<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
<TABLE>
<C> <S>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 0-22403
------------------------
HORIZON PHARMACIES, INC.
(Name of registrant in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2441557
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
531 W. MAIN 75020
DENISON, TEXAS (Zip Code)
(Address of principal executive
offices)
</TABLE>
(903) 465-2397
(Registrant's telephone number)
<TABLE>
<S> <C>
Securities Registered Pursuant to Section 12(b) Name of Each Exchange on Which Registered
of the Act
Common Stock, $.01 par value American Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers in response to
Item 405 of Regulation S-K is not contained in this form, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. / /
There were 5,892,463 shares of HORIZON Pharmacies, Inc. common stock, par
value $.01 per share, outstanding as of March 27, 2000. The aggregate market
value of such common stock held by non-affiliates (based on the closing
transaction price on the American Stock Exchange on March 27, 2000) was
approximately $24,597,000.
DOCUMENTS INCORPORATED BY REFERENCE
The HORIZON Pharmacies, Inc. definitive proxy statement to be filed with the
Commission on or before April 30, 2000 is incorporated by reference into Part
III of this Report.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS.
(a) GENERAL DEVELOPMENT OF BUSINESS.
HORIZON Pharmacies, Inc. ("HORIZON") owns and operates a chain of retail
pharmacies and related businesses located principally in the south central
United States. In fiscal 1999 we acquired 7 retail pharmacies and two related
businesses at a total cost of $12,636,000, and at December 31, 1999 we owned 52
pharmacies and related businesses.
In addition to our retail pharmacy business, we sell and lease home medical
equipment and offer home healthcare services through our wholly-owned
subsidiary, HORIZON Home Care, Inc. ("HORIZON Home Care"). Additionally, in 1999
we formed a new wholly-owned subsidiary, HorizonScripts.com, Inc., through which
we operate our mail order and Internet pharmacy operations and our internal
technology applications. We expended $4,717,000 in fiscal 1999 on the
acquisition of a combination retail, mail order and Internet pharmacy and the
development of HorizonScripts.com and other technology efforts. In March 2000,
we entered into a strategic alliance with Informed.com, Inc. to develop a
virtual internet pharmacy and to establish ourselves as the exclusive
fulfillment center for prescription medicines for Informed.com. In April 2000,
we entered into a Cooperative Marketing Agreement with eGrocery.com Inc. whereby
eGrocery.com Inc. will, among other things, link our web site to, and display
promotional advertisements on, certain web sites operated and maintained by
eGrocery.com. We will continue to evaluate other e-commerce strategic
relationships and joint ventures during fiscal 2000 to increase our Internet
business and presence.
The primary source of our revenue is the sale of prescription drugs.
Prescription drugs sales were 75.7% of net revenues for fiscal 1999, compared to
73.9% in 1998 and 75.6% in 1997. We expect prescription drugs sales to continue
to increase as we expand into new markets such as e-commerce, increase our
penetration in existing markets and benefit from both the demographic trend
toward an aging population and the continued development of new pharmaceutical
products. We expect prescription drugs sales to decrease as a percentage of our
total net revenues and gross margins, however, as we expand our home medical
equipment and other non-pharmaceutical sales and services which have
historically provided higher margins.
As of December 31, 1999, we had four freestanding home medical equipment
stores and three pharmacies offering intravenous infusion services and home
oxygen therapy. We also operate two "institutional" pharmacies which are located
inside other facilities.
We began operations in 1994 as a S-corporation. In 1997, we changed our
corporate structure to a C-corporation as a result of our initial public
offering.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
Our primary business is the operation of retail pharmacies.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
(i) PRINCIPAL PRODUCTS PRODUCED AND SERVICES RENDERED.
PRESCRIPTIONS. Our primary focus is the sale of prescription and
over-the-counter drugs through our retail outlets and through our mail order and
Internet pharmacy operations which we formed in June 1999. During 1999, we
filled 2,671,169 prescriptions, and sales of prescription drugs generated 75.7%
of our total net revenues. We believe the trend toward an older population and
the development of new prescription drugs and drug therapies will increase the
demand for prescription drugs. In addition, the FDA is approving an increasing
number of prescription products for sale over-the-counter which have
historically shown significantly increased sales.
1
<PAGE>
NONPHARMACEUTICAL MERCHANDISE. In addition to prescription drugs we sell a
wide variety of gifts, over-the-counter drugs, home medical equipment, health
and beauty care products, greeting cards, gifts and numerous other products. Our
stores also offer an assortment of convenience products including candy, food,
liquor, tobacco products, books and magazines, household products, seasonal
merchandise, school supplies and toys. Certain stores also offer floral
arrangements, veterinary supplies, camera and photo accessories, photo
processing, sporting goods, small electronics, batteries and audio and video
tapes.
HOME HEALTHCARE SERVICES. Our Farmington, New Mexico store offers certain
home healthcare services under the name HORIZON Home Care. Such services include
respiratory therapy and patient services, including nursing, para-professional
services and infusion therapy. We are evaluating the possibility of converting
additional stores into home healthcare centers at such time as proposed changes
to the regulations governing this industry are finalized, which is not expected
to occur in the immediate future.
WHOLESALE INJECTIBLES. Our Highland Ranch, Colorado operation purchases
injectable pharmaceuticals directly from manufacturers and resells them to
physicians located in Colorado.
The contributions of various product classes to total revenues for each of
the last three fiscal years are as follows:
<TABLE>
<CAPTION>
PERCENTAGE
------------------------------
PRODUCT CLASS 1997 1998 1999
- ------------- -------- -------- --------
<S> <C> <C> <C>
Prescription Drugs.................................. 75.60 73.92 75.66
Health and Beauty Aids.............................. 10.21 10.23 8.71
Cards, Gifts & Jewelry.............................. 3.00 3.92 4.07
Home Medical Equipment.............................. 2.98 3.84 4.13
Home Health Care Services........................... 4.61 2.42 0.98
Liquor & Tobacco.................................... 0.37 0.85 1.43
Restaurant, Candy & Beverages....................... 1.43 1.56 1.31
Photo............................................... 0.56 0.61 0.46
School Supplies & Toys.............................. 0.44 1.00 0.38
Seasonal & Promotional.............................. 0.80 1.56 2.87
------ ------ ------
Total Revenues...................................... 100.00 100.00 100.00
</TABLE>
EXPANSION. We intend to continue to expand by acquiring small retail
pharmacy chains, independent retail pharmacies and other related businesses
primarily located in communities having populations of fewer than 50,000
persons, and in high-income metropolitan markets where competition is focused on
service. Additionally, we intend to expand our mail order and Internet pharmacy
operations through strategic relationships, co-marketing arrangements and joint
ventures. Our goal for the next two years is to acquire between 5 and 10 new
retail pharmacy operations and between 3 and 5 home medical equipment operations
in each of 2000 and 2001. With respect to our mail order and Internet pharmacy
operations, our goal is to continue to search for strategic alliances that will
enable us to increase both our customer and prescription base.
(ii) STATUS OF PRODUCT OR SEGMENT.
Not applicable.
(iii) SOURCES AND AVAILABILITY OF RAW MATERIALS.
We centralized the procurement of most of our inventory by purchasing from
McKesson HBOC, Inc. ("McKesson") and a limited number of other vendors, enabling
us to benefit from promotional programs and volume discounts offered by such
companies. During 1999, McKesson supplied 82.8% of our inventory purchases.
2
<PAGE>
(iv) PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESS HELD.
We market products under various trademarks and trade names and hold
assorted business licenses (pharmacy, occupational, liquor, etc.) having various
lives, which are necessary for the normal operation of business. We also own
franchises for the sale of hardware and electronics in two of our stores.
We do not consider any patent, trademark, license, franchise or concession
to be of material importance to our business other than the trade names HORIZON
Pharmacies, HorizonRx.com, HorizonScripts.com and HORIZON Home Care and any
other trade names under which we operate. In 1999, we filed applications for
Federal trademark protection of HorizonScripts and Horizon Scripts.com, which
applications are currently pending. Additionally, we filed and received
trademark protection for the name HORIZON and such trade names in the State of
Texas, and we plan to file for protection in all states in which we operate.
(v) SEASONAL VARIATIONS IN BUSINESS.
Our revenues and profits should be higher during peak holiday periods and
from Christmas through Easter. Sales of health-related products peak during
seasonal outbreaks of cough and cold/flu viruses, which typically occur during
the winter and spring. Accordingly, revenues and profits should be higher in the
first and fourth quarter of each year.
(vi) WORKING CAPITAL PRACTICES.
During 1999, we financed acquisitions totaling $12,636,000 primarily by
using the credit facility provided by McKesson, seller financing and the
issuance of common stock.
Some retail pharmacy product sales are made for cash. However, a growing
percentage of our prescription drug volume consists of sales to customers
covered by third-party payment programs. Third-party reimbursements accounted
for approximately 79.7% of our prescription drug sales in 1999, 76.9% in 1998,
and 73.0% in 1997, and we expect this trend to continue. Although contracts with
third-party payors may increase the volume of prescription drug sales and gross
profits, third-party payors typically negotiate lower prescription prices than
those of non-third-party payors. Accordingly, gross profit margins on sales of
prescription drugs have been decreasing, a trend which we expect to continue.
(vii) DEPENDENCE UPON LIMITED NUMBER OF CUSTOMERS.
We sell to numerous customers including various managed care organizations.
Accordingly, we believe that the loss of any one customer or group of customers
under common control would not have a material effect on our business. No
customer accounts for 10% or more of our consolidated revenue.
(viii) BACKLOG ORDERS.
Not applicable.
(ix) GOVERNMENT CONTRACTS.
We are not a party to any material government contracts.
(x) COMPETITIVE CONDITIONS.
The retail pharmacy business is highly competitive. We compete with other
pharmacies primarily on the basis of customer service, convenience of location
and store design, price, product mix and selection. We also compete with mass
merchants (including discounters and deep discounters), supermarkets,
combination food and retail pharmacies, mail order and Internet distributors,
hospitals and HMOs. These other formats have experienced significant growth in
their market share of the prescription and over-the-counter drug business. Our
home healthcare services compete with certain chain operations and independent
single unit stores. Many of our competitors have greater financial resources
than us.
3
<PAGE>
(xi) RESEARCH AND DEVELOPMENT ACTIVITIES.
We do not engage in any material research activities.
(xii) ENVIRONMENTAL DISCLOSURES.
Federal, state and local environmental protection requirements have no
material effect upon our capital expenditures, earnings or competitive position.
(xiii) NUMBER OF EMPLOYEES.
At December 31, 1999, we employed 956 persons, about 362 of whom are
part-time employees working less than 30 hours a week.
(xiv) STORE LOCATIONS.
The following table summarizes the number, location and year of acquisition
for each of our pharmacies, home medical equipment operations and our wholesale
company through March 30, 2000.
