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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
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): JANUARY 28, 2000
---------------------------
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 5. OTHER EVENTS
On January 28, 2000, HORIZON Pharmacies, Inc., a Delaware
corporation ("HORIZON"), entered into a Consulting Agreement with K-2
Financial Corp. ("K-2"). The term of the Consulting Agreement is 24 months.
During the term of the agreement, K-2 will provide financial consulting
services to the company as requested. Such services may include (i)
consummation of mergers or acquisitions, (ii) changes in the internal capital
structure of the company, (iii) placement of new debt or equity issues or
(iv) any combination thereof. Pursuant to the Consulting Agreement, HORIZON
issued to K-2 warrants to purchase 200,000 shares of HORIZON common stock,
par value $.01 per share, at a per share purchase price of $2.75 per share.
The warrants will vest immediately if the Consulting Agreement is terminated
by HORIZON prior to the end of the term of the agreement, or in increments
when certain performance objectives are attained by K-2.
Also on January 28, 2000, HORIZON entered into an exclusive
Investment Banking Agreement with Waterford Financial, Inc. ("Waterford").
The term of the Investment Banking Agreement is for 12 months and thereafter
until Waterford, upon 90 days written notification to HORIZON, or HORIZON
elects to terminate the agreement. The agreement provides that Waterford will
act as HORIZON's exclusive investment banker and will assist HORIZON with
various financings including (i) subordinated debentures, (ii) convertible
and/or redeemable preferred stock, (iii) common stock, with or without
warrants, (iv) convertible debt, (v) senior secured revolving credit and (vi)
senior secured term loans. Pursuant to the Investment Banking Agreement,
Waterford will receive a fee equal to a percentage of the value of a
particular financing or transaction as the case may be.
On February 1, 2000, HORIZON entered into a Software Development
Agreement with 5Net5 Corp ("5Net5"). Pursuant to the Software Development
Agreement, 5Net5 will provide HORIZON with consulting services including, but
not limited to, designing of plans for, and implementation and oversight of,
technology and Internet strategies. Specifically 5Net5 will provide (i)
website design plans, (ii) plans for a Branch-to-Home Office Information
Distribution System and (iii) plans for an Affinity Marketing Program.
Pursuant to the Software Development Agreement, HORIZON issued to 5Net5
warrants to purchase 300,000 shares of HORIZON common stock, par value $.01
per share, at a per share purchase price of $2.63. One-half, or 150,000,
warrants vested upon the signing of the Software Development Agreement. The
remaining warrants vest in increments upon the attainment of certain
performance goals. Further, 5Net5 will receive a consulting fee of $10,000
per month for one year and such fee may be retroactively doubled if certain
performance goals are attained.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) EXHIBITS.
10.1 -- Consulting Agreement, dated January 28, 2000, between
HORIZON Pharmacies, Inc. and K-2 Financial Corp.
10.2 -- Investment Banking Agreement, dated January 28, 2000,
between HORIZON Pharmacies, Inc. and Waterford
Financial, Inc.
10.3 -- Software Development Agreement, dated February 1,
2000, between HORIZON Pharmacies Inc. and 5Net5 Corp.
10.4 -- Amendment to Software Development Agreement, dated
February 1, 2000, between HORIZON Pharmacies Inc. and
5Net5 Corp.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this current 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: March 9, 2000
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EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT TITLE
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10.1 -- Consulting Agreement, dated January 28, 2000, between
HORIZON Pharmacies, Inc. and K-2 Financial Corp.
10.2 -- Investment Banking Agreement, dated January 28, 2000,
between HORIZON Pharmacies, Inc. and Waterford
Financial, Inc.
10.3 -- Software Development Agreement, dated February 1,
2000, between HORIZON Pharmacies Inc. and 5Net5 Corp.
10.4 -- Amendment to Software Development Agreement, dated
February 1, 2000, between HORIZON Pharmacies Inc. and
5Net5 Corp.
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EXHIBIT 10.1
K-2 FINANCIAL CORP.
-------------------
400 SOUTH 4TH STREET, SUITE 955
MINNEAPOLIS MN 55415
TELEPHONE (612) 338-1097 - FAX (612) 338-1197
CONSULTING AGREEMENT
THIS AGREEMENT is made as of January 28, 2000
By and Between
HORIZON PHARMACIES, INC. (THE "COMPANY")
And
K-2 FINANCIAL CORP. (THE "CONSULTANT")
RECITALS
A. The Company desires to promote its business plans to the investment
community and to build the value of the Company for the benefit of its
respective Shareholders;
B. The Consultant is involved in investment banking;
C. The Company recognizes the experience and knowledge of the Consultant
in matters relating to investment banking;
D. The Company has determined that it is in the best interest of the
Company to engage the services of the Consultant; and
E. The Company desires to retain the services and counsel of the
Consultant, and the Consultant desires to render such services to the Company
upon the terms set forth in this Consulting Agreement (this "Agreement").
NOW THEREFORE, in consideration of the mutual promises and covenants set
forth below, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound hereby agree as follows:
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1. ENGAGEMENT: The Company hereby engages the Consultant, and the
Consultant accepts engagement by the Company, upon the terms and conditions set
forth in this Agreement.
2. TERM: The term of this Agreement shall begin on the date hereof and
shall continue for a period of twenty-four (24) months.
3. DUTIES: During the term of this Agreement, the Consultant shall
provide financial consulting services to the Company as requested. The services
shall be directed toward achieving the Company's business and financial goals as
established by the Company's board of directors, which may include the
consummation of mergers or acquisitions, changes in the internal capital
structure of the Company, the placement of new debt or equity issues, or any
combination thereof (any such transaction proposed by the Company, a "Proposed
Transaction"). The Consultant's duties shall include, but not be limited to,
assisting the Company (i) to develop strategies and structure proposals related
to the Company's business and financial goals, and to analyze the financial
implications thereof; (ii) to prepare and make presentations to the Company's
board of directors regarding any such strategies or proposals; (iii) to
formulate negotiation strategies and conduct any negotiations necessary to
implementing such strategies and proposals; (iv) to prepare agreements in
principle and definitive agreements necessary to implementing any Proposed
Transaction; and (v) to assist in such other matters as may be agreed upon from
time to time by the Company and the Consultant. The terms of any Proposed
Transaction will be subject in all respects to the Company's approval, and
Consultant is not authorized to make any agreement or commitment on behalf of
the Company under any circumstances. When the Consultant presents a Proposed
Transaction to the Company, the Company in a reasonable time will either approve
or disapprove such Transaction in writing by an authorized officer of the
Company.
4. GRANT AND VESTING OF WARRANTS; CONSULTING FEES:
A. WARRANTS
(1) In exchange for the payment of $50, the receipt and
sufficiency of which are hereby acknowledged, the Company
hereby issues to the Consultant warrants to purchase 200,000
shares of the Company's Common Stock, par value $.01 per
share ("Common Stock"), for a purchase price per share equal
to $2.75 per share (the closing price of the Company's
Common Stock on the American Stock Exchange on January 27,
2000 -- the business day immediately preceding the grant of
such warrants (the "Warrants"); provided, however, that the
rights to exercise
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such Warrants shall vest immediately if the Company
terminates this Agreement other than pursuant to
PARAGRAPH7(b) hereof prior to the second anniversary of the
date hereof or as set forth below in this PARAGRAPH 4(a).
The Warrants shall be in substantially in the form of
EXHIBIT A attached hereto and shall contain such other terms
and conditions as are to be mutually agreed upon by the
parties.
(i) STRATEGIC ALLIANCES. If through the efforts of
the Consultant the Company enters into one or more strategic
alliances, whether by way of merger, consolidation, joint
venture, joint marketing agreement or similar agreements of
strategic nature, but specifically not including agreements
for investment banking, financial consulting or similar
services (each, an "Alliance"), with one or more entities,
then the Consultant shall be entitled to exercise a portion
of the Warrant for the purchase of One Hundred Thousand
(100,000) shares of Common Stock upon the consummation of
each such Alliance; or
(ii) ADVERTISING REVENUES.
