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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): OCTOBER 22, 1999
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HORIZON PHARMACIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 000-22403 75-2441557
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of incorporation) Identification Number)
531 W. MAIN STREET
SUITE 100 75020
DENISON, TEXAS (Zip code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: (903) 465-2397
NOT APPLICABLE
(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OF ASSETS
On October 22, 1999, HORIZON Pharmacies, Inc., a Delaware corporation
("HORIZON"), acquired all of the outstanding stock of Jones Low Priced Drugs,
Inc. (the "Company"), an independent chain of two retail pharmacies with
combination home medical equipment operations located in Spokane and Deer Park,
Washington, from Ricker H. Jones and Linda K. Garrelts. The consideration for
the acquisition, which was determined through arms-length negotiations
between the parties, consisted of: (i) $1,650,000 cash and (ii) two
promissory notes in the amount of $850,000 and bearing interest at a rate of
8.5% per year, issued to each of the prior owners of the Company. The source
of the cash portion of the consideration was HORIZON's cash flow. HORIZON
intends to continue the operations of the Company under the name HORIZON
Pharmacies, Inc.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF THE BUSINESS ACQUIRED.
The financial statements of the acquired business will be filed by
HORIZON as an amendment to this Form 8-K as soon as practicable, but in any
event, not later than sixty days after the date hereof.
(b) PRO FORMA FINANCIAL INFORMATION.
The pro forma financial information relative to the acquired business
will be filed by HORIZON as amendment to this Form 8-K as soon as practicable,
but, in any event, not later than sixty days after the date hereof.
(c) EXHIBITS.
2.1 -- Purchase Agreement, dated October 21, 1999, by and
among HORIZON Pharmacies, Inc., Ricker H. Jones,
Linda K. Garrelts and Jones Low Priced Drugs, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HORIZON PHARMACIES, INC.
By: /s/ John N. Stogner
---------------------------------
John N. Stogner
Chief Financial Officer
Date: October 29, 1999
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EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT TITLE
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2.1 -- Purchase Agreement, dated October 21, 1999, by and
among HORIZON Pharmacies, Inc., Ricker H. Jones,
Linda K. Garrelts and Jones Low Priced Drugs, Inc.
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Exhibt 2.1
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of October 21, 1999 (the "Effective Date"), by and among HORIZON
Pharmacies, Inc. ("Buyer"), Ricker H. Jones, an individual, Linda K. Garrelts,
an individual (collectively, the "Sellers") and Jones Low Price Drugs, Inc. (the
"Company").
R E C I T A L S
Buyer desires to purchase from the Sellers, and the Sellers desire to
sell to Buyer, all of the outstanding capital stock of the Company (the "Company
Stock"), in consideration of the Purchase Price (hereinafter defined), upon the
terms and subject to the conditions set forth herein.
A G R E E M E N T S
NOW, THEREFORE, in consideration of the respective representations,
warranties, agreements, and conditions hereinafter set forth, and other good and
valuable consideration, the sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
I. PURCHASE AND SALE OF SHARES.
A. PURCHASE AND SALE. On the Effective Date upon the terms and subject
to the conditions of this Agreement, the Sellers shall sell to Buyer, and Buyer
shall purchase from the Sellers, all of the issued and outstanding shares of
Company Stock (the "Shares"), free and clear of all Liens.
B. PURCHASE PRICE. The aggregate purchase price payable by Buyer to the
Sellers in consideration for the sale of the Shares, prior to price adjustments
as provided in subparagraph C below, shall be $3,350,000 (the "Purchase Price").
Subject to the satisfaction of the other terms and conditions of this Agreement,
Buyer shall pay to the Sellers the Purchase Price in the following manner:
(i) $1,650,000 (payable $825,000 each to Ricker H. Jones and
Linda K. Garrelts), either by wire transfer or by certified or
cashier's check; and
(ii) a promissory note in favor of Ricker H. Jones and a
promissory note in favor of Linda K. Garrelts, each in the stated
principal amount of $850,000 with interest thereon at a rate of 8.5%
per annum, payable over five years in monthly installments and secured
by the Exhibit "F-1" and "F-2" Guaranties by the Company (with said
Guaranties collateralized by Security interests in the Company's
intellectual property and several intangibles (including the name
"Jones Low Price Drugs") inventory, furniture, fixtures
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and equipment of the Company pursuant to the Exhibit "B-2" and "C-2"
Security Agreements)(the "Notes").
C. POST CLOSING ADJUSTMENTS TO PURCHASE PRICE. Any net change in the
Purchase Price resulting from the post closing adjustments to the Purchase Price
described below shall be added to (if positive), or subtracted from (if
negative), the deferred portion of the Purchase Price represented by the
Paragraph I.B(ii) Promissory Notes, which Notes shall be amended to reflect the
price change (one-half of the total price adjustment made to each Note). The
parties agree to make said Note amendments not later than five (5) business days
after the first to occur of: (i) receipt of the change in equity price
adjustment from the Certified Public Accountant described in subparagraph C. 1
below; or (ii) thirty (30) days after the Effective Date.
1. PURCHASE PRICE ADJUSTMENT FOR CHANGES IN EQUITY. The
Purchase Price shall be adjusted for changes in book value equity as
set forth in the Company's financial statements (determined after
certain adjustments set forth in Paragraph V.E) occurring between
December 31, 1998 and close of business on the Effective Date as
determined by the Company's Certified Public Accountant that prepared
the Company's December 31, 1998 financial statements. In determining
the change in equity, the parties shall determine the change in the
value of the inventory based upon a physical inventory of the Company
conducted by Washington Inventory Service on or about October 14, 1999.
Changes in equity occurring after October 14 and through the Effective
Date shall be based upon the good faith calculations and adjustments of
the Company's CPA pertaining to operations during said interim period.
The value of inventory as of December 31, 1998 and as of the Effective
Date, shall be determined without reduction for LIFO reserve as of both
dates. The Purchase Price adjustment for change in equity through the
Effective Date shall be determined by the Company's Certified Public
Accountant not later than thirty (30) days after the Effective Date.
2. BAD DEBT PRICE ADJUSTMENT. The Purchase Price shall be: (i)
increased by the amount of the Company's reserve account entitled
"Medical Contract Allowance" as of the close of business on the
Effective Date (said account had an approximate balance on October 14,
1999 of $87,600); and (ii) reduced by the sum of Eighty-five Thousand
Dollars ($85,000.00) (1/2 of said amount to be allocated to each
Seller) for the agreed amount of the uncollectable portion of accounts
receivable shown on the Company's balance sheet effective of the close
of business on the Effective Date.
3. COVENANT NOT TO COMPETE. The Purchase Price shall be
reduced by the amount of Five Thousand Dollars ($5,000.00),
attributable to the agreed allocation of consideration to the Sellers'
covenants not to compete, as set forth in Paragraph II.B.1. Said price
reduction shall be divided equally between the Sellers.
II. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents and
warrants to the Sellers as follows:
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A. ORGANIZATION, STANDING AND CORPORATE POWER. Buyer is a corporation
duly organized, validly existing and in good standing in the state of its
incorporation and has all necessary corporate power and authority to execute
this Agreement and the other documents to be executed by it in connection
herewith (collectively with this Agreement, "Buyer's Agreements") and to
consummate the transactions contemplated hereby and thereby.
B. AUTHORITY. Buyer's execution, delivery and performance of Buyer's
Agreements and the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary action on its part and, assuming the due
execution and delivery by the Company of this Agreement and the other documents
to be executed by it in connection herewith (collectively with this Agreement,
the "Company's Agreements") and the due execution and delivery by the Sellers of
this Agreement and the other documents to be executed by them in connection
herewith (collectively with this Agreement, the "Sellers' Agreements"), will
constitute the valid and binding obligation of Buyer, enforceable against it in
accordance with their respective terms, except as limited by laws affecting
creditors' rights or equitable principles generally.
C. CONSENTS. The execution, delivery and performance of Buyer's
Agreements by Buyer does not require the consent of a governmental entity or a
third party not affiliated with Buyer.
D. FINANCIAL STATEMENTS. The Buyer has delivered to the Sellers copies
of its most recent audited balance sheets, together with the audited statements
of income and cash flows of the Company for the periods then ended, and the
notes thereto, accompanied by the reports thereon, of its independent Certified
Public Accounts.