<TABLE>
<CAPTION>
STORE NO. LOCATION ACQUIRED
- --------- ------------------------------------------------------------ --------
<S> <C> <C>
1 Winnsboro, TX(1)............................................ 1994
2 Princeton, TX(1)............................................ 1994
3 Cuero, TX(1)................................................ 1994
4 Bonham, TX(1)............................................... 1995
5 Uvalde, TX(1)............................................... 1995
6 Cleburne, TX(3)(8).......................................... 1995
7 McLoud, OK(1)............................................... 1995
8 Farmington, NM(1)(2)(3)..................................... 1996
9 Tomah, WI(1)................................................ 1996
10 Marion, VA(1)............................................... 1996
11 Covington, VA(1)............................................ 1996
12 Mineola, TX(1).............................................. 1997
13 Mt. Vernon, TX(1)........................................... 1997
14 McKinney, TX(1)(2).......................................... 1997
15 Moriarity, NM(1)............................................ 1997
16 Butte, MT(1)................................................ 1997
17 Mesquite, TX(1)............................................. 1997
18 Gering, NE(1)............................................... 1997
19 Trinidad, CO(1)............................................. 1997
20 Canon City, CO(1)........................................... 1997
21 Raton, NM(1)................................................ 1997
22 Lockhart, TX(1)............................................. 1997
Cleburne, TX(2)............................................. 1997
23 Dallas, TX(1)............................................... 1997
24 Brookfield, MO(1)........................................... 1997
25 Floresville, TX(1).......................................... 1998
26 Highland Ranch, CO(1)(3)(4)................................. 1998
20b Canon City, CO(1)(2)(5)..................................... 1998
27 Steelville, MO(1)........................................... 1998
28 Ennis, TX(1)................................................ 1998
29 Belen, NM(1)................................................ 1998
30 St. John, AZ(1)............................................. 1998
31 Peralta, NM (1)(2).......................................... 1998
32 Las Vegas, NM(1)(2)......................................... 1998
32-b Espanola, NM(2)............................................. 1998
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
STORE NO. LOCATION ACQUIRED
- --------- ------------------------------------------------------------ --------
<S> <C> <C>
33 Rosemount, MN(1)............................................ 1998
34 Kansas City, MO(1).......................................... 1998
35 Houston, TX(1).............................................. 1998
36 Houston, TX(1).............................................. 1998
37 Houston, TX (1)............................................. 1998
38 Blair, NE (1)(2)............................................ 1998
39 Douglas, WY(1).............................................. 1998
40 Borger, TX(1)(2)............................................ 1998
41 Naperville, IL(1)........................................... 1998
42 Santa Fe, NM(1)(2).......................................... 1998
43 Denison, TX(1).............................................. 1998
44 Yorkville, IL(1)............................................ 1998
45 Sandwich, IL(1)............................................. 1998
46 Pinetop, AZ(1).............................................. 1999
47 Warsaw, IN(1)(2)............................................ 1999
48 Dodge City, KS(1)........................................... 1999
49 Columbia Heights, MN(1)..................................... 1999
50 Canton, OH(1)(6)............................................ 1999
51 Spokane, WA(1)(2)........................................... 1999
52 Deer Park, WA(1)(2)......................................... 1999
943 Denison, TX(2).............................................. 1999
Denison, TX(6).............................................. 1999
Columbia Heights, MN(7)..................................... 1999
Naperville, IL(7)........................................... 1999
Minneola, TX(7)............................................. 1999
Houston, TX(7).............................................. 1999
Gering, NB(7)............................................... 2000
</TABLE>
- ------------------------
(1) Free-standing pharmacy.
(2) Home medical equipment offered.
(3) Closed-door institutional pharmacy.
(4) Wholesale company.
(5) We also purchased the pharmacy files, inventory and equipment of two other
pharmacies located in Canon City, Colorado which we consolidated into this
pharmacy.
(6) Mail order and Internet pharmacy operation.
(7) We also purchased the pharmacy files, inventory and equipment of other
pharmacies located in these cities and consolidated them into our existing
pharmacy operations.
(8) Store sold in March of 2000.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
Not applicable.
FORWARD-LOOKING STATEMENTS. Certain information in this annual report, as
well as in other public filings, press releases and oral statements made by our
representatives, is forward-looking information based on current expectations
and plans that involve risks and uncertainties. Forward-looking information
includes statements concerning pharmacy sales trends, mail order and Internet
operations, prescription margins, number of new store openings and the level of
capital expenditures, as well as those that include or are preceded by the words
"expects," "estimates," "believes" or similar language.
5
<PAGE>
For such statements, we claim the protection of the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995.
The following factors, in addition to those discussed elsewhere in this
annual report for the fiscal year 1999, could cause results to differ materially
from management expectations as projected in such forward-looking statements:
changes in economic conditions generally or in the markets served by HORIZON;
consumer preferences and spending patterns; competition from other retail
pharmacy chains, supermarkets, other retailers and mail order or Internet
companies; changes in state or federal legislation or regulations; the efforts
of third-party payors to reduce prescription drug costs; the success of planned
advertising and merchandising strategies; the availability and cost of real
estate and construction; accounting policies and practices; our ability to hire
and retain pharmacists and other store and management personnel; our
relationships with our suppliers; our ability to successfully implement new
computer systems, Internet applications and other technology; and adverse
determinations with respect to litigation or other claims. We assume no
obligation to update our forward-looking statements to reflect subsequent events
or circumstances.
ITEM 2. PROPERTIES.
Our principal offices are currently located at 531 W. Main, Denison, Texas,
75020, where we own a 15,000 square foot building. We also own a 5,500 square
foot building in Princeton, Texas, the pharmacies located in Mt. Vernon and
Mineola, Texas, and the furniture and fixtures in each of our stores.
Substantially all of our retail stores operate under noncancellable leases, many
of which expire within the next five years. In the normal course of business,
however, we expect these leases will be renewed or replaced by leases on other
properties. No single lease is material to our operations.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, we may be involved in litigation relating to claims
arising out of our normal business operations. No material legal proceedings
were pending against HORIZON, any of its subsidiaries or any of their properties
as of December 31, 1999, except for the following matters.
The Company and certain present and former officers or directors are named
as defendants in an action styled FRANK GABLE, ET AL. v. HORIZON PHARMACIES,
INC., ET AL., No. 3-99CV-1244-L, United States District Court for the Northern
District of Texas, Dallas Division that was filed on May 28, 1999. Plaintiffs
seek to certify a class of persons who purchased shares of the Company's common
stock during the period between August 14, 1998 and March 3, 1999, inclusive,
alleging that defendants failed to timely disclose complications with the
Company's prescription pricing communications technology. Plaintiffs seek
unspecified compensatory and/or rescisssionary damages. Defendants are
vigorously defending against the action. Defendants' motion to dismiss the
complaint is pending and no determination has been made whether the matter may
proceed as a class action.
The Company, a current employee and two former employees of the Company are
named as defendants in an action styled MARY BLACKWOOD, ET AL. v. HORIZON
PHARMACIES, INC., No. 98-1053-1, 11th Judicial District for San Juan County, New
Mexico that was filed on April 13, 1999. The plaintiff alleges injuries as a
result of a reaction to a prescription. The case is currently in the initial
phase of discovery. Both parties have agreed to submit to mediation on May 8,
2000. The Company's insurer intends to vigorously defend against this action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of our stockholders during the fourth
quarter of 1999.
6
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION. HORIZON's common stock trades on the American Stock
Exchange under the symbol "HZP." The following table shows the high and low
closing sales prices per share for the common stock from January 1, 1998 through
December 31, 1999.
<TABLE>
<CAPTION>
HIGH LOW
----------- ----------
<S> <C> <C>
Fiscal 1998
First Quarter............................................. 11 1/2 8
Second Quarter............................................ 15 7/8 9 5/8
Third Quarter............................................. 16 1/4 7 3/8
Fourth Quarter............................................ 12 5 5/8
Fiscal 1999
First Quarter............................................. 11 7/8 5
Second Quarter............................................ 7 9/16 4 3/4
Third Quarter............................................. 5 5/8 3
Fourth Quarter............................................ 3 7/8 2 5/16
</TABLE>
STOCKHOLDERS. As of March 24, 2000, there were 107 holders of record of the
common stock according to the records maintained by our transfer agent. As of
March 24, 2000, we had approximately 2,457 stockholders, including beneficial
owners holding shares in street or nominee names.
DIVIDENDS. We did not pay any dividends on the common stock during our two
most recent fiscal years and we do not intend to pay any dividends in the
foreseeable future. Furthermore, we cannot declare or pay any dividends without
McKesson's prior written consent until we fulfill all of our obligations and
payments under our agreement with McKesson.
RECENT SALES OF UNREGISTERED SECURITIES. Since the filing of our last
Quarterly Report on Form 10-Q on November 18, 1999, we issued 9,579 unregistered
shares of common stock in connection with the exercise of stock options by a
former employee. All such shares were issued to the holder of the options and
were deemed exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933.
7
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Total net revenues........................... $6,270 $13,136 $28,429 $74,737 $131,756
Gross profit................................. 1,898 4,194 9,297 20,226 34,838
Provision for impairment..................... -- -- -- -- 3,198
Income (loss) from operations................ 279 551 1,025 (1,933) (5,848)
Interest expense............................. 110 253 299 803 1,898
Income (loss) before income taxes............ 176 302 807 (2,539) (7,548)
Provision (credit) for income taxes(1)....... 61 106 480 (360) --
Net income (loss)............................ 115 196 327 (2,179) (7,548)
Basic earnings (loss) per share.............. .08 .13 .12 (.43) (1.30)
Diluted earnings (loss) per share............ .08 .13 .11 (.43) (1.30)
Cash distributions per share(2).............. .11 .19 .17 -- --
Balance Sheet Data:
Working capital.............................. $1,029 $ 1,563 $11,287 $20,438 $ 14,571
Total assets................................. 3,545 6,589 20,654 46,647 59,831
Long-term obligations........................ 930 1,467 3,531 13,512 20,935
Total liabilities............................ 2,266 4,839 8,815 26,219 44,581
Stockholders' equity......................... 1,279 1,750 11,839 20,428 15,250
Number of stores at end of year................ 7 11 24 45 52
Operating Store Months......................... 58 101 193 415 596
</TABLE>
- ------------------------
(1) See Note 1 in the accompanying consolidated financial statements regarding
pro forma provisions for income taxes for 1997. Pro forma income taxes in
1995 and 1996 were $61 and $106, respectively.
(2) Cash distributions were paid to stockholders during periods of S corporation
status. No distributions or dividends have been made since the initial
public offering in July 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW. HORIZON's principal business strategy since commencing operations
in 1994 has been to establish a chain of retail pharmacies through the
acquisition of full-line retail pharmacies. In evaluating a retail pharmacy for
potential acquisition, we: (i) evaluate the target store's profits and losses
for preceding years; (ii) review the store's tax returns for preceding years;
(iii) review computer-generated prescription reports showing historical
information including prescriptions sold, average price of each prescription,
gross margins and trends in prescription sales; (iv) analyze the store's
location and competition in the immediate area; (v) review the store's lease
agreement, if any; and (vi) assess targeted areas for growth patterns and
trends. Based on our analysis of the foregoing items, we prepare an offer to
purchase the particular store. To assess the reasonableness of the purchase
price offered by a seller in connection with a potential acquisition, we
consider the availability and terms of owner financing of approximately
one-third of the purchase price, including such terms as rate of return and
payback period, with the balance split between cash and other consideration such
as our common stock.
