<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 30, 1997
REGISTRATION NO. 333-25257
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
HORIZON PHARMACIES, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
TEXAS 5912 75-2441557
(State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification
Number)
</TABLE>
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 & Robertson & Williams, Inc.
Murrah, P.C.
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. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED 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
<S> <C> <C> <C> <C>
Common Stock, $.01 par value................ 1,380,000(2) $ 5.00 $6,900,000 $2,090.91
Underwriters' Warrants(3)................... 120,000 .001 $ 120 (4)
Common Stock Issuable Upon Exercise of
Underwriters' Warrants(5)................. 120,000 6.00 $ 720,000 $ 181.82
TOTAL....................................... $7,620,120 $2,272.73(6)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Includes 180,000 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.
(6) The Registrant previously paid $1,970.68 of the Registration Fee.
------------------------------
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.
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- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 30, 1997
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>
PROSPECTUS
1,200,000 SHARES
HORIZON PHARMACIES, INC.
COMMON STOCK
------------------
All of the 1,200,000 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 listing of the Common Stock on the
American Stock Exchange under the trading symbol "HZP" and has received a
favorable preliminary listing eligibility opinion from the American Stock
Exchange.
------------------------
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 6.
------------------------
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.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS PROCEEDS TO
PRICE TO THE PUBLIC AND COMMISSIONS(1) COMPANY(2)(3)
<S> <C> <C> <C>
Per Share....................................... $ $ $
Total(3)........................................ $ $ $
</TABLE>
(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 $180,000 ($207,000 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 180,000
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 $6,900,000,
$690,000 and $6,210,000, 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.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE OR
PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE
COMMON STOCK MAINTAINED BY THE UNDERWRITERS. FOR A DESCRIPTION OF THESE
ACTIVITIES SEE "UNDERWRITING."
------------------------
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 April 28, 1997 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 located in Mineola, Mt.
Vernon and McKinney, Texas (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 80% 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 toward 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 of existing stores in that market, while
managing the overhead expense for those operations 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 OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company......................... 1,200,000 shares
Shares of Common Stock to be
outstanding after the
Offering........................ 2,282,424 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 and for working
capital and general corporate purposes.
American Stock Exchange Symbol.... HZP (proposed)
</TABLE>
- ------------------------
(1) Excludes 246,242 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."
4
<PAGE>
SUMMARY--FINANCIAL AND OPERATING DATA
The following table sets forth historical and 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 and from the unaudited financial statements of
the Company for the three months ended March 31, 1996 and 1997, 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>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
PERIOD FROM --------------------------------- ----------------------------------
FEBRUARY 28,
1994 HISTORICAL HISTORICAL
TO DECEMBER 31, --------------------- PRO FORMA ---------------------- PRO FORMA
1994(1) 1995 1996 1996(2) 1996 1997 1997(2)
---------------- --------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AND STORE DATA)
STATEMENT OF INCOME DATA:
Net Sales................... $ 1,671 $ 6,270 $ 13,136 $ 22,133 $ 2,367 $ 5,113 $ 5,892
Gross Profit................ 595 1,898 4,194 6,686 763 1,654 1,841
Income from operations...... 169 279 551 1,024 151 274 322
Interest expense............ 16 110 253 227 43 54 28
Income before pro forma
provision for income
taxes..................... 154 176 302 801 110 221 294
Pro forma provision for
income taxes.............. 54 61 106 278 38 77 104
Pro forma net income........ 100 115 196 523 72 144 190
Pro forma net income per
common share.............. 0.19 0.12 0.18 0.23 0.07 0.13 0.08
Shares used in
computation............... 539,258 957,733 1,074,246 2,274,246 1,058,000 1,142,424 2,342,424
BALANCE SHEET DATA:
Working capital............. $ 600 $ 1,029 $ 1,563 $ 4,518 $ 897 $ 1,057 $ 5,658
Total assets................ 1,268 3,545 6,589 9,518 3,868 8,350 11,411
Long-term obligations....... 346 930 1,467 1,367 716 1,338 1,238
Total liabilities........... 576 2,266 4,839 4,412 2,539 6,454 5,028
Shareholders' equity........ 692 1,279 1,750 5,106 1,329 1,896 6,383
NUMBER OF STORES AT END OF
PERIOD...................... 3 7 11 14 7 14 14
</TABLE>
- ------------------------
(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.
5
<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 five to nine stores and have in operation a total of
approximately 20 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 healthcare is generally less costly to third-party
payors than hospital-based care, alternate site healthcare 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
6
<PAGE>
the total healthcare market, cost containment initiatives aimed at reducing the
costs of delivering services at non-hospital sites are increasing and may
adversely affect the profitability of alternate site healthcare 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 healthcare
companies, are affected by the continuing efforts of third-party payors to
contain or reduce the costs of healthcare 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
healthcare 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
7
<PAGE>
healthcare reform proposals have been introduced or proposed by Congress and in
some state 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."
In addition, the Company may be affected by any significant healthcare
legislative proposals enacted in the state of Texas. Currently, the Texas
legislature is considering a proposal which would reduce Medicaid reimbursements
to Texas pharmacies by 5% in anticipation of a Federal reduction in Medicaid
pharmacy payments. While any such reductions would affect the Company's Medicaid
reimbursements, management believes that the Company's overall revenues and
profitability will not be materially adversely affected, although there can be
no assurance that revenues or profitability will not be affected by any such
legislation. See "Business--Government Regulation and Healthcare Reform."
REGULATION OF HOME HEALTHCARE 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
healthcare 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 healthcare
industry in the United States to fundamental change. Although Congress has
failed to pass comprehensive healthcare reform legislation, the Company
anticipates that Congress and state legislatures will continue to review and
assess alternative healthcare delivery and payment systems and may in the future
propose and adopt legislation effecting fundamental changes in the healthcare
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 healthcare reform. Any proposed Federal legislation, if adopted,
could result in significant changes in the availability, delivery, pricing and
payment for healthcare services and products, including alternate site
healthcare. Various state agencies also have undertaken or are considering
significant healthcare reform initiatives. Although it is not possible to
predict whether any healthcare 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 healthcare 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
8
<PAGE>
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 and medical malpractice liability insurance
coverage, 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 CVS), 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."
GEOGRAPHIC CONCENTRATION. Currently, nine of the Company's 14 retail
pharmacies are located in Texas, and other retail pharmacies located in Texas
may be acquired by the Company. Consequently, the Company's results of
operations and financial condition are dependent upon general trends in the
Texas economy. Although the Texas economy was heavily dependent upon
commodity-based industries such as oil and gas and agriculture during the 1980s,
the Texas economy has, during the 1990s, become more closely correlated to the
national economy. While retail sales in the state of Texas have been consistent
with the generally favorable national economy during the past five years, there
can be no assurance that this trend will continue or that retail spending will
not decline in the future.
SUBSTANTIAL INDEBTEDNESS. In connection with the Company's acquisition of
retail pharmacies, the Company has incurred substantial debt. At March 31, 1997,
the Company had long-term obligations (including current maturities) of
$1,716,649, notes payable of $2,128,642 (including $948,642 debt incurred in
connection with the acquisition of the Vista Stores) and accounts payable of
$1,664,186, 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 $1,475,000 of its notes
payable and $100,000 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
9
<PAGE>
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 several covenants under a loan
agreement covering certain demand notes, including a covenant prohibiting
payment of dividends or distributions to shareholders. The referenced loan
agreement covers certain notes payable totaling $1,180,000 at March 31, 1997 and
such outstanding amounts 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 at least 12 months following
the termination of the Offering, 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."
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. 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. The Company has
employment agreements with Messrs. McCord, Shahid and Frauhiger, and owns key
man life insurance policies on each such individual. Notwithstanding the
foregoing, 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'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
10
<PAGE>
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
32% of the Company's outstanding shares of Common Stock after the Offering
(approximately 30% 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 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 the
division of the Board of Directors into three classes serving staggered three
year terms (which could delay or prevent shareholders from effecting a change of
control of the Company), 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. The Board of Directors does not
currently have any plans, arrangements, commitments or understandings to issue
any Preferred Stock.
SUBSTANTIAL DILUTION. On the basis of an assumed offering price of $5.00
per share, this Offering involves an immediate dilution of approximately $2.79
per share of Common Stock (approximately 56% 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."
11
<PAGE>
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." In addition, current shareholders will receive a cumulative
distribution of $300,000 out of the proceeds of this Offering. See "Dividend
Policy" and "Use of Proceeds."
LIMITED UNDERWRITING EXPERIENCE. Capital West, one of the Underwriters, was
first registered as a broker-dealer in May 1995 and has participated in six
public equity offerings as an underwriter, acting as a manager or co-manager in
three of those offerings. 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 American Stock
Exchange under the trading symbol "HZP." 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."
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.
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, 2,282,424 shares of Common Stock will be outstanding
(2,462,424 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 1,200,000
shares (1,380,000 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 328,430 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
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 32%, 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
12
<PAGE>
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. The Company has previously made cash distributions to its
shareholders and intends to distribute $300,000 to its existing shareholders out
of the proceeds of this Offering. The Company does not anticipate paying any
cash dividends on the Common Stock in the foreseeable future. See "Dividend
Policy." Approximately 45% of the intended distribution of $300,000 of the
proceeds of this Offering is being paid 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.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,200,000 shares of
Common Stock being offered hereby are estimated to be approximately $5,000,000
(approximately $5,783,000 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>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENTAGE OF
USE DOLLAR AMOUNT NET PROCEEDS
- ------------------------------------------------------ -------------- ---------------
<S> <C> <C>
Repayment of certain existing indebtedness............ $1,575,000 31.5%
Acquisitions.......................................... 2,375,000 47.5%
Working capital and general corporate purposes........ 750,000 15.0%
Distribution to existing shareholders................. 300,000 6.0%
-------------- -----
Total................................................. $5,000,000 100.0%
-------------- -----
-------------- -----
</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 Company's acquisitions of six retail pharmacies located in Farmington,
New Mexico; McLoud, Oklahoma; Cleburne, Texas; Covington and Marion, Virginia;
and Tomah, Wisconsin. The Bergen Brunswig Loan bears interest at 2% above the
prime rate announced from time to time by two banks. As of March 31, 1997, the
effective interest rate on the Bergen Brunswig Loan was 10.5%. 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, which bears
interest at the rate of 8.5% and matures December 25, 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 $2.4 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 current agreements
or commitments with respect to any potential acquisition.
The Company will distribute $300,000 of the net proceeds to its existing
shareholders. Approximately 45% of such distribution is intended to mitigate
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. Notwithstanding
the Company's future intentions respecting the payment of dividends, a
distribution of $300,000 will be made from the proceeds of this Offering to the
Company's shareholders. Approximately 45% of such distribution is being paid for
the purpose of mitigating the state and Federal
14
<PAGE>
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
the termination of such status. 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.
DILUTION
At March 31, 1997, net tangible book value of the Company's Common Stock was
approximately $489,000, or $.45 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 $2.21 per share which will represent an immediate dilution of $2.79 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>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- --------- ------------ --------- ---------------
<S> <C> <C> <C> <C> <C>
Existing shareholders (cash)...................... 1,082,424 47.4% $ 1,771,127 22.8% $ 1.64
New investors..................................... 1,200,000 52.6% 6,000,000 77.2% 5.00
---------- --------- ------------ ---------
Total............................................. 2,282,424 100.0% $ 7,771,127 100.0% $ 3.40
---------- --------- ------------ ---------
---------- --------- ------------ ---------
</TABLE>
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1997 and as adjusted to give effect to the sale of the 1,200,000 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," "Pro Forma
Combined Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements and Notes
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------
ACTUAL AS ADJUSTED(3)
------------ --------------
<S> <C> <C>
Notes Payable....................................................................... $ 2,128,642 $ 653,642
Long-term obligations, including current portion.................................... 1,716,649 1,616,649
Shareholders' Equity:
Common Stock; $.01 par value, 14,000,000 shares authorized; 1,082,424 shares
issued and outstanding; 2,282,424 shares as adjusted(1)(2)...................... 10,824 22,824
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 6,360,303
Retained Earnings................................................................. 124,474 --
------------ --------------
Total shareholders' equity........................................................ 1,895,601 6,383,127
------------ --------------
Total Capitalization................................................................ $ 5,740,892 $ 8,653,418
------------ --------------
------------ --------------
</TABLE>
- ------------------------
(1) Excludes shares of Common Stock reserved for issuance pursuant to the
Company's 1997 Stock Option Plan, estimated at 246,242. See
"Management--1997 Stock Option Plan" and "Description of Securities."
(2) Reflects a 2-for-1 stock split for shares of Common Stock.
(3) The as adjusted amounts consider the effect of the Offering and the expected
application of its net proceeds.
16
<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.
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED DECEMBER THREE MONTHS ENDED
FEBRUARY 28, 31, MARCH 31,
1994 TO DECEMBER --------------------- ----------------------
31, 1994(1) 1995 1996 1996 1997
---------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE DATA)
INCOME STATEMENT DATA:
NET SALES:
Prescription drugs................................. $ 1,387 $ 5,235 $ 10,515 $ 1,989 $ 4,060
Other.............................................. 284 1,035 2,621 378 1,053
------- --------- ---------- ---------- ----------
Total net sales...................................... 1,671 6,270 13,136 2,367 5,113
COST OF SALES:
Prescription drugs................................. 902 3,595 7,310 1,321 2,810
Other.............................................. 174 777 1,632 283 649
------- --------- ---------- ---------- ----------
Total cost of sales.................................. 1,076 4,372 8,942 1,604 3,459
------- --------- ---------- ---------- ----------
Gross profit......................................... 595 1,898 4,194 763 1,654
Selling, general and administrative expenses......... 396 1,519 3,471 580 1,322
Depreciation and amortization........................ 30 100 172 32 58
------- --------- ---------- ---------- ----------
Income from operations............................... 169 279 551 151 274
Interest expense and other, net...................... 15 103 249 41 53
------- --------- ---------- ---------- ----------
Income before income taxes(2)........................ 154 176 302 110 221
Pro forma provision for income taxes(2).............. 54 61 106 38 77
------- --------- ---------- ---------- ----------
Pro forma net income(2).............................. $ 100 $ 115 $ 196 $ 72 $ 144
------- --------- ---------- ---------- ----------
------- --------- ---------- ---------- ----------
Pro forma net income per share(2).................... $ 0.19 $ 0.12 $ 0.18 $ 0.07 $ 0.13
Shares used in computation........................... 539,258 957,733 1,074,246 1,058,000 1,142,424
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1994 1995 1996 MARCH 31, 1997
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Working capital................................................. $ 600 $ 1,029 $ 1,563 $ 1,057
Total assets.................................................... 1,268 3,545 6,589 8,350
Long-term obligations........................................... 346 930 1,467 1,338
Total liabilities............................................... 576 2,266 4,839 6,454
Shareholders' equity............................................ 692 1,279 1,750 1,896
</TABLE>
- ------------------------
(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 income before income taxes in each of
the periods presented.
17
<PAGE>
PRO FORMA COMBINED FINANCIAL DATA
The following unaudited Pro Forma Combined Condensed Statements of Income
for the year ended December 31, 1996 and the three months ended March 31, 1997
reflect 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 March 31, 1997 reflects
the historical financial position of the Company as of that date adjusted to
give pro forma effect to the Offering as if it had occurred as of March 31,
1997.
The pro forma adjustments are based upon available information and
assumptions that management of the Company believes are reasonable and fairly
reflect all expenses associated with the acquired businesses. 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.
18
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------
FARMINGTON OTHER
VISTA STORE STORES PRO FORMA
COMPANY STORES (NOTE A) (NOTE A) ADJUSTMENTS
----------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net sales................................................. $ 13,136 $ 4,229 $ 1,247 $ 3,521
Costs and expenses:
Cost of sales........................................... 8,942 3,021 826 2,658
Depreciation and amortization........................... 172 10 8 -- $ (18)(1)
(48)(1)
Selling, general and administrative..................... 3,471 785 299 790 97(3)
----------- --------- ----------- ----------- -----
Total costs and expenses.................................. 12,585 3,816 1,133 3,448 127
----------- --------- ----------- ----------- -----
Income from operations.................................... 551 413 114 73 (127)
Interest expense and other, net........................... 249 -- -- -- 142(2)
----------- --------- ----------- ----------- -----
Income before income taxes................................ 302 413 114 73 (269)
Pro forma provision for income taxes (Note B)............. 106 145 40 26 (95)(4)
----------- --------- ----------- ----------- -----
Pro forma net income (Note B)............................. $ 196 $ 268 $ 74 $ 47 $ (174)
----------- --------- ----------- ----------- -----
----------- --------- ----------- ----------- -----
Pro forma net income per share (Note B)...................
Shares used in computation................................
<CAPTION>
PRO FORMA
PRO FORMA ADJUSTMENTS
FOR FOR THE
ACQUISITIONS OFFERING PRO FORMA
----------- -------------- ------------
<S> <C> <C> <C>
Net sales................................................. $ 22,133 $ 22,133
Costs and expenses:
Cost of sales........................................... 15,447 15,447
Depreciation and amortization........................... 220 220
Selling, general and administrative..................... 5,442 5,442
----------- ----- ------------
Total costs and expenses.................................. 21,109 21,109
----------- ----- ------------
Income from operations.................................... 1,024 1,024
Interest expense and other, net........................... 391 $ (168)(6) 223
----------- ----- ------------
Income before income taxes................................ 633 168 801
Pro forma provision for income taxes (Note B)............. 222 56(7) 278
----------- ----- ------------
Pro forma net income (Note B)............................. $ 411 $ 112 $ 523
----------- ----- ------------
----------- ----- ------------
Pro forma net income per share (Note B)................... $ 0.23
------------
------------
Shares used in computation................................ 2,274,246
------------
------------
</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 $131,000 ($.06 per share) at January 1,
1996.
19
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ ADJUSTMENTS
VISTA PRO FORMA PRO FORMA FOR FOR THE
COMPANY STORES(A) ADJUSTMENTS ACQUISITIONS OFFERING PRO FORMA
----------- ----------- -------------- ------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales............................... $ 5,113 $ 779 $ 5,892 $ 5,892
Costs and expenses:
Cost of sales......................... 3,459 592 4,051 4,051
Depreciation and amortization......... 58 3 $ (3)(1) 64 64
6(1)
Selling, general and administrative... 1,322 133 -- 1,455 1,455
----------- ----- --- ------ --- ----------
Total costs and expenses................ 4,839 728 3 5,570 5,570
----------- ----- --- ------ --- ----------
Income from operations.................. 274 51 (3) 322 322
Interest expense and other, net......... 53 -- 14(2) 67 $ (39)(6) 28
Income before income taxes.............. 221 51 (17) 255 39 294
Pro forma provision for income taxes
(Note B).............................. 77 19 (6)(4) 90 14(7) 104
----------- ----- --- ------ --- ----------
Pro forma net income (Note B)........... $ 144 $ 32 $ (11) $ 165 $ 25 $ 190
----------- ----- --- ------ --- ----------
----------- ----- --- ------ --- ----------
Pro forma net income per share (Note
B).................................... $ .08
----------
----------
Shares used in computation.............. 2,342,424
</TABLE>
- ------------------------
Note A: The Vista Stores were acquired by the Company March 6 and 7, 1997. The
amounts shown for the Vista Stores are for the period January 1, 1997
to February 28, 1997.
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 $149,000 ($.06 per share) at January 1,
1997.
20
<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR THE
HISTORICAL OFFERING PRO FORMA
----------- ------------ -----------
<S> <C> <C> <C>
Current assets:
Cash...................................................................... $ 110 $ 3,125(5) $ 3,235
Accounts receivable....................................................... 2,051 2,051
Inventories............................................................... 3,986 3,986
Prepaid expenses.......................................................... 27 27
----------- ------------ -----------
Total current assets........................................................ 6,174 3,125 9,299
Deferred offering costs..................................................... 64 (64)(5)
Property and equipment, net................................................. 770 770
Intangibles, net............................................................ 1,342 1,342
----------- ------------ -----------
Total assets................................................................ $ 8,350 $ 3,061 $ 11,411
----------- ------------ -----------
----------- ------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft............................................................ $ 730 $ 730
Accounts payable.......................................................... 1,664 1,664
Accrued liabilities....................................................... 214 214
Notes payable............................................................. 2,129 $ (1,475)(5) 654
Current portion of long-term obligations.................................. 379 379
----------- ------------ -----------
Total current liabilities................................................... 5,116 (1,475) 3,641
Deferred income taxes....................................................... -- 149(8) 149
Long-term obligations....................................................... 1,338 (100)(5) 1,238
Shareholders' equity:
Common stock.............................................................. 11 12(5) 23
Additional paid-in capital................................................ 1,760 4,924(5)
(324)(9) 6,360
Retained earnings......................................................... 125 (149)(8)
(300)(5)
324(9) --
----------- ------------ -----------
Total shareholders' equity.................................................. 1,896 4,487 6,383
----------- ------------ -----------
Total liabilities and shareholders' equity.................................. $ 8,350 $ 3,061 $ 11,411
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
21
<PAGE>
ADJUSTMENTS TO PRO FORMA FINANCIAL STATEMENTS
ACQUISITIONS OF STORES:
(1) Adjust depreciation and amortization of acquired equipment and intangibles
to reflect new basis in acquired stores:
<TABLE>
<S> <C>
Eliminate historical depreciation of Vista and Farmington stores:
Year ended December 31, 1996.................................... $ 18,000
---------
---------
Three months ended March 31, 1997............................... $ 3,000
---------
---------
Provide depreciation and amortization on acquired bases in
equipment and intangibles:
Equipment--7 year life--purchase price allocated:
Vista stores.................................................. $ 60,000
Farmington store.............................................. $ 75,000
Other stores.................................................. $ 10,000
Intangibles--5 to 20 year life--purchase price allocated:
Vista stores.................................................. $ 390,000
Farmington store.............................................. $ 125,000
Other stores.................................................. $ 40,000
Year ended December 31, 1996:
Depreciation of equipment--
Vista stores.................................................. $ 9,000
Farmington store.............................................. 2,000
Other stores.................................................. 1,000
Amortization of intangibles--
Vista stores.................................................. 30,000
Farmington store.............................................. 2,000
Other stores.................................................. 4,000
---------
Total....................................................... $ 48,000
---------
---------
Three months ended March 31, 1997:
Vista stores
Depreciation of equipment..................................... $ 1,000
Amortization of intangibles................................... 5,000
---------
Total....................................................... $ 6,000
---------
---------
</TABLE>
(2) Provide for interest expense on debt issued in acquisitions:
<TABLE>
<CAPTION>
INTEREST
------------------------
ACQUISITIONS DEBT RATE ADJUSTMENTS
- ----------------------------------------------------------- ---------- ----------- -----------
<S> <C> <C> <C>
Vista stores............................................... $ 999,000 8.6% $ 86,000
Farmington store........................................... $ 662,000 9% 17,000
Other stores............................................... $ 601,000 10.3% 39,000
-----------
Year ended December 31, 1996............................... $ 142,000
-----------
-----------
Three months ended March 31, 1997:
(Vista stores)........................................... $ 14,000
-----------
-----------
</TABLE>
22
<PAGE>
(3) Record additional compensation expense related to management personnel (two
persons) converted from part-time to full-time positions to supervise stores
acquired in 1996 and 1997:
<TABLE>
<S> <C>
Annualized salary and bonus for 1996............................ $ 180,000
Actual compensation for 1996 (part-time employment basis)....... (83,000)
---------
$ 97,000
---------
---------
</TABLE>
(4) Adjust pro forma income taxes (at a rate of 35%) for acquisition
adjustments:
<TABLE>
<S> <C>
Year ended December 31, 1996.................................... $ 95,000
---------
---------
Three months ended March 31, 1997............................... $ 6,000
---------
---------
</TABLE>
THE OFFERING:
(5) Record the issuance of 1,200,000 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:
<TABLE>
<S> <C>
Estimated Offering proceeds..................................... $6,000,000
Estimated expenses of Offering.................................. 1,000,000
Estimated net proceeds of Offering.............................. 5,000,000
Repayment of existing indebtedness.............................. 1,575,000
Distributions to existing shareholders.......................... 300,000
---------
Estimated net cash proceeds..................................... $3,125,000
---------
---------
</TABLE>
(6) Reduce interest expense including pro forma amounts related to acquisitions
related to repayment of debt of $1,575,000 including $1,150,000 notes
payable, at prime + 2%; $325,000 note payable, at 8.5% and $100,000 note
payable, at prime + 4%:
<TABLE>
<S> <C>
Year ended December 31, 1996.................................... $ 168,000
---------
---------
Three months ended March 31, 1997............................... $ 39,000
---------
---------
</TABLE>
(7) Record income tax effects (at a rate of 35%) of adjustments:
<TABLE>
<S> <C>
Year ended December 31, 1996.................................... $ 56,000
---------
---------
Three months ended March 31, 1997............................... $ 14,000
---------
---------
</TABLE>
(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 March 31, 1997:
<TABLE>
<S> <C>
$ 149,000
---------
---------
</TABLE>
(9) Reclassify net accumulated deficit, after the Offering, as paid in capital
as a result of termination of Subchapter S election:
<TABLE>
<S> <C>
$ 324,000
---------
---------
</TABLE>
23
<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 evaluating a retail pharmacy
for potential acquisition, the Company (i) evaluates the target store's profits
and losses for preceding years; (ii) reviews the store's tax returns for
preceding years; (iii) reviews computer-generated prescription reports showing
historical information including prescriptions sold, average price of each
prescription, gross margins and trends in prescription sales; (iv) analyzes the
store's location and competition in the immediate area; (v) reviews the store's
lease agreement, if any; and (vi) assesses targeted areas for growth patterns
and trends. Based on the Company's analysis of the foregoing items, the Company
prepares an offer to purchase the particular store. To assess the reasonableness
of the purchase price offered by a seller, the Company considers the anticipated
rate of return, payback period, and the availability and terms of seller
financing, it being generally desired that 50% of the purchase price be
seller-financed with the balance split between cash and other consideration such
as Company stock.
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 80.0% of
the Company's net sales; in the first quarter of 1997, prescription drugs
generated 79.4% of sales. Management expects the Company's prescription drug
business to continue to increase on an annual basis 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.
24
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain income
statement data:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER THREE MONTHS ENDED
31, MARCH 31,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Prescription drugs................................................ 83.5% 80.0% 84.0% 79.4%
Other............................................................. 16.5% 20.0% 16.0% 20.6%
--------- --------- --------- ---------
Total net sales................................................. 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- ---------
--------- --------- --------- ---------
COSTS AND EXPENSES:
Cost of sales--prescription drugs(1).............................. 68.7% 69.5% 66.4% 69.2%
Cost of sales--other(2)........................................... 75.1% 62.3% 74.9% 61.7%
Selling, general and administrative expenses(3)................... 24.2% 26.4% 24.5% 25.9%
Depreciation and amortization(3).................................. 1.6% 1.3% 1.4% 1.1%
Interest expense(3)............................................... 1.8% 1.9% 1.8% 1.0%
PRO FORMA NET INCOME(3)(4).......................................... 1.8% 1.5% 3.0% 2.8%
</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.
The Company's historical operating results include the operating results of
the Vista Stores after these acquisitions in March 1997. In connection with the
acquisition of the Vista Stores, the Company acquired certain accounts
receivable, supplies, furniture, fixtures and equipment, as well as intangible
assets including pharmacy files and goodwill. In consideration for the purchase
of such assets the Company paid $100,000 (proceeds from a note payable to a
shareholder) and executed a promissory note in the amount of $898,642 payable in
varying installments until December 25, 1997 and bearing interest at 8.5% per
year. Historically, the Vista Stores have had positive operating results,
recognizing net sales of $4,229,000 in 1996 and pro forma net income in 1996 of
$268,000. The Company expects that the Vista Stores will increase the Company's
income from operations, however, the extent to which the Vista Stores may
contribute is uncertain and there can be no assurance that such stores will
actually operate at a profit.
Intangible assets, including but not limited to goodwill, pharmacy files and
non-compete covenants, have historically represented a substantial portion of
the Company's acquisition costs. Such assets are generally amortized over a
period of not more than 20 years. Accordingly, the amortization of intangible
assets is not expected to have a significant effect on the Company's future
results of operations.
NET SALES
The Company's total net sales increased $2,746,667 or 116%, to $5,113,247 in
the first quarter of 1997 compared to $2,366,580 in the first quarter of 1996.
The increase was attributable primarily to the increase in store operating
months from 21 in the first quarter of 1996 to 36 in the first quarter of 1997.
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 $5,280,107, or 101% to
$10,515,353 for 1996 compared to $5,235,246 for 1995 and by $2,071,832, or 104%
to $4,060,266 for the first quarter of 1997 compared to $1,988,434 in the first
quarter of 1996. Third-party reimbursed sales accounted for approximately 52% of
25
<PAGE>
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 as well as in the first quarter of 1997.
The following tables show the Company's prescription drug gross margins and
total sales margins for 1995, 1996 and the first quarters of 1996 and 1997:
<TABLE>
<CAPTION>
GROSS MARGINS ON GROSS MARGINS ON
PRESCRIPTION DRUG SALES TOTAL SALES
--------------------------- ---------------------------
YEAR AMOUNT PERCENTAGE AMOUNT PERCENTAGE
- -------------------------------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
1996.................................. $ 3,205,973 30.5% $ 4,194,614 31.9%
1995.................................. 1,639,956 31.3% 1,897,774 30.3%
<CAPTION>
GROSS MARGINS ON GROSS MARGINS ON
PRESCRIPTION DRUG SALES TOTAL SALES
--------------------------- ---------------------------
FIRST QUARTER AMOUNT PERCENTAGE AMOUNT PERCENTAGE
- -------------------------------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
1997.................................. $ 1,251,008 30.8% $ 1,654,743 32.4%
1996.................................. 668,152 33.6% 763,068 32.2%
</TABLE>
Sales of prescription drugs decreased from 83.5% of total sales for 1995 to
80.0% of total sales for 1996 and from 84.0% of total sales for the first
quarter of 1996 to 79.4% for the first quarter of 1997. 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.
Same store sales, which includes only the first three stores acquired by the
Company, decreased from $3,344,552 in 1995 to $3,265,627 in 1996. Management
believes the decrease is not representative of Company-wide sales because of the
small size of the comparison sample and the three stores subject to the
comparison are among the smallest stores in the Company's chain. Same store
sales for the Company's first seven stores increased from $2,366,580 in the
first quarter of 1996 to $2,558,755 in the first quarter of 1997. Management
believes that this 8.12% increase is primarily the result of increased
advertising and promotions as well as an enhanced product mix.
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. For the first quarter of 1997, the cost of sales
increased $1,854,992, or 116%, to $3,458,504 as compared to $1,603,512 in the
first quarter of 1996. These increases are primarily the result of increased
sales volume due to the increased number of store operating months for the
respective periods. Cost of total sales as a percentage of total sales decreased
1.6% from 1995 to 1996 and .2% for the first quarter of 1997 from the first
quarter of 1996. These decreases are 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 and from $580,035 in the first quarter of 1996 to
$1,322,381 in the first quarter of 1997 are 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, and 25.9%
and 24.5% for the first quarters of 1997 and 1996, respectively. These
percentage increases in expense were 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. Salary and
bonus expenses will increase as a result of the execution of the Employment
Agreements between the Company and Messrs. Frauhiger,
26
<PAGE>
Herr, McCord, Mueller and Shahid, and Ms. Papaneri, respectively. The Company
expects that such increases in salary and bonus costs will be offset by the
expected increase in revenues associated with the Company's planned acquisition
of additional retail pharmacy stores.
Interest expense was $252,767 in 1996 compared to $109,828 in 1995 and
$53,531 in the first quarter of 1997 compared to $42,660 in the first quarter of
1996. 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.
Because the Company has historically operated as an S Corporation, it has
not heretofore incurred any income taxes. As a result of the termination of its
S Corporation election in connection with this Offering, the Company will be a
taxpaying entity, and will be subject to the payment of taxes on all non-exempt
income at applicable Federal and state income tax rates.
EARNINGS
Pro forma net income for 1996 rose to $196,353 from $114,629 in 1995, and
continued to increase from $71,515 in the first quarter of 1996 to $143,528 in
the first quarter of 1997. Because the Company has maintained S corporation
status since 1994, no income taxes have been included in the determination of
historical net income.
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 accounts receivable 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 $750,000 of the
proceeds from the Offering designated for working capital.
The Company will have available approximately $2,375,000 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, the Company has had discussions with Plano Bank and
Trust, Plano, Texas with regard to a $2,000,000 credit facility which would be
provided to the Company upon completion of the Offering. Although the terms of
the proposed credit facility have not yet been negotiated, nor approved by Plano
Bank and Trust, such terms may include restrictive covenants such as financial
ratio requirements with which the Company would have to comply to maintain the
credit facility. No funds have been borrowed under this credit facility. In the
event the Company does not obtain the credit facility, the Company will modify
or reduce its acquisition schedule. While management does not expect that the
failure to obtain the credit facility would adversely affect the Company's cash
flow, there can be no assurance that cash flow would not be affected.
Based on the foregoing and with the expected $2,375,000 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 will be
sufficient to support the ongoing acquisition activities of the business for
approximately 12 to 18 months, although there can be no assurance that such
proceeds will be adequate to support the Company's acquisitions during such
period.
27
<PAGE>
The Company expects to fund ongoing acquisitions after 1997 with proceeds from
this Offering, income from current operations, seller financing of acquisitions
and possible future equity offerings.
In addition, management expects to convert, during the next 12 to 18 months,
between two and three of its existing stores to "healthcare centers." Management
expects to incur a minimum of $20,000 to $40,000 in conversion costs per store.
The costs of such conversion are expected to be funded from operations.
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.
28
<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 April 28, 1997 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 was formed by Messrs. Frauhiger, Herr, McCord and Shahid who
each were employed by True Quality Pharmacies, Inc. ("True Quality") at the time
of the Company's formation. Mr. McCord also served on the Board of Directors of
True Quality prior to the Company's formation. Although for a period of time
following their departure from True Quality Messrs. Frauhiger, Herr, McCord and
Shahid continued as part-time employees of True Quality as a means of easing the
transition for their successors, and the Company has acquired three pharmacies
from True Quality, there is no continuing business relationship between True
Quality and the Company or its management.
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 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 and in April 1997 formed a wholly-owned subsidiary named HORIZON Home
Care, Inc.
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.
29
<PAGE>
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 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.
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<PAGE>
HORIZON PHARMACIES
As of May 29, 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.
<TABLE>
<CAPTION>
STORE LOCATIONS YEAR ACQUIRED
- ----------------------------------------------------------- ---------------
<S> <C>
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
</TABLE>
- ------------------------
* Indicates home healthcare services offered.
** Indicates the Company has submitted 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, drug interactions 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 approximately 3,600 to 12,000 square feet
and are located primarily in neighborhood strip shopping centers or free
standing locations in communities 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.
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<PAGE>
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 acquiring 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 two 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. As part
of its regulatory function, the FTC occasionally mandates the divestiture of
certain retail pharmacies, generally in connection with its approval of a merger
or acquisition of two companies which each own a group of pharmacies.
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 80% 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. 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
32
<PAGE>
brand over-the-counter 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. In April
1997, the Company formed HORIZON Home Care, Inc. as its wholly-owned subsidiary.
The Company has applied 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) DME; (iii) patient
services, including nursing and para-professional services; and (iv) 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
33
<PAGE>
(the administration of pain controlling drugs such as morphine and Demerol to
terminally or chronically ill patients); and other therapies.
STORE OPERATIONS
The Company's current stores are generally located in free-standing stores
or in strip 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 approximately 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 generally 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 stores 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 for the purpose of 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
34
<PAGE>
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.
GOVERNMENTAL REGULATION AND HEALTHCARE REFORM
GENERAL. 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 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.
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 healthcare system, either nationally or at the state
level. The Company cannot predict whether any Federal or state healthcare 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 healthcare
reform expands the number of persons receiving healthcare 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 healthcare 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.
35
<PAGE>
The Company's operations are also subject to Federal and state laws
governing such matters as wages, working conditions and overtime.
TEXAS LEGISLATION. Currently, nine of the Company's 14 retail pharmacies
are located in Texas, and other retail pharmacies located in Texas may be
acquired by the Company. Consequently, the Company may be affected by any
significant healthcare legislative proposals enacted in the state of Texas. The
Texas legislature is considering a proposal which would reduce Medicaid
reimbursements to Texas pharmacies by 5% in anticipation of a Federal reduction
in Medicaid pharmacy payments. While any such reductions would affect the
Company's Medicaid reimbursements, management believes that the Company's
overall revenues and profitability will not be materially adversely affected,
although there can be no assurance that revenues or profitability will not be
affected by any such legislation.
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
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 recently filed applications
for Federal trademark protection of such trade names.
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.
36
<PAGE>
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.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------- --- --------------------------------------------------------------------------
<S> <C> <C>
Rick D. McCord, R.Ph.(1) 42 Chairman of the Board of Directors, President, Chief Operating Officer
Sy S. Shahid(2) 46 Director, Executive Vice President, Secretary
David W. Frauhiger(2) 35 Director, Chief Financial Officer, Treasurer
Charlie K. Herr, R.Ph.(1) 57 Director, Southern Regional Manager
Carson A. McDonald(3) 37 Director
Robert D. Mueller, R.Ph.(2) 39 Director, Western Regional Manager
Philip H. Yielding(3) 38 Director
</TABLE>
- ------------------------
(1) Class III Director whose term expires in 2000.
(2) Class II Director whose term expires in 1999.
(3) Class I Director nominee whose term, if elected, will expire in 1998.
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, acting part time from February 1994 through June 1996
and full-time thereafter, and as Chief Financial Officer since March 1997. Mr.
Frauhiger served as the full-time controller for True Quality Pharmacies, Inc.
from June 1991 to March 1996, and as the part-time controller from March 1996
until April 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.
37
<PAGE>
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 December 1995. 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.
CARSON A. MCDONALD is a nominee for Director. From 1980 to the present, Mr.
McDonald has been employed by Bergen Brunswig in various capacities, acting as
Division Sales Manager since 1993. Bergen Brunswig is currently the Company's
primary supplier and a creditor of the Company. See "Certain Transactions."
PHILIP H. YIELDING is a nominee for Director. Mr. Yielding has served as a
physician's assistant and a director of the Wilson and Jones Health Center since
January 1995. From August 1991 through December 1994, Mr. Yielding was employed
by the Farmersville Medical Center; from October 1989 to August 1991 he was
employed by the Mitchell Family Care Center; and from August 1988 to October
1989 he was employed by the McKellar Clinic, serving as a physician's assistant
for each center and as director of the Farmersville Medical Center.
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 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 which will be filled at the Company's upcoming
shareholders' meeting.
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.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------
NAME YEAR SALARY BONUS
- ---------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Rick D. McCord.................................................. 1996 $ 64,172 $ 25,334
</TABLE>
38
<PAGE>
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.
<TABLE>
<CAPTION>
SHARES ACQUIRED VALUE
NAME ON EXERCISE (#) REALIZED
- ----------------------------------------------------------------- --------------- ----------
<S> <C> <C>
Rick D. McCord................................................... 50,000 $ 225,000
</TABLE>
DIRECTORS' COMPENSATION
Directors who are not employees 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").
Under the 1997 Stock Option Plan, the Company has reserved 10% of its
outstanding Common Stock (246,242 shares of Common Stock in the event the
Underwriters' overallotment option is exercised in full) 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 the greater of $5.00 per share or 85%
of the fair market value of the Company's Common Stock at the date such options
are granted.
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, NQSO's and ISO's will be granted with an exercise
price of not less than 85% of the "Fair Market Value" (as defined in the 1997
Stock Option Plan) on the date of grant and ISO's will be granted with an
exercise price of not less than the Fair Market Value on the date of grant. In
the case of ISO's, the aggregate value of option shares which can become
exercisable for the first time during any one calendar year is limited to
$100,000, and ISO's
39
<PAGE>
granted to an employee who possesses more than 10% of the total combined voting
power of all classes of stock of the Company may not be exercised unless the
exercise price is at least 110% of the fair market value of the Common Stock on
the date the options were granted. 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. Each of the Employment Agreements may be terminated without cause by
the Company upon 90 days written notice. 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
$97,518 and an annual bonus of $19,503; 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. Each agreement contains a provision
prohibiting the Employee subsequent to termination of employment from disclosing
to third parties proprietary information relating to the Company. A state court
charged with enforcing any of the referenced Employment Agreements may determine
that such non-competition provisions are not enforceable in whole or in part.
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,
40
<PAGE>
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
Carson A. McDonald, a nominee for director of the Company, is an employee of
Bergen Brunswig, the Company's primary supplier and a lender to the Company.
Approximately $1.15 million of the proceeds of this Offering are expected to be
used to repay the principal owing under loans made to the Company by Bergen
Brunswig.
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.
41
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information as of May 29, 1997 assuming the
proposed 2-for-1 stock split, and as adjusted to reflect the sale of the
1,200,000 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>
<CAPTION>
PERCENT BENEFICIALLY OWNED(1)
-----------------------------
NAME AND ADDRESS BEFORE AFTER
OF BENEFICIAL HOLDER NUMBER OF SHARES OFFERING OFFERING
- -------------------------------------------- ----------------- -------------- -------------
<S> <C> <C> <C>
Rick D. McCord, R.Ph.(2).................... 221,740 20.48% 9.71%
Charlie K. Herr, R.Ph.(2)................... 211,426 19.53% 9.26%
Sy S. Shahid(2)............................. 209,748 19.38% 9.19%
David W. Frauhiger(2)....................... 70,000 6.47% 3.07%
Robert D. Mueller, R.Ph.(2)................. 28,438 2.63% 1.25%
Carson A. McDonald(3)....................... -0- -- --
Philip H. Yielding(4)....................... -0- -- --
Directors and executive officers as a group
(seven persons)........................... 741,352 68.49% 32.48%
</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.
(3) Director nominee; address is c/o Bergen Brunswig Drug Co., 1841 Monetary
Lane, Carrollton, Texas 75006.
(4) Director nominee; address is c/o Wilson and Jones Health Center, 1000 S FM
1417, Sherman, Texas 75092.
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 were held of record by 29 shareholders, and no shares of
Preferred Stock were issued and outstanding. A total of 246,242 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
42
<PAGE>
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.
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.
The Board of Directors does not currently have any plans, arrangements,
commitments or understandings to issue any Preferred Stock.
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 Bylaws provide that: (i) the Board of
Directors is divided into three classes of as equal size as possible, with such
classes serving staggered three-year terms; (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.
43
<PAGE>
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 &
Trust, Inc.
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 2,282,424
shares of Common Stock. Of these shares all of the 1,200,000 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 became 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 228,420 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 became 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.
44
<PAGE>
As of the date of this prospectus, the Company had reserved an aggregate of
246,242 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.
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.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Capital West...............................................................
-----------------
Total.................................................................... 1,200,000
-----------------
-----------------
</TABLE>
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 six public equity
offerings as an underwriter, acting as a manager or co-manager in three such
offerings, 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 180,000 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
45
<PAGE>
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 of the Underwriters' Warrants, one demand registration right during the
Exercise Period, as well as piggyback registration rights at any time during the
Exercise Period. 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.
In order to facilitate the Offering, certain persons participating in the
Offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the Common Stock during and after the Offering. Specifically, the
Underwriters may over-allot or otherwise create a short position in the Common
Stock for their own account by selling more shares of Common Stock than have
been sold to them by the Company. The Underwriters may elect to cover any such
short position by purchasing shares of Common Stock in the open market or by
exercising the over-allotment option granted to the Underwriters. In addition,
such persons may stabilize or maintain the price of the Common Stock by bidding
for or purchasing shares of Common Stock in the open market and may impose
penalty bids, under which selling concessions allowed to syndicate members or
other broker-dealers participating in the Offering are reclaimed if shares of
Common Stock previously distributed in the Offering are repurchased in
connection with stabilizing transactions or otherwise. The effect of these
transactions may be to stabilize or maintain the market price of the Common
Stock at a level above that which might otherwise prevail in the open market.
The imposition of a penalty bid may also affect the price of the Common Stock to
the extent that it discourages resales thereof. No representation is made as to
the magnitude or effect of any such stabilization or other transactions. Such
transactions, if commenced, may be discontinued at any time.
46
<PAGE>
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.
On March 17, 1997, Ernst & Young LLP replaced Herold, Howard & Madsen P.C.
as the Company's independent auditors. In the Company's view, this change was
not the result of any disagreement relating to any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedures. The reports issued by Herold, Howard & Madsen P.C. did not contain
an adverse opinion or a disclaimer of opinion, nor were such reports qualified
or modified as to uncertainty, audit scope, or accounting principles. At no time
during the engagement of Herold, Howard & Madsen P.C. were there any
disagreements on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of Herold, Howard & Madsen P.C., would have caused
it to make a reference to the subject matter of the disagreement in connection
with its report. Notwithstanding the engagement of Ernst & Young LLP as the
Company's independent auditors, Herold, Howard & Madsen P.C. continues to
perform individual audits of certain acquired stores and to perform tax and
other financial planning for the Company.
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. 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
47
<PAGE>
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.
48
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
FINANCIAL STATEMENTS OF HORIZON PHARMACIES, INC...................................... F-2
Report of Independent Auditors..................................................... F-3
Independent Auditor's Report....................................................... F-4
Balance Sheets at December 31, 1996 and March 31, 1997............................. F-5
Statements of Income for the years ended December 31, 1995 and 1996 and the three
months ended March 31, 1996 and 1997............................................. F-6
Statements of Shareholders' Equity for the years ended December 31, 1995 and 1996
and the three months ended March 31, 1997........................................ F-7
Statements of Cash Flows for the years ended December 31, 1995 and 1996 and the
three months ended March 31, 1996 and 1997....................................... F-8
Notes to Financial Statements...................................................... F-10
FINANCIAL STATEMENTS OF MESA DRUG, INC.--FARMINGTON STORE............................ F-17
Report of Independent Auditors..................................................... F-18
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-19
Notes to Financial Statements...................................................... F-20
FINANCIAL STATEMENTS OF TRUE QUALITY PHARMACIES, INC.--VISTAS........................ F-21
Report of Independent Auditors..................................................... F-22
Combined Statements of Operating Revenues and Direct Operating Expenses for the
years ended December 31, 1995 and 1996........................................... F-23
Combined Statement of Net Assets as of March 6, 1997............................... F-24
Notes to Financial Statements...................................................... F-25
</TABLE>
F-1
<PAGE>
FINANCIAL STATEMENTS
HORIZON PHARMACIES, INC.
YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THREE MONTHS ENDED MARCH 31, 1996 AND 1997
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 third and fourth paragraphs of Note 6, as to which the date is
May , 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
May 30, 1997
F-3
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
HORIZON Pharmacies, Inc.
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 May , 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
May 30, 1997
F-4
<PAGE>
HORIZON PHARMACIES, INC.
BALANCE SHEETS
ASSETS (NOTES 3 AND 4)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
<S> <C> <C>
(UNAUDITED)
Current assets:
Cash................................................................................ $ 153,260 $ 109,699
Accounts receivable, net of allowance for uncollectible accounts of $20,000 in 1996
and $25,000 in 1997:
Third-party providers........................................................... 1,047,348 1,439,493
Others.......................................................................... 412,709 611,229
Inventories, at the lower of specific identification cost or market................. 3,290,717 3,985,876
Prepaid expenses.................................................................... 31,071 27,082
------------ -----------
Total current assets.................................................................. 4,935,105 6,173,379
Deferred offering costs............................................................... -- 63,850
Property, equipment and capital lease assets:
Property and equipment, at cost:
Land.............................................................................. 10,000 10,000
Building.......................................................................... 193,220 193,220
Equipment......................................................................... 410,162 477,980
------------ -----------
613,382 681,200
Less accumulated depreciation....................................................... 67,253 85,222
------------ -----------
Property and equipment, net......................................................... 546,129 595,978
Equipment under capital leases...................................................... 158,339 218,033
Less accumulated amortization....................................................... 33,884 44,158
------------ -----------
Equipment under capital leases, net................................................. 124,455 173,875
------------ -----------
Property, equipment and capital lease assets, net..................................... 670,584 769,853
Intangibles, at cost (NOTE 2):
Noncompete covenants................................................................ 146,788 146,788
Customer lists...................................................................... 211,605 279,996
Goodwill............................................................................ 814,107 1,135,716
------------ -----------
1,172,500 1,562,500
Less accumulated amortization....................................................... 189,417 219,869
------------ -----------
Intangibles, net...................................................................... 983,083 1,342,631
------------ -----------
$6,588,772 $8,349,713
------------ -----------
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft...................................................................... $ 247,759 $ 730,239
Accounts payable.................................................................... 1,491,789 1,664,186
Accrued liabilities................................................................. 161,365 214,396
Notes payable:
Supplier (NOTE 3)................................................................. 1,215,000 1,180,000
Other (NOTE 2).................................................................... -- 898,642
Shareholder (NOTE 2).............................................................. -- 50,000
Current portion of long-term debt (NOTE 4).......................................... 228,759 332,268
Current obligations under capital leases (NOTE 5)................................... 27,400 46,680
------------ -----------
Total current liabilities............................................................. 3,372,072 5,116,411
Long-term debt (NOTE 4)............................................................... 1,363,858 1,205,101
Obligations under capital leases (NOTE 5)............................................. 102,769 132,600
Commitments (NOTE 5)
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 10,824
Additional paid-in capital.......................................................... 1,760,303 1,760,303
Retained earnings (accumulated deficit)............................................. (21,054) 124,474
------------ -----------
Total shareholders' equity............................................................ 1,750,073 1,895,601
------------ -----------
$6,588,772 $8,349,713
------------ -----------
------------ -----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
HORIZON PHARMACIES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- --------------------------
1995 1996 1996 1997
------------ ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales:
Prescription drugs.................................... $ 5,235,246 $ 10,515,353 $ 1,988,434 $ 4,060,266
Other................................................. 1,034,335 2,620,966 378,146 1,052,981
------------ ------------- ------------ ------------
Total net sales......................................... 6,269,581 13,136,319 2,366,580 5,113,247
Costs and expenses:
Cost of sales:
Prescription drugs.................................. 3,595,290 7,309,380 1,320,282 2,809,258
Other............................................... 776,517 1,632,325 283,230 649,246
Depreciation and amortization:
Property, equipment and capital lease assets........ 32,305 64,058 9,361 28,244
Intangibles......................................... 67,412 107,749 22,657 30,452
Selling, general and administrative expenses.......... 1,519,439 3,471,370 580,035 1,322,381
------------ ------------- ------------ ------------
Total costs and expenses................................ 5,990,963 12,584,882 2,215,565 4,839,581
------------ ------------- ------------ ------------
Income from operations.................................. 278,618 551,437 151,015 273,666
Other income (expense):
Interest and other income............................. 6,839 3,683 1,160 393
Interest expense...................................... (109,828) (252,767) (42,660) (53,531)
------------ ------------- ------------ ------------
Total other income (expense)............................ (102,989) (249,084) (41,500) (53,138)
------------ ------------- ------------ ------------
Income before pro forma provision for income taxes...... 175,629 302,353 109,515 220,528
Pro forma provision for income taxes.................... 61,000 106,000 38,000 77,000
------------ ------------- ------------ ------------
Pro forma net income.................................... $ 114,629 $ 196,353 $ 71,515 $ 143,528
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
Pro forma net income per share (Note 6)................. $ .12 $ .18 $ .07 $ .13
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
Weighted average shares outstanding (Note 6)............ 957,733 1,074,246 1,058,000 1,142,424
</TABLE>
See accompanying notes.
F-6
<PAGE>
HORIZON PHARMACIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (NOTE 6)
<TABLE>
<CAPTION>
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
Net income (unaudited)........................ -- -- -- 220,528 220,528
Distributions to shareholders
(unaudited)................................. -- -- -- (75,000) (75,000)
---------- --------- ------------ ------------ -------------
Balance at March 31, 1997 (unaudited)......... 1,082,424 $ 10,824 $ 1,760,303 $ 124,474 $ 1,895,601
---------- --------- ------------ ------------ -------------
---------- --------- ------------ ------------ -------------
</TABLE>
See accompanying notes.
F-7
<PAGE>
HORIZON PHARMACIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- -----------------------
1995 1996 1996 1997
------------ ------------ ---------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED)
OPERATING ACTIVITIES
Income before pro forma provision for income taxes.......... $ 175,629 $ 302,353 $ 109,515 $ 220,528
Adjustments to reconcile income before pro forma provision
for income taxes to net cash provided by operating
activities:
Depreciation and amortization of property, equipment and
capital lease assets.................................... 32,305 64,058 9,361 28,244
Amortization of intangibles............................... 67,412 107,749 22,657 30,452
Provision for uncollectible accounts receivable........... 19,876 21,241 2,084 5,598
Changes in operating assets and liabilities, net of
acquisitions of businesses:
Accounts receivable................................... (415,094) (847,494) 63,357 (529,881)
Inventories........................................... (199,330) (716,553) (106,976) (212,899)
Prepaid expenses...................................... (27,495) 4,302 17,143 3,989
Bank overdraft........................................ 130,830 116,929 (6,737) 482,480
Accounts payable...................................... 477,990 888,348 200 172,397
Accrued liabilities................................... 25,396 108,523 15,895 53,031
------------ ------------ ---------- -----------
Total adjustments........................................... 111,890 (252,897) 16,984 33,411
------------ ------------ ---------- -----------
Net cash provided by operating activities................... 287,519 49,456 126,499 253,939
INVESTING ACTIVITIES
Purchases of property and equipment......................... (33,129) (156,625) (5,161) (7,819)
Proceeds from sales of property and equipment............... -- -- 5,557 --
Assets acquired for cash in acquisitions of businesses...... (545,000) -- -- --
------------ ------------ ---------- -----------
Net cash provided by (used in) investing activities......... (578,129) (156,625) 396 (7,819)
FINANCING ACTIVITIES
Borrowings on notes payable................................. -- 210,535 300,000 --
Borrowings on long-term debt................................ 24,120 -- -- --
Principal payments on notes payable......................... -- (35,000) -- (85,000)
Principal payments on long-term debt........................ (128,869) (180,643) (33,224) (55,248)
Principal payments on obligations under capital
leases.................................................... (5,562) (18,716) (2,680) (10,583)
Proceeds from sale of stock................................. 747,164 402,120 -- --
Payments for deferred offering costs........................ -- -- -- (63,850)
Distributions to shareholders............................... (260,000) (253,500) (60,000) (75,000)
------------ ------------ ---------- -----------
Net cash provided by (used in) financing activities......... 376,853 124,796 204,096 (289,681)
------------ ------------ ---------- -----------
Net increase (decrease) in cash............................. 86,243 17,627 330,991 (43,561)
Cash at beginning of period................................. 49,390 135,633 135,633 153,260
------------ ------------ ---------- -----------
Cash at end of period....................................... $ 135,633 $ 153,260 $ 466,624 $ 109,699
------------ ------------ ---------- -----------
------------ ------------ ---------- -----------
</TABLE>
PAGE)
F-8
<PAGE>
HORIZON PHARMACIES, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- -----------------------
1995 1996 1996 1997
------------ ------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF INTEREST PAID.................... $ 106,828 $ 240,767 $ 39,660 $ 53,531
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 -- 59,694
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 -- -- --
Acquisitions of businesses financed by debt:
Accounts receivable and other............................. 24,967 (1,793) -- 66,382
Inventories............................................... 801,000 1,014,247 -- 482,260
Property and equipment.................................... 140,000 85,000 -- 60,000
Intangibles............................................... 638,000 165,000 -- 390,000
------------ ------------ ---------- -----------
1,603,967 1,262,454 -- 998,642
Less cash paid............................................ (545,000) -- -- --
------------ ------------ ---------- -----------
------------ ------------ ---------- -----------
Assets acquired........................................... $ 1,058,967 $ 1,262,454 $ -- $ 998,642
------------ ------------ ---------- -----------
------------ ------------ ---------- -----------
Financed by:
Notes payable............................................. $ 400,000 $ 639,465 $ -- $ 898,642
Advance by shareholder.................................... -- -- -- 100,000
Long-term debt............................................ 658,967 622,989 -- --
------------ ------------ ---------- -----------
$ 1,058,967 $ 1,262,454 $ -- $ 998,642
------------ ------------ ---------- -----------
------------ ------------ ---------- -----------
</TABLE>
See accompanying notes.
F-9
<PAGE>
HORIZON PHARMACIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
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
At March 31, 1997, the Company owns and operates fourteen retail pharmacies
located in five states (NOTE 2), including nine pharmacies located in Texas.
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 and $1,180,000 at March 31, 1997 (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 and receivables from individuals. Receivables from
third-party providers are recorded net of any allowances provided under the
respective payment plans. Since payments due from third-party payers are
sensitive to payment criteria changes and legislative actions, the allowances
are 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 whenever events or changes in
circumstances indicate that the carrying amounts of intangibles may not be
recoverable, based upon expectations of undiscounted future cash flows.
F-10
<PAGE>
HORIZON PHARMACIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING 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 historical 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.
The pro forma provision for income taxes included in the accompanying
statements of income are based on an estimated effective tax rate of 35% and are
presented as though the Company was required to pay income taxes in the periods
presented.
DEFERRED OFFERING COSTS
Specific incremental costs directly attributable to a proposed initial
public offering of common stock (the "Offering") have been deferred and will be
charged against the gross proceeds of the Offering or charged to expense if the
Offering is aborted.
UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited financial statements include all adjustments,
consisting of normal, recurring accruals, which the Company considers necessary
for a fair presentation of the financial position and the results of operations
for the indicated periods. The results of operations for the three months ended
March 31, 1997, are not necessarily indicative of the results to be expected for
the full year ending December 31, 1997. The Company's sales and earnings are
higher during peak holiday periods and from Christmas through Easter (the first
and fourth quarters of the calendar year). Estimated gross profit rates were
used to determine cost of sales for the three months ended March 31, 1996 and
1997.
PRO FORMA NET INCOME PER SHARE
Pro forma net income per share is based upon the weighted average number of
shares of common stock and dilutive common stock equivalent shares outstanding
during each period (NOTE 6) adjusted in all periods presented for the effect of
the exercise of stock options in 1996 at less than the expected price of shares
in the proposed Offering and the number of shares of stock required to pay
proposed distributions of $300,000 to shareholders from the proceeds of the
Offering.
F-11
<PAGE>
HORIZON PHARMACIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share," which is required to be adopted by the Company in the
reporting period ending December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements for calculating basic
earnings per share, the dilutive effect of stock options will be excluded. The
Company has determined the impact of SFAS 128 on the calculation of net income
per share would not be material.
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>
<CAPTION>
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, incremental interest expense resulting
from borrowings to fund the acquisitions and income taxes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
Unaudited pro forma information:
Net sales.................................................... $ 16,177,000 $ 17,904,000
------------- -------------
------------- -------------
Net income................................................... $ 121,000 $ 281,000
------------- -------------
------------- -------------
Net income per share......................................... $ .13 $ .26
</TABLE>
In March 1997, the Company acquired from a third party 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 unsecured 13% demand note to a shareholder of $100,000 ($50,000 repaid by
March 31, 1997) and the issuance of a 8.5% note payable to the seller for
$898,642. The note to the seller is secured by the assets acquired and
guarantees by certain shareholders and is due in varying installments until
December 25, 1997.
F-12
<PAGE>
HORIZON PHARMACIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS (CONTINUED)
The following unaudited pro forma results of operations data gives effect to
the acquisition completed in March 1997 as if the transaction had been
consummated as of January 1, 1996 and 1997. 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, 1996 and 1997, respectively, or of future
results of operations. The data reflects adjustments for amortization of
intangibles resulting from the purchase, incremental interest expense resulting
from borrowing to fund the acquisition and income taxes.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
Unaudited pro forma information:
Net sales....................................................... $ 3,463,000 $ 5,892,000
------------ ------------
------------ ------------
Net income...................................................... $ 94,000 $ 165,000
------------ ------------
------------ ------------
Net income per share............................................ $ .09 $ .14
</TABLE>
3. NOTES PAYABLE TO SUPPLIER
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 principally 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 to supplier consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ ------------
<S> <C> <C>
Note A due on demand, plus interest at a specified bank's prime
rate plus 2% (10.25% at December 31, 1996)..................... $ 550,000 $ 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)..................... 665,000 630,000
------------ ------------
$1,215,000 $ 1,180,000
------------ ------------
------------ ------------
</TABLE>
F-13
<PAGE>
HORIZON PHARMACIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ ------------
<S> <C> <C>
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 $ 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 1,437,369
------------ ------------
1,592,617 1,537,369
Less current portion of long-term debt........................... 228,759 332,268
------------ ------------
Long-term debt................................................... $1,363,858 $ 1,205,101
------------ ------------
------------ ------------
</TABLE>
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.
F-14
<PAGE>
HORIZON PHARMACIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. LEASES (CONTINUED)
At December 31, 1996, the future minimum lease payments under operating and
capital leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR LEASES LEASES
- ---------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
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
----------
----------
</TABLE>
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 approved the 1997 Stock Option Plan
(the "Plan"). The Plan was amended by the Board of Directors and was approved by
the shareholders on May , 1997. Options for up to 10% of the Company's
outstanding shares of common stock may be granted until March 2007 to key
employees and directors at prices 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 May , 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.
F-15
<PAGE>
HORIZON PHARMACIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. 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-16
<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-17
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
HORIZON Pharmacies, Inc.
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-18
<PAGE>
MESA DRUG, INC.--FARMINGTON STORE
STATEMENTS OF OPERATING REVENUES AND DIRECT OPERATING EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM JANUARY 1,
DECEMBER 31, 1995 1996 TO APRIL 26, 1996
----------------- --------------------------
<S> <C> <C>
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 --
Depreciation..................................................... 51,293 8,324
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........................................... 1,049,889 307,129
----------------- -----------
Operating profit................................................... $ 200,621 $ 113,808
----------------- -----------
----------------- -----------
</TABLE>
See accompanying notes.
F-19
<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 two 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. The financial
statements represent the operations of the retail pharmacy prior to the sale to
HORIZON Pharmacies, Inc. ("HORIZON"). HORIZON purchased the business, including
various assets, on April 27, 1996. Expenses relating to income taxes, interest
and executive compensation are not included because they are not directly
related to the sale.
DEPRECIATION
Depreciation is provided on a straight-line basis over the estimated life of
the assets. In these financial statements, depreciation is included only for
those assets to be sold to HORIZON.
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-20
<PAGE>
FINANCIAL STATEMENTS
TRUE QUALITY PHARMACIES, INC.--VISTAS
AS OF MARCH 6 AND 7, 1997
YEARS ENDED DECEMBER 31, 1995 AND 1996
WITH REPORT OF INDEPENDENT AUDITORS
F-21
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
HORIZON Pharmacies, Inc.
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 and 7, 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 and 7, 1997.
HEROLD, HOWARD & MADSEN P.C.
Dallas, Texas
March 28, 1997
F-22
<PAGE>
TRUE QUALITY PHARMACIES, INC.--VISTAS
COMBINED STATEMENTS OF OPERATING REVENUES
AND DIRECT OPERATING EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
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
Depreciation...................................................................... 10,440 9,628
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............................................................ 776,629 793,927
------------ ------------
Operating profit.................................................................... $ 474,617 $ 414,174
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-23
<PAGE>
TRUE QUALITY PHARMACIES, INC.--VISTAS
COMBINED STATEMENT OF NET ASSETS SOLD
<TABLE>
<CAPTION>
MARCH 6
AND 7,
1997
----------
<S> <C>
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
----------
----------
</TABLE>
See accompanying notes.
F-24
<PAGE>
TRUE QUALITY PHARMACIES, INC.--VISTAS
NOTES TO THE FINANCIAL STATEMENTS
AS OF MARCH 6 AND 7, 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 fourteen retail pharmacies
located in Texas, Oklahoma and Kansas. The financial statements presented
include only 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.
("HORIZON"). The financial statements represent the operations of the retail
pharmacies prior to the sale. HORIZON purchased the business, including various
assets on March 6 and 7, 1997. Expenses relating to income taxes, interest and
executive compensation are not included because they are not directly related to
the sale.
DEPRECIATION
Depreciation is provided on a straight-line basis over the estimated useful
life of the assets. In these financial statements, depreciation is only included
for those assets to be sold to HORIZON.
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-25
<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
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
Use of Proceeds................................ 14
Dividend Policy................................ 14
Dilution....................................... 15
Capitalization................................. 16
Selected Financial Information................. 17
Pro Forma Combined Financial Data.............. 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 24
Business....................................... 29
Management..................................... 37
Certain Transactions........................... 41
Principal Shareholders......................... 42
Description of Securities...................... 42
Shares Eligible for Future Sale................ 44
Underwriting................................... 45
Legal Matters.................................. 47
Experts........................................ 47
Additional Information......................... 47
Financial Statements........................... F-1
</TABLE>
------------------------
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.
1,200,000 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............ $ 2,272.73
NASD fees...................................................... 1,300.00
Underwriters' non-accountable expense allowance................ 207,000.00
Blue Sky Fees.................................................. 15,000.00
Legal fees and expenses........................................ 80,000.00
Accounting fees and expenses................................... 65,000.00
Printing and engraving expenses................................ 35,000.00
Exchange listing fees.......................................... 21,000.00
----------
TOTAL EXPENSES............................................... $426,572.73
----------
----------
</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 as set forth below.
In determining the availability of an exemption under Section 4(2), all
offerees of the Company's Common Stock had a prior business or personal
relationship with the Company, its officers or directors, and the amount of
securities offered in each offering was less than $500,000. No general
solicitation or advertising was employed in connection with any of the
offerings, and with the exception of the Company's offering in September 1996,
which was extended to each of the Company's existing 27 shareholders in
connection with such shareholders' preemptive rights under Texas law, no offer
was made to more than 25 persons. Each of the offerings was separately conducted
in connection with the acquisition of one or more stores, and in no offering did
the amount of Common Stock sold to non-officers or -directors exceed $337,000 in
the aggregate, nor $812,000 for all such offerings combined. Although no formal
offering documents were prepared and distributed to potential investors, each
investor was given an opportunity to receive financial and other information
regarding the Company's operations by means of the close business and/or
personal relationship of each investor to the Company or its officers or
directors. Similarly, while no investment intent letters were obtained by the
Company and the stock certificates issued by the Company did not bear any
restrictive legends, the Company's stock transfer records were marked with stop
transfer instructions in connection with the stock split approved by the Board
of Directors on April 14, 1997, and stock certificates replacing the original
certificates will bear appropriate restrictive legends.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NAME OF EXHIBIT
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Underwriting Agreement between the Company and Capital West Securities, Inc. (filed electronically
herewith).
*3.1 Restated Articles of Incorporation.
3.2 Amended and Restated Articles of Incorporation (filed electronically herewith).
3.3 Amended and Restated Bylaws (filed electronically herewith).
4.1 Specimen Certificate of the Common Stock (filed electronically herewith).
4.3 Form of Warrant Agreement between the Company and the Underwriters (filed electronically herewith).
4.4 Stock Option Plan (filed electronically herewith).
5.1 Opinion of Phillips McFall McCaffrey McVay & Murrah, P.C. as to the legality of the securities being
registered (filed electronically herewith).
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.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NAME OF EXHIBIT
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
*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.
10.4 Form of Employment Agreement by and between the Company and each of Rick D. McCord, R.Ph., Sy S. Shahid,
David W. Frauhiger, Charlie K. Herr, R.Ph., Robert D. Mueller, R.Ph., and Nancy Papaneri, R.Ph. (filed
electronically herewith).
10.5 Form of Lockup Agreement (filed electronically herewith).
10.6 Supply Agreement dated effective January 1, 1995 by and between the Company and
Bergen Brunswig, Inc. (filed electronically herewith).
16.1 Letter of Herold, Howard & Madsen P.C., Independent Auditors, relating to change in auditors (filed
electronically herewith).
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.
*24.1 Powers of Attorney of Messrs. Frauhiger, Herr, McCord, Mueller and Shahid (included as part of the
signature page filed with the initial Registration Statement).
24.2 Powers of Attorney of Carson A. McDonald and Philip H. Yielding (filed electronically herewith).
27 Financial data schedule (filed electronically herewith).
</TABLE>
- ------------------------
* Previously filed
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.
(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.
II-3
<PAGE>
(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 Amendment No. 1
to 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 May 30, 1997.
HORIZON PHARMACIES, INC.
a Texas corporation
By: /s/ RICK D. MCCORD, R.PH.
-----------------------------------------
Rick D. McCord, R.Ph.
PRESIDENT AND CHIEF OPERATING OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to 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
Rick D. McCord, R.Ph. Directors, President and May 30, 1997
PRINCIPAL EXECUTIVE OFFICER Chief Operating Officer
/s/ SY S. SHAHID*
- ------------------------------ Executive Vice President, May 30, 1997
Sy S. Shahid Secretary, Director
/s/ DAVID W. FRAUHIGER*
- ------------------------------
David W. Frauhiger Chief Financial Officer, May 30, 1997
PRINCIPAL FINANCIAL AND Treasurer, Director
ACCOUNTING OFFICER
/s/ CHARLIE K. HERR*
- ------------------------------ Director May 30, 1997
Charlie K. Herr
/s/ ROBERT D. MUELLER*
- ------------------------------ Director May 30, 1997
Robert D. Mueller, R.Ph.
/s/ CARSON A. MCDONALD
- ------------------------------ Director Nominee May 30, 1997
Carson A. McDonald
/s/ PHILIP H. YIELDING
- ------------------------------ Director Nominee May 30, 1997
Philip H. Yielding
*By: /s/ RICK D. MCCORD
-------------------------
Rick D. McCord
ATTORNEY-IN-FACT
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NAME OF EXHIBIT
- ----------- ---------------------------------------------------------------------------------------------------
<C> <S>
1.1 Underwriting Agreement between the Company and Capital West Securities, Inc (filed electronically
herewith).
*3.1 Restated Articles of Incorporation.
3.2 Amended and Restated Articles of Incorporation (filed electronically herewith).
3.3 Amended and Restated Bylaws (filed electronically herewith).
4.1 Specimen Certificate of the Common Stock (filed electronically herewith).
4.3 Form of Warrant Agreement between the Company and the Underwriters (filed electronically herewith).
4.4 Stock Option Plan (filed electronically herewith).
5.1 Opinion of Phillips McFall McCaffrey McVay & Murrah, P.C. as to the legality of the securities
being registered (filed electronically herewith).
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.
*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.
10.4 Form of Employment Agreement by and between the Company and each of Rick D. McCord, R.Ph., Sy S.
Shahid, David W. Frauhiger, Charlie K. Herr, R.Ph., Robert D. Mueller, R.Ph. and Nancy Papaneri,
R.Ph. (filed electronically herewith).
10.5 Form of Lockup Agreement (filed electronically herewith).
10.6 Supply Agreement dated effective January 1, 1995 by and between the Company and Bergen Brunswig,
Inc. (filed electronically herewith).
16.1 Letter of Herold, Howard & Madsen P.C., Independent Auditors, relating to change in auditors (filed
electronically herewith).
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.
*24.1 Powers of Attorney of Messrs. Frauhiger, Herr, McCord, Mueller and Shahid (included as part of the
signature page filed with the initial Registration Statement).
24.2 Powers of Attorney of Carson A. McDonald and Philip H. Yielding (filed electronically herewith).
27 Financial data schedule (filed electronically herewith).
</TABLE>
- ------------------------
* Previously filed
<PAGE>
1,200,000 SHARES
HORIZON PHARMACIES, INC.
(A Texas Corporation)
(Par Value $0.01 Per Share)
UNDERWRITING AGREEMENT
May ___, 1997
CAPITAL WEST SECURITIES, INC.
211 N. Robinson
16th Floor, One Leadership Square
Oklahoma City, Oklahoma 73102
Ladies/Gentlemen:
HORIZON Pharmacies, Inc., a Texas corporation (the "Company"),
hereby confirms its agreement with Capital West Securities, Inc. ("Capital
West") as representative of the several underwriters named in Schedule A
hereto (herein collectively called the "Underwriters") as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell
1,200,000 shares (the "Firm Shares") of its authorized and unissued common
stock, par value $0.01 per share (the "Common Stock") to the Underwriters
upon the terms and subject to the conditions set forth herein. The Company
also proposes to grant to the Underwriters an option to purchase, for the
sole purpose of covering over-allotments in connection with the sale of Firm
Shares, an aggregate of up to 180,000 additional shares ("Option Shares") of
Common Stock upon the terms and subject to the conditions set forth herein
and as provided in Section 7 hereof. As used in this Agreement, the term
"Shares" shall include the Firm Shares and the Option Shares. All shares of
Common Stock of the Company, including the Shares, are hereinafter referred
to as "Common Stock."
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
Unless otherwise indicated or the context otherwise requires, references to
the "Company" in this Section 2 are references to HORIZON Pharmacies, Inc., a
Texas corporation. The Company represents and warrants to and agrees with
the Underwriters, as follows:
(a) A registration statement on Form SB-2 (File No. 333-25257)
with respect to the Shares, including a prospectus subject to completion, has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the applicable rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
<PAGE>
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement and such amended
prospectuses subject to completion, as may have been required prior to the
date hereof have been similarly prepared and filed with the Commission; and
the Company will file such additional amendments to such registration
statement and such amended prospectuses subject to completion, as may
hereafter be required. The Company meets the requirements for use of a
Registration Statement on Form SB-2. Copies of such registration statement
and any amendments and of each related prospectus subject to completion have
been delivered to you.
If the registration statement has been declared effective under
the Act by the Commission, the Company will prepare and promptly file with
the Commission the information omitted from the registration statement
pursuant to Rule 430A(a) of the Rules and Regulations or as part of a
post-effective amendment to the registration statement (including a final
form of prospectus). If the registration statement has not been declared
effective under the Act by the Commission, the Company will prepare and
promptly file a further amendment to the registration statement, including a
final form of prospectus. The term "Registration Statement" as used in this
Agreement shall mean such registration statement, including financial
statements, schedules and exhibits, in the form in which it became or
becomes, as the case may be, effective (including, if the Company omitted
information from the registration statement pursuant to Rule 430A(a) of the
Rules and Regulations, the information deemed to be a part of the
registration statement at the time it became effective pursuant to Rule
430A(b) of the Rules and Regulations) and, in the event of any amendment
thereto after the effective date of such registration statement, shall also
mean (from and after the effectiveness of such amendment) such registration
statement as so amended. The term "Prospectus" as used in this Agreement
shall mean the prospectus relating to the Shares as included in such
Registration Statement at the time it becomes effective (including, if the
Company omitted information from the Registration Statement pursuant to Rule
430A(a) of the Rules and Regulations, the information deemed to be a part of
the Registration Statement at the time it became effective pursuant to Rule
430A(b) of the Rules and Regulations), except that if any revised prospectus
shall be provided to the Underwriters by the Company for use in connection
with the offering of the Shares that differs from the Prospectus on file with
the Commission at the time the Registration Statement became or becomes, as
the case may be, effective (whether or not such revised prospectus is
required to be filed with the Commission pursuant to Rule 424(b)(3) of the
Rules and Regulations), the term "Prospectus" shall refer to such revised
prospectus from and after the time it is first provided to the Underwriters
for such use.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings
for that purpose, and each such Preliminary Prospectus has conformed in all
material respects to the requirements of the Act and the Rules and
Regulations and, as of its date, has not included any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; and at the
time the Registration Statement became or becomes, as the case may be,
effective and at all times subsequent thereto up, to and on the Closing Date
(hereinafter defined) and on any later date on which Option Shares are to be
purchased, (i) the Registration Statement
-2-
<PAGE>
and the Prospectus, and any amendments or supplements thereto, contained and
will contain all material information required to be included therein by the
Act and the Rules and Regulations and will in all material respects conform
to the requirements of the Act and the Rules and Regulations, and (ii)
neither the Registration Statement nor the Prospectus, nor any amendments or
supplements thereto, will include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that none of the
representations and warranties contained in this subparagraph shall apply to
information contained in or omitted from the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon, and in
conformity with, written information furnished to the Company by any
Underwriter specifically for inclusion therein.
(c) Each contract, agreement, instrument, lease, license or
other item required to be described in the Registration Statement or the
Prospectuses or filed as an exhibit to the Registration Statement has been so
described or filed, as the case may be.
(d) Each of the Company and its Subsidiary (as such term is
defined in Rule 405 under the Act) has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction
of its organization, with full corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Registration Statement; each of the Company and its Subsidiary is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the ownership or leasing of its properties or the
conduct of its business requires such qualification except where the failure
to be so qualified or to be in good standing would not have a material
adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its Subsidiary
considered as a whole; each of the Company and its Subsidiary is in
possession of and operating in compliance with all authorizations, licenses,
certificates, consents, orders and permits from state, Federal and other
regulatory authorities which are material to the conduct of its business, all
of which are valid and in full force and effect; neither the Company nor its
Subsidiary is in violation of its charter or bylaws or in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any material indenture, mortgage, deed of trust, loan
agreement, bond, debenture, note agreement or other evidence of indebtedness,
or any material lease, contract, joint venture, or other agreement or
instrument to which it is a party or by which its property is bound or in
violation of any law, order, rule, regulation, writ, injunction, judgment or
decree of any government, governmental agency or body or court, domestic or
foreign, of which it has knowledge except such failures to comply as would
not, individually or in the aggregate, have a material adverse effect on the
Company and its Subsidiary considered as a whole.
(e) The Company has full legal right, power and authority to
enter into this Agreement and to perform the transactions contemplated
hereby. This Agreement and the Warrant Agreement (the "Warrant Agreement") by
and between the Company and the Underwriters have been duly authorized,
executed and delivered by the Company and are valid and binding agreements on
the part of the Company, enforceable in accordance with their respective
terms, except as rights to indemnification and contribution hereunder may be
limited
-3-
<PAGE>
by applicable law and except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally, or by
general equitable principles; the performance of this Agreement and the
Warrant Agreement and the consummation of the transactions herein and therein
contemplated will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, (i) any material indenture,
mortgage, deed of trust, loan agreement, bond, debenture, note agreement or
other evidence of indebtedness, or any material lease, contract, joint
venture or other agreement or instrument to which the Company is a party or
by which the property of the Company is bound including any licenses from
third parties, or (ii) the Certificate of Incorporation and Bylaws of the
Company, or (iii) any law, order, rule, regulation, writ, injunction,
judgment or decree of any government or governmental agency or body or court,
domestic or foreign, having jurisdiction over the Company or over the
properties of the Company, except for breaches, violations or defaults that
individually or in the aggregate, would not have a material adverse effect on
the Company; and no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the
transactions herein contemplated, except such as may be required under the
Act, the Securities and Exchange Act of 1934, as amended (the "Exchange
Act"), or under state or other securities or Blue Sky laws, all of which
requirements have been satisfied in all material respects.
(f) Except as disclosed in the Registration Statement or the
Prospectus, there is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company, threatened, against or affecting the Company or its
Subsidiary which (i) is required to be disclosed in the Registration
Statement or the Prospectus or which might result in any material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its Subsidiary considered as
one enterprise, or which might materially and adversely affect the properties
or assets thereof; or (ii) which might be expected to materially and
adversely affect the consummation of the transactions contemplated by this
Agreement; all pending legal or governmental proceedings to which the Company
or its Subsidiary is a party or of which any of their respective properties
or assets is the subject which are not described in the Registration
Statement, including ordinary routine litigation incidental to the Company's
business, could not reasonably be expected to result in a material adverse
change in the condition, financial or otherwise, or the earnings, business
affairs or business properties of the Company and its Subsidiary considered
as one enterprise; and there are no contracts or documents of the Company or
its Subsidiary which are required to be described in the Registration
Statement or the Prospectus, or to be filed as exhibits thereto, by the Act
or by the Rules and Regulations which have not been accurately described in
all material respects and filed as exhibits to the Registration Statement.
To the best of the Company's knowledge, the contracts so described in the
Prospectus are in full force and effect on the date hereof, and neither the
Company nor its Subsidiary is in breach of or default under, and to the
Company's knowledge, no other party is in material breach of or material
default under, any of such contracts.
(g) All outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all Federal and state
securities laws, were not issued in violation of or subject to
-4-
<PAGE>
any preemptive rights or other rights to subscribe for or purchase securities
(other than such preemptive rights or other rights to subscribe for or
purchase securities as were fully complied with or expressly waived or with
respect to the violation of which the right to make claim is barred by the
applicable statute of limitations), and the authorized and outstanding
capital stock of the Company conforms in all material respects to the
statements relating thereto contained in the Registration Statement and the
Prospectus (and such statements correctly state the substance of the
instruments defining the capitalization of the Company); the Firm Shares and
the Option Shares to be purchased from the Company hereunder have been duly
authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company against payment
therefor in accordance with the terms of this Agreement, will be duly and
validly issued and fully paid and nonassessable; the shares of Common Stock
issuable under the warrant (the "Underwriters' Warrant") to be granted to the
Underwriters under the Warrant Agreement have been duly authorized for
issuance and sale to the Underwriters pursuant to this Agreement and, when
issued and delivered by the Company against payment therefor in accordance
with the terms of the Warrant Agreement, will be duly and validly issued and
fully paid and nonassessable; and no preemptive right, co-sale right,
registration right, right of first refusal or other similar right of
stockholders exists with respect to any of the Firm Shares, Option Shares or
shares of Common Stock issuable under the Underwriters' Warrant or the
issuance and sale thereof other than those that have been expressly waived
prior to the date hereof and those that will automatically expire upon the
consummation of the transactions contemplated on the Closing Date. No
further approval or authorization of any stockholder, the Board of Directors
or others is required for the issuance and sale or transfer of the Shares
except as may be required under the Act, the Exchange Act or under state or
other securities or Blue Sky laws. Except as disclosed in or contemplated by
the Prospectus and the financial statements of the Company (including the
notes thereto) included in the Prospectus, the Company has no outstanding
options to purchase, or any preemptive rights or other rights to subscribe
for or to purchase, any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of its capital stock or any
such options, rights, convertible securities or obligations. The description
of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised
thereunder, set forth in the Prospectus accurately and fairly presents the
information required to be shown with respect to such plans, arrangements,
options and rights. The shares of Common Stock reserved for issuance upon
exercise of the Company's outstanding options and warrants have been duly and
validly authorized and are sufficient in number to meet the exercise
requirements of such options.
(h) Ernst & Young LLP, which has audited the 1996 historical
financial statements of the Company filed with the Commission as a part of
the Registration Statement and which are included in the Prospectus, are
independent accountants within the meaning of the Act and the Rules and
Regulations; the audited and pro forma financial statements of the Company,
together with the notes, and the unaudited financial information, forming
part of the Registration Statement and Prospectus, fairly present the
financial position and the results of operations of the Company at the
respective dates and for the respective periods to which they apply; and all
audited and pro forma financial statements, together with the notes, and the
unaudited and pro forma financial information, filed with the Commission as
part of the Registration Statement, have been prepared in accordance with
generally accepted accounting
-5-
<PAGE>
principles consistently applied throughout the periods involved except as may
be otherwise stated therein. The selected and summary financial and
statistical data included in the Registration Statement present fairly the
information shown therein and have been compiled on a basis consistent with
the audited financial statements presented therein.
Herold, Howard & Madsen, P.C., which has audited the 1995 historical
financial statements of the Company; the 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; and the 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, filed with the Commission as part of the Registration
Statement and which are included in the Prospectus, are independent
accountants within the meaning of the Act and the Rules and Regulations; the
audited financial statements of the Company, and the notes thereto, the
audited combined statements of revenues and expenses of Mesa Drugs, Inc. -
Farmington Store, and the notes thereto, the audited statements of revenues
and expenses and of Net Assets Sold of True Quality Pharmacies, Inc. - Vistas
and the notes thereto, forming part of the Registration Statement and
Prospectus, fairly represent the financial position and the results of
operations of the Company, Mesa Drugs, Inc. - Farmington Store and True
Quality Pharmacies, Inc. - Vistas and the other information purported to be
shown therein at the respective dates and for the respective periods to which
they apply; and all such audited statements filed with the Commission as part
of the Registration Statement have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved except as may be otherwise stated therein.
(i) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as otherwise
stated therein, (i) there has been no material adverse change in the
business, properties, operations, condition (financial or otherwise) or in
the earnings, business affairs or business prospects of the Company and its
Subsidiary, whether or not arising in the ordinary course of business, (ii)
there have been no transactions entered into by the Company other than those
in the ordinary course of business, which are material with respect to the
Company, (iii) there has been no obligation that is material to the Company,
direct or contingent, incurred by the Company or its Subsidiary, except
obligations incurred in the ordinary course of business, (iv) there has been
no change in the capital stock of the Company, (v) there has been no change
in the outstanding indebtedness of the Company which is material to the
Company, (vi) there has been no dividend or distribution of any kind
declared, paid or made by the Company on behalf of any class of its
respective capital stock, (vii) there has been no redemption, purchase or
acquisition or agreement to redeem, purchase or acquire shares of Common
Stock of the Company, or (viii) to the knowledge of the Company, there has
been no change in any Federal, state, or other laws, rules, or regulations
(or interpretations thereof) applicable to the business of the Company that
would have a material adverse effect on the Company, and, to the knowledge of
the Company, no such change is pending other than as described in the
Prospectus.
(j) Except as described in the Prospectus, (i) the Company and
its Subsidiary
-6-
<PAGE>
have good and marketable title to all properties and assets described in the
Prospectus as owned by them, free and clear of all liens, charges,
encumbrances or restrictions of any kind, except those described in the
Prospectus, or those not material, singly or in the aggregate, to the
business of the Company and its Subsidiary considered as a whole, (ii) the
agreements to which the Company is a party described in the Prospectus are
valid agreements, enforceable by the Company, except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally or by
general equitable principles, and (iii) the Company has valid and enforceable
leases for the properties described in the Prospectus as leased by it except
as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(k) All Federal, state, local and foreign tax returns required
to be filed by the Company or its Subsidiary in any jurisdiction have been
filed, and all material taxes, including withholding taxes, penalties and
interest, assessments, fees and other charges due or claimed to be due from
such entities have been paid other than those being contested in good faith
and for which adequate reserves have been provided or those currently payable
without penalty or interest; and adequate charges, accruals and reserves have
been provided for in the financial statements referred to in Section 2(g)
above in respect of all Federal, state, local and foreign taxes for all
periods as to which the tax liability of the Company or its Subsidiary has
not been finally determined or remains open to examination by applicable
taxing authorities.
(l) No labor dispute with the employees of the Company or its
Subsidiary exists or, to the knowledge of the Company, is imminent; and the
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers, contractors or
customers which might be expected to result in any material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs
or business prospects of the Company and its Subsidiary considered as one
enterprise. No collective bargaining agreement exists with any of the
Company's employees and, to the Company's knowledge, no such agreement is
imminent.
(m) The Company and its Subsidiary own or possess, or can
acquire on reasonable terms, the patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names presently
employed by them in connection with the business now operated by them and
neither the Company nor its Subsidiary has received any notice or is
otherwise aware of any infringement of or conflict with asserted rights of
others with respect to any patent or proprietary rights or of any facts or
circumstances which would render any patent and proprietary rights invalid or
inadequate to protect the interest of the Company or its Subsidiary therein,
and which infringement or conflict (if the subject of any unfavorable
decision, ruling or finding) or invalidity or inadequacy singly or in the
aggregate, would result in any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its Subsidiary considered as one enterprise.
-7-
<PAGE>
(n) Except as set forth in the Prospectus, the Company and its
Subsidiary are in compliance in all material respects with all applicable
laws, statutes, ordinances, rules or regulations, the enforcement of which,
individually or in the aggregate, would be reasonably expected to have a
material adverse effect on the condition, financial or otherwise, or the
earnings, business affairs or business prospects of the Company and its
Subsidiary considered as one enterprise.
(o) The Common Stock has been approved for quotation on the
Nasdaq SmallCap Market subject to official notice of issuance.
(p) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations thereunder, and has in the past conducted, and intends in the
future to conduct, its affairs in such a manner as to ensure that it will not
become an "investment company" within the meaning of the 1940 Act and such
rules and regulations.
(q) The Company has not distributed and will not distribute
prior to the Closing Date or on any date on which Option Shares are to be
purchased, as the case may be, any offering material in connection with the
offering and sale of the Shares other than the Prospectus, the Registration
Statement and other materials permitted by the Act.
(r) The Company has not at any time during the last five years
(i) made any unlawful contribution to any candidate for foreign office, or
failed to disclose fully any contribution in violation of law, or (ii) made
any payment to any Federal or state governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States or any
jurisdiction thereof.
(s) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares. The Company has not
effected any sales of securities required to be disclosed in Item 26 of Form
SB-2 under the Act, other than as disclosed in the Registration Statement.
(t) Each officer and director of the Company and each
beneficial owner of at least 5% of the outstanding shares of Common Stock and
options and warrants to purchase Common Stock outstanding prior to the
effective date of the Registration Statement have agreed in writing that such
persons will not, for a period expiring 24 months after the effective date of
the Registration Statement, offer to sell, contract to sell, sell short, or
otherwise sell or dispose of any shares of Common Stock of the Company, any
options or warrants to purchase any shares of Common Stock of the Company, or
any securities convertible into or exchangeable for shares of the Common
Stock owned directly by such person or with respect to which such person has
the power of disposition otherwise than (i) as a gift or gifts, provided the
donee or donees thereof agree to be bound by this restriction or (ii) with
the prior written consent of Capital West.
(u) Except as described in the Registration Statement, (i)
neither the Company nor its Subsidiary is in violation of any Federal, state,
local or foreign laws or regulations relating
-8-
<PAGE>
to pollution or protection of human health, the environment (including,
without limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or wildlife, including, without limitation, laws and
regulations relating to the release or threatened release of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products (collectively, "Environmental Materials") or
to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Environmental Materials (collectively, the
"Environmental Laws"), except such violations as would not, singly or in the
aggregate, have a material adverse effect on the condition, financial or
otherwise, or the earnings, business affairs or business prospects of the
Company and its Subsidiary considered as one enterprise, and (ii) to the best
of the Company's knowledge, there are no events or circumstances that could
form the basis of an order for clean-up or remediation, or an action, suit or
proceeding by any private party or governmental body or agency, against or
affecting the Company or its Subsidiary relating to any Environmental
Materials or the violation of any Environmental Laws, which, singly or in the
aggregate, could reasonably be expected to have a material adverse effect on
the condition, financial or otherwise, or the earnings, business affairs or
business prospects of the Company and its Subsidiary considered as one
enterprise.
(v) The Company and its Subsidiary maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles as in effect in the United States and to
maintain asset accountability; (iii) access to bank accounts is permitted
only in accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences.
(w) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of the members of the families of
any of them, except as disclosed in the Registration Statement and the
Prospectus. Neither the Company nor any employee or agent of the Company has
made any payment or transfer of any funds or assets of the Company or
conferred any personal benefit by use of the Company's assets, or received
any funds, assets or personal benefit in violation of any law, rule or
regulation.
(x) On the Closing Date and upon delivery of the Option
Shares, as applicable, all transfer and other taxes (other than income taxes)
that are required to be paid in connection with the sale and transfer of the
Shares to the Underwriters will have been paid.
(y) The Company currently has a pension plan subject to the
provisions of the Employee Retirement Income Security Act of 1974, as
amended, including the regulations and published interpretations thereunder
("ERISA"); no "reportable event" (as defined in ERISA) has occurred with
respect to such "pension plan" (as defined in ERISA) for which the Company
would have any liability, the Company has not incurred and does not expect to
incur liability under (I) Title IV of ERISA with respect to termination of,
or withdrawal from, any "pension
-9-
<PAGE>
plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as
amended, including the regulations and published interpretations thereunder
(the "Code"); and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the Code
is so qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such qualification.
(z) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 517.075, Florida Statutes (Chapter
92-198, Laws of Florida) AN ACT RELATING TO DISCLOSURE OF DOING BUSINESS WITH
CUBA (the "Cuba Act"), and the Company further agrees that if it commences
engaging in business with the government of Cuba or with any person or
affiliate located in Cuba after the date the Registration Statement becomes
or has become effective with the Commission or the Florida Department of
Banking and Finance (the "Department"), whichever date is later, or if the
information reported or incorporated by reference in the Prospectus, if any,
concerning the Company's business in Cuba or with any person or affiliate
located in Cuba changes in any material way, the Company will provide the
Department notice of such business or change, as appropriate, in a form
acceptable to the Department.
(aa) Any certificate signed by any officer of the Company and
delivered to the Underwriters or to counsel for the Underwriters shall be
deemed a representation and warranty by the Company to each Underwriter as to
the matters covered thereby.