(A) If through the efforts of the
Consultant the Company's monthly advertising revenues (the
"Advertising Revenues") (i) increase by Ten Thousand
dollars ($10,000) but less than Twenty Thousand dollars
($20,000) over the trailing three month period and (ii)
remain at such level for four consecutive months, then the
Consultant shall be entitled to exercise a portion of the
Warrant for the purchase of Forty Thousand (40,000) shares
of Common stock; or
(B) If through the efforts of the
Consultant the Company's monthly Advertising Revenues (i)
increase by Twenty Thousand dollars ($20,000) but less than
Thirty Thousand dollars ($30,000) over the trailing three
month period and (ii) remain at such level for four
consecutive months, then Consultant shall be entitled to
exercise a portion of the Warrant for the purchase of
Eighty Thousand (80,000) shares of Common stock; or
(C) If through the efforts of the
Consultant the Company's monthly Advertising Revenues (i)
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increase by Thirty Thousand dollars ($30,000) but less than
Forty Thousand dollars ($40,000) over the trailing three
month period and (ii) remain at such level for four
consecutive months, then the Consultant shall be entitled
to exercise a portion of the Warrant for the purchase of
One Hundred Twenty Thousand (120,000) shares of Common
stock; or
(D) If through the efforts of the
Consultant the Company's monthly Advertising Revenues (i)
increase by Forty Thousand dollars ($40,000) but less than
Fifty Thousand dollars ($50,000) over the trailing three
month period and (ii) remain at such level for four
consecutive months, then the Consultant shall be entitled to
exercise a portion of the Warrant for the purchase of One
Hundred Sixty Thousand (160,000) shares of Common stock; or
(E) If through the efforts of the
Consultant the Company's monthly Advertising Revenues (i)
increase by Fifty Thousand dollars ($50,000) or more over
the trailing three month period and (ii) remain at such
level for four consecutive months, then the Consultant
shall be entitled to exercise a portion of the Warrant for
the purchase of Two Hundred Thousand (200,000) shares of
Common stock;
(iii) DISPLAY ALLOWANCES.
(A) If through the efforts of the
Consultant the Company's monthly display allowances (the
"Display Allowances") (i) increase by Ten Thousand dollars
($10,000) but less than Twenty Thousand dollars ($20,000)
over the trailing three month period and (ii) remain at
such level for four consecutive months, then the Consultant
shall be entitled to exercise a portion of the Warrant for
the purchase of Forty Thousand (40,000) shares of Common
stock; or
(B) If through the efforts of the
Consultant the Company's monthly Display Allowances (i)
increase by Twenty Thousand dollars ($20,000) but less than
Thirty Thousand dollars ($30,000) over the trailing
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three month period and (ii) remain at such level for four
consecutive months, then the Consultant shall be entitled
to exercise a portion of the Warrant for the purchase of
Eighty Thousand (80,000) shares of Common stock; or
(C) If through the efforts of the
Consultant the Company's monthly Display Allowances (i)
increase by Thirty Thousand dollars ($30,000) but less than
Forty Thousand dollars ($40,000) over the trailing three
month period (ii) remain at such level for four consecutive
months, then the Consultant shall be entitled to exercise a
portion of the Warrant for the purchase of One Hundred
Twenty Thousand (120,000) shares of Common stock; or
(D) If through the efforts of the
Consultant the Company's monthly Display Allowances (i)
increase by Forty Thousand dollars ($40,000) but less than
Fifty Thousand dollars ($50,000) over the trailing three
month period and (ii) remain at such level for four
consecutive months, then the Consultant shall be entitled
to exercise a portion of the Warrant for the purchase of
One Hundred Sixty Thousand (160,000) shares of Common
stock; or
(E) If through the efforts of the
Consultant the Company's monthly Display Allowances (i)
increase by Fifty Thousand dollars ($50,000) or more over
the trailing three month period and (ii) remain at such
level for four consecutive months, then the Consultant
shall be entitled to exercise a portion of the Warrant for
the purchase of Two Hundred Thousand (200,000) shares of
Common stock;
(iv) MERCHANT REBATES.
(A) If through the efforts of the
Consultant the Company's monthly merchant rebates (the
"Merchant Rebates") (i) increase by Ten Thousand dollars
($10,000) but less than Twenty Thousand dollars ($20,000)
over the average amount of merchant rebates the Company
received in the trailing three month period and (ii) remain
at such level for four consecutive months, then the
Consultant shall be entitled to exercise a portion of the
Warrant for the
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purchase of Forty Thousand (40,000) shares of Common
stock; or
(B) If through the efforts of the
Consultant the Company's monthly Merchant Rebates (i)
increase by Twenty Thousand dollars ($20,000) but less than
Thirty Thousand dollars ($30,000) over the trailing three
month period and (ii) remain at such level for four
consecutive months, then the Consultant shall be entitled
to exercise a portion of the Warrant for the purchase of
Eighty Thousand (80,000) shares of Common stock; or
(C) If through the efforts of the
Consultant the Company's monthly Merchant Rebates (i)
increase by Thirty Thousand dollars ($30,000) but less than
Forty Thousand dollars ($40,000) over the trailing three
month period and (ii) remain at such level for four
consecutive months, then the Consultant shall be entitled
to exercise a portion of the Warrant for the purchase of
One Hundred Twenty Thousand (120,000) shares of Common
stock; or
(D) If through the efforts of the
Consultant the Company's monthly Merchant Rebates (i)
increase by Forty Thousand dollars ($40,000) but less than
Fifty Thousand dollars ($50,000) over the trailing three
month period and (ii) remain at such level for four
consecutive months, then the Consultant shall be entitled
to exercise a portion of the Warrant for the purchase of
One Hundred Sixty Thousand (160,000) shares of Common
stock; or
(E) If through the efforts of the
Consultant the Company's monthly Merchant Rebates (i)
increase by Fifty Thousand dollars ($50,000) or more over
the trailing three month period and (ii) remain at such
level for four consecutive months, then the Consultant
shall be entitled to exercise a portion of the Warrant for
the purchase of Two Hundred Thousand (200,000) shares of
Common stock;
Pursuant to each of PARAGRAPH 4(a)(1)(ii), (iii) and (iv),
only one vesting event may occur during any consecutive
three-
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month period. The vesting of Warrants under this PARAGRAPH
4(a)(i), (ii), (iii) AND (iv) can be combined and occur
simultaneously upon satisfaction of the requirements set
forth herein.
(2) The Warrants shall be immediately forfeited by the
Consultant if at any time (A) the Company terminates this Agreement by
reason of a breach by the Consultant or (B) if the Consultant terminates
this Agreement for any reason.
(3) The Consultant hereby represents to the Company that it
qualifies as an "accredited investor" under Rule 501 promulgated by the
Securities and Exchange Commission under the Securities Act of 1933
("Rule 501").
(4) The Warrants shall be immediately forfeited upon any
transfer or assignment by the Consultant, or any transferee or assignee
of the Consultant, to any person or entity not qualifying as an
"accredited investor" under Rule 501.
b. CONSULTING FEE: The Company shall pay a monthly consulting fee for one
(1) year of Ten Thousand dollars ($10,000) per month, payable no later than the
10th of each month, effective as of February, 2000.
5. NATURE OF ENGAGEMENT: The Consultant is being engaged by the Company
as an independent contractor and shall be responsible for payment of its own
taxes. Nothing in this Agreement shall be construed so as to create an
employer-employee relationship between the parties.
6. EXPENSES: Upon receipt of requests from the Consultant for
reimbursement, the Company shall reimburse the Consultant for all reasonable and
necessary expenses the Consultant incurs prior to and after the date of this
Agreement in performing its duties in connection with this Agreement; provided,
however, that the Company shall not be liable or obligated to reimburse the
Consultant for more than $10,000 of expenses hereunder (not including, for the
purpose of this limitation, any expenses that are incurred with the prior
approval of the Chief Executive Officer ("CEO") or the Chief Financial Officer
("CFO") of the Company).
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7. TERMINATION.
a. This Agreement may be terminated by either party immediately upon
written notice beginning twelve (12) months from the date of this Agreement.
Such notice shall be effective upon receipt by the non-terminating party.
b. Notwithstanding anything in this Agreement to the contrary, the
Company shall have the right to terminate this Agreement at any time upon any
breach by the Consultant of the provisions of this Agreement. If the Company
elects to exercise such right, it shall provide the Consultant with written
notice, and the termination shall be effective immediately upon receipt of such
notice to the Consultant.