In 1999, we made a strategic decision to enter the mail order and e-commerce
business. In June 1999, we purchased a combination retail, mail order and
Internet pharmacy operation for $2,702,000,
8
<PAGE>
and in the fourth quarter we started a new Internet pharmacy operation,
HorizonScripts.com, which will provide customers online access to thousands of
prescription and non-prescription items at competitive prices. We believe this
Internet pharmacy will enhance our traditional "brick and mortar" operations,
and that the "brick and click" strategy will offer our customers and potential
customers convenient sources for the health care needs. By expanding our
presence through e-commerce, we believe we will expand our name recognition and
revenue base, while also cementing our relationship with our existing customers.
In 1997, 1998 and 1999 we acquired 13, 21 and 7 retail pharmacies and 1, 0
and 2 related businesses, respectively. These acquisitions are the principal
influence on our results of operations and financial condition. The primary
measurement of the effect of acquisitions on our operating performance is the
number of store operating months, which is the number of months we owned all of
the stores counted during the relevant measuring period. We expect that
continuing acquisitions and expansion of our e-commerce activities will be the
most significant factors in our growth strategy.
Currently, our primary source of revenue is the sale of prescription drugs.
During 1997, sales of prescription drugs generated 75.6% of our net revenues;
during 1998, prescription drug sales generated 73.9% of revenues; and during
1999, such sales generated 75.7% of total net revenues. We expect our
prescription drug business to continue to increase on an annual basis as a
result of the demographic trends toward an aging population and the continued
development of new pharmaceutical products. However, we anticipate that such
sales will decrease as a percentage of our total net revenues and gross margins
as we expand our home healthcare and other non-pharmaceutical sales and services
which have historically generated higher margins.
Our revenues and profits should be higher during peak holiday periods and
from Christmas through Easter. Sales of health-related products peak during
seasonal outbreaks of cough and cold/flu viruses, which typically occur during
the winter and spring. Accordingly, revenues and profits should be highest in
the first and fourth quarters of each year.
We anticipate entering into strategic alliances with various e-commerce
companies, as well as pursuing e-commerce strategies through existing retail
centers, such as grocery stores. We recently entered into a relationship with
Informed.com, Inc., an e-commerce start-up that provides telemedicine services
(e.g., counseling and virtual nursing). We will in essence serve as a wholesale
supplier to Informed.com for their online prescription drug and OTC drug orders,
and in this capacity and in exchange for 2,000,000 shares of Informed.com common
stock and a one-time fee of $1.5 million, and have guaranteed prescription
volume levels to allow certain of Informed.com's revenue and gross margin
targets will be met. Informed.com will also provide us their e-commerce
expertise, as we design and develop kiosks to conduct e-commerce in retail
centers. Additionally, we also entered into a Cooperative Marketing Agreement
with eGrocery.com, Inc. pursuant to which eGrocery.com, Inc. will, among other
things, link our web site to, and display promotional advertisements on, certain
web sites operated and maintained by eGrocery.com, Inc. eGrocery.com, Inc. will
also endeavor to generate cooperative advertising dollars for us from general
merchandise, trade funds and display allowances at the retail stores we own and
manage. We will attempt to enter into additional alliances in fiscal 2000 in
order to provide us increased visibility in cyberspace and access to high
traffic retail centers for electronic kiosks to implement our strategies.
9
<PAGE>
RESULTS OF OPERATIONS. The following table sets forth the percentage
relationship of certain income statement data for each of the last three fiscal
years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Income Statement Data
Prescription drugs sales.................................. 75.6% 73.9% 75.7%
Other sales and services.................................. 24.4% 26.1% 24.3%
----- ----- -----
Total net revenues...................................... 100.0% 100.0% 100.0%
----- ----- -----
Costs and Expenses:
Cost of sales--prescription drugs(1)...................... 71.2% 77.6% 76.6%
Cost of sales--other(2)................................... 55.3% 59.8% 64.2%
Depreciation and amortization(3).......................... 1.2% 1.2% 1.3%
Provision for impairment(3)............................... --% --% 2.4%
Selling, general and administrative expenses(3)........... 27.9% 28.5% 27.2%
Interest expense(3)....................................... 1.1% 1.1% 1.4%
Net income (loss)(3)(4)(5)................................ 1.1% (2.9%) (5.7%)
</TABLE>
- ------------------------
(1) As a percentage of prescription drugs sales.
(2) As a percentage of other sales and services.
(3) As a percentage of total net revenues.
(4) After pro forma provisions for income taxes in the first six months of 1997.
(5) After a one-time provision for deferred income taxes in 1997 resulting from
a change in tax status.
NET REVENUES. Our total net revenues increased $57,019,000 or 76.3%, to
$131,756,000 in 1999 compared to $74,737,000 in 1998 and $28,429,000 in 1997.
The increases were attributable primarily to the increase in store operating
months from 193 in 1997 to 415 in 1998 to 596 in 1999.
Prescription drug sales increased by $44,440,000, or 80.4%, to $99,688,000
in fiscal 1999 compared to $55,248,000 for fiscal 1998 and $21,493,000 for 1997.
Third-party reimbursed sales accounted for approximately 79.7% of our total
prescription drugs sales in 1999, as compared to 76.9% in 1998 and 73.0% in
1997. Higher reimbursement sales have typically resulted in a decrease in gross
margins due to the lower prices negotiated by third-party payors. In 1998, the
gross margin on prescription drug sales was down significantly due to
unanticipated problems with our communications technology which prevented us
from receiving daily updates of average wholesale pharmaceutical prices. In
1999, the gross margin on prescription drug sales was slightly improved over
1998. However, 1999 gross margins on prescription drug sales remained low due to
price conversion difficulties encountered in the fourth quarter during our
conversion to a new pharmacy computer system and to install a system with a home
office function enabling centralized control on a daily basis for prescription
pricing and margins.
The following tables show our prescription drug gross margins and total
revenues margins for 1997, 1998 and 1999:
<TABLE>
<CAPTION>
GROSS MARGINS ON GROSS MARGINS ON TOTAL
PRESCRIPTION DRUG SALES REVENUES
------------------------- ------------------------
YEAR AMOUNT PERCENTAGE AMOUNT PERCENTAGE
- ---- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
1999........................................... $23,347,000 23.4 $34,838,000 26.4
1998........................................... $12,398,000 22.4 $20,226,000 27.1
1997........................................... $ 6,200,000 28.8 $ 9,298,000 32.7
</TABLE>
10
<PAGE>
Sales of prescription drugs decreased from 75.6% of total revenues for 1997
to 73.9% of total revenues for 1998 and increased to 75.7% of total revenues for
1999. While there was an increase in prescription drug sales in 1999 as compared
to 1998 due to the acquisition of the mail order and Internet pharmacy in 1999,
we expect that prescription drug sales will decrease as a percentage of total
revenues as we expand our home healthcare and other non-pharmaceutical sales and
services, whose gross margins exceed those of pharmaceutical sales.
Same store sales for our first 24 stores increased from $27,222,000 in 1997
to $31,000,000 in 1998, an increase of 13.9%. Same store sales for our first 45
stores increased from $74,186,000 in 1998 to $79,631,000 in 1999, an increase of
7.3%. Management believes that these increases are primarily the result of
increased advertising and promotions as well as an enhanced product mix. We
currently have non-compete agreements with the previous owners of all of the
stores we have acquired except for the Marion and Covington, Virginia stores,
which were acquired from the Federal Trade Commission, and three stores located
in Mineola, Mt. Vernon and McKinney, Texas, which we acquired from True Quality
Pharmacies, Inc.
COSTS AND EXPENSES. Cost of sales increased $42,407,000, or 77.8 %, to
$96,918,000 in 1999 as compared to $54,511,000 in 1998 and $19,132,000 in 1997.
This increase is primarily the result of increased sales volume due to the
increased number of store operating months for each respective period. Total
cost of sales as a percentage of total revenues increased 5.6% from 67.3% in
1997 to 72.9% in 1998 and increased by 0.7% from 72.9% in 1998 to 73.6% in 1999.
In 1998, the increase in cost of sales was caused by unexpected communications
technology problems in receiving updated pricing information from our primary
supplier during the last quarter of 1998. As a result of the problems, our
prescription prices to third-party and cash customers were not increased when
our cost of those prescription products increased. The problem was identified in
February of 1999 and corrected in March of 1999 by switching to another provider
for updated pricing information. As a result, our gross margin on prescription
drug sales declined from 28.8% in 1997 to 22.4% in 1998, with a significant
portion of the decline attributable to the failure to receive updated pricing
and the balance due to an increase in prescriptions reimbursed through
third-party providers. In 1999, we recovered a portion of the decline in gross
margin that occurred in 1998; however, a further recovery was deterred during
the conversion of pharmacy computer systems in the fourth quarter of 1999 to
install a system with a home office function enabling centralized control on a
daily basis of prescription pricing and margins.
There was an increase of $13,349,000 in selling, general and administrative
expenses from $7,943,000 in 1997 and $21,292,000 in 1998 and an increase of
$14,507,000 from 1998 to $35,799,000 in 1999. A portion of the increase is due
to increased store count and resulting increased store operating months. A large
portion of the increase (approximately $2,015,000) is due to the cost associated
with the conversion of pharmacy systems, the installation of a home office
pharmacy system to monitor prescription drug costs, prices and margins, the
installation of a "frame relay" telecommunications system which ties together
our stores, home office and Internet activities, additional personnel added to
install, monitor and manage the new systems and the start-up costs of
HorizonScripts.com. In total, these selling, general and administrative
expenses, expressed as a percentage of net revenues, were 27.9% , 28.5% and
27.2% for 1997, 1998 and 1999, respectively.
Depreciation and amortization was $1,689,000 in 1999 compared to $867,000 in
1998 and $329,000 in 1997. The increase primarily resulted from our acquisition
of stores in 1999 and 1998.
Intangible assets, including but not limited to goodwill, pharmacy files and
non-compete covenants, have historically represented a substantial portion of
our acquisition costs. Such assets are amortized over a period of not more than
40 years. Accordingly, the amortization of intangible assets is not expected to
have a significant effect on our future results of operations.
11
<PAGE>
Interest expense was $1,898,000 in 1999 compared to $803,000 in 1998 and
$299,000 in 1997. The increase in interest expense resulted primarily from the
increase in our indebtedness associated with the acquisition of stores in 1999
and 1998 and for working capital as a result of the operating losses sustained
in 1999 and 1998.
During the fourth quarter of 1999 we determined that several
under-performing stores should be sold or closed and recorded a special charge
of $2,985,000 for impairment losses. Additionally, we recorded an impairment
provision of $213,000 on another store we plan to continue to operate.