E. INDEPENDENT INVESTIGATION AND INSPECTION. The Buyer has duly
inspected all tangible property of the Company and hereby warrants and
represents, subject to the warranties and representations of the Company and the
Sellers contained herein, including those specified in Paragraph III.G., that
the Buyer accepts said tangible property "as is". Buyer further warrants and
represents that it has had full access to and has been provided with current and
past financial statements, tax returns, and any other books and records of the
Company that it has requested, and that it has had full opportunity to inspect
the same, both personally and through agents of its choice, and that through its
inspection and investigation, it has satisfied itself as to the worth of the
business and its assets and has formed its own independent opinion of the value
of the ownership of the Company. Buyer further warrants and represents that
neither prior to execution of this Agreement nor at the time of Closing on the
Effective Date has there been any business record, piece of financial
information or other information concerning or affecting the stock, assets,
business, business operation, or business organization of the Company, or
relating to the Sellers, which has been requested and has not been provided to
it.
F. FINANCIAL CAPACITY. The Buyer has the financial capacity to perform
this Agreement, including specifically, and without limitation, the payment of
the Promissory Notes referenced herein in the manner described herein from its
own resources.
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G. INVESTMENT. The Buyer is acquiring the Shares for investment for its
own account, and not as a nominee or agent, and not with a view to, or for
resale in connection with any distribution thereof. The Buyer understands the
Shares have not been, and will not be, registered under the Federal and State
Securities Acts by reason of a specific exemption or exemptions from the
registration provisions of the Securities Acts which depend upon, among other
things, the bona fide nature of the purchaser's investment intent and the
accuracy of the purchaser's representations as expressed herein. The Buyer
further understands that no public market now exists for any of the Shares
issued by the Company and that there is no assurance that a public market will
ever exist for the Shares, as a consequence of which the Buyer may be required
to hold such Shares, and to bear the risk of such investment, indefinitely.
H. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the
Financial Statements referenced in Paragraph II.D above, there has not occurred,
and the Buyer has not incurred or suffered, any event, circumstance, or fact
that could result in a material adverse effect on the business, operations,
properties (taken as a whole), condition (financial or otherwise), results of
operations, assets (taken as a whole), liabilities or prospects of the Buyer.
Since the date of the Financial Statements, there has not occurred, and the
Buyer has not incurred or suffered, any event, circumstances or fact that
materially impairs the physical assets of the Buyer or its ability to perform
its obligations under this Agreement.
III. REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY. The Company and
the Sellers, jointly and severally, hereby represent and warrant to Buyer as
follows:
A. ORGANIZATION, STANDING AND CORPORATE POWER. The Company is a
corporation duly organized, validly existing and in good standing in the state
of its incorporation and has all necessary corporate power and authority to
execute the Company's Agreements and to consummate the transactions contemplated
hereby and thereby. The Company's execution, delivery and performance of the
Company's Agreements and the transactions contemplated hereby and thereby have
been duly and validly authorized by all necessary action on its part and,
assuming the due execution and delivery of Buyer's Agreements by Buyer, will
constitute the valid and binding obligations of the Company, enforceable against
it in accordance with their respective terms, except as limited by laws
affecting creditors' rights or equitable principles generally.
B. CAPITAL STRUCTURE. The authorized capital stock of the Company
consists of fifteen thousand (15,000) shares of Ten Dollar ($10.00) par value
common stock. There are nine hundred nine (909) shares of common stock issued
and outstanding and no shares of common stock are held by the Company in its
treasury. No shares of capital stock of the Company are reserved for issuance
for any other purpose. All the issued and outstanding shares of capital stock of
the Company are duly authorized, validly issued, fully paid and nonassessable
and have not been issued in violation of any preemptive or similar rights. There
are no bonds, debentures, notes or other indebtedness issued or outstanding
having the right to vote ("Voting Debt") on any matters on which holders of the
common stock may vote. There are no options, warrants, calls,
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rights, commitments, or agreements of any character to which the Company is a
party or by which it is bound obligating the Company to issue, deliver, or
sell, or cause to be issued, delivered or sold, additional shares of capital
stock or any Voting Debt of the Company, or obligating the Company to grant,
extend, or enter into any such option, warrant, call, right, commitment, or
agreement. There are no outstanding contractual obligations of the Company to
repurchase, redeem, or otherwise acquire any shares of common stock. SCHEDULE
3(b) identifies as of the date of this Agreement the record and beneficial
owner, if different, of the issued and outstanding shares of common stock.
The Company has no subsidiaries or equity interest in any entity.
C. CONSENTS; NONCONTRAVENTION. Except as set forth on SCHEDULE 3(c)
hereto, the execution, delivery and performance of the Company's Agreements by
the Company (i) does not require the consent of any governmental entity or third
party, (ii) will not conflict with or violate the provisions of the Company's
articles of incorporation or bylaws or any applicable law or any judgment, order
or ruling of any government authority having jurisdiction over the Company,
(iii) will not, directly or indirectly, conflict with or constitute a breach or
default under any agreement, document, instrument, license or permit to which
the Company is a party or is subject, and (iv) will not result in the creation
of any Lien on the assets of the Company.
D. LICENSES. The Company is the authorized legal holder of all
licenses, permits and authorizations from governmental and regulatory
authorities that are required for the lawful operation of the Company. Copies of
all such licenses, permits and authorizations have been provided to, or made
available for inspection by, the Buyer. All of such licenses, permits or
authorizations, are in full force and effect and are not subject to any
restrictions or conditions limiting or restricting the business of the Company.
There are no pending or, to the best knowledge of the Company or either Seller,
threatened proceedings which could result in the revocation, modification or
nonrenewal of such licenses, permits and authorizations and neither the Company
nor either Seller has any reason to believe that such licenses, permits and
authorizations will not be renewed in their ordinary course.
E. COMPLIANCE WITH APPLICABLE LAWS.Except to the extent that the same
has not had and will not have a material adverse effect on the Company, the
Company is in compliance with all laws, regulations, rules and governmental
orders applicable to it and the Company has not violated such laws, regulations,
rules or governmental orders, and no such violations have occurred which would
affect the Company's ability to perform its obligations hereunder or which could
reasonably be expected to have a material adverse effect on the Company's
financial conditions, results of operations or prospects.
F. LITIGATION. The Company is not subject to any judgment, injunction,
order or arbitration decision, and there is no litigation or administrative
proceeding pending or, except as otherwise provided in Paragraph III.O, to the
best of the Company's or either Seller's knowledge, threatened against the
Company or which would affect the Company's ability to perform its obligations
hereunder or which could reasonably be expected to have a material adverse
effect on the Company's financial conditions, results of operations or
prospects.
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G. ASSETS, LIENS, ETC. The Company owns and has, and following the
Closing will have, good and marketable title to, or a leasehold interest in, the
assets of the Company, which assets include all real and personal property
necessary to conduct the business and operations of the Company. All of the
personal property owned or leased by the Company is in good and technically
sound operating condition and repair, normal wear and tear excepted, is suitable
for the purposes for which it is now being used and has been maintained in a
manner consistent with good business practice; provided, however, that Company
(and Sellers) do not make any warranty or representation about Y2K compliance of
Company's computer hardware or software and believe said hardware and software
not to be Y2K compliant. Each lease included in the assets of the Company is a
valid and binding obligation of the Company and is in full force and effect, and
the Company is not and, to the knowledge of the Company or either Seller, no
other party is, in default in any material respect under any such lease. All of
the Company's assets are free and clear of all liens, pledges, voting
agreements, voting trusts, proxy agreements, claims and security interests
(except for the security interests and Guaranty in favor of Sellers that will be
granted by Buyer at Closing). In addition, all of the Company's owned assets
(and to the best of Company's and Sellers' knowledge, Company's leasehold
interests in its two real estate Leases referenced in Paragraph III.H below) are
free of all restrictions, mortgages, deeds of trust, assessments, easements,
rights of way, covenants, restrictions, rights of first refusal, defects in
title, encroachments, and other burdens, options or encumbrances of any kind
that materially impair Company's utilization of its leasehold interests.