(bb) Except as may be set forth in the Prospectus, the Company
has not incurred any liability for a fee, commission, or other compensation
on account of the employment of a broker or finder in connection with the
transactions contemplated by the Underwriting Agreement.
(cc) The Company and its Subsidiary is insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the Company
and its Subsidiary are engaged.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company agrees to sell to each Underwriter,
severally and not jointly, and each Underwriter, severally and not jointly,
agrees to purchase from the Company, respectively, at a purchase price per
share of $5.00 per Share, the number of Shares set forth in SCHEDULE A hereto
(subject to adjustment as provided in Section 10).
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made
against payment of the purchase price therefor by the Underwriters by
certified or official bank check in next day funds, payable to the order of
the Company at the offices of Capital West Securities, Inc., 211 N. Robinson,
16th Floor, One Leadership Square, Oklahoma City, Oklahoma 73102, or at such
other place as shall be agreed upon by the Underwriters and the Company, at
9:30 a.m. on the third business day following the first day that Shares are
traded (or at such time and date to which payments and
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delivery shall have been postponed pursuant to Section 10 hereof), such time
and date of payment and delivery being herein called the "Closing Date." The
certificates for the Firm Shares to be so delivered will be made available to
you at such office or at such other location as you may reasonably request
for checking at least one business day prior to the Closing Date and will be
in such names and denominations as you may request, such request to be made
at least two business days prior to the Closing Date. If the Underwriters so
elect, delivery of the Shares may be made by credit through full fast
transfer to the accounts at Depository Trust Company designated by the
Underwriters.
It is understood that Capital West, individually and not as
representative of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by Capital
West prior to the Closing Date for the Firm Shares to be purchased by such
Underwriter or Underwriters. Any such payment by Capital West shall not
relieve any such Underwriter or Underwriters of any of its or their
obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to offer the Firm Shares to the public as set forth in
the Prospectus.
The information set forth in the last paragraph on the front
cover page (insofar as such information relates to the Underwriters) and
under "Underwriting" in any Preliminary Prospectus and in the final form of
Prospectus filed pursuant to Rule 424(b) constitutes the only information
furnished by the Underwriters to the Company for inclusion in any Preliminary
Prospectus, the Prospectus or the Registration Statement, and you, on behalf
of the Underwriters, represent and warrant to the Company that the statements
made therein do not include any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
such statements, in the light of the circumstances in which they were made,
not misleading.
4. FURTHER COVENANTS OF THE COMPANY. The Company covenants with
the several Underwriters as follows:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the
time and date that this Agreement is executed and delivered by the parties
hereto, to become effective as promptly as possible; it will notify you,
promptly after it shall receive notice thereof, of the time when the
Registration Statement or any subsequent amendment to the Registration
Statement has become effective or any supplement to the Prospectus has been
filed; if the Company omitted information from the Registration Statement at
the time it was originally declared effective in reliance upon Rule 430A(a)
of the Rules and Regulations, the Company will provide evidence satisfactory
to you that the Prospectus contains such information and has been filed,
within the time period prescribed, with the Commission pursuant to
subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations or as
part of a post-effective amendment to such Registration Statement as
originally declared effective which is declared effective by the Commission;
if for any reason the
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filing of the final form of Prospectus is required under Rule 424(b)(3) of
the Rules and Regulations, it will provide evidence satisfactory to you that
the Prospectus contains such information and has been filed with the
Commission within the time period prescribed; it will notify you promptly of
any request by the Commission for the amending or supplementing of the
Registration Statement or Prospectus or for additional information; promptly
upon your request, it will prepare and file with the Commission any
amendments or supplements to the Registration Statement or Prospectus which,
in the opinion of counsel for the several Underwriters, may be necessary or
advisable in connection with the distribution of the Shares by the
Underwriters; it will promptly prepare and file with the Commission, and
promptly notify you of the filing of, any amendments or supplements to the
Registration Statement or Prospectus which may be necessary to correct any
statements or omissions, if, at any time when a prospectus relating to the
Shares is required to be delivered under the Act, any event shall have
occurred as a result of which the Prospectus or any other prospectus relating
to the Shares as then in effect would include any untrue statement of a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; in case any
Underwriter is required to deliver a prospectus nine months or more after the
effective date of the Registration Statement in connection with the sale of
the Shares, it will prepare promptly upon request, but at the expense of such
Underwriter, such amendment or amendments to the Registration Statement and
such prospectus or prospectuses as may be necessary to permit compliance with
the requirements of Section 10(a)(3) of the Act; and it will file no
amendment or supplement to the Registration Statement or Prospectus which
shall not previously have been submitted to you a reasonable time prior to
the proposed filing thereof or to which you shall reasonably object in
writing, subject, however, to compliance with the Act, the Rules and
Regulations thereunder and the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall
receive notice or obtain knowledge thereof of the issuance of any stop order
by the Commission suspending the effectiveness of the Registration Statement
or of the initiation or threat of any proceeding for that purpose; and it
will promptly use its best efforts to prevent the issuance of any stop order
or to obtain its withdrawal at the earliest possible moment if such stop
order should be issued.
(c) The Company will cooperate with the Underwriters and
Underwriters' counsel in connection with their efforts to qualify the Shares
for offering and sale under the securities laws of such jurisdictions as you
may designate and to continue such qualifications in effect for so long as
may be required for purposes of the distribution of the Shares, except that
the Company shall not be required in connection therewith or as a condition
thereof to qualify as a foreign corporation or to execute a general consent
to service of process in any jurisdiction or to make any undertaking with
respect to the conduct of its business. In each jurisdiction in which the
Shares shall have been qualified as above provided, the Company will make and
file such statements and reports in each year as are or may be reasonably
required by the laws of such jurisdiction.
(d) The Company will furnish you, as soon as available, copies
of the Registration Statement (three of which will be signed and include all
exhibits), each Preliminary Prospectus, the Prospectus and any amendments or
supplements to such documents, including
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any prospectus prepared to permit compliance with Section 10(a)(3) of the
Act, all in such quantities as you may from time to time reasonably request.
(e) The Company will make generally available to its
stockholders as soon as practicable, but in any event not later than the 45th
day following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited)
complying with the provisions of Section 11(a) of the Act and covering a
twelve-month period beginning after the effective date of the Registration
Statement.
(f) As long as the Company is a reporting company under the
Exchange Act, the Company will furnish to its stockholders, as soon as
practicable after the end of each respective period, annual reports
(including financial statements audited by independent certified public
accountants) and unaudited quarterly reports of operations for each of the
first three quarters of the fiscal year, and for a period of five years after
the effective date of the Registration Statement, the Company will furnish to
the several Underwriters hereunder, upon request (i) concurrently with
furnishing such reports to its stockholders, statements of operations of the
Company for each of the first three quarters in the form furnished to the
Company's stockholders; (ii) concurrently with furnishing to its
stockholders, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, of stockholders' equity, and of
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent accountants; (iii) as soon as
they are available, copies of all reports and financial statements furnished
to or filed with the Commission, any securities exchange or the National
Association of Securities Dealers, Inc. ("NASD"); (iv) every material press
release and every material news item or article in respect of the Company or
its affairs which was released or prepared by the Company (excluding, in each
case customary product-related press releases and articles); and (v) any
additional information of a public nature concerning the Company, or its
business which you may reasonably request. During such five-year period, if
the Company shall have active Subsidiary, the foregoing financial statements
shall be on a consolidated basis to the extent that the accounts of the
Company and its Subsidiary are consolidated, and shall be accompanied by
similar financial statements for any significant subsidiary which is not so
consolidated. For a period of five years from the date of the Registration
Statement, the Company will furnish to you and, upon request, to each of the
other Underwriters, as soon as available, a copy of each report of the
Company mailed to holders of the Common Stock or publicly filed with the
Commission or any automated quotation system or national securities exchange
on which any class of securities of the Company is listed.
(g) The Company will apply the net proceeds from the sale of
the Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
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(i) The Company will file Form SR in conformity with the
requirements of the Act and the Rules and Regulations.
(j) The Company shall comply with all provisions of all
undertakings contained in the Registration Statement.
(k) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company to perform any agreement on its part to be performed hereunder or to
fulfill any condition of the Underwriters' obligations hereunder, or if the
Company shall terminate this Agreement under Section 11(a), the Company will
reimburse the several Underwriters for all out-of-pocket accountable expenses
(including fees and disbursements of counsel for the several Underwriters)
actually incurred by the Underwriters in investigating, preparing to market
or marketing the Shares, up to an aggregate of $40,000, which amount has
already been paid and which shall be reimbursed to the Company to the extent
not actually incurred.
(l) If at any time during the 90-day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company
will, after written notice from you advising the Company to the effect set
forth above, forthwith prepare, consult with you concerning the substance of,
and disseminate a press release or other public statement, reasonably
satisfactory to you, responding to or commenting on such rumor, publication
or event.
(m) For a period of 180 days after the date of this Agreement,
without the prior written consent of Capital West, the Company shall not,
directly or indirectly, offer, sell, contract to sell, pledge, grant any
option to purchase or otherwise dispose (or announce any offer, sale,
contract of sale or other disposition of), any shares of Common Stock or any
other shares of capital stock of the Company, or any securities convertible
into or exercisable or exchangeable for, or warrants, options or rights to
purchase or acquire, shares of Common Stock or any other shares of capital
stock of the Company, or any interest in the Common Stock (including
derivative interests) other than the Company's issuance and sale of Shares in
accordance with the Underwriting Agreement, and the issuance of stock options
under, or the issuance of Common Stock upon the exercise of stock options
granted under, any stock option plan described in the Prospectuses.
(n) During a period of 90 days from the effective date of the
Registration Statement, the Company will not file a registration statement
registering shares under any employee benefit plan.
(o) On the Closing Date the Company will sell to you,
for $.001 per share of Common Stock covered by each warrant, the
Underwriters' Warrants to purchase one share of Common Stock of the
Company for each ten shares of the Company's Common Stock which
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have been sold (or purchased by the Underwriters), excluding any
over-allotment shares, as set forth in the Prospectus. The Underwriters'
Warrants shall have the terms and be in the form filed as an exhibit to the
Registration Statement. At any time during the period commencing 12 months
and ending five years after the effective date of the offering and at the
written request of the then holders of 51% of the Underwriters' Warrants and
the Common Stock of the Company issued upon the exercise of the Underwriters'
Warrants, and on one occasion, the Company will file with the Commission and
process to effectiveness a registration statement covering not less than 51%
of the shares of the Common Stock of the Company issuable and/or issued upon
the exercise of the Underwriters' Warrants. The Company must file a
registration statement only if the shares of Common Stock issuable under the
Underwriters' Warrants cannot be sold without registration under Rule 144
promulgated under the Act. The Company agrees to use its commercially
reasonable best efforts to cause the filing to become effective. The costs
of the filing of such registration statement including but not limited to,
legal (including legal fees relating to clearance in the various states,
limited however to such states as may be reasonably requested), accounting
and printing fees, shall be borne by the Company but the Company shall not be
responsible for the cost of any separate counsel to review the registration
statement on behalf of or to advise the selling stockholders and shall not be
responsible for the payment of any underwriting discount or commissions with
respect to such sale. Such registration statement shall comply with any
undertaking applicable to such shares. If the Company otherwise than upon
the request of the owners of the Underwriters' Warrants or the shares of
Common Stock issuable upon the exercise thereof files a registration
statement under the Act with respect to any of its securities at any time
(other than on Form S-4, S-8, or any other form that does not provide for
resales by selling security holders), the Company will give such persons 30
days' notice of its intention to do so, and at their written request given
within 10 days of the receipt of such notice, will include in such
registration statement such number of such Shares as they may specify, all at
no cost to them (except for underwriting discounts and the fees and expenses
of counsel to such holders). In connection with any such registration
statement covering all or a part of such shares, the Company agrees that it
will covenant with the owners of such shares with respect to such shares and
the offering thereof, in customary form substantially to the effect contained
in this Section 4. If the offering pursuant to any registration statement
provided for herein is made through Underwriters, the Company agrees to enter
into an underwriting agreement in customary form with such underwriters in
which the Company and the underwriters and each person who controls such
underwriters within the meaning of the Act grant to each other customary
reciprocal indemnities against liabilities under the Act.
(p) As long as the Company is a reporting company under the
Exchange Act, the Company will comply with the Act, the Exchange Act, the
rules and regulations of the NASD and applicable state securities or Blue Sky
laws so as to permit the continuance of sales and dealings in the Common
Stock under the Act, the Exchange Act, the rules and regulations of the NASD,
and applicable state securities or Blue Sky laws, including the filing with
the NASD and the Commission of all reports required to be filed pursuant to
the applicable provisions of the rules and regulations of the NASD, the Act,
and the Exchange Act, and will deliver to the holders of the Common Stock all
reports required to be provided to such holders pursuant to the applicable
provisions of the rules and regulations of the NASD, the Act, the Exchange
Act, and applicable state securities or Blue Sky laws.
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(q) Immediately following the later to occur of: (I) the
Option Closing Date, as defined in Section 6(h)(3), below, or (ii) 30 days
following the Closing Date, the Company shall take and complete all necessary
corporate and stockholder action that will allow Capital West to designate
one person of its choosing to serve as a member of the Board of Directors of
the Company.
5. EXPENSES.
(a) The Company agrees with each Underwriter that the Company
will pay and bear all costs and expenses of the Company incurred in
connection with (i) the preparation, printing, filing and mailing of the
Registration Statement (including financial statements, schedules and
exhibits), Preliminary Prospectuses and the Prospectus and any amendments or
supplements thereto; (ii) the approval of the Common Stock for listing on the
American Stock Exchange; (iii) the printing and mailing of this Agreement,
the Preliminary Blue Sky Survey and any Supplemental Blue Sky Survey, the
Underwriters' Questionnaire and Power of Attorney and any instruments related
to any of the foregoing; (iv) the issuance, transfer and delivery of the
Shares hereunder to the Underwriters or to Depository Trust Company,
including transfer taxes, if any, and the cost of all certificates
representing the Shares and transfer agents' and registrars' fees; (v) the
fees and disbursements of counsel for the Company; (vi) all fees and other
charges of the Company's independent public accountants; (vii) the cost of
furnishing to the Underwriters copies of the Registration Statement
(including appropriate exhibits), Preliminary Prospectus and the Prospectus,
and any amendments or supplements to any of the foregoing; and (viii) all
costs incurred in connection with the qualification of the Shares under the
securities laws of such states as the Company, and Capital West may designate
including the fees and disbursements of counsel to the Underwriters retained
to qualify the Shares in the various states; and (ix) all other expenses
directly incurred by the Company in connection with the performance of its
obligations hereunder.
(b) Capital West shall be entitled to receive from the
Company, for itself and not as representative of the Underwriters, a
nonaccountable expense allowance equal to three percent of the aggregate
public offering price of Shares sold to the Underwriters in connection with
the Offering reduced by any amounts advanced by the Company to Capital West
pursuant to the terms of the Letter of Intent. Capital West shall be
entitled to withhold this allowance on the Closing Date.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the Underwriters to purchase and pay for Shares as provided herein shall be
subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased (the "Option Closing
Date"), as the case may be, of the representations and warranties of the
Company herein, to the performance by the Company of its obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 5:30 p.m. on the date hereof, or with the consent of the
Underwriters, at a later time and date, not later,
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however, than 5:30 p.m. on the first business day following the date hereof,
or at such later time and date as may be approved by a majority in interest
of the Underwriters; and no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the Act or proceedings
therefor initiated or threatened by the Commission and any request on the
part of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been
complied with to the reasonable satisfaction of counsel to the Underwriters.
If the Company has elected to rely upon Rule 430A of the Rules and
Regulations, the price of the Shares and any price-related information
previously omitted from the effective Registration Statement pursuant to such
Rule 430A shall have been transmitted to the Commission for filing pursuant
to Rule 424(b) of the Rules and Regulations within the prescribed time
period, and prior to the Closing Date the Company shall have provided
evidence satisfactory to the Underwriters of such timely filing, or a
post-effective amendment providing such information shall have been promptly
filed and declared effective in accordance with the requirements of Rule 430A
of the Rules and Regulations. Qualification under the securities laws of such
states as you may deem necessary to the success of the underwriting of the
issue and sale of the Shares upon the terms and conditions set forth in this
Agreement or contemplated by this Agreement and containing no provisions
unacceptable to you will have been secured, and no stop order (or the
equivalent thereof) will be in effect denying or suspending effectiveness of
such qualification, nor will any stop order proceedings (or the equivalent
thereof) with respect thereto be instituted or pending or threatened under
such laws.
(b) At the Closing Date and the Option Closing Date, if any,
counsel for the Underwriters shall have been furnished with such documents
and opinions as they may require for the purpose of enabling them to pass
upon the issuance and sale of the Shares as contemplated herein and related
proceedings or in order to evidence the accuracy of any of the
representations and warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company in connection with
the issuance and sale of the Shares as herein contemplated shall be
satisfactory in form and substance to the Underwriters and counsel for the
Underwriters.
(c) There shall not have been, since the date hereof or since
the respective dates as of which information is given in the Registration
Statement and the Prospectus, any change in the condition (financial or
otherwise), earnings, operations, business affairs or business prospects of
the Company and its Subsidiary considered as one enterprise, whether or not
arising in the ordinary course of business which, in your sole judgment, is
material and adverse and that makes it, in your sole judgment, impracticable
or inadvisable to proceed with the public offering of the Shares as
contemplated by the Prospectus, and the Underwriters shall have received a
certificate of the President or Vice President of the Company and of the
chief financial or chief accounting officer of the Company, dated as of the
Closing Date, to the effect that (i) there has been no such material adverse
change, (ii) the representations and warranties in Section 2 hereof are true
and correct with the same force and effect as though expressly made at and as
of the Closing Date, (iii) the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied at or prior
to the Closing Date, and (iv) no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been initiated or threatened by the Commission or any Blue Sky
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jurisdiction.
(d) At the Closing Date the Underwriters shall have received:
(1) The opinions, dated as of the Closing Date of
Phillips McFall McCaffrey McVay and Murrah, P.C., special counsel for the
Company and Steven Pitzner, counsel to the Company, in form and substance
satisfactory to counsel for the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Texas.
(ii) The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in
the Registration Statement and the Prospectus and to enter into and perform
its obligations under this Agreement and to issue, sell and deliver to the
Underwriters the Firm Shares or the Option Shares, as the case may be, to be
issued and sold by it hereunder.
(iii) The Company is duly qualified to do business as
a foreign corporation and is in good standing in the States of Texas,
Oklahoma, Virginia, New Mexico and Wisconsin, and to the best of its
knowledge is not required to be qualified to do business as a foreign
corporation in any other jurisdiction.
(iv) At the Closing Date, after giving effect to the sale
of the Firm Shares, the authorized capital stock of the Company is as set
forth in the Prospectus under the caption "Capitalization" as of the dates
stated therein; the issued and outstanding shares of Common Stock have been
duly authorized and validly issued and are fully paid and nonassessable and
have not been issued in violation of any preemptive right contained in the
Certificate of Incorporation or Bylaws of the Company or, to such counsel's
knowledge, any co-sale right, registration right, right of first refusal or
other similar right (other than such preemptive rights or other rights to
subscribe for or purchase securities as were fully complied with or expressly
waived or with respect to the violation of which the right to make a claim is
barred by the applicable statute of limitation).
(v) The Firm Shares and the Option Shares, as the case
may be, to be purchased from the Company hereunder have been duly authorized
for issuance and sale to the Underwriters pursuant to this Agreement and,
when issued and delivered by the Company pursuant to this Agreement against
payment therefor in accordance with the terms hereof, will be validly issued
and fully paid and nonassessable, and will not be issued in violation of any
preemptive right under the Certificate of Incorporation or Bylaws of the
Company or, to such counsel's knowledge, any co-sale right, right of first
refusal or other similar right and the stockholders of the Company have no
preemptive right under the Certificate of Incorporation or Bylaws of the
Company or, to such counsel's knowledge, other rights to purchase any of the
Shares; the shares of Common Stock reserved for issuance upon the exercise of
the Underwriters' Warrants have been duly and validly authorized and are
sufficient in number to
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meet the exercise requirements thereof, and such shares of Common Stock, when
issued upon exercise, will be duly and validly issued, fully paid (assuming
exercise in accordance with the Warrant Agreement and receipt by the Company
of the exercise price thereof) and nonassessable; the stockholders of the
Company have no preemptive right under the Certificate of Incorporation or
Bylaws of the Company or, to such counsel's knowledge, other rights to
purchase any of the Shares; and the shares of Common Stock reserved for
issuance upon the exercise of the Company's outstanding options have been
duly and validly authorized and are sufficient in number to meet the exercise
requirements of such options, and such shares of Common Stock, when issued
upon exercise, will be duly and validly issued, fully paid (assuming exercise
in accordance with the governing instruments therefor and receipt by the
Company of the exercise price thereof) and nonassessable.
(vi) The issuance of the Shares to be purchased hereunder
is not subject to preemptive or other similar rights arising by operation of
law or, to the best of their knowledge and information, otherwise.
(vii) Each Subsidiary has been duly incorporated and is
validly existing as a corporation and is in good standing under the laws of
the jurisdiction of its incorporation, has full corporate power and authority
to own, lease and operate its properties and to conduct it business as
described in the Registration Statement, and is duly qualified as a foreign
corporation to transact business and is in good standing in the States of
Texas, Oklahoma, Virginia, New Mexico and Wisconsin, and to the best of its
knowledge any Subsidiary is not required to be qualified to do business as a
foreign corporation in any other jurisdiction; all of the issued and
outstanding capital stock of such Subsidiary has been duly authorized and
validly issued, is fully paid and nonassessable and, to the best of their
knowledge and information, is owned by the Company directly, free and clear
of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity.
(viii) This Agreement and the Warrant Agreement have been
duly authorized by all necessary corporate action on the part of the Company
and have been duly executed and delivered by the Company and assuming due
authorization, execution and delivery by the Underwriters, are valid and
binding agreements of the Company, except insofar as indemnification and
contribution provisions may be limited by applicable law or equitable
principles, and except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally or any general equitable principles;
(ix) The Registration Statement has been declared
effective under the Act; any required filing of the Prospectus pursuant to
Rule 424(b) has been made in the manner and within the time period required
by Rule 424(b) and, to the best of their knowledge and information, no stop
order suspending the effectiveness of the Registration Statement has been
issued under the Act or proceedings therefor have been initiated or are
pending or threatened by the Commission.
(x) The Registration Statement, Prospectus and each
amendment or
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supplement to the Registration Statement and Prospectus, as of their
respective effective or issue dates (other than the financial statements and
supporting schedules included therein, as to which no opinion need be
rendered) complied as to form in all material respects with the requirements
of the Act and the applicable Rules and Regulations.
(xi) The terms and provisions of the capital stock of the
Company conform in all material respects to the description thereof contained
in the Prospectus under the caption "Description of Securities";
(xii) The information in the Prospectus under the caption
"Description of Securities" to the extent that they constitute matters of law
or legal conclusions, has been reviewed by such counsel and accurately and
fairly summarizes in such counsel's opinion the matters described therein and
to the knowledge of such counsel, there are no outstanding options, warrants,
convertible securities, or other rights to acquire from the Company any
capital stock, except as described in the Registration Statement; in
addition, the forms of certificates evidencing the Company stock comply with
Texas law;
(xiii) To the best of their knowledge and information,
except as set forth in the Prospectus, there is not pending or threatened any
action, suit, proceeding, inquiry or investigation, to which the Company or
its Subsidiary is a party, or to which the property of the Company or its
Subsidiary is subject, before or brought by any court or government agency or
body, which might reasonably be expected to result in any material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its Subsidiary considered as
one enterprise, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of this
Agreement or the performance by the Company of its obligations hereunder; and
all pending legal or governmental proceedings to which the Company or its
Subsidiary is a party or that affect any of their respective properties that
are not described in the Prospectus, including ordinary routine litigation
incidental to the business, could not reasonably be expected to result in a
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
Subsidiary considered as one enterprise.
(xiv) The information in the Prospectus under the
captions "Business and Properties - Legal Proceedings", " -Governmental
Regulation" and "- Properties", "Certain Transactions" and "Description of
Capital Stock" in the Prospectus and Items 24 and 26 of Part II of the
Registration Statement to the extent that such items constitute matters of
law, summaries of legal matters, documents or proceedings, or legal
conclusions, has been reviewed by them and is correct in all material
respects, and there are no legal or governmental actions, suits or
proceedings pending or threatened against the Company or its Subsidiary that
are required to be described in the Prospectus are not described as required
by the Act or the applicable Rules and Regulations.
(xv) All descriptions in the Prospectus of contracts and
other documents are accurate in all material respects; to the best of their
knowledge and information, there are no agreements, no contracts, indentures,
mortgages, loan agreements, notes, leases or other
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instrument required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed as exhibits thereto, the descriptions thereof or
references thereto are correct in all material respects, and to the best of
counsel's knowledge and information, the Company is not in default in the due
performance or observance of any material obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement,
note, lease or other instrument so described, referred to or filed as
exhibits thereto.
(xvi) No authorization, approval, consent or order of any
court or governmental authority or agency (other than under the Act or the
Rules and Regulations, which have been obtained, or as may be required under
the securities or Blue Sky laws of the various states) is required in
connection with the due authorization, execution and delivery of this
Agreement or for the offering, issuance or sale of the Shares to the
Underwriters; and the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated herein and compliance
by the Company with its obligations hereunder (other than performance of the
Company's indemnification and contribution obligations hereunder, concerning
which no opinion need be expressed) will not, whether with or without the
giving of notice or lapse of time or both, conflict with or constitute a
breach or violation of, or default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of
the Company or its Subsidiary pursuant to any material contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which the
Company or its Subsidiary is a party or by which either of them may be
bound, or to which any of the property or assets of the Company or its
Subsidiary is subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or Bylaws of the Company, or
any applicable law, administrative regulation or court decree, provided,
however, no opinion need be rendered concerning state securities or Blue Sky
laws.
(xvii) To the best of such counsel's knowledge and information,
with the exception of the Underwriters' Warrants, no holder of any security
of the Company has any right to require registration of any shares of Common
Stock or any other security of the Company and, except as set forth in the
Registration Statement and Prospectus, all holders of securities of the
Company having rights to registration of such shares of Common Stock, or
other securities, because of the filing of the Registration Statement by the
Company have, with respect to the offering contemplated thereby, waived such
rights or such rights have expired by reason of lapse of time following
notification of the Company's intent to file the Registration Statement, or
have included securities in the Registration Statement pursuant to the
exercise of such rights.
(xviii) The Company is not an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the 1940
Act.
(xix) To the best of such counsel's knowledge and information,
neither the Company nor its Subsidiary is in violation of its charter or
by-laws.
In rendering such opinion, such counsel may rely as to matters of
fact (but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the
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Company and public officials. Such opinion shall not state that it is to be
governed or qualified by, or that it is otherwise subject to, any treatise,
written policy or other document relating to legal opinions, including
without limitation, the Legal Opinion Accord of the ABA Section of Business
Law (1991).
In giving their opinion required by subsection (d)(1) of this
Section, Phillips McFall McCaffrey McVay and Murrah, P.C. shall additionally
state that nothing has come to their attention that would lead them to
believe that the Registration Statement, at the time it became effective,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus, at the effective
date of the Registration Statement (unless the term "Prospectus" refers to a
prospectus which has been provided to the Underwriters by the Company for use
in connection with the offering of the Shares which differs from the
Prospectus declared effective by the Commission, in which case at the time it
is first provided to the Underwriters for such use) or at the Closing Date,
included an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading. Such opinion
may state that such counsel does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and the Prospectus except as otherwise expressly
provided in such opinion, and such counsel need express no opinion or belief
as to the financial statements, schedules, and other financial or statistical
data included in the Registration Statement or Prospectus.
(2) The opinion, dated as of Closing Date, of Robertson &
Williams, Inc., counsel for the Underwriters, in form and substance
satisfactory to you, with respect to the sufficiency of all such corporate
proceedings and other legal matters relating to this Agreement and the
transactions contemplated hereby as you may reasonably require, and the
Company shall have furnished to such counsel such papers, opinions and
information as they request to enable them to pass upon such matters.
(e) At the time of the execution of this Agreement, the
Underwriters shall have received from Ernst & Young LLP a letter dated such
date, in form and substance satisfactory to the Underwriters, to the effect
that:
(1) they are independent public accountants with respect
to the Company and its Subsidiary within the meaning of the Act and the Rules
and Regulations;
(2) it is their opinion that the consolidated balance
sheet and the related statements of income, shareholders' equity and cash
flows of the Company included in the Registration Statement and covered by
their opinion therein comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and Regulations;
(3) based upon limited procedures set forth in detail in
such letter, nothing has come to their attention which causes them to believe
that, at a specified date not more than three days prior to the date of this
Agreement, (A) the unaudited consolidated balance
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sheet and the related statements of income, shareholders' equity and cash
flows of the Company and its Subsidiary included in the Registration
Statement do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and Regulations
or is not presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that of the
audited financial statements included in the Registration Statement, or (B)
at a specified date not more than three days prior to the date of this
Agreement, there has been any change in the capital stock of the Company or
any increase in the combined long term debt of the Company and its Subsidiary
or any decrease in combined net current assets or net assets as compared with
the amounts shown in the December 31, 1996 balance sheet included in the
Registration Statement or, during the period from December 31, 1996 to a
specified date not more than three days prior to the date of this Agreement,
there were any decreases, as compared with the corresponding period in the
preceding year, in combined revenues, net income or net income per share of
the Company and its Subsidiary, except in all instances for changes,
increases or decreases which the Registration Statement and the Prospectus
disclose have occurred or may occur;
(4) in addition to the examination referred to in their
opinion and the limited procedures referred to in clause (3) above, they have
carried out certain specified procedures, not constituting an audit, with
respect to certain amounts, percentages and financial information which are
included in the Registration Statement and Prospectus and which are specified
by the Underwriters, and have found such amounts, percentages and financial
information to be in agreement with the relevant accounting, financial and
other records of the Company and its Subsidiary identified in such letter; and
(5) they have compared the information in the Prospectus
under selected captions with the disclosure requirements of Regulation S-B
and on the basis of limited procedures specified in such letter nothing came
to their attention as a result of the foregoing procedures that caused them
to believe that this information does not conform in all material respects
with the disclosure requirements of Item 402 of Regulation S-B.
(f) At the Closing Date, the Underwriters shall have received
from Ernst & Young LLP a letter, dated as of the Closing Date, to the effect
that they reaffirm the statements made in the letter furnished pursuant to
subsection (e) of this Section 6, except that the specified date referred to
shall be a date not more than three days prior to the Closing Date and, if
the Company has elected to rely on Rule 430A of the 1933 Act Regulations, to
the further effect that they have carried out procedures as specified in
clause (4) of subsection (e) of this Section 6 with respect to certain
amounts, percentages and financial information specified by the Underwriters
and deemed to be a part of the Registration Statement pursuant to Rule
430(A)(b) and have found such amounts, percentages and financial information
to be in agreement with the records specified in such clause (4).
(g) At the time of the execution of this Agreement, the
Underwriters shall have received from Herold, Howard & Madsen, P.C. a letter
dated such date, in form and substance satisfactory to the Underwriters, to
the effect that:
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(1) they are independent public accountants with respect
to the Company and its Subsidiary within the meaning of the Act and the Rules
and Regulations;
(2) it is their opinion that the statements of income,
shareholder's equity and cash flows for the Company; the statement of
operating revenues and direct operating expenses for Mesa Drug, Inc. -
Farmington Store; and the combined statements of operating revenues and
direct operating expenses and combined statement of net assets sold for True
Quality Pharmacies, Inc. -Vistas included in the Registration Statement and
covered by their opinion therein complies as to form in all material respects
with the applicable accounting requirements of the Act and the Rules and
Regulations;
(3) based upon limited procedures set forth in detail in
such letter, nothing has come to their attention which causes them to believe
that, at a specified date not more than three days prior to the date of this
Agreement, there were any decreases, as compared with the corresponding
period in the preceding year, in combined revenues, net income or net income
per share of the Company and its Subsidiary, except in all instances for
changes, increases or decreases which the Registration Statement and the
Prospectus disclose have occurred or may occur;
(4) in addition to the examination referred to in their
opinion and the limited procedures referred to in clause (3) above, they have
carried out certain specified procedures, not constituting an audit, with
respect to certain amounts, percentages and financial information which are
included in the Registration Statement and Prospectus and which are specified
by the Underwriters, and have found such amounts, percentages and financial
information to be in agreement with the relevant accounting, financial and
other records of the Company and its Subsidiary identified in such letter; and
(5) they have compared the information in the Prospectus
under selected captions with the disclosure requirements of Regulation S-B
and on the basis of limited procedures specified in such letter nothing came
to their attention as a result of the foregoing procedures that caused them
to believe that this information does not conform in all material respects
with the disclosure requirements of Item 402 of Regulation S-B.
(h) At the Closing Date, the Underwriters shall have received
from Herold, Howard & Madsen, P.C. a letter, dated as of the Closing Date, to
the effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (g) of this Section 6, except that the specified date
referred to shall be a date not more than three days prior to the Closing
Date and, if the Company has elected to rely on Rule 430A of the 1933 Act
Regulations, to the further effect that they have carried out procedures as
specified in clause (4) of subsection (g) of this Section 6 with respect to
certain amounts, percentages and financial information specified by the
Underwriters and deemed to be a part of the Registration Statement pursuant
to Rule 430(A)(b) and have found such amounts, percentages and financial
information to be in agreement with the records specified in such clause (4).
(i) At the Closing Date, the Common Stock shall have been
approved for
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listing on the American Stock Exchange.
(j) In the event that the Underwriters exercise their option
provided in Section 7 hereof to purchase all or any portion of the Option
Shares, the representations and warranties of the Company contained herein
and the statements in any certificates furnished by the Company hereunder
shall be true and correct as of the Option Closing Date and, at the Option
Closing Date, the Underwriters shall have received:
(1) A certificate, dated the Option Closing Date,
of the President or a Vice President of the Company and of the
Chief Financial or Chief Accounting Officer of the Company
confirming that the certificate delivered at the Closing Date
pursuant to Section 5(c) hereof remains true and correct as of
the Option Closing Date (except that all references in such
Section to "Closing Date" shall be deemed to refer to the
"Option Closing Date").
(2) The opinions of Phillips McFall McCaffrey McVay
and Murrah, P.C., counsel for the Company, in form and
substance satisfactory to counsel for the Underwriters, dated
the Option Closing Date, relating to the Option Shares and
otherwise to the same effect as the opinion required by
Section 5(b)(1) hereof (except that all references in such
Section to "Closing Date" shall be deemed to refer to the
"Option Closing Date").
(3) The opinion of Robertson & Williams, Inc.,
counsel for the Underwriters, dated the Option Closing Date,
relating to the Option Shares to be purchased on the Option
Closing Date and otherwise to the same effect as the opinion
required by Section 5(b)(2) hereof (except that all references
in such Section to "Closing Date" shall be deemed to refer to
the "Option Closing Date").
(4) A letter from Ernst & Young LLP in form and
substance satisfactory to the Underwriters and dated the
Option Closing Date, substantially the same in form and
substance as the letter furnished to the Underwriters pursuant
to Section 5(e) hereof, except that the "specified date" in
the letter furnished pursuant to this Section 6(h)(4) shall be
a date not more than three days prior to the Option Closing
Date.
(5) A letter from Herold, Howard & Madsen, P.C. in
form and substance satisfactory to the Underwriters and dated
the Option Closing Date, substantially the same in form and
substance as the letter furnished to the Underwriters pursuant
to Section 5(g) hereof, except that the "specified date" in
the letter furnished pursuant to this Section 6(h)(5) shall be
a date not more than three days prior to the Option Closing
Date.
(k) The Company and the Underwriters shall have entered into
the Warrant Agreement and the Company shall have sold to the Underwriters the
Underwriters' Warrants, which shall be in the form attached as an exhibit to
the Warrant Agreement.
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If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be
terminated by Capital West by notice to the Company at any time at or prior
to Closing Date, and such termination shall be without liability of any party
to any other party except as provided in Section 4 and except that Sections
4(j) and 8 shall survive any such termination and remain in full force and
effect.
7. OPTION SHARES.
(a) On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth, the
Company hereby grants to the several Underwriters, for the purpose of
covering over-allotments in connection with the distribution and sale of the
Firm Shares only, a non-transferable option to purchase up to an aggregate
180,000 Option Shares at the purchase price per share for the Firm Shares set
forth in Section 3 hereof. Such option may be exercised by Capital West on
behalf of the several Underwriters on one occasion in whole or in part during
the period of 30 days from and after the date on which the Firm Shares are
initially offered to the public, by giving notice to the Company. The number
of Option Shares to be purchased by each Underwriter upon the exercise of
such option shall be the same proportion of the total number of Option Shares
to be purchased by the several Underwriters pursuant to the exercise of such
option as the number of Firm Shares purchased by such Underwriter (set forth
in SCHEDULE A hereto) bears to the total number of Firm Shares purchased by
the several Underwriters (set forth in SCHEDULE A hereto), adjusted by the
Underwriters in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in same day funds, payable to the order of the Company. Such
delivery and payment shall take place at the offices of Capital West
Securities, Inc., 211 N. Robinson, 16th Floor, Oklahoma City, Oklahoma 73102
or at such other place as may be agreed upon between the Underwriters and the
Company on the Option Closing Date, if written notice of the exercise of such
option is received by the Company not later than three full business days
prior to the Option Closing Date.
The certificates for the Options Shares so to be delivered will
be made available to you at such office or other location including, without
limitation, in Oklahoma City, as you may reasonably request for checking at
least two full business days prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to
be made at least three full days prior to such date of payment and delivery.
If the Underwriters so elect, delivery of the Shares may be made by credit
through full fast transfer to the accounts at Depository Trust Company by the
Underwriters.
It is understood that Capital West, individually, and not as
the representative of the Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior
to the date of payment and delivery for the Option Shares to be
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purchased by such Underwriter or Underwriters. Any such payment by Capital
West shall not relieve any Underwriter of any of its or their obligations
hereunder.
(b) Upon exercise of any option provided for in Section 7(a)
hereof the obligations of the Underwriters to purchase such Option Shares
will be subject (as of the date hereof and as of the date of payment for such
Option Shares) to the accuracy of and compliance with the representations and
warranties of the Company herein, to the accuracy of the statements of the
Company and officers of the Company made pursuant to the provisions hereof,
to the performance by the Company of their respective obligations hereunder,
and to the condition that all proceedings taken at or prior to the payment
date in connection with the sale and transfer of such Option Shares shall be
satisfactory in form and substance to you and to Underwriters' counsel, and
you shall have been furnished with all such documents, certificates and
opinions as you may reasonably request in order to evidence the accuracy and
completeness of any of the representations, warranties or statements, the
performance of any of the covenants of the Company or the compliance with any
of the conditions herein contained.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, as incurred, to which such Underwriter may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any breach of
any representation, warranty, agreement or covenant of the Company herein
contained, or (ii) any untrue statement or alleged untrue statement made by
the Company in Section 2 hereof, or (iii) any untrue statement or alleged
untrue statement of a material fact contained (A) in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or (B) in any blue sky application or other document
executed by the Company specifically for that purpose or based upon written
information furnished by the Company filed in any state or other jurisdiction
in order to qualify any or all of the Shares under the securities laws
thereof (any such application, documents or information being hereinafter
called a "Blue Sky Application"), or (iv) the omission or alleged omission
to state in the Registration Statement or any amendment thereto a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or the omission or alleged omission to state in any Preliminary
Prospectus, the Prospectus or any supplement thereto or in any Blue Sky
Application a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; and shall reimburse each Underwriter on a
regular basis for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending against or
appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action,; except that the Company shall not be liable in
any such case to the extent, but only to the extent, that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, or any
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter
specifically for use in the
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preparation thereof and, provided further, that the indemnity agreement
provided in this Section 8(a) with respect to any Preliminary Prospectus
shall not inure to the benefit of any Underwriter from whom the person
asserting any losses, claims, charges, liabilities or litigation based upon
any untrue statement or alleged untrue statement of material fact or omission
or alleged omission to state therein a material fact purchased Shares, if a
copy of the Prospectus in which such untrue statement or alleged untrue
statement or omission or alleged omission was corrected has not been sent or
given to such person within the time required by the Act and the Rules and
Regulations thereunder, unless such failure is the result of noncompliance by
the Company with Section 4(c) hereof.
(b) Each Underwriter severally, but not jointly, shall
indemnify and hold harmless the Company against any losses, claims, damages
or liabilities, joint or several, as incurred, to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained (A) in the Registration Statement, Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or (B) in any Blue Sky
Application, or (ii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto a material fact required to
be stated therein or necessary to make the statements therein not misleading,
or the omission or alleged omission to state in any Preliminary Prospectus,
the Prospectus or any supplement thereto or in any Blue Sky Application a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; except that such indemnification shall be available in
each such case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company through the Underwriters by or on behalf of such Underwriter
specifically for use in the preparation thereof; and shall reimburse the
Company on a regular basis any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending against any such
loss, claim, damage, liability or action, notwithstanding the possibility
that payments for such expenses might later be held to be improper, in which
case the person receiving them shall promptly refund them.
(c) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections
8(a) and (b) hereof, including the amounts of any requested reimbursement
payments, the method of determining such amounts and the basis on which such
amounts shall be apportioned among the reimbursing parties, shall be settled
by arbitration conducted pursuant to the Code of Arbitration Procedure of the
National Association of Securities Dealers, Inc. In the event the party
giving written notice of its demand for arbitration does not designate in
such written notice its preferences as to the arbitration tribunal, then the
party responding to said demand or notice is authorized to do so. Any such
arbitration will be limited to the operation of the interim reimbursement
provisions contained in Sections 8(a) and (b) hereof and will not resolve the
ultimate propriety or enforceability of the obligation to indemnify for
expenses which is created by the provisions of Sections 8(a), 8(b) and 8(c).
(d) Promptly after receipt by an indemnified party under
subsection (a) or (b)
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above of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify the indemnifying party
in writing of the claim or the commencement of that action; the failure to
notify the indemnifying party shall not relieve it from any liability which
it may have to an indemnified party otherwise than under such subsection. If
any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party shall
be entitled to participate therein and, to the extent that it wishes, jointly
with any other similarly notified indemnifying party, to assume the defense
thereof with counsel reasonably satisfactory to the indemnified party;
provided, however, if the defendants in any such action include both the
indemnified parties and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be legal defenses available to
it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel to assume such legal defenses
and to otherwise participate in the defense of such action on behalf of such
indemnified party or parties. After notice from the indemnifying party to the
indemnified party of its election to assume the defense of such claim or
action, the indemnifying party shall not be liable to the indemnified party
under such subsection for any legal or other expenses subsequently incurred
by the indemnified party in connection with the defense thereof unless (i)
the indemnified party shall have employed separate counsel in accordance with
the proviso to the preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party, representing all the indemnified parties under Section
8(a) and 8(b) hereof who are parties to such action), (ii) the indemnifying
party shall not have employed counsel satisfactory to the indemnified party
to represent the indemnified party within a reasonable time after notice of
commencement of the action, or (iii) the indemnifying party has authorized
the employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the
indemnifying party shall have approved the terms of such settlement;
provided, however, that such consent shall not be unreasonably withheld.
(e) In order to provide for just and equitable contribution in
any action in which a claim for indemnification is made pursuant to this
Section 8 for which it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact
that this Section 8 provides for indemnification in such case, all the
parties hereto shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Underwriters are responsible pro rata for the
portion represented by the percentage that the underwriting discount bears to
the initial public offering price, and the Company is responsible for the
remaining portion; provided, however, that (i) no Underwriter shall be
required to contribute any amount in excess of the underwriting discount
applicable to the Shares purchased by such Underwriter, and (ii) no person
guilty of a fraudulent misrepresentation (within the meaning of Section 11(f)
of the Act) shall be entitled to a contribution from any person who is not
guilty of such fraudulent misrepresentation. This subsection (d) shall not
be operative as to any Underwriter to the extent that the Company has
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received indemnity under this Section 8.
(f) The obligations of the Company under this Section 8 shall
be in addition to any liability which the Company may otherwise have, and
shall extend, upon the same terms and conditions, to each officer and
director of each Underwriter and to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability that
the respective Underwriters may otherwise have, and shall extend, upon the
same terms and conditions, to each director of the Company (including any
person who, with his consent, is named in the Registration Statement as about
to become a director of the Company), to each officer of the Company who has
signed the Registration Statement and to each person, if any, who controls
the Company within the meaning of the Securities Act, in either case, whether
or not such person is a party to any action or proceeding.
(g) The parties to this Agreement hereby acknowledge that they
are sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including without limitation the
provisions of this Section 8, and are fully informed regarding said
provisions. They further acknowledge that the provisions of this Section 8
fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required
by the Act and the Exchange Act. The parties are advised that Federal or
state public policy, as interpreted by the courts in certain jurisdictions,
may be contrary to certain of the provisions of this Section 8, and the
parties hereto hereby expressly waive and relinquish any right or ability to
assert such public policy as a defense to a claim under this Section 8 and
further agree not to attempt to assert any such defense.
9. Representations, Warranties and Agreements to Survive DELIVERY
. All representations, warranties, covenants and agreements of the Company
contained in this Agreement (including, without limitation, the agreements of
the Company set forth in Sections 4(i)-(n)), or contained in certificates of
officers of the Company submitted pursuant hereto, and the indemnity and
contribution agreements contained in Section 8 hereof, shall remain operative
and in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or controlling person, or by or on behalf of the
Company, or any of its officers, controlling persons or directors and shall
survive delivery of the Shares to the several Underwriters hereunder or
termination of this Agreement.
10. SUBSTITUTION OF UNDERWRITER. If any Underwriter or
Underwriters shall fail to take up and pay for the number of Firm Shares
agreed by such Underwriter or Underwriters to be purchased hereunder upon
tender of such Firm Shares in accordance with the terms hereof, and if the
aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters so agreed but failed to purchase does not exceed 10% of the Firm
Shares, the remaining Underwriters shall be obligated, severally in
proportion to their respective commitments hereunder, to take up and pay for
the Firm Shares of such defaulting Underwriter or Underwriters.