EARNINGS. Income (loss) before provision for income taxes was $807,000
(1.1% of net revenues) in 1997, ($2,539,000) (2.9% of net revenues) in 1998 and
($7,548,000) (5.7% of net revenues) in 1999, which is a decrease of $3,346,000
and $5,009,000, respectively, in 1998 and 1999.
Because HORIZON operated as an S Corporation prior to its initial public
offering, it had not incurred any income taxes prior to such time. As a result
of the termination of its S Corporation election in connection with the initial
public offering, we became a taxpaying entity subject to the payment of taxes on
all non-exempt income at applicable federal and state income tax rates. In 1997,
we incurred a noncash, one-time charge for deferred income taxes of $170,000 as
a result of the change in tax status.
In 1999, we incurred a net loss of $7,548,000, as compared to a net loss of
$2,179,000, in 1998 and net income of $327,000 (after the one-time noncash
charge for deferred taxes of $170,000) in 1997. The loss in 1999 resulted from
the provision for impairment, a decline in gross margin as a result of price
conversion difficulties encountered during the pharmacy computer system
conversions and the expenses associated with the pharmacy system conversion, the
installation of the pharmacy home office computer system, the frame relay
network and the start-up expenses associated with our new web site,
HorizonScripts.com. The loss in 1998 resulted primarily from revenues which were
lost when our computer system failed to receive and/or process daily
prescription drugs price updates transmitted electronically from our wholesale
supplier.
LIQUIDITY AND CAPITAL RESOURCES. Net cash used in operating activities was
$3,315,000 in 1999 as compared to $2,072,000 in 1998 and $126,000 in 1997. The
net losses in 1999 and 1998, coupled with increased accounts receivable in each
of such years, were primarily responsible for the increase in net cash used by
operations.
The $6,725,000 net proceeds of a private placement that closed June 16, 1998
was used to support an aggressive store acquisition program and for working
capital. We believe that based on prior acquisitions, the average acquisition
cost per store will be approximately $500,000 to $700,000 plus inventory based
on such variables as store sales and profits. Management believes it will be
able to obtain seller financing for approximately 30-40% of the cost of each
such acquisition.
McKesson currently provides us with a $11,000,000 credit facility, due in
July 2003 and provides a guaranty for a $7,000,000 revolving credit facility
from Bank One, Texas, NA ("Bank One") due in July 2000. Both the McKesson credit
facility and the Bank One revolving credit facility are subject to certain
restrictive covenants (including financial ratio requirements) which we must
meet to maintain the credit facility and revolving line of credit. At December
31, 1999 we were in default of several of these covenants, but McKesson and Bank
One waived such defaults pursuant to agreements executed March 30, 2000 and
April 14, 2000, respectively. At March 27, 2000, we had borrowed $10,678,000
under the credit facility and $7,000,000 under the revolving credit facility.
During February 2000, we acquired the prescription files and inventory of
one store in Gering, Nebraska and consolidated it with our existing store.
However, as a result of the loss incurred in 1999, we have readjusted our
formula we use for acquisitions. Until we are able to raise additional capital
or secure additional credit lines for acquisitions, we will seek acquisition
opportunities that require less cash and rely more on seller financing and the
public or private offering of certain equity or long-term debt securities.
12
<PAGE>
Because of the federal moratorium on home healthcare licenses from September
1997 until January 1998, and the uncertainty of the current regulations, we do
not plan to expand our home healthcare operations in 2000. We do expect,
however, to offer home medical equipment through stores which have not
heretofore offered such equipment.
The Company's plan for 2000 provides for the Company to improve its
financial condition and operating results through the sale or closure of several
underperforming pharmacies (including one pharmacy sold in March 2000),
increased selling prices, the reduction of receivables and inventories levels,
reduction in store operating hours and labor costs and various debt and equity
alternatives. In April 2000, the Company issued $2,500,000 in convertible
debentures which provided $2,175,000 in net proceeds.
As discussed above, the Company's $7,000,000 revolving credit facility from
Bank One matures July 31, 2000. We believe that in the event that Bank One does
not renew or otherwise extend the credit facility, we will be able to secure
replacement financing through a financial institution or supplier at similar
terms or otherwise retire the debt with sales proceeds from stores identified as
held for disposal in the fourth quarter of 1999. In the event such proceeds are
not sufficient or that alternative financing is not arranged, we will sell the
assets of certain performing stores (which have previously received unsolicited
purchase inquiries) to provide the additional funds to retire the debt. While
the sale of such additional stores would reduce future revenues, we do not
believe such reduction would have a material adverse effect on the financial
position or results of operations of the Company.
IMPACT OF INFLATION AND CHANGING PRICES. Inflation continues to cause
increases in revenues, as well as product, occupancy and operating expenses, as
well as the cost of acquiring capital assets. The effect of higher operating
costs is minimized by achieving operating efficiencies and product price
increases.
FACTORS AFFECTING OPERATIONS.
DEPENDENCE ON ACQUISITIONS FOR GROWTH. Our growth strategy is two-fold.
First, when we can we will continue to acquire, consolidate and operate existing
free-standing pharmacies and related businesses on a profitable basis. We
continually review acquisition proposals and are currently engaged in
discussions with third parties with respect to possible acquisitions. We compete
for acquisition candidates with buyers who have greater financial and other
resources and may be able to pay higher acquisition prices than we are able to
pay. To the extent we are unable to acquire suitable retail pharmacies, or to
successfully integrate such stores into our operations, our ability to expand
our business may be reduced significantly. In addition to seeking acquisition
opportunities, we are also expanding our operations into, and attempting to
redirect revenues through e-commerce through strategic alliances with e-commerce
partners. We believe this will allow us to increase both our customer and
prescription bases and our revenues.
SALES TO THIRD-PARTY PAYORS. We sell a growing percentage of our
prescription drugs to customers who are covered by third-party payment programs.
Although contracts with third-party payors may increase the volume of
prescription drugs sales and gross profits, third-party payors typically
negotiate lower prescription prices than non third-party payors. Accordingly,
gross profit margins on sales of prescription drugs have been decreasing and are
expected to continue to decrease in future periods.
RELIANCE ON MEDICARE AND MEDICAID REIMBURSEMENTS. Substantially all of our
home healthcare revenues are attributable to third-party payors, including
Medicare, Medicaid, private insurers, managed care plans and HMOs. The amounts
we receive from government programs and private third-party payors are dependent
upon the specific benefits included under the program or the patient's insurance
policies. Any substantial delays in reimbursement or significant reductions in
the coverage or payment rates of third-party payors, or from patients enrolled
in the Medicare or Medicaid programs, would have a material adverse effect on
our revenues and profitability.
13
<PAGE>
EXPANSION. Our ongoing expansion will require us to implement and integrate
enhanced operational and financial systems, and additional management,
operational and financial resources. Our inability to implement and integrate
these systems and/or add these resources could have a material adverse effect on
our results of operations and financial condition. There can be no assurance
that we will be able to manage our expanding operations effectively or maintain
or accelerate our growth. Although we experienced growth in net revenues in
1997, 1998 and 1999, and were profitable in 1997, we sustained a substantial
loss in 1999, as a result of the decline in gross margins in the fourth quarter
as a result of price conversion difficulties encountered during the pharmacy
computer system conversions and the expenses associated with the conversions,
the installation of the home office computer system, the installation of the
frame relay telecommunication network, and the start-up expenses associated with
new pharmacy web site, HorizonScripts.com, and in 1998, as a result of the
malfunction of our computerized pricing system which failed to receive and/or
integrate average wholesale price updates electronically transmitted from our
primary supplier. While such malfunction has been corrected, there can be no
assurance we will not experience other similar problems related to expansion or
that we will be able to maintain or increase net revenues.
GOVERNMENT REGULATION AND HEALTHCARE REFORM. Pharmacists and pharmacies are
subject to a variety of state and federal regulations and may be adversely
affected by certain changes in such regulations. In addition, prescription drug
sales represent a significant portion of our revenues and profits and are a
significant segment of our business. These revenues are affected by regulatory
changes, including changes in programs providing for reimbursement of the cost
of prescription drugs by third-party payment plans, such as government and
private plans, and regulatory changes relating to the approval process for
prescription drugs.
REGULATION OF HOME HEALTHCARE SERVICES. Our home healthcare business is
subject to extensive federal and state regulation. Changes in the law or new
interpretations of existing laws could have a material effect on permissible
activities, the relative costs associated with doing business and the amount of
reimbursement for our products and services paid by government and other
third-party payors.
MALPRACTICE LIABILITY. The provision of retail pharmacy and home healthcare
services entails an inherent risk of claims of medical and professional
malpractice liability. We may be named as a defendant in such malpractice
lawsuits and subject to the attendant risk of substantial damage awards. While
we believe we have adequate professional and medical malpractice liability
insurance coverage, there can be no assurance that we will not be sued, that any
such lawsuit will not exceed our insurance coverage, or that we will be able to
maintain such coverage at acceptable costs and on favorable terms.
COMPETITION. The retail pharmacy and home healthcare businesses are highly
competitive. We compete with national, regional and local retail pharmacy
chains, independent retail pharmacies, deep discount retail pharmacies,
supermarkets, discount department stores, mass merchandisers and other retail
stores and mail order and Internet operations. Similarly, our home healthcare
operations compete with other larger providers of home healthcare services
including chain operations and independent single unit stores which are more
established in that market and which offer more extensive home healthcare
services than we offer. Most of our competitors have financial resources that
are substantially greater than ours, and we cannot assure that we will be able
to continue to successfully compete with such competitors.
GEOGRAPHIC CONCENTRATION. Currently, 19 and 7 of our 52 retail pharmacies
are located in Texas and New Mexico, respectively, and we plan to acquire other
retail pharmacies located in such states. Consequently, our results of
operations and financial condition are dependent upon general trends in the
Texas and New Mexico economies and any significant healthcare legislative
proposals enacted in those states.
14
<PAGE>
SUBSTANTIAL INDEBTEDNESS. We have incurred substantial debt and may incur
additional indebtedness in the future in connection with our plan of
acquisitions. Our ability to make cash payments to satisfy our debt will depend
upon our future operating performance, which is subject to a number of factors
including prevailing economic conditions and financial, business and other
factors beyond our control. As discussed above, if we are unable to generate
sufficient earnings and cash flow to service such debt we may have to refinance
certain of these obligations or dispose of certain assets. In the event we are
required to refinance all or any part of such debt, there can be no assurance
that we will be able to effect such refinancing on satisfactory terms.
NEED FOR ADDITIONAL CAPITAL. We believe that a planned reduction in
inventory and accounts receivable levels and the sale of certain stores
discussed above together with our existing credit facilities will be adequate to
satisfy our working capital requirements for the next twelve months, although
circumstances, including the acquisition of additional stores and certain
alliances and/or joint ventures in e-commerce, will require that we obtain
additional equity and/or long or short-term financing to realize certain
business opportunities. No assurance can be made that we will be able to obtain
such financing.