8. NOTICES: All notices, requests consents and other communications
hereunder shall be in writing and shall be delivered in person, mailed by
certified or registered mail, return receipt requested, sent by telecopier,
telex or delivered by Federal Express, United Parcel Service or another similar
company, addressed as follows:
a. if to the Company, at 531 W. Main Street, Suite 100, Denison,
Texas 75020, Attention: Ricky D. McCord, with a copy to Vinson & Elkins L.L.P.,
3700 Trammell Crow Center, 2001 Ross Avenue, Dallas, Texas 75201, Attention: Jay
H. Hebert; and
b. if to the Consultant, at 400 South 4th Street, Suite 955,
Minneapolis, Minnesota 55415, Attention: John M. Whitesides, with a copy to Paul
des Hotels.
c. Any notice or communication hereunder shall be deemed to have
been given or made as of the date so delivered if personally delivered; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and five
calendar days after mailing if sent by registered or certified mail (except that
a notice of change of address shall not be deemed to have been given until
actually received by the addressee). If a notice or communication is mailed in
the manner provided above, it is duly given, whether or not the addressee
receives it.
9. MISCELLANEOUS PROVISIONS:
a. GOVERNING LAW: This Agreement shall be governed by, interpreted
and enforced in accordance with the laws of the State of Minnesota.
b. WAIVER: The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate as a waiver of any other breach of
any provision of this Agreement by any party.
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c. ENTIRE AGREEMENT:This instrument contains the entire Agreement of
the parties concerning engagement and may not be changed or modified except by
written agreement duly executed by the parties hereto.
d. SUCCESSORS AND ASSIGNS: This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors and
assigns.
e. ADDITIONAL DOCUMENTS: The Company agrees to execute such other
documents and agreements to effectuate the purposes of this Agreement, as the
Consultant may request from time to time.
f. ASSIGNMENTS: The obligation of the parties under this Agreement
shall not be assigned without the written consent of the parties which shall not
be unreasonably withheld.
g. COUNTERPARTS: This Agreement may be executed in counterparts, and
all counterparts will be considered as part of one agreement binding on all
parties to this Agreement.
h. FACSIMILE SIGNATURES: The parties may execute this Agreement by
facsimile, which signature[s] shall be deemed as an original and shall be
binding upon such party.
i. SEVERABILITY: If any term, condition or provision of this
Agreement or the application thereof to any party of circumstance shall, at any
time or to any extent, be invalid or unenforceable, the remainder of this
Agreement, or the application of such term, condition or provision to parties or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby, and each term, condition and provision of their
Agreement shall be valid and enforceable to the fullest extent permitted by the
Law.
j. DISPUTE PROCEDURE: Any dispute, claim or controversy arising out
of or relating to this Agreement, or the breach thereof, shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association at a location mutually acceptable to both parties. The
parties further agree that they will abide by and perform any award rendered by
the Arbitrator[s]. Judgment upon any such award may be in any court, State or
Federal, having any arbitration demand, service or process, notice of motion or
other application the court or any Judge thereof may require. Service may be by
registered or certified mail, or by personal service, provided a reasonable time
for appearance or answer is allowed.
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k. AUTHORITY: The Company hereby represents and warrants that the
person executing this Agreement on its behalf is duly authorized to do so, that
the execution of the Agreement has been duly approved by the Board of Directors
of the Company, and that this Agreement is binding upon the Company.
l. INDEMNITY:
(i) In addition to the amounts which the Company has herein agreed to
pay to the Consultant, the Company shall indemnify and hold the
Consultant and its officers, directors, agents and controlling
persons harmless against any losses, claims, damages or
liabilities to which the Consultant or any of them may become
subject insofar as the same arises from an action which alleges
or is based upon the alleged untrue statement of a material fact,
or omission of a material fact, or any other violation of
applicable securities or other laws, by the Company or its
officers, directors, agents and controlling persons and to
reimburse the Consultant for any legal or other expenses
reasonably incurred by it in connection with investigating,
settling or defending any action or claim in connection
therewith; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim,
damage or liability: (A) is found in a final judgment of a court
of competent jurisdiction to have resulted from a breach of the
Consultant's obligations to the Company in connection with the
performance by the Consultant of the services pursuant hereto or
from the Consultant's gross negligence or misfeasance in
performing such services or (B) arises out of, or is based upon,
any untrue statement of a material fact or omission of a material
fact made in any written communication or any amendment or
supplement thereto in reliance upon, and in conformity with,
information furnished to the Company by the Consultant expressly
for use therein.
(ii) The Consultant shall indemnify and hold the Company and its
officers, directors, agents and controlling persons harmless
against any losses, claims, damages or liabilities to which the
Company may become subject in connection with the transactions
contemplated herein, insofar as such losses, claims, damages or
liabilities arise out of, or are based upon (i) any untrue
statement or misleading omissions made by the Consultant in
writing expressly for use in connection with a Financing (other
than untrue statements of a material fact or omission of a
material fact made by the Consultant in reliance on information
supplied to the Consultant by the
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Company) or (ii) the Consultant's gross negligence,
misfeasance or breach of the Consultant's obligation hereunder to
the Company. The Consultant shall reimburse the Company for any
legal or other reasonable expenses incurred by it in connection
with investigating, settling or defending any such action or
claim.
(iii) Upon receipt by the Consultant or its officers, directors,
agents or controlling persons (for purposes of PARAGRAPH
8(l)(i)), or the Company or its officers, directors, agents
or controlling persons (for purposes of PARAGRAPH 8(l)(ii))
(in each case the "Indemnified Party"), of notice of any
action, suit, proceeding, claim, demand or assessment
against the Indemnified Party that might give rise to a
claim pursuant to this section, the Indemnified Party shall
give written notice thereof within ten days (the "Notice of
Claim") to the Company, for purposes of PARAGRAPH 8(l)(i),
or the Consultant, for purposes of PARAGRAPH 8(l)(ii) (in
each case the "Indemnifying Party"), indicating the nature
of such claim and the basis therefor. The Notice of Claim
shall specify all facts known to the Indemnified Party
giving rise to such claim and the amount of estimate of the
amount of liability arising therefrom. Any delay or failure
to notify the Indemnifying Party shall relive the
Indemnifying Party of its obligations hereunder only to the
extent, if at all, that it is prejudiced by reason of such
delay or failure.
(iv) Promptly after a claim is made for which the Indemnified
Party seeks indemnity, the Indemnified Party, at its option
and expense, to assume the defense of such action, suit,
proceeding, claim, demand or assessment with full authority
to conduct such defense and the Indemnified Party will
cooperate fully with such defense. The Indemnified Party
shall have the right to employ separate counsel in any of
the foregoing actions, claims or proceedings and to
participate in the defense thereof, and the Indemnifying
Party shall pay the reasonable fees and expenses of such
counsel in advance at the request of the Indemnified Party.
Anything in this section to the contrary notwithstanding,
the Indemnified Party shall not, without the Indemnifying
Party's prior written consent, settle or compromise any
action or claim or proceeding or consent to entry of any
judgment with respect to any such action or claim that
requires the payment of money damages by the Indemnified
Party or in any way is binding upon or affects the
Indemnifying Party.
(v) The respective reimbursement and indemnity obligation of the
Consultant and the Company pursuant to subparagraphs (i) and
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(ii) of this PARAGRAPH 8(l) shall be in addition to any
liability which the Consultant or the Company may otherwise
have and shall be binding upon, and inure to the benefit of,
their respective successors, assigns, heirs, and personal
representatives.
(vi) The respective indemnity agreements of the Consultant and
the Company contained in subparagraphs (i) and (ii) of this
PARAGRAPH 8(l) shall remain operative and in full force and
effect regardless of any termination of this Agreement or of
any investigation made by or on behalf of this Company or
the Consultant.
M. CONSULTANT AUTHORITY: Consultant shall have no authority under this
Agreement to bind the Company to any transaction or contract. The Company has
the right in its sole and absolute discretion to reject any transaction or
contract regardless of the terms proposed.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
K-2 FINANCIAL CORP. HORIZON PHARMACIES, INC.