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<PAGE>
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters
agreed but failed to take up and pay for exceeds 10% of the Firm Shares, the
remaining Underwriters shall have the right, but shall not be obligated, to
take up and pay for (in such proportions as may be agreed upon among them)
the Firm Shares which the defaulting Underwriter or Underwriters so agreed
but failed to purchase. If such remaining Underwriters do not, at the
Closing Date, take up and pay for the Firm Shares which the defaulting
Underwriter or Underwriters so agreed but failed to purchase, the Closing
Date shall be postponed for twenty-four hours to allow the several
Underwriters the privilege of substituting within twenty-four hours
(including non-business hours) another underwriter or underwriters (which may
include any non-defaulting Underwriter) satisfactory to the Company. If no
such underwriter or underwriters shall have been substituted as aforesaid by
such postponed Closing Date, the Closing Date may, at the option of the
Company, be postponed for a further twenty-four hours, if necessary to allow
the Company the privilege of finding another underwriter or underwriters,
satisfactory to you, to purchase the Firm Shares which the defaulting
Underwriter or Underwriters so agreed but failed to purchase. If it shall be
arranged for the remaining Underwriters or substituted underwriters to take
up the Firm Shares of the defaulting Underwriter or Underwriters as provided
in this Section, (i) the Company shall have the right to postpone the time of
delivery for a period of not more than seven full business days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and
the Company agrees promptly to file any amendments to the Registration
Statement or supplements to the Prospectus which may thereby be made
necessary, and (ii) the respective number of Firm Shares to be purchased by
the remaining Underwriters and substitute underwriters shall be taken as the
basis of their underwriting obligation. If the remaining Underwriters shall
not take up and pay for all such Firm Shares so agreed to be purchased by the
defaulting Underwriter or Underwriters or substitute another underwriter or
underwriters as aforesaid and the Company shall not find or shall not elect
to seek another underwriter or underwriters for such Firm Shares as
aforesaid, then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section, neither the Company shall be liable to
any Underwriter (except as provided in Sections 5 and 8 hereof )nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than
for some reason permitted under this Agreement, to purchase the number of
Firm Shares agreed by such Underwriter to be purchased hereunder, which
Underwriter shall remain liable to the Company and the other Underwriters for
damages, if any, resulting from such default) be liable to the Company
(except to the extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section.
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<PAGE>
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the later of (i)
execution of this Agreement, or (ii) when notification of the effectiveness
of the Registration Statement has been released by the Commission.
(b) You shall have the right to terminate this Agreement by
giving notice as hereinafter specified at any time at or prior to the Closing
Date (i) if the Company shall have failed, refused or been unable, to perform
any agreement on its part to be performed, or because any other condition of
the Underwriters' obligations hereunder required to be fulfilled by the
Company is not fulfilled including, without limitation, any change in the
financial condition, earnings, operations, business, management, technical
staff, or business prospects of the Company from that set forth in the
Registration Statement or Prospectus which, in your sole judgment, is
material and adverse, or (ii) if trading on the New York Stock Exchange or
the Nasdaq Stock Market shall have been suspended, or minimum or maximum
prices for trading shall have been fixed, or maximum ranges for prices for
securities shall have been required on the New York Stock Exchange or the
Nasdaq Stock Market, by the New York Stock Exchange, the Nasdaq Stock Market
or by order of the Commission or any other governmental authority having
jurisdiction, or if a banking moratorium shall have been declared by Federal,
New York, Oklahoma or Texas authorities, or (iii) if on or prior to the
Closing Date, or on or prior to any later date on which Option Shares are to
be purchased, as the case may be, the Company shall have sustained a loss by
strike, fire, flood, earthquake, accident or other calamity of such character
as to interfere materially and adversely with the conduct of the business and
operations of the Company regardless of whether or not such loss shall have
been insured, or (iv) if there shall have been a material adverse change in
the general political or economic conditions or financial markets in the
United States as in your reasonable judgment makes it inadvisable or
impracticable to proceed with the offering, sale and delivery of the Shares,
or (v) if on or prior to the Closing Date, or on or prior to any later date
on which Option Shares are to be purchased, as the case may be, there shall
have been an outbreak or escalation of hostilities or other international or
domestic calamity, crises or material adverse change in political, financial
or economic conditions, the effect of which on the financial markets of the
United States is such as to make it in your reasonable judgment, inadvisable
to proceed with the marketing of the Shares. In the event of termination
pursuant to this Section 11(b), the Company shall remain obligated to pay
costs and expenses pursuant to Section 4(k), 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 11, you shall
promptly notify the Company by telephone or telecopy, in each case confirmed
by letter. If the Company shall elect to prevent this Agreement from
becoming effective, the Company shall promptly notify you by telephone or
telecopy, in each case, confirmed by letter.
12. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been given if mailed or transmitted
by any standard form of telecommunication. Notices to the Underwriters shall
be directed to the Underwriters in care of Capital West Securities, Inc., 211
N. Robinson, 16th Floor, One Leadership Square, Oklahoma
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<PAGE>
City, Oklahoma 73102, attention of Robert O. MacDonald; notices to the
Company shall be directed to it at 275 W. Princeton Drive, Princeton, Texas
75407, attention of Rick McCord.
13. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company and their respective
executors, administrators, successors, and assigns. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any
person or corporation, other than the parties hereto and their respective
executors, administrators, successors, and assigns and the controlling
persons and officers and directors referred to in Section 8 hereof any legal
or equitable right, remedy or claim under or in respect of this Agreement or
any provisions herein contained. This Agreement and all conditions and
provisions hereof are intended to be for the sole and exclusive benefit of
the parties hereto and their respective executors, administrators,
successors, and assigns and said controlling persons and said officers and
directors, and for the benefit of no other person or corporation. No
purchaser of the Shares from any Underwriter shall be construed to be a
successor by reason merely of such purchase.
14. GOVERNING LAW. This Agreement and the Pricing Agreement shall
be governed by and construed in accordance with the laws of the State of
Oklahoma applicable to agreements made and to be performed in said State.
Specified times of day refer to Central time.
15. COUNTERPARTS. This Agreement may be signed in several
counterparts, each of which will constitute an original.
* * * * * * *
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<PAGE>
If the foregoing correctly sets forth your understanding of our
agreement, please sign in the space provided below for that purpose,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Underwriter and the Company in accordance with its
terms.
HORIZON PHARMACIES, INC.
By:
----------------------------------------
Rick McCord, President
CONFIRMED AND ACCEPTED, as of the date first above written:
CAPITAL WEST SECURITIES, INC.
By:
----------------------------------------
Robert O. McDonald, Chairman
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<PAGE>
SCHEDULE A
UNDERWRITER SHARES PURCHASED
----------- ----------------
Capital West Securities, Inc.
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
HORIZON PHARMACIES, INC.
HORIZON Pharmacies, Inc. (the "Corporation"), pursuant to the provisions
of Section 4.07 of the Business Corporation Act (the "Act") does hereby adopt
these Amended and Restated Articles of Incorporation (the "Amended Articles")
which accurately copy the Articles of Incorporation and all amendments
thereto that are in effect to date (the "Old Articles") and further amend
such Old Articles as hereinafter set forth, and which contain no other change
in any provision thereof.
Section One
The Amended Articles restate and integrate and further amend the Old
Articles by substituting for the provisions of the Old Articles in their
entirety the provisions of the Amended Articles set forth in Section Five
hereof. The amendments effected by these Amended Articles affect the Old
Articles as follows:
1) by amending Article III to delete the reference to the retail
pharmacy business;
2) by amending Article IV to increase the number of authorized shares
of capital stock from 1,000,000 to 15,000,000 and to designate
14,000,000 of such shares as common stock and 1,000,000 of such
shares as preferred stock and to decrease the par value of the
common stock from $1.00 per share to $.01 per share and to set the
par value of the preferred stock at $.01 per share;
3) by amending Article V to substitute the words "labor done" for the
word "services;"
4) by amending Article VI to provide for a new registered agent;
5) by amending Article VII to provide that the number of directors shall
be as set specified by the Corporation's Bylaws;
6) by adding an Article VIII to permit the Board of Directors to adopt,
amend or repeal the Corporation's Bylaws;
7) by adding an Article IX to prohibit shareholder action by written
consent without prior approval of the Board of Directors;
8) by adding an Article X to provide for limitation of liability and
indemnification of the Corporation's officers and directors;
9) by adding an Article XI to eliminate any preemptive shareholder
rights;
10) by adding an Article XII to eliminate any cumulative voting rights;
11) by adding an Article XIII to prohibit certain business combinations
between the Corporation and certain affiliated persons; and
12) by adding an Article XIV to provide for the further amendment of the
Articles of Incorporation;
amendart.no2
<PAGE>
Section Two
Each amendment made by these Amended Articles has been effected in
conformity with the provisions of the Act.
Section Three
Each one (1) share of common stock, par value $1.00 per share, of the
Corporation issued and outstanding or held by the Corporation as treasury
stock, immediately prior to the time these Amended Articles are filed with
the Secretary of State of the State of Texas, shall be and are hereby
automatically reclassified and changed (without any further act) into two (2)
shares of Common Stock, par value $.01 per share, of the Corporation.
Section Four
The number of shares outstanding was 541,212; the number of shares entitled
to vote on these Amended Articles was 541,212; the number of shares voted for
such Amended Articles and the amendments effected thereby was _____ and the
number of shares voted against such Amended Articles and the amendments effected
thereby was ___________.
Section Five
The Old Articles are hereby superseded by the following Amended Articles,
which Amended Articles accurately copy the entire text thereof as amended:
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
HORIZON PHARMACIES, INC.
ARTICLE I
The name of the corporation is HORIZON Pharmacies, Inc.
ARTICLE II
The period of the Corporation's duration is perpetual.
ARTICLE III
The purpose for which the Corporation is organized is to engage in any
and all lawful business or activity for which corporations may be organized
under the Business Corporation Act (the "Act") of the State of Texas.
ARTICLE IV
Section 1. The amount of total authorized capital stock of the
Corporation is 15,000,000 shares, of which 14,000,000 shares shall be common
stock, having a par value of $.01 per share ("Common Stock"), and 1,000,000
shares shall be preferred stock, having a par value of $.01 per share
("Preferred Stock").
amendart.no2 2
<PAGE>
Section 2. Except for and subject to those rights expressly granted to
the holders of Preferred Stock, or any series thereof, by the Board of
Directors of the Corporation (the "Board of Directors"), pursuant to the
authority hereby vested in the Board of Directors or as provided by the laws
of the State of Texas, the holders of the Corporation's Common Stock shall
have exclusively all rights of shareholders and shall possess exclusively all
voting power. Each holder of Common Stock of the Corporation shall be
entitled, on each matter submitted for a vote to holders of Common Stock, to
one vote for each share of Common Stock standing in such holder's name on the
books of the Corporation.
Section 3. The Board of Directors is hereby expressly authorized, at
any time and from time to time by a resolution or resolutions, to divide the
shares of Preferred Stock or the shares of any series thereof, and to fix and
determine in the resolution or resolutions providing for the issue of shares
of Preferred Stock of a particular series the voting rights, if any, of the
holders of shares of such series, the designations, preferences, and
relative, participating, optional and other special rights of such series,
and the qualifications, limitations and restrictions thereof, to the fullest
extent now or hereafter permitted by the laws of the State of Texas. The
voting rights, if any, of each such series and the preferences and relative,
participating, optional and other special rights of each such series, and the
qualifications, limitations and restrictions thereof, if any, may differ from
those of any and all other series. Unless otherwise provided in the
resolution or resolutions of the Board of Directors providing for the
issuance thereof, shares of any series of Preferred Stock that shall be
issued and thereafter acquired by the Corporation through purchase,
redemption, exchange, conversion or otherwise shall return to the status of
authorized but unissued Preferred Stock.
Without limiting the generality of the foregoing authority of the Board
of Directors, the Board of Directors from time to time may (if otherwise
permitted under the Act):
(1) designate a series of Preferred Stock, which may be distinguished by
number, letter or title from other Preferred Stock of the Corporation;
(2) fix and thereafter increase or decrease (but not below the number of
shares thereof then outstanding) the number of shares of Preferred
Stock that shall constitute such series;
(3) provide for dividends on shares of Preferred Stock of such series and,
if provisions are made for dividends, determine the dividend rate and
the times at which holders of shares of Preferred Stock of such series
shall be entitled to receive the dividends, whether the dividends
shall be cumulative and, if so, from what date or dates, and the other
conditions, if any, including rights of priority, if any, upon which
the dividends shall be paid;
(4) determine the rights, if any, to which holders of the shares of
Preferred Stock of such series shall be entitled in the event of any
liquidation, dissolution or winding up of the Corporation; provided,
however, that in the event of any such liquidation, dissolution or
winding up of the Corporation, the holders of the shares of Preferred
Stock of such series shall not be entitled to be paid out of the
assets of the Corporation available for distribution to its
shareholders, whether from capital, surplus or earnings, an amount in
cash greater than $100.00 per share, plus accrued and unpaid dividends
to the date fixed for liquidation, dissolution or winding up, whether
or not declared;
(5) provide for the redemption or purchase of shares of Preferred Stock of
such series and, if provisions are made for redemption, determine the
time or times and the price or prices at which the shares of Preferred
Stock of such series shall be subject to redemption in whole or in
part, and the other terms and conditions, if any, on which shares of
Preferred Stock of such series may be redeemed or purchased;
amendart.no2 3
<PAGE>
(6) provide for a sinking fund or purchase fund for the redemption or
purchase of shares of Preferred Stock of such series and, if any such
fund is so provided for the benefit of such shares of Preferred Stock,
the amount of such fund and the manner of its application;
(7) determine the extent of the voting rights, if any, of the shares of
Preferred Stock of such series, including but not limited to the right
of the holders of such shares to vote as a separate class acting alone
or with the holders of one or more other series of Preferred Stock and
the right to have more (or less) than one vote per share;
(8) provide for whether or not the shares of Preferred Stock of such
series shall be convertible into, or exchangeable for, shares of any
other class or classes of capital stock, or any series thereof, of the
Corporation and, if so convertible or exchangeable, determine the
conversion or exchange price or rate, the adjustments thereof and the
other terms and conditions, if any, on which such shares of Preferred
Stock shall be so convertible or exchangeable; and
(9) provide for any other preferences, any relative, participating,
optional or other special rights, any qualifications, limitations or
restrictions thereof, or any other terms or provisions of shares of
Preferred Stock of such series as the Board of Directors may deem
appropriate or desirable.
Section 4. Shares of Common Stock or Preferred Stock may be issued by
the Corporation from time to time for such consideration, having a value of
not less than the par value, if any, thereof, as is determined from time to
time by the Board of Directors. Any and all shares issued and for which full
consideration has been paid or delivered shall be deemed fully paid stock and
the holder thereof shall not be liable for any further payment thereon.
Section 5. The Corporation may issue rights and options to purchase
shares of Common Stock or Preferred Stock of the Corporation to directors,
officers or employees of the Corporation or any affiliate thereof, and no
shareholder approval or ratification of any such issuance of rights and
options shall be required.
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 350 N. St. Paul Street, Dallas, Dallas County, Texas 75201. The name of
its registered agent at such address is CT Corporation System.
ARTICLE VII
The number of directors which shall constitute the whole Board of
Directors of the Corporation shall be as specified pursuant to the Bylaws of
the Corporation and may be altered from time to time as may be provided
therein. The names and addresses of the persons currently serving as
directors are as follows and such persons shall serve as directors until the
annual meeting of the shareholders of the Corporation or until their
successors are duly elected and qualified:
amendart.no2 4
<PAGE>
Rick D. McCord, R.Ph. 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, R.Ph. 275 W. Princeton Drive, Princeton, Texas 75407
Robert D. Mueller, R.Ph. 275 W. Princeton Drive, Princeton, Texas 75407
ARTICLE VIII
The Board of Directors of the Corporation is expressly authorized to
adopt, amend or repeal the Bylaws of the Corporation. The shareholders of the
Corporation may not adopt, amend or repeal the Bylaws of the Corporation
other than by the affirmative vote of 66 2/3% of the combined voting power of
all outstanding voting securities of the Corporation entitled to vote
generally in the election of directors of the Board of Directors of the
Corporation ("Voting Power"), voting together as a single class. In addition
to any affirmative vote required by applicable law and in addition to any
vote of the holders of any series of Preferred Stock provided for or fixed
pursuant to the provisions of Article IV of these Articles of Incorporation,
any alteration, amendment or repeal relating to this Article VIII must be
approved by the affirmative vote of the holders of at least 66 2/3% of the
Voting Power, voting together as a single class.
ARTICLE IX
No action that is required or permitted to be taken by the shareholders
of the Corporation at any annual or special meeting of shareholders may be
effected by written consent of shareholders in lieu of a meeting of
shareholders, unless the action to be effected by written consent of
shareholders and the taking of such action by such written consent have
expressly been approved in advance by the Board.
In addition to any affirmative vote required by applicable law and in
addition to any vote of the holders of any series of Preferred Stock provided
for or fixed pursuant to the provisions of Article IV of these Articles of
Incorporation, any alteration, amendment or repeal relating to this Article
IX must be approved by the affirmative vote of the holders of at least 66 2/3%
of the Voting Power, voting together as a single class.
ARTICLE X
Section 1. In addition to any other limitation of liability for
directors provided for at law (including the Act), the Articles of
Incorporation or the Bylaws, no director of this Corporation shall be
personally liable to the Corporation or any of its shareholders for monetary
damages for an act or omission in the director's capacity as a director,
except that this Section 1 of Article X does not eliminate or limit the
liability of a director to the extent the director is found liable for: (i)
a breach of the director's duty of loyalty to the Corporation or its
shareholders; (ii) an act or omission not in good faith that constitutes a
breach of duty of the director to the Corporation or an act or omission that
involves intentional misconduct or knowing violation of the law; (iii) a
transaction from which the director received an improper benefit, whether or
not the benefit resulted from an action taken within the scope of the
director's office; (iv) an act or omission for which the liability of a
director is expressly provided by an applicable statute. Neither the
amendment nor repeal of this Section 1 of Article X, nor the adoption of any
provisions of the Articles of Incorporation of this Corporation inconsistent
with this Section 1 of Article X, shall eliminate or reduce the effect this
Section 1 of Article X in respect of any matter occurring, or any cause of
action, suit or claim that, but for this Section 1 of Article X, would accrue
or arise, prior to such amendment, repeal or adoption of any inconsistent
provision. If, after approval of this Section 1 of Article X, the Act, the
Texas Miscellaneous Corporation Laws Act (the "TMCLA") or any other laws of
the State of Texas are enacted or amended to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of this Corporation shall be eliminated or limited to
the fullest extent permitted by such laws as so enacted or amended from time
to time.
amendart.no2 5
<PAGE>
Section 2.
(1) The Corporation shall indemnify a person who was, is, or is threatened
to be made a named defendant or respondent in a proceeding because the
person is or was a director to the fullest extent and manner
permissible under the Act or applicable rules, regulations or laws.
(2) A person shall be indemnified under paragraph (1) of this Section 2 of
Article X against judgments, penalties (including excise and similar
taxes), fines, settlements, and reasonable expenses actually incurred
by the person in connection with the proceeding; but if the person is
found liable to the Corporation or is found liable on the basis that
personal benefit was improperly received by the person, the
indemnification (a) shall be limited to reasonable expenses actually
incurred by the person in connection with the proceeding and (b) shall
not be made in respect of any proceeding in which the person shall
have been found liable for willful or intentional misconduct in the
performance of his duty to the Corporation.
(3) The mandatory indemnification provision set forth in paragraph (1) of
this Section 2 of Article X shall be deemed to constitute
authorization of indemnification in the manner required by the Act
even though this provision may not have been adopted or authorized in
the same manner as the determination that indemnification is
permissible.
(4) The Corporation shall indemnify a director against reasonable expenses
incurred by him in connection with a proceeding in which he is a named
defendant or respondent because he is or was a director if he has been
wholly successful, on the merits or otherwise, in the defense of the
proceeding.
(5) Reasonable expenses incurred by a director who was, is, or is
threatened to be made a named defendant or respondent in a proceeding
shall be paid or reimbursed by the Corporation in advance of the final
disposition of the proceeding (and without any prior determination or
authorization being first required) after (a) the Corporation receives
a written affirmation by the director of his good faith belief that he
has met the standard of conduct necessary for indemnification under
this Article X and the Act, and (b) a written undertaking by or on
behalf of the director to repay the amount paid or reimbursed if it is
ultimately determined that he has not met that standard or if it is
ultimately determined that indemnification of the director against
expenses incurred by him in connection with that proceeding is
prohibited by the Act. This mandatory payment or reimbursement
provision shall be deemed to constitute authorization of that payment
or reimbursement.
(6) The written undertaking required by paragraph (5) of this Section 2 of
Article X must be an unlimited general obligation of the director that
need not be secured. It may be accepted without reference to financial
ability to make repayment.
(7) Notwithstanding any other provision of this Article X, the Corporation
shall pay or reimburse expenses incurred by a director in connection
with his appearance as a witness or other participation in a
proceeding at a time when he is not a named defendant or respondent in
the proceeding.
(8) An officer of the Corporation shall be indemnified as, and to the same
extent, provided by the Act and this Article X for a director and is
entitled to indemnification to the same extent as a director. The
Corporation shall indemnify and advance expenses to an officer, and
may indemnify advance expenses to an employee or agent, of the
Corporation to the same extent that it is authorized to indemnify and
advance expenses to directors under this Article X.
amendart.no2 6
<PAGE>
(9) The Corporation may indemnify and advance expenses to persons who are
not or were not officers, employees or agents of the Corporation, but
who are or were serving at the request of the Corporation as a
director, officer, partner, venturer, proprietor, trustee, employee,
agent or similar functionary of another foreign or domestic
corporation, a partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise to the same extent that it
is authorized to indemnify and advance expenses to directors under
this Article X.
(10) The Corporation shall indemnify and advance expenses to an officer,
and may indemnify and advance expenses to an employee, agent or person
indemnified in paragraph (9) of this Section 2 of Article X and who is
not a director, to such further extent, consistent with law, as may be
provided by the Articles of Incorporation of this Corporation, the
bylaws, general or specific action of the Board of Directors of this
Corporation, or contract or is permitted or required by common law.
Section 3. The Corporation may purchase and maintain insurance or another
arrangement on behalf of any person who is or was a director, officer, employee
or agent of this Corporation or who is or was serving at the request of this
Corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise, against any liability asserted against him and
incurred by him in such a capacity or arising out of his status as such a
person, whether or not the Corporation would have the power to indemnify him
against that liability under this Article X. If the insurance or other
arrangement is with a person or entity that is not regularly engaged in the
business of providing insurance coverage, the insurance or arrangement may
provide for payment of a liability with respect to which the Corporation would
not have the power to indemnify the person only if including coverage for the
additional liability has been approved by the shareholders of the Corporation.
Section 4. Any indemnification of or advance of expenses to a director in
accordance with this Article X shall be reported in writing to the shareholders
of this Corporation with or before the notice or waiver of notice of the next
shareholders' meeting or with or before the next submission to shareholders of a
consent to action without a meeting pursuant to the Act and, in any case, within
the twelve month period immediately following the date of the indemnification or
advance.
For purposes of this Article X, the Corporation is deemed to have requested
a director to serve an employee benefit plan whenever the performance by him of
his duties to the Corporation also imposes duties on or otherwise involve
services by him to the plan or participants or beneficiaries of the plan. Excise
taxes assessed on a director with respect to an employee benefit plan pursuant
to applicable law are deemed fines. Action taken or omitted by him with respect
to a employee benefit plan in the performance of his duties for a purpose
reasonably believed by him to be in the best interest of the participants and
beneficiaries of the plan is deemed to be for a purpose which is not opposed to
the best interest of the Corporation.
Section 5. As used in this Article X the following terms shall have the
following meanings:
(1) The terms "corporation," "director," "expenses," and "proceeding,"
shall have the meanings given such terms in Art. 2.02-1 of the Act.
(2) The term "Act" means the Texas Business Corporation Act as now in
effect or as hereafter amended.
Section 6. This Article X shall be given its broadest effect and
application permissible under the Act and other applicable law and only to such
extent. If it is finally determined by a court of competent jurisdiction that
this Article X is invalid, illegal or unenforceable in any respect or respects,
it shall nevertheless be
amendart.no2 7
<PAGE>
enforceable to the extent and given its broadest effect and application found
by such court to be consistent with the Act and other applicable law.
Section 7. The rights of indemnification and reimbursement provided
herein shall not be exclusive of any other rights to which such person may be
entitled by law, agreement, general or specific action of the board of
directors, shareholders' vote or otherwise.
ARTICLE XI
No shareholder of the Corporation shall have any preemptive or
preferential right whatsoever to acquire additional, unissued, or treasury
shares of the Corporation, or securities of the Corporation convertible into
or carrying a right to subscribe to or acquire shares of any class of stock
of the Corporation.
ARTICLE XII
Directors shall be elected by a plurality of the votes cast by the
holders of shares entitled to vote in the election of directors at a meeting
of shareholders at which a quorum is present. Cumulative voting in the
election of directors of the corporation is expressly denied.
ARTICLE XIII
(A) The Corporation shall not, directly or indirectly, enter into or
engage in a business combination with an affiliated shareholder, or any
affiliate or associate of such affiliated shareholder, during the three (3)
year period immediately following such affiliated shareholder's share
acquisition date unless:
(1) the business combination or the purchase or acquisition of
shares of the Corporation made by such affiliated shareholder
on the affiliated shareholder's share acquisition date is
approved by the board of directors of the Corporation before
the affiliated shareholder's share acquisition date; or
(2) the business combination is approved, by the affirmative vote
of the holders of at least two-thirds of the issued and
outstanding voting shares of the Corporation not beneficially
owned by such affiliated shareholder or an affiliate or
associate of such affiliated shareholder, at a meeting of
shareholders and not by written consent, duly called for that
purpose not less than six months after the affiliated
shareholder's share acquisition date.
(B) Article XIII(A) shall not apply to:
(1) a business combination of the Corporation with an affiliated
shareholder that became an affiliated shareholder inadvertently,
if the affiliated shareholder:
(a) as soon as practicable divests itself of a sufficient number
of the voting shares of the Corporation so that it no longer
is the beneficial owner, directly or indirectly, of twenty
percent (20%) or more of the issued and outstanding voting
shares of the Corporation; and
(b) would not at anytime within the three (3) year period
preceding the announcement date of the business combination,
have been an affiliated shareholder but for the inadvertent
acquisition;
amendart.no2 8
<PAGE>
(2) a business combination with an affiliated shareholder or an
affiliate or associate of an affiliated shareholder who became
an affiliated shareholder through a transfer of shares of the
Corporation by will or intestate succession and continuously was
such an affiliated shareholder until the announcement date of the
business combination; or
(3) a business combination of the Corporation with a domestic wholly-
owned subsidiary if the domestic subsidiary is not an affiliate
or associate of the affiliated shareholder other than by reason
of the affiliated shareholder's beneficial ownership of voting
shares in the Corporation.
(C) This Article shall not affect, directly or indirectly, the validity
of any other action by the board of directors of the Corporation, nor does it
preclude the board of directors from taking other action in accordance with
law, nor does the board of directors incur a liability for elections made or
not made under this Article.
(D) In discharging the duties of director under the Act or otherwise, a
director, in considering the best interests of the Corporation, may consider
the long-term as well as the short-term interests of the Corporation and its
shareholders, including the possibility that those interests may be best
served by the continued independence of the Corporation.
(E) If any provision or clause of this Article or application thereof
to any person or circumstance is held invalid, such invalidity shall not
affect other provisions or applications of this Article that can be given
effect without the invalid provision or application and without being
inconsistent with the intent of this Article, and to this end, the provisions
of this Article are declared to be severable.
(F) In this Article XIII:
(1) "Affiliate" means a person who directly or indirectly through
one or more intermediaries controls, is controlled by, or is
under common control with, a specified person.
(2) "Affiliated Shareholder" means a person, other than the
Corporation or a wholly-owned subsidiary of the Corporation,
that is the beneficial owner of twenty percent (20%) or more
of the issued and outstanding voting shares of the Corporation,
or that, within the preceding three (3) year period, was the
beneficial owner of twenty percent or more of the then issued
and outstanding voting shares of the Corporation. For purposes
of determining whether a person is an affiliated shareholder, the
number of voting shares of the Corporation considered outstanding
includes shares considered beneficially owned by that person
under subdivision 4 of this Article XIII(F), but does not include
other unissued voting shares of the Corporation that may be
issuable pursuant to an agreement, arrangement or understanding,
or upon exercise or conversion of rights, warrants, or options,
or otherwise.
(3) "Associate," when used to indicate a relationship with any
person, means:
(a) a corporation or organization (other than the corporation
or a majority owned subsidiary of the corporation) of which
such person is an officer, director or partner or is,
directly or indirectly, the beneficial owner of ten percent
(10%) or more of any class of equity securities;
amendart.no2 9
<PAGE>
(b) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person
serves as trustee or in a similar capacity; or
(c) any relative or spouse of such person, or any relative of
such spouse, who has the same home as such person or who is
a director or officer of such person or any subsidiary of
such person.
(4) "Beneficial Owner" means a person who, with respect to shares or
similar securities:
(a) individually, or with or through an affiliate or associate,
beneficially owns the shares or similar securities, directly
or indirectly;
(b) individually, or with or through an affiliate or associate,
has the right to:
(i) acquire the shares or similar securities, whether the
right may be exercised immediately or only after the
passage of time, pursuant to an agreement, arrangement,
or understanding, whether or not in writing, or upon
the exercise of conversion rights, exchange rights,
warrants, or options, or otherwise, except that a
person is not considered the beneficial owner of shares
or similar securities (aa) tendered pursuant to a
tender or exchange offer made by the person or an
affiliate or associate until the tendered shares or
similar securities are accepted for purchase or
exchange, or (bb) that may be subject to an agreement,
arrangement, or understanding that expressly conditions
the acquisition or purchase on the approval of the
acquisition or purchase pursuant to Article XIII(A)
as long as such person has no direct or indirect rights
of ownership or voting with respect to such shares
until such time that such approval is obtained, at
which time such person shall be considered the
beneficial owner of such shares; or
(ii) vote the shares or similar securities pursuant to an
agreement, arrangement, or understanding, whether or
not in writing, except that a person is not considered
the beneficial owner of shares or similar securities
for purposes of this subparagraph if the agreement,
arrangement, or understanding to vote the shares: (aa)
arises solely from an immediately revocable proxy that
authorizes the person named in the proxy to vote at a
meeting of shareholders that has been called when the
proxy is delivered or at any adjournment of the
meeting, and (bb) is not then reportable on a Schedule
13D under the Securities Exchange Act of 1934 or a
comparable or successor report; or
(c) has an agreement, arrangement, or understanding, whether or
not in writing, to acquire, hold, or dispose (except
pursuant to an agreement, arrangement, or understanding
permitted by subdivision (4)(b)(i) of this Article XIII) or
to vote (except under an immediately revocable proxy under
subdivision (4)(b)(ii) of this Article XIII) the shares or
similar securities with another person who beneficially
owns, or whose affiliate or
amendart.no2 10
<PAGE>
associate beneficially owns, directly or indirectly, the
shares or similar securities.
(5) "Business combination" means:
(a) any merger, share exchange, or conversion of the Corporation
or a subsidiary with:
(i) an affiliated shareholder;
(ii) a foreign or domestic corporation or other entity that
is, or after the merger, share exchange, or conversion
would be, an affiliate or associate of the affiliated
shareholder; or
(iii) another domestic or foreign corporation or other
entity, if the merger, share exchange, or conversion
is caused by an affiliated shareholder, or an
affiliate or associate of an affiliated shareholder,
and as a result of the merger, share exchange, or
conversion this Article XIII does not apply to the
surviving corporation or other entity;
(b) a sale, lease, exchange, mortgage, pledge, transfer, or
other disposition, in one transaction or a series of
transactions, including an allocation of assets pursuant to
a merger, to or with the affiliated shareholder, or an
affiliate or associate of the affiliated shareholder, of
assets of the Corporation or any subsidiary that:
(i) have an aggregate market value equal to ten percent
(10%) or more of the aggregate market value of all
the assets, determined on a consolidated basis, of
the Corporation;
(ii) have an aggregate market value equal to 10 percent or
more of the aggregate market value of all the
outstanding common stock of the Corporation; or
(iii) represent ten percent (10%) or more of the earning
power or net income, determined on a consolidated
basis, of the Corporation;
(c) the issuance or transfer by the Corporation or a subsidiary
to an affiliated shareholder or an affiliate or associate
of the affiliated shareholder, in one transaction or a
series of transactions, of shares of the Corporation or a
subsidiary, except by the exercise of warrants or rights to
purchase shares of the Corporation offered, or a share
dividend paid, pro rata to all shareholders of the
Corporation after the affiliated shareholder's share
acquisition date;
(d) the adoption of a plan or proposal for the liquidation or
dissolution of a corporation proposed by, or pursuant to
any agreement, arrangement, or understanding, whether or
not in writing, with an affiliated shareholder or an
affiliate or associate of the affiliated shareholder;
amendart.no2 11
<PAGE>
(e) a reclassification of securities, including a reverse share
split or a share split-up, share dividend, or other
distribution of shares, a recapitalization of the
Corporation, a merger of the Corporation with a subsidiary
or pursuant to which the assets and liabilities of the
Corporation are allocated among two or more surviving or
new domestic or foreign corporations or other entities, or
any other transaction, whether or not with, into, or
otherwise involving the affiliated shareholder, proposed by,
or pursuant to an agreement, arrangement, or understanding,
whether or not in writing, with an affiliated shareholder or
an affiliate or associate of the affiliated shareholder that
has the effect, directly or indirectly, of increasing the
proportionate ownership percentage of the outstanding shares
of a class or series of voting shares or securities
convertible into voting shares of the corporation that is
beneficially owned by the affiliated shareholder or an
affiliate or associate of the affiliated shareholder, except
as a result of immaterial changes due to fractional share
adjustments; or
(f) the direct or indirect receipt by an affiliated shareholder
or an affiliate or associate of the affiliated shareholder
of the benefit of a loan, advance, guarantee, pledge, or
other financial assistance or a tax credit or other tax
advantage provided by or through the Corporation, except
proportionately as a shareholder of the Corporation.
(6) "Control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and
policies of a person, whether through the ownership of equity
securities, by contract, or otherwise. A person's beneficial
ownership of ten percent (10%) or more of a person's outstanding
voting shares or similar interests creates a presumption that the
person has control of such other person.
(7) "Person" means an individual, trust, domestic or foreign
corporation or other entity, or a government, or a political
subdivision, agency, or instrumentality of a government. If two
or more persons act as a partnership, limited partnership,
syndicate, or other group under an agreement, arrangement, or
other understanding, whether or not in writing, to acquire, hold,
vote, or dispose of shares of a corporation, all members of the
partnership, limited partnership, syndicate, or other group are
considered to be a person.
(8) "Share acquisition date" means the date that a person first
becomes an affiliated shareholder of the Corporation.
(9) "Subsidiary" means a domestic or foreign corporation or other
entity of which a majority of the outstanding voting shares are
owned, directly or indirectly, by the Corporation.
(10) "Voting share" means a share of capital stock of a corporation
entitled to vote generally in the election of directors.
amendart.no2 12
<PAGE>
ARTICLE XIV
The Corporation reserves the right to amend and repeal any provision
contained in these Articles of Incorporation in the manner from time to time
prescribed by the laws of the State of Texas. All rights herein conferred
are granted subject to this reservation.
IN WITNESS WHEREOF, these Amended and Restated Articles of Incorporation
has been executed this ____ day of May, 1997.
HORIZON PHARMACIES, INC.
By:
-------------------------------
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 this _____ day of May, 1997.
(Notarial Seal) ----------------------------------
Notary Public, State of Texas
My commission expires:
------------------------- , ------
amendart.no2 13
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED BYLAWS
OF
HORIZON PHARMACIES, INC.
(ADOPTED AS OF MAY 31, 1997)
<PAGE>
TABLE OF CONTENTS
Page No.
--------
ARTICLE I - OFFICES. . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Registered Office . . . . . . . . . . . . . . . 1
Section 2. Other Offices . . . . . . . . . . . . . . . . . 1
ARTICLE II - SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . 1
Section 1. Time and Place of Meetings. . . . . . . . . . . 1
Section 2. Annual Meetings . . . . . . . . . . . . . . . . 1
Section 3. Special Meetings. . . . . . . . . . . . . . . . 1
Section 4 Notice. . . . . . . . . . . . . . . . . . . . . 1
Section 5 List of Shareholders. . . . . . . . . . . . . . 1
ARTICLE III - QUORUM AND VOTING OF STOCK . . . . . . . . . . . . 2
Section 1. Quorum. . . . . . . . . . . . . . . . . . . . . 2
Section 2. Voting and Proxies. . . . . . . . . . . . . . . 2
Section 3. No Action by Written Consent. . . . . . . . . . 3
Section 4. Presence at Meetings by Means of Communications
Equipment . . . . . . . . . . . . . . . . . . 3
Section 5. Notice of New Shareholder Business. . . . . . . 3
Section 6. Inspectors. . . . . . . . . . . . . . . . . . . 3
ARTICLE IV - DIRECTORS . . . . . . . . . . . . . . . . . . . . . 4
Section 1. Number of Directors . . . . . . . . . . . . . . 4
Section 2. Classes . . . . . . . . . . . . . . . . . . . . 4
Section 3. Removal . . . . . . . . . . . . . . . . . . . . 4
Section 4. Vacancies . . . . . . . . . . . . . . . . . . . 5
Section 5. General Powers. . . . . . . . . . . . . . . . . 5
Section 6. Books and Records . . . . . . . . . . . . . . . 5
Section 7. Compensation. . . . . . . . . . . . . . . . . . 5
Section 8. Report of Financial Condition . . . . . . . . . 5
Section 9. Closing of Stock Transfer Books . . . . . . . . 5
ARTICLE V - MEETINGS OF THE BOARD OF DIRECTORS . . . . . . . . . 5
Section 1. Place of Meetings . . . . . . . . . . . . . . . 5
Section 2. Annual Meetings . . . . . . . . . . . . . . . . 5
Section 3. Special Meetings. . . . . . . . . . . . . . . . 5
Section 4. Regular Meetings. . . . . . . . . . . . . . . . 6
Section 5. Quorum. . . . . . . . . . . . . . . . . . . . . 6
Section 6. Action by Unanimous Consent . . . . . . . . . . 6
Section 7. Presence at Meetings by Means of Communications
Equipment . . . . . . . . . . . . . . . . . . 6
Section 8. Director Nominations. . . . . . . . . . . . . . 6
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<PAGE>
ARTICLE VI - COMMITTEES OF THE BOARD OF DIRECTORS. . . . . . . . 7
ARTICLE VII - NOTICES. . . . . . . . . . . . . . . . . . . . . . 7
Section 1. Form of Notice. . . . . . . . . . . . . . . . . 7
Section 2. Waiver. . . . . . . . . . . . . . . . . . . . . 8
ARTICLE VIII - OFFICERS. . . . . . . . . . . . . . . . . . . . . 8
Section 1. General . . . . . . . . . . . . . . . . . . . . 8
Section 2. Election. . . . . . . . . . . . . . . . . . . . 8
Section 3. Salaries. . . . . . . . . . . . . . . . . . . . 8
Section 4. Absence . . . . . . . . . . . . . . . . . . . . 8
Section 5. Chairman of the Board . . . . . . . . . . . . . 8
Section 6. President . . . . . . . . . . . . . . . . . . . 8
Section 7. Vice Presidents . . . . . . . . . . . . . . . . 9
Section 8. Assistant Vice Presidents . . . . . . . . . . . 9
Section 9. Secretary . . . . . . . . . . . . . . . . . . . 9
Section 10. Assistant Secretaries . . . . . . . . . . . . . 9
Section 11. Chief Financial Officer . . . . . . . . . . . . 9
ARTICLE IX - CERTIFICATE REPRESENTING SHARES . . . . . . . . . . 9
Section 1. Form of Certificates. . . . . . . . . . . . . . 9
Section 2. Facsimile Signatures. . . . . . . . . . . . . . 10
Section 3. Lost Certificates . . . . . . . . . . . . . . . 10
Section 4. Transfer of Shares. . . . . . . . . . . . . . . 10
Section 5. Record Date . . . . . . . . . . . . . . . . . . 10
Section 6. Registered Shareholders . . . . . . . . . . . . 10
ARTICLE X - INDEMNIFICATION OF OFFICERS AND DIRECTORS. . . . . . 11
Section 1. General . . . . . . . . . . . . . . . . . . . . 11
Section 2. Insurance or Other Arrangement. . . . . . . . . 12
Section 3. Miscellaneous . . . . . . . . . . . . . . . . . 12
Section 4. Definitions . . . . . . . . . . . . . . . . . . 12
Section 5. Enforceability. . . . . . . . . . . . . . . . . 13
Section 6. Non-Exclusive Rights. . . . . . . . . . . . . . 13
ARTICLE XI - GENERAL PROVISIONS. . . . . . . . . . . . . . . . . 13
Section 1. Facsimile Signatures. . . . . . . . . . . . . . 13
Section 2. Reliance on Corporate Books and Records . . . . 13
Section 3. Fiscal Year . . . . . . . . . . . . . . . . . . 13
Section 4. Corporate Seal. . . . . . . . . . . . . . . . . 13
ARTICLE XII - AMENDMENTS TO BYLAWS . . . . . . . . . . . . . . . 13
horizon\exhibits\bylaws.doc -ii-
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
HORIZON PHARMACIES, INC.
(ADOPTED AS OF MAY 31, 1997)
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of the Corporation
in the State of Texas shall be located at 350 N. St. Paul Street, City of
Dallas, Dallas County, Texas 75201, or such other county as the Board of
Directors of this Corporation (the "Board") may from time to time designate.
SECTION 2. Other Offices. The Corporation may also have offices at
such other places, both within and without the State of Texas, as the Board
may from time to time determine or the business of the Corporation may
require.
ARTICLE II
SHAREHOLDERS
SECTION 1. Time and Place of Meetings. Meetings of Shareholders shall
be held at such time and at such place in or outside the State of Texas as
shall be determined by the Board.
SECTION 2. Annual Meetings. Annual meetings of Shareholders shall be
held at such time and on such date as shall be determined by the Board. At
such meeting the Shareholders shall elect a Board and may transact such other
business as shall properly come before the meeting.
SECTION 3. Special Meetings. Special meetings of Shareholders may be
called only pursuant to a resolution of the Board. The Board, from time to
time, by resolution duly adopted by a majority of its members may amend these
Bylaws to authorize other persons to call such special meetings of
Shareholders.
SECTION 4. Notice. Written or printed notice of every meeting of
Shareholders, stating the date, time and place where it is to be held, and
such other information as may be required by law, shall be served not less
than ten (10) nor more than sixty (60) days before the meeting, either
personally or by mail, courier, facsimile or telegram, upon each Shareholder
entitled to vote at such meeting and upon each Shareholder of record who, by
reason of any action proposed at such meeting, would be entitled to have his
stock appraised if such action were taken. If mailed, such notice shall be
deemed delivered when deposited in the United States mail, postage prepaid,
addressed to the Shareholder at such Shareholder's address as it last appears
on the Corporation's share transfer records. The attendance of any
Shareholder at a meeting, in person or by proxy, without protesting prior to
the conclusion of the meeting the lack of notice so such meeting, shall
constitute a waiver of notice by him.
SECTION 5. List of Shareholders. The officer or agent of the
Corporation having charge of the Corporation's share transfer records shall
make, at least ten (10) days before each meeting of the Shareholders, a
complete list of the Shareholders entitled to vote at such meeting or any
adjournment thereof. Such list shall be arranged in alphabetical order with
the address of and the number of voting shares held by
horizon\exhibits\bylaws.doc
<PAGE>
each Shareholder. For a period of ten (10) days prior to such meeting, such
list shall be kept on file at the registered office or principal place of
business of the Corporation and shall be subject to inspection by any
Shareholder at any time during the Corporation's usual business hours. Such
list shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any Shareholder during the
pendancy of the meeting. The original share transfer records shall be prima
facie evidence of the Shareholders entitled to examine such list or transfer
records or to vote at any meeting of Shareholders. Failure to comply with
the requirements of this Section shall not affect the validity of any action
taken at such meeting.
ARTICLE III
QUORUM AND VOTING OF STOCK
SECTION 1. Quorum. The holders of a majority of the shares of stock
issued and outstanding and entitled to vote, represented in person or by
proxy, shall constitute a quorum at all meetings of the Shareholders for the
transaction of business except as otherwise provided by statute or by the
Articles of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the Shareholders, the Shareholders present in
person or represented by proxy shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. Notice of
the adjourned meeting shall be given when required by law.
SECTION 2. Voting and Proxies. If a quorum is present, the affirmative
vote of a majority of the shares of stock represented at the meeting shall be
the act of the Shareholders, unless the vote of a greater or lesser number of
shares of stock is required by law or the Articles of Incorporation or
pursuant to Article II, Section 3, above. Each outstanding share of stock
having voting power shall be entitled to one vote on each matter submitted to
a vote at a meeting of Shareholders. A Shareholder may vote either in person
or by proxy executed in writing by the Shareholder or by his duly authorized
attorney-in-fact. Cumulative voting is prohibited by the Articles of
Incorporation. Each proxy shall be in writing and be executed by the
Shareholder. A telegram, telex, cablegram, or similar transmission by the
Shareholder, or a photographic, photostatic, facsimile, or similar
reproduction of a writing executed by the Shareholder, shall be treated as an
execution in writing for the purposes of this Section 2 of Article III. No
proxy shall be valid after eleven (11) months from the date of its execution
unless otherwise provided therein. Each proxy shall be revocable unless (i)
the proxy form conspicuously states that the proxy is irrevocable, and (ii)
the proxy is coupled with an interest, as defined in the Act and other Texas
law.
Shares standing in the name of a corporation may be voted by an officer,
agent or proxy as the bylaws of such corporation may prescribe or, in the
absence of such provision, as the board of directors of such corporation may
determine.
Shares held by an administrator, executor, guardian or conservator may
be voted by him or her, either in person or by proxy, without a transfer of
such shares into his or her name. Shares standing in the name of a trustee
may be voted by him or her, either in person or by proxy, but no trustee
shall be entitled to vote shares held by him or her without a transfer of
such shares into his or her name as trustee.
horizon\exhibits\bylaws.doc -2-
<PAGE>
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without being transferred into his or her name, if such authority is
contained in an appropriate order of the court appointing the receiver.
A Shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee.
Thereafter, the pledgee shall be entitled to vote the shares so transferred.
Treasury shares, shares of this Corporation's stock owned by another
corporation the majority of the voting stock of which is owned or controlled
by this Corporation, and shares of this Corporation's own stock held by this
Corporation in a fiduciary capacity shall not be voted, directly or
indirectly, at any meeting, and shall not be counted in determining the total
number of outstanding shares at any given time.
SECTION 3. No Action by Written Consent. No action or vote of the
Shareholders may be taken by written consent.
SECTION 4. Presence at Meetings by Means of Communications Equipment.
Shareholders may not participate in and hold a meeting of the Shareholders by
means of conference telephone or similar communications equipment.
SECTION 5. Notice of New Shareholder Business. At an annual or special
meeting of the Shareholders, only such business shall be conducted as shall
have been properly brought before the meeting. To be properly brought before
a meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors;
(b) brought before the meeting by or at the direction of the Board of
Directors; (c) properly brought before an annual meeting by a Shareholder; or
(d) if, and only if, the notice of a special meeting provides for business to
be brought before the meeting by Shareholders, properly brought before the
meeting by a Shareholder. For business to be properly brought before a
meeting by a Shareholder, the Shareholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
Shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than forty (40) and
no more than one hundred (100) days prior to the meeting; provided however,
that in the event less than forty-five (45) days remain until the date of the
meeting, notice by the Shareholder to be timely must be so received not later
than the fifth (5th) day prior to the date of the meeting. A Shareholder's
notice to the Secretary shall set forth in reasonable detail (a) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, and, in the event that
such business includes a proposal to amend either the Articles of
Incorporation or the Bylaws, the language of the proposed amendment; (b) the
name and address, as they appear on the Corporation's books, of the
Shareholder proposing such business; (c) the class and number of shares of
the Corporation which are beneficially owned by the Shareholder; and (d) any
material interest of the Shareholder in such business. Notwithstanding
anything in the Bylaws to the contrary, no business shall be conducted at a
meeting except in accordance with the procedures set forth in this Section 3
of Article III. The chairman of a meeting shall, if the facts warrant,
determine that business was not properly brought before the meeting and in
accordance with the provisions of this Section 3 of Article III, and if he or
she should so determine, he or she shall so declare to the meeting and any
such business not properly brought before the meeting shall not be transacted.
SECTION 6. Inspectors. The Board of Directors in advance of any
Shareholders' meeting may appoint one or more inspectors to act at the
meeting or any adjournment thereof. If inspectors are not so
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appointed, the person presiding at a Shareholders' meeting may, and on the
request of any Shareholder entitled to vote thereat shall, appoint one or
more inspectors. In case any person appointed as inspector fails to appear or
act, the vacancy may be filled by the Board in advance of the meeting or at
the meeting by the person present thereat. Each inspector, before entering
upon the discharge of his duties, shall take and sign an oath faithfully to
execute the duties of inspector at such meeting with strict impartiality and
according to the best of his ability.
ARTICLE IV
DIRECTORS
SECTION 1. Number of Directors. The Board of Directors of the
Corporation shall consist initially of five (5) members. The number of
directors constituting the entire Board may be changed from time to time by
resolution adopted by the Board of Directors or the Shareholders, provided no
decrease made in such number shall shorten the term of any incumbent director.
SECTION 2. Classes. Directors shall be at least eighteen (18) years of
age and need not be residents of the State of Texas nor Shareholders of the
Corporation. The Directors shall be divided into three classes, as nearly
equal in number as reasonably possible, with the terms of office of the first
class to expire at the 1998 annual meeting of Shareholders, the term of
office of the second class to expire at the 1999 annual meeting of
Shareholders and the term of office of the third class to expire at the 2000
annual meeting of Shareholders. At each annual meeting of Shareholders
following such initial classification and election, directors elected to
succeed those directors whose terms expire shall be elected for a term of
office to expire at the third succeeding annual meeting of Shareholders after
their election.
SECTION 3. Removal. Any director, or the entire Board of Directors,
may be removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least a majority of the voting power of
all of the then outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class. The Board may remove a director for cause upon the vote of a
majority of the members of the Board (excluding the director whose removal is
sought). Such removal for cause shall be effective immediately upon such
Shareholder or Board action even if successors are not elected
simultaneously. The vacancies on the Board caused by such action shall be
filled only by election by the Shareholders; provided that the Board may not
fill more than two (2) such directorships during the period between any two
successive Annual Shareholders' Meetings. Shareholders holding a majority of
shares then entitled to vote at an election of directors may, at any time
terminate the term of office of all or any of the directors for cause only by
a vote at any Annual Shareholders' Meeting or any Special Shareholders'
Meeting called for that purpose. The Board may remove a director for cause
upon the vote of a majority of the members of the Board (excluding the
director whose removal is sought). Such removal for cause shall be effective
immediately upon such Shareholder or Board of Director action even if
successors are not elected simultaneously. The vacancies on the Board caused
by such action shall be filled only by election by the Shareholders.
Notwithstanding the foregoing, whenever the holders of any class or series
of shares are entitled to elect one or more directors by the provisions of the
Articles of Incorporation, only the holders of shares of that class or series
shall be entitled to vote for or against the removal of any director elected by
the holders of shares of that class or series; and any vacancies in such
directorships and any newly created directorships of such class or series to be
filled by reason of an increase in the number of such directors may be filled by
the affirmative vote of a majority of the directors elected by such class or
series then in office or by a sole
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remaining director so elected, or by the vote of the holders of the outstanding
shares of such class or series, and such directorships shall not in any case be
filled by the vote of the remaining directors or the holders of the outstanding
shares as a whole unless otherwise provided in the Articles of Incorporation.
SECTION 4. Vacancies. Vacancies and newly created directorships
resulting from an increase in the authorized number of directors may be
filled by a majority vote of the directors remaining in office, although less
than a quorum, or by election by the Shareholders at any meeting thereof. A
director elected to fill a vacancy shall be elected for the unexpired portion
of the term of his predecessor in office. A director elected to fill a newly
created directorship shall serve until the next succeeding annual meeting of
Shareholders and until his successor shall have been elected and qualified;
provided that the Board may not fill more than two (2) such directorships
during the period between any two (2) successive annual meetings of
Shareholders.
SECTION 5. General Powers. The business affairs of the Corporation
shall be managed by its Board of Directors, which may exercise all such
powers of the Corporation and do all such lawful acts and things as are not
by statute or by the certificate of incorporation or by these Bylaws directed
or required to be exercised by the Shareholders.
SECTION 6. Books and Records. The directors may keep the books of the
Corporation, except such as are required by law to be kept within the State,
outside the State of Texas, at such place or places as they may from time to
time determine.
SECTION 7. Compensation. The Board of Directors, by the affirmative
vote of a majority of the directors then in office, or any committee thereof,
and irrespective of any personal interest of any of its members, shall have
authority to establish reasonable compensation of all directors for services
to the Corporation as directors, officers or otherwise.
SECTION 8. Report of Financial Condition. At least once in each year,
the directors shall make a complete and detailed report of the financial
condition of the Corporation to its Shareholders, which report shall be filed
with the Chief Financial Officer and shall be subject to inspection by the
Shareholders.
SECTION 9. Closing of Stock Transfer Books. The directors may close
the stock transfer books for a period not exceeding twenty (20) days prior to
Shareholders' meetings or payment of dividends or for such other reasons as
they may see fit.
ARTICLE V
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 1. Place of Meetings. Meetings of the Board of Directors,
regular or special, may be held either in or outside the State of Texas, at
such places as the Board may from time to time determine.
SECTION 2. Annual Meetings. The Board of Directors shall hold its
annual meeting as soon after the Shareholders' annual meeting as may be
practical. Annual meetings of the Board of Directors may be held without
notice.
SECTION 3. Special Meetings. Special meetings of the Board of
Directors may be called by the President or any two or more directors. Notice
of special meetings, specifying the time and day thereof, shall
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be given by the President or the Secretary to each director not less than
twenty-four (24) hours before such meeting, either personally or by
facsimile, telegram or other means of immediate communication, and at least
seventy-two (72) hours previous thereto if given by written notice mailed or
otherwise transmitted to each director at the address of his business or
residence. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board need be specified in the notice or
waiver of notice of such meeting. Notice of a meeting need not be given to
any director who submits a signed waiver of notice, whether before or after
the meeting, or who attends the meeting without protesting prior thereto or
at its commencement, the lack of notice. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in the notice or waiver of notice of
such meeting.
SECTION 4. Regular Meetings. Regular meetings of the Board may be held
with or without notice at such time and place as the Board may determine by
resolution.
SECTION 5. Quorum. A majority of the entire Board of Directors shall
constitute a quorum for the transaction of business unless a greater or
lesser number is required by law or by the Articles of Incorporation. The
vote of a majority of the directors present at any meeting at which a quorum
is present shall be the act of the Board of Directors, unless the vote of a
greater number is required by law or by the Articles of Incorporation. If a
quorum shall not be present at any meeting of directors, the directors
present may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present. Directors may
not vote or take action by written consent by proxy. Directors with an
interest in a business transaction of the Corporation and directors who are
directors or officers or have a financial interest in any other corporation,
partnership, association or other organization with which the Corporation is
transacting business may be counted in determining the presence of a quorum
at a meeting of the Board or of a committee of the Board to authorize such
business transaction.
SECTION 6. Action by Unanimous Consent. Any action required or
permitted to be taken by the Board of Directors, or any committee thereof,
may be taken without a meeting if all members of the Board of Directors, or
the committee, consent in writing to the adoption of a resolution authorizing
the action. Any such resolution and the written consents thereto by the
members of the Board of Directors or the committee shall be filed with the
minutes of the proceedings of the Board of Directors or the committee, and
shall have the same force and effect as a unanimous vote at a meeting of the
Board or such committee.
SECTION 7. Presence at Meetings by Means of Communications Equipment.
Any one or more members of the Board of Directors, or any committee thereof,
may participate in a meeting of such Board or committee by means of a
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.
SECTION 8. Director Nominations. Nominations for the election of
directors may be made by the Board of Directors or by any Shareholder
entitled to vote in the election of directors generally. However, any
Shareholder entitled to vote in the election of directors generally may
nominate one (1) or more persons for election as directors at a meeting only
if timely notice of such Shareholder's intent to make such nomination or
nominations has been given in writing to the Secretary of the Corporation.
To be timely, a Shareholder's notice must be delivered to or mailed and
received at the principal executive offices of the Corporation in accordance
with the notice provisions of Section 5 of Article III. Each such notice
shall set forth (a) the name and address of the Shareholder who intends to
make the nomination and of the person or
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persons to be nominated; (b) a representation that the Shareholder is a
holder of record of stock of the Corporation entitled to vote for the
election of directors on the date of such notice and intends to appear in
person or by proxy at the meeting to nominate the person or persons specified
in the notice; (c) a description of all arrangements or understandings
between the Shareholder and each nominee and any other person or persons
(naming such persons or persons) pursuant to which the nomination or
nominations are to be made by the Shareholder; (d) such other information
regarding each nominee proposed by such Shareholders as would be required to
be included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission, had the nominee been nominated, or
intended to be nominated, by the Board of Directors; and (e) the consent of
each nominee to serve as a director of the Corporation if so elected.
If the chairman of the meeting for the election of directors determines
that a nomination of any candidate for election as a director at such meeting
was not made in accordance with the applicable provisions of this Section 8
of Article V, such nomination shall be void.
ARTICLE VI
COMMITTEES OF THE BOARD OF DIRECTORS
The Board, by resolution adopted by a majority of the entire Board, may
designate, from among its members, an Executive Committee and other
committees, each consisting of one or more directors, and each of which, to
the extent provided in the resolution, shall have all the authority of the
Board, except as otherwise required by law; PROVIDED, HOWEVER, that no
committee shall have the power or authority of the Board in reference to
amending the Articles of Incorporation of the Corporation, adopting an
agreement of merger or consolidation of the Corporation, recommending to the
Shareholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the Shareholders a
dissolution of the Corporation or a revocation of a dissolution, or amending
the Bylaws of the Corporation. The Executive Committee shall have power to
authorize the seal of the Corporation to be affixed to all papers which may
require it. The Board shall appoint the Chairman of the Executive Committee.
The members of the Executive Committee shall receive such compensation and
fees as from time to time may be fixed by the Board. Vacancies in the
membership of a committee shall be filled by the Board at a regular or
special meeting of the Board. All committees created by the Board shall keep
regular minutes of their proceedings and report the same to the Board at the
regular meeting of the Board immediately subsequent to any such committee
proceeding.
ARTICLE VII
NOTICES
SECTION 1. Form of Notice. Whenever, under the provisions of the
statutes or of the Articles of Incorporation or of these Bylaws, notice is
required to be given to any director or Shareholder and no provision is made
as to how such notice shall be given, such notice may be given in writing,
either personally or by courier, facsimile, telegram or mail, or other means
of immediate communication, addressed or transmitted to such director or
Shareholder, at his address as it appears on the records of the Corporation.
Any notice required or permitted to given by facsimile, telegram or other
means of immediate communication shall be deemed to be given at the time of
actual delivery. Any notice required or permitted to be given by mail shall
be deemed to be given at the time when the same is deposited, postage
prepaid, in the United States mail as aforesaid.
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SECTION 2. Waiver. Whenever any notice of a meeting is required to be
given under the provisions of the statutes or under the provisions of the
Articles of Incorporation or these Bylaws, a waiver thereof in writing signed
by the person or persons entitled to such notice, whether before or after the
time stated therein, shall be deemed equivalent to the giving of such notice.
ARTICLE VIII
OFFICERS
SECTION 1. General. The officers of the Corporation shall be appointed
by the Board and shall be a Chairman of the Board, a President and a
Secretary. The Board of Directors may also appoint one or more Vice
Presidents, with or without such descriptive titles as the Board shall deem
appropriate, a Chief Financial Officer, one or more Assistant Vice
Presidents, one or more Assistant Secretaries, and such other officers and
agents as the Board of Directors may determine. Any two (2) or more offices
may be held by the same person, except that there shall always be two (2)
persons who hold offices which entitle them to sign instruments and stock
certificates.
SECTION 2. Election. The Board of Directors shall elect the officers
of the Corporation at each annual meeting of the Board. The Board may
appoint such other officers and agents as it deems necessary. The officers
of the Corporation, unless removed by the Board of Directors as herein
provided, shall hold office until their successors are chosen and qualify.
Any officer elected or appointed by the Board of Directors may be removed at
any time, with or without cause, by the affirmative vote of a majority of the
Board of Directors. Any vacancy occurring in any office of the Corporation
shall be filled by the Board of Directors.
SECTION 3. Salaries. The salaries of all officers and agents of the
Corporation shall be fixed by the Board.
SECTION 4. Absence. In the event of the absence of any officer of the
Corporation, or for any other reason that the Board may deem sufficient, the
Board may at any time or from time to time delegate all or any part of the
powers or duties of any officer to any other officer or officers or to any
director or directors.
SECTION 5. Chairman of the Board. The Chairman of the Board shall
preside, when present, at all meetings of Shareholders and the Board. To the
extent permitted by applicable law, upon resolution adopted by the Board, the
Chairman of the Board may possess the same powers as the President to execute
contracts, certificates and other instruments of the Corporation which may be
authorized by the Board. During the absence or disability of the President,
the Chairman of the Board shall exercise all the powers and discharge all the
duties of the President. The Chairman of the Board shall also perform such
other duties and may exercise such other powers as from time to time may be
assigned to him by the Board or by amendment to these Bylaws.
SECTION 6. President. The President shall be the Chief Executive
Officer of the Corporation, subject to the control and supervision of the
Board. The President shall preside at all meetings, shall have general
supervision of the affairs of the Corporation or other obligations of the
Corporation as authorized by the Board of Directors, and shall perform any
other duties incident to his office which are properly required by the Board
of Directors.
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SECTION 7. Vice Presidents. The Vice-President or Vice-Presidents
shall perform such duties as are assigned to him or them by the Board of
Directors or the President, under whose supervision he or they shall be. The
Vice-President, or, if there shall be more than one Vice-President, such
designated Vice-President, shall perform the duties of the President
hereinabove set forth in the absence, refusal, or incapacity of the President
and the absence, inability or refusal of the Chairman of the Board to act.
SECTION 8. Assistant Vice Presidents. In the absence of a Vice
President or in the event of his inability or refusal to act, the Assistant
Vice President, if any (or, if there be more than one, the Assistant Vice
Presidents in the order designated or, in the absence of any designation,
then in the order of their election), shall perform the duties and exercise
the powers of that Vice President and shall perform such other duties and
have such other powers as the Board, the Chief Executive Officer, the Chief
Operating Officer or the Vice President under whose supervision he is
appointed may from time to time prescribe.
SECTION 9. Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the Shareholders and record all the
proceedings of the meetings of the Corporation and of the Board of Directors
in a book to be kept for that purpose and shall perform like duties for any
committee appointed by the Board when required. He shall give, or cause to be
given, notice of all meetings of the Shareholders and special meetings of the
Board of Directors, and shall perform such other duties as may be prescribed
by the Board of Directors or President, under whose supervision he shall be.
He shall have custody and charge of the corporate books and the corporate
seal of the Corporation and he, or an Assistant Secretary, shall have
authority to affix the corporate seal to any instrument requiring it and,
when so affixed, it may be attested by his signature or by the signature of
such Assistant Secretary. The Board of Directors may give general authority
to any other officer to affix the seal of the Corporation and to attest the
affixing by his signature.
SECTION 10. Assistant Secretaries. The Assistant Secretary or, if there
be more than one, the Assistant Secretaries in the order determined by the
Board of Directors, shall, in the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the Board of Directors may
from time to time prescribe.
SECTION 11. Chief Financial Officer. The Chief Financial Officer shall
have the custody of the corporate funds and securities and shall keep full
and accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all moneys and other valuable effects in the
name and to the credit of the Corporation in such depositories as may be
designated by the Board of Directors. The Chief Financial Officer shall sign
or countersign such instruments as require his signature and shall perform
such other duties as are properly required of him. The Chief Financial
Officer shall disburse the funds of the Corporation as may be ordered by the
Board of Directors, taking proper vouchers for such disbursements, and shall
render to the President and the Board of Directors at its regular meetings,
or when the Board of Directors so requires, an account of all his transactions
as Chief Financial Officer and of the financial condition of the Corporation.
ARTICLE IX
CERTIFICATE REPRESENTING SHARES
SECTION 1. Form of Certificates. Every holder of shares of stock in
the Corporation shall be entitled to have a certificate certifying the number
of shares owned by him in the Corporation. Each such certificate shall be
numbered and entered in the books of the Corporation as they are issued, and
shall exhibit
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the holder's name and the number of shares. Certificates shall be signed by
the President or a Vice President, and by the Secretary or an Assistant
Secretary, and may be sealed with the seal of the Corporation or a facsimile
thereof.
SECTION 2. Facsimile Signatures. The signatures of the officers of the
Corporation upon a certificate may be facsimiles if the certificate is
countersigned by a transfer agent or registered by a registrar other than the
Corporation itself or an employee of the Corporation. In case any officer who
has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such
officer at the date of issue.
SECTION 3. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate
theretofore issued by the corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate has been lost or destroyed. When authorizing such issue of a new
certificate, the Board of Directors, in its discretion and as a condition
precedent to the issuance thereof, may prescribe such terms and conditions as
it deems expedient, and may require such indemnities as it deems adequate, to
protect the Corporation from any claim that may be made against it with
respect to any such certificate alleged to have been lost or destroyed.
SECTION 4. Transfer of Shares. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate representing shares
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, a new certificate shall be issued to the person
entitled thereto, and the old certificate canceled and the transaction
recorded upon the books of the Corporation.
SECTION 5. Record Date. For the purpose of determining Shareholders
entitled to notice of or to vote at any meeting of Shareholders or any
adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining Shareholders entitled to
receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board may provide that the share transfer
records shall be closed for a stated period but not to exceed, in any case,
sixty (60) days. If the share transfer records are closed for the purpose of
determining Shareholders, such records shall be closed for at least ten (10)
days immediately preceding such meeting. In lieu of closing the share
transfer records, the Board may fix, in advance, a date as the record date
for any such determination of Shareholders. Such date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting nor
more than sixty (60) days prior to any other action. If the share transfer
records are not closed and no record date is fixed for the determination of
Shareholders entitled to notice of or to vote at a meeting of Shareholders,
or Shareholders entitled to receive payment of a distribution (other than a
distribution involving a purchase or redemption by the corporaiton of any of
its own shares) or share dividend, the date on which notice of the meeting is
mailed or the date on which the resolution of the Board declaring such
distribution or share dividend is adopted, as the case may be, shall be the
record date for such determination of Shareholders. When a determination of
Shareholders of record entitled to notice of or to vote at any meeting of
Shareholders have been made as provided in this Section, such determination
shall apply to any adjournment thereof, unless the Board fixes a new record
date for the adjourned meeting.
SECTION 6. Registered Shareholders. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends and to vote as such owner, and shall be
entitled to hold liable for calls and assessments a person registered on its
books as the owner, and the Corporation shall not be bound to recognize any
equitable or other claim to or interest
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in such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise provided by
the laws of Texas.
ARTICLE X
INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 1. General. The Corporation shall indemnify a person who was,
is or is threatened to be made a named defendant or respondent in a
proceeding because the person is or was a director of this Corporation to the
fullest extent and manner permissible under the Act or applicable rules,
regulations or laws. A person shall be indemnified under Section of this
Article X against judgments, penalties (including excise and similar taxes),
fines, settlements and reasonable expenses actually incurred by the person in
connection with the proceeding; but if the person is found liable to the
Corporation or is found liable on the basis that personal benefit was
improperly received by the person, the indemnification (i) shall be limited
to reasonable expenses actually incurred by the person in connection with the
proceeding and (ii) shall not be made in respect of any proceeding in which
the person shall have been found liable for willful or intentional misconduct
in the performance of his duty to the Corporation. The mandatory
indemnification provision set forth in this Section 1 shall be deemed to
constitute authorization of indemnification in the manner required by the Act
even though this provision may not have been adopted or authorized in the
same manner as the determination that indemnification is permissible.
The Corporation shall indemnify a director against reasonable expenses
incurred by such director in connection with a proceeding in which the
director is a named defendant or respondent because the director is or was a
director if such director has been wholly successful, on the merits or
otherwise, in the defense of the proceeding. Reasonable expenses incurred by
a director who was, is, or is threatened to be made a named defendant or
respondent in a proceeding shall be paid or reimbursed by the Corporation in
advance of the final disposition of the proceeding after the Corporation
receives a written affirmation by the director of such director's good faith
belief that such director has met the standard of conduct necessary for
indemnification under this Article X and the Act and a written undertaking by
or on behalf of the director to repay the amount paid or reimbursed if it is
ultimately determined that he has not met that standard or if it is
ultimately determined that indemnification of the director against expenses
incurred by such director in connection with that proceeding is prohibited by
the Act. A provision contained in the Articles of Incorporation, these
Bylaws, a resolution of Shareholders or directors, or an agreement that makes
mandatory the payment or reimbursement permitted by the Act, shall be deemed
to constitute authorization of that payment or reimbursement.
The written undertaking required by this Article X must be an unlimited
general obligation of the director that need not be secured. It may be
accepted without reference to financial ability to make repayment.
Notwithstanding any other provision of this Article X, the Corporation shall
pay or reimburse expenses incurred by a director in connection with such
director's appearance as a witness or other participation in a proceeding at
a time when the director is not a named defendant or respondent in the
proceeding.
An officer of the Corporation shall be indemnified as, and to the same
extent, provided by the Act and this Article X for a director and is entitled to
indemnification to the same extent as a director. The Corporation shall
indemnify and advance expenses to an officer, and may indemnify and advance
expenses to employees and agents of the Corporation to the same extent it is
authorized to indemnify and advance expenses to directors under this Article X.
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The Corporation may indemnify and advance expenses to persons who are not
or were not officers, employees or agents of the Corporation, but who are or
were serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary of
another foreign or domestic corporation, a partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise to the same
extent that it is authorized to indemnify and advance expenses to directors
under this Article X.
The Corporation shall indemnify and advance expenses to an officer, and
may indemnify and advance expenses to an employee, agent or person indemnified
in this Article X and who is not a director, to such further extent, consistent
with law, as may be provided by the Articles of Incorporation of this
Corporation, these Bylaws, general or specific action of the Board, or contract
or is permitted or required by common law.
SECTION 2. Insurance or Other Arrangement. The Corporation may
purchase and maintain insurance or another arrangement on behalf of any
person who is or was a director, officer, employee or agent of this
Corporation or who is or was serving at the request of this Corporation as a
director, officer, partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan or other
enterprise, against any liability asserted against him and incurred by him in
such a capacity or arising out of his status as such a person, whether or not
the corporation would have the power to indemnify him against that liability
under this Article X. If the insurance or another arrangement is with a
person or entity that is not regularly engaged in the business of providing
insurance coverage, the insurance or arrangement may provide for payment of a
liability with respect to which the corporation would not have the power to
indemnify the person only if including coverage for the additional liability
has been approved by the Shareholders of the corporation.
SECTION 3. Miscellaneous. Any indemnification of or advance of
expenses to a director in accordance with this Article X shall be reported in
writing to the Shareholders with or before the notice or waiver of notice of
the next Shareholders' meeting or with or before the next submission to
Shareholders of a consent to action without a meeting pursuant to the Act
and, in any case, within the twelve (12) month period immediately following
the date of the indemnification or advance.
For purposes of this Article X, the Corporation is deemed to have
requested a director to serve an employee benefit plan whenever the
performance by such director of the director's duties to the Corporation also
imposes duties on or otherwise involve services by such director to the plan
or participants or beneficiaries of the plan. Excise taxes assessed on a
director with respect to an employee benefit plan pursuant to applicable law
are deemed fines. Action taken or omitted by such director with respect to
an employee benefit plan in the performance of the director's duties for a
purpose reasonably believed by such director to be in the best interest of
the participants and beneficiaries of the plan is deemed to be for a purpose
which is not opposed to the best interest of the Corporation.
SECTION 4. Definitions. As used in this Article X the following terms
shall have the following meanings:
(a) The terms "corporation," "director," "expenses," and
"proceeding," shall have the meanings given such terms
in Article. 2.02-1 of the Act.
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<PAGE>
(b) The term "Act" means the Texas Business Corporation Act as
now in effect or as hereafter amended.
SECTION 5. Enforceability. This Article X shall be given its broadest
effect and application permissible under the Act and other applicable law and
only to such extent. If it is finally determined by a court of competent
jurisdiction that this Article X, in whole or in part, is invalid, illegal or
unenforceable in any respect or respects, it shall nevertheless be enforceable
to the extent and given its broadest effect and application found by such court
to be consistent with the Act and other applicable law.
SECTION 6. Non-Exclusive Rights. The rights of indemnification and
reimbursement provided herein shall not be exclusive of any other rights to
which such person may be entitled by law, agreement, general or specific
action of the Board, Shareholders' vote or otherwise.
ARTICLE XI
GENERAL PROVISIONS
SECTION 1. Facsimile Signatures. In addition to the provisions for use
of facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be
used whenever and as authorized by the Board of Directors or a committee
thereof.
SECTION 2. Reliance on Corporate Books and Records. Each directors,
each member of any committee designated by the Board of Directors, and each
officer of the Corporation shall, in the performance of such person's duties,
be fully protected in relying in good faith upon the books of account or
other records of the Corporation, including reports made to the Corporation
by any of its officers, by an independent certified public accountant, by an
appraiser selected with reasonable care.
SECTION 3. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 4. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the
words "Corporate Seal, Texas." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any manner reproduced.
ARTICLE XII
AMENDMENTS TO BYLAWS
Unless otherwise provided by the Articles of Incorporation or a bylaw
adopted by the Board, these Bylaws may be amended or repealed, or new bylaws
may be adopted, by either: (i) a vote of two-thirds (2/3) of the members of
the Board, or (ii) a vote of two-thirds (2/3) of the issued and outstanding
shares of the Corporation entitled to vote.
horizon\exhibits\bylaws.doc -13-
<PAGE>
CERTIFICATION
I, the undersigned Secretary of the Corporation, hereby certify that the
foregoing is true, accurate and complete copy of the Amended and Restated
Bylaws of HORIZON Pharmacies, Inc., adopted by its Shareholders by resolution
dated May 31, 1997.
------------------------------------------
Sy S. Shahid, Secretary
horizon\exhibits\bylaws.doc -14-
<PAGE>
NUMBER HORIZON PHARMACIES, INC. SHARES
C (TRANSFERABLE ONLY IN DENVER, COLORADO)
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF TEXAS CUSIP 439902 10 7
This certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES, PAR VALUE OF $.01 EACH, OF THE COMMON
STOCK OF
HORIZON PHARMACIES, INC.
a Corporation organized under the laws of the State of Texas transferable on
the books of the Corporation by the holder hereof in person or by duly
authorized attorney, upon surrender of this Certificate properly endorsed.
This Certificate and the shares represented hereby are subject to all of the
terms, conditions and limitations of the Articles of Incorporation of the
Corporation, and amendments thereto.
This Certificate is not valid unless countersigned by the Transfer Agent and
registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
/s/ [illegible] /s/ illegible
SECRETARY PRESIDENT
HORIZON PHARMACIES, INC.
TEXAS
COUNTERSIGNED AND REGISTERED:
AMERICAN SECURITIES TRANSFER & TRUST, INC.
P.O. Box 1596, Denver, Colorado 80201
BY
TRANSFER AGENT AND REGISTRAR AUTHORIZED SIGNATURE
<PAGE>
HORIZON PHARMACIES, INC.
THE ARTICLES OF INCORPORATION OF HORIZON PHARMACIES, INC. ON FILE IN THE
OFFICE OF THE SECRETARY OF STATE OF TEXAS SET FORTH A FULL STATEMENT OF (A)
ALL OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE
SHARES OF EACH CLASS OF SHARES AUTHORIZED TO BE ISSUED, (B) THE AUTHORITY OF
THE BOARD OF DIRECTORS TO FIX AND DETERMINE THE RELATIVE RIGHTS AND
PREFERENCES OF THE SHARES OF PREFERRED STOCK WHICH THE CORPORATION IS
AUTHORIZED TO ISSUE IN SERIES, AND IF AND TO THE EXTENT THAT THEY HAVE BEEN
FIXED AND DETERMINED, THE RELATIVE RIGHTS AND PREFERENCES OF ANY SUCH SERIES,
AND (C) THE DENIAL TO SHAREHOLDERS OF PREEMPTIVE RIGHTS TO ACQUIRE UNISSUED
OR TREASURY SHARES OR OTHER SECURITIES OF THE CORPORATION. THE CORPORATION
WILL FURNISH A COPY OF SUCH STATEMENT TO THE RECORD HOLDER OF THIS
CERTIFICATE WITHOUT CHARGE ON WRITTEN REQUEST TO THE CORPORATION AT ITS
PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right
of survivorship and not as
tenants in common
UNIF GIFT MIN ACT -- ________ Custodian ________
(Cust) (Minor)
Under Uniform Gifts to Minors
Act _______________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received,___________hereby sell(s), assign(s) and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ----------------------------------------------
- ----------------------------------------------
- -------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF
ASSIGNEE
Shares
- -------------------------------------------------------------------------
of the Common Stock represented by the within Certificate and do(es) hereby
irrevocably constitute and appoint
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Attorney
- -----------------------------------------------------------------------
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated
---------------------------------
X
-----------------------------------
(SIGNATURE)
NOTICE:
THE SIGNATURE(S) X
TO THIS ASSIGNMENT -----------------------------------
MUST CORRESPOND (SIGNATURE)
WITH THE NAME(S)
AS WRITTEN UPON
THE FACE OF THE
CERTIFICATE IN
EVERY PARTICULAR,
WITHOUT ALTERATION
OR ENLARGEMENT OR
ANY CHANGE
WHATEVER.
- ------------------------------------------------
The signature(s) must be guaranteed by an
eligible guarantor institution (Banks,
Stockbrokers, Savings and Loan Associations
and Credit Unions with membership in an
approved signature guarantee Medallion Program),
pursuant to S.E.C. Rule 17Ad-15.
- ------------------------------------------------
SIGNATURE(S) GUARANTEED BY:
- ------------------------------------------------
<PAGE>
WARRANT AGREEMENT
__________________, 1997
CAPITAL WEST SECURITIES, INC.
c/o Capital West Securities, Inc.
211 N. Robinson
16th Floor, One Leadership Square
Oklahoma City, Oklahoma 73102
Ladies and Gentlemen:
HORIZON Pharmacies, Inc. (the "Company"), agrees to issue and sell to
you warrants (the "Warrants") to purchase the number of shares of common
stock, $0.01 par value per share (the "Common Stock"), of the Company set
forth herein, subject to the terms and conditions contained herein.
1. ISSUANCE OF WARRANTS; EXERCISE PRICE. The Warrants, which shall
be in the form attached hereto as Exhibit A, shall be issued to you
concurrently with the execution hereof in consideration of the payment by you
to the Company of the sum of $.001 cash per share of Common Stock subject to
the Warrants, the receipt and sufficiency of which are hereby acknowledged.
The Warrant shall provide that you, or such other holder or holders of the
Warrants to whom transfer is authorized in accordance with the terms of this
Agreement, shall have the right to purchase an aggregate of 120,000 shares
of Common Stock for an exercise price equal to $6.00 per share (the "Exercise
Price") or $720,000 in the aggregate. The number, character and Exercise
Price of such shares of Common Stock are subject to adjustment as hereinafter
provided, and the term "Common Stock" shall mean, unless the context
otherwise requires, the stock and other securities and property receivable
upon exercise of the Warrants. The term "Exercise Price" shall mean, unless
the context otherwise requires, the price per share of the Common Stock
purchasable under the Warrants as set forth in this Section 1, as adjusted
from time to time pursuant to Section 6.
2. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to you and to each subsequent holder of Warrants and agrees that:
(a) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the valid and binding obligation of
the Company enforceable in accordance with its terms; and neither the
issuance of the Warrants nor the issuance of the shares of Common Stock
issuable upon exercise of the Warrants will result in a breach or violation
of any terms or provisions of, or constitute a default under, any contract,
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company is a party or by which the Company is bound,
the Certificate of Incorporation or Bylaws of the Company, or any law, order,
rule, regulation or decree of any government, governmental instrumentality or
court, domestic or foreign, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company.
<PAGE>
(b) No consent, approval, authorization or order of any court or
governmental agency or body is required for the sale and issuance of the
Warrants or the sale and issuance of the shares of Common Stock issuable upon
exercise of the Warrants, except such as have been obtained or may be
required under the Securities Act of 1933, as amended (the "Act"), and such
as may be required under state securities or blue sky laws in connection with
the issuance of the Warrants and the shares of Common Stock issuable upon
exercise of the Warrants. Upon exercise of the Warrants by the holder
thereof, the shares of Common Stock with respect to which the Warrants are
exercised will be validly issued, fully paid, and nonassessable, and good and
marketable title to such shares of Common Stock shall be delivered to such
holder free and clear of all liens, encumbrances, equities, claims or
preemptive or similar rights.
(c) During the term of this Agreement, the Company shall make
timely filings of all periodic and other reports and forms and other
materials required (but only to the extent required) to be filed with the
Securities and Exchange Commission (the "Commission") pursuant to the Act or
the Securities Exchange Act of 1934, as amended, and with any national
securities exchange or quotation system upon which any of the securities of
the Company may be listed.
3. NOTICES OF RECORD DATE; ETC. In the event of (i) any taking by
the Company of a record date with respect to the holders of any class of
securities of the Company for purposes of determining which of such holders
are entitled to dividends or other distributions (other than regular
quarterly dividends), or any right to subscribe for, purchase or otherwise
acquire shares of stock of any class or any other securities or property, or
to receive any other right, (ii) any capital reorganization of the Company,
or reclassification or recapitalization of capital stock of the Company or
any transfer in one or more related transactions of all or a majority of the
assets or revenue or income generating capacity of the Company to, or
consolidation or merger of the Company with or into, any other entity or
person, or (iii) any voluntary or involuntary dissolution or winding up of
the Company, then and in each such event the Company will mail or cause to be
mailed to each holder of a Warrant at the time outstanding a notice
specifying, as the case may be, (A) the date on which any such record is to
be taken for the purpose of such dividend, distribution or right, and stating
the amount and character of such dividend, distribution or right; or (B) the
date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, conveyance, dissolution, liquidation or
winding-up is to take place and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or any other class of stock or
securities of the Company, or another issuer pursuant to Section 6,
receivable upon the exercise of the Warrants) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for
securities or other property deliverable upon such event. Any such notice
shall be deposited in the United States mail, postage prepaid, at least ten
(10) days prior to the date therein specified, and the holders(s) of the
Warrant(s) may exercise the Warrant(s) and participate in such event as a
registered holder of Common Stock, upon exercise of the Warrant(s) so held,
within the ten (10) day period from the date of mailing of such notice.
4. NO IMPAIRMENT. The Company shall not, by amendment of its
organizational documents or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
action, avoid or seek to avoid the observance or performance of any of the
terms of this Agreement or of the Warrants, but will at all times in good
faith take any and all action as may be necessary in order to protect the
rights of the holders of the Warrants against impairment. Without limiting
the generality of the foregoing, the Company (a) will at all times reserve
and keep
2
<PAGE>
available, solely for issuance and delivery upon exercise of the Warrants,
shares of Common Stock issuable from time to time upon exercise of the
Warrants, (b) will not increase the par value of any shares of stock
receivable upon exercise of the Warrants above the amount payable in respect
thereof upon such exercise, and (c) will take all such action as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and non-assessable stock upon the exercise of the Warrants,
or any of them.
5. EXERCISE OF WARRANTS. At any time and from time to time on and
after the first anniversary of the date hereof and expiring on the fifth
anniversary of the effective date of the public offering of the Common Stock
at 5:00 p.m., Oklahoma City, Oklahoma time, Warrants may be exercised as to
all or any portion of the whole number of shares of Common Stock covered by
the Warrants by the holder thereof by surrender of the Warrants, accompanied
by a subscription for shares to be purchased in the form attached hereto as
Exhibit B and by a check payable to the order of the Company in the amount
required for purchase of the shares as to which the Warrant is being
exercised, delivered to the Company at its principal office at 275 W.
Princeton Drive, Princeton, Texas 75407, Attention: Rick D. McCord. Warrants
may also be exercised from time to time, without any payment required for the
purchase of the shares as to which the Warrant is being exercised, as to all
or any portion of the number of shares of Common Stock covered by the
Warrant(s) by the holder thereof by surrender of the Warrants, accompanied by
a subscription for shares in the form attached as Exhibit C, pursuant to
which the holder thereof will be entitled to receive upon such surrender of
the Warrant(s) (and without any further payment) that number of shares of
Common Stock equal to the product of the number of shares of Common Stock
obtainable upon exercise of the Warrant(s) (or the portion thereof as to
which the exercise relates) multiplied by a fraction: (i) the numerator of
which shall be the difference between the then Current Value (as defined in
this Section 5 and Section 7(d)) of one full share of Common Stock on the
date of exercise and the Exercise Price, and (ii) the denominator of which
shall be the Current Value of one full share of Common Stock on the date of
exercise. Upon the exercise of a Warrant in whole or in part, the Company
will within five (5) days thereafter, at its expense (including the payment
by the Company of any applicable issue or transfer taxes), cause to be issued
in the name of and delivered to the Warrant holder a certificate or
certificates for the number of fully paid and non-assessable shares of Common
Stock to which such holder is entitled upon exercise of the Warrant. In the
event such holder is entitled to a fractional share, in lieu thereof such
holder shall be paid a cash amount equal to such fraction, multiplied by the
Current Value of one full shares of Common Stock on the date of exercise.
Certificates for shares of Common Stock issuable by reason of the exercise of
the Warrant or Warrants shall be dated and shall be effective as of the date
of the surrendering of the Warrant for exercise, notwithstanding any delays
in the actual execution, issuance or delivery of the certificates for the
shares so purchased. In the event a Warrant or Warrants is exercised as to
less than the aggregate amount of all shares of Common Stock issuable upon
exercise of all Warrants held by such person, the Company shall issue a new
Warrant to the holder of the Warrant so exercised covering the aggregate
number of shares of Common Stock as to which Warrants remain unexercised.
For purposes of this section, Current Value is defined (i) in the
case for which a public market exists for the Common Stock at the time of
such exercise, according to Section 7(d), and (ii) in the case no public
market exists at the time of such exercise, at the Appraised Value. For the
purposes of this Agreement, "Appraised Value" is the value determined in
accordance with the following procedures. For a period of five (5) days after
the date of an event (a "Valuation Event") requiring determination of Current
Value at a time when no public market exists for the Common Stock (the
"Negotiation Period"), each party to this Agreement agrees to negotiate in
good faith to reach agreement upon the Appraised Value of the securities or
property at issue, as of the date of the Valuation Event, which will be the
fair
3
<PAGE>
market value of such securities or property, without premium for control or
discount for minority interests, illiquidity or restrictions on transfer. In
the event that the parties are unable to agree upon the Appraised Value of
such securities or other property by the end of the Negotiation Period, then
the Appraised Value of such securities or property will be determined for
purposes of this Agreement by a recognized appraisal or investment banking
firm mutually agreeable to the holders of the Warrants and the Company (the
"Appraiser"). If the holders of the Warrants and the Company cannot agree on
an Appraiser within two (2) business days after the end of the Negotiation
Period, the Company, on the one hand, and the holders of the Warrants, on the
other hand, will each select an Appraiser within ten (10) business days after
the end of the Negotiation Period and those two Appraisers will select ten
(10) days after the end of the Negotiation Period an independent Appraiser to
determine the fair market value of such securities or property, without
premium for control or discount for minority interests. Such independent
Appraiser will be directed to determine fair market value of such securities
or property as soon as practicable, but in no event later than thirty (30)
days from the date of its selection. The determination by an Appraiser of
the fair market value will be conclusive and binding on all parties to this
Agreement. Appraised Value of each share of Common Stock at a time when (i)
the Company is not a reporting company under the Exchange Act and (ii) the
Common Stock is not traded in the organized securities markets, will, in all
cases, be calculated by determining the Appraised Value of the entire Company
taken as a whole and dividing that value by the number of shares of Common
Stock then outstanding, without premium for control or discount for minority
interests, illiquidity or restrictions on transfer. The costs of the
Appraiser will be borne by the Company. In no event will the Appraised Value
of the Common Stock be less than the per share consideration received or
receivable with respect to the Common Stock or securities or property of the
same class in connection with a pending transaction involving a sale, merger,
recapitalization, reorganization, consolidation, or share exchange,
dissolution of the Company, sale or transfer of all or a majority of its
assets or revenue or income generating capacity, or similar transaction.
6. PROTECTION AGAINST DILUTION. The Exercise Price for the shares of
Common Stock and number of shares of Common Stock issuable upon exercise of
the Warrants is subject to adjustment from time to time as follows:
(a) STOCK DIVIDENDS, SUBDIVISIONS, RECLASSIFICATIONS, ETC.. In
case at any time or from time to time after the date of execution of this
Agreement, the Company shall (i) take a record of the holders of Common Stock
for the purpose of entitling them to receive a dividend or a distribution on
shares of Common Stock payable in shares of Common Stock or other class of
securities, (ii) subdivide or reclassify its outstanding shares of Common
Stock into a greater number of shares, or (iii) combine or reclassify its
outstanding Common Stock into a smaller number of shares, then, and in each
such case, the Exercise Price in effect at the time of the record date for
such dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be adjusted in such a manner that the
Exercise Price for the shares issuable upon exercise of the Warrants
immediately after such event shall bear the same ratio to the Exercise Price
in effect immediately prior to any such event as the total number of shares
of Common Stock outstanding immediately prior to such event shall bear to the
total number of shares of Common Stock outstanding immediately after such
event.
(b) ADJUSTMENT OF NUMBER OF SHARES PURCHASABLE. When any
adjustment is required to be made in the exercise Price under this Section 6,
(i) the number of shares of Common Stock issuable upon exercise of the
Warrants shall be changed (upward to the nearest full share) to the number of
shares determined by dividing (x) an amount equal to the number of shares
issuable pursuant to the exercise of
4
<PAGE>
the Warrants immediately prior to the adjustment, multiplied by the Exercise
Price in effect immediately prior to the adjustment, by (y) the Exercise
Price in effect immediately after such adjustment, and (ii) upon exercise of
the Warrant, the holder will be entitled to receive the number of shares or
other securities referred to in Section 6(a) that such holder would have
received had the Warrant been exercised prior to the events referred to in
Section 6(a).
(c) ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.. In
case of any reorganization or consolidation of the Company with, or any
merger of the Company with or into, another entity (other than a
consolidation or merger in which the Company is the surviving corporation) or
in case of any sale or transfer to another entity of the majority of assets
of the Company, the entity resulting from such reorganization or
consolidation or surviving such merger or to which such sale or transfer
shall be made, as the case may be, shall make suitable provision (which shall
be fair and equitable to the holders of Warrants) and shall assume the
obligations of the Company hereunder (by written instrument executed and
mailed to each holder of the Warrants then outstanding) pursuant to which,
upon exercise of the Warrants, at any time after the consummation of such
reorganization, consolidation, merger or conveyance, the holder shall be
entitled to receive the stock or other securities or property that such
holder would have been entitled to upon consummation if such holder had
exercised the Warrants immediately prior thereto, all subject to further
adjustment as provided in this Section 6.
(d) CERTIFICATE AS TO ADJUSTMENTS. In the event of adjustment as
herein provided in paragraphs of this Section 6, the Company shall promptly
mail to each Warrant holder a certificate setting forth the Exercise Price
and number of shares of Common Stock issuable upon exercise after such
adjustment and setting forth a brief statement of facts requiring such
adjustment. Such certificate shall also set forth a brief statement of facts
requiring such adjustment. Such certificate shall also set forth the kind
and amount of stock or other securities or property into which the Warrants
shall be exercisable after any adjustment of the Exercise Price as provided
in this Agreement.
(e) MINIMUM ADJUSTMENT. Notwithstanding the foregoing, no
certificate as to adjustment of the Exercise Price hereunder shall be made if
such adjustment results in a change in the Exercise Price then in effect of
less than ______ ($_____) and any adjustment of less than ______ ($_____)
of any Exercise Price shall be carried forward and shall be made at the time
of and together with any subsequent adjustment that, together with the
adjustment or adjustments so carried forward, amounts to ______ ($_____) or
more; provided however, that upon the exercise of a Warrant, the Company
shall have made all necessary adjustments (to the nearest cent) not
theretofore made to the Exercise Price up to and including the date upon
which such Warrant is exercised.
