or partial payment or otherwise as proceeds of any of the Collateral,
Borrower will transmit and deliver such items either (a) directly to Lender, or
(b) to one or more depository accounts as may be designated by Lender, it being
understood that all such items so transmitted and delivered and any such account
shall be deposited and maintained for the benefit of Lender. The agreement
contained herein shall be in addition to, and not a limitation on, any remedy
available to Lender under the Collateral Documents.
6.17 ACCOUNTING. Not change the accounting methods or practices of
Borrower.
6.18 DEBT TO WORTH RATIO. Maintain a ratio of total debt to tangible
net worth not greater than 4.0 to 1.
6.19 OTHER AGREEMENTS. Not enter into any agreement, containing any
provision which would be violated or breached by the performance of its
obligations hereunder or under any instrument or document delivered or to be
delivered by Borrower hereunder or in connection herewith.
6.20 COMPLIANCE WITH OTHER AGREEMENTS. Comply in all respects with any
and all other agreements with Lender, including equipment leases and software
licenses.
6.21 CORPORATE EXISTENCE. Preserve and keep in full force and effect
Borrower's corporate existence and the rights and franchises material to its
business.
6.22 CERTIFICATE OF INCORPORATION, BYLAWS. Not amend, modify or in any
manner change the organizational documents of Borrower, including the
Certificate of Incorporation and Bylaws.
6.23 PURCHASE OR REDEMPTION OF SECURITIES; DIVIDEND RESTRICTIONS. Not
(a) purchase or redeem any shares of the capital stock of Borrower, (b) declare
or pay any dividends thereon, (c) make any distribution to holders of capital
stock or set aside any funds for any such purpose, (d) issue any additional
shares of any class of capital stock of Borrower or any warrants, options,
rights or other commitments entitling any person to
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purchase or otherwise acquire any shares of stock of Borrower, (e) permit any
change in stock ownership of Borrower.
6.24 MERGERS, CONSOLIDATIONS, SALES. Not (a) be a party to any merger
or consolidation, (b) purchase or otherwise acquire all or substantially all of
the assets or stock of any class of, or any partnership or joint venture
interest in, any other Person or entity or organize, own or maintain any
subsidiary, (c) sell, transfer, convey or lease all or any substantial part of
its assets, (d) sell or assign with or without recourse any receivables, other
than to Lender under the Collateral Documents.
6.25 SALES OF COLLATERAL. Not sell any of the assets serving as
Collateral, other than the sale of inventory in the ordinary course of business.
6.26 EMPLOYEES. Not pay any employee any compensation that is higher
than the prevailing compensation for similar work in the vicinity of the Store.
6.27 RELATED PARTY TRANSACTIONS. Not enter into any other transaction
including, without limitation, the purchase, sale or exchange of property or the
rendering of any services, with any Affiliate, or any shareholder or employee of
Borrower, except in the ordinary course of and pursuant to the reasonable
requirements of its business upon fair and reasonable terms no less favorable
than would exist in a comparable transaction with a Person who is not an
Affiliate.
6.28 NOTIFICATION. Promptly after learning thereof, notify the Lender
of (i) any material adverse change in the business, property, assets, operations
or condition, financial or otherwise of Borrower, (ii) the details of any
action, proceeding, investigation or claim against or affecting the Borrower
instituted before any court, arbitrator or governmental authority or, to the
Borrower's knowledge threatened to be instituted, which, if determined adversely
to the Borrower would be likely to impair or defeat the lien of the Lender of
any Collateral or any rights of the Borrower therein, or to have a material
adverse effect on the financial condition or operations of the Borrower, or to
result in a judgment or order against the Borrower, (iii) any substantial
dispute between the Borrower and any governmental authority, (iv) any labor
controversy which has resulted in or, to the Borrower's knowledge, threatens to
result in a strike which would materially affect the business operations of the
Borrower, and (v) the occurrence of any Event of Default (defined in Section 7
herein) or other event which with notice or lapse of time or both would
constitute an Event of Default.
6.29 MANAGEMENT. Report any change in executive personnel or key
management to the Lender immediately.
7.0 EVENTS OF DEFAULT AND THEIR EFFECT.
7.1 EVENTS OF DEFAULT. Each of the following shall constitute an
Event of Default under this Agreement:
(a) NON-PAYMENT OF NOTE. Default in the payment when due of any
principal of, or interest on, the Note or any other monetary obligation.
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(b) NON-PAYMENT OF OTHER INDEBTEDNESS. Demand for payment,
default in payment, or acceleration of the maturity of any other indebtedness
for borrowed money, of, or guaranteed by Borrower or Guarantors, whether to
Lender or any other Person.
(c) BANKRUPTCY, INSOLVENCY, ETC. Borrower or any Guarantor
becomes insolvent or generally fails to pay, or admits in writing its inability
to pay, debts as they become due; or Borrower or any Guarantor applies for,
consents to, or acquiesces in the appointment of a trustee, receiver or other
custodian for Borrower or any Guarantor or any property of Borrower or any
Guarantor, or makes a general assignment for the benefits of creditors; or, in
the absence of such application, consent or acquiescence, a trustee, receiver or
other custodian is appointed for Borrower or any Guarantor or for a substantial
part of the property of Borrower or any Guarantor and is not discharged within
thirty (30) days; or any bankruptcy, reorganization, debt arrangement, or any
case or proceeding under any bankruptcy or insolvency law or any dissolution or
liquidation proceeding is commenced in respect of Borrower or any Guarantor, and
if such case or proceeding is not commenced by Borrower or any guarantor, it is
consented to or acquiesced in by Borrower or any Guarantor, or remains for
thirty (30) days undismissed; or Borrower or any Guarantor takes any action to
authorize, or in furtherance of, any of the foregoing.
(d) BREACH OF AGREEMENT. Failure by Borrower or an Affiliate of
Borrower to comply with or to perform any of the Obligations or default under
any agreement to which Retailer or an Affiliate of Borrower is a party or by
which it is bound covering the Store or any store operated by an Affiliate of
Borrower or any equipment used in the Store or any store operated by any
Affiliate of Borrower (and not constituting an Event of Default under any of the
preceding provisions of this paragraph 7, and continuance of such failure for
ten (10) days after notice thereof to Borrower from Lender.
(e) EFFECTIVENESS OF GUARANTY. The failure of the Guaranty to
become and remain effective in accordance with its terms until the Loan is paid
in full.