However, the Company is not commenting on any of the items referenced in the
immediately preceding sentence as they pertain to the lessor's fee interests in
said real property. All of the above-referenced Paragraph G obligations or
encumbrances are referred to collectively as "Liens").
H. REAL PROPERTY. The Company does not own any real property. The
Company leases the premises of its Spokane drugstore and its Deer Park
drugstore. Buyer has been provided copies of both Leases, as well as the current
Amendment of the Deer Park Lease (that has been agreed to but not yet signed by
the landlord) and a copy of a letter from landlord's legal counsel acknowledging
timely exercise by the Company of its option to renew said Deer Park Lease. The
Company has a valid leasehold interest in each parcel of leased real property.
I. INTELLECTUAL PROPERTY. All trade names, service marks, copyrights
and other intellectual property (including Internet Domain Names) used by the
Company are licensed to or owned by the Company. Company shall grant a security
interest in said intellectual property to Sellers upon Closing pursuant to the
Exhibits "B-2" and "C-2" Security Agreements. All licenses of such intellectual
property are valid and uncontested, and the Company has received no notice of
infringements or unlawful use of such intellectual property.
J. ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE 3(j), there
are not, to the Company's and each Seller's knowledge, any hazardous substances
in, on or under the owned, operated or leased real property or facilities of the
Company that are in a condition or location that violates any applicable laws or
that has required or would require remediation under applicable laws or give
rise to a claim for damages or compensation by any affected person or that would
cause any material loss, cost, liability or expense in connection with any
violation of
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any applicable law, any order of any governmental entity or any claim by any
private or public person arising out of any exposure of any person or property
to any hazardous substance.
K. FINANCIAL STATEMENTS.
1. The Company has delivered to Buyer copies of (a) the
compiled balance sheet of the Company as of April 30, 1996, April 30,
1997, April 30, 1998, and December 31, 1998, together with compiled
statements of income of the Company for the periods then ended, (b) the
internally-prepared interim balance sheet of the Company as of
September 30, 1999 (the "Balance Sheet"), together with the related
statement of income for the period then ended (such compiled and
internally-prepared financial statements collectively being referred to
as the "Financial Statements"). The Financial Statements that consist
of statements compiled by the Company's Certified Public Accountant
were prepared in accordance with Statements on Standards for Accounting
and Review Services issued by the American Institute of Certified
Public Accountants. The compiled Balance Sheet and related statements
of income and stockholder's equity are further limited by the
statements of the CPA attached to said compiled Financial Statements.
2. There is no liability or obligation of any kind, whether
accrued, absolute, fixed, contingent, or otherwise, of the Company that
is not reflected or reserved against in the Balance Sheet, other than
(a) liabilities incurred in the ordinary course of business in a manner
consistent with past practice since the date of the Balance Sheet (the
"Balance Sheet Date"); (b) Closing expenses for this transaction,
including professional advisor (e.g., legal and accounting) fees; (c)
those disclosed in Paragraphs V.E and XI and SCHEDULE 5(e); or (d) any
such liability or obligation which would not be required to be
presented in financial statements or the notes thereto prepared in
conformity with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public
Accountants applied in a manner consistent with past practice, in the
preparation of the Financial Statements.
L. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the Balance Sheet Date,
and except as otherwise provided in Paragraphs III.K.2, V.E and XI and Schedule
5(e), there has not occurred, and the Company has not incurred or suffered, any
event, circumstance, or fact that could result in a material adverse effect on
the business, operations, properties (taken as a whole), condition (financial or
otherwise), results of operations, assets (taken as a whole), liabilities or
prospects of the Company. Since the Balance Sheet Date, the Company has
conducted its business only in the ordinary course consistent with past
practice. Since the Balance Sheet Date, there has not occurred, and the Company
has not incurred or suffered, any event, circumstance or fact that materially
impairs the physical assets of the Company.
M. TAXES.
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1. The Company has timely filed all Returns (defined below)
required to be filed by it through the Balance Sheet Date (if required
to be filed annually or monthly), or through October 15, 1999 (if
required to be filed more frequently than monthly). An extension of
time within which to file any Return has not been filed, requested or
granted. Except to the extent that the same has not had and will not
have a material adverse effect on the Company, all Returns filed by the
Company are, to the knowledge of the Company and the Sellers, complete
and accurate in all material respects. The Company has paid all Taxes
shown as due on such Returns, and the Balance Sheet reflects an
adequate reserve for all Taxes payable by the Company for all taxable
periods and portions thereof accrued through the Balance Sheet Date. As
of the Balance Sheet Date, all monies required to be withheld by the
Company from employees or collected from customers for Taxes and the
portion of any Taxes to be paid by the Company to governmental agencies
or set aside in accounts for such purposes have been so paid or set
aside, or such monies have been reserved against and entered upon the
books and are reflected in the Balance Sheet. The Company's last
payroll, pre-Effective Date, is October 15, 1999 and all monies
required to be withheld by the Company from Employees and the portion
of any Taxes to be paid by the Company to government agencies relating
to such payroll, have been so paid or set aside. All monies required to
be collected from customers for Taxes from the Balance Sheet Date
through the Effective Date and the portion of any Taxes to be paid by
the Company to government agencies for the period from the Balance
Sheet Date through the Effective Date will be paid, set aside, or shown
on the books and reflected on the Corporation's Balance Sheet as of the
Effective Date, the last day of the Company's final "short" "S"
corporation tax year. There are no legal, administrative, or Tax
proceedings pursuant to which the Company is or could be made liable
for any Taxes, penalties, interest, or other charges. The Company shall
cause to be prepared and timely filed a final "S" corporation tax year
tax return for the period commencing 1/1/99 through the Effective Date.
2. No deficiencies for any Taxes have been proposed, asserted
or assessed against the Company that are not adequately reserved for,
and no requests for waivers of the time to assess any such Taxes have
been granted or are pending. The statute of limitations on assessment
or collection of any federal income taxes due from the Company has
expired for all taxable years of the Company through 1993. No audit or
other proceeding by any court, governmental or regulatory authority or
similar entity is pending in regard to any Taxes due from or with
respect to the Company or any Return filed by the Company, other than
normal and routine audits by non-federal governmental authorities. None
of the assets or properties of the Company is subject to any tax lien,
other than any such Liens for Taxes which are not yet due and payable,
which may thereafter be paid without penalty ("Permitted Tax Liens").
3. No consent to the application of Section 341(f)(2) (or any
predecessor provision) of the United States Internal Revenue Code of
1986, as amended (the "Code") has been made or filed by or with respect
to the Company. The Company has not agreed to make any material
adjustment pursuant to Section 481(a) of the Code (or any predecessor
provision) by reason of any change in any accounting method, and there
is no
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application pending with any taxing authority requesting permission for
any changes in any accounting method of the Company which, in each
respective case, will or would reasonably cause the Company to include
any material adjustment in taxable income for any taxable period (or
portion thereof) ending after the Effective Date. The Company has not
made, or is not obligated or may not become obligated to make, any
payments that will not be deductible by reason of section 280G of the
Code. The Company has not been a member of an affiliated group of
corporations which has filed a consolidated federal income tax return
nor otherwise has any liability for the taxes of any person under
Treas. Reg. Section 1.1502-6, any similar provision of state, local, or
foreign law, or by reason of its status as a transferee, successor,
indemnitor or otherwise.
4. None of the property of the Company is subject to a
safe-harbor lease (pursuant to Section 168(f)(8) of the Internal
Revenue Code of 1954 as in effect after the Economic Recovery Tax Act
of 1981 and before the Tax Reform Act of 1986) or is "tax-exempt use
property" (within the meaning of Section 168(h) of the Code) or
"tax-exempt bond financed property" (within the meaning of Section
168(g)(5) of the Code).
5. The Company is not a party to, is not bound by, and has no
obligation under, any tax sharing agreement, tax allocation agreement
or similar contract, agreement or arrangement.
6. The Company has not executed or entered into with the
Internal Revenue Service, or any taxing authority, a closing agreement
pursuant to Section 7121 of the Code or any similar provision of state,
local, foreign or other income tax law, which will require any increase
in taxable income or alternative minimum taxable income, or any
reduction in tax credits for, the Company for a taxable period ending
after the Effective Date.