By /s/ Richard A. Andolshek By /s/ Ricky D. McCord
------------------------------- --------------------------------
Richard A. Andolshek, President Ricky D. McCord, President & CEO
S-1
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EXHIBIT A
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FORM OF WARRANT
<PAGE>
EXHIBIT 10.2
WATERFORD FINANCIAL, INC.
400 SOUTH 4TH STREET, SUITE 955
MINNEAPOLIS, MINNESOTA 55415
MEMBER NASD & SIPC
TELEPHONE (612) 338-1097
FAX (612) 338-1197 OR 338-0996
E-MAIL: [email protected]
www.waterfordfinancial.com
January 28, 2000
Mr. Rick McCord
President & CEO
HORIZON Pharmacies, Inc.
531 W. Main Street, Suite 100
Denison, TX 75020
Dear Mr. McCord:
This letter of intent (the "Agreement") sets forth our mutual understanding and
agreement regarding the establishment of an exclusive investment banking
relationship between HORIZON Pharmacies, Inc., a Delaware corporation (the
"Company") and Waterford Financial, Inc., a Minnesota corporation ("WFI"). WFI
agrees to assist the Company in connection with future financings on the
following terms and conditions:
1. ENGAGEMENT. Subject to PARAGRAPH 7 herein, the Company hereby engages
WFI to act as the Company's exclusive investment banker to assist the
Company with various financing arrangements of up to Twenty-Five
Million dollars ($25,000,000), or such other amounts as shall be
mutually agreed to by the parties, including, inclusive, (i)
subordinated debentures, (ii) convertible and/or redeemable preferred
stock, (iii) common stock, with or without warrants, (iv) convertible
debt, (v) senior secured revolving credit and (vi) senior secured term
loan (collectively, the "Financings"). In connection with any such
Financings, WFI will use its best efforts to review proposals and
advise the Company with respect to such proposals. In addition, WFI
shall be ready to meet with officers or directors of the Company upon
reasonable notice to consult on any financial matters or any items
related to any issue of financing.
Due to the nature of the investment banking relationship, it is
extremely important that all prospects or referrals for investment
during the Engagement Period (as defined in PARAGRAPH 6), be directed
to WFI, subject to PARAGRAPH 7 herein.
<PAGE>
Page 2
When WFI presents a proposed Financing to the Company, the Company
will either approve or disapprove such Financing in writing.
2. FEES. In consideration of the services to be rendered by WFI pursuant
to this agreement, the Company agrees to pay, WFI a(n):
(a) two percent (2%) fee of any Financing which WFI does not manage
during the shorter of the Engagement Period or the next three (3)
years, except for a Financing arranged, managed or controlled by
an entity set forth in SCHEDULE A attached hereto;
(b) three percent (3%) non-accountable expense allowance on all
consideration raised in a Financing that WFI manages;
(c) underwriter's commission, in the context of a Private Offering
(as defined below) that WFI manages, that is equal to ten percent
(10%) on all gross proceeds raised on behalf of the Company for
equity or convertible debt. As used herein, "Private Offering"
means a debt or equity offering that is not a Public Offering,
subject to PARAGRAPH 7 herein;
(d) underwriter's commission, in the context of a Public Offering (as
defined below) that WFI manages, that is equal to the maximum
amount allowable under the rules of the National Association of
Security Dealers, Inc. (the "NASD") and the American Stock
Exchange ("AMEX"), or, in the event that the Company is no longer
trading its stock over AMEX, then whichever exchange the
Company's stock trades; provided, however, that the underwriter's
commission payable hereunder shall not, in any event, exceed six
percent (6%) of the gross proceeds raised on behalf of the
Company for equity or debt in such Public Offering, subject to
PARAGRAPH 7 herein. As used herein, "Public Offering" means a
debt or equity offering requiring the filing of a registration
statement by the Company under the Securities Act of 1933;
(e) five percent (5%) fee on any merger (a "Merger") or acquisition
(an "Acquisition" and together with a Merger, an "M&A
Transaction") of the Transaction Value (as defined below) with
respect to which WFI provides financial consulting services. To
the extent that the Transaction Value is greater than Five
Million dollars ($5,000,000), then the five percent (5%) fee
shall not apply to such excess amount; rather, the applicable fee
shall be determined with respect to such excess amount by
multiplying such excess amount by the Excess Formula (as defined
below);
<PAGE>
Page 3
(i) As used herein, "Transaction Value" means all consideration
payable to the seller(s) in connection with an M&A
Transaction, including but not limited to (i) deferred
installments of the purchase price, provided that any fees
paid in respect of such deferred amounts shall be payable
(without interest) only when and if such deferred amounts
are actually received by the seller(s), (ii) any portion of
the purchase price held in escrow subsequent to closing
which is actually released to the seller(s) pursuant to the
terms of the escrow arrangement and (iii) payments made to
the seller(s) after closing upon the occurrence of certain
contingencies or conditions or the satisfaction of certain
earnings, sales levels or other performance objectives which
are agreed to on or before the date of closing. In an
Acquisition involving the purchase of assets where the
Company assumes or repays all or a portion of the target
company's, or, if more than one target company, companies'
debt, the Transaction Value shall also include the aggregate
amount of debt assumed or repaid by the purchaser(s). The
Transaction Value shall not include debt assumed or repaid
in situations where the M&A Transaction is a Merger,
consolidation or purchase or exchange of capital stock;
(ii) In the event that all or any portion of the Transaction
Value is paid in stock or other securities, deferred
installments or consideration other than cash at closing,
the amount of the success fee payable with respect thereto
shall be determined on the basis of the cash equivalent of
such non-cash consideration as of the closing date of the
M&A Transaction. If WFI and the Company are unable to agree
on the cash equivalent of such non-cash consideration within
thirty (30) days after the closing date, the determination
of the cash equivalent shall be made promptly by an
investment banker or other person experienced in valuing
securities mutually acceptable to both WFI and the Company,
such determination shall be binding on both WFI and the
Company, and WFI and the Company shall each be responsible
for paying one-half (1/2) of the fees of such investment
banker or other person; and
(iii) If requested by the Company, WFI will determine whether the
consideration to be paid in the M&A Transaction is fair to
shareholders from a financial point of view. If WFI
determines the consideration to be paid in the M&A
Transaction is fair to the shareholders from a financial
point of view, WFI will render a written opinion to that
effect to the Board of Directors or to the
<PAGE>
Page 4
Special Committee of the Board of Directors of the Company.
Such opinion shall be consistent with the generally accepted
standards of practice in the investment banking industry for
fairness opinions and WFI acknowledges that the Company may
rely upon the opinion, in addition to such factors it deems
appropriate, in determining whether to consummate the M&A
Transaction. At the time the Company requests WFI to make a
fairness determination, the Company will pay WFI a
non-refundable fee of Twenty-Five Thousand dollars
($25,000); provided, however, that such fee shall be
credited against any success fee payable as a result of the
M&A Transaction;
(iv) As used herein, "Excess Formula" means a four percent (4%)
fee on excess amounts less than One Million dollars
($1,000,000), then a three percent (3%) fee on excess
amounts equal to or greater than One Million dollars
($1,000,000) but less then Two Million dollars ($2,000,000),
then a two percent (2%) fee on excess amounts equal to or
greater than Two Million dollars ($2,000,000) but less than
Three Million dollars ($3,000,000), then a one percent fee
(1%) on any excess amounts greater than or equal to Three
Million dollars ($3,000,000);
(f) five percent (5%) fee on any non-convertible debt; and
(g) in any transaction involving a Financing in which the common
stock, par value $.01 per share, of the Company (the "Common
Stock") is issued in connection therewith, a non-cancelable
warrant to purchase an aggregate of ten (10) percent of shares
sold in such Financing at an exercise price per share of 120% of
the issuance price per share. Any such warrants shall expire
within five (5) years of the date of grant and contain a cashless
exercise provision with customary piggyback registration rights.