(f) WARRANTIES. Any warranty made by Borrower or any Guarantor
herein or in any of the Collateral Documents is breached or is false or
misleading in any material respect, or any schedule, certificate, financial
statement, report, notice, or other writing furnished by Borrower to Lender is
false or misleading in any material respect.
(g) EMPLOYEE BENEFIT PLANS. With respect to any employee
benefit plan of Borrower, (i) steps are undertaken to terminate such plan, (ii)
such plan is terminated, or (iii) any Reportable Event, as defined in the Code,
with respect to such plan shall occur, or any event shall occur with respect to
such plan which in any such case would, in the judgment of the Lender, subject
Borrower to any tax, penalty or other liability in the aggregate material in
relation to the business, operations, property or financial or other condition
of Borrower.
(h) DEATH, ETC., OF GUARANTORS. Guarantor dies or becomes
incapable of managing his own affairs; or serious illness of incapacity of
Guarantor occurs for a period exceeding six (6) months; or a trustee, receiver,
guardian, custodian or other legal representative is appointed for the person or
any of the estate or assets of Guarantor.
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(i) INSECURITY. Lender at any time in good faith deems itself
insecure with respect to the performance by Borrower or any Guarantor under this
Agreement, the Note, the Guaranty, or any of the Collateral Documents.
7.2 EFFECT OF EVENT OF DEFAULT. If any Event of Default described in
paragraph 7.1 shall occur, Lender may declare the Note to be immediately due and
payable in full, and in such event, the Note shall become immediately due and
payable, without notice of any kind, and the Lender shall have the right to set
off against the Obligations held by it any debt owing to the Borrower by Lender.
8. GENERAL
8.1 WAIVER, AMENDMENTS. No delay on the part of Lender in the
exercise of any right, power or remedy shall operate as a waiver thereof, nor
shall any single or partial exercise by Lender of any right, power or remedy
preclude other or further remedy. No amendment, modification or waiver of, or
consent with respect to, any provision of any of the Loan Documents shall in any
event be effective unless it is in writing and signed and delivered by Lender,
and then any such amendment, modification, waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
8.2 NOTICES. Any notice, demand, consent or other communication
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given when delivered personally, faxed or mailed, and
if mailed, shall be deemed to have been given three (3) days after the date when
deposited in the United States mails by registered or certified mail, postage
prepaid, and addressed to Lender or Borrower at their respective addresses set
forth below or at such other address as either of them may, by written notice,
received by the other party, have designated as its address for such purpose.
If to Lender:
John T. Rasor,
General Finance Manager
Bergen Brunswig Drug Company
5080 Spectrum Drive
Suite 715 West
Dallas, TX 75248
By FAX: (972) 980-6914
With a Copy to: Stephen G. Mangold
Director, Financial Services
Bergen Brunswig Corporation
4000 Metropolitan Drive
Orange, CA 92868
By FAX: (714) 485-4396
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If to Borrower:
Ricky D. McCord
Horizon Pharmacies, Inc.
275 West Princeton Drive
Princeton, TX 75407
By FAX: (972) 736-2588
8.3 COSTS, EXPENSES AND TAXES. Borrower agrees to pay on demand all
costs and expenses of Lender in connection with the preparation, execution,
delivery and administration of the Loan Documents, and all other instruments or
documents provided for herein or delivered or to be delivered hereunder or in
connection herewith, and all costs and expenses incurred by Lender in connection
with the enforcement of the Loan Documents and such other instruments or
documents or any collateral security, including reasonable attorney's fees. All
obligations provided in this paragraph shall survive any termination of this
Agreement.
8.4 CAPTIONS. Paragraph captions used in this Agreement are for
convenient reference only, and shall not affect the interpretation of this
Agreement.
8.5 GOVERNING LAW. This Agreement and all of the Loan Documents shall
be governed by, and construed in accordance with, the internal laws of the State
of California. All obligations of Borrower and rights of Lender expressed herein
or in the Note or any of the Collateral Documents shall be in addition to, and
not in limitation of, those provided by applicable law.
8.6 BINDING EFFECT. This Agreement shall be binding upon, and shall
inure to the benefit of Lender and Borrower and their respective legal
representatives, successors and assigns.
8.7 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement,
expressed or implied, is intended to confer any rights upon any Person, other
than Lender and Borrower.
8.8 SURVIVAL OF WARRANTIES. All agreements, representations and
warranties made by Borrower and Guarantors herein shall survive the execution
and delivery of this Agreement and the making of the Loan.
8.9 MAXIMUM INTEREST. lt is not the intention of Lender or Borrower
to violate the laws of any applicable jurisdiction relating to usury or other
restrictions on the maximum lawful interest rate. The Loan Documents and all
other agreements between Lender and Borrower, whether now existing or hereafter
arising and whether written or oral, are hereby limited so that in no event
shall the interest paid or agreed to be paid to Lender for the use, forbearance
or detention of money loaned, or for the payment or performance of any covenant
or obligation contained herein or in any of the other Loan Documents, exceed the
maximum amount permissible under applicable law. If, from any circumstances,
fulfillment of any provision hereof or any of the other Loan Documents at the
time the performance of such provision shall be due, shall involve exceeding the
limit prescribed by law, then the obligation to be fulfilled shall automatically
be reduced to the
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limit prescribed by law, then the obligation shall automatically be reduced
to the limit permitted by applicable law. If from any such circumstances,
Lender shall ever receive anything of value deemed interest under applicable
law which would exceed interest at the highest lawful rate, such excessive
interest shall be applied to the reduction of the principal amount owing
hereunder, and not to the payment of interest, or if such excessive interest
exceeds any unpaid balance or principal, such excess shall be refunded to
Borrower. All amounts paid or agreed to be paid to Lender for the Use,
forbearance or detention of money shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the
full term of such indebtedness until payment in full so that the rate of
interest on account of such indebtedness is uniform throughout the term
hereof. This paragraph shall control every other provision of the Loan
Documents and all other agreements between Lender and Borrower contemplated
thereby.
8.10 SEVERABILITY. If any provision in or obligation of any of the
Loan Documents shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
8.11 COUNTERPARTS. This Agreement and any amendments, waivers,
consents or supplements may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same agreement. This
Agreement shall become effective upon the execution of a counterpart by each of
the parties.