RELIANCE ON SINGLE SUPPLIER. We currently purchase approximately 80% of our
inventory from McKesson, which also provides us with order entry machines, shelf
labels and other supplies and is our primary lender and guarantor of our
indebtedness. We believe that the wholesale pharmaceutical and
non-pharmaceutical distribution industry is highly competitive because of the
consolidation of the retail pharmacy industry and the practice of certain large
retail pharmacy chains to purchase directly from product manufacturers. Although
we believe we could obtain our inventory through another distributor at
competitive prices and upon competitive payment terms if our relationship with
McKesson was terminated, there can be no assurance that the termination of such
relationship would not adversely affect our business.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY. Our results of
operations depend significantly upon the net revenues generated during the first
and fourth quarters, and any decrease in net revenues for such periods could
have a material adverse effect upon our profitability. As a result, we believe
that period-to-period comparisons of our results of operations are not and will
not necessarily be meaningful, and should not be relied upon as an indication of
future performance.
ITEM 7.A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
We are exposed to market risk from changes in interest rates on debt. Our
exposure to interest rate risk currently consists of our outstanding borrowings
under the McKesson credit facility and the Bank One revolving line of credit.
The combined balance outstanding was $16,178,000 at December 31, 1999. The
impact on our results of operations of a one-point interest rate change on
balances outstanding would be $162,000 on an annual basis. This market risk
discussion contains forward-looking statements. Actual results may differ
materially from this discussion based upon general market conditions and changes
in financial markets.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements required by this Item are set forth beginning on
page F-1 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable. There have been no changes in accountants and no
disagreements with accountants on any matter of accounting principles or
practices or financial statement disclosures during the preceding twenty-four
months ended December 31, 1999.
15
<PAGE>
PART III
The information required in response to Items 10, 11, 12 and 13 shall appear
in our definitive proxy statement to be filed pursuant to Regulation 14A of the
Securities Exchange Act of 1934 in connection with HORIZON's 2000 Annual
Meeting, and it shall be incorporated herein by reference when filed.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) FINANCIAL STATEMENTS.
The following consolidated financial statements of the Company appear
immediately following this Item 14:
<TABLE>
<CAPTION>
PAGES
--------
<S> <C>
Report of Independent Auditors.............................. F-1
Consolidated Balance Sheets at December 31, 1998 and 1999... F-2
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 1999............... F-4
Consolidated Statements of Stockholders' Equity for each of
the three years in the period ended December 31, 1999..... F-5
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1999............... F-6
Notes to Consolidated Financial Statements.................. F-8
FINANCIAL STATEMENT SCHEDULES
The Company has included the following schedule immediately
following this Item 14:
Schedule II--Valuation and Qualifying Accounts.............. F-20
</TABLE>
The Company has omitted all other schedules because the conditions requiring
their filing do not exist or because the required information appears in the
Company's Consolidated Financial Statements, including the notes to those
financial statements.
(b) REPORTS ON FORM 8-K. DURING THE LAST QUARTER OF FISCAL 1999 WE FILED THE
FOLLOWING CURRENT REPORTS ON FORM 8-K:
In the last quarter of 1999, HORIZON filed two Current Reports on Form 8-K.
On October 29, 1999, HORIZON filed a Current Report on Form 8-K regarding the
acquisition of Jones Low Priced Drugs. On December 28, 1999, HORIZON filed an
Amended Current Report on Form 8-K containing certain financial statements of
Jones Low Priced Drugs.
(c) EXHIBITS. THE EXHIBITS LISTED BELOW ARE INCLUDED WITH THIS REPORT.
<TABLE>
<CAPTION>
EXHIBIT NO. NAME OF EXHIBIT
- ----------- ------------------------------------------------------------
<C> <S>
3.1 Articles of Incorporation of HORIZON Pharmacies, Inc.,
incorporated by reference to Exhibit 3.1 of our Quarterly
Report on Form 10-QSB filed electronically on August 14,
1998.
3.2 Bylaws of HORIZON Pharmacies, Inc., incorporated by
reference to Exhibit 3.2 of our Quarterly Report on Form
10-QSB filed electronically on August 14, 1998.
4.1 Specimen Certificate of the common stock of HORIZON
Pharmacies, Inc. incorporated by reference to Exhibit 4.1 of
our Registration Statement on Form S-3 (File No. 333-61987).
4.2 Form of Warrant dated July 11, 1997 between HORIZON
Pharmacies, Inc. and Capital West Securities, Inc. and Com
Vest Partners, Inc., incorporated herein by reference to
Exhibit 4.2 of our Registration Statement on Form S-3 (File
No. 333-61987).
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. NAME OF EXHIBIT
- ----------- ------------------------------------------------------------
<C> <S>
4.3 Warrant Agreement dated November 7, 1997 by and between
HORIZON Pharmacies, Inc. and Com Vest Partners, Inc.
incorporated by reference to Exhibit 4.3 of our Annual
Report on Form 10-KSB for the fiscal year ended
December 31, 1997 filed electronically on April 15, 1998.
4.4 Form of Warrant dated June 12, 1998 between HORIZON
Pharmacies, Inc. and the parties to the Securities Purchase
Agreement included herein as Exhibit 10.4, incorporated
herein by reference to Exhibit 99.1 of our Current Report on
Form 8-K filed electronically on June 25, 1998.
4.5 Amended and Restated Warrant Purchase Agreement dated
May 14, 1999 among HORIZON Pharmacies, Inc. and McKesson
HBOC, Inc. (filed electronically herewith).
4.6 First Amendment to Amended and Restated Warrant Purchase
Agreement dated March 30, 2000 between HORIZON Pharmacies,
Inc. and McKesson HBOC, Inc. (filed electronically herewith)
4.7 Warrant dated January 28, 2000 between HORIZON Pharmacies,
Inc. and K-2 Financial Corp. (filed electronically herewith)
4.8 Warrant dated February 1, 2000 between HORIZON Pharmacies,
Inc. and 5Net5 Corp. (filed electronically herewith)
4.9 Warrant dated March 14, 2000 between HORIZON Pharmacies,
Inc. and Informed.com, Inc. (filed electronically herewith)
4.10 Warrant dated March 14, 2000 between HORIZON Pharmacies,
Inc. and Informed.com, Inc. (filed electronically herewith)
4.11 Registration Rights Agreement dated March 14, 2000 by and
between HORIZON Pharmacies, Inc., and Informed.com, Inc.
(filed electronically herewith).
4.12 Warrant dated March 30, 2000 between HORIZON Pharmacies,
Inc. and McKesson HBOC, Inc. (filed electronically
herewith).
4.13 Warrant dated April 5, 2000 between HORIZON Pharmacies, Inc.
and eGrocery.com, Inc., incorporated herein by reference to
Exhibit 4.1 of our Current Report on Form 8-K filed
electronically on April 14, 2000.
10.1 Supply Agreement dated effective April 30, 1998 by and
between HORIZON Pharmacies, Inc. and McKesson Corporation,
incorporated herein by reference to Exhibit 10.1 of our Form
10-Q filed electronically on May 15, 1998.
10.2 Letter Agreement dated April 14, 1999 amending the Supply
Agreement included herein as Exhibit 10.1 (filed
electronically herewith)
10.3 Amendment to the Supply Agreement included as Exhibit 10.1
herein, dated March 30, 2000 between HORIZON
Pharmacies, Inc. and McKesson HBOC Inc. (filed
electronically herewith)
10.4 Securities Purchase Agreement dated June 15, 1998 by and
among HORIZON Pharmacies, Inc. and the Several Purchasers
named therein (filed electronically herewith).
10.5 Credit Agreement dated July 2, 1998 by and between the
HORIZON Pharmacies, Inc. and McKesson Corporation,
incorporated by reference to Exhibit 10.1 to our Current
Report on Form 8-K filed electronically on August 4, 1998.
10.6 First Amendment to the Credit Agreement included as Exhibit
10.5 herein, dated as of July 20, 1998 incorporated herein
by referenced to Exhibit 10.2 of our Current Report on Form
8-K filed electronically on August 4, 1998.
10.7 Second Amendment to Credit Agreement included as Exhibit
10.5 herein, dated as of August 26, 1998, incorporated
herein by reference to Exhibit 10.3 of our Current Report on
Form 8-K/A filed electronically on August 31, 1998.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. NAME OF EXHIBIT
- ----------- ------------------------------------------------------------
<C> <S>
10.8 Third Amendment to Credit Agreement included as Exhibit 10.3
herein, dated as of May 14, 1999 (filed electronically
herewith).
10.9 Fourth Amendment to the Credit Agreement included as Exhibit
10.3 herein, dated as of August 16, 1999 (filed
electronically herewith).
10.10 Fifth Amendment to the Credit Agreement included as Exhibit
10.3 herein, dated as of April 14, 2000 (filed
electronically herewith).
10.11* Form of Employment Agreement by and between HORIZON
Pharmacies, Inc. and each of Rick D. McCord, R.Ph., Charlie
K. Herr, R.Ph. and Robert D. Mueller, R.Ph., incorporated
herein by reference to Exhibit 10.4 to the Registration
Statement on Form SB-2 (File No. 333-25257).
10.12 Purchase Agreement dated November 8, 1998 by and between
HORIZON Pharmacies, Inc. and Holland's Drug Store, Inc.,
incorporated herein by reference to Exhibit 2.1 of our
Current Report on Form 8-K filed electronically on
November 18, 1998.
10.13 Consulting Agreement dated January 28, 2000 between HORIZON
Pharmacies, Inc. and K-2 Financial Corp., incorporated
herein by reference to Exhibit 10.1 of our Current Report on
Form 8-K filed electronically on March 9, 2000.
10.14 Investment Banking Agreement dated January 28, 2000 between
HORIZON Pharmacies, Inc. and Waterford Financial, Inc.,
incorporated herein by reference to Exhibit 10.2 of our
Current Report on Form 8-K filed electronically on March 9,
2000.
10.15 Software Development Agreement dated February 1, 2000
between HORIZON Pharmacies, Inc. and 5Net5 Corp.,
incorporated herein by reference to Exhibit 10.3 of our
Current Report on Form 8-K filed electronically on March 9,
2000.
10.16 Amendment to Software Development Agreement dated
February 1, 2000 between HORIZON Pharmacies, Inc. and 5Net5
Corp., incorporated herein by reference to Exhibit 10.4 of
our Current Report on Form 8-K filed electronically on
March 9, 2000.
10.17 Fulfillment and Guaranty Agreement dated March 14, 2000 by
and between HORIZON Pharmacies, Inc. and
InformedScripts.com, incorporated herein by reference to
Exhibit 10.1 of our Current Report on Form 8-K filed
electronically on April 6, 2000.
10.18 Limited Waiver and Consent dated March 30, 2000 between
HORIZON Pharmacies, Inc. and McKesson HBOC, Inc. (filed
electronically herewith).