The fees set forth in this PARAGRAPH 2 shall apply to any source (or
source or contact of a source) introduced to the Company by WFI, or
referred to WFI by the Company (a "Source"), during the Engagement
Period and for twenty-four (24) months thereafter (the "Tail Period");
provided, however, that (i) under no circumstance shall any entity
listed on SCHEDULE A attached hereto, or any such entities' employees,
agents, officers, directors or representatives be considered a Source
for purposes of this Agreement, (ii) if a Financing is consummated
after the Engagement Period and is subject to the Tail Period, the
three percent (3%) nonaccountable fee to be received by WFI hereunder
shall be offset by amounts previously paid under PARAGRAPH 3 and (iii)
the Tail Period shall not apply if the
<PAGE>
Page 5
Company terminates this Agreement for Cause or if WFI has received
fees under subparagraphs (c), (d), (e), (f) or (g) of this PARAGRAPH
2.
In the event that a corporate transaction involving more than one of
the services for which WFI has been engaged is successfully concluded
pursuant to this Agreement, WFI shall be paid the applicable fee
designated in this Paragraph 2 for each of the services provided, but
only in proportion to the extent such service or financing is
proportionate to the entire corporate transaction. For instance, if in
connection with an acquisition pursuant to subparagraph (e) the
Company issues a non-convertible note that would also trigger a fee
payable in accordance with subparagraph (f), then, with respect to
such transaction, WFI would receive the designated fee for (i) Merger
and Acquisition services calculated only upon the acquisition value
included in the transaction and (ii) placement of the non-convertible
note only for the value of the note. No fee designated in this
PARAGRAPH 2 would apply to, or be paid for, any service or component
of the corporate transaction subject to a fee designated under a
separate provision of this PARAGRAPH 2.
3. EXPENSES. In the event a Financing does not occur during the
Engagement Period, the Company will reimburse WFI for the following
expenses incurred by WFI in relation to this Agreement:
(a) The cost of printing and distributing the offering documents,
private placement memorandum and blue sky memorandum and any
additional agreements and/or disclosure documents required by WFI
or its counsel;
(b) The filing fees of the Securities and Exchange Commission (the
"SEC"), the NASD, state blue sky filings and all regulatory
filings, and any legal fees incurred by WFI in connection
therewith;
(c) The cost associated with publishing a "Tombstone" advertisement,
not to exceed in size more than one-fourth of a standard size
newspaper page, to be published in the Minneapolis and/or St.
Paul papers, or a similar publication, to be chosen by WFI; and
(d) All costs incurred for legal representation related to a
Financing; provided, however, that such costs shall not exceed
Twenty-Five Thousand dollars ($25,000).
4. OBLIGATION TO PAY FEES. If, and only if, WFI shall have produced a
commitment (the "Commitment") from a lender or investor which the
Company, in its sole discretion, accepts in writing, then WFI shall be
deemed to have earned the
<PAGE>
Page 6
applicable fee as set forth above in PARAGRAPH 2. The Company shall
pay such fee(s) to WFI on (i) the date it receives the proceeds of
such loan or investment, and in the event such proceeds are to be
paid to the Company in deferred installments, then the fee(s) payable
to WFI shall be payable in amounts proportionate to each of the
deferred installments, or (ii) if the Company fails to accept funding
against an accepted commitment, on the expiration date of the accepted
commitment; provided, however, if a funding against an accepted
commitment does not occur as a result of (A) withdrawal by a lender or
investor, (B) the Company is unable to agree with the lender or
investor after negotiating in good faith on definitive documentation
or (C) there are material changes either to the transaction or to the
circumstances surrounding such transaction that (I) arise after the
execution of the Company's acceptance of the Commitments or (II) are
proposed by the lender or investor, then the Company shall have no
obligation to pay the applicable fee set forth above in PARAGRAPH 2.
5. THIRD PARTY RIGHTS. This Agreement has been and is made solely for the
benefit of WFI and the Company and for their respective agents,
employees, officers and directors and any successors, assigns and
heirs. No other person shall acquire or have any right under or by
virtue of this Agreement.
6. TERM; TERMINATION. WFI's right under this Agreement shall extend from
the date hereof for a period of twelve (12) months or after such
period until either WFI, upon ninety (90) days written notification,
or the Company, immediately upon such notification, communicates to
the other party that it wishes to terminate this Agreement (the
"Engagement Period"); provided, however, that the provisions of
PARAGRAPHS 2, 8 and 9 will survive such expiration or termination
except as otherwise set forth herein. For purposes herein, the
effective date of Termination shall be deemed to have occurred upon
the earlier of the actual or constructive date of delivery of the
written notification.
Notwithstanding anything in this Agreement to the contrary, the
Company can terminate this Agreement at any time for Cause (as defined
below). If the Company elects to terminate this Agreement for Cause,
then (i) the Company shall owe none of the fees set forth in PARAGRAPH
2 to WFI under any circumstance whatsoever, including any fees that
might arise during the Tail Period and (ii) the Company shall
reimburse WFI only for those accountable expenses incurred in
connection with this Agreement in accordance with PARAGRAPH 3, and
(iii) the Company shall not be obligated to indemnify WFI as it
otherwise would be required to do pursuant to PARAGRAPH 8. For
purposes of this Agreement, "Cause" means (i) a breach of WFI's duties
or obligations under this Agreement or (ii) WFI's gross negligence or
misfeasance in performing its duties and obligations under this
Agreement.
<PAGE>
Page 7
7. EXCLUSIVITY AND WFI'S FUTURE RIGHTS. During the term of this Agreement
neither the Company, its officers, directors, shareholders or agents
shall engage any other entity to secure Financings, nor shall the
Company, its officers, directors, shareholders or agents initiate or
pursue discussion with potential financing sources for the purpose of
obtaining loans on equity funds for Financings, except in conjunction
with and/or acknowledgment by WFI; provided, however, that this
Agreement shall not prohibit the Company from engaging in discussions
or entering into any kind of financial arrangement, with any entity
identified on SCHEDULE A attached hereto or their respective
successors-in-interest, and nothing in this Agreement shall be
applicable or enforceable with respect to any such arrangement that
the Company discusses or enters into with those entities identified on
SCHEDULE A attached hereto or their respective successors-in-interest.
If a Financing is consummated during the term of this Agreement, WFI
or a party designated on SCHEDULE A shall be designated as the
placement agent. The fee structure for any such consummated Financing,
or any additional Financing consummated during the Engagement Period,
shall be determined in accordance with the provisions of PARAGRAPH 2
herein. If a Financing is consummated during the Engagement Period for
which WFI provided substantial services and the Company desires to
undertake an additional Financing (a "Subsequent Financing") through
either a Private Offering or a Public Offering during the succeeding
twelve months, the Company shall provide WFI with written notice of
the proposed Subsequent Financing. WFI will respond by written
notification to the Company within fifteen (15) days of such notice if
it desires to act as placement agent for such Subsequent Financing. If
WFI responds within such time period, then the Company will appoint
WFI as the placement agent for such Subsequent Financing upon terms
and conditions mutually acceptable to both the Company and WFI.
8. INDEMNITY.
(a) In addition to the amounts which the Company has herein agreed to
pay to WFI, the Company shall indemnify and hold WFI and its
officers, directors, agents and controlling persons harmless
against any losses, claims, damages or liabilities to which WFI
or any of them may become subject insofar as the same arises from
an action which alleges or is based upon the alleged untrue
statement of a material fact, or omission of a material fact, or
any other violation of applicable securities or other laws, by
the Company or its officers, directors, agents and controlling
persons and to reimburse WFI for any legal or other expenses
reasonably incurred by it in connection with investigating,
settling or defending any action or claim in connection
therewith; provided, however, that the Company shall not be
<PAGE>
Page 8
liable in any such case to the extent that any such loss, claim,
damage or liability: (i) is found in a final judgment of a court
of competent jurisdiction to have resulted from a breach of WFI's
obligations to the Company in connection with the performance by
WFI of the services pursuant hereto or from WFI's gross
negligence or misfeasance in performing such services or (ii)
arises out of, or is based upon, any untrue statement of a
material fact or omission of a material fact made in any written
communication or any amendment or supplement thereto in reliance
upon, and in conformity with, information furnished to the
Company by WFI expressly for use therein.