8.12 FURTHER ASSURANCES. Borrower will, upon Lender's request, (a)
promptly correct any defect, error or omission which may be discovered in the
execution, acknowledgment or recordation of any of the Loan Documents, and (b)
promptly do, executive, acknowledge and deliver any and all such further acts,
deeds, conveyances, mortgages, deeds of trust, assignments, estoppel
certificates, financing statements and continuations thereof, notices of
assignment, transfers, certificates, assurances and other instruments as Lender
may reasonably require from time to time in order to create and perfect its
intended security interest or lien in any of the Collateral, and to convey,
grant, assign, transfer and confirm the rights granted to Lender hereunder or
under any of the other Loan Documents.
8.13 CUMULATIVE RIGHTS. Rights and remedies of the Lender under the
Notes, this Agreement and the documents and instruments executed and delivered
in connection herewith shall be cumulative, and the exercise or partial exercise
of any such right or remedy shall not preclude the exercise of any right or
remedy.
8.14 RIGHT TO ASSIGN. The Lender may assign, negotiate, pledge or
otherwise hypothecate this Agreement, the Notes and the security and other
related documents, or any of its rights and security hereunder or thereunder. In
case of such assignment, Borrower will accord full recognition thereto and
hereby agrees that all rights and remedies of the Lender in connection with the
interest so assigned shall be enforceable against Borrower by the assignee
thereof. Borrower specifically consents to sales of participations in the Loans
by the Lender to any financial institutions of the Lender's choosing.
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8.15 TIME OF THE ESSENCE. Time shall be of the essence with respect to
the performance by the parties of their obligations under the Loan Documents.
8.16 ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement of the parties relative to the subject matter
hereof, superseding all previous oral or written understandings and agreements
concerning the Loan.
8.17 WAIVER OF JURY TRIAL AND OBJECTION TO VENUE. Borrower and
Guarantors hereby knowingly, voluntarily and intentionally waive the right to a
jury trial of any claim, demand, action, or cause of action arising under any of
the Loan Documents, including the Guaranty or the conduct of Lender, Borrower or
Guarantors with respect thereto, whether such action or cause of action is based
on contract or tort. Borrower and Guarantors waive any right to assert the
doctrine of forum non conveniens or to object to the venue in any action
instituted by Lender in connection with the Loan.
Dated as of the date and year first above written.
LENDER: BERGEN BRUNSWIG DRUG COMPANY
By: /s/ STEPHEN G. MANGOLD
------------------------------
Stephen G. Mangold
Director, Financial Services
BORROWER: HORIZON PHARMACIES INC.
By: /s/ RICKY D. MCCORD
------------------------------
Ricky D. McCord, President
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PURCHASE AGREEMENT
AGREEMENT made the 8th day of March, 1996 between Mesa Drug, Inc. having an
office at 1024 North Butler Ave, Farmington, New Mexico 87401 (hereinafter
referred to as the "seller"), and HORIZON PHARMACIES, INC., a Texas Corporation,
having offices located at 460 Stickhorse Lane, McKinney, Texas, 75069
(hereinafter referred to as the "Buyer").
WITNESSETH
WHEREAS, the Seller and the Buyer have reached an agreement, in accordance
with the terms and conditions hereinbelow set forth, with respect to the sale by
the Seller and the purchase by the Buyer of certain of the assets of the Seller
utilized in connection with and as part of the retail drug store operations of
the Seller known as Mesa Drug, Inc. and Four States Pharmacies, Inc.
(hereinafter referred to as the "DRUG STORE") and desire to reduce said
agreement in writing;
NOW, THEREFORE, THE PARTIES AGREE:
1. SALE OF ASSETS.
1.1 For the purpose of this Agreement, Seller agrees to sell to Buyer as
is certain assets of the Drug Store (hereinafter referred to as the
"Drug Store Assets"), which the Buyer hereby agrees to purchase. Such
assets include and are hereby limited to:
A. INVENTORY, All of the marketable inventory (as defined in Exhibit
A attached hereto) held for retail sale by the Seller and located
at the Drug Store; and
B. PRESCRIPTION FILES INCLUDING ALL CUSTOMER AND PATIENT LISTS AND
PATIENT PROFILES. All prescription files and patient profiles of
Seller located at and pertaining to prescription customers of the
Drug Store.
C. ALL FIXTURES AND EQUIPMENT. All Rx, OTC, and DME fixtures and
equipment owned by Seller (computer/peripherals, registers,
refrigerator, typewriter, Microfiche, etc.) located at the Drug
Store, I.V. Operation, Hospital pharmacy; and all telephone
equipment, and all miscellaneous shelving, counters and supplies
belonging to Seller as listed on Exhibit B attached hereto and
made a part hereof.
D. STORE TELEPHONE NUMBER(S), All telephone numbers of the Drug
Store location shall be transferred to Buyer.
E. SUPPLIES. All bottles, vials, ointment jars, and other usable
supplies of Seller located at the Drug Store location and at
Seller cost.
F. ASSETS NOT PURCHASED. Buyer shall not purchase any consigned
merchandise or layaway items.
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G. All business transactions prior to the closing date are credited
to the Seller. All business acquired after the closing date
belong to the HORIZON Pharmacies, Inc. including any insurance
payments made to the existing NABP, State Welfare number(s),
and/or contract(s) as long as the date of service is on or after
the closing date.
2. PURCHASE PRICE.
2.1 The total purchase price to be paid by the Buyer for the Drug Stores
Assets shall be computed, but not allocated, as follows:
Furniture, Fixtures and Equipment Prescription Files, $200,000
Patient Profiles, Customer List, Patient
Telephone Numbers, 3 Automobiles
Includes $50,000 non-compete for JIM ROGERS.
2.2 Plus an amount equal to the aggregate value of marketable inventory (as
defined in Exhibit A attached hereto) as determined in the physical
inventory described in paragraph 5 below and as valued in accordance
with Exhibit A attached hereto and made a part hereof.
2.3 Seller will keep 100% of the third party insurance receivables and
individual charge accounts.
3. ALLOCATION OF PURCHASE PRICE.
The purchase price shall be allocated in the following manner:
3.1 Item 2.2 (inventory) in the amount of five (5%) under retail cost;
3.2 Item 2.1 (furniture, fixtures, and equipment) per attached list at the
assigned asset values on the list.