7. "Taxes" means all federal, state, local, foreign and other
net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, windfall profits, customs, duties or other taxes,
assessments or charges of any kind whatever, together with any interest
and any penalties, additions to tax or additional amounts with respect
thereto, and the term "Tax" means any of the foregoing Taxes.
8. "Returns" means all returns, declarations, reports,
statements and other documents required to filed in respect of Taxes,
and the term "Return" means any of the foregoing Returns.
N. EMPLOYEE BENEFITS MATTERS.
1. The Company has provided Buyer and/or its agents copies of,
and descriptions of, each of the following which is sponsored,
maintained or contributed to by
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the Company for the benefit of the employees of the Company, former
employees of the Company, directors of the Company, former directors of
the Company, or any agents, consultants, or similar representatives
providing services to or for the Company, or has been so sponsored,
maintained or contributed to within six years prior to the Closing Date
for the benefit of such individuals:
a. each "employee benefit plan," as such term is
defined in section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), (including, but
not limited to, employee benefit plans, such as foreign plans,
which are not subject to the provisions of ERISA), (each, a
"Plan");
b. each personnel policy, stock option plan, stock
purchase plan, stock appreciation rights, phantom stock plan,
collective bargaining agreement, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy,
severance pay plan, policy or agreement, deferred compensation
agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement,
employment agreement and each other employee benefit plan,
agreement, arrangement, program, practice or understanding of
the Company.
2. True, correct and complete copies of each of the Plans,
related trusts, insurance or group annuity contracts and each other
funding or financing arrangement relating to any Plan, including all
amendments thereto, have been furnished to Buyer. There has also been
furnished to Buyer, with respect to each Plan required to file such
report and description, the most recent report on Form 5500 and the
summary plan description. True, correct and complete copies or
descriptions of all Benefit Programs and Agreements have also been
furnished to Buyer. Additionally, the most recent determination letter
from the Internal Revenue Service for each of the Plans intended to be
qualified under section 401 of the Internal Revenue Code of 1986, as
amended (the "Code"), and any outstanding determination letter
application for such plans has been furnished. Company benefit plans
and policies provided to the Buyer (either copies of, or review of
original plan documents) include the following: SARSEP, Cafeteria Plan
(with medical insurance and dependent care, including description of
medical insurance and dependent care coverage) and employee manual.
3. Each Plan, Benefit Program, and Agreement has been
administered in compliance with its terms, the applicable provisions of
ERISA, the Code and all other applicable laws and the terms of all
applicable collective bargaining agreements, except for such failure to
comply with such terms and provisions has not had and will not have a
material adverse effect on the Company.
4. There are no actions, suits or claims pending (other than
routine claims for benefits) or, to the knowledge of the Company or
either Seller, threatened against, or with respect to, any of the
Plans, Benefit Programs or Agreements or their assets.
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5. No Plan or plan sponsored, maintained or contributed to
within six years prior to the Closing Date by a corporation, trade,
business or entity under common control with the Company within the
meaning of section 414(b), (k) or (m) of the Code or section 4001 of
ERISA ("Commonly Controlled Entity") is subject to Title IV of ERISA.
O. LABOR. Except as otherwise disclosed in Schedule 3(o), the Company
is not the subject of any suit, action or proceeding which is pending or, to the
knowledge of the Company or either Seller, threatened, asserting that the
Company has committed an unfair labor practice (within the meaning of the
National Labor Relations Act or applicable state statutes) or seeking to compel
the Company to bargain with any labor organization as to wages and conditions of
employment. No strike or other labor dispute involving the Company is pending
or, to the knowledge of the Company or either Seller, threatened. The Company is
not a party to any collective bargaining agreement and has not agreed to
recognize any union or other collective bargaining representative, nor has any
union or collective bargaining representative been certified as the exclusive
bargaining representative of any of its employees. To the Company or either
Seller's knowledge, no union organizational campaign or representation petition
is currently pending with respect to any employees of the Company.
P. MATERIAL AGREEMENTS. SCHEDULE 3(p) describes to the satisfaction of
the Buyer all (1) loan or credit agreements, notes, bonds, mortgages, indentures
and other agreements and instruments (collectively, "Debt Instruments") pursuant
to which any Debt of the Company is outstanding or may be incurred and the
respective principal amounts currently outstanding thereunder, including all
interest payable thereon and the amount of any premiums or prepayment penalties
incurred in the payment in full and retirement of the Debt Instruments as of the
Effective Date, (2) employment agreements, (3) consulting agreements, (4)
agreements or arrangements involving the Company in which any officer, director,
or affiliate of the Company has a financial interest, including indebtedness to
the Company, (5) real or personal property leases, subleases, licenses, or
sublicenses material to the conduct of the Company, (6) any other oral or
written agreements, contracts or other binding arrangements to which the Company
is a party or is otherwise bound (unless such agreement, contract or arrangement
is terminable upon less than 30 days' notice) and (7) any other contract that is
material to the Company's business (collectively, "Material Agreements"). The
Company has made available to Buyer true and correct copies of such Material
Agreements or the original Material Agreement for review at the offices of the
Company. The Company is not in violation of or in default under (nor does there
exist any condition which upon the passage of time or the giving of notice would
cause such a violation of or default under) any Material Agreement. "Debt,"
without duplication, means (d) all indebtedness (including the principal amount
thereof or, if applicable, the accreted amount thereof and the amount of accrued
and unpaid interest thereon) of the Company, whether or not represented by
bonds, debentures, notes or other securities, for the repayment of money
borrowed, (e) all obligations of the Company to pay any deferred or contingent
amounts (determined as if such contingency has occurred) in respect of the
purchase price for property, assets or services, except accounts payable arising
in the ordinary course of business, (f) all obligations of the Company to pay
rent or other payment amounts under a lease of real or personal property which
is required to be classified as a capital lease or a liability on the face of a
balance sheet prepared in accordance with generally accepted accounting
principles, (g) any
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reimbursement obligation of the Company with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of the
Company, (h) any payment obligation of the Company under any interest rate swap
agreement, forward rate agreement, interest rate cap or collar agreement or
other financial agreement or arrangement entered into for the purpose of
limiting or managing interest rate risks, (i) all indebtedness secured by any
lien existing on property owned by the Company (exclusive of the Exhibit B-2 and
C-2 Security Agreements), whether or not indebtedness secured thereby shall have
been assumed, (j) all guaranties (exclusive of the Exhibit "F" Guaranty of the
Company to the Sellers), endorsements, assumptions and other contingent
obligations of the Company in respect of, or to purchase or to otherwise
acquire, indebtedness of others, and (k) all premiums, penalties and change of
control payments required to be paid or offered in respect of any of the
foregoing as a result of the consummation of the transactions contemplated by
this Agreement regardless if any of such are actually paid.
Q. EXTRAORDINARY PAYMENTS. The Company is not required, pursuant to any
oral or written contracts or other agreements, to make any payments or other
distributions to any directors, officers, employees or agents of the Company as
a result of the transactions contemplated by the Company's Agreements or the
Sellers' Agreements, including all severance payments, termination payments or
other amounts payable (including, without limitation, the estimated costs of
benefits required to be provided) under the terms of any employment agreement
determined as if the employee's employment with the Company was terminated after
the occurrence of a "change of control" or other similar event (collectively,
"Extraordinary Payments").
R. INSURANCE. Since January 1, 1997, the Company has held insurance
issued by insurers of its choice against such risks as the Company's management
reasonably deemed appropriate. The Buyer has been provided with copies of all of
Sellers' insurance policies currently in effect.
S. DISCLOSURE. No representation or warranty made by the Company and
contained in this Agreement contains any untrue statement of a material fact or
omits any material fact required to make any statement contained herein not
misleading. Neither the Company nor either Seller is aware of any impending or
contemplated event or occurrence that would cause any of the foregoing
representations not to be true and complete on the date of such event or
occurrence as if made on that date.
IV. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Each Seller hereby
represents and warrants to Buyer as follows:
A. OWNERSHIP OF SHARES. As of the date hereof, each Seller is the
holder of record and owns beneficially the number of shares of Company Stock set
forth opposite such Seller's name in Schedule 4(a), free and clear of all Liens.