(b) WFI shall indemnify and hold the Company and its officers,
directors, agents and controlling persons harmless against any
losses, claims, damages or liabilities to which the Company may
become subject in connection with the transactions contemplated
herein, insofar as such losses, claims, damages or liabilities
arise out of, or are based upon (i) any untrue statement or
misleading omissions made by WFI in writing expressly for use in
connection with a Financing (other than untrue statements of a
material fact or omission of a material fact made by WFI in
reliance on information supplied to WFI by the Company) or (ii)
WFI's gross negligence, misfeasance or breach of WFI's obligation
hereunder to the Company. WFI shall reimburse the Company for any
legal or other reasonable expenses incurred by it in connection
with investigating, settling or defending any such action or
claim.
(c) Upon receipt by WFI or its officers, directors, agents or
controlling persons (for purposes of PARAGRAPH 8(a)), or the
Company or its officers, directors, agents or controlling persons
(for purposes of PARAGRAPH 8(b)) (in each case the "Indemnified
Party"), of notice of any action, suit, proceeding, claim, demand
or assessment against the Indemnified Party that might give rise
to a claim pursuant to this section, the Indemnified Party shall
give written notice thereof within ten days (the "Notice of
Claim") to the Company, for purposes of PARAGRAPH 8(a), or WFI,
for purposes of PARAGRAPH 8(b) (in each case the "Indemnifying
Party"), indicating the nature of such claim and the basis
therefor. The Notice of Claim shall specify all facts known to
the Indemnified Party giving rise to such claim and the amount of
estimate of the amount of liability arising therefrom. Any delay
or failure to notify the Indemnifying Party shall relive the
Indemnifying Party of its obligations hereunder only to the
extent, if at all, that it is prejudiced by reason of such delay
or failure.
(d) Promptly after a claim is made for which the Indemnified Party
seeks indemnity, the Indemnified Party, at its option and
expense, to assume the
<PAGE>
Page 9
defense of such action, suit, proceeding, claim, demand or
assessment with full authority to conduct such defense and the
Indemnified Party will cooperate fully with such defense. The
Indemnified Party shall have the right to employ separate counsel
in any of the foregoing actions, claims or proceedings and to
participate in the defense thereof, and the Indemnifying Party
shall pay the reasonable fees and expenses of such counsel in
advance at the request of the Indemnified Party. Anything in this
section to the contrary notwithstanding, the Indemnified Party
shall not, without the Indemnifying Party's prior written
consent, settle or compromise any action or claim or proceeding
or consent to entry of any judgment with respect to any such
action or claim that requires the payment of money damages by the
Indemnified Party or in any way is binding upon or affects the
Indemnifying Party.
(e) The respective reimbursement and indemnity obligation of WFI and
the Company pursuant to subparagraphs (a) and (b) of this
PARAGRAPH 8 shall be in addition to any liability which WFIP or
the Company may otherwise have and shall be binding upon, and
inure to the benefit of, their respective successors, assigns,
heirs, and personal representatives.
(f) Except as stated otherwise herein, the respective indemnify
agreements of WFI and the Company contained in subparagraphs (a)
and (b) of this PARAGRAPH 8 shall remain operative and in full
force and effect regardless of any termination of this Agreement
or of any investigation made by or on behalf of this Company or
WFI.
9. CONFIDENTIAL INFORMATION. WFI acknowledges that as a consequence of or
through its engagement by the Company, it will acquire information
concerning the Company's business, products and services. All such
information shall be "Confidential Information" regardless of whether
it is reduced to writing, used or practiced during the Engagement
Period. As a condition to the Company's entering into this Agreement,
WFI agrees that it shall not at any time for a term beginning on the
date hereof and ending two years after the termination of WFI's
engagement hereunder, either directly or indirectly, use for the
benefit of itself or communicate or divulge to any other person,
partnership, association, corporation or other entity for their use or
benefit, any Confidential Information known by, or then in the
possession of, WFI without the prior written consent of the Company.
The foregoing restriction shall not apply to Confidential Information
that, at the time of disclosure to WFI, has become a part of the
public domain through publication or communication by the Company or
others, unless such matters become part of the public domain in
connection with or as a result of a violation of this restriction by
WFI.
<PAGE>
Page 10
10. BOARD OBSERVER. WFI shall have the right to appoint an individual to
act as a non-voting observer of all meetings of the Board of Directors
of the Company, subject to the terms and conditions of a Board
Observer Agreement substantially in the form as the Board Observer
Agreement attached hereto as EXHIBIT A.
11. NOTICES. All notices, requests consents and other communications
hereunder shall be in writing and shall be delivered in person, mailed
by certified or registered mail, return receipt requested, sent by
telecopier, telex or delivered by Federal Express, United Parcel
Service or another similar company, addressed as follows:
(a) if to the Company, at 531 W. Main Street, Suite 100, Denison,
Texas 75020, Attention: Ricky D. McCord, with a copy to Vinson &
Elkins L.L.P., 3700 Trammell Crow Center, 2001 Ross Avenue,
Dallas, Texas 75201, Attention: Jay H. Hebert and
(b) if to WFI, at 400 South 4th Street, Suite 955, Minneapolis,
Minnesota 55415, Attention: John M. Whitesides, with a copy to
Paul des Hotels.
(c) Any notice or communication hereunder shall be deemed to have
been given or made as of the date so delivered if personally
delivered; when answered back, if telexed; when receipt is
acknowledged, if telecopied; and five calendar days after mailing
if sent by registered or certified mail (except that a notice of
change of address shall not be deemed to have been given until
actually received by the addressee). If a notice or communication
is mailed in the manner provided above, it is duly given, whether
or not the addressee receives it.
12. GENERAL. This Agreement may not be modified except in writing. This
Agreement represents the entire understanding between the Company and
WFI and all prior discussions and negotiations and all prior
engagement letters are merged into it.
13. ARBITRATION. Any dispute or controversy arising out of this Agreement
shall be determined by arbitration in accordance with the rules of the
National Association of Securities Dealers, Inc. as then in effect and
at a location mutually acceptable to both parties. Any arbitration
award shall be final and binding upon the Company and WFI, and
judgment upon the award may be entered in any court having
jurisdiction.
14. ASSIGNABILITY. WFI cannot assign its rights under this Agreement
without the written consent of the Company.
<PAGE>
Page 11
15. SURVIVAL. Compensation, reimbursement, confidentiality and indemnity
obligations of the Company and WFI, as applicable, under this
Agreement shall survive any assignment of this Agreement and shall be
binding upon and entered into the benefit of any successors, assigns,
heirs and personal representatives of the Company and WFI.
16. COUNTERPARTS. This Agreement may be executed in counterparts, and all
counterparts will be considered as part of one agreement binding on
all parties to this Agreement.
17. FACSIMILE SIGNATURES. The parties may execute this Agreement by
facsimile, which signature[s] shall be deemed an original and binding
upon such party.
18. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Minnesota.
If this letter correctly states our agreement, please so indicate by
signing below and returning a signed copy to us. Upon receipt of a signed copy
of this letter, the terms of such letter shall constitute a binding agreement
between WFI and the Company.
[Signature page follows]
<PAGE>
Page 12
WATERFORD FINANCIAL, INC.
By /s/ John M. Whitesides
------------------------------
John M. Whitesides
President
Accepted this 28 day of January, 2000
HORIZON PHARMACIES, INC.
By: /s/ Rick McCord
------------------------
Rick McCord
President & CEO
<PAGE>
SCHEDULE A
ENTITIES
- --------
Allegiance Capital
AmeriSource
Amersco
Bank Boston
Bank of America
Bank One
Bergen Brunswig
Bindley Western
Cardinal Distribution
C.A.S.E.
Chase Bank
Citicorp
Deep Haven Capital
Drug Emporium
Finova
First Union & Congress Financial
Fleet Capital
Fred's
GE Capital
GTCR (Golder Toma)
Heller Financial
J. E. Mathews, LLC
LaSalle Bank
McKesson HBOC
Reichmann International
USA Drug
<PAGE>
EXHIBIT A
---------
FORM OF
BOARD OBSERVER AGREEMENT
<PAGE>
EXHIBIT 10.3
5Net5 Corp.
133 Mercer St., Suite 6
New York, New York 10012
Horizon Pharmacies, Inc.