3.3 Non-compete covenant at the value of $50,000.00
3.4 Items 1.1 B and 1.1 D in the amount of $725,000.00 less items 3.1,
3.2, and 3.3.
4. PAYMENT OF PURCHASE PRICE.
4.1 Subject to the following provisions, the purchase price hereafter
shall be paid as follows:
4.1(a) Cash at the closing equal to $200,000.00 less $1,000
escrow deposit.
4.1(b) A note at the closing equal to the purchase price less cash
in Section 4.1(a) bearing interest at the rate of eight (8)
percent. The note is due and payable in eighty four (84)
equal consecutive monthly installments, the first
installment due on May 1, 1996. The Note will be executed
by Buyer and payable to the order of Seller. It will be
secured by the inventory at the DRUG STORE.
5. INVENTORY.
5.1 A physical inventory shall be taken at the Drug Store by RGIS
Inventory Specialists on the closing date. Each party shall pay
one-half of the inventory expense.
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6. REPRESENTATIONS AND WARRANTIES BY SELLER.
6.1 The Seller does hereby represent and warrant as follows:
A. AUTHORITY. The execution, delivery and performance of this
agreement by Seller has been duly authorized by all necessary
entity action and constitutes a legal, valid, and binding
obligation on Seller enforceable in accordance with its terms.
B. TITLE TO PROPERTIES. The Seller has good and marketable title to
all of the Drug Store assets to be transferred hereunder, free
and clear of all mortgages, liens, encumbrances, pledges, or
security interests of any nature whatsoever, except for secured
debts, if any, listed on Exhibit C attached hereto which shall be
satisfied and released at or prior to closing. The Seller has
received no notice of violation of any applicable law, regulation
or requirement relating to the retail Drug Store business
operation or Drug Store assets to be transferred hereunder; and
as far as known to the Seller, no such violation exists.
C. CONTRACTS. Seller is not party to any contract, understanding or
commitment whether in the ordinary course of business or not,
relating to the conduct of business by Seller from the Drug Store
which contract, understanding or commitment shall extend beyond
the closing date for the Pharmacy Location except the real estate
lease. Seller is not party to any contractual agreement or
commitment to individual employees which may not be terminated at
the will of Seller.
D. LITIGATION. To the best of Seller's current actual knowledge
there is no suit, action, proceeding, investigation, claim,
complaint or accusation pending or, threatened against or
affecting Seller or the Assets or to which Seller is a party, in
any court or before any arbitration panel of any kind or before
or by any federal, state, local, foreign, or other governmental
agency, department, commission, board, bureau, instrumentality or
body which would have a materially adverse affect on the
financial condition of Seller, and to the best knowledge and
belief of Seller, there is no basis for any such suit, action,
litigation, proceeding, investigation, claim, complaint or
accusation. There is no outstanding order, writ, injunction,
decree, judgment or award by any court, arbitration panel or
governmental body against or affecting Seller with which Seller
is not currently in compliance.
E. EMPLOYEES.
(a) To the best of Seller's actual knowledge, the Seller is in
full compliance with all wage and hour laws, and is not engaged
in any unfair labor practice or discriminatory employment
practice and no complaint of any such practice against Seller is
filed or threatened to be filed with or by the National Labor
Relations Board, the Equal Employment Opportunity Commission or
any other administrative agency, federal or state, that regulates
labor or employment practices, nor is any grievance filed or
threatened to be filed against Seller by any employee pursuant to
any collective bargaining or other employment agreement to which
Seller is a party. To the Seller's best knowledge and belief is
in compliance with all applicable federal and state laws and
regulations regarding occupational safety and health standards
and has received no material complaints from any federal or state
agency or regulatory body alleging violations of any such laws
and regulations.
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(b) The employment of all persons and officers employed by
Seller is terminable at will without any penalty or severance
obligation of any kind on the part of the employer. All sums due
for employee compensation and benefits and all vacation time
owing to any employees of Seller have been duly and adequately
accrued on the accounting records of Seller. To the Seller's best
knowledge, all employees of Seller are either United States
citizens or resident aliens specifically authorized to engage in
employment in the United States in accordance with all applicable
laws.
F. TAXES.
(a) Seller has duly filed all required federal, state, local,
foreign and other tax returns, notices, and reports (including,
but not limited to, income, property, sales, use, franchise,
capital, stock, excise, added value, employees' income
withholding, social security and unemployment tax returns)
heretofore due; and to Seller's best knowledge all such returns,
notices, and reports are correct, accurate, and complete.
(b) All deposits required to be made by Seller with respect to
any tax (including but not limited to, estimated income,
franchise, sales, use, and employee withholding taxes) have been
duly made.
(c) All taxes, assessments, fees, penalties, interest and other
governmental charges which have become due and payable have been
paid in full by Seller or adequately reserved against on its
books of account and the amounts reflected on such books are to
the best belief and knowledge of Seller sufficient for the
payment of all unpaid federal, state, local, foreign, and other
taxes, fees, and assessments, and all interest and penalties
thereon with respect to the periods then ended and or all periods
prior thereto. Seller hereby agrees to indemnify and hold
harmless Buyer from and against any and all liability, claims, or
causes of action for any unpaid taxes, or other assessments due
and owing to any federal, state, or local governmental entity
arising out of the business of Seller prior to the closing date.
(d) Buyer shall pay any and all Sales, Use, and Transfer Taxes,
if any, arising out of the assets which are the subject of this
sale.
(e) Seller shall pay any and all personal property taxes for
prior years attributable to the property being transferred hereby
prior to closing
(f) The parties shall pro rate at Closing anticipated personal
property taxes as of the date of Closing based upon last year's
tax renditions, and personal property tax bills and rent.
7. CONDITIONS PRECEDENT.
7.1 All obligations of Seller under this Agreement are subject to the
fulfillment, prior to or at the closing, of each of the following
conditions (unless waived in writing by Buyer).
A. REPRESENTATIONS. The representations and warranties of Seller
contained in this Agreement shall not only have been true and
complete as of date of this Agreement, but shall also be true and
complete as though again made as of the date of closing.
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B. COMPLIANCE. The Seller shall have performed and complied with all
terms and conditions required by this Agreement to be performed
or complied with by it prior to or at the closing.
C. CONSENTS. All necessary consents to the transfer of the Drug
Store assets have been obtained.