7. REGISTRATION RIGHTS.
(a) The Company agrees that upon written notice given to the
Company at any time on or after the first anniversary of the effective date
of the public offering of the Common Stock but before the fifth anniversary
of the effective date of the public offering, from the holder or holders of
not less than fifty-one percent (51%) of the shares issued and issuable upon
exercise of the Warrants, of a proposed distribution by such holder or
holders of Common Stock issued or issuable upon exercise of Warrants, the
Company will, within 45 days after receipt of such notice, promptly prepare,
file and diligently prosecute to effectiveness, an appropriate filing with
the Commission of a registration statement covering the proposed sale or
distribution of all or any part of such shares under the Securities Act of
1933, as amended (the "Act"), and the appropriate registration statements or
applications under the
5
<PAGE>
securities laws of such states as such holders, in their discretion, shall
determine, and will use its reasonable best efforts to have such registration
and application (including both the registration under the Act and the
registration or application made under the various state securities laws)
declared effective as soon as practicable after the filing thereof and to
remain effective for such period that may be reasonably necessary to complete
the distribution of securities so registered or qualified. At least 15 days
prior to such filing, the Company shall give written notice of such proposed
filing to each registered holder of any Warrants at the holders' addresses
appearing on the records of the Company and to each registered holder of
Common Stock purchased from the exercise of any Warrants at such holder's
address appearing on the Company records, and shall offer to include in such
registration statement any proposed distribution of such Common Stock held or
to be held by each such registered holder; provided, however, that except as
provided in Section 7(e), the Company need not effect the registration of the
sale or distribution of Common Stock purchased upon exercise of Warrants more
than once. All expenses, disbursements and fees (including fees and expenses
of counsel for the Company, special auditing fees specifically attributable
to the sale by the selling holder or holders of Common Stock, printing
expenses (including all necessary copies of the registration statement and
prospectuses contained therein), registration and filing fees and blue sky
fees and expenses, and fees and charges of the Company's transfer agent and
registrar for services rendered in connection therewith) shall be borne by
the Company; provided, however, that the Company shall not be required to pay
for any expenses of any registration proceeding begun (in which case holders
shall bear such expenses), if the registration request is subsequently
withdrawn at any time at the request of the holder or holders of not less
than 51% of the shares issued and issuable upon exercise of the Warrants,
unless such withdrawal is due to the misconduct of the Company or due to an
unforeseen material adverse change in the business, properties, prospects or
financial condition of the Company occurring prior to the effectiveness of
the registration statement, in which case the Company will continue to bear
such expenses.
(b) In connection with any registration under the Act and
specified state securities law pursuant to this Agreement, the Company will,
without charge, furnish each holder whose shares are registered thereunder
with copies of the registration statement and all amendments thereto and
will, without charge, supply each such holder with copies of any preliminary
and final prospectus included therein in such quantities as may be necessary
for the purposes of such proposed sale or distribution that the holder or
holders may reasonably request.
(c) In connection with any registration of shares pursuant to this
Section 7, the holders whose shares are being registered shall furnish the
Company with such information concerning such holders and the proposed sale
or distribution as shall be required for use in the preparation of such
registration statement and applications.
(d) Notwithstanding the foregoing provisions of this Section 7,
upon receipt of such written notice from the holder or holders of not less
than fifty one percent (51%) of the shares issued and issuable upon exercise
of the Warrants requesting that the Company effect registration of the sale
or distribution of Common Stock as provided in Section 7(a) or upon
6
<PAGE>
election by holders of Warrants or Common Stock to participate in a
registration pursuant to Section 7(e), the Company shall have the option, for
a period of ten (10) days thereafter, to purchase all or any such Warrants
and all or any such shares of Common Stock acquired pursuant to the exercise
of the Warrants and held by holders providing the request for registration
under Section 7(a) and/or 7(e) and held by any other holder of Warrants or
shares issued and will exercise its option if it so elects as follows:
(i) as to such Warrants, at a price per Warrant equal to the
difference between (A) the average of the means between the closing bid and
asked prices of the Common Stock in the over-the-counter market for 20
consecutive business days commencing 30 business days before the date of
receipt of such notice, (B) if the Common Stock is quoted on the Nasdaq
SmallCap Market, at the average of the means of the daily closing bid and
asked prices of the Common Stock for 20 consecutive business days commencing
30 business days before the date of such notice, or (C) if the Common Stock
is listed on any national securities exchange or quoted on the Nasdaq
National Market System, at the average of the daily closing prices of the
Common Stock for 20 consecutive business days commencing 30 business days
before the date of such notice and the Exercise Price of the Warrant at the
time of receipt of such notice; and
(ii) as to shares of Common Stock previously purchased
pursuant to the exercise of Warrants, at a price per share equal to (A) the
average of the means between the closing bid and asked prices of the Common
Stock in the over-the-counter market for 20 consecutive business days
commencing 30 business days before the date of such notice, (b) if the Common
Stock is quoted on the Nasdaq SmallCap Market, at the average of the means of
the daily closing bid and asked prices of the Common Stock for 20 consecutive
business days commencing 30 business days before the date of such notice or
(C) if the Common Stock is listed on any national securities exchange or the
Nasdaq National Market System, at the average of the daily closing prices of
the Common Stock for 20 consecutive business days commencing 30 business days
before the date of such notice (such value of shares so determined in this
Section 7(d)(ii), as the case may be, is referred to herein as the "Current
Value").
(e) If any time on or after the first anniversary of the date
hereof but before the fifth anniversary of the date hereof the Company
proposes to file a registration statement under the Act covering a proposed
sale of shares of Common Stock, it shall give to each holder who then owns
any Warrants or any shares of Common Stock acquired pursuant to the exercise
of the Warrants notice of such proposed registration at least 30 days prior
to the filing of the registration statement and shall afford each such holder
who then proposed to sell or distribute publicly any of the shares subject to
the Warrants upon giving not less than 10 days notice prior to such filing,
the opportunity to have such shares included in the securities registered
under the registration statement. All expenses, disbursements and fees
(including, but without limitation, fees and expenses of counsel, auditing
fees, printing expenses, SEC filing fees and expenses, but excluding any
underwriting discounts or commissions) incurred in connection with the
registration by the Company of the sale of any shares for any such holder
under this Section 7(e) shall be borne by the Company.
7
<PAGE>
8. INDEMNIFICATION; CONTRIBUTION.
(a) The Company will indemnify and hold harmless each holder and
each affiliate thereof of Common Stock registered pursuant to this Agreement
with the Commission, or under any Blue Sky Law or regulation against any
losses, claims, damages, or liabilities, joint or several, to which such
holder may become subject under the Act or otherwise, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out of
or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus, registration
statement, prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse each such holder and
affiliate for any legal or other expenses reasonably incurred by such holder
in connection with investigating or defending any such action or claim
regardless of the negligence of any such holder or affiliate; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in any preliminary prospectus, registration statement or
prospectus, or any such amendment or supplement thereto, in reliance upon and
in conformity with written information furnished to the Company by any such
holder expressly for use therein.
(b) Each holder of Common Stock registered pursuant to this
Agreement will indemnify and hold harmless the Company against any losses,
claims, damages, or liabilities to which the Company may become subject,
under the Act or otherwise, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus, registration statement or prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in any
preliminary prospectus, registration statement or prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity with
written information furnished to the Company by such holder expressly for use
therein.
(c) Promptly after receipt by an indemnified party under Sections
8(a) or (b) above of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under either such subsection, notify the indemnifying party in writing
of the commencement thereof; but the omission so to notify the indemnifying
party shall not relieve it from any liability that it may otherwise have to
any indemnified party. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof the indemnifying party shall be entitled to assume the
defense thereof by notice in writing to the indemnified party. After notice
from the indemnifying party to such indemnified party of its election to
assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party under either of such
8
<PAGE>
subsections for any legal expenses of other counsel or any other expense, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation incurred
prior to the assumption by the indemnifying party, unless such expenses have
been specifically authorized in writing by the indemnifying party, the
indemnifying party has failed to assume the defense and employ counsel, or
the named parties to any such action include both the indemnified party and
the indemnifying party, as appropriate, and such indemnified party has been
advised by counsel that the representation of such indemnified party and the
indemnifying party by the same counsel would be inappropriate due to actual
or potential differing interests between them, in each of which cases the
fees of counsel for the indemnified party will be paid by the indemnifying
party.
(d) If the indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an indemnified party under
Section 8(a) or 8(b) in respect of any losses, claims, damages, or
liabilities (or action in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, or liabilities
(or actions in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the holder or
holders from this Agreement and from the offering of the shares of Common
Stock. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law, then each indemnifying party
shall contribute to such amount paid or payable by such indemnified party in
such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company and the holders in connection with
the statement or omissions that resulted in such losses, claims, damages, or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or the holder
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company
and the holders agree that it would not be just and equitable if contribution
pursuant to this Section 8(d) were determined by pro rata allocation (even if
the holders were treated as one entity for such purpose) or by any other
method of allocation that does not take into account the equitable
considerations referred to above in this subsection (e). Except as provided
in Section 8(c), the amount paid or payable by an indemnified party as a
result of the losses, claims, damages, or liabilities (or actions in respect
thereof) referred to above in this Section 8(d) shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigation or defending any such action or claim. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. Notwithstanding any
provision in this Section 8(d) to the contrary, no holder shall be liable for
any amount, in the aggregate, in excess of the net proceeds to such holder
from the sale of such holder's shares (obtained upon exercise of Warrants)
giving rise to such losses, claims, damages, or liabilities.
9
<PAGE>
(e) The obligations of the Company under this Section 8 shall be
in addition to any liability that the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any holder of Warrants within the meaning of the Act. The
obligations of the holders of Common Stock under this Section 8 shall be in
addition to any liability that such holders may otherwise have and shall
extend, upon the same terms and conditions to each person, if any, who
controls the Company within the meaning of the Act.
9. STOCK EXCHANGE LISTING. In the event the Company lists its Common
Stock on any national securities exchange, the Company will, at its expense,
also list on such exchange, upon exercise of a Warrant, all shares of Common
Stock issuable pursuant to such Warrant.
10. SPECIFIC PERFORMANCE. The Company stipulates that remedies at
law, in money damages, available to the holder of a Warrant, or of a holder
of Common Stock issued pursuant to exercise of a Warrant, in the event of any
default or threatened default by the Company in the performance of or
compliance with any of the terms of this Agreement are not and will not be
adequate. Therefore, the Company agrees that the terms of this Agreement may
be specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any of
the terms hereof or otherwise.
11. SUCCESSORS AND ASSIGNS; BINDING EFFECT. This Agreement shall be
binding upon and inure to the benefit of you and the Company and their
respective successors and permitted assigns.
12. NOTICES. Any notice hereunder shall be given by registered or
certified mail, if to the Company, at its principal office referred to in
Section 5 and, if to the holders, to their respective addresses shown in the
Warrant ledger of the Company, provided that any holder may at any time on
three (3) days' written notice to the Company designate or substitute another
address where notice is to be given. Notice shall be deemed given and
received after a certified or registered letter, properly addressed with
postage prepaid, is deposited in the U.S. mail.
13. SEVERABILITY. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the
remainder of this Agreement.
14. ASSIGNMENT; REPLACEMENT OF WARRANTS. If the Warrant or Warrants
are assigned, in whole or in part, the Warrants shall be surrendered at the
principal office of the Company, and thereupon, in the case of a partial
assignment, a new Warrant shall be issued to the holder thereof covering the
number of shares not assigned, and the assignee shall be entitled to receive
a new Warrant covering the number of shares so assigned. Upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of any Warrant and appropriate bond or
indemnification protection, the Company shall issue a new Warrant of like
tenor. Except as contemplated by Section 7 of this Agreement, the Warrants
will not be transferred, sold, or otherwise hypothecated by you or any other
person and the Warrants
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will be nontransferable, except to (i) one or more persons, each of which on
the date of transfer is an officer, shareholder, or employee of you; (ii) a
partnership or partnerships, the partners of which are you and one or more
persons, each of whom on the date of transfer is an officer to you; (iii) a
successor to you in merger or consolidation; (iv) a purchaser of all or
substantially all of your assets; or (v) a person that receives a Warrant
upon death of a Holder pursuant to will, trust, or the laws of intestate
succession.
15. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Oklahoma without giving effect to
the principles of choice of laws thereof.
16. DEFINITION. All references to the word "you", and to "Capital West
Securities, Inc." in this Agreement shall be deemed to apply with equal
effect to any persons or entities to whom Warrants have been transferred in
accordance with the terms hereof, and, where appropriate, to any persons or
entities holding shares of Common Stock issuable upon exercise of Warrants.
17. HEADINGS. The headings herein are for purposes of reference only
and shall not limit or otherwise affect the meaning of any of the provisions
hereof.
Very truly yours,
HORIZON PHARMACIES, INC.
By:
----------------------------------------
Rick D. McCord, President
Accepted as of ___________________, 1997.
CAPITAL WEST SECURITIES, INC.
By:
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HORIZON PHARMACIES, INC. 1997 STOCK OPTION PLAN
1. PURPOSE. The purposes of the HORIZON Pharmacies, Inc. 1997 Stock
Option Plan are to enable the Company to attract and retain the services of
employees and directors and to provide them with increased motivation and
incentive to exert their best efforts on behalf of the Company by enlarging
their personal stake in the Company's success.
2. DEFINITIONS. As used in the Plan, the following definitions apply to
the terms indicated below:
"BOARD" means the Board of Directors of the Company.
"CHANGE IN CONTROL" means (i) the execution by the Company of an
agreement to merge or consolidate with another corporation (other than a
corporation 50% or more of which is controlled by, or is under common control
with, the Company), or (ii) the execution of an agreement by shareholders of the
Company to sell or transfer an amount of Shares equal to or greater than 50% of
the outstanding Shares of the Company.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"COMMITTEE" means the entire Board or any committee thereof
consisting 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, or such number of directors or Non-Employee Directors as is required by
Rule 16b-3 or any successor rule.
"COMPANY" means HORIZON Pharmacies, Inc., a Texas corporation.
"FAIR MARKET VALUE" of a Share on a given day means, if Shares are
listed on an established stock exchange or exchanges, the highest closing sales
price of a Share as reported on such stock exchange or exchanges; or if not so
reported, the average of the bid and asked prices, as quoted on the Nasdaq Stock
Market, Nasdaq Small-Cap Market, the Nasdaq National Association Bulletin Board,
or by the National Quotations Bureau. If the Shares shall not be so quoted, the
Fair Market Value shall be determined by the Board taking into account all
relevant facts and circumstances.
"INCENTIVE STOCK OPTION" means an Option that qualifies as an
incentive stock option within the meaning of Section 422 of the Code and which
is identified as an Incentive Stock Option in the agreement by which it is
evidenced.
"OPTION" means a right to purchase Shares under the terms and
conditions of the Plan as evidenced by an option agreement in such form not
inconsistent with the Plan, as the Board may adopt for general use or for
specific cases from time to time.
"NONQUALIFIED STOCK OPTION" means an Option that is not an Incentive
Stock Option and which is identified as a Nonqualified Stock Option in the
agreement by which it is evidenced.
"PARTICIPANT" means an employee or director, eligible to participate
in the Plan under Section 5 hereof, to whom an Option is granted under the Plan.
<PAGE>
"PLAN" means the HORIZON Pharmacies, Inc. 1997 Stock Option Plan,
including any amendments thereto.
"SHARES" means shares of the Company's Common Stock, $.01 par value,
now or hereafter owned by the Company as treasury stock or authorized but
unissued shares of the Company's Common Stock, subject to adjustment as provided
in the Plan.
"SUBSIDIARY" means any corporation, now or hereafter existent, in
which the Company owns, directly or indirectly, stock comprising fifty percent
(50%) or more of the total combined voting power of all classes of stock of such
corporation.
"TEN PERCENT SHAREHOLDER" means any person who, before or after the
grant or exercise of any Option, owns or would own, directly or indirectly, more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company, or its parent or any Subsidiary, or who is not an employee
of the Company.
3. PLAN ADOPTION AND TERM.
A. The Plan shall become effective upon its adoption by the Board,
and Options may be issued upon such adoption and from time to time thereafter;
provided, however, that the Plan shall be submitted to the Company's
shareholders for their approval at the next annual meeting of shareholders, or
prior thereto at a special meeting of shareholders expressly called for such
purpose, or by written consent of the holders of a majority of the issued and
outstanding shares of Common Stock; and provided further, that the approval of
the Company's shareholders shall be obtained within twelve (12) months of the
date of adoption of the Plan. If the Plan is not approved at the annual meeting
or special meeting by the affirmative vote of a majority of all shares voting at
such meeting, or by or by written consent of the holders of a majority of the
issued and outstanding shares of Common Stock, then the Plan and all Options
then outstanding hereunder shall forthwith automatically terminate and be of no
force and effect.
B. Subject to the provisions hereinafter contained relating to
amendment or discontinuance, the Plan shall continue in effect for ten (10)
years from the date of its adoption by the Board. No option may be granted
hereunder after such ten-year period.
4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee. Except as otherwise expressly provided in the Plan, the Committee
shall have sole and final authority to interpret the provisions of the Plan and
the terms of any Option issued under it and to promulgate and interpret such
rules and regulations relating to the Plan and Options as it may deem necessary
or desirable for the administration of the Plan. Without limiting the
foregoing, the Committee shall, subject to Section 5 and to the extent and in
the manner contemplated herein, determine who shall receive Options under the
Plan and how many Shares shall be subject to each such Option. The Committee
may correct any defect in the Plan or any Option in the manner and to the extent
it shall deem expedient to carry the Plan into effect and shall be the sole and
final judge of such expediency.
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No member of the Committee shall be liable for any action taken or
omitted or any determination made by him in good faith relating to the Plan, and
the Company shall indemnify and hold harmless each member of the Committee and
each other director or employee of the Company to whom any duty or power
relating to the administration or interpretation of the Plan has been delegated
against any cost or expense (including counsel fees) or liability (including any
sum paid in settlement of a claim with the approval of the Board) arising out of
any act or omission in connection with the Plan, unless arising out of such
person's own fraud or bad faith.
5. ELIGIBILITY. The employees of the Company and its Subsidiaries, who,
in the opinion of the Committee, have a capacity for contributing in a
substantial measure to the success of the Company and its Subsidiaries, shall be
eligible to participate in the Plan. Directors of the Company, who need not be
employees, shall also be eligible to participate in the Plan.
6. STOCK SUBJECT TO THE PLAN. Subject to adjustment as provided in
Section 13 hereof, Options may be granted pursuant to the Plan with respect to a
number of Shares that, in the aggregate, does not exceed Two Hundred Thousand
(200,000) Shares. If, prior to the termination of the Plan, an Option shall
expire or terminate for any reason without having been exercised in full, the
unpurchased Shares subject thereto shall again be available for the purposes of
the Plan.
7. OPTIONS.
A. All Options granted under the Plan shall be clearly identified
either as Incentive Stock Options or as Nonqualified Stock Options. All Options
granted under the Plan shall be evidenced by agreements in such form, not
inconsistent with the Plan, as the Committee may adopt for general use or for
specific use from time to time. An Option shall be deemed "granted" under the
Plan on the date on which the Committee, by appropriate action, awards the
Option to a Participant, or on such subsequent date as the Committee may
designate.
B. (i) The aggregate Fair Market Value of Shares with respect to
which Incentive Stock Options granted under the Plan are exercisable for the
first time by a Participant during any calendar year under the Plan and any
other stock option plan of the Company (and its parent and subsidiary
corporations as those terms are used in Section 422 of the Code) shall not
exceed $100,000. Such Fair Market Value shall be determined as of the date on
which each such Incentive Stock Option is granted. To the extent that the
aggregate Fair Market Value of Shares with respect to such Incentive Stock
Options exceeds $100,000, such Incentive Stock Options shall be treated as
Nonqualified Options, but all other terms and provisions of such Incentive Stock
Options shall remain unchanged.
(ii) Subparagraph (i) of this Paragraph B shall be applied by
taking Options into account in the order in which they were granted.
8. OPTION PRICE. The price per share at which Shares may be purchased
pursuant to any Incentive Stock Option granted under the Plan shall be not less
than 100% of the Fair Market Value of a
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<PAGE>
Share on the date the Option is granted. The price per share at which Shares
may be purchased pursuant to any Nonqualified Stock Option granted under the
Plan shall be not less than 85% of the Fair Market Value of a Share on the
date the Option is granted. No options intended to qualify as Incentive
Stock Options shall be granted under the Plan to any Ten Percent Shareholder
unless the exercise price of said Option is at least 110% of the Fair Market
Value of a Share on the date the Option is granted.
9. DURATION OF OPTIONS. No Option granted hereunder shall be exercisable
after the expiration of ten (10) years from the date such Option was granted.
All Options shall be subject to earlier termination as provided elsewhere in the
Plan.
10. CONDITIONS RELATING TO EXERCISE OF OPTIONS.
A. The Committee may, at its discretion, provide that an Option may
not be exercised in whole or in part for any period or periods of time specified
in the Option agreement. Except as provided in the Option agreement, an Option
may be exercised in whole or in part at any time during its term. No Option may
be exercised for a fractional share of stock.
B. No Option shall be transferable by a Participant otherwise than
by will or the laws of descent and distribution and Options shall be exercisable
during the lifetime of a Participant only by such Participant.
C. An Option shall be exercised by the delivery to the Company of a
written notice signed by the Participant, which specifies the number of Shares
with respect to which the Option is being exercised and the date of the proposed
exercise. Such notice shall be delivered to the Company's principal office, to
the attention of its Secretary, no less than three (3) business days in advance
of the date of the proposed exercise and shall be accompanied by the applicable
option certificate evidencing the Option. A Participant may withdraw such
notice at any time prior to the close of business on the proposed date of
exercise, in which case the option certificate evidencing the Option shall be
returned to the Participant.
D. Payment for Shares purchased upon exercise of an Option shall be
made at the time of exercise either in cash, by certified check or bank
cashier's check or in Shares owned by the Participant and valued at their Fair
Market Value on the date of exercise, or partly in Shares with the balance in
cash or by certified check or bank cashier's check. Any payment in Shares shall
be effected by their delivery to the Secretary of the Company, endorsed in blank
or accompanied by stock powers executed in blank.
E. Certificates for Shares purchased upon exercise of Options shall
be issued and delivered as soon as practicable following the date the Option is
exercised. Certificates for Shares purchased upon exercise of Options shall be
issued in the name of the Participant.
F. Notwithstanding any other provision in the Plan, no Option may be
exercised unless and until the Shares to be issued upon the exercise thereof
have been registered under the Securities Act of 1933 and applicable state
securities laws, or are, in the opinion of counsel to the Company, exempt from
such registration. The Company shall not be under any obligation to register
under applicable Federal or state
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<PAGE>
securities laws any Shares to be issued upon the exercise of an Option
granted hereunder, or to comply with an appropriate exemption from
registration under such laws in order to permit the exercise of an Option and
the issuance and sale of the Shares subject to such Option. If the Company
chooses to comply with such an exemption from registration, the Shares issued
under the Plan may, at the discretion of the Committee, bear an appropriate
restrictive legend restricting the transfer or pledge of the Shares
represented thereby, and the Committee may also give appropriate
stop-transfer instructions to the transfer agent to the Company.
G. Any person exercising an Option or transferring or receiving
Shares shall comply with all regulations and requirements of any governmental
authority having jurisdiction over the issuance, transfer, or sale of capital
stock of the Company, and as a condition to receiving any Shares, shall execute
all such instruments as the Company in its sole discretion may deem necessary or
advisable.
H. Notwithstanding Paragraph A of this Section 10, the Committee
may, in its sole discretion, accelerate the date on which any Option granted
under the Plan, and outstanding at such time, shall become exercisable.
I. In the event of termination of a Participant's employment by
reason of such Participant's retirement in accordance with an applicable
retirement plan, any outstanding Option held by such Participant shall be or
immediately become fully exercisable as to the total number of Shares subject
thereto (whether or not exercisable to that extent prior to termination of
employment) and shall remain so exercisable but only for a period of three
months after commencement of such retirement, at the end of which time it shall
terminate (unless such Option expires earlier by its terms).
J. In the event of termination of a Participant's employment by
reason of such Participant's disability within the meaning of Section 22(e)(3)
of the Code, any outstanding Option held by such Participant shall be or
immediately become fully exercisable as to the total number of Shares subject
thereto (whether or not exercisable to that extent prior to termination of
employment) and shall remain so exercisable but only for a period of one year
after termination of employment for such disability, at the end of which time it
shall terminate (unless such Option expires earlier by its terms).
K. In the event of the death of any Participant (including death
during an approved leave of absence or following a Participant's retirement or
disability), any Option then held by him which shall not have lapsed or
terminated prior to his death shall be or immediately become fully exercisable
by the executors, administrators, legatees, or distributees of his estate, as
may be appropriate, as to the total number of Shares subject thereto (whether or
not exercisable to that extent at the time of death) and shall remain so
exercisable but only for a period of one year after death, at the end of which
time it shall terminate (unless such Option expires earlier by its terms).
L. In the event of the termination of the Participant's employment
otherwise than as described in paragraphs I, J, and K, any outstanding Option
held by such Participant shall be exercisable to the extent exercisable at the
time of such termination and shall be so exercisable for a period of thirty (30)
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<PAGE>
days following such termination. Whether an authorized leave of absence, or
absence in military or government service, shall constitute termination of
employment shall be determined by the Committee.
M. Notwithstanding Paragraph A of this Section 10, upon the
occurrence of a Change in Control, any Option granted under the Plan and
outstanding at such time shall become fully and immediately exercisable and
shall remain exercisable until its expiration or termination as provided in the
Plan.
11. NO EMPLOYMENT RIGHTS. Nothing contained in the Plan or any Option
shall confer upon any Participant any right with respect to the continuation of
his employment by the Company or interfere in any way with the right of the
Company, subject to the terms of any separate employment agreement to the
contrary, at any time to terminate such employment or to increase or decrease
the compensation of the Participant from the rate in existence at the time of
the grant of an Option.
12. RIGHTS OF A SHAREHOLDER. No person shall have any rights with respect
to any Shares covered by or relating to any grant hereunder of an Option until
the date of issuance of a certificate to him evidencing such Shares. Except as
otherwise expressly provided in the Plan, no adjustment to any Option shall be
made for dividends or other rights for which the record date occurs prior to the
date such certificate is issued.
13. ADJUSTMENT UPON CHANGES IN CAPITAL STOCK.
A. If the capital stock of the Company shall be subdivided or
combined, whether by reclassification, stock dividend, stock split, reverse
stock split or other similar transaction, then the number of Shares authorized
under the Plan, the number of Shares then subject to or relating to unexercised
Options granted hereunder and the exercise price per Share will be adjusted
proportionately. A stock dividend shall be treated as a subdivision of the
whole number of Shares equal to such whole number of Shares so outstanding plus
the number of Shares issued as a stock dividend.
B. In the case of any capital reorganization or any reclassification
of the capital stock of the Company (except pursuant to a transaction described
in Paragraph A of this Section 13) (a "Reorganization"), appropriate adjustment
may be made by the Board in the number and class of shares authorized to be
issued under the Plan and the number and class of shares subject to or relating
to Options awarded under the Plan and outstanding at the time of such
Reorganization.
C. Each Participant will be notified of any adjustment made pursuant
to this Section 13 and any such adjustment, or the failure to make such
adjustment, shall be binding on the Participant.
D. Except as expressly set forth herein, the number and kind of
Shares subject to Options, shall not be affected by any transaction (including,
without limitation, any merger, recapitalization, stock split, stock dividend,
issuance of stock or similar transaction) affecting the capital stock of the
Company and no Participant shall be entitled to any additional Options on
account thereof.
14. WITHHOLDING TAXES.
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<PAGE>
A. Whenever Shares are to be issued upon the exercise of an Option,
the Company shall have the right to require the Participant to remit to the
Company in cash an amount sufficient to satisfy federal, state and local
withholding tax requirements, if any, prior to the delivery of any certificate
or certificates for such Shares.
B. Notwithstanding Paragraph A of this Section 14, at the election
of a Participant, subject to the approval of the Committee, when Shares are to
be issued upon the exercise of an Option, the Participant may tender to the
Company a number of Shares, or the Company shall withhold a number of such
shares, the Fair Market Value of which is sufficient to satisfy the federal,
state and local tax requirements, if any, attributable to such exercise or
occurrence. The Committee hereby grants its approval to any election made
pursuant to this Paragraph B, but reserves the right, in its absolute
discretion, to withdraw such approval in case of any such election effective
upon its delivery of notice thereof to the Participant.
C. Notwithstanding Paragraph E of Section 10 hereof, if a
Participant subject to the provisions of Section 16(b) of the Exchange Act
who has not made an election pursuant to Section 83(b) of the Code, makes an
election described in Paragraph B of this Section 14 to have Shares withheld
with respect to an Option, then the Company shall hold as custodian for the
Participant certificates evidencing the total number of Shares required to be
issued pursuant to the exercise of the Option until the expiration of six (6)
months following the date of such exercise. Upon the expiration of such
six-month period, the Company shall deliver to such Participant certificates
evidencing such Shares minus a number of such Shares, the Fair Market Value
of which on the date on which such period expires is sufficient to satisfy
the federal, state and local tax requirements attributable to such exercise.
D. Notwithstanding any other provisions of the Plan, a individual
who is subject to Section 16(b) of the Exchange Act, may not make either of the
elections described in Paragraph B of this Section 14 prior to the expiration of
six (6) months after the date on which the applicable Option was granted. Such
elections must be made either (i) during the 10-day window period described in
Section (e)(3)(iii) of Rule 16b-3 promulgated under such Section 16(b) of the
Exchange Act, or (ii) at least six months prior to the date as of which the
income attributable to the exercise of the related Option is recognized under
the Code. Such elections shall be irrevocable and shall be made by the delivery
to the Company's principal office, to the attention of its Secretary, of a
written notice signed by Participant.
15. AMENDMENT OF THE PLAN.
A. The Board may at any time and from time to time suspend,
discontinue, modify or amend the Plan in any respect whatsoever except that the
Board may not suspend, discontinue, modify or amend the Plan so as to adversely
affect the rights of a Participant with respect to any grants that have
theretofore been made to such Participant without such Participant's approval.
B. No amendment to or modification of the Plan which: (i) materially
increases the benefits accruing to Participants; (ii) except as provided in
Sections 6 and 13 hereof, increases the number
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of Shares that may be issued under the Plan; or (iii) modifies the
requirements as to eligibility for participation under the Plan shall be
effective without shareholder approval.
16. RESOLUTION OF DISPUTES. The following provisions shall apply to any
controversy between the Company and its Subsidiaries and the Participant
(including any director, officer, employee, agent or affiliate of the Company
and its Subsidiaries) relating to this Plan or any Option granted pursuant to
this Plan.
A. The parties first shall use their reasonable efforts to discuss
and negotiate a resolution of the controversy.
B. If the efforts to negotiate a resolution do not succeed, the
parties shall resolve the controversy by final and binding arbitration in
accordance with the Rules for Commercial Arbitration (the "Rules") of the
American Arbitration Association in effect at the time of the adoption of this
Plan and pursuant to the following additional provisions:
(i) The Federal Arbitration Act (the "Federal Act"), as
supplemented by the Texas Arbitration Act (to the extent not inconsistent
with the Federal Act), shall apply to the arbitration and all procedural
matters relating to the arbitration.
(ii) The parties shall select one arbitrator within ten days
after filing of a demand and submission in accordance with the Rules. If
the parties fail to agree on an arbitrator within that ten day period or
fail to agree to an extension of that period, the arbitration shall take
place before an arbitrator selected in accordance with the Rules.
(iii) The arbitration shall take place in McKinney, Texas,
and the arbitrator shall issue any award at the place of arbitration. The
arbitrator may conduct hearings and meetings at any place agreeable to the
parties or, upon the motion of a party, determined by the arbitrator as
necessary to obtain significant testimony or evidence.
(iv) The arbitrator shall have the power to authorize all forms
of discovery (including depositions, interrogatories and document
production) upon the showing of (a) a specific need for the discovery, (b)
that the discovery likely will lead to material evidence needed to resolve
the controversy, and (c) that the scope, timing and cost of the discovery
is not excessive.
(v) Authority of Arbitrator. The arbitrator shall not have the
power (a) to alter, modify, amend, add to, or subtract from any term or
provision of this Plan or any Option; (b) to rule upon or grant any
extension, renewal or continuance of this Plan or any Option; or (c) to
grant interim injunctive relief prior to the award.
(vi) Enforcement of Award. The prevailing party shall have the
right to enter the award of the arbitrator in any court having jurisdiction
over one or more of the parties or their assets. The parties specifically
waive any right they may have to apply to any court for relief from the
provisions of this Agreement or from any decision of the arbitrator made
prior to the award.
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B. Attorneys' Fees and Costs. The prevailing party to the
arbitration shall have the right to an award of its reasonable attorneys' fees
and costs (including the cost of the arbitrator) incurred after the filing of
the demand and submission. If the Company prevails, the award shall include an
amount for that portion of the administrative overhead reasonably allocable to
the time devoted by the in-house legal staff of the Company.
C. Other Rights. The provisions of this Section 16 shall not
prevent the Company, its Subsidiaries, or the Participant from exercising any of
their rights under this Plan, any Option, or under the common law, including
(without limitation) the right to terminate any agreement between the parties or
to end or change the party's legal relationship.
17. MISCELLANEOUS.
A. It is expressly understood that the Plan grants powers to the
Board but does not require their exercise; nor shall any person, by reason of
the adoption of the Plan, be deemed to be entitled to the grant of any Option;
nor shall any rights be deemed to accrue under the Plan except as Options may be
granted hereunder.
B. All rights hereunder shall be governed by and construed in
accordance with the laws of Texas.
C. All expenses of the Plan, including the cost of maintaining
records, shall be borne by the Company.
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EXHIBIT 5.1
May 30, 1997
HORIZON Pharmacies, Inc.
275 W. Princeton Drive
Princeton, Texas 75407
Gentlemen:
We have acted as counsel to HORIZON Pharmacies, Inc., a Texas corporation
(the "Company"), in connection with the preparation and filing of a Registration
Statement on Form SB-2 (No. 333-25257) under the Securities Act of 1933, as
amended (the "Registration Statement"), including the Prospectus which
constitutes a part thereof, relating to the issuance and sale of 1,380,000
shares (the "Shares") of the Company's common stock, $.01 par value (the "Common
Stock"), including an overallotment option of up to 180,000 shares.
We have examined and are familiar with originals or copies, certified or
otherwise, identified to our satisfaction, of such corporate records of the
Company, certificates of officers of the Company and of public officials and
such other documents as we have deemed appropriate as a basis for the opinion
expressed below.
Based on the foregoing, we are of the opinion that the Shares, when sold on
the terms set forth in the Prospectus, will be legally issued, fully paid and
nonassessable.
PHILLIPS MCFALL MCCAFFREY
MCVAY & MURRAH, P.C.
<PAGE>
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.
<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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
12
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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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EXHIBIT A-1
BERGEN BRUNSWIG DRUG COMPANY
PROMISSORY NOTE
$800,000.00
For value received, the undersigned, jointly and severally, promises to
pay on demand, or if no demand is made, then on May 17, 1997 to BERGEN
BRUNSWIG DRUG COMPANY, a California corporation or order at Post Office Box
5910, Orange, California 92613-5910 the principal sum of Eight Hundred
Thousand dollars ($800,000.00) in lawful money of the United States of
America, in immediately available funds. The undersigned further agrees to
pay interest, in like money, on the unpaid principal amount owing hereunder
from the date hereof until such principal amount shall have become due and
payable (whether by stated maturity, by acceleration or otherwise) at a rate
per annum equal to the Prime Rate from time to time plus two percent (2.0%)
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
SunTrust Bank Atlanta at its principal office in Atlanta, Georgia 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.
Interest shall be payable on any overdue payment of principal or
interest at (to the extent permitted by law) the greater of 12% per annum or
a fluctuating rate per annum equal to 2.0% above the Prime Rate from time to
time in effect, until such unpaid amount shall have been paid in full
(whether before or after judgment). All overdue payments shall be payable on
demand. Interest will be calculated in arrears and will accrue only on
amounts disbursed from date of disbursement. Any change in the interest rate
resulting from a change in the Prime Rate shall become effective at 12:01
a.m. on the date on which such change in such Prime Rate becomes effective.
Interest accrued hereunder shall be payable monthly commencing June 17,
1996 and calculated in arrears. Principal shall be payable in full on
demand, or if no demand is made on May 17, 1997.
The following shall constitute Events of Default hereunder.
1. Failure to make any payment of principal or interest when due.
2. Failure to timely make any payment of principal or interest as and
when due pursuant to any other promissory note, purchase account or other
credit arrangement between the undersigned (which for the purpose of this
provision includes any subsidiary, parent, sister company, guarantor, endorser
or other affiliate of the undersigned) and BERGEN BRUNSWIG DRUG COMPANY.
3. Filing of a petition by or against the maker hereof under the
Bankruptcy Act, as amended from time to time, or similar law; appointment of
a receiver, trustee, custodian or liquidator of or for any part of the assets
or property of the maker, the maker becomes insolvent; the maker shall make a
general assignment for the benefit of creditors or shall generally fail to
pay debt as they become due.
4. Death or incapacity of any individual maker, or dissolution or
liquidation of any maker which is a corporation, partnership or joint
venture, or should the business of maker be sold or transferred, in whole or
in part, or should any attachment be levied upon said business and not
released within ten days thereafter, or should operations of said business
be discontinued for a period of more than ten consecutive days.
5. Default by the maker under the terms of any agreement or instrument
pursuant to which the maker has incurred debt from any person or entity.
SINGLE MATURITY DISBURSEMENT/DAILY
<PAGE>
?? [Copy not legible]
Should any Event of Default in payment of principal or interest when due
as provided in this note exceed fifteen days and the holder hereof does not
elect to accelerate this note as provided below, the undersigned promises to
pay a "collection charge" of five percent (5.0%) of each delinquent payment
in addition to any interest which accrues thereon, for the purpose of
defraying the expense of following up and handling the said delinquent
payment.
Should any Event of Default occur, the holder of this note, at holder's
option may declare all sums of principal and interest outstanding hereunder
to be immediately due and payable without presentment, demand or notice of
dishonor, all of which are expressly waived.
The maker hereof agrees to pay all costs and expenses, including
reasonable attorneys' fees, incurred by the holder in connection with the
enforcement of this note or the protection or preservation of any rights of
the holder hereunder.
The holder hereof may grant the maker, any endorsers and any other
persons obligated hereon, extensions of the time for payment of this note
and/or the maturity of any installment of installments, in whole or in part,
without limit as to the number of such extensions, or the period or periods
thereof, but shall be under no obligation to do so.
The makers, sureties, guarantors and endorsers of this note hereby waive
diligence, presentment, protest, demand and notice of every kind and (to
the full extent permitted by law) the right to plead any statute of
limitations and hereby agree that no failure on the part of the holder of
this note to exercise any power, right or privilege hereunder, or to insist
upon prompt compliance with the terms hereof, shall constitute a waiver
thereof.
This note may be assigned or sold at the sole discretion of BERGEN
BRUNSWIG DRUG COMPANY and shall bind the heirs, administrators, executors,
successors and assigns of the maker and inure to the benefit of any
successors or assigns of BERGEN BRUNSWIG DRUG COMPANY.
All or any portion of the balance owing may be prepaid at any time
without penalty.
Disbursements on this loan shall not be made unless all the terms and
conditions of this note have been met. No disbursements will be made
subsequent to nine months from the date of this note.
This note shall be construed in accordance with the internal laws of the
State of California.
HORIZON PHARMACIES, INC.
HORIZON PHARMACY
/s/ Rick McCord, President
- ------------------------------------
Rick McCord, President
/s/ Sy Shahid, Vice President
- ------------------------------------
Sy Shahid, Vice President
Dated: May 17, 1996 Business Address: 460 Stickhorse Lane
McKinney, Texas 75069
<PAGE>
EXHIBIT B
SECURITY AGREEMENT
This SECURITY AGREEMENT made as of this 15th day of February, 1996 by and
between BERGEN BRUNSWIG DRUG COMPANY, a California corporation (hereinafter
referred to as "Secured Party") and HORIZON PHARMACIES, INC., dba HORIZON
PHARMACY (hereinafter referred to as "Debtor").
For value received, the receipt of which is hereby acknowledged, Debtor and
Secured Party hereby agree as follows:
1. DEBT AND COLLATERAL. Debtor hereby grants Secured Party a continuing
security interest in and to all of Debtor's presently owned and after
acquired accounts receivable, accounts, chattel paper, documents,
instruments, promissory notes, general intangibles and returned goods; all
present and hereafter acquired inventory wherever located, including without
limitation, work in process and finished goods; all present and hereafter
acquired equipment wherever located; all present and future furniture,
furnishings and fixtures not permanently affixed to or constituting a part of
the realty and not paid for by Sublandlord or Prime Landlord pursuant to
their advances, excepting those leased by Borrower; all of Debtor's contract
rights as lessee under any and all real property leases pursuant to which
Debtor occupies any of the premises from which debtor does business and any
and all of Debtor's contract rights in any and all personal property leases
pursuant to which Debtor is in possession of any personal property used in
the conduct of Debtor's business; all proceeds and products of the forgoing,
including but not limited to, money, deposit accounts, goods, insurance
proceeds, and other tangible or intangible property received upon the sale or
other disposition of the foregoing; all presently owned or hereafter acquired
prescription files and records relating thereto (all of the foregoing being
collectively referred to as the "Collateral") and all books and records of
account identifying or relating to any of the Collateral.
2. OBLIGATIONS SECURED. The Collateral is and shall be security for
Debtor's timely and full payment of any and all promissory notes executed by
Debtor in favor of Secured Party, any existing obligation owned by Debtor to
Secured Party, and any obligation or indebtedness arising subsequent to the
date hereof, or acquired by Secured Party subsequent to the date hereof,
including without limitation, any open account
<PAGE>
indebtedness between Debtor and Secured Party. Secured Party and Debtor
expressly acknowledge and agree that they contemplate that Secured Party may
extend credit and/or advance monies to the Debtor in the future, which may be
in the form of direct loans to the Debtor or may be in the form of sales to
the Debtor on credit, and any such future indebtedness created subsequent to
the date of this Agreement shall be subject to the security interest created
herein.
The Collateral shall also secure the Debtor's prompt and faithful performance
of all of the Debtor's obligations, covenants, representations and warranties
contained in this Security Agreement or in any other agreement to which Debtor
is a party (or by which Debtor is bound) and to which Secured Party is a
party or of which Secured Party is a beneficiary.
3. INSURANCE. The Debtor shall insure the Collateral and keep the same
insured against all loss, damage or destruction due to fire, theft and other
casualty loss, in a sum and by policies adequate at all times to protect the
interest of Secured Party hereunder and otherwise satisfactory to Secured
Party. Debtor, upon request, shall furnish Secured Party evidence of such
insurance. Upon Debtor's failure to provide such insurance, Secured Party
may, but shall not be obligated, to procure such insurance, and in such
event, the Debtor shall reimburse Secured Party for the premium therefore
upon demand, and if Debtor fails to do so, Debtor shall be in default under
this Security Agreement.
4. DEBTOR'S COVENANTS, REPRESENTATIONS AND WARRANTIES. To induce Secured
Party to enter into this Security Agreement, Debtor covenants, represents and
warrants as follows:
a. Debtor is the lawful owner of all Collateral referred to in
Paragraph 1 hereof, and Debtor has the right and power to grant a security
interest in the Collateral to Secured Party. There are no other security
interest liens, encumbrances, charges or claims against any of the
Collateral, except as is specifically identified by Debtor in writing and
attached to this Security Agreement.
b. In the event that the Collateral referred to in Paragraph 1 hereof
shall hereafter become subject to any lien, encumbrance, security interest
or claim of any other person or entity (other than with the express written
consent of Secured Party),
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Debtor warrants that it will immediately undertake to secure the release of
the Collateral from such lien, encumbrance, security interest or claim at
Debtor's own cost and expense. Debtor will appear in and defend any action or
proceeding which may affect the security interest of Secured Party.
c. Debtor will maintain and repair Collateral; will use the collateral
lawfully and only within insurance coverage; will not use the Collateral so
as to cause or result in any waste, unreasonable deterioration or depreciation;
will permit Secured Party to enter upon Debtor's property and to inspect the
Collateral at any reasonable time.
d. Debtor will not, without the written consent of Secured Party, sell,
contract to sell, lease, encumber or dispose of the Collateral (with the
exception of inventory sold in the ordinary course of business) until the
indebtedness to Secured Party has been completely discharged, or written
permission is obtained from Secured Party.
e. Debtor will pay, when due, all taxes, assessments, charges, liens or
encumbrances now or hereafter assessed against the Collateral by any
governmental agency.
f. Debtor shall execute and deliver to Secured Party concurrently with
the execution of this Security Agreement, and at any time or times hereafter
at the request of Secured Party, all financing statements, renewal financing
statements, security agreements, assignments, statements, certificates of
title, conveyances, affidavits, notices, and any other agreements, instruments
and documents that Secured Party may request, in form satisfactory to Secured
party to perfect and maintain the security interest granted herein by Debtor
to Secured Party and in order to consummate fully all of the transactions
contemplated herein.
g. The making and performing of this Security Agreement is not in
contravention of or prohibited by any indenture, agreement, or undertaking to
which Debtor is a party or by which Debtor is bound or affected.
h. All financial information (and all information relating to the
collateral heretofore submitted to Secured Party by Debtor or at Debtor's
request) is true and correct, and all financial information hereafter
submitted to Secured Party by Debtor or at Debtor's request will be true and
correct when given.