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B. CAPACITY; AUTHORITY. Each Seller has full legal capacity to execute
the Sellers' Agreements and consummate the transactions contemplated hereby and
thereby. Each Seller's execution, delivery and performance of the Sellers'
Agreements and the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary action on the part of such Seller and,
assuming the due execution and delivery of Buyer's Agreements by Buyer, will
constitute the valid and binding obligations of such Seller, enforceable against
such Seller in accordance with their respective terms, except as limited by laws
affecting creditors' rights or equitable principles generally. No person other
than the Sellers has any interest in any of the assets of the Company.
C. CONSENTS; NONCONTRAVENTION. Except to the extent that the same has
not had and will not have a material adverse effect on the Company, the
execution, delivery and performance of the Sellers' Agreements by each Seller do
not require the consent of any governmental entity or third party, will not
conflict with or violate any applicable law or any judgment, order or ruling of
any government authority having jurisdiction over either Seller, will not,
directly or indirectly, conflict with or constitute a breach or default under
any agreement, license or permit to which such Seller is a party or is subject,
and will not result in the creation of any lien or encumbrance on the assets of
the Company.
V. ACTIONS TO OCCUR CONTEMPORANEOUSLY WITH THE EXECUTION OF THIS
AGREEMENT; THE CLOSING; ESCROW.
A. On the Effective Date, the Sellers shall execute for delivery, as
provided below, the following:
1. SHARE CERTIFICATES. Endorsed stock certificates (or
executed stock powers) transferring ownership of certificates to the
Buyer representing all of the outstanding Shares;
2. LEGAL OPINION. An opinion of Douglas, Eden, Phillips &
DeRuyter, counsel to the Sellers in the form attached as Exhibit "G";
3. CONSENTS; ACKNOWLEDGMENTS. The original of each consent or
approval of each party to any contract or other agreement (including
evidence of the payment of any required payments) whose consent or
approval shall be required in order to permit the consummation of the
transactions contemplated hereby in a form and substance satisfactory
to Buyer;
4. EMPLOYMENT AGREEMENT. A counterpart of the employment
agreement in the form of Exhibit "D" executed by Linda K. Garrelts;
5. SECURITY AGREEMENT.
(i) A counterpart of the Security Agreement in the form
of Exhibit "B-2" executed by Ricker H. Jones;
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(ii) A counterpart of the Security Agreement in the Form
of Exhibit "C-2", executed by Linda K. Garrelts.
6. UCC-1 FINANCING STATEMENTS.
(i) UCC-1 Financing Statement for the Ricker H. Jones
Security Interest in the form attached as Exhibit "B-3".
(ii) UCC-1 Financing Statement for the Linda K. Garrelts
Security Interest in the form attached as Exhibit "C-3".
7. UCC-3 CHANGE (TERMINATION) STATEMENTS.
(i) UCC-3 Termination Statement for the Ricker H. Jones
Security Interest in the form attached as Exhibit "B-4".
(ii) UCC-3 Termination Statement for the Linda K. Garrelts
Security Interest in the form attached as Exhibit "C-4".
8. Counterpart of the Escrow Instructions Provided by the
Escrow Agent, Specified Below, in the form attached as Exhibit "E".
B. On the Effective Date, the Company will execute for delivery the
following:
1. The Commercial Guaranty Agreement for Ricker H. Jones in
the form attached as Exhibit "F-1".
2. The Commercial Guaranty Agreement for Linda K. Garrelts in
the form attached as Exhibit "F-2".
C. On the Effective Date, the Buyer will execute for delivery or
perform the following:
1. PURCHASE PRICE. The Purchase Price as provided by Section
I.B (including the payment required at Closing and the two Notes in the
form attached as Exhibits "B-1" (Jones Note) and "C-1" (Garrelts Note))
paid as provided in Paragraph V.D; and
2. EMPLOYMENT AGREEMENT. A counterpart of the Garrelts
Employment Agreement in the form of Exhibit "D" executed by Buyer;
3. SECURITY AGREEMENT.
(i) A counterpart of the Jones Security Agreement
executed by Jones Low Priced Drugs, Inc. in the form of
Exhibit "B-2", executed by Buyer;
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(ii) A counterpart of the Garrelts Security Agreement
executed by Jones Low Priced Drugs, Inc. in the Form of
Exhibit "C-2", executed by Buyer.
4. UCC-1 FINANCING STATEMENTS.
(i) UCC-1 Financing Statement for the Ricker H. Jones
Security Interest in the form attached as Exhibit "B-3"
executed by Jones Low Priced Drugs, Inc.
(ii) UCC-1 Financing Statement for the Linda K. Garrelts
Security Interest in the form attached as Exhibit "C-3
executed by Jones Low Priced Drugs, Inc.
5. UCC-3 CHANGE (TERMINATION) STATEMENTS.
(i) UCC-3 Termination Statement for the Ricker H. Jones
Security Interest in the form attached as Exhibit "B-4".
(ii) UCC-3 Termination Statement for the Linda K. Garrelts
Security Interest in the form attached as Exhibit "C-4".
6. ESCROW INSTRUCTIONS. Counterpart of the Escrow Instructions
provided by the Escrow Agent, specified below, in the form
attached as Exhibit "E".
D. THE CLOSING; DELIVERY OF DOCUMENTS; ESCROW. On the Effective Date,
as part of the Closing, Sellers shall deliver to Sellers' legal counsel stock
certificates representing all of the Shares properly endorsed (or accompanied by
executed Stock Powers) transferring said certificates to the Buyer. Seller's
legal counsel shall hold such Shares until the filing of UCC-1 Financing
Statements attached as Exhibits "B-3" and "C-3", respectively to perfect the
security interests granted pursuant to the Exhibits "B-2" and "C-2" Security
Agreements in favor of Ricker H. Jones and Linda K. Garrelts, respectively. The
Sellers shall use their best efforts to cause the UCC-1 Financing Statements to
be filed not later than one business day after the Effective Date.
On the effective date, as part of the Closing, the Buyer shall
pay into the Sellers' legal counsel's trust account the Paragraph I.B(i) cash
portion of the Purchase Price with the instructions that the funds are not to be
distributed to the Sellers until the Closing is completed, the escrow has been
established, and UCC-1 Financing Statements have been filed, thus perfecting the
Sellers' security interests in the collateral. Upon completion of the Closing,
which shall not be deemed completed prior to receipt of written confirmation of
the filing of said UCC-1 Financing Statements, the legal counsel of the Sellers
shall be authorized to disburse the Buyer's Purchase Price funds to the Sellers
and deliver the stock certificates transferring ownership of all of the
Company's outstanding stock to Buyer.
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On the Effective Date, following execution of the documents,
legal counsel for the Sellers shall deliver the original executed Promissory
Notes of the Buyer, together with copies of this Agreement, the Security
Agreements, Financing Statements, the Guaranty, and the original, executed UCC-3
Termination Statements to Allegro Escrow of Spokane, Washington, the Escrow
Agent for this transaction. The Buyer and the Seller shall share equally,
one-half (1/2) each, in set up and annual escrow fees of the Escrow Agent. In
the event of default in the Security Agreements or the Promissory Notes that is
not timely cured, the Escrow Agent shall be authorized to deliver said documents
to the Sellers, after the Sellers have provided such documentation or proof of
default and failure to timely cure as the Escrow Agent may reasonably require.
As part of the Closing, on the Effective Date, the Sellers
shall deliver to the Buyer all of the items specified in Paragraph V.A. above,
except to the extent otherwise specifically provided regarding delivery to
Sellers' counsel or to the Escrow Agent. On the Effective Date, the Buyer shall
deliver to the Sellers all the items specified in Paragraph V.C., except to the
extent otherwise provided herein in regard to delivery to Sellers' counsel or to
the Escrow Agent. On the Effective Date, the Company shall deliver the original
of the Guaranty to the Sellers and a copy of the signed Guaranty to the Buyer
and to the Escrow Agent. On the Effective Date, the Buyer shall receive a fully
executed copy of the Employment Agreement referenced above. On the Effective
Date, Linda K. Garrelts shall receive an original of the fully executed
Employment Agreement.