8. LIABILITIES NOT ASSUMED BY BUYER.
8.1 It is expressly understood and agreed that Buyer shall not, by virtue
of this Agreement, the consummation of the transactions contemplated
herein or otherwise, assume any liabilities or obligations of the
Seller or any liabilities or obligations constituting a charge, lien,
encumbrance or security interest upon the Drug Store assets to be
transferred hereunder, regardless of whether such liabilities or
obligations are absolute or contingent, liquidated or unliquidated or
otherwise.
8.2 Seller hereby indemnifies the Buyer, its officers, directors, and
controlling persons against any liability for any fee or commission
payable to any broker, agent or finder retained by Seller with respect
to any transaction contemplated by this agreement.
9. CLOSING.
9.1 The closing shall take place on or before April 20, 1996 at Buyer's
discretion, but in no event later than May 4, 1996, at the Drug Store
location.
A. TO BE DELIVERED TO BUYER. The Seller shall deliver to Buyer a
Bill of Sale, which shall be effective to vest in Buyer good and
marketable title to the Drug Store Assets, free and clear of all
mortgages, security interest, liens, encumbrances, pledges and
hypothecation of every nature and description, except the
Security interest securing Buyer's Note to the Seller.
B. TO BE DELIVERED TO SELLER. The Buyer shall deliver to the Seller
a Cashier's check for the cash portion of the purchase price less
$1,000.00 Escrow amount and Buyer's promissory note described in
Paragraph 4.1 hereof, and the Security instruments required by
section 4.1(b).
10. INDEMNITY BY SELLER.
10.1 The Seller hereby agrees to indemnify and hold harmless Buyer against
and in respect of:
A. LIABILITY OF THE SELLER. All liabilities and obligations of the
Seller, of every kind and description, regardless of whether such
liabilities or obligations are absolute or contingent, liquidated
or unliquidated, accrued or otherwise, and regardless of how and
when the same may have arisen, which are asserted against Buyer
as a result of this Agreement or the consummation of the
transaction contemplated herein.
B. CLAIMS UPON ASSETS. All claims against, or claims of any interest
in, or of a lien or encumbrance or the like upon any or all of
the Drug Store assets to be transferred hereunder by the Seller
to Buyer which are caused or created by indemnifying party.
C. LITIGATION. Claim filed by Norma Thorpe with EEOC and claims filed
in bankruptcy court arising from contractual dispute with Recomm.
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D. The buyer will indemnify the Seller for all claims against the
Assets for any period after the closing date. The Buyer further
indemnifies the Seller for break or leases and dissatisfied
customer claims caused by HORIZON for any period after the
closing date.
11. SURVIVAL OF REPRESENTATIONS WARRANTIES & INDEMNIFICATIONS.
11.1 All of the covenants, representations, warranties and indemnification
of the parties set forth in this Agreement shall survive the closing
date hereof.
12. RISK OF LOSS.
12.1 The risk of loss of damage of Drug Store assets to be conveyed
hereunder shall be upon Seller until the closing hereof.
13. NON-COMPETE COVENANT OF SELLER.
13.1 In consideration of the purchase price hereinabove stated in paragraph
2 of which $50,000.00 is allocated to this covenant not to compete,
Jim Rogers hereby agrees that for a period of seven (7) years after
the date of closing hereunder, Jim Rogers will not, directly or
indirectly, through a subsidiary, joint venture arrangement or
otherwise, conduct or assist another party other than the Buyer in
conducting or managing any operation which has as its purpose what is
generally known as a retail pharmacy, or Nursing Home or IV operation
within the city limits of Farmington, New Mexico and five (5) miles
radius of the said above city limits, or have any equity investment in
such operation. This non-compete clause does not prohibit Jim Rogers
from performing duties such as relief pharmacist at other pharmacies.
The parties hereby recognize and acknowledge that the territorial and
time limitations contained in this paragraph are reasonable and
properly required for the adequate protection of the business to be
conducted by Buyer with the assets and properties to be transferred
hereunder and cannot be changed except by written permission of Buyer.
Jim Rogers will work a minimum of 2 days a week for 1 year.
13.2 The parties recognize that, in the event of a breach by Seller of any
of the provisions of this paragraph, the remedy of law alone would be
inadequate and, accordingly, Buyer, (in addition to damages), shall be
entitled to an injunction restraining Seller from violating the
covenants herein contained.
13.3 It is the intention of the Seller and the Buyer that the execution of
these covenants not to compete be considered as materially significant
and essential to the closing of this Agreement, and that such
covenants are a material portion of the purchase price set forth
herein above.
14. GOVERNING LAW.
14.1 This agreement shall be governed and construed in accordance with the
laws of the State of Texas or New Mexico.
15. ENTIRE AGREEMENT.
15.1 This agreement contains the entire agreement between the parties, and
no representations, warranties or promises, unless contained herein,
shall be binding upon the parties hereto. This document is null and
void if the Purchase Agreement is not signed by both parties within 10
days from date the Buyer has received the Purchase Agreement document.
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15.2 It is stipulated that this agreement is null and void if HORIZON
Pharmacies, Inc. can not secure a real estate lease for DRUG STORE
location. Furthermore, this agreement is null and void in its entirety
if HORIZON Pharmacies, Inc. can not secure a valid New Mexico License
under its own merit for the said DRUG STORE location to conduct
business as a retail pharmacy operation.
15.3 The Seller will perform duties as relief pharmacist for the DRUG STORE
for up to period of one (1) year after the closing date.
16. EARNEST MONEY.
16.1 To bind this Agreement, Buyer herewith deposits with Mesa Drug, as
Escrow Agent, the sum of $1,000 (one thousand dollars), which sum
shall be applied to the cash portion of the purchase price upon the
closing of the transaction contemplated herein. However, in the event
Seller fails to perform each and every covenant and condition required
hereunder, Buyer may cancel this Agreement and have the Earnest Money
returned to it. If the Buyer fails to perform each and every
obligation hereunder, Seller shall retain the Earnest Money as
liquidated damages. Each party's remedy provided in this Section is
that party's exclusive remedy.
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IN WITNESS WHEREOF, the parties hereto have set their hands the day
and year first above written.
BUYER:
HORIZON PHARMACIES, INC.