531 W. Main St. Suite 100
Denison, TX 75020
Attention: Rick McCord
President and CEO
Re: Software Development Agreement
Dear Mr. McCord:
This will confirm the arrangements, terms and conditions pursuant to
which 5Net5 Corp. ("Consultant") has been retained as a Consultant to provide
services (as described below) to Horizon Pharmacies, Inc. (the "Company").
The undersigned hereby agrees to the following terms and conditions:
1. DUTIES OF CONSULTANT. During the term of this Agreement, Consultant
will provide consulting services to the Company as requested. These services
will be performed on a best efforts basis and will include, without
limitation, designing of plans for, and implementation oversight of,
technology and Internet strategies, all with the objective of accomplishing
the business and financial goals of the Company. The Company understands that
it is engaging Consultant principally to design plans for technology,
e-commerce, marketing, and information gathering systems. As such, Consultant
shall be responsible for the creation of detailed plans and e-commerce
platform with written specifications (within 100 days) for the construction
and creation of detailed plans in writing, the systems and processes
described below in subpoints A through C. Consultant will not be responsible
for the purchase of, or payment for, any equipment, hardware or software,
additional consulting or installation services, or any other expenditure
necessary for the completion and implementation of the systems, strategies,
and overall platform designed by Consultant. In each case, Consultant will
exercises its best efforts to accomplish the goals established by the Company
and shall comply with all applicable laws in connection with the performance
of this Agreement. All deliverables and other work product created by
Consultant under this Agreement will be considered "work made for hire" under
applicable law, Consultant hereby irrevocably assigns to the Company without
further consideration, all of Consultant's right, title and interest in and
to that those deliverables and work product, including all intellectual
property rights therein. Consultant agrees to execute any documents and take
any other actions reasonably requested by the Company to document and
evidence the Company's ownership thereof. Consultant will indemnify, defend
and hold harmless the Company from and against any and all claims that any
such deliverable or work product infringes the intellectual property rights
of any third party.
<PAGE>
A. WEBSITE DESIGN: Consultant shall design viable plans in writing that
are acceptable to the company for the infrastructure of a website for
the Company with four main functionalities: (1) e-commerce, (2) health
information and content provision, (3) customer/visitor information
gathering systems, and (4) advertising and Internet traffic direction.
i. E-COMMERCE FUNCTIONALITY: Consultant will design plans for
systems which enhance current e-commerce capabilities on the Company's
website and incorporate affinity marketing programs described below.
ii. HEALTH INFORMATION AND CONTENT: Plans for the website will be
designed to maximize customer interest through the provision of
targeted health information and content offerings tailored to the
Company's customer base.
iii. CUSTOMER/VISITOR INFORMATION GATHERING SYSTEMS: Plans will be
designed for systems to monitor all aspects of traffic and viewing
patterns. Comprehensive information on what visitors see, how long they
visit each page, how they interact with the site, and what they
purchase will become the basis for targeted, and individual, marketing
programs.
iv. ADVERTISING AND INTERNET TRAFFIC DIRECTION STRATEGIES: Plans
will operate on two levels: (1) on the Company's website and (2) on
other websites. On the Company's website, Consultant will design an
advertising program to allow other companies to purchase media. In
addition, programs will be designed to increase traffic to the
Company's website. On other websites, Consultant will design plans for
an advertising program to increase brand recognition and exposure for
the Company's e-commerce initiatives.
B. BRANCH-TO-HOME OFFICE INFORMATION DISTRIBUTION SYSTEM: Consultant
will design plans for a system, to work in conjunction with the
Affinity Marketing Programs described in subpoint C below, to
distribute customer purchase information for the branch locations to a
home office central database. This system will have three parts: (1)
hardware and system architecture, (2) software, (3) procedures.
i. HARDWARE AND SYSTEM ARCHITECTURE: The basic architecture will
encompass smartcards, card readers, servers in branches to collect
data, frame relay communications from branch offices to the home
office, and a central home office server to house information
databases. Consultant must evaluate current technology systems and give
report on current compatibility with the architecture being designed
ii. SOFTWARE: Systems will be designed to transmit and database
customers purchase information at the branch locations and in the home
office central database.
iii. PROCEDURES: Consultant will design plans for operating
procedures to accompany the hardware and software portions of the
communications system.
C. AFFINITY MARKETING PROGRAMS: Consultant's affinity marketing program
will have four main objectives: (1) communicating with customers, (2)
tracking customer demands and buying patterns, (3) driving customers to
demand and purchase higher-margin products and to visit, and purchase
items at, the Company's e-commerce website, (4) increasing
customer/Company bonds and loyalty. Consultant shall design technology
and marketing systems, to include smart card programs, customer
purchase information distribution systems between the branches and the
home office, and online marketing program.
i. COMMUNICATING WITH CUSTOMERS: Programs will focus on obtaining
demographic and contact information from customers. Systems will be
designed to reach customers via email, via direct mail, and via the
Company's e-commerce website.
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ii. TRACKING CUSTOMERS: Plans will be designed to identify
individual customers at the point-of-sale through smartcards and on the
Company's website to allow more effective marketing of products (i.e.,
by learning what type of customer buys what products, which customers
visit which locations, how often customers purchase, etc.) By
identifying purchases on an individual basis, the Company will have the
ability to clearly see the correlation between customer purchases and
can more accurately design marketing and inventory programs to maximize
purchases of higher-margin items and items available for purchase on
the Company's website.
iii. DRIVING CUSTOMERS: Plans will be developed to encourage
purchases of higher-margin merchandise and items available for purchase
on the Company's e-commerce website.
iv. INCREASING CUSTOMER LOYALTY: Thorough knowledge of the
customer base will allow the Company to more specifically design its
product offerings to the demands of its customers, and more
specifically tailor customer service, resulting in more satisfied and
loyal customers.
2. COMPENSATION:
A. As compensation for the services to be performed by Consultant
described in paragraph 1 above, Consultant shall be compensated with a
grant of 300,000 warrants by the Company at market price of the
business day previous to closing with performance vesting as follows:
i. 150,000 warrants, each to purchase one share of the common
stock of the Company at market price of the business day previous to
closing, vested upon signing of the 5x5net corporation agreement.
ii. Within two (2) business days after the 45th day the publicly
traded common stock of the Company closes at a market price greater
than, or equal to, a 45 calendar day trailing average of $4.00 per
share the Company shall vest to the Consultant 50,000 warrants, each
to purchase one share of the common stock of the Company as granted
above.
iii. Within two (2) business days after the 45th day the publicly
traded common stock of the Company closes at a market price greater
than, or equal to, a 45 calendar day trailing average of $5.00 per
share the Company shall vest to the Consultant 50,000 warrants, each
to purchase one share of the common stock of the Company as granted
above.
iv. Within two (2) business days after the 45th day the publicly
traded common stock of the Company closes at a market price greater
than, or equal to, a 45 calendar day trailing average of $6.00 per
share the Company shall vest to the Consultant 50,000 warrants, each
to purchase one share of the common stock of the Company as granted
above.
v. The following are the terms and conditions of all warrants on
the Company's common stock to be delivered to the Consultant by the
Company:
i. These warrants shall contain a cashless exercise
provision satisfactory to Consultant.
ii. The shares underlying all warrants shall be voting
common stock of the Company after vesting
iii. Upon written notice to the Company by the Consultant
(or its permitted designee), the Company shall deliver
within twenty (20) business days certificates
representing all of the shares underlying the warrants
then being exercised. Such certificates shall be duly
endorsed for transfer to the Consultant (or its
permitted designee(s)) or accompanied by properly
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executed stock powers. The Company shall at that time
deliver good and valid title to said shares, free and
clear of any and all liens, claims, charges, and
encumbrances of any nature whatsoever.
iv. The company shall grant piggyback registration rights in
accordance to the SEC rules and regulations.