E. DISTRIBUTIONS AND TRANSFERS TO SHAREHOLDERS.
1. Following the Balance Sheet Date (9/30/99), but prior to
the Effective Date, or on the Effective Date prior to Closing, the
Company shall transfer to the Sellers by distribution as a dividend:
(i) the automobile described on Schedule 5(e) to Ricker H. Jones; and
(ii) all of the Company's rights in and to all legal claims and
settlement proceeds, if any, arising out of the legal actions set forth
on Schedule 5(e); and (iii) one-half of the value (based upon current
cash surrender values) of the two life insurance policies insuring the
Sellers, in each case distributed to the insured (with the other 1/2 of
the value of said policy being transferred to said insured by purchase
as described in Paragraph 2); and (iv) an amount of cash required to
equalize the total dividend distribution payable to Ricker H. Jones and
Linda K. Garrelts as set forth in Schedule 5(e); and (v) cash for
payment of "S" corporation income taxes, in the sum of $22,120.00
($11,060.00 to each Seller) which was distributed on October 15, 1999.
2. In addition, prior to Closing, the Company shall sell to
each insured Seller the remaining one-half of the corporate-owned life
insurance policy insuring said insured Seller for one-half of its then
current value, as set forth in Schedule 5(e) so that following the
Subparagraph 2. Dividend and the Subparagraph 3. Sale, each insured
Seller shall be the sole owner of said Insurance policy insuring his or
her life.
3. The item E(i) and E(ii) distributions referenced above
shall not reduce the equity of the Company for purposes of the price
adjustment provision provided in
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Paragraph I.C above. The above-referenced Item E(iii), E(iv) and E(v)
cash distributions shall be considered as reductions in equity for
purposes of the Paragraph I.C. price adjustment provision.
4. In addition, as a result of the ownership by the Company
prior to the Effective Date of the two above referenced life insurance
policies insuring the lives of the Sellers, which policies were issued
by a mutual life insurance company, a distribution of cash and stock of
the insurance company, or a subsidiary of the insurance company, is
expected at an undetermined future date to owners of record of the
insurance policies as of March of 1999 based upon the Insurance
Company's "demutualization.". Therefore, even though it is the
agreement of the parties that all rights in said insurance policies
insuring the Sellers are to be transferred to the Sellers prior to the
Effective Date, the Company, after the Effective Date will nevertheless
receive said cash and stock proceeds resulting from demutualization of
said insurance company. The Company will receive said proceeds as
nominee for the Sellers.
5. Buyer covenants that upon said receipt of said life
insurance company distribution of cash and stock by the Company, the
Buyer will cause the Company to transfer all of said distribution in
equal portions to the Sellers, as beneficial owners. The Buyer further
covenants that said transfer to the Sellers will occur not later than
five (5) business days after receipt of said cash and stock by the
Company. Said covenants of the Buyer shall survive the closing of this
transaction. The Sellers, jointly and severally, agree to indemnify the
Company, and the Buyer, from any income tax liability incurred by the
Buyer, or the Company, arising from receipt and transfer of said
insurance company cash and stock proceeds, as record owner, to the
Sellers, as beneficial owners.
VI. CONFIDENTIAL INFORMATION; SELLER'S COVENANTS NOTE TO COMPETE.
A. CONFIDENTIAL INFORMATION.
(i) Each Seller acknowledges that the confidential trade,
business and financial secrets and other confidential and proprietary
information obtained or possessed by such Seller concerning the
business affairs of the Company (the "Confidential Information") will
be the property of the Buyer and not either Seller. Confidential
information includes, but is not limited to, sales materials, technical
information, processes and compilations of information, records,
specifications and information concerning customers or venders,
customer lists, and information regarding methods of doing business.
Each Seller agrees that such Seller will not disclose to any person or
use for such Seller's own account any of the Confidential Information
unless and to the extent that such Confidential Information is required
to be disclosed by law, or pursuant to a judicial order or decree, or
becomes generally known to and available for use by the public
otherwise than as a result of the act or omission to act of either
Seller. Each Seller agrees to deliver to Buyer, at any time Buyer may
request, all memoranda, notes, plans,
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records, reports, and other documents (and copies thereof) relating
to the conduct of the business of the Company of which he or she may
then possess or have under his or her control.
(ii) Each Seller agrees to use reasonable efforts to give the
Company notice of any and all attempts to compel disclosure of any
Confidential Information, in such a manner so as to provide the Company
with written notice at least five (5) days before disclosure or within
one (1) business day after such Seller is informed that such disclosure
is being or will be compelled, whichever is earlier. Such written
notice shall include a description of the information to be disclosed,
the court, government agency, or other forum through which the
disclosure is sought, and the date by which the information is to be
disclosed, and shall contain a copy of the subpoena, order or other
process used to compel disclosure.
(iii) Each Seller further agrees not to use any Confidential
Information for the benefit of any person or entity other than the
Company.
(iv) As used in this Paragraph VI, "Buyer" shall include
Horizon Pharmacies, Inc. and any of its affiliates.
B. NON-COMPETITION.
(i) In consideration of the payment of Five Thousand Dollars
($5,000.00), which shall be allocated equally between the Sellers, each
Seller agrees that, until 11:59 p.m. on the third anniversary of the
date thereof, such Seller will not directly or indirectly, individually
or as an officer, director, employee, shareholder, consultant,
contractor, partner, joint venturer, agent, equity owner or in any
capacity whatsoever (i) engage, within a five (5) mile radius of the
locations such Seller worked for the Company, in the operation of a
retail pharmacy or in any other business activity that Buyer is
conducting, or is intending to conduct, on the Effective Date (a
"Competing Business"), (ii) directly or indirectly hire, attempt to
hire, or contact or solicit with respect to hiring any employee of the
Company or Buyer, or directly or indirectly induce or attempt to
influence any employee of the Company or Buyer to terminate his or her
employment, (iii) divert or take away any customers of the Company or
Buyer, or directly or indirectly request or advise any present or
future customers of the Company or Buyer to cancel any contracts with
the Company or Buyer or curtail their dealings with the Company or
Buyer; (iv) directly or indirectly request or advise any present or
future service provider or financial resource of the Company or Buyer
to withdraw, curtail, or cancel the furnishing of such service or
resource to the Company or Buyer. Notwithstanding the foregoing, for
the remaining portion of the Term of Non-Competition, Linda K. Garrelts
may work as an employed retail pharmacist not more than twenty (20)
hours per week so long as she has no other interest in the employer if
in good faith it can reasonably be determined that said employer
pharmacy is: located more than a one (1) mile radius from any retail
drug store in Spokane or Deer Park that is owned or operated by the
Company. The parties agree that full time or part time employment by
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Linda K. Garrelts at a hospital or mail order pharmacy shall not be
deemed in violation of Linda K. Garrelts' Non-Competition agreement
herein.;
(ii) During the term of Non-Competition, each Seller agrees
not to use such Seller's knowledge of, or application of Confidential
information to perform any duty for any Competing Business; it being
understood and agreed to that this Paragraph IV.B(ii) shall be in
addition to and not be construed as a limitation upon the covenants in
Paragraphs VI.A and VI.B(i) hereof.
(iii) Each Seller acknowledges that the geographic boundaries,
scope of prohibited activities, and time duration of the preceding
paragraphs are reasonable in nature and are no broader than are
necessary to maintain the confidentiality and the goodwill of the
Company and the confidentiality of its Confidential Information and to
protect the other legitimate business interests of the Company and
Buyer.
(iv) If any court determines that any portion of this
Paragraph VI is invalid or unenforceable, the remainder of this
Paragraph VI shall not thereby be affected and shall be given full
effect without regard to the invalid provisions. If any court construes
any of the provisions of this Paragraph VI, or any part thereof, to be
unreasonable because of the duration or scope of such provision, such
court shall have the power to reduce the duration or scope of such
provision and to enforce such provision as so reduced.
VII. CONSULTING BY RICKER H. JONES. For a period of ninety (90) days
following the Effective Date of this Agreement, Ricker H. Jones agrees to
provide consulting services on a part-time basis as requested by the Buyer to
assist in the transition of ownership and operation of the Company to the
Buyer. The parties agree that Ricker H. Jones will not be required to devote
more than two-thirds of his working time and that the parties will reach
mutual agreement concerning Ricker H. Jones' work schedule to render said
consulting services. Ricker H. Jones shall not be required to act as a retail
pharmacist. In exchange for said consulting services, Ricker H. Jones shall
receive consulting fees of Five Thousand Dollars ($5,000.00) per month (pro
rated on a per diem basis for any partial month during the ninety (90) day
consulting period). The parties agree that Ricker H. Jones shall provide said
services as an independent contractor and not as an employee of the Buyer.