/s/ RICK McCORD
-------------------------------
Rick McCord, President
THE STATE OF NEW MEXICO )
COUNTY OF SAN JUAN )
THIS INSTRUMENT was acknowledged before me on this the 8th day of March,
1996, by RICK MCCORD, who holds the office of President of HORIZON PHARMACIES,
INC., a Texas Corporation on behalf of such corporation.
/s/ PAM HYDER
----------------------------------
SEAL Pam Hyder
Notary Public, State of New Mexico
My commission Expires: 7-3-99
SELLER:
Mesa Drug
/s/ JIM ROGERS
----------------------------------
Jim Rogers, President
THE STATE OF NEW MEXICO )
COUNTY OF SAN JUAN )
THIS INSTRUMENT was acknowledged before me on this the 8th day of March,
1996, by JIM ROGERS, who holds the office of PRESIDENT of MESA DRUG.
/s/ PAM HYDER
----------------------------------
SEAL Pam Hyder
Notary Public, State of New Mexico
My commission Expires: 7-3-99
8
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT made the 4 day of March 1997 between True Quality Pharmacies,
Inc., having an office at 222 E. Virginia, McKinney, Texas 75069 (hereinafter
referred to as the "Seller"), and HORIZON PHARMACIES, INC., a Texas
Corporation, having offices located at 275 W. Princeton Drive, Princeton,
Texas, 75407 (hereinafter referred to as the "Buyer").
WITNESSETH
WHEREAS, the Seller and the Buyer have reached an agreement. In
accordance with the terms and conditions hereinbelow set forth, with respect
to the sale by the Seller and the purchase by the Buyer of certain assets of
the Seller utilized in connection with and as part of the retail drug store
operations of the Seller known as VISTA Pharmacy in MT. VERNON, MINEOLA, and
MCKINNEY, Texas (hereinafter referred to as the "DRUG STORE") and desire to
reduce said agreement in writing:
NOW, THEREFORE, THE PARTIES AGREE:
1. SALE OF ASSETS.
1.1 For the purpose of this Agreement, Seller agrees to sell to Buyer
as is certain assets of the Drug Store (hereinafter referred
to as the "Drug Store Assets"), which the Buyer hereby agrees to
purchase. Such assets include and are hereby limited to:
A. INVENTORY. All of the marketable inventory (as defined in
Exhibit A attached hereto) held for retail sale by the Seller
and located at the Drug Store; and
B. PRESCRIPTION FILES INCLUDING ALL CUSTOMER AND PATIENT LISTS AND
PATIENT PROFILES. All prescription files and patient profiles
of Seller located at and pertaining to prescription customers
of the Drug Store.
C. ALL FIXTURES AND EQUIPMENT. All Rx, OTC and DME fixtures and
equipment owned by Seller (computer/peripherals, registers,
refrigerator, typewriter, Microfiche, etc.) located at the Drug
Store,; and all telephone equipment, and all miscellaneous
shelving, counters and supplies belonging to Seller as listed
on Exhibit B attached hereto and made a part hereof.
D. STORE TELEPHONE NUMBER(S). All telephone numbers of the Drug
Store location shall be transferred to Buyer.
E. SUPPLIES. All bottles, vials, ointment jars; and other usable
supplies of Seller located at the Drug Store location and at
Seller cost.
F. ACCOUNTS RECEIVABLE. Buyer shall purchase individual charge
accounts (per evaluation in Section 2.4 (a)) and the Mineola
MHMR accounts. Buyer shall not purchase any third party
receivable.
G. ASSETS NOT PURCHASED. Buyer shall not purchase any consigned
merchandise or layaway items.
H. All outstanding cash and pending transactions (excluding
receipts on Accounts Receivable accounts) prior to the closing
date are credited to the Seller. All business acquired after
the closing date belong to the HORIZON Pharmacies, Inc. including
any insurance payments made to the existing NABP. State Welfare
number(s), and/or contract(s) as long as the date of service is
on or after the closing date.
2. PURCHASE PRICE.
2.1 The total purchase price to be paid by the Buyer for the Drug
Stores Assets
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shall be computed, but not allocated, as follows:
Furniture, Fixtures and Equipment, 1978 FORD VAN $ 60,000.00
2.2 Prescription Files. Patient Profiles, Customer List,
Telephone Numbers $390,000.00
2.3 An amount equal to the aggregate value of the marketable inventory
(as defined in Exhibit A attached hereto) as determined in the
physical inventory described in paragraph 5 below and as valued in
accordance with Exhibit A attached hereto and made a part hereof.
2.4 Buyer will purchase accounts receivable based on the following
evaluation:
(a) Individual Charge Accounts
0-30 days from date of first statement balances at 100%
31-60 days from date of first statement balances at 80%
61-90 days from date of first statement balances at 60%
GREATER THAN 90 days from date of first statement balances at 0%
(b) Mineola MHMR at 100%
3. ALLOCATION OF PURCHASE PRICE.
*See Closing Statement
4. PAYMENT OF PURCHASE PRICE.
Subject to the following provisions, the purchase price hereafter shall
be paid as follows:
4.1 Cash in the amount of $100,000.00 on March 5 & 6, 1997 after
inventory of all locations
4.2 Balance in the form of a note at 8 1/2% interest payable monthly,
with a principal reduction of $325,000.00 on the earliest of
September 1, 1997 or 10 days following the funding of the initial
public offering, and the balance in equal monthly installment on
the 25th day of each month thereafter through December 25th, 1997,
when all outstanding principal and accrued and unpaid interest shall
be due in full.
4.3 The note shall be secured by the assets purchased and shall be
personally guaranteed by Rick McCord, Sy Shahid, Charlie Herr,
Dave Frauhiger, and Robert Mueller.
5. INVENTORY.
5.1 A physical inventory shall be taken at the Drug Store by RGIS
Inventory Specialists on the closing date. Each party shall pay
one-half of the inventory expense.
6. REPRESENTATIONS AND WARRANTIES BY SELLER.
6.1 The Seller does hereby represent and warrant as follows:
A. AUTHORITY. The execution, delivery and performance of this
agreement by Seller has been duly authorized by all necessary
entity action and constitutes a legal, valid, and binding
obligation on Seller enforceable in accordance with its terms.