10.19 Cooperative Marketing Agreement dated April 6, 2000 by and
between eGrocery.com, Inc. and HORIZON Pharmacies, Inc,
incorporated herein by reference to Exhibit 10.1 of our
Current Report on Form 8-K filed electronically on
April 14, 2000.
10.20 Letter Agreement, dated April 14, 2000, regarding the Loan
Agreement dated July 31, 1999 between HORIZON Pharmacies,
Inc. and Bank One, Texas, N.A. (filed electronically
herewith).
10.21* HORIZON Pharmacies, Inc. 401(k) Plan incorporated herein by
reference to Exhibit 4.2 to our Registration Statement on
Form S-8 (File No. 333-43607).
10.22* HORIZON Pharmacies, Inc. 1999 Stock Option Plan (filed
electronically herewith).
10.23* HORIZON Pharmacies, Inc. 1998 Stock Option Plan incorporated
by reference to Exhibit 4.2 of our Registration Statement on
Form S-8 (File No. 333-62805).
10.24 HORIZON Pharmacies, Inc. 1997 Stock Option Plan incorporated
herein by reference to Exhibit 4.4 to our Registration
Statement on Form SB-2, as amended (File No. 333-25257).
21.1 Subsidiaries of HORIZON Pharmacies, Inc. (filed
electronically herewith).
23.1 Consent of Ernst & Young LLP, Independent Auditors (filed
electronically herewith).
27.1 Financial data schedule (filed electronically herewith).
</TABLE>
- ------------------------
* Management contract or compensatory plan or arrangement.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
REGISTRANT:
HORIZON PHARMACIES, INC.
/s/ RICKY D. MCCORD
Date: April 14, 2000 By: -----------------------------------------
PRESIDENT AND CHIEF EXECUTIVE OFFICER
/s/ JOHN N. STOGNER
Date: April 14, 2000 By: -----------------------------------------
CHIEF FINANCIAL OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman of the Board of
/s/ RICKY D. MCCORD, R.PH. Directors, President and Chief
------------------------------------ Executive Officer, Principal April 14, 2000
Ricky D. McCord, R.Ph. Executive Officer
/s/ JOHN N. STOGNER Chief Financial Officer,
------------------------------------ Treasurer, Director, Principal April 14, 2000
John N. Stogner Financial and Accounting Officer
/s/ CHARLIE K. HERR
------------------------------------ Senior Vice President, Secretary, April 14, 2000
Charlie K. Herr Director
/s/ ROBERT D. MUELLER, R.PH President of
------------------------------------ HorizonScripts.com Inc., April 14, 2000
Robert D. Mueller, R.Ph. Director
/s/ MICHAEL F. LOY
------------------------------------ Director April 14, 2000
Michael F. Loy
/s/ HERBERT J. FLEMING
------------------------------------ Director April 14, 2000
Herbert J. Fleming
/s/ PHILIP H. YEILDING
------------------------------------ Director April 14, 2000
Philip H. Yeilding
</TABLE>
19
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
HORIZON Pharmacies, Inc.
We have audited the accompanying consolidated balance sheets of HORIZON
Pharmacies, Inc. as of December 31, 1998 and 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. Our audits also included the
financial statement schedule listed in Item 14. These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of HORIZON
Pharmacies, Inc. at December 31, 1998 and 1999, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
Oklahoma City, Oklahoma
March 31, 2000,
except for the third paragraph of Note 7(A) as to which the date is
April 14, 2000
F-1
<PAGE>
HORIZON PHARMACIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,617 $ 1,263
Certificate of deposit.................................... -- 375
Accounts receivable, less allowance for doubtful accounts
of $217,000 in 1998 and $641,770 in 1999:
Third-party providers................................... 4,851 8,828
Others.................................................. 2,779 2,922
Inventories, at the lower of specific identification cost
or market............................................... 18,084 23,522
Long-lived assets held for sale........................... -- 633
Other..................................................... 814 674
------- -------
Total current assets........................................ 33,145 38,217
Debt issue costs, net of accumulated amortization of $66,591
in 1998 and $102,553 in 1999, and other................... 69 595
Property, equipment and capital lease assets:
Property and equipment, at cost:
Land, buildings and improvements........................ 879 1,498
Software and equipment.................................. 3,165 5,509
------- -------
4,044 7,007
Less accumulated depreciation............................. 531 1,057
------- -------
Property and equipment, net............................... 3,513 5,950
Equipment under capital leases, net of accumulated
amortization of $184,975 in 1998 and $434,916 in 1999... 530 725
------- -------
Property, equipment and capital lease assets, net........... 4,043 6,675
Intangibles, at cost:
Noncompete covenants and customer lists................... 1,981 2,415
Goodwill.................................................. 8,145 13,299
------- -------
10,126 15,714
Less accumulated amortization............................. 736 1,370
------- -------
Intangibles, net............................................ 9,390 14,344
------- -------
$46,647 $59,831
======= =======
</TABLE>
F-2
<PAGE>
HORIZON PHARMACIES, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 7,889 $12,615
Accrued liabilities....................................... 1,438 1,420
Lease termination settlements and other exit costs........ -- 1,367
Notes payable............................................. 109 5,566
Current portion of long-term debt......................... 3,104 2,439
Current portion of obligations under capital leases....... 167 239
------- -------
Total current liabilities................................... 12,707 23,646
Noncurrent liabilities:
Lease termination settlements............................. -- 1,250
Long-term debt............................................ 13,159 19,204
Obligations under capital leases.......................... 353 481
------- -------
13,512 20,935
Commitments and contingencies (NOTES 8 AND 11)
Stockholders' equity:
Preferred stock, $.01 par value, authorized 1,000,000
shares; none issued -- --
Common stock, $.01 par value, authorized 14,000,000
shares; issued 5,623,743 shares in 1998 and 5,888,965
shares in 1999.......................................... 56 59
Additional paid-in capital................................ 22,343 24,710
Accumulated deficit....................................... (1,901) (9,449)
------- -------
20,498 15,320
Treasury stock (6,081 shares), at cost.................... (70) (70)
------- -------
Total stockholders' equity.................................. 20,428 15,250
------- -------
$46,647 $59,831
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
HORIZON PHARMACIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net revenues:
Prescription drugs sales.................................. $21,493 $55,248 $ 99,688
Other sales and services.................................. 6,936 19,489 32,068
------- ------- --------
Total net revenues.......................................... 28,429 74,737 131,756
Costs and expenses:
Cost of sales and services:
Prescription drugs...................................... 15,293 42,850 76,341
Other................................................... 3,839 11,661 20,577
Depreciation and amortization:
Property, equipment and capital lease assets............ 192 391 819
Debt issue costs and intangibles........................ 137 476 870
Provision for impairment.................................. -- -- 3,198
Selling, general and administrative expenses.............. 7,943 21,292 35,799
------- ------- --------
Total costs and expenses.................................... 27,404 76,670 137,604
------- ------- --------
Income (loss) from operations............................... 1,025 (1,933) (5,848)
Other income (expense):
Interest and other income................................. 81 197 198
Interest expense.......................................... (299) (803) (1,898)
------- ------- --------
Total other income (expense)................................ (218) (606) (1,700)
------- ------- --------
Income (loss) before provision (credit) for income taxes.... 807 (2,539) (7,548)
Provision (credit) for income taxes......................... 480 (360) --
------- ------- --------
Net income (loss)........................................... $ 327 $(2,179) $ (7,548)
======= ======= ========
Basic earnings (loss) per share............................. $ .12 $ (.43) $ (1.30)
======= ======= ========
Diluted earnings (loss) per share........................... $ .11 $ (.43) $ (1.30)
======= ======= ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
HORIZON PHARMACIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS TREASURY STOCK TOTAL
------------------- PAID-IN (ACCUMULATED ------------------- STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT) SHARES AMOUNT EQUITY
-------- -------- ---------- ------------ -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996......... 1,082 $11 $ 1,760 $ (21) -- $ -- $ 1,750
Sales of stock:
Initial public offering............ 1,380 14 5,522 -- -- -- 5,536
Private placement.................. 465 4 4,201 -- -- -- 4,205
Issuance of stock in acquisitions.... 28 -- 321 -- -- -- 321
Issuance of stock to reduce debt..... 2 -- 30 -- -- -- 30
Net income, exclusive of pro forma
provision for income taxes of
$120,000........................... -- -- -- 447 -- -- 447
Distributions to stockholders ($.17
per share)......................... -- -- -- (450) -- -- (450)
Reclassification of accumulated
deficit as a result of termination
of S corporation status............ -- -- (302) 302 -- -- --
Three-for-two stock split effected in
the form of a dividend............. 1,479 15 (15) -- -- -- --
----- --- ------- ------- -------- ---- -------
Balance at December 31, 1997......... 4,436 44 11,517 278 -- -- 11,839
Exercise of warrants................. 33 -- 131 -- -- -- 131
Exercise of stock options............ 116 1 463 -- -- -- 464
Issuance of stock in acquisitions.... 291 3 3,420 -- -- -- 3,423
Issuance of stock to purchase land... 6 -- 50 -- -- -- 50
Issuance of stock to reduce debt..... 5 -- 45 -- -- -- 45
Sale of stock........................ 737 8 6,717 -- -- -- 6,725
Purchase of treasury stock........... -- -- -- -- 6 (70) (70)
Net loss............................. -- -- -- (2,179) -- -- (2,179)
----- --- ------- ------- -------- ---- -------
Balance at December 31, 1998......... 5,624 56 22,343 (1,901) 6 (70) 20,428
Exercise of stock options............ 64 1 276 -- -- -- 277
Issuance of stock in acquisitions.... 201 2 1,577 -- -- -- 1,579
Issuance of warrants to lender....... -- -- 514 -- -- -- 514
Net loss............................. -- -- -- (7,548) -- -- (7,548)
----- --- ------- ------- -------- ---- -------
Balance at December 31, 1999......... 5,889 $59 $24,710 $(9,449) 6 $(70) $15,250
===== === ======= ======= ======== ==== =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
HORIZON PHARMACIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 327 $(2,179) $(7,548)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization............................. 329 867 1,689
Provision for impairment.................................. -- -- 3,198
(Gain) loss on disposals of assets........................ -- 24 (3)
Provision for uncollectible accounts receivable........... 103 147 428
Provision (credit) for deferred income taxes.............. 140 (140) --
Pro forma provision for income taxes...................... 120 -- --
Changes in operating assets and liabilities, net of
acquisitions of businesses:
Accounts receivable..................................... (2,425) (3,094) (3,342)
Inventories............................................. (1,014) (2,089) (2,226)
Other current assets.................................... (90) (651) 158
Bank overdraft.......................................... (247) -- --
Accounts payable........................................ 2,178 4,219 4,372
Accrued liabilities..................................... 453 824 (41)
------- ------- -------
Total adjustments........................................... (453) 107 4,233
------- ------- -------
Net cash used in operating activities....................... (126) (2,072) (3,315)
INVESTING ACTIVITIES
Purchase of certificate of deposit.......................... -- -- (375)
Purchases of property and equipment......................... (657) (1,060) (1,781)
Proceeds from disposals of assets........................... -- -- 6
Assets acquired for cash in acquisitions of businesses...... (1,696) (7,448) (5,103)
------- ------- -------
Net cash used in investing activities....................... (2,353) (8,508) (7,253)
FINANCING ACTIVITIES
Borrowings.................................................. -- 8,811 8,132
Debt issue costs incurred................................... -- (136) (79)
Principal payments on debt.................................. (2,817) (2,693) (2,871)
Principal payments on obligations under capital leases...... (64) (119) (245)
Issuances of stock, net of offering costs................... 9,741 7,320 277
Distributions to stockholders............................... (450) -- --
Purchase of treasury stock.................................. -- (70) --
------- ------- -------
Net cash provided by financing activities................... 6,410 13,113 5,214
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 3,931 2,533 (5,354)
Cash and cash equivalents at beginning of year.............. 153 4,084 6,617
------- ------- -------
Cash and cash equivalents at end of year.................... $ 4,084 $ 6,617 $ 1,263
======= ======= =======
</TABLE>
(CONTINUED ON FOLLOWING PAGE)
F-6
<PAGE>
HORIZON PHARMACIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest.................................................. $ 309 $ 693 $ 1,801
Income taxes, net of refunds.............................. -- 503 (264)
NONCASH INVESTING AND FINANCING ACTIVITIES
Additions to property and equipment financed by debt........ $ 15 $ -- $ --
Equipment leased under capital leases....................... 216 357 445
Issuance of stock to reduce debt............................ 30 45 --
Issuance of stock to purchase land.......................... -- 50 --
Issuance of warrants to lender.............................. -- -- 514
Acquisitions of businesses financed by debt and common
stock:
Accounts receivable and other............................. $ 459 $ 442 $ 1,224
Inventories............................................... 3,596 8,094 3,212
Property and equipment.................................... 373 1,322 1,329
Noncompete covenants and customer lists................... 614 1,021 681
Goodwill.................................................. 1,066 6,265 6,190
------- ------- -------
6,108 17,144 12,636
Less cash paid............................................ 1,696 7,448 5,103
------- ------- -------
Assets acquired............................................. $ 4,412 $ 9,696 $ 7,533
======= ======= =======
Financed by:
Advance by stockholder.................................... $ 100 $ -- $ --
Accounts payable and accrued liabilities.................. -- -- 378
Debt...................................................... 3,991 6,273 5,576
Common stock.............................................. 321 3,423 1,579
------- ------- -------
$ 4,412 $ 9,696 $ 7,533
======= ======= =======
</TABLE>
See accompanying notes.