Upon completion of said ninety (90) day consulting period, in the event that
the Buyer desires that said consulting by Ricker H. Jones continue for an
additional period, Ricker H. Jones agrees to negotiate in good faith for an
extension of said consulting period for a reasonable period of time beyond
the ninety (90) day initial term.
VIII. POST CLOSING COVENANTS OF THE BUYER. Following the Closing on the
Effective Date, the Buyer covenants that so long as any amount remains owing
under the Promissory Notes referenced in Paragraph I.B(ii) payable to Ricker
H. Jones and Linda K. Garrelts, copies of which are attached as Exhibits
"B-1" and "C-1", respectively, the Buyer will cause the Company to comply
with the following:
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A. REPAIRS AND INSURANCE. Buyer shall cause the Company to keep the
property pledged as security pursuant to the Security Agreements, copies of
which are attached hereto as Exhibits "B-2 and C-2", in good repair and shall,
subject to the next sentence, obtain and maintain insurance against loss or
damage to the tangible personal property pledged as security, by fire or any
other risks covered by insurance of a type known as "broad form extended
coverage". Notwithstanding the provisions of the preceding sentence, the Buyer
will not be required to maintain any insurance coverage covering said tangible
personal property that is greater in scope or type of coverage than what the
Company maintained insuring said assets prior to the Effective Date. Ricker H.
Jones and Linda K. Garrelts shall be named as additional Insureds, and shall be
provided copies of the insurance binders and policies providing said coverage.
B. CONTINUED OPERATION OF COMPANY'S DRUG STORES. The Buyer shall
continue to operate, in the ordinary course of business, the Company's drug
stores in Spokane and Deer Park in a manner consistent with good business
practices, taking into consideration historical business operations of the
Company.
IX. EMPLOYEES. Nothing contained in this Agreement shall be deemed to
give any employee of the Company the right to be retained in the employ of
the Company on or after the Effective Date, to retain the same salary, job
responsibility or job location, or interfere with the right of the Company to
terminate any employee at any time. The parties acknowledge that the employee
benefits, and who bears the cost of said employee benefits between the
employer and the employee, vary substantially between the Company's policies,
in effect prior to the Effective Date, and the Buyer's policies for its
employees. The parties further agree that pursuant to the Buyer's request,
the Company shall continue its current pre-Effective Date payroll practices
pertaining to the payment of compensation and benefits (and Employer-Employee
allocation of the cost of such benefits) to Company's employees through
December 31, 1999.
X. COOPERATION. Buyer, the Sellers and the Company agree to cooperate
fully with one another in taking any actions necessary or helpful to
accomplish the transactions contemplated hereby; provided, however, that no
party shall be required to take any action which would have a material
adverse effect upon it or any of its affiliates.
XI. COSTS AND EXPENSES. Except as otherwise expressly set forth in this
Agreement, Buyer, the Sellers and the Company agree that each party shall be
solely responsible for all costs and expenses incurred by it in connection
with the consummation of the transactions contemplated hereby; provided,
however, that: (i) all transfer, sales, documentary, stamp, or use taxes or
similar charges resulting from the stock sale transactions contemplated
hereby shall be borne by the Sellers, and not by the Company; (ii) the costs
of the inventory referenced in Paragraph I.C, and the cost of the escrow
agent referenced in Paragraph V.D shall be borne one-half by the Buyer and
one-half by the Company (cost of taking inventory, pre-Closing) or the
Sellers (as to the escrow expense); and (iii) the Closing costs of the
Company and of the Sellers relating to professional fees (e.g., legal and
accounting), as well as the cost of preparing the Company's final "S"
corporation tax return for the period ending on the Effective Date, and
whether said professional services relating to the Closing and Sale are
rendered pre-Closing or within thirty
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(30) days after Closing, shall be paid by the Company, as a pre-Closing expense,
whether or not such payment relating to the Sellers would constitute a dividend
distribution (but with the understanding that said payments will affect the
price adjustment provision of Paragraph I.C above). In the event of a dispute
between the parties in connection with this Agreement or the transactions
contemplated hereby, each of the parties hereto agrees that the prevailing party
shall be entitled to reimbursement by the other party of reasonable legal fees
and expenses incurred in connection with any action or proceeding.
XII. INDEMNIFICATION.
A. From and after the Effective Date, the Sellers, jointly and
severally, agree to indemnify and hold Buyer and its affiliates harmless from
and against all costs, losses and damages (including reasonable attorney fees)
incurred by Buyer or such affiliates as a result of or arising out of: (1) the
breach by the Company or either Seller of any of its or their representations
and warranties contained in this Agreement; (2) the failure by the Company or
either Seller to perform its or their covenants set forth in this Agreement; and
(3) any claims against the Company or Horizon pertaining to the complaints by a
former employee disclosed in Schedule 3(o), or otherwise arising out of such
Employee's employment with the Company pre-Effective Date. From and after the
Effective Date, Buyer agrees to indemnify and hold the Sellers harmless from and
against all costs, losses and damages (including reasonable attorney fees)
incurred by either Seller as a result of or arising out of (x) the breach by
Buyer of any of its representations and warranties contained in this Agreement
and (y) the failure by Buyer to perform its covenants set forth in this
Agreement. The indemnified party shall make no settlement, compromise, admission
or acknowledgment that would give rise to liability on the part of the
indemnifying party without the prior written consent of the indemnifying party.
B. All representations and warranties contained herein shall survive
the Closing in full force and effect through the second anniversary of the
Effective Date and, following termination of a representation or warranty, no
claim can be brought with respect to a breach of a representation or warranty,
but such termination shall not affect any claim for a breach of a representation
or warranty that was asserted before the date of termination; provided, however,
that the representations and warranties set forth in paragraphs 3(b), 3(m) and
4(a) will survive the consummation of the transactions contemplated hereby and
will remain in full force and effect until the expiration of the applicable
statute of limitations. All post-Closing covenants of the parties set forth
herein (including those contained in any exhibit hereto) shall survive Closing
until they are fully complied with (or until expiration of the applicable
statute of limitations in the event of their breach and failure to timely cure
said default). To the extent that such are performable after the Effective Date,
each of the covenants and agreements made hereunder shall survive indefinitely.
C. In the event that a Seller is liable for any breaches of any
representations, warranties, covenants or agreements contained in this
Agreement, after the Effective Date, such Seller shall not be entitled to
contribution or any other payment from the Company for any costs, losses or
damages (including attorneys' fees) that such Seller is obligated to pay. In
addition, effective as of the Effective Date, each Seller hereby waives and
releases any and all rights that
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such Seller may have under this Agreement or any other documents executed in
connection herewith to assert claims of contribution against the Company,
provided, however, that this waiver of contribution from the Company shall not
be interpreted as waiving any claim the Sellers may have in the future against
the Company for its post-Closing failure to comply with all of the Company's
obligations to the Sellers set forth in: Paragraphs V.E.4 and 5; Paragraphs
VIII.A and B; and the Exhibits "B-2" and "C-2" Security Agreements.
D. Each Seller and Buyer agrees that any payment of indemnified costs
made hereunder will be treated by the parties on their tax returns as an
adjustment to the Purchase Price. If, notwithstanding such treatment by the
parties, any payment of indemnified costs is determined to be taxable income
rather than adjustment to Purchase Price by any taxing authority, then the
indemnifying party shall indemnify the indemnified party for any taxes payable
by the indemnified party or any subsidiary by reason of the receipt of such
payment (including any payments under this paragraph XII.D), determined at an
assumed marginal tax rate equal to the highest marginal tax rate then in effect
for corporate taxpayers in the relevant jurisdiction.
E. Paragraphs V.E, VI, VII, VIII, X, XI, XII, XIV, XV, XVI, XVII,
XVIII, XIX, XX, XXI, XXII, XXIII, XXIV and this paragraph XII shall survive
termination of this Agreement.