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i. If Debtor is a corporation, Debtor is duly organized and valid
existing in the state of its incorporation, and is authorized to do business
in the place it is currently operating, and the execution, delivery and
performance of this Security Agreement are within Debtor's corporate powers
and have been duly authorized by the board of directors and shareholders, if
necessary, and are not in conflict with any laws or terms of its Articles of
Incorporation or its bylaws.
k. Debtor shall furnish Secured Party annually, or at such more
frequent intervals as Secured Party may request, a financial statement
including a balance sheet and an income statement prepared in accordance with
generally accepted accounting principles and such other financial information
relating to Debtor's business affairs and Collateral which Secured Party may
from time to time reasonably request.
l. Debtor shall inform Secured Party immediately on the occurrence of
any materially adverse change in Debtor's financial condition.
m. Debtor shall not move the Collateral from the location shown on the
signature page hereto without notifying Secured Party.
n. Debtor shall not move its business operations without advance notice
to Secured Party.
o. Debtor shall not merge nor reorganize its business, nor change the
form of its business (for example, from a sole proprietorship to a
corporation) without advance notice to Secured Party.
p. Debtor shall not change its name without advance notice to Secured
Party.
q. Debtor shall notify Secured Party promptly of:
4
<PAGE>
i) any attachment or legal process levied against any of the
Collateral or any other of Debtor's property; and
ii) any information received by or known to Debtor which in any
way may affect the value of the Collateral or the rights of
Secured Party in the Collateral.
r. Debtor shall promptly reimburse Secured Party for any and all legal
and accounting expenses, including reasonable attorneys' and accountants'
fees and court costs incurred in collecting any sums payable by Debtor in
enforcing this Security Agreement or any obligations secured thereby or in
verifying, handling, retrieving, repossessing, selling or otherwise disposing
of the Collateral, all of which sums shall become part of the indebtedness
secured hereby.
s. Debtor shall not grant any security interest to anyone other than
Secured Party in any of the Collateral without Secured Party's written
consent.
5. DEFAULT. Any one of the following events shall constitute a default of
Debtor's performance hereunder.
a. Failure of Debtor to pay as and when due its obligations under the
promissory note between Debtor and Secured Party dated February 15, 1996.
b. Failure of Debtor to perform and observe any of the terms, conditions,
covenants, representations or warranties contained in this Security Agreement.
c. Failure of Debtor to pay when due any open account indebtedness, now
existing or hereafter arising, owed to Secured Party; or any other obligation
or indebtedness now existing or hereafter arising.
d. The filing by or against Debtor of a petition under any section or
chapter of Bankruptcy Code, 11 U.S.C. & 101 et seq.; the making by Debtor of
an assignment for the benefit of creditors; the filing by or against Debtor
or a proceeding for dissolution or liquidation; the appointment of or the
application for the appointment of a receiver, trustee, controller or
custodian for all or part of the assets of Debtor; the attempt of
5
<PAGE>
Debtor to make an adjustment, settlement, or extension of its debts with its
creditors generally.
e. Debtor's becoming insolvent, becoming unable to meet its obligations
as they come due, or the cessation of Debtor's business operations for a
period of ten consecutive days.
f. The issuance of a writ of attachment, garnishment, execution or
similar legal process against Debtor or any of Debtor's property.
g. The making of any assessment for taxes against the Debtor by the
United States of America, any state or subdivision of either.
h. Secured Party in its sole discretion determines that the market
value of the Collateral is inadequate to protect its interests, is unsafe or
in danger of misappropriation.
6. REMEDIES. In the event of a default, Secured Party shall have, in
addition to any rights and remedies contained in this Security Agreement or
in any other agreement, instrument or document now or hereafter executed by
Debtor and delivered to Secured Party, all the rights and remedies of a
Secured Party under the California Commercial Code, all of which shall be
cumulative to the extent permitted by law. In addition to all such rights and
remedies, the Secured Party shall have the right, upon Debtor's default, to
demand possession of the Collateral, in which event, the Debtor shall
immediately undertake to deliver the Collateral to Secured Party at Debtor's
own cost and expense. If Debtor is unable or unwilling to so deliver the
Collateral, Secured Party shall have the right to enter upon the Debtor's
premises and obtain possession of the Collateral. Secured Party's rights
hereunder shall include the right to remove the Collateral from any premises
owned by persons other than Debtor in which the Collateral may be found.
Debtor shall indemnify and hold Secured Party harmless for any costs,
expenses or liabilities incurred by Secured Party in connection with the
repossession of the Collateral, including the defense of Secured party in any
action by any person relating to the removal of the Collateral from any
building owned by persons other than Debtor in which it may be found.
6
<PAGE>
Upon repossession of the Collateral, Secured Party shall have the right to
sell, lease, or otherwise dispose of the Collateral in any commercially
reasonable manner pursuant to the provisions of the California Commercial
Code.
In the event of a default, Secured Party shall have the right to enter and
remain upon the various premises of Debtor without cost or charge to the
Secured Party, and to use the same, together with materials, supplies, books
and records of Debtor for the purpose of liquidating or collecting the
Collateral, or for the conducting and preparing for the sale of the
Collateral, whether by foreclosure, auction or otherwise. In addition,
Secured Party may remove from such premises the Collateral to the premises of
Secured Party or any agent of Secured Party for such time as Secured Party
may desire, in order to collect effectively or liquidate the Collateral.
It is further agreed that in the event of default, Secured Party shall have
the right, in addition to any other and all other rights granted under this
Security Agreement or under the applicable provisions of the Commercial Code,
to seek and obtain the appointment of a Receiver, which Receiver shall be
entitled to enter upon, take possession of and manage the Collateral. All net
proceeds realized by the Receiver after paying all expenses incurred in
connection with the operation of the Receivership Estate including the
business conducted on Debtor's premises shall be applied to payment of the
costs of management of the Collateral and collection thereof including but
not limited to Receiver's fees, premiums on Receiver's bonds and reasonable
attorney's fees, and then to the sums secured by this Security Agreement.
Secured Party is granted the right to have a Receiver appointed in recognition
of the fact that the value of a substantial portion of the Collateral,
including but not limited to the prescription files, is based upon the
maintenance of Debtor's business as a going concern, and that default in
paying the obligations due Secured Party hereunder will create a danger that
the Collateral will be materially injured in value. Notwithstanding any
other provision of this Security Agreement, in the event Secured Party
exercises any of its rights hereunder to obtain possession of any of the
Collateral (including, without limitation, Debtor's contract rights under any
real property or personal property leases), Debtor shall continue to be
solely liable for any and all obligations and liabilities arising in
connection with such Collateral. Debtor agrees that Secured Party shall not
be liable for any acts, omissions, obligations or liabilities of Debtor under
or in connection with any contracts relating to any of the Collateral and
Debtor shall indemnify and hold Secured Party harmless for any costs,
expenses or liabilities
7
<PAGE>
incurred by Secured Party in connection with any such acts, omissions,
obligations or liabilities.
7. ACCOUNTS RECEIVABLE. Debtor shall, at the written request of Secured
Party, deliver to Secured Party schedules of accounts, contract rights,
instruments, documents and chattel paper generated by Debtor in the course of
its operations of its business and such other reports concerning the
Collateral as Secured Party may from time to time hereafter request.
Debtor shall, at the written request of Secured Party, deliver to Secured
Party from time to time hereafter at such intervals as requested and
determined by Secured Party copies of all invoices and other such documents
relating to accounts, documents, chattel paper, contract rights and
instruments.
In the event of Debtor's default hereunder, Secured Party shall have the
right at any time and from time to time thereafter, without notice to Debtor:
To notify all account debtors and obligors of accounts, documents, chattel
paper, contract rights, general intangibles, and instruments of Debtor that
Secured Party has a security interest in such Collateral and to direct all
such persons to make payment to Secured Party of all sums owned by them to
Debtor; to settle, compromise, sell, assign, extend or renew any debt owing
by any such account debtor or obligor; to sell or assign such Collateral upon
such terms as Secured Party may deem advisable; and to discharge and release
in the name of Debtor and Secured Party any such debt (all of which Secured
Party may do in the exercise of sole and absolute discretion). Any and all
disbursements for costs and expenses incurred or paid by Secured Party with
respect to the enforcement, collection or protection of its interest in the
Collateral, or against Debtor, whether by suit or otherwise, notification of
account debtors and obligors, including reasonable attorneys' fees, court
costs and similar expenses, if any, shall become part of the indebtedness
secured by the Collateral, payable upon demand.
8. ATTORNEYS' FEES. If at any time hereafter Secured Party employs counsel
for advice with respect to this Security Agreement or any other agreement,
instrument or document now or hereinafter executed by Debtor and delivered to
Secured Party; to intervene, file a petition, answer motion or otherwise
plead in any suit or proceeding relating to this Security Agreement, or any
other agreement, instrument or document now or hereafter executed by Debtor
and delivered to Secured Party; to protect, take
8
<PAGE>
possession of or to liquidate any of such Collateral; to attempt to enforce
any security interest or lien in any Collateral; to represent Secured Party
in any pending or threatened litigation with respect to the affairs of the
Debtor in any way relating to the Collateral; or to enforce any rights of
Secured Party of liabilities of Debtor hereunder. All reasonable attorneys'
fees arising from such services, and any expenses, costs and charges relating
thereto shall become part of the Debtor's obligation secured by the
Collateral hereunder.
9. MISCELLANEOUS.
a. Any notice required to be given by Secured Party to Debtor of a
sale, lease or other disposition or intended action by Secured Party with
respect to any of the Collateral shall be deposited in the United States
Mails, postage prepaid and duly addressed to Debtor at 460 Stickhorse Lane,
McKinney, Texas 75069 (or such other address as Debtor may from time to time
designate in writing to Secured Party), at least five (5) calendar days prior
to such proposed action. Such notification shall constitute fair and
reasonable notice to Debtor of any such action.
b. Secured Party's failure at any time or times hereunder to require
strict performance by Debtor of any of the provisions, warranties, or terms
and conditions contained in this Security Agreement shall not constitute a
waiver of any other default, whether prior or subsequent thereto.
c. Consent of Secured Party, as used in this Agreement, will be based
upon that which, in the Secured Party's judgment, is consistent with sound
business practice, and such consent will not be unreasonably withheld.
d. This Agreement and all other agreements, instruments or documents
executed and delivered pursuant hereto or in connection herewith, shall be
binding upon and inure to the benefit of the successors and assignees of the
parties hereto.
e. The laws and judicial decisions of the State of California shall
govern and control the construction, enforceability, validity and
interpretation of this Security Agreement and all of the agreements,
instruments, or documents now or at any time or times hereafter executed and
delivered by Debtor to Secured Party.
9
<PAGE>
f. If any action is brought in connection with the enforcement of this
note, Debtor consents to jurisdiction of the Superior Court of the State of
California, and waives any defense based upon lack of jurisdiction or venue
to having the matter heard before the Superior Court of the State of
California, in the County of Los Angeles.
DEBTOR: SECURED PARTY:
HORIZON PHARMACIES, INC. BERGEN BRUNSWIG DRUG COMPANY
dba HORIZON PHARMACY
BY: /s/ RICK McCORD, President BY: /s/ JOHN T. RASOR
------------------------------ -----------------------------------
Rick McCord, President John T. Rasor, General Finance Mgr.
BY: /s/ SY SHAHID, Vice President
-------------------------------
Sy Shahid, Vice President
BILLING/CORRESPONDENCE ADDRESS
- ------------------------------
P.O. Box 1869
McKinney, Texas 75070
10
<PAGE>
EXHIBIT B-1
SECURITY AGREEMENT
This SECURITY AGREEMENT made as of this 17th day of May 1996 by and between
BERGEN BRUNSWIG DRUG COMPANY, a California corporation (hereinafter referred
to as "Secured Party") and HORIZON PHARMACIES, INC., dba HORIZON PHARMACY
(hereinafter referred to as "Debtor").
For value received, the receipt of which is hereby acknowledged, Debtor and
Secured Party hereby agree as follows:
1. DEBT AND COLLATERAL. Debtor hereby grants Secured Party a continuing
security interest in and to all of Debtor's presently owned and after acquired
accounts receivable, accounts, chattel paper, documents, instruments,
promissory notes, general intangibles and returned goods; all present and
hereafter acquired inventory wherever located, including without limitation,
work in process and finished goods; all present and hereafter acquired
equipment wherever located; all present and future furniture, furnishings and
fixtures not permanently affixed to or constituting a part of the realty and
not paid for by Sublandlord or Prime Landlord pursuant to their advances,
excepting those leased by Borrower; all of Debtor's contract rights as lessee
under any and all real property leases pursuant to which Debtor occupies any
of the premises from which debtor does business and any and all of Debtor's
contract rights in any and all personal property leases pursuant to which
Debtor is in possession of any personal property used in the conduct of
Debtor's business; all proceeds and products of the foregoing, including but
not limited to, money, deposit accounts, goods, insurance proceeds, and other
tangible or intangible property received upon the sale or other disposition
of the foregoing; all presently owned or hereafter acquired prescription
files and records relating thereto (all of the foregoing being collectively
referred to as the "Collateral") and all books and records of account
identifying or relating to any of the Collateral.
2. OBLIGATIONS SECURED. The Collateral is and shall be security for
Debtor's timely and full payment of any and all promissory notes executed by
Debtor in favor of Secured Party, any existing obligation owed by Debtor to
Secured Party, and any obligation or indebtedness arising subsequent to the
date hereof, or acquired by Secured Party subsequent to the date hereof,
including without limitation, any open account
<PAGE>
indebtedness between Debtor and Secured Party. Secured Party and Debtor
expressly acknowledge and agree that they contemplate that Secured Party may
extend credit and/or advance monies to the Debtor in the future, which may be
in the form of direct loans to the Debtor or may be in the form of sales to
the Debtor on credit, and any such future indebtedness created subsequent to
the date of this Agreement shall be subject to the security interest created
herein.
The Collateral shall also secure the Debtor's prompt and faithful performance
of all of the Debtor's obligations, covenants, representations and warranties
contained in this Security Agreement or in any other agreement to which
Debtor is a party (or by which Debtor is bound) and to which Secured Party is
a party or of which Secured Party is a beneficiary.
3. INSURANCE. The Debtor shall insure the Collateral and keep the same
insured against all loss, damage or destruction due to fire, theft and other
casualty loss, in a sum and by policies adequate at all times to protect the
interest of Secured Party hereunder and otherwise satisfactory to Secured
Party. Debtor, upon request, shall furnish Secured Party evidence of such
insurance. Upon Debtor's failure to provide such insurance, Secured Party
may, but shall not be obligated, to procure such insurance, and in such
event, the Debtor shall reimburse Secured Party for the premium therefore upon
demand, and if Debtor fails to do so, Debtor shall be in default under this
Security Agreement.
4. DEBTOR'S COVENANTS, REPRESENTATIONS AND WARRANTIES. To induce Secured
Party to enter into this Security Agreement, Debtor covenants, represents and
warrants as follows:
a. Debtor is the lawful owner of all Collateral referred to in
Paragraph 1 hereof, and Debtor has the right and power to grant a security
interest in the Collateral to Secured Party. There are no other security
interest liens, encumbrances, charges or claims against any of the
Collateral, except as is specifically identified by Debtor in writing and
attached to this Security Agreement.
b. In the event that the Collateral referred to in Paragraph 1 hereof
shall hereafter become subject to any lien, encumbrance, security interest or
claim of any other person or entity (other than with the express written
consent of Secured Party),
2
<PAGE>
Debtor warrants that it will immediately undertake to secure the release of
the Collateral from such lien, encumbrance, security interest or claim at
Debtor's own cost and expense. Debtor will appear in and defend any action
or proceeding which may affect the security interest of Secured Party.
c. Debtor will maintain and repair the Collateral; will use the
collateral lawfully and only within insurance coverage; will not use the
Collateral so as to cause or result in any waste, unreasonable deterioration
or depreciation; will permit Secured Party to enter upon Debtor's property and
to inspect the Collateral at any reasonable time.
d. Debtor will not, without the written consent of Secured Party, sell,
contract to sell, lease, encumber or dispose of the Collateral (with the
exception of inventory sold in the ordinary course of business) until the
indebtedness to Secured Party has been completely discharged, or written
permission is obtained from Secured Party.
e. Debtor will pay, when due, all taxes, assessments, charges, liens or
encumbrances now or hereafter assessed against the Collateral by any
governmental agency.
f. Debtor shall execute and deliver to Secured Party concurrently with
the execution of this Security Agreement, and at any time or times hereafter
at the request of Secured Party, all financing statements, renewal financing
statements, security agreements, assignments, statements, certificates of title,
conveyances, affidavits, notices, and any other agreements, instruments and
documents that Secured Party may request, in form satisfactory to Secured Party
to perfect and maintain the security interest granted herein by Debtor to
Secured Party and in order to consummate fully all of the transactions
contemplated herein.
g. The making and performing of this Security Agreement is not in
contravention of or prohibited by any indenture, agreement, or undertaking to
which Debtor is a party or by which Debtor is bound or affected.
h. All financial information (and all information relating to the
collateral heretofore submitted to Secured Party by Debtor or at Debtor's
request) is true and correct, and all financial information hereafter
submitted to Secured Party by Debtor or at Debtor's request will be true and
correct when given.
3
<PAGE>
i. If Debtor is a corporation, Debtor is duly organized and valid
existing in the state of its incorporation, and is authorized to do business
in the place it is currently operating, and the execution, delivery and
performance of this Security Agreement are within Debtor's corporate powers
and have been duly authorized by the board of directors and shareholders, if
necessary, and are not in conflict with any laws or terms of its Articles or
Certificates of Incorporation or its bylaws.
j. All insurance policies with respect to the Collateral shall contain
a provision making the loss payable to Debtor and Secured Party jointly.
k. Debtor shall furnish Secured Party quarterly, or at such more
frequent intervals as Secured Party may request, a financial statement
including a balance sheet and an income statement prepared in accordance with
generally accepted accounting principles and such other financial information
relating to Debtor's business affairs and Collateral which Secured Party may
from time to time reasonably request.
l. Debtor shall inform Secured Party immediately on the occurrence of
any materially adverse change in Debtor's financial condition.
m. Debtor shall not move the Collateral from the location shown on the
signature page hereto without notifying Secured Party.
n. Debtor shall not move its business operations without advance notice
to Secured Party.
o. Debtor shall not merge nor reorganize its business, nor change the
form of its business (for example, from a sole proprietorship to a
corporation) without advance notice to Secured Party.
p. Debtor shall not change its name without advance notice to Secured
Party.
q. Debtor shall notify Secured Party promptly of:
4
<PAGE>
i) any attachment or legal process levied against any of the
Collateral or any other of Debtor's property; and
ii) any information received by or known to Debtor which in any
way may affect the value of the Collateral or the rights of
Secured Party in the Collateral.
r. Debtor shall promptly reimburse Secured Party for any and all legal
and accounting expenses, including reasonable attorneys' and accountants'
fees and court costs incurred in collecting any sums payable by Debtor in
enforcing this Security Agreement or any obligations secured thereby or in
verifying, handling, retrieving, repossessing, selling or otherwise disposing
of the Collateral, all of which sums shall become part of the indebtedness
secured hereby.
s. Debtor shall not grant any security interest to anyone other than
Secured Party in any of the Collateral without Secured Party's written
consent.
5. DEFAULT. Any one of the following events shall constitute a default of
Debtor's performance hereunder.
a. Failure of Debtor to pay as and when due its obligations under the
promissory note between Debtor and Secured Party dated May 17, 1996.
b. Failure of Debtor to perform and observe any of the terms, conditions,
covenants, representations or warranties contained in this Security Agreement.
c. Failure of Debtor to pay when due any open account indebtedness, now
existing or hereafter arising, owed to Secured Party; or any other obligation
or indebtedness now existing or hereafter arising.
d. The filing by or against Debtor of a petition under any section or
chapter of Bankruptcy Code, 11 U.S.C. & 101 et seq.; the making by Debtor of
an assignment for the benefit of creditors; the filing by or against Debtor
or a proceeding for dissolution or liquidation; the appointment of or the
application for the appointment of a receiver, trustee, controller or
custodian for all or part of the assets of Debtor; the attempt of
5
<PAGE>
Debtor to make an adjustment, settlement, or extension of its debts with its
creditors generally.
e. Debtor's becoming insolvent, becoming unable to meet its obligations
as they come due, or the cessation of Debtor's business operations for a
period of ten consecutive days.
f. The issuance of a writ of attachment, garnishment, execution or
similar legal process against Debtor or any of Debtor's property.
g. The making of any assessment for taxes against the Debtor by the
United States of America, any state or subdivision of either.
h. Secured Party in its sole discretion determines that the market
value of the Collateral is inadequate to protect its interests, is unsafe or
in danger of misappropriation.
6. REMEDIES. In the event of a default, Secured Party shall have, in
addition to any rights and remedies contained in this Security Agreement or
in any other agreement, instrument or document now or hereafter executed by
Debtor and delivered to Secured Party, all the rights and remedies of a
Secured Party under the California Commercial Code, all of which shall be
cumulative to the extent permitted by law. In addition to all such rights and
remedies, the Secured Party shall have the right, upon Debtor's default, to
demand possession of the Collateral, in which event, the Debtor shall
immediately undertake to deliver the Collateral to Secured Party at Debtor's
own cost and expense. If Debtor is unable or unwilling to so deliver the
Collateral, Secured Party shall have the right to enter upon the Debtor's
premises and obtain possession of the Collateral. Secured Party's rights
hereunder shall include the right to remove the Collateral from any premises
owned by persons other than Debtor in which the Collateral may be found.
Debtor shall indemnify and hold Secured Party harmless for any costs,
expenses or liabilities incurred by Secured Party in connection with the
repossession of the Collateral, including the defense of Secured Party in any
action by any person relating to the removal of the Collateral from any
building owned by persons other than Debtor in which it may be found.
6
<PAGE>
Upon repossession of the Collateral, Secured Party shall have the right to
sell, lease, or otherwise dispose of the Collateral in any commercially
reasonable manner pursuant to the provisions of the California Commercial
Code.
In the event of a default, Secured Party shall have the right to enter and
remain upon the various premises of Debtor without cost or charge to the
Secured Party, and to use the same, together with materials, supplies, books
and records of Debtor for the purpose of liquidating or collecting the
Collateral, or for the conducting and preparing for the sale of the
Collateral, whether by foreclosure, auction or otherwise. In addition,
Secured Party may remove from such premises the Collateral to the premises of
Secured Party or any agent of Secured Party for such time as Secured Party
may desire, in order to collect effectively or liquidate the Collateral.
It is further agreed that in the event of default, Secured Party shall have
the right, in addition to any other and all other rights granted under this
Security Agreement or under the applicable provisions of the Commercial Code,
to seek and obtain the appointment of a Receiver, which Receiver shall be
entitled to enter upon, take possession of and manage the Collateral. All net
proceeds realized by the Receiver after paying all expenses incurred in
connection with the operation of the Receivership Estate including the
business conducted on Debtor's premises shall be applied to payment of the
costs of management of the Collateral and collection thereof including but
not limited to Receiver's fees, premiums on Receiver's bonds and reasonable
attorney's fees, and then to the sums secured by this Security Agreement.
Secured Party is granted the right to have a Receiver appointed in recognition
of the fact that the value of a substantial portion of the Collateral,
including but not limited to the prescription files, is based upon the
maintenance of Debtor's business as a going concern, and that default in
paying the obligations due Secured Party hereunder will create a danger that
the Collateral will be materially injured in value. Notwithstanding any
other provision of this Security Agreement, in the event Secured Party
exercises any of its rights hereunder to obtain possession of any of the
Collateral (including, without limitation, Debtor's contract rights under any
real property or personal property leases), Debtor shall continue to be
solely liable for any and all obligations and liabilities arising in
connection with such Collateral. Debtor agrees that Secured Party shall not
be liable for any acts, omissions, obligations or liabilities of Debtor under
or in connection with any contracts relating to any of the Collateral and
Debtor shall indemnify and hold Secured Party harmless for any costs,
expenses or liabilities
7
<PAGE>
incurred by Secured Party in connection with any such acts, omissions,
obligations or liabilities.
7. ACCOUNTS RECEIVABLE. Debtor shall, at the written request of Secured
Party, deliver to Secured Party schedules of accounts, contract rights,
instruments, documents and chattel paper generated by Debtor in the course of
its operations of its business and such other reports concerning the
Collateral as Secured Party may from time to time hereafter request.
Debtor shall, at the written request of Secured Party, deliver to Secured
Party from time to time hereafter at such intervals as requested and
determined by Secured Party copies of all invoices and other such documents
relating to accounts, documents, chattel paper, contract rights and
instruments.
In the event of Debtor's default hereunder, Secured Party shall have the
right at any time and from time to time thereafter, without notice to Debtor:
To notify all account debtors and obligors of accounts, documents, chattel
paper, contract rights, general intangibles, and instruments of Debtor that
Secured Party has a security interest in such Collateral and to direct all
such persons to make payment to Secured Party of all sums owed by them to
Debtor; to settle, compromise, sell, assign, extend or renew any debt owing
by any such account debtor or obligor; to sell or assign such Collateral upon
such terms as Secured Party may deem advisable; and to discharge and release
in the name of Debtor and Secured Party any such debt (all of which Secured
Party may do in the exercise of sole and absolute discretion). Any and all
disbursements for costs and expenses incurred or paid by Secured Party with
respect to the enforcement, collection or protection of its interest in the
Collateral, or against Debtor, whether by suit or otherwise, notification of
account debtors and obligors, including reasonable attorneys' fees, court
costs and similar expenses, if any, shall become part of the indebtedness
secured by the Collateral, payable upon demand.
8. ATTORNEYS' FEES. If at any time hereafter Secured Party employs counsel
for advice with respect to this Security Agreement or any other agreement,
instrument or document now or hereinafter executed by Debtor and delivered to
Secured Party; to intervene, file a petition, answer motion or otherwise
plead in any suit or proceeding relating to this Security Agreement, or any
other agreement, instrument or document now or hereafter executed by Debtor
and delivered to Secured Party; to protect, take
8
<PAGE>
possession of or to liquidate any of such Collateral; to attempt to enforce
any security interest or lien in any Collateral; to represent Secured Party
in any pending or threatened litigation with respect to the affairs of the
Debtor in any way relating to the Collateral; or to enforce any rights of
Secured Party of liabilities of Debtor hereunder. All reasonable attorneys'
fees arising from such services, and any expenses, costs and charges relating
thereto shall become a part of the Debtor's obligation secured by the
Collateral hereunder.
9. MISCELLANEOUS.
a. Any notice required to be given by Secured Party to Debtor of a
sale, lease or other disposition or intended action by Secured Party with
respect to any of the Collateral shall be deposited in the United States
Mails, postage prepaid and duly addressed to Debtor at 460 Stickhorse Lane,
McKinney, Texas 75069 (or such other address as Debtor may from time to time
designate in writing to Secured Party), at least five (5) calendar days prior
to such proposed action. Such notification shall constitute fair and
reasonable notice to Debtor of any such action.
b. Secured Party's failure at any time or times hereunder to require
strict performance by Debtor of any of the provisions, warranties, or terms
and conditions contained in this Security Agreement shall not constitute a
waiver of any other default, whether prior or subsequent thereto.
c. Consent of Secured Party, as used in this Agreement, will be based
upon that which, in the Secured Party's judgment, is consistent with sound
business practice, and such consent will not be unreasonably withheld.
d. This Agreement and all other agreements, instruments or documents
executed and delivered pursuant hereto or in connection herewith, shall be
binding upon and inure to the benefit of the successors and assignees of the
parties hereto.
e. The laws and judicial decisions of the State of California shall
govern and control the construction, enforceability, validity and
interpretation of this Security Agreement and all of the agreements,
instruments, or documents now or at any time or times hereafter executed and
delivered by Debtor to Secured Party.
9
<PAGE>
f. If any action is brought in connection with the enforcement of this
note, Debtor consents to jurisdiction of the Superior Court of the State of
California, and waives any defense based upon lack of jurisdiction or venue
to having the matter heard before the Superior Court of the State of
California, in the County of Los Angeles.
DEBTOR: SECURED PARTY:
HORIZON PHARMACIES, INC. BERGEN BRUNSWIG DRUG COMPANY
DBA HORIZON PHARMACY
BY: /s/ Rick McCord, President BY: /s/ John T. Raser
--------------------------------- ------------------------------------
Rick McCord, President Title: General Finance Mgr.
BY: /s/ Sy Shahid, Vice President
---------------------------------
Sy Shahid, Vice President
Billing/Correspondence Address
- ------------------------------
P.O. Box 1869
McKinney, Texas 75070
10
<PAGE>
EXHIBIT B-2
SECURITY AGREEMENT
This SECURITY AGREEMENT ("Agreement") is made and entered into as of
August 26, 1996, between BERGEN BRUNSWIG DRUG COMPANY, a California
corporation ("Secured Party"), with its headquarters located at 4000
Metropolitan Drive, Orange, California 92868 and HORIZON PHARMACIES, INC.,
having a chief executive office at and mailing address of 275 W. Princeton
Drive, Princeton, Texas, ("Debtor").
For value received, the receipt of which is hereby acknowledged, Debtor
and Secured Party hereby agree as follows:
1. CREATION OF SECURITY INTEREST.
(a) DEBT AND COLLATERAL. Debtor hereby grants Secured Party a
continuing security interest in and to all of Debtor's account receivables,
accounts, chattel paper, documents, choses in action, instruments,
promissory notes, general intangibles and returned goods, inventory
("Inventory"), wherever located, equipment ("Equipment"), wherever located;
furniture, furnishings and fixtures not permanently affixed to or
constituting a part of the realty, contract rights as lessee under any and
all real property leases pursuant to which Debtor occupies any of the
premises from which Debtor does business; and contract rights in any and all
personal property leases pursuant to which Debtor is in possession of any
personal property used in the conduct of Debtor's business all whether
presently owned or hereafter acquired; and all proceeds of the foregoing,
including but not limited to, money, deposit accounts, goods, insurance
proceeds, and other tangible or intangible property received upon the sale or
other disposition of any of the foregoing; and all presently owned or
hereafter acquired prescription files and records relating to or used in the
conduct of Debtor's business (all of the foregoing being collectively
referred to as the "Collateral") and all books and records of account
identifying or relating to any of the Collateral.
(b) OBLIGATIONS SECURED. Secured Party and Debtor acknowledge and
agree that:
(i) The Collateral is and shall be security for Debtor's timely and
full payment of any and all existing obligations owed by Debtor to Secured
Party; and any obligation or indebtedness arising subsequent to the date
hereof, or acquired by Secured Party subsequent to the date hereof,
including without limitation any open account indebtedness between Debtor
and Secured Party. Secured Party and Debtor expressly acknowledge and agree
that they contemplate that Secured Party may extend credit to Debtor in the
future, which may be in the form of sales to Debtor on credit, changes in
credit terms or similar financial obligations, and any such future
indebtedness created subsequent to the date of this Agreement shall be
secured by the security interest granted and created under this Agreement.
(ii) The Collateral shall also secure the Debtor's prompt and faithful
performance of all of the Debtor's obligations, covenants, representations
and warranties contained in this Agreement or in any other agreement to
which Debtor is a party (or by which Debtor is bound) and to which Secured
Party is a party or of which Secured Party is a beneficiary.
CON\MVW\SECURITY.AGR Rev. 7/96 1
<PAGE>
(c) PURCHASE MONEY SECURITY INTEREST. Debtor hereby grants to Secured
Party and its assigns, and Secured Party retains, a purchase money security
interest in and to the Collateral (as defined below), which security interest
shall be superior to any other security interest granted or created by Debtor
prior to the date Secured Party receives full payment of the purchase price
of the Collateral and shall be a first lien on the Collateral. Debtor hereby
agrees to execute and Secured Party may file in any appropriate public office
such documents as may be necessary to perfect Secured Party's security
interest, including, without limitation, any Uniform Commercial Code
financing statements as may be required by Secured Party. For purposes of
this Agreement, the term "Collateral" shall mean and include the following:
(a) All pharmaceutical products, health and beauty aids and other
similar goods sold by Secured Party or any affiliate or subsidiary of
Secured Party to Debtor, whether delivered to Debtor or any affiliate or
subsidiary of Debtor, wherever the same may be located (including, without
limitation, the locations detailed in SCHEDULE A-1 attached hereto, as
amended from time to time), and whether any of the foregoing has been
sold prior to the date of this Agreement or is sold to Debtor hereafter;
and
(b) Any and all proceeds and products of any of the foregoing,
including, without limitation, all money, accounts, general intangibles,
documents, instruments, chattel paper, goods, insurance proceeds and any
other tangible or intangible property received upon the sale or disposition
of any of the foregoing.
2. INSURANCE. Debtor shall insure the Collateral and keep the same
insured against all loss, damage or destruction due to fire, theft, and such
other perils as are covered under the broadest form of "all risk" average
available in those States where the Collateral is located, in a sum and by
such policies adequate at all times to protect the interest of Secured Party
hereunder and otherwise satisfactory to Secured Party. Secured Party shall be
named as an additional insured under any such policy(ies). Debtor, upon
request, shall furnish Secured Party evidence of such insurance. Any renewal
certificate and proof of payment of premium for such insurance shall be
delivered to Secured Party not less than fifteen (15) days prior to the
renewal date of any such insurance policy. Any such insurance shall be
cancelable only after thirty (30) days' prior written notice to Debtor and
Secured Party. Upon Debtor's failure to provide such insurance, Secured Party
may, but shall not be obligated, to procure such insurance, and in such
event, the Debtor shall promptly reimburse Secured Party for the premium
therefore upon demand, and if Debtor fails to do so, Debtor shall be in
default under this Agreement.
3. DEBTOR'S COVENANTS, REPRESENTATIONS AND WARRANTIES. To induce
Secured Party to enter into this Agreement, Debtor covenants, represents and
warrants to Secured Party as follows:
a. Debtor has the right and power to grant a security interest in
the Collateral to Secured Party. There are no other security interest liens,
encumbrances, charges or claims against any of the Collateral.
CON\MVW\SECURITY.AGR Rev. 7/96 2
<PAGE>
b. In the event that the Collateral shall hereafter become subject to
any lien, encumbrance, security interest or claim of any other person or
entity (other than with the express written consent of Secured Party or
otherwise discussed in subsection 3(a) above), Debtor warrants that it will
immediately undertake to secure the release of the Collateral from such lien,
encumbrance, security interest or claim at Debtor's own cost and expense.
Debtor will appear in and defend any action or proceeding which may adversely
affect the security interest of Secured Party in the Collateral.
c. Debtor shall: (i) properly maintain and repair the Collateral; (ii)
use the Collateral lawfully and not in any manner that may cause a reduction
or cancellation of the insurance required to be maintained under Section 2
above; (iii) not use the Collateral so as to cause or result in any waste,
unreasonable deterioration or depreciation; and (iv) permit Secured Party to
enter upon any of such Debtor's property and to inspect the Collateral at any
reasonable time.
d. Debtor shall not, sell, contract to sell, lease, encumber or dispose
of the Collateral (with the exception of inventory sold in the ordinary
course of business) until the indebtedness to Secured Party has been
completely discharged, or the prior written consent of an officer of Secured
Party is obtained.
e. Debtor shall pay, prior to delinquency, all taxes, assessments,
charges, liens or encumbrances now or hereafter assessed against the
Collateral by any governmental agency.
f. Debtor shall execute and deliver to Secured Party concurrently with
the execution of this Agreement all financing statements, renewal financing
statements, security agreements, assignments, statements, certificates of title,
conveyances, affidavits, notices, and any other agreements, instruments and
documents that Secured Party may request, in form satisfactory to Secured Party,
to perfect and maintain the security interest and purchase money security
interest of Debtor granted or created, whether now or in the future, under this
Agreement. At any time upon the request of Secured Party, Debtor shall execute
and deliver to Secured Party all financing statements, continuation financing
statements, fixture filings, security agreements, chattel mortgages, pledges,
assignments, endorsements of certificates of title, applications for title,
affidavits, reports, notices, schedules of accounts, letters of authority, and
all other documents that Secured Party may reasonably request, in form
satisfactory to Secured Party, to perfect and continue perfected Secured
Party's security interests in the Collateral and in order to fully consummate
all of the transactions contemplated hereby, including perfecting and protecting
the purchase money security interest in the Inventory (and proceeds and
receivables of the Inventory) granted by Debtor hereunder to Secured Party.
g. The making and performing of this Agreement is not in contravention
of or prohibited by any indenture, agreement or undertaking to which Debtor
is a party or by which Debtor is bound or affected.
CON\MVW\SECURITY.AGR Rev. 7/96 3
<PAGE>
h. All financial information (and all information relating to the
Collateral heretofore submitted to Secured Party by Debtor) is true and
correct, and all financial information hereafter submitted to Secured Party
by Debtor or at Debtor's request will be true and correct when given.
i. Debtor is duly organized and validly existing in the state of its
incorporation, and is authorized to do business in the states it is currently
operating, and the execution, delivery and performance of this Agreement are
within Debtor's corporate powers and have been duly authorized by the board
of directors, if necessary, and are not in conflict with any laws or terms of
its Articles or Certificates of Incorporation or its bylaws.
j. All insurance policies with respect to the Collateral shall contain
a provision making the loss payable to Debtor and Secured Party jointly.
k. Debtor shall furnish Secured Party quarterly, or at such more
frequent intervals as Secured Party may request, financial statements,
including balance sheets and income statements prepared in accordance with
generally accepted accounting principles, and such other financial
information relating to Debtor's business affairs and Collateral that Secured
Party may from time to time reasonably request.
l. Debtor shall inform Secured Party immediately in writing on the
occurrence of any adverse change in Debtor's financial condition.
m. Debtor shall keep the Inventory and Equipment only at the locations
identified on SCHEDULE A-1; PROVIDED, HOWEVER, that Debtor may amend SCHEDULE
A-1 so long as such amendment occurs by written notice to Secured Party not
less than thirty (30) days prior to the date on which the Inventory or
Equipment is moved to such new location, so long as such new location is
within the continental United States, and so long as, at the time of such
written notification, Debtor provides any financing statements or fixture
filings necessary to perfect and continue perfected Secured Party's security
interests and purchase money security interests in such assets and Inventory,
respectively, and also provides to Secured Party a landlord's waiver in form
and substance satisfactory to Secured Party.
n. Debtor shall not move its business operations without advance notice
to Secured Party.
o. Debtor shall not merge nor reorganize its business, nor change the
form of its business without advance notice to Secured Party.
p. Debtor shall not change its name without advance notice to Secured
Party.
q. Debtor shall notify Secured Party promptly of:
(i) any attachment or legal process levied against any of
the Collateral or any other of Debtor's property; and
CON\MVW\SECURITY.AGR Rev. 7/96 4
<PAGE>
(ii) any information received by or known to Debtor
which in any way may affect the value of the Collateral or
the rights of Secured Party in the Collateral.
r. Debtor shall promptly reimburse Secured Party for any and all
legal and accounting expenses, including reasonable attorneys' and
accountants' fees, disbursements and court costs, incurred in collecting any
sums payable by Debtor and/or in enforcing this Agreement or any obligations
secured hereby, or in verifying, handling, retrieving, repossessing, selling
or otherwise disposing of the Collateral, all of which sums shall become part
of the indebtedness secured by this Agreement.
s. Debtor shall not grant any further security interest to anyone
other than Secured Party in any of the Collateral without Secured Party's
prior written consent.
t. Secured Party (through any of its officers, employees, or
agents) shall have the right, from time to time hereafter to inspect Debtor's
books and to check, test, and appraise the Collateral in order to verify
Debtor's financial condition or the amount, quality, value, condition of, or
any other matter relating to, the Collateral.
4. DEFAULT. Any one of the following events shall constitute a
default ("Default") of Debtor's performance hereunder.
a. Failure by Debtor to perform and observe any of the terms,
conditions, covenants, representations or warranties contained in this
Agreement.
b. Failure by Debtor to pay when due any open account
indebtedness, now existing or hereafter arising, owed to Secured Party, or
any other obligation or indebtedness now existing or hereafter arising, or
failure by Debtor to promptly and properly assist Secured Party in perfecting
Securing Party's purchase money security interest in the inventory (and
proceeds and receivable thereof).
c. The filing by or against Debtor of a petition under any
section or chapter of Title 11 of the United States Code, as amended; the
making by Debtor of an assignment for the benefit of creditors (other than in
favor of Secured Party under this Agreement); the filing by or against Debtor
or a proceeding for dissolution or liquidation; the appointment of or the
application for the appointment of a receiver, a trustee, controller or
custodian for all or part of the assets of Debtor, and/or the attempt by
Debtor to make an adjustment, settlement, or extension of its debts with its
creditors generally.
d. Debtor's becoming insolvent, becoming unable to meet its
obligations as they come due, or the cessation of Debtor's business operations
for a period of five (5) consecutive days.
e. The issuance of a writ of attachment, writ of possession or
similar legal process against Debtor or any of Debtor's property.
f. The making of any assessment for taxes against the Debtor by
the United States of America, any state or any subdivision of either.
CON\MVW\SECURITY.AGR Rev. 7/96 5
<PAGE>
g. Secured Party in its sole discretion determines that the value
of the Collateral is inadequate to protect its interests, is unsafe or in
danger of misappropriation.
5. REMEDIES. In the event of a Default, Secured Party, in addition to
any rights and remedies contained in this Agreement or in any other agreement,
instrument or document now or hereafter executed by Debtor and delivered to
Secured Party, shall have all the rights and remedies of a Secured Party
under the California Uniform Commercial Code, all of which shall be
cumulative to the extent permitted by law. In addition to all the rights and
remedies, Secured Party shall have the right, upon Debtor's default, to
demand possession of the Collateral, in which event, the Debtor shall
immediately undertake to deliver the Collateral to Secured Party at Debtor's
own cost and expense. If Debtor is unable or unwilling to so deliver the
Collateral, Secured Party shall have the right to enter upon the Debtor's
various premises, wherever situate, and obtain possession of the Collateral.
In the event of a Default by Debtor, Secured Party shall have the right to
enter and remain upon the various premises of Debtor without cost or charge
to Secured Party, and to use the same, together with materials, supplies,
books and records of Debtor for the purpose of liquidating or collecting the
Collateral or its proceeds, or for the conducting and preparing for sale of
the Collateral, whether by foreclosure, auction or otherwise. In addition,
Secured Party may remove from such premises the Collateral to the premises of
Secured Party or any agent of Secured Party for such time as Secured Party
may desire, in order to liquidate the Collateral. Debtor shall indemnify
and hold Secured Party harmless for any costs, expenses or liabilities
incurred by Secured Party in connection with the repossession and/or
liquidation of the Collateral.
Upon repossession of the Collateral, Secured Party shall have the
right to sell, lease, or otherwise dispose of the Collateral in any
commercially reasonable manner pursuant to the provisions of the California
Uniform Commercial Code.
It is further agreed that in the event of a Default by Debtor,
Secured Party shall have the right, in addition to any other and all other
rights granted under this Agreement or under the applicable provisions of the
California Uniform Commercial Code, to seek and obtain the appointment of a
receiver under Chapter 5, Title 7, Part II of the California Code of Civil
Procedure, as amended or redesignated, which receiver shall be entitled to
enter upon, take possession of and manage the Collateral. All net proceeds
realized by the receiver after paying all expenses incurred in connection
with the operation of the receivership estate including the business
conducted on Debtor's premises shall be applied to payment of the costs of
management of the Collateral and collection thereof, including but not
limited to the receiver's fees, premiums on the receiver's bonds and
reasonable attorney's fees, and then to the sums secured by this Agreement.
Secured Party is granted the right to have a receiver appointed in
recognition of the fact that the value of a substantial portion of the
Collateral is based upon the maintenance of Debtor's business as a going
concern, and that default in paying the obligations due Secured Party
hereunder will create a danger that the value of the Collateral will be
materially and adversely affected. Notwithstanding any other provision of
this Agreement, in the event Secured Party exercises any of its rights
hereunder to obtain possession of any of the Collateral (including, without
limitation, Debtor's contract rights under any real property or personal
property leases), Debtor shall continue to be solely liable for any and all
obligations and liabilities arising in connection with such Collateral.
Debtor agrees that Secured Party shall not be liable for any acts, omissions,
obligations or liabilities of Debtor under or in connection with any
contracts relating to any of the Collateral and Debtor shall
CON\MVW\SECURITY.AGR Rev. 7/96 6
<PAGE>
indemnify and hold Secured Party harmless for any costs, expenses or
liabilities incurred by Secured Party in connection with any such acts,
omissions, obligations or liabilities.
Debtor hereby irrevocably makes, constitutes, and appoints Secured
Party (and any of Secured Party's officers, employees, or agents designated
by Secured Party) as Debtor's true and lawful attorney, with power to: (a) if
Debtor refuses to, or fails timely to execute and deliver any of the
documents described in SECTION 3(f) above, sign the name of Debtor on any of
the documents described in SUBSECTION 3(f); (b) send requests for
verification from other known creditors of Debtor; (c) endorse Debtor's name
on any checks, notices, acceptances, money orders, drafts, or other item of
payment or security that may come into Debtor's possession; (e) at any time
that an event of a Default has occurred under this Agreement and is
continuing or Secured Party deems itself insecure (in accordance with Section
1208 of the California Uniform Commercial Code), notify the post office
authorities to change the address for delivery of Debtor's mail to an address
designated by Secured Party, to receive and open mail addressed to Debtor,
and to retain all mail relating to the Collateral and forward all other mail
to Debtor; (f) at any time that an event of a Default has occurred and is
continuing or Secured Party deems itself insecure (in accordance with Section
1208 of the California Uniform Commercial Code), make, settle, and adjust all
claims under Debtor's policies of insurance and make all determinations and
decisions with respect to such policies of insurance; and (g) at any time
that an Event of Default has occurred and is continuing or Secured Party
deems itself insecure (in accordance with Section 1208 of the California
Uniform Commercial Code), settle and adjust disputes and claims of debtors of
the Debtor, for amounts and upon terms which Secured Party determines to be
reasonable, and Secured Party may cause to be executed and delivered any
documents and releases which Secured Party determines to be necessary. The
appointment of Secured Party as Debtor's attorney, and each and every one of
Secured Party's rights and powers, being coupled with an interest, is
irrevocable until all of the repayment obligations owing to Secured Party
have been fully and finally repaid and performed.
6. ACCOUNTS RECEIVABLE. Debtor shall, at the written request of
Secured Party, deliver to Secured Party schedules of accounts, contract
rights, instruments, documents and chattel paper generated by Debtor in the
course of the operation of its business and such other reports concerning the
Collateral as Secured Party may from time to time hereafter request.
At the written request of Secured Party or from time to time
hereafter at such intervals as requested and determined by Secured Party,
Debtor shall deliver to Secured Party copies of all invoices and other such
documents relating to accounts, documents, chattel paper, contract rights and
instruments.