F-7
<PAGE>
HORIZON PHARMACIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
As of December 31, 1999, HORIZON Pharmacies, Inc. (the "Company") owns and
operates fifty-two retail pharmacies which sell prescription drugs, health and
beauty aids and other products and are located in seventeen states, including
nineteen pharmacies located in Texas (NOTE 4). Purchases from the Company's
primary supplier were $18,344 in 1997, $51,991 in 1998 and $82,132 in 1999.
Accounts payable to the primary supplier were $6,013 at December 31, 1998 and
$8,916 at December 31, 1999.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to significant
concentrations of credit risk consist principally of accounts receivable.
Accounts receivable are unsecured and consist principally of receivables from
third-party providers (insurance companies and government agencies) under third-
party payment plans. Certain of these receivables are recorded net of any
allowances provided under the respective plans. Since payments due from certain
third-party payers are sensitive to payment criteria changes and legislative
actions, the allowance is reviewed continually and adjusted for accounts deemed
uncollectible by management.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
CASH EQUIVALENTS
Cash equivalents include highly liquid investments with maturities of three
months or less when purchased.
ADVERTISING
Advertising costs are charged to expense as incurred and amounted to $174 in
1997, $649 in 1998 and $806 in 1999.
DEPRECIATION AND AMORTIZATION
Property and equipment are depreciated on a straight-line basis over the
estimated useful lives of thirty years for buildings and three to fifteen years
for software and equipment. Leasehold improvements and equipment under capital
leases are amortized on a straight-line basis over the estimated useful lives of
the assets or over the terms of the leases, whichever are shorter. Intangibles
are amortized on a straight-line basis over the terms of the noncompete
covenants of two to seven
F-8
<PAGE>
HORIZON PHARMACIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
years and estimated useful lives of customer lists and goodwill of five years
and forty years, respectively. Debt issue costs are amortized on a straight-line
basis over the term of the related credit agreement.
ACCOUNTING FOR LONG-LIVED ASSETS
The Company reviews long-lived assets, including intangibles, whenever
events or changes in circumstances indicate that the carrying amount of an asset
might not be recoverable. Assets are grouped and evaluated for impairment at the
lowest level for which there are identifiable cash flows that are largely
independent of the cash flows of other groups of assets. The Company has
determined that an individual pharmacy is the level at which this review will be
applied. The Company's primary test for an indicator of potential impairment is
operating losses. If an indication of impairment is determined to be present,
the Company estimates the future cash flows expected to be generated from the
use of the asset and its eventual disposal. If the sum of undiscounted future
cash flows is less than the carrying amount of the asset, an impairment loss is
recognized. The impairment loss is measured by comparing the fair value of the
asset to its carrying amount. The fair value of the asset is measured by
calculating the present value of estimated future cash flows using a discount
rate equivalent to the rate of return the Company expects to achieve from its
investment in new pharmacies.
Long-lived assets held for disposal are carried at the lower of depreciated
cost or fair value less cost to sell. Fair values are estimated based upon
appraisals or other independent assessments of the assets' estimated sales
values. During the period in which assets are being held for disposal,
depreciation and amortization of such assets are not recognized.
SELF-INSURANCE
The Company is partially self-insured for losses and liabilities related to
health and welfare claims. Losses are accrued based upon the Company's estimates
of the aggregate liability for claims incurred using certain actuarial
assumptions followed in the insurance industry and based on Company experience.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used in estimating the fair value
disclosures for financial instruments:
The carrying amounts reported for cash and cash equivalents, accounts
receivable, accounts payable and variable-rate debt approximate their
fair values. The fair values of fixed-rate debt are estimated using
discounted cash flow analyses, based on current, incremental borrowing
rates for similar types of borrowing arrangements. The fair values of
notes payable and long-term debt were approximately $16,400 and $26,900
at December 31, 1998 and 1999, respectively.
F-9
<PAGE>
HORIZON PHARMACIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Prior to completion of an initial public offering (the "Offering") in July
1997, no income taxes were included in the Company's financial statements under
provisions of the Internal Revenue Code related to S corporations. Upon
completion of the Offering, the S status was automatically terminated and the
Company became subject to income taxes. The pro forma provision for income taxes
for the period prior to July 1997 is based on an estimated effective tax rate of
35% as though the Company was required to pay income taxes. The 1997 financial
statements include a provision for deferred income taxes of $170, resulting from
a change in S corporation status related to the tax effect of cumulative
temporary differences in financial and tax bases of net assets as of the date of
the Offering.
STOCK-BASED COMPENSATION
The Company grants stock options to employees and directors with exercise
prices equal to the fair values at the dates of grants. The Company accounts for
stock option grants in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." No compensation expense is
recognized with respect to stock options granted at exercise prices equal to the
market prices of the Company's common stock at the dates of grants.
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Numerator:
Net income (loss)......................................... $ 327 $ (2,179) $ (7,548)
Denominator:
Weighted average shares outstanding--basic................ 2,769,236 5,065,545 5,788,026
Effect of dilutive employee stock options and warrants.... 95,568 -- --
--------- --------- ---------
Weighted average shares--diluted............................ 2,864,804 5,065,545 5,788,026
========= ========= =========
Basic earnings (loss) per share............................. $ .12 $ (.43) $ (1.30)
========= ========= =========
Diluted earnings (loss) per share........................... $ .11 $ (.43) $ (1.30)
========= ========= =========
Anti-dilutive employee stock options and warrants
excluded.................................................. -- 359,958 737,642
========= ========= =========
</TABLE>
2. LIQUIDITY AND MANAGEMENT'S PLANS
The Company is dependent on existing credit agreements with lenders,
including its largest supplier, and proceeds from potential debt and equity
offerings in order to fund its operations and pay its obligations. As of
December 31, 1999, the Company has working capital lines of credit with two
lenders collateralized by receivables, inventories and equipment. These lines of
credit are the primary
F-10
<PAGE>
HORIZON PHARMACIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
2. LIQUIDITY AND MANAGEMENT'S PLANS (CONTINUED)
sources of liquidity for the Company. As of December 31, 1999, the credit
agreements provided for borrowings up to $18,000 including the Company's $7,000
bank credit facility which expires on July 31, 2000. As of March 31, 2000, the
Company has availability for additional borrowings under the lines of $322.
Management's plan for 2000 provides for the Company to improve its financial
condition and operating results through the sale or closure of several
underperforming pharmacies (including one pharmacy sold in March 2000),
increased selling prices, the reduction of receivables and inventories levels,
reduction in store operating hours and labor costs and various debt and equity
alternatives. In April 2000, the Company issued $2,500 in convertible debentures
which provided $2,175 in net proceeds.
As discussed above, the Company's $7,000 revolving credit facility from Bank
One matures July 31, 2000. The Company believes that in the event that the bank
does not renew or otherwise extend the credit facility, it will be able to
secure replacement financing at similar terms or otherwise retire the debt with
sales proceeds from the stores identified as held for disposal in the fourth
quarter of 1999. In the event such proceeds are not sufficient or that
alternative financing is not arranged, the Company may have to sell the assets
of certain performing stores (which have previously received unsolicited
purchase inquiries) to provide the additional funds to retire the debt. While
such additional store sales would reduce future revenues, the Company does not
believe such reduction would have a material adverse effect on the financial
position or results of operation of the Company.
3. ACQUISITIONS
All of the Company's retail pharmacies have been acquired from third parties
in purchase transactions. Such acquisitions have usually been structured as
asset purchases and have included accounts receivable, inventories, property and
equipment and the assumption of store operating lease arrangements. The
acquisitions generally have been financed by debt to the sellers and/or an
inventory supplier. The number of pharmacies acquired amounted to eleven prior
to 1997, thirteen in 1997, twenty-one in 1998 and seven in 1999.