XIII. SPECIFIC PERFORMANCE. Buyer, each Seller and the Company recognize
that if the Company or either Seller refuses to perform under the provisions
of this Agreement, monetary damages alone will not be adequate to compensate
Buyer for its injury. Buyer shall therefore be entitled, in addition to any
other remedies that may be available, to obtain specific performance of the
terms of this Agreement. In no event shall either Seller be entitled to seek
specific performance with respect to any of the Buyer's obligations arising
under this Agreement.
XIV. PARTIES IN INTEREST; ASSIGNMENT. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective successors, assigns and transferees. No party may voluntarily or
involuntarily assign its or his interest under this Agreement without the
prior written consent of the other parties hereto, except for any assignment
to an affiliate of Buyer or any Person with or into which Buyer merges or
consolidates in which case Buyer shall remain fully obligated under this
Agreement as an assignor.
XV. AMENDMENT. No amendment, waiver of compliance with any provision or
condition hereof or consent pursuant to this Agreement shall be effective
unless evidenced by an instrument in writing signed by the party against whom
enforcement of any waiver, amendment or consent is sought.
XVI. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE INTERNAL LAW OF THE STATE OF WASHINGTON (WITHOUT
REFERENCE TO ITS RULES AS TO CONFLICTS OF LAW).
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XVII. NOTICE. All notices, requests, consents, waivers and other
communications required or permitted to be given hereunder shall be in
writing and shall be deemed to have been given A. if transmitted by
facsimile, upon acknowledgment of receipt thereof in writing by facsimile or
otherwise; B. if personally delivered, upon delivery or refusal of delivery;
C. if mailed by registered or certified United States mail, return receipt
requested, postage prepaid, upon delivery or refusal of delivery; or D. if
sent by a nationally recognized overnight delivery service, upon delivery or
refusal of delivery. All notices, consents, waivers or other communications
required or permitted to be given hereunder shall be addressed to the
respective party to whom such notice, consent, waiver or other communication
relates at the following addresses:
<TABLE>
<CAPTION>
<S> <C>
To Sellers: Jones Low Price Drugs, Inc.
(Pre Closing) 906 South Monroe
Spokane, WA 99204
Fax: (509) 455-7450
To Sellers: Ricker H. Jones
(Post Closing) 6205 S. Helena Street
Spokane, WA 99223
Linda K. Garrelts
Post Office 20100
Spokane, WA 99204
Copy to: Douglas, Eden, Phillips and DeRuyter, P.S.
West 422 Riverside, Suite 909
Spokane, Washington 99201
Attention: Ron Douglas
Fax: (509) 455-5348
To Buyer: HORIZON Pharmacies, Inc.
531 West Main Street
Denison, TX 75020
Attention: Rick McCord
Fax: (903) 465-6769
Copies to: Vinson & Elkins L.L.P.
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Jay H. Hebert
Fax: (214) 999-7745
</TABLE>
XVIII. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which
together will constitute one and the same instrument.
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XIX. SEVERABILITY. Buyer, each Seller and the Company agree that if one
or more provisions contained in this Agreement shall be determined by a court
of competent jurisdiction to be invalid, illegal or unenforceable in any
respect under any applicable law, this Agreement shall be construed with the
invalid, illegal or unenforceable provision deleted, and the validity,
legality and enforceability of the remaining provisions contained herein
shall not be affected or impaired thereby.
XX. ENTIRE AGREEMENT. This Agreement and the exhibits hereto embody the
entire agreement and understanding of the parties hereto and supersede any
and all prior agreements, arrangements and understandings relating to the
matters provided for herein.
XXI. NO LIABILITY. The Company and each Seller agrees that no
stockholder, director or officer of Buyer or its affiliates shall have any
personal or individual liability for the obligations of Buyer under this
Agreement or any other agreement entered into in connection with this
Agreement other than as an assignee of this Agreement.
XXII. BROKERS. None of Buyer, either Seller or the Company nor any person
acting on behalf of such parties has agreed to pay any commission or finder's
fee in connection with this Agreement, other than to Rick Glass whom the
parties acknowledge has represented the Sellers. The parties agree that the
payment of the brokerage commission due to Rick Glass shall be the sole
responsibility of the Sellers.
XXIII. FURTHER ACTIONS. After the Effective Date, the Sellers shall execute
and deliver such other certificates, agreements, conveyances, and other
documents, and take such other action, as may be reasonably requested by
Buyer in order to transfer and assign to, and vest in, Buyer the Shares
pursuant to the terms of this Agreement or to permit Buyer to control the
Company and its assets.
XXIV. PUBLIC ANNOUNCEMENTS. Except for statements required by law or by
any listing agreements with any national securities exchange or the National
Association of Securities Dealers, Inc., or made in disclosures filed
pursuant to the Securities Act of 1933 or the Securities Act of 1934, Buyer
and the Sellers shall consult with each other before making any public
statements with respect to this Agreement or the transactions contemplated
hereby.
XXV. REFERENCES AND TITLES. All references in this Agreement to Exhibits,
Schedules, Articles, Sections, subsections, and other subdivisions refer to
the corresponding Exhibits, Schedules, Articles, Sections, subsections, and
other subdivisions of this Agreement unless expressly provided otherwise.
Titles appearing at the beginning of any Articles, Sections, subsections, or
other subdivisions of this Agreement are for convenience only, do not
constitute any part of such Articles, Sections, subsections or other
subdivisions, and shall be disregarded in construing the language contained
therein. The words "THIS AGREEMENT," "HEREIN," "HEREBY," "HEREUNDER," and
"HEREOF," and words of similar import, refer to this Agreement as a whole and
not to any particular subdivision unless expressly so limited. The words
"THIS SECTION," "THIS SUBSECTION," and words of similar import, refer only to
the Sections or subsections hereof in which such words occur. The word
"INCLUDING" (in its various forms) means "INCLUDING WITHOUT LIMITATION."
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Pronouns in masculine, feminine, or neuter genders shall be construed to state
and include any other gender and words, terms, and titles (including terms
defined herein) in the singular form shall be construed to include the plural
and vice versa, unless the context otherwise expressly requires. Unless the
context otherwise requires, all defined terms contained herein shall include the
singular and plural and the conjunctive and disjunctive forms of such defined
terms.
IN WITNESS WHEREOF, Buyer, each Seller and the Company have caused this
Agreement to be signed, all as of the date first written above.
HORIZON PHARMACIES, INC.
By: /s/ Robert Mueller
-------------------------------
Name: Robert Mueller
Title: Chief Operating Officer
RICKER H. JONES
/s/ Ricker H. Jones
-------------------------------
Ricker H. Jones
LINDA K. GARRELTS
/s/ Linda K. Garrelts
-------------------------------
Linda K. Garrelts
JONES LOW PRICE DRUGS, INC.
By: /s/ Ricker H. Jones
-------------------------------
Name: Ricker H. Jones
Title: President
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LIST OF EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit A - Share Certificates
Exhibit B-1 - Promissory Note - Jones
Exhibit C-1 - Promissory Note - Garrelts
Exhibit B-2 - Security Agreement - Jones
Exhibit C-2 - Security Agreement - Garrelts
Exhibit B-3 - UCC-1 Financing Statements - Jones
Exhibit C-3 - UCC-1 Financing Statements - Garrelts
Exhibit B-4 - UCC-3 (Termination Statement) - Jones
Exhibit C-4 - UCC-3 (Termination Statement) - Garrelts
Exhibit D - Employment Agreement - Garrelts
Exhibit E - Escrow Instructions
ExhibitF-1 - Jones Drug Guaranty - Jones
Exhibit F-2 - Jones Drug Guaranty - Garrelts
Exhibit G - Opinion of Counsel - Douglas, Eden, Phillips & DeRuyter, P.S.
Exhibit H - Contribution Agreement (Jones and Garrelts)
</TABLE>
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LIST OF SCHEDULES
<TABLE>
<CAPTION>
<S> <C> <C>
Schedule 3(j) - List of Environmental Matters
Schedule 3(o) - Disclosure of Possible Employee Related Claims
Schedule 3(p) - List of Debt Instruments and Material Agreements
Schedule 4(a) - List of Sellers' Stock Ownership in Company
Schedule 5(e) - Distributions to Shareholders
</TABLE>
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