Once effective, the Company covenants and agrees to use
its best efforts to maintain the effectiveness of the
Registration Statement until the earlier of (i) the date
that all of the Registrable Securities have been sold
pursuant to a Registration Statement or Rule 144 of the
General Rules and Regulations promulgated under the Act
("Rule 144"), or (ii) the date that the Holders of the
Registrable Securities receive an opinion of counsel to
the Company that all of the Registrable Securities may
be freely traded (without limitation or restriction as
to quantity or timing and without registration under the
Act) pursuant to Rule 144 or otherwise.
v. the Warrants shall be immediately forfeited upon any
transfer or assignment by the Consultant, or any
transferee or assignee of the Consultant, to any person
or entity not qualifying as an "accredited investor"
(non-employees) under Rule 501.
vi. A consulting fee of $10,000 per month for one (1) year,
payable no later than the 10th calendar day of each month; provided,
however, that the first month's fee shall be payable to Consultant on
February 1st, 2000. If the publicly traded common stock of the Company
closes at a market price greater than, or equal to, $5.00 for ten (10)
trading days, this consulting fee shall become $20,000 per month for
the remainder of the period of this agreement. In addition, the Company
shall pay the Consultant retroactively an additional $10,000 for each
month of this agreement prior to the month when payment of the $20,000
consulting fee is begun under the above provision.
vii. The Consultant shall be responsible for placing or brokering
all advertising on the Company's website with approval in writing by
the company, for a period of three (3) years from the date of this
agreement and shall receive 15% of gross revenue from such advertising
fees that and will be paid within 30 days upon receipt of said revenues
by the Company. Consultant shall receive an additional 15% on
e-commerce advertising fees that the consultant directly contracts.
B. The Company shall reimburse non-ordinary expenses, with advanced
company approval in writing, consultant immediately upon request for all
reasonable and necessary out-of-pocket expenses incurred by Consultant in
connection with the rendering by Consultant of the services provided in this
Agreement upon presentation of vouchers and proof of expenses incurred.
3. TERM. Unless otherwise extended by the Board of Directors of the
Company, this Agreement shall terminate upon one year from the date the
Company executes this Agreement; provided no substantial breach of contract.
4. CAPITAL EXPENDITURES. The consultant is not responsible for any
capital or other expenditures necessary for the completion of the plans for
technology, e-commerce, marketing, and information gathering systems to be
designed by the Consultant as described in paragraph 1 above. The Company
recognizes that such expenditures are likely to include, without limitation,
website programming, website hosting, information/data feeds, communications
lines and equipment, and
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installation service. Company is responsible for implementation,
installation, ongoing maintenance and support of all hardware, software, and
systems. Company is responsible for programming, construction, support,
hosting, connectivity, content fees, data fees, and all other expenses
relating to the construction and ongoing maintenance of its website solely at
the companies discretion.
5. AVAILABLE TIME. Consultant shall make available such time as
reasonable to both parties to perform its obligations under this Agreement.
6. RELATIONSHIP. Nothing herein shall constitute Consultant as an
employee or agent of the Company, except to such extent as might hereinafter
be agreed in writing upon for a particular purpose. Except as might
hereinafter be expressly agreed, Consultant shall not have the authority to
obligate or commit the Company in any manner whatsoever.
7. CONFIDENTIALITY. Without the prior written consent of the Company,
Consultant will not at any time, directly or indirectly, use, reproduce or
disclose any trade secrets, know-how or other information provided to
Consultant by or on behalf of the Company in connection with this Agreement
unless and until such information becomes publicly known through no fault of
Consultant. All information regarding the Company's customers, suppliers,
strategies, technology and plans will remain the sole property of the Company
and Consultant will maintain the confidentiality thereof in accordance with
this Section.
8. ASSIGNMENT. This Agreement shall not be assignable by any party for
any reason whatsoever without the prior written consent of the other party,
which consent may be arbitrarily withheld by the party whose consent is
required; provided, however, Consultant may assign its rights under this
Agreement to any funds payable to it, to common stock of the Company issuable
to it or to warrants of the Company issuable to it.
9. GOVERNING LAW. This Agreement shall be deemed to be a contract made
under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said State without reference to
principles of conflicts of law.
10. SEVERABILITY. In the event any provision of this Agreement shall be
deemed invalid by a court of competent jurisdiction, such invalidity shall be
limited solely to the specific term or provision invalidated by such court
and, nevertheless, the balance of this Agreement shall remain in full force
and effect according to its terms.
11. WAIVER. The waiver by any party hereto of a breach of any provision
of this Agreement shall not operate as a waiver of any such breach of any
provision of this Agreement by any party.
12. ENTIRE AGREEMENT, AMENDMENT. The terms and provisions of this
Agreement shall constitute the entire Agreement between the Company and
Consultant with respect to the subject matter hereof and shall supersede any
and all prior agreements or understandings between the parties whether
written or oral. This Agreement may be amended or modified only by a written
instrument executed by the parties.
13. DISPUTE PROCEDURE. Any dispute, claim or controversy arising out of or
relating to this Agreement, or the breach thereof, shall be settled by
arbitration in New York, New York
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administered by the American Arbitration Association under its Commercial
Arbitration Rules. The parties further agree that they will abide by and
perform any award rendered by the Arbitrator(s). Judgment upon any such award
rendered may be entered in any court having jurisdiction thereof.
14. TERMINATION. A one-year (12 month) contract from the software
agreement date. Either party can terminate after one year by providing 30 day
written notice. After six months (180 days) contract will become null and
void if funding for capital requirements of this project are not received
from a reputable broker/dealer with terms and conditions acceptable to the
company. The company may also terminate this agreement upon ten days prior
written notice to Consultant if Consultant materially breaches this Agreement
and fails to cure such breach within thirty days after the Company gives
Consultant written notice of such breach. Upon such termination for cause,
the Company will pay the cash consulting fee at the applicable rate set forth
above for services rendered through the termination date. The company may
also terminate this agreement if the following criteria are not met: 1)
consultant collects $25,000 gross revenue for the company 2) consultant
provides company research reports and distribution to institutional investors
and the e-commerce market and 3) the capital required for the plan accepted
by the company from 5net5 presented and accepted by Horizon must be raised
within 6 months.
15. ADDITIONAL ELEMENTS. The Consultant shall cause an equity research
report on the Company to be written during the term of this agreement, and
will cause that equity research report to be distributed to institutional and
Internet clients. The Consultant shall post this equity research report to
its own website during the term of this agreement. The Company will provide
the Consultant free advertising space on the Company's website during the
term of this agreement.
If the foregoing is acceptable, please date, execute and return the enclosed
copy of this letter.
Very truly yours,
5NET5 CORP.
AGREED AND ACCEPTED:
HORIZON PHARMACIES, INC
By: /s/ Kethe Cicconi
--------------------
Name: Kethe Cicconi
Title: President
By: /s/ Ricky D. McCord
------------------------
Name: Ricky D. McCord
Title: President & CEO
Date of Execution: 2/1/2000
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Exhibit 10.4
5Net5 Corp.
133 Mercer St., Suite 6
New York, New York 10012
Amendment to Paragraph 2, Section A, subsection vi.
COMPUTER SOFTWARE DEVELOPMENT AGREEMENT dated Feb. 1, 2000
Horizon Pharmacies, Inc.
531 W. Main St. Suite 100
Denison, TX 75020
Attention: Rick McCord
President and CEO
Re: COMPUTER SOFTWARE DEVELOPMENT AGREEMENT
Dear Mr. McCord:
This will amend Paragraph 2, Section A, subsection vi. of our agreement
dated Feb. 1, 2000. This will now replace the language of the existing clause
of that agreement:
A consulting fee of $10,000 per month for one (1) year, payable no
later than the 10th calendar day of each month; provided, however,
that the first month's fee shall be payable to Consultant on
Feb. 1st, 2000. If the publicly traded common stock of the Company
closes at a market price greater than, or equal to, $5.00 per share
for 10 trading days on a trailing average basis, this consulting fee
shall become $20,000 per month for the remainder of the period of
this agreement. In addition, the Company shall pay the Consultant
retroactively an additional $10,000 for each month of this agreement
prior to the month when payment of the $20,000 consulting fee is
begun under the above provision.
Very truly yours,
5NET5 CORP.
By: /s/ Kethe Cicconi
----------------------------
Name: Kethe Cicconi
Title: President
AGREED AND ACCEPTED
HORIZON PHARMACIES, INC.
By: /s/ Ricky D. McCord
---------------------
Name: Ricky D. McCord
Title: President
Date of Execution: 2/2/00