In the event of Debtor's default under the provisions of this
Section 6, Secured Party shall have the right at any time and from time to time
thereafter, without notice to Debtor: (i) to notify all accounts debtors and
obligors of accounts, documents, chattel paper, contract rights, general
intangibles, and instruments of Debtor that Secured Party has a security
interest in such Collateral and to direct all such persons to make payments to
Secured Party of all sums owed by them to Debtor; (ii) settle, compromise, sell,
assign, extend or renew any debt owing by any such account debtor or obligor;
(iii) sell or assign such Collateral upon such terms as Secured Party may deem
advisable; and (iv) discharge and release in the name of Debtor and Secured
Party any such debt (all of which Secured Party may do its sole and
CON\MVW\SECURITY.AGR Rev. 7/96 7
<PAGE>
absolute discretion). Any and all disbursements for costs and expenses
incurred or paid by Secured Party with respect to the enforcement, collection
or protection of its interest in the Collateral, or against Debtor, whether
by suit or otherwise, notification of account debtors and obligors, including
reasonable attorneys' fees, court costs and similar expenses, if any, shall
become part of the indebtedness secured by the Collateral, payable upon
demand.
7. ATTORNEYS' FEES. If at any time hereafter Secured Party employs
counsel for advice (i) with respect to this Agreement or any other agreement,
instrument or document now or hereafter executed by Debtor and delivered to
Secured Party, (ii) to intervene, file a petition, answer motion or otherwise
plead in any suit or proceeding relating to this Agreement or to the
Collateral, or any other agreement, instrument or document now or hereafter
executed by Debtor and delivered to Secured Party; (iii) to protect, take
possession of or liquidate any of the Collateral; (iv) to attempt to enforce
any security interest or lien in any Collateral; (v) to represent Secured
Party in any pending or threatened litigation with respect to the affairs of
the Debtor in any way relating to the Collateral; or (vi) to enforce any
rights of Secured Party of liabilities of Debtor hereunder, then all
reasonable attorneys' fees arising from such services, and any expenses,
costs and charges relating thereto shall become part of the Debtor's
obligation secured by the Collateral hereunder.
8. MISCELLANEOUS.
a. Any notice required to be given by Secured Party to Debtor of a
sale, lease or other disposition or intended action by Secured Party with
respect to any of the Collateral shall be deposited in the United States
Mails, postage prepaid and duly addressed to Debtor at 275 W. Princeton
Drive, Princeton, Texas 75407 (or such other address as Debtor may from time
to time designate in writing to Secured Party), at least five (5) calendar
days prior to such proposed action. Such notification shall constitute fair
and reasonable notice to Debtor of any such action.
b. Secured Party's failure at any time or times hereunder to
require strict performance by Debtor of any of the provisions, warranties,
or terms and conditions contained in this Agreement shall not constitute a
waiver of any other default, whether prior or subsequent thereto.
c. This Agreement and all other agreements, instruments or
documents executed and delivered pursuant hereto or in connection herewith,
shall be binding upon and inure to the benefit of the successors and
assignees of the parties hereto.
d. The internal laws and judicial decisions of the State of
California, without regard to conflict of law provisions, shall govern and
control the construction, enforceability, validity and interpretation of this
Agreement and all of the agreements, instruments, or documents now or at any
time or times hereafter executed and delivered by Debtor to Secured Party.
CON\MVW\SECURITY.AGR Rev. 7/96 8
<PAGE>
e. If action is brought in connection with the enforcement of this
Agreement, Debtor consents to jurisdiction of the Superior Court of the State
of California, and waives any defense based upon lack of jurisdiction or
venue to having the matter heard before the Superior Court of the State of
California in the County of Orange.
SECURED PARTY: DEBTOR:
BERGEN BRUNSWIG DRUG COMPANY, HORIZON PHARMACIES INC.,
a California corporation a Texas corporation
By: /s/ JOHN T. RASOR By: /s/ RICK McCORD
---------------------------- -----------------------------
Rick McCord, President
CON\MVW\SECURITY.AGR Rev. 7/96 9
<PAGE>
SCHEDULE A-1
PREMISES WITH INVENTORY AND EQUIPMENT
LOCATIONS
Horizon Pharmacies, Inc. (Corporate Office)
275 W. Princeton Drive
Princeton, Texas 75407
Horizon Pharmacy #1 Horizon Pharmacy #2
604 S. Main Street 218 W. Hwy. 380
Winnsboro, Texas 75494 Princeton, Texas 75077
Horizon Pharmacy #3 Horizon Pharmacy #4
101 E. Main Street 100 E. Sam Rayburn Drive
Cuero, Texas 77954 Bonham, Texas 75418
Horizon Pharmacy #5 Horizon Pharmacy #6
125 E. Main Street 211 N. Anglin Street
Uvalde, Texas 78801 Cleburne, Texas 76031
Horizon Pharmacy #7 Horizon Pharmacy #8
408 W. Broadway 1024 N. Butler Avenue
McLoud, Oklahoma 74851 Farmington, New Mexico 87401
Horizon Pharmacies, Inc. Horizon Pharmacy #9
dba Option Care 1009 Superior Avenue
725 E. Ute Tomah, Wisconsin 54660
Farmington, New Mexico 87401
CON\MVW\SECURITY.AGR Rev. 7/96 10
<PAGE>
EXHIBIT C
GUARANTEE AGREEMENT
1. In consideration of any financial accommodations given, or to be
given, or continued, by BERGEN BRUNSWIG DRUG COMPANY (hereinafter referred to
as "Beneficiary") to HORIZON PHARMACIES, INC. dba HORIZON PHARMACY
(hereinafter referred to as "Debtor") the undersigned hereby unconditionally
guarantees the prompt payment of all indebtedness or liabilities according to
the terms thereof as agreed in any financial statement, application or other
instrument, including but not limited to that certain promissory note dated
May 17, 1996 executed by Debtor, which debtor may now or at any time
hereafter owe to Beneficiary, whether arising from dealings between Debtor
and Beneficiary or from other dealings by which Beneficiary may be or become
in any manner whatever a creditor of Debtor with such interest as may be due
thereon.
2. The undersigned agrees that Beneficiary may in its absolute
discretion and without prejudice to or in any way limiting or lessening the
liability of the undersigned under this guarantee: (a) extend credit to
Debtor, in such amount and at such times as Beneficiary may determine,
whether for a greater or lesser amount than is hereby guaranteed and whether
Beneficiary has any knowledge of facts with respect to Debtor which might be
construed as materially prejudicial to the interests of the undersigned,
Beneficiary being hereby relieved of any duty to disclose any such facts to
the undersigned; (b) grant extensions of time or other indulgences; (c)
change the interest rate; (d) take or give up or modify, vary, exchange,
renew or abstain from perfecting or taking advantage of any security; (e)
accept or make compositions or other arrangements or file or refrain from
filing a claim in any bankruptcy proceeding or Debtor or other guarantor; (f)
discharge or release any party or parties; (g) realize on any security; and
(h) otherwise deal with Debtor and co-guarantors and other parties and
security as Beneficiary may deem expedient.
3. This shall be a continuing guarantee and shall cover all
indebtedness and liabilities of Debtor and ??? more than one, the several
obligations of each as well as their joint obligations, including those ???
up to such time as Beneficiary shall have actually received written notice of
revocation of this guarantee by the undersigned. Such revocation shall not
affect the undersigned's obligations to Beneficiary with respect to
indebtedness or liabilities of Debtor to Beneficiary arising prior to actual
receipt by Beneficiary of such revocation.
4. This guarantee shall secure any balance due or owing from time to
time and at any time from Debtor to Beneficiary, notwithstanding any payments
from time to time made to Beneficiary or any settlement of account or any
other thing whatsoever; and no payment made by or on behalf of the
undersigned to Beneficiary shall be held to discharge or diminish the
continuing liability of the undersigned hereunder unless written notice is
given to Beneficiary at the time of making such payments that the same are
being made for the purpose of liquidating such liability and until full
payment of all indebtedness and liabilities (including interest), present and
future and whether or not payment thereof is guaranteed hereby of Debtor to
Beneficiary, the undersigned waives all right of subrogation and all benefit
of or right to participate in any security now or hereafter held by Debtor.
5. All demands, presentments, notices of protest and of dishonor and
notices of every kind or nature, including those of any action or non-action
on the part of Debtor, Beneficiary, any co-guarantor, or any creditor of
Debtor, Beneficiary, or any co-guarantor, or any other person whomsoever, are
expressly waived by the undersigned. The undersigned hereby waives the right
to require Beneficiary to proceed against Debtor, any co-guarantor or any
other party or to proceed against or apply any security it may hold, and
waives the right to require Beneficiary to pursue any other remedy for the
benefit of the undersigned, and agrees that Beneficiary may proceed against
the undersigned for the amount hereby guaranteed without taking any action
against Debtor, any co-guarantor or any other party and without proceeding
against or ???ing any security it may hold. The undersigned waives the right
to plead any and all statutes of limitations as a defense to this guarantee
and to any indebtedness or liability hereby guaranteed, and agrees that any
partial payments by or on behalf of Debtor on any indebtedness or liability
hereby guaranteed,
REV 9/92 GENERAL
GTEEHOR.DOC
<PAGE>
including interest, shall, as of the time each such payment is made, stop the
running of the time within which an action may be commenced upon this
guarantee and shall constitute a further waiver by the undersigned of the
right to plead any and all statutes of limitations as a defense to this
guarantee and to any indebtedness or liability hereby guaranteed.
6. All debts and liabilities, present and future, of Debtor to the
undersigned, or any of them, are hereby postponed to the liabilities of
Debtor to Beneficiary and all moneys received by any of the undersigned or
their representatives, successors or assigns thereon, shall be received as
trustees for Debtor and shall be paid over to Beneficiary and the undersigned
and each of them further agree, upon any liquidation or distribution of the
assets of Debtor, to assign to Beneficiary upon its request all claims on
account of all such debts and liabilities, to the end that Beneficiary shall
receive all dividends and payments on such debts and liabilities until
payment in full of all liabilities of Debtor to Beneficiary; and this
agreement shall constitute such assignment in the event the undersigned shall
fail or refuse to execute and deliver such other or further assignment of
such claims as Beneficiary may request.
7. If the debtor is a corporation, Beneficiary is not be concerned to
see or inquire into the powers of Debtor or its directors, officers,
partners, associates or other agents acting or purporting to act on its
behalf, the undersigned hereby representing that such powers exist, and
moneys in fact borrowed from Debtor in the professed exercise of such powers
shall be deemed to form part of the liabilities guaranteed, even though the
borrowing or obtaining of such moneys be in excess of the powers of Debtor or
of the directors, partners, officers, associates or other agents thereof, or
shall be in any way irregular or defective or informal.
8. The undersigned agrees to pay a reasonable attorneys' fee and all
other costs and expenses which may be incurred by Beneficiary in connection
with this Guarantee or in collection of any of said indebtedness or
liabilities from Debtor or the undersigned.
9. This Guarantee is assignable with any one and/or several and/or all
of the indebtedness or liabilities which it guarantees, and when so assigned
the guarantor shall be bound as above to the assignees without in any manner
affecting guarantor's liability hereunder on any part of said obligations
retained by Beneficiary.
10. This Guarantee shall inure to the benefit of and bind the heirs,
administrators, executors, assigns of Beneficiary and each of the
undersigned, and shall be construed as the joint and several obligation of
each of the undersigned where there is more than one.
11. This Guarantee is in addition to and exclusive of the guarantee of
any other guarantor and of any and all prior guarantees of any of the
undersigned of indebtedness or liabilities of Debtor to Beneficiary; and this
Guarantee shall in no way limit or lessen any other liability howsoever
arising of any of the undersigned for payment of indebtedness or liabilities
which are hereby guaranteed.
By /s/ RICK McCORD
---------------------------------
Rick McCord, an individual
By
---------------------------------
Dated: May 17, 1996
Index # 2014
<PAGE>
EXHIBIT C-1
GUARANTEE AGREEMENT
1. In consideration of any financial accommodations given, or to be given,
or continued, by BERGEN BRUNSWIG DRUG COMPANY (hereinafter referred to as
"Beneficiary") to HORIZON PHARMACIES, INC. dba HORIZON PHARMACY (hereinafter
referred to as "Debtor") the undersigned hereby unconditionally guarantees the
prompt payment of all indebtedness or liabilities according to the terms thereof
as agreed in any financial statement, application or other instrument, including
but not limited to that certain promissory note dated May 17, 1996 executed by
Debtor, which debtor may now or at any time hereafter owe to Beneficiary,
whether arising from dealings between Debtor and Beneficiary or from other
dealings by which Beneficiary may be or become in any manner whatever a
creditor of Debtor with such interest as may be due thereon.
2. The undersigned agrees that Beneficiary may in its absolute discretion
and without prejudice to or in any way limiting or lessening the liability of
the undersigned under this guarantee: (a) extend credit to Debtor, in such
amount and at such times as Beneficiary may determine, whether for a greater
or lesser amount than is hereby guaranteed and whether Beneficiary has any
knowledge of facts with respect to Debtor which might be construed as materially
prejudicial to the interests of the undersigned, Beneficiary being hereby
relieved of any duty to disclose any such facts to the undersigned; (b) grant
extensions of time or other indulgences; (c) change the interest rate; (d)
take or give up or modify, vary, exchange, renew or abstain from perfecting
or taking advantage of any security; (e) accept or make compositions or other
arrangements or file or refrain from filing a claim in any bankruptcy
proceeding of Debtor or other guarantor; (f) discharge or release any party
or parties; (g) realize on any security; and (h) otherwise deal with Debtor
and co-guarantors and other parties and security as Beneficiary may deem
expedient.
3. This shall be a continuing guarantee and shall cover all indebtedness
and liabilities of Debtor and where more than one, the several obligations of
each as well as their joint obligations, including those in???ed up to such
time as Beneficiary shall have actually received written notice of revocation
of this guarantee by the undersigned. Such revocation shall not affect the
undersigned's obligations to Beneficiary with respect to indebtedness or
liabilities of Debtor to Beneficiary arising prior to actual receipt by
Beneficiary of such revocation.
4. This guarantee shall secure any balance due or owing from time to time
and at any time from Debtor to Beneficiary, notwithstanding any payments from
time to time made to Beneficiary or any settlement of account or any other
thing whatsoever; and no payment made by or on behalf of the undersigned to
Beneficiary shall be held to discharge or diminish the continuing liability
of the undersigned hereunder unless written notice is given to Beneficiary at
the time of making such payments that the same are being made for the purpose
of liquidating such liability and until full payment of all indebtedness and
liabilities (including interest), present and future and whether or not
payment thereof is guaranteed hereby of Debtor to Beneficiary, the undersigned
waives all right of subrogation and all benefit of or right to participate in
any security now or hereafter held by Debtor.
5. All demands, presentments, notices of protest and of dishonor and
notices of every kind or nature, including those of any action or non-action
on the part of Debtor, Beneficiary, any co-guarantor, or any creditor of
Debtor, Beneficiary, or any co-guarantor, or any other person whatsoever, are
expressly waived by the undersigned. The undersigned hereby waives the right
to require Beneficiary to proceed against Debtor, any co-guarantor or any
other party or to proceed against or apply any security it may hold, and
waives the right to require Beneficiary to pursue any other remedy for the
benefit of the undersigned, and agrees that Beneficiary may proceed against
the undersigned for the amount hereby guaranteed without taking any action
against Debtor, any co-guarantor or any other party and without proceeding
against or ???ing any security it may hold. The undersigned waives the right
to plead any and all statutes of limitations as a defense to this guarantee
and to any indebtedness or liability hereby guaranteed, and agrees that any
partial payments by or on behalf of Debtor on any indebtedness or liability
hereby guaranteed,
REV 9/92 GENERAL
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<PAGE>
including interest, shall, as of the time each such payment is made, stop the
running of the time, within which an action may be commenced upon this
guarantee and shall constitute a further waiver by the undersigned of the
right to plead any and all statutes of limitations as a defense to this
guarantee and to any indebtedness or liability hereby guaranteed.
6. All debts and liabilities, present and future, of Debtor to the
undersigned, or any of them, are hereby postponed to the liabilities of Debtor
to Beneficiary and all moneys received by any of the undersigned or their
representatives, successors or assigns thereon, shall be received as trustees
for Debtor and shall be paid over to Beneficiary and the undersigned and each
of them further agree, upon any liquidation or distribution of the assets of
Debtor, to assign to Beneficiary upon its request all claims on account of
all such debts and liabilities, to the end that Beneficiary shall receive all
dividends and payments on such debts and liabilities until payment in full of
all liabilities of Debtor to Beneficiary; and this agreement shall constitute
such assignment in the event the undersigned shall fail or refuse to execute
and deliver such other or further assignment of such claims as Beneficiary
may request.
7. If the debtor is a corporation, Beneficiary is not to be concerned
to see or inquire into the powers of Debtor or its directors, officers,
partners, associates or other agents acting or purporting to act on its
behalf, the undersigned hereby representing that such powers exist, and
moneys in fact borrowed from Debtor in the professed exercise of such powers
shall be deemed to form part of the liabilities guaranteed, even though the
borrowing or obtaining of such moneys be in excess of the powers of Debtor or
of the directors, partners, officers, associates or other agents thereof, or
shall be in any way irregular or defective or informal.
8. The undersigned agrees to pay a reasonable attorneys' fee and all
other costs and expenses which may be incurred by Beneficiary in connection
with this Guarantee or in the collection of any of said indebtedness or
liabilities from Debtor or the undersigned.
9. This Guarantee is assignable with any one and/or several and/or all
of the indebtedness or liabilities which it guarantees, and when so assigned
the guarantor shall be bound as above to the assignees without in any manner
affecting guarantor's liability hereunder on any part of said obligations
retained by Beneficiary.
10. This Guarantee shall inure to the benefit of and bind the heirs,
administrators, executors, assigns of Beneficiary and each of the
undersigned, and shall be construed as the joint and several obligation of
each of the undersigned where there is more than one.
11. This Guarantee is in addition to and exclusive of the guarantee of
any other guarantor and of any and all prior guarantees of any of the
undersigned of indebtedness or liabilities of Debtor to Beneficiary; and this
Guarantee shall in no way limit or lessen any other liability howsoever
arising of any of the undersigned for payment of indebtedness or liabilities
which are hereby guaranteed.
By /s/ SY SHAHID
---------------------------------
Sy Shahid, an Individual
By
---------------------------------
Dated: May 17, 1996
Index # 2014
<PAGE>
EXHIBIT C-2
GUARANTEE AGREEMENT
1. In consideration of any financial accommodations given, or to be
given, or continued, by BERGEN BRUNSWIG DRUG COMPANY (hereinafter referred to
as "Beneficiary") to HORIZON PHARMACIES,INC. dba HORIZON PHARMACY (hereinafter
referred to as "Debtor") the undersigned hereby unconditionally guarantees
the prompt payment of all indebtedness or liabilities according to the terms
thereof as agreed in any financial statement, application or other instrument,
including but not limited to that certain promissory note dated May 17, 1996
executed by Debtor, which debtor may now or at any time hereafter owe to
Beneficiary, whether arising from dealings between Debtor and Beneficiary or
from other dealings by which Beneficiary may be or become in any manner
whatever a creditor of Debtor with such interest as may be due thereon.
2. The undersigned agrees that Beneficiary may in its absolute discretion
and without prejudice to or in any way limiting or lessening the liability of
the undersigned under this guarantee: (a) extend credit to Debtor, in such
amount and at such times as Beneficiary may determine, whether for a greater
or lesser amount than is hereby guaranteed and whether Beneficiary has any
knowledge of facts with respect to Debtor which might be construed as materially
prejudicial to the interests of the undersigned, Beneficiary being hereby
relieved of any duty to disclose any such facts to the undersigned; (b) grant
extensions of time or other indulgences; (c) change the interest rate; (d) take
or give up or modify, vary, exchange, renew or abstain from perfecting or taking
advantage of any security; (e) accept or make compositions or other arrangements
or file or refrain from filing a claim in any bankruptcy proceeding of Debtor or
other guarantor; (f) discharge or release any party or parties; (g) realize on
any security; and (h) otherwise deal with Debtor and co-guarantors and other
parties and security as Beneficiary may deem expedient.
3. This shall be a continuing guarantee and shall cover all indebtedness
and liabilities of Debtor and (??????) more than one, the several obligations
of each as well as their joint obligations, including those in????? up to such
time as Beneficiary shall have actually received written notice of revocation
of this guarantee by the undersigned. Such revocation shall not affect the
undersigned's obligations to Beneficiary with respect to indebtedness or
liabilities of Debtor to Beneficiary arising prior to actual receipt by
Beneficiary of such revocation.
4. This guarantee shall secure any balance due or owing from time to
time and at any time from Debtor to Beneficiary, notwithstanding any payments
from time to time made to Beneficiary or any settlement of account or any
other thing whatsoever, and no payment made by or on behalf of the
undersigned to Beneficiary shall be held to discharge or diminish the
continuing liability of the undersigned hereunder unless written notice is
given to Beneficiary at the time of making such payments that the same are
being made for the purpose of liquidating such liability and until full
payment of all indebtedness and liabilities (including interest), present and
future and whether or not payment thereof is guaranteed hereby of Debtor to
Beneficiary, present and future and whether or not payment thereof is
guaranteed hereby of Debtor to Beneficiary, the undersigned waives all right
of subrogation and all benefit of or right to participate in any security now
or hereafter held by Debtor.
5. All demands, presentments, notices of protest and of dishonor and
notices of every kind or nature, including those of any action or non-action
on the part of Debtor, Beneficiary, any co-guarantor, or any creditor of
Debtor, Beneficiary, or any co-guarantor, or any other person whomsoever, are
expressly waived by the undersigned. The undersigned hereby waives the right
to require Beneficiary to proceed against Debtor, any co-guarantor or any
other party or to proceed against or apply any security it may hold, and
waives the right to require Beneficiary to pursue any other remedy for the
benefit of the undersigned, and agrees that Beneficiary may proceed against
the undersigned for the amount hereby guaranteed without taking any action
against Debtor, any co-guarantor or any other party and without proceeding
against or ????ying any security it may hold. The undersigned waives the
right to plead any and all statutes of limitations as a defense to this
guarantee and to any indebtedness or liability hereby guaranteed, and agrees
that any partial payments by or on behalf of Debtor on any indebtedness or
liability hereby guaranteed,
REV 9/92 GENERAL
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<PAGE>
including interest, shall, as of the time each such payment is made, stop the
running of the time within which an action may be commenced upon this
guarantee and shall constitute a further waiver by the undersigned of the
right to plead any and all statutes of limitations as a defense to this
guarantee and to any indebtedness or liability hereby guaranteed.
6. All debts and liabilities, present and future, of Debtor to the
undersigned, or any of them, are hereby postponed to the liabilities of
Debtor to Beneficiary and all moneys received by any of the undersigned or
their representatives, successors or assigns thereon, shall be received as
trustees for Debtor and shall be paid over to Beneficiary and the undersigned
and each of them further agree, upon any liquidation or distribution of the
assets of Debtor, to assign to Beneficiary upon its request all claims on
account of all such debts and liabilities, to the end that Beneficiary shall
receive all dividends and payments on such debts and liabilities until
payment in full of all liabilities of Debtor to Beneficiary; and this
agreement shall constitute such assignment in the event the undersigned shall
fail or refuse to execute and deliver such other or further assignment of
such claims as Beneficiary may request.
7. If the debtor is a corporation, Beneficiary is not to be concerned
to see or inquire into the powers of Debtor or its directors, officers,
partners, associates or other agents acting or purporting to act on its
behalf, the undersigned hereby representing that such powers exist, and
moneys in fact borrowed from Debtor in the professed exercise of such powers
shall be deemed to form part of the liabilities guaranteed, even though the
borrowing or obtaining of such moneys be in excess of the powers of Debtor or
of the directors, partners, officers, associates or other agents thereof, or
shall be in any way irregular or defective or informal.
8. The undersigned agrees to pay a reasonable attorneys' fee and all
other costs and expenses which may be incurred by Beneficiary in connection
with this Guarantee or in the collection of any of said indebtedness or
liabilities from Debtor or the undersigned.
9. This Guarantee is assignable with any one and/or several and/or all
of the indebtedness or liabilities which it guarantees, and when so assigned
the guarantor shall be bound as above to the assignees without in any manner
affecting guarantor's liability hereunder on any part of said obligations
retained by Beneficiary.
10. This Guarantee shall inure to the benefit of and bind the heirs,
administrators, executors, assigns of Beneficiary and each of the
undersigned, and shall be construed as the joint and the several obligation
of each of the undersigned where there is more than one.
11. This Guarantee is in addition to and exclusive of the guarantee of
any other guarantor and of any and all prior guarantees of any of the
undersigned of indebtedness or liabilities of Debtor to Beneficiary; and this
Guarantee shall in no way limit or lessen any other liability howsoever
arising of any of the undersigned for payment of indebtedness or liabilities
which are hereby guaranteed.
By /s/ CHARLIE HERR
---------------------------------
Charlie Herr, an individual
By
---------------------------------
Dated: May 17, 1996
Index # 2014
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of __________________, 1997,
by and between HORIZON Pharmacies, Inc., a Texas corporation (the "Company"),
and _________________________ ("Employee").
W I T N E S S E T H:
WHEREAS, Employee has been serving as an officer of the Company; and
WHEREAS, the Company desires to obtain the services of Employee on a
full time basis in order to preserve the continuation of the businesses of
the Company and Employee is desirous of rendering such services to same; and
WHEREAS, Employee has agreed to enter into this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein contained, and other good and valuable consideration, the adequacy of
which is hereby acknowledged, the parties hereby agree as follows:
1. EMPLOYMENT; DUTIES AND ACCEPTANCE.
1.1. EMPLOYMENT BY THE COMPANY. During the Term of this Agreement,
as hereinafter defined, the Company hereby agrees to employ Employee as
_____________________ - of the Company or such other executive position as
the Company's Board of Directors may designate. During said period, Employee
shall render services to the Company on a full-time basis (serving approximately
the same total number of hours per week as Employee has previously worked for
the Company).
1.2. DUTIES. As the __________________ of the Company, Employee
shall be involved in all executive activities of the Company, and perform the
function of his office and other duties as directed by the Board of Directors.
1.3. ACCEPTANCE OF EMPLOYMENT BY EMPLOYEE. Employee hereby accepts
such employment and shall render the services described above. Employee agrees
to devote his full attention, skill and best efforts to the performance of said
duties for the Company.
1.4. TERMINATION OF EXISTING CONTRACTS. Employee agrees that all
agreements and contracts, whether written or oral, relating to the current
employment of Employee by the Company will be terminated as of the commencement
of the Term of this Agreement, as defined below.
2. TERM OF EMPLOYMENT. The term of Employee's employment under this
Agreement (the "Term") shall commence as of June 1, 1997 (the "Commencement
Date"), and shall continue through and expire on the third anniversary of the
Commencement Date, unless earlier terminated as herein provided. The date at
which Employee's employment is terminated under this Agreement shall be
referred to herein as the "Termination Date." The agreement shall be renewed
for consecutive three year period(s) unless either party no later than thirty
(30) days prior to the termination date elects in writing to not renew.
3. PARTICIPATION IN EMPLOYEE BENEFIT PLANS. During the Term, Employee
shall be permitted to participate in any group life, hospitalization or
disability insurance plan, health program, pension plan, similar benefit plan
or other so-called "fringe benefits" of the Company, which may be
EMPLOYMENT AGREEMENT/HORIZON- 1
<PAGE>
available to other employees of the Company generally on the same terms as
such other employees.
4. COMPENSATION. In consideration of the observance by Employee of the
terms of this Agreement and the performance of his duties as set forth
herein, the Company shall pay to Employee the sum of ______________ Thousand
Dollars ($___________) per year during the Term, which payments shall be
payable in accordance with the payroll policies of the Company as such are
from time to time in effect. At the end of each fiscal year of the Company,
the Board of Directors of the Company shall review the Company's performance
for such year and consider other compensation for Employee, such as a bonus
payment, stock options, stock grants or an increase in the annual salary
payable during the Term, which, in the sole judgment of the Board, may be
appropriate compensatory recognition for Employee's performance of his duties
hereunder.
5. TERMINATION. The Company has the right, at any time during the
Term, subject to all of the provisions hereof, exercisable by serving notice,
effective no earlier than ninety (90) days from the date of notification, to
terminate the Employee's employment under this Agreement and to discharge the
Employee without cause and with no advance notice with cause. If such right is
exercised, the Company's obligation to the Employee shall be limited to the
payment of unpaid Annual Salary accrued up to the effective date specified
in the Company's notice of termination. If, however such termination is
without cause the Company shall be liable to the employee for a lump sum
severance payment of one (1) year anticipated compensation in accordance with
the employee's current annualized salary, benefit package, and anticipated
bonus. Notwithstanding termination of this Agreement, whether by expiration of
the Term or otherwise, the obligations of Section 7 hereof shall survive such
termination.
6. SOLE EMPLOYMENT; NON COMPETITION.
6.1. SOLE EMPLOYMENT. During the Term of this Agreement, Employee
shall not, except as set forth herein, be engaged in any other business
activity whether or not such business activity is pursued for gain, profit,
or other pecuniary advantage. Employee may, however, invest his assets in
such form or manner as will not require his services in the operation of the
affairs of the companies in which such investments are made.
6.2. NON-COMPETITION. During the period expiring one (1) year from
the Commencement Date (the "Noncompetition Period"), Employee will not (a)
within any area in the continental United States where the Employee provided
any services to the Company, directly or indirectly, acquire, own, manage,
operate, join, control, by employed with, or participate in the acquisition,
ownership, management, operation, or control of, or be connected in any
manner with, any business engaged in the retail pharmacy industry without the
prior written consent of the Company, (b) contact or attempt to contact,
directly or indirectly, any of the Company's employees as of the Termination
Date, in connection with the formation or operation of any other entity whose
purpose is to acquire, manage or operate retail pharmacies for the profit of
anyone other than the Company or provide services of a type similar to those
provided by the Company as of the Termination Date, nor will Employee
dissuade or attempt to dissuade any customer of the Company as of the
Termination Date from purchasing products from the Company or using services
provided by the Company at the Termination Date.
7. CONFIDENTIALITY. It is contemplated that Employee will learn of the
Company's confidential information or confidential information entrusted to
the Company by other persons corporations or firms (collectively, Third
Parties). The Company's confidential information includes matters not
generally known outside the Company, such as developments relating to
existing and future products and services marketed or used by the Company and
also data relating to the general business operations of the Company (e.g.,
concerning sales, costs, profits, organizations, customer lists, pricing
methods, etc.). During the Term and continuing thereafter, Employee agrees
not to disclose any confidential information of the Company or of such other
persons, corporations or firms to others or to
EMPLOYMENT AGREEMENT/HORIZON- 2
<PAGE>
make use of its, except on the Company's behalf, whether or not such
information is produced by Employee's own efforts. Also, Employee may learn
of developments, ways of business, etc., which in themselves are generally
known but whose use by the Company is not generally known, and during the
Term and continuing thereafter, Employee agrees not to disclose to others
such use, whether or not such use is due to Employee's own efforts. All
records of the Company, including the names and addresses of its customers,
are and shall remain the property of the Company at all times during the Term
and after termination of Employee's employment for any reason with the
Company. None of such records, nor any part of them, is to be removed by
Employee from the premises of the Company either in original form or in
computerized, duplicated, or copied form, and the names, addresses, and other
facts in such records are not to be transmitted verbally, in writing, or in
computerized form by Employee except in the ordinary course of conducting
business for the Company.
8. OTHER PROVISIONS.
8.1. NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally or
sent by certified, registered or express mail, postage prepaid. Any such
notice shall be deemed given when so delivered personally or, if mailed, five
days after the date of deposit in the United States mail, as follows:
(i) IF TO THE COMPANY, TO:
HORIZON Pharmacies, Inc.
275 W. Princeton Drive
Princeton, TX 75407
(ii) IF TO EMPLOYEE, TO:
Any party may change its address for notice hereunder by notice to the
other parties hereto.
8.2 ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof, and supersedes
all prior agreements, written or oral, with respect thereto.
8.3. WAIVERS AND AMENDMENTS. This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance. No
delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part
of any party of any right, power or privilege hereunder, nor any single or
partial exercise of any right, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, power
or privilege hereunder.
8.4. GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of Texas applicable to agreements
made and to be performed entirely within such state.
8.5. ASSIGNMENT. Employee may not delegate the performance of any
of his duties hereunder. Neither party hereto may assign any rights hereunder
without the written consent of the other party hereto.
8.6. COUNTERPARTS. This Agreement may be executed in two or more
counterparts,
EMPLOYMENT AGREEMENT/HORIZON- 3
<PAGE>
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
8.7. HEADINGS. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation
of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY: HORIZON Pharmacies, Inc.
By:
---------------------------------
EMPLOYEE:
------------------------------------
EMPLOYMENT AGREEMENT/HORIZON- 4
<PAGE>
EXHIBIT 10.5
, 1997
Capital West Securities, Inc.
16th Floor, One Leadership Square
211 N. Robinson
Oklahoma City, OK 73102
Re: Public Offering of Common Stock Par Value
$.01 Per Share (the "Common Stock"), of
Horizon Pharmacies, Inc. (the "Company")
Gentlemen:
Pursuant to Section 2(t) of the Underwriting Agreement, dated ,
1997 (the "Underwriting Agreement"), by and among you and the Company, the
undersigned (a holder of Common Stock) hereby agrees not to sell, contract to
sell, transfer or otherwise dispose of any shares of Common Stock without the
prior written consent of Capital West Securities, Inc. for a period of 24 months
after the date of the initial public offering of the Common Stock. All
communications to you hereunder shall be sent to the address set forth above,
attention: Gregory M. Jones.
Sincerely,
------------------------------------
[Name]
<PAGE>
PRIMARY SOURCE PROPOSAL
FOR
HORIZON PHARMACIES, INC.
BY
CARSON MCDONALD
BERGEN BRUNSWIG DRUG CO.
JANUARY 19, 1995
<PAGE>
AGREEMENT PERIOD
----------------------
A. THIS CONTRACT BECOMES EFFECTIVE JANUARY 1, 1995 AND WILL CONTINUE EACH
YEAR THEREAFTER. UPON THE MUTUAL AGREEMENT OF BOTH HORIZON PHARMACIES. INC.
AND BBDC.
B. IN THE EVENT BBDC'S PRODUCTION OR DELIVERIES OF GOODS ARE PREVENTED,
IMPAIRED, REDUCED OR RESTRICTED BY REASON OF FORCE MAJEURE, LABOR DISPUTES,
FIRE, ACTS OF GOD, OR ANY OTHER SIMILAR OR DISSIMILAR CAUSE BEYOND ITS
CONTROL, INCLUDING BUT NOT LIMITED TO THE UNAVAILABILITY OF SUCH GOODS,
TRANSPORTATION, SHORTAGES OF MATERIALS OR FUEL, DELAY IN DELIVERY OR FAILURE
TO DELIVER BY BBDC'S SUPPLIERS, LOSS OF FACILITIES OF DISTRIBUTION, THE
VOLUNTARY FOREGOING OF THE RIGHT TO ACQUIRE OR TO USE ANY MATERIALS IN ORDER
TO ACCOMMODATE OR COMPLY WITH THE ORDERS, REQUESTS, REGULATIONS,
RECOMMENDATIONS OR INSTRUCTIONS OF ANY GOVERNMENTAL AUTHORITY (WHETHER IN
FURTHERANCE OF NATIONAL DEFENSE OF WAR ACTIVITIES OR TO MEET ANY OTHER
EMERGENCY), OR THE COMPLIANCE WITH ANY LAW, ORDER, RULING, REGULATION,
INSTRUCTION OR REQUIREMENTS OF ANY GOVERNMENTAL AUTHORITY OR ANY POLITICAL
SUBDIVISION OR AGENCY THEREOF, OR FOR ANY OTHER CAUSE WHETHER OF THE SAME OR
DIFFERENT CHARACTER HEREIN SPECIFIED BEYOND THE REASONABLE CONTROL OF THE
PARTY AFFECTED THEREBY, BBDC, WITHOUT LIABILITY OR OBLIGATION, MAY REDUCE OR
ELIMINATE THE QUANTITIES HEREIN SPECIFIED IN PROPORTION TO THE PREVENTION,
IMPAIRMENT, REDUCTION OR RESTRICTION UPON BBDC'S PRODUCTION OR DELIVERY, ON A
PRO RATA BASIS AMONG ALL USERS OF ITS GOODS DURING THE PERIOD OF SUCH
DISABILITY. IN ANY SUCH CASE, THE GOODS WHICH BBDC IS UNABLE TO SUPPLY SHALL
BE ELIMINATED FROM THIS CONTRACT BY WRITTEN NOTICE DESCRIBING THE AMOUNTS
ELIMINATED AND THE ESTIMATED TIME PERIOD DURING WHICH DELIVERIES ARE TO BE
SUSPENDED; AND BBDC SHALL BE RELIEVED OF ANY LIABILITY WITH RESPECT THERETO
DURING SUCH TIME BBDC MAY NOT BE ABLE TO DELIVER THE GOODS IN QUESTION.
C. IT IS UNDERSTOOD THAT THIS AGREEMENT MAY BE TERMINATED BY EITHER PARTY
FOR JUST AND REASONABLE CAUSE WITH A 30 (THIRTY) DAY WRITTEN NOTICE.
D. THIS PROPOSAL IS VALID AS WRITTEN IF SIGNED AND RECEIVED BY BERGEN
BRUNSWIG DRUG COMPANY ON OR BEFORE JANUARY 31, 1995.
<PAGE>
COST OF GOODS
- -------------
ALL PRODUCTS WILL BE INVOICED WITH AN UPCHARGE RATE OF 5% FROM WHOLESALE
COST. HORIZON PHARMACIES, INC. COST THEN WILL BE REBATED TO AN UPCHARGE RATE
OF 0.8% ON A MONTHLY BASIS. WHOLESALE COST IS DEFINED AS MANUFACTURER
INVOICED COST BEFORE ALLOWANCES, DISCOUNTS, AND REBATES. PRODUCTS THAT DO NOT
QUALIFY FOR THIS PROGRAM ARE ITEMS THAT ARE INVOICED AT SUPERNET (ITEMS THAT
DO NOT HAVE AN APPLIED UPCHARGE.) TRUE QUALITY ITEMS ARE INVOICED AT A
SUPERNET RATE BUT DO QUALIFY FOR THE REBATE.
INVOICE PAYMENT TERMS
- ---------------------
INVOICES DATED THE 1ST THROUGH THE 15TH OF THE MONTH ARE DUE AND PAYABLE BY
THE 25TH OF THE SAME MONTH. INVOICES DATED THE 16TH THROUGH THE END OF THE
MONTH ARE DUE AND PAYABLE BY THE 10TH OF THE FOLLOWING MONTH. ALL OUTSTANDING
BALANCES ARE SUBJECT TO A 1.5% COST OF GOODS ADJUSTMENT. ADDITIONALLY ALL
REBATES AND UPCHARGE RATES ARE BASED ON THE STATED PAY TERMS AND ARE SUBJECT
TO CHANGE UPON NOTICE.
DELIVERY AND ORDER TIMES
- ------------------------
DELIVERY WILL BE PROVIDED 5 DAYS A WEEK, MONDAY THROUGH FRIDAY, IF AN ORDER
HAS BEEN ELECTRONICALLY PLACED BEFORE 7:00 P.M. THE PREVIOUS DAY. NARCOTIC
ORDERS REQUIRE AN ADDITIONAL 24 HOURS TO PROCESS AND CANNOT BE PROCESSED
UNTIL THE APPROPRIATE FORM HAS BEEN RECEIVED BY BERGEN BRUNSWIG.
AVAILABLE PROGRAMS AND SERVICES
- -------------------------------
ORDER ENTRY DEVICE NO CHARGE
PRICE STICKERS NO CHARGE
USAGE REPORT (STORE SPECIFIC) NO CHARGE
USAGE REPORT (CONSOLIDATED) NO CHARGE
OTC/HABA ZONE PRICING $10.00/MO./STORE
DAILY RX PRICE UPDATES $50.00/MO./STORE
GOOD NEIGHBOR PHARMACY $65.00/MO./STORE
GROUP PURCHASING ORGANIZATION NO CHARGE
*CURRENT COMMITMENT BY STORE
SERVICE PRINCETON WINNSBORO CUERO
ORDER ENTRY DEVICE X X X
PRICE STICKERS X X X
USAGE REPORTS - ALL X X X
OTC ZONE PRICING X X X
DAILY RX PRICE UPDATES X X X
GOOD NEIGHBOR PHARMACY X X N/A
GROUP PURCHASING X X X
<PAGE>
RETURNS, BILLING ERRORS, EXCHANGES AND SHORTAGES
- -----------------------------------------------
ALL RETURNS SHALL BE INITIATED THROUGH THE ORDER ENTRY MACHINE BY STORE
ASSOCIATES. CREDITS WILL BE ISSUED IN ACCORDANCE WITH MANUFACTURERS POLICIES
AND THOSE ESTABLISHED BY THE NATIONAL ASSOCIATION OF WHOLESALE DRUGGISTS.
BERGEN BRUNSWIG DRUG COMPANY COMMITMENT
- ---------------------------------------
BERGEN BRUNSWIG IS COMMITTED TO THE CONTINUED GROWTH AND PROFITABILITY OF
HORIZON PHARMACIES, INC. AND LOOKS UPON THIS AGREEMENT AS A PARTNERSHIP. IT
IS BBDC GOAL TO ENSURE THAT HORIZON PHARMACIES, INC., AND ALL OF ITS
ASSOCIATES, UNDERSTAND THE CONCEPTS, APPLICATIONS, AND IMPLEMENTATION
PROCEDURES OF ALL AVAILABLE PROGRAMS AND SERVICES.
CONFIDENTIALITY
- ---------------
HORIZON PHARMACIES, INC. AND BERGEN BRUNSWIG DRUG CO. SHALL HOLD ALL
INFORMATION AS CONFIDENTIAL AND AGREE NOT TO SHARE ANY DOCUMENTS OR TRADE
SECRETS WITH ANY OTHER PARTY.
T.Q. PRODUCTS ON ONE PASS TO DIV. 30 SHIPPED FROM 30 - DIV. 2 TIMES A WEEK.
NEW TERMS
- ---------
1ST - EOM DUE BY 25TH OF NEXT MONTH PER T. RASOR.
ALL REPORTS TO BE SENT TO CARSON MCDONALD AT DIV. 30.
<PAGE>
THE TERMS OF THIS AGREEMENT HAVE BEEN APPROVED AND ACCEPTED.
/s/ Rick McCord, President /s/ Jim Brown
- ----------------------------- -----------------------------
RICK MCCORD - PRESIDENT JIM BROWN
/s/ Sy Shahid, Vice President /s/ Carson McDonald
- ----------------------------- -----------------------------
SY SHAHID - VICE PRESIDENT CARSON MCDONALD
DATE 1/25/95 DATE 2/10/95
- ----------------------------- -----------------------------
HORIZON PHARMACIES, INC. BERGEN BRUNSWIG DRUG CO.
<PAGE>
[LETTERHEAD]
We have been the Company's independent accounting firm since April 16, 1996.
In March 1997, the Company retained Ernst & Young LLP to perform the audit
for the year ended December 31, 1996. We will still perform various store
audits, tax and financial planning for the Company. The change was not the
result of any disagreement relating to any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedures. No
reports issued by us contain an adverse opinion or a disclaimer of opinion,
nor were such reports qualified or modified as to uncertainty, audit scope,
or accounting principle. At no time during our engagement were there any
disagreements on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure.
HEROLD, HOWARD & MADSEN, PC
- --------------------------------
Herold, Howard & Madsen, PC
Dallas, Texas
May 29, 1997
<PAGE>
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 Amendment No. 1 to
Registration Statement (Form SB-2 No. 333-25257) and related Prospectus of
HORIZON Pharmacies, Inc. for the registration of 1,200,000 shares of its common
stock.
Dallas, Texas
May , 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
May 30, 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 third and fourth
paragraphs of Note 6, as to which the date is May , 1997, in Amendment No. 1
to the Registration Statement (Form SB-2 No. 333-25257) and related Prospectus
of HORIZON Pharmacies, Inc. for the registration of 1,200,000 shares of its
common stock.
Oklahoma City, Oklahoma
May , 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
May 30, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the 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 Amendment No. 1 to the Registration Statement on Form SB-2
(No. 333-25257) (the "Registration Statement") and 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.
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to
be executed this ____ day of May, 1997.
------------------------------
Philip H. Yielding
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the 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 Amendment No. 1 to the Registration Statement on Form SB-2
(No. 333-25257) (the "Registration Statement") and 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.
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to
be executed this ____ day of May, 1997.
------------------------------
Carson A. McDonald
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
BALANCE SHEET AT 12/31/96 AND THE AUDITED STATEMENT OF INCOME FOR THE YEAR ENDED
12/31/96 AND THE UNAUDITED BALANCE SHEET AT 3/31/97 AND THE UNAUDITED
STATEMENT OF INCOME FOR THE 3 MOS. ENDING 3/31/97 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997
<CASH> 153,260 109,699
<SECURITIES> 0 0
<RECEIVABLES> 1,067,348 1,464,493
<ALLOWANCES> 20,000 25,000
<INVENTORY> 3,290,717 3,985,876
<CURRENT-ASSETS> 4,935,105 6,173,379
<PP&E> 613,382 681,200
<DEPRECIATION> 67,253 85,222
<TOTAL-ASSETS> 6,588,772 8,349,713
<CURRENT-LIABILITIES> 3,372,072 5,116,411
<BONDS> 1,466,627 1,337,701
0 0
0 0
<COMMON> 10,824 10,824
<OTHER-SE> 1,760,303 1,760,303
<TOTAL-LIABILITY-AND-EQUITY> 6,588,772 8,349,713
<SALES> 13,136,319 5,113,247
<TOTAL-REVENUES> 13,140,002 5,113,640
<CGS> 8,941,705 3,458,504
<TOTAL-COSTS> 12,584,882 4,839,581
<OTHER-EXPENSES> 252,767 53,531
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 252,767 53,531
<INCOME-PRETAX> 302,353 220,528
<INCOME-TAX> 106,000 77,000
<INCOME-CONTINUING> 196,353 143,528
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 196,353 143,528
<EPS-PRIMARY> .18 .13
<EPS-DILUTED> 0 0
</TABLE>