B. TITLE TO PROPERTIES. The Seller has good and marketable title
to all of the Drug Store assets to be transferred hereunder,
free and clear of all mortgages, liens, encumbrances, pledges,
or security interests of any nature whatsoever, except for
secured debts, if any, listed on Exhibit C attached hereto which
shall be satisfied and
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released at or prior to closing. The Seller has received no
notice of violation of any applicable law, regulation or
requirement relating to the retail Drug Store business operation
or Drug Store assets to be transferred hereunder, and as far
as known to the Seller, no such violation exists.
C. CONTRACTS. Seller is not party to any contract, understanding
or commitment whether in the ordinary course of business or not,
relating to the conduct of business by Seller from the Drug Store
which contract, understanding or commitment shall extend beyond
the closing date for the Pharmacy Location except the real estate
lease. Seller is not party to any contractual agreement or
commitment to individual employees which may not be terminated
at the will of Seller.
D. LITIGATION. To the best of Seller's current actual knowledge
there is no suit, action, proceeding, investigation, claim,
complaint or accusation pending or, threatened against or
affecting Seller or the Assets or to which Seller is a party,
in any court or before any arbitration panel of any kind or
before or by any federal, state, local, foreign, or other
governmental agency, department, commission, board, bureau,
instrumentality or body which would have a materially adverse
affect on the financial condition of Seller, and to the best
knowledge and belief of Seller, there is no basis for any such
suit, action, litigation, proceeding, investigation, claim,
complaint or accusation. There is no outstanding order, writ,
injunction, decree, judgment or award by any court, arbitration
panel or governmental body against or affecting Seller with which
Seller is not currently in compliance. Notwithstanding the
foregoing, Seller is a plaintiff in a multiple party lawsuit
against certain pharmaceutical manufacturers; and all recoveries
in any way related thereto shall remain the property of Seller
and all costs and expenses related thereto shall be for the
account of Seller.
E. EMPLOYEES.
(a) To the best of Seller's actual knowledge, the Seller is in full
compliance with all wage and hour laws, and is not engaged in any
unfair labor practice or discriminatory employment practice and
no complaint of any such practice against Seller is filed or
threatened to be filed with or by the National Labor Relations
Board, the Equal Employment Opportunity Commission or any other
administrative agency, federal or state, that regulates labor or
employment practices, nor is any grievance filed or threatened to
be filed against Seller by any employee pursuant to any collective
bargaining or other employment agreement to which Seller is a
party. To the Seller's best knowledge and belief is in compliance
with all applicable federal and state laws and regulations
regarding occupational safety and health standards and has
received no material complaints from any federal or state agency
or regulatory body alleging violations of any such laws and
regulations.
(b) The employment of all persons and officers employed by Seller
is terminable at will without any penalty or severance obligation
of any kind on the part of the employer. All sums due for
employee compensation and benefits and all vacation time owing
to any employees of Seller have been duly and adequately accrued
the accounting records of Seller. All benefits such as vacation
accrued and earned by employees up to the closing date is the
responsibility of the Seller. All benefits accrued and earned
after the closing date will become the financial responsibilities
of the Buyer. To the Seller's best knowledge, all employees of
Seller are either United States citizens or resident aliens
specifically authorized to engage in employment in the United
States in accordance with all applicable laws.
F. TAXES.
(a) Seller has duly filed all required federal, state, local,
foreign and other tax returns, notices, and reports
(including, but not limited to, income, property,
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sales, use, franchise, capital, stock, excise, added value,
employees' income withholding, social security and unemployment
tax returns) heretofore due; and to Seller's best knowledge
all such returns, notices, and reports are correct, accurate,
and complete.
(b) All deposits required to be made by Seller with respect to any
tax (including but not limited to, estimated income, franchise,
sales, use, and employee withholding taxes) have been duly made.
(c) All taxes, assessments, fees, penalties, interest and other
governmental charges which have become due and payable have been
paid in full by Seller or adequately reserved against on its
books of account and the amounts reflected on such books are to
the best belief and knowledge of Seller sufficient for the payment
of all unpaid federal, state, local, foreign, and other taxes,
fees, and assessments, and all interest and penalties thereon
with respect to the periods then ended and or all periods
prior thereto. Seller hereby agrees to indemnify and hold
harmless Buyer from and against any and all liability, claims,
or causes of action for any unpaid taxes, or other assessments
due and owing to any federal, state, or local governmental entity
arising out of the business of Seller prior to the closing date.
(d) Buyer shall pay any and all Sales, Use, and Transfer Taxes, if
any, arising out of the assets which are the subject of this sale.
(e) Seller shall pay any and all personal property taxes for prior
years attributable to the property being transferred hereby prior
to closing
(f) The parties shall pro rate at Closing anticipated personal
property taxes as of the date of Closing based upon last year's
tax renditions, and personal property tax bills and rent.
7. CONDITIONS PRECEDENT.
7.1 All obligations of Seller under this Agreement are subject to the
fulfillment, prior to or at the closing, of each of the following
conditions (unless waived in writing by Buyer).
A. REPRESENTATIONS. The representations and warranties of Seller
contained in this Agreement shall not only have been true and
complete as of the date of this Agreement, but shall also be
true and complete as though again made as of the date of closing.
B. COMPLIANCE. The Seller shall have performed and complied with
all terms and conditions required by this Agreement to be
performed or complied with by it prior to or at the closing.
C. CONSENTS. All necessary consents to the transfer of the Drug
Store assets have been obtained from vendors and partners if any.
8. LIABILITIES NOT ASSUMED BY BUYER.
8.1 It is expressly understood and agreed that Buyer shall not, by
virtue of this Agreement, the consummation of the transactions
contemplated herein or otherwise, assume any liabilities or
obligations of the Seller or any liabilities or obligations
constituting a charge, lien, encumbrance or security interest
upon the Drug Store assets to be transferred hereunder, regardless
of whether such liabilities or obligations are absolute or
contingent, liquidated or unliquidated or otherwise, unless
expressly stated herein.
8.2 Seller hereby indemnifies the Buyer, its officers, directors, and
controlling persons against any liability for any fee or commission
payable to any broker, agent or finder retained by Seller with
respect to any transaction contemplated by this agreement.
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9. CLOSING.
9.1 The closing shall take place on or before March 5 and 6, 1997 the
parties mutual agreement at the Drug Store location.
A. TO BE DELIVERED TO BUYER. The Seller shall deliver to Buyer a
Bill of Sale, which shall be effective to vest in Buyer good
and marketable title to the Drug Store Assets, free and clear
of all mortgages, security interest, liens, encumbrances, pledges
and hypothecation of every nature and description, except the
Security interest securing Buyer's Note to the Seller.
B. TO BE DELIVERED TO SELLER. The Buyer shall deliver to the
Seller a promissory note described in Paragraph 4.2 and the
security document reasonably required by Seller and personal
guarantees.
10. INDEMNITY BY SELLER.
10.1 The Seller hereby agrees to indemnify and hold harmless Buyer
against and in respect of:
A. CONTINGENT & UNDISCLOSED CLAIMS. Seller will indemnify and
hold Buyer harmless for any contingent and/or undisclosed
claims including but not limited to costs, expenses, and
attorney fees relating to Seller's ownership of the purchased
assets and/or Seller's conduct of the business prior to the
closing.
B. CLAIMS UPON ASSETS. All claims against, or claims of any
interest in, or of a lien or encumbrance or the like upon
any or all of the Drug Store assets to be transferred
hereunder by the Seller to Buyer which are caused or created
by indemnifying party.
C. The buyer will indemnify the Seller for all claims against the
Assets for any period after the closing date. The Buyer further
indemnifies the Seller for break of leases and operation of
business by HORIZON for any period after the closing date.
11. SURVIVAL OF REPRESENTATIONS, WARRANTIES & INDEMNIFICATIONS.
11.1 All of the covenants, representations, warranties and
indemnification of the parties set forth in this Agreement
shall survive the closing date hereof.
12. RISK OF LOSS.
12.1 The risk of loss of damage of Drug Store assets to be conveyed
hereunder shall be upon Seller until the closing hereof.
13. GOVERNING LAW.
13.1 This agreement shall be governed and construed in accordance with
the laws of the State of Texas and venue for purposes hereof shall
be in Collin County, Texas.
14. ENTIRE AGREEMENT.
14.1 This agreement contains the entire agreement between the parties,
and no representations, warranties or promises, unless contained
herein, shall be binding upon the parties hereto. This document
is null and void if:
a) the Purchase Agreement is not signed by both parties within 10
days from date the Buyer has received the Purchase Agreement
document.
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b) can not secure the following leases:
Mineola AT 1,500.00 per month for five (5) years plus
two (2) five 5 years options
MT Vernon AT 1,800.00 per month for five (5) years plus
two (2) five 5 years options
McKinney AT 1,250.00 per month for one (1) year plus
three (3) three 3 years options
All option years for Mineola and Mt Vernon will be based on CPI
increases. Mckinney location option years will be based on:
1st 3 years option will be based on $10.00 per sq ft
2nd 3 years option will be based on $12.00 per sq ft
3rd 3 years option will be based on $14.00 per sq ft
15. EARNEST MONEY.
15.1 To bind this Agreement, Buyer herewith deposits with
_____________________________ as Escrow Agent, the sum of $1,000
(one thousand dollars), which sum shall be applied to the cash portion
of the purchase price upon the closing of the transaction contemplated
herein. However, in the event Seller fails to perform each and every
covenant and condition required hereunder, Buyer may cancel this
Agreement and have the Earnest Money returned to it. If the Buyer
fails to perform each and every obligation hereunder, Seller shall
retain the Earnest Money as liquidated damages, each party's remedy
provided in this Section is that party's exclusive remedy.
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IN WITNESS WHEREOF, the parties hereto have set their hands the day and
year first above written.
BUYER:
HORIZON PHARMACIES, INC.
/s/ RICK MCCORD
------------------------------------
Rick McCord, President
THE STATE OF )
COUNTY OF )
THIS INSTRUMENT was acknowledged before me on the 4th day of March, 1997
by RICK MCCORD, who holds the office of President of HORIZON PHARMACIES, INC.,
a Texas Corporation on behalf of such corporation.
/s/ JEAN PLACHE
------------------------------------
SEAL Jean Plache
Notary Public, State of Texas
My commission Expires: June 23, 1999
SELLER:
True Quality Pharmacies, Inc.
/s/ RICHARD DILL
------------------------------------
Richard Dill, President
THE STATE OF )
COUNTY OF )
THIS INSTRUMENT was acknowledged before me on the 4th day of March, 1997
by RICHARD DILL, who holds the office of President of True Quality Pharmacies,
Inc.
/s/ JEAN PLACHE
------------------------------------
SEAL Jean Plache
Notary Public, State of Texas
My commission Expires: June 23, 1999
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Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts," to the
use of our report on the financial statements for the year ended December 31,
1995 of HORIZON Pharmacies, Inc. dated April 24, 1996 and to the use of our
reports on the financial statements of the Farmington Store Acquisition and
the Vista Store Acquisition dated March 28, 1997, in the Registration
Statement (Form SB-2 No. 333-_______) and related Prospectus of HORIZON
Pharmacies, Inc. for the registration of 900,000 shares of its common stock.
Dallas, Texas
April ___, 1997
The foregoing consent is in the form that will be signed upon completion of
the reorganization of the capital accounts of the Company as described in the
fourth paragraph of Note 6 to the accompanying financial statements.
Herold, Howard & Madsen, P.C.
Dallas, Texas
April 15, 1997
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated April 4, 1997, except for the fourth paragraph of
Note 6, as to which the date is April __, 1997, in the Registration Statement
(Form SB-2 No. 333-________) and related Prospectus of HORIZON Pharmacies,
Inc. for the registration of 900,000 shares of its common stock.
Oklahoma City, Oklahoma
April __, 1997
The foregoing consent is in the form that will be signed upon completion of
the reorganization of the capital accounts of the Company as described in the
fourth paragraph of Note 6 to the accompanying financial statements.
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
April 15, 1997
<PAGE>
Exhibit 23.3
Consent of Counsel
Phillips McFall McCaffrey McVay & Murrah, P.C. hereby consents to the
use of its name under the heading "Legal Opinions" in the Prospectus
constituting a part of the Form SB-2 Registration Statement of Horizon
Pharmacies, Inc. ("Horizon") for the registration of 900,000 shares of
Horizon common stock (1,035,000 assuming the exercise in full of the
overallotment option), and further consents to the filing of its opinion of
counsel as an exhibit to such Registration Statement.
Phillips McFall McCaffrey
McVay & Murrah, P.C.
Oklahoma City, Oklahoma
April 15, 1997