The following unaudited pro forma results of operations data gives effect to
the acquisitions completed in 1997 and 1998 as if the acquisitions had been
consummated as of January 1, 1997 and the acquisitions completed in 1999 as if
the acquisitions had been consummated as of January 1, 1998. The unaudited pro
forma results of operations data is presented for illustrative purposes and is
not necessarily indicative of the actual results that would have occurred had
the acquisitions been consummated as of January 1, 1997 and January 1, 1998 or
of future results of operations. The data reflects adjustments for amortization
of intangibles resulting from the purchases, incremental interest
F-11
<PAGE>
HORIZON PHARMACIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
3. ACQUISITIONS (CONTINUED)
expense resulting from borrowings to finance the acquisitions, adjustments to
employee benefits and rent expense and income tax effects.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Unaudited pro forma information:
Net revenues................................. $99,742 $101,209 $141,929
======= ======== ========
Net income (loss)............................ $ 2,018 $ (897) $ (7,108)
======= ======== ========
Basic earnings (loss) per share.............. $ .73 $ (.17) $ (1.21)
======= ======== ========
Diluted earnings (loss) per share............ $ .70 $ (.17) $ (1.21)
======= ======== ========
</TABLE>
4. IMPAIRMENT OF LONG-LIVED ASSETS
During the fourth quarter of 1999, the Company identified several
underperforming pharmacies with long-lived asset (primarily intangibles)
carrying amounts of $1,001 and committed to a plan to sell them. Accordingly,
the Company began marketing these pharmacies to potential buyers and plans to
sell them during 2000. The Company believes that no buyers would assume any of
the facilities leases. In March 2000, the Company sold the customer list of one
pharmacy for $92 in cash. The Company estimated the fair values (based primarily
on bids received from potential buyers) less costs to sell the pharmacies at
$633 and recorded a $2,985 impairment loss, including estimated lease
cancellation penalty fees and other exit costs of $2,617. As of December 31,
1999, the remaining aggregate lease commitments related to pharmacies held for
sale in excess of the estimated liability recorded by the Company is $821.
Management of the Company believes that the liability recorded is adequate based
upon discussions with landlords. Net revenues and loss from operations related
to these pharmacies for 1997, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
LOSS FROM
NET REVENUES OPERATIONS
------------ ----------
<S> <C> <C>
1997.................................................. $3,987 $ (1)
1998.................................................. 9,331 (362)
1999.................................................. 13,532 (819)
</TABLE>
As of December 31, 1999, the Company had identified other underperforming
pharmacies whose operating results indicated that long-lived assets of these
pharmacies might be impaired. The long-lived assets of these pharmacies had
combined carrying amounts of $1,015. As a result of analyses performed, the
Company determined that one pharmacy with a then-existing carrying amount of
$250 was impaired and recorded a $213 impairment loss. Management's estimate of
undiscounted future cash flows indicates that the remaining carrying amounts as
of December 31, 1999 are expected to be recovered. However, it is reasonably
possible that the estimate of undiscounted cash flows may change in the near
future resulting in the need to write-down one or more of the identified assets
to fair value.
F-12
<PAGE>
HORIZON PHARMACIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
5. NOTES PAYABLE
The Company has a loan agreement with a bank which provides for revolving
borrowings until July 31, 2000 up to $7,000. Borrowings must be used for working
capital and general corporate purposes, excluding acquisitions, bear interest at
prime less 2% (effective rate of 6.5% as of December 31, 1999) and are
guaranteed by the Company's primary supplier. The Company is obligated to pay a
guarantee fee to the primary supplier of 3% of the borrowings outstanding which
amounted to $5,500 as of December 31, 1999. The Company is also obligated to
indemnify the guarantor for any losses arising from its guarantee. The loan
agreement contains provisions which, among other things, limit the Company's
ability to sell assets, make loans and enter into transactions with related
parties.
At December 31, 1999, the Company had not complied with several covenants of
the loan agreement for which the Company received a waiver through December 31,
1999 from the bank on April 14, 2000.
6. INCOME TAXES
The provision (credit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
-------- -------- ----------
<S> <C> <C> <C>
Current:
Federal.............................................. $185 $(185) $ --
State................................................ 35 (35) --
---- ----- ----------
220 (220) --
Deferred:
Federal.............................................. (25) (120) --
State................................................ (5) (20) --
---- ----- ----------
(30) (140) --
Deferred resulting from change in tax status........... 170 -- --
Pro forma.............................................. 120 -- --
---- ----- ----------
Provision (credit) for income taxes.................... $480 $(360) $ --
==== ===== ==========
</TABLE>
F-13
<PAGE>
HORIZON PHARMACIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
6. INCOME TAXES (CONTINUED)
The reconciliation of income tax computed at the federal statutory tax rate
to provision (credit) for income taxes is:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Tax at statutory rate................................ $282 $(889) $(2,642)
State income taxes, net of federal tax benefit....... 20 (36) (226)
Effect of change in tax status....................... 170 -- --
Increase in deferred tax asset valuation allowance... -- 602 2,860
Other................................................ 8 (37) 8
---- ----- -------
Provision (credit) for income taxes.................. $480 $(360) $ --
==== ===== =======
</TABLE>
At December 31, 1999, the Company had net operating loss carryforwards
("NOLs") of $6,100 for income tax purposes that expire in 2018 and 2019. For
financial reporting purposes, a valuation allowance has been recognized to
offset the deferred tax asset related to these carryforwards. If realized, the
tax benefit for the NOLs will be credited to income taxes.
Deferred tax assets and liabilities consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Property, equipment and capital lease assets.............. $112 $ 164
Intangibles............................................... 194 154
---- ------
Deferred tax liabilities.................................... 306 318
Less deferred tax assets:
Accounts receivable....................................... 82 244
Inventories............................................... 105 161
Debt issue costs and other................................ 22 68
Accrued liabilities....................................... -- 995
Net operating loss carryforward........................... 699 2,312
---- ------
908 3,780
Less valuation allowance.................................. 602 3,462
---- ------
Net deferred tax assets................................... 306 318
---- ------
Net deferred tax liabilities................................ $ -- $ --
==== ======
</TABLE>
F-14
<PAGE>
HORIZON PHARMACIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
7. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Borrowings under credit agreement(A)...................... $ 8,500 $10,678
Installment notes due in varying installments (totaling
$291 per month as of December 31, 1999), including
interest at rates ranging from 8% to 11.5% and maturing
on various dates from August 2000 to June 2011.......... 7,763 10,965
------- -------
16,263 21,643
Less current portion of long-term debt.................... 3,104 2,439
------- -------
Long-term debt............................................ $13,159 $19,204
======= =======
</TABLE>
(A) The Company has a credit agreement with its primary supplier which provides
for borrowings up to $8,000 under a revolver and $3,000 under a term loan.
Borrowings are to be used for acquisitions and working capital purposes and
bear interest at prime plus 1% (effective rate of 9.5% at December 31,
1999). Availability of the revolver is subject to a borrowing base
determined by the supplier and amounted to $8,000 as of December 31, 1999.
Borrowings outstanding at December 31, 1999 consist of $7,678 under the
revolver and $3,000 under the term loan and are payable in July 2003. The
term loan may be extended as specified in the credit agreement. Mandatory
prepayment of borrowings under the revolver is required if the amount of
cash and cash equivalents exceeds $8 million. The agreement contains
provisions which, among other things, limit the Company's ability to sell
assets, incur additional debt and enter into transactions with related
parties. The agreement also requires the Company to maintain at least a
specified amount of net worth and satisfy certain financial ratios.
At December 31, 1999, the Company had not complied with several covenants of
the credit agreement. In exchange for warrants to purchase, until March
2010, 10,000 shares of common stock at $5.56 per share and other
consideration, the Company received a waiver through December 31, 1999 from
the supplier on March 30, 2000.
On April 14, 2000, the credit agreement was amended to modify the covenants
related to net worth and certain financial ratios. Management of the Company
believes that the Company will be able to comply with all covenants during
2000. Accordingly, amounts payable under the credit agreement are classified
as non-current in the accompanying financial statements.
Long-term debt is collateralized by accounts receivable, inventories and
property and equipment. Certain debt is collateralized by guarantees of certain
stockholders.
Long-term debt maturing during the five years subsequent to 1999 is as
follows: 2000--$2,439; 2001--$2,391; 2002--$2,439; 2003--$12,859; 2004--$1,071
and thereafter--$444.
F-15
<PAGE>
HORIZON PHARMACIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
8. LEASES
The Company leases most of its retail store facilities and certain equipment
under noncancelable operating leases, many of which expire within seven years.
These leases require the Company to pay for taxes, maintenance and insurance and
contain renewal options, certain of which involve rent increases. As of
December 31, 1999, the Company has a $375 certificate of deposit pledged to
secure certain store lease commitments. Rent expense was $418 in 1997, $1,138 in
1998 and $2,634 in 1999.
Components of obligations under capital leases for pharmacy computer
equipment are as follows at December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Total minimum lease payments................................ $884 $829
Less amount representing interest........................... 364 109
---- ----
Present value of net minimum lease payments................. 520 720
Less current portion........................................ 167 239
---- ----
Amount due after one year................................... $353 $481
==== ====
</TABLE>
At December 31, 1999, the future minimum payments, excluding payments
related to pharmacies held for sale (NOTE 4) and contingent rentals which have
not been material, under operating and capital leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR LEASES LEASES
- ---- --------- --------
<S> <C> <C>
2000....................................................... $2,563 $298
2001....................................................... 2,357 269
2002....................................................... 1,936 233
2003....................................................... 1,430 29
2004....................................................... 882 --
Thereafter................................................. 579 --
------ ----
Total...................................................... $9,747 829
======
Less amount representing interest.......................... 109
----
$720
====
</TABLE>
9. STOCKHOLDERS' EQUITY
The Board of Directors has the authority to issue preferred stock in one or
more classes or series and to fix the number of shares to be included in each
such class or series and the designations, preferences, qualifications,
limitations, restrictions and rights of the shares of each such class or series.
In July 1997, the Company completed the Offering pursuant to which warrants
to purchase 180,000 shares of common stock (exercisable until July 2002 at $4
per share) were sold. In October 1997, the Company completed a private placement
pursuant to which warrants to purchase 30,000 shares of common stock
(exercisable until November 2002 at $6.72 per share) were sold. In May 1997, the
F-16
<PAGE>
HORIZON PHARMACIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
9. STOCKHOLDERS' EQUITY (CONTINUED)
stockholders of the Company approved a two-for-one split of the Company's common
stock. In November 1997, the Board of Directors of the Company approved a
three-for-two split of the Company's common stock in the form of a stock
dividend. Stockholders received one additional share of common stock for each
two shares held. In connection therewith, 1,478,834 shares of stock were issued
and $15 was transferred from additional paid-in capital to common stock. The
effects of the splits have been reflected retroactively in the accompanying
financial statements.
In June 1998, the Company completed a private placement pursuant to which
warrants to purchase 41,000 shares of common stock (exercisable until June 2003
at $9.50 per share) were sold. During 1998, 32,750 shares of stock were issued
upon exercise of warrants sold in the Offering.
Pursuant to an agreement with a lender and primary supplier in May 1999, the
Company issued warrants to purchase, until May 2009, 201,500 shares of common
stock at $5.71 per share. In August 1999, the Company issued additional warrants
to purchase, until August 2009, 50,000 shares of common stock at $5.05 per share
pursuant to the same agreement. The exercise prices were equal to the market
value at dates of grant. The value of these warrants at the dates of issuance
totaled $514 and was charged to debt issue costs.
At December 31, 1999, 469,750 shares of common stock have been reserved for
issuance upon exercise of outstanding warrants at prices ranging from $4 to
$9.50 per share.
During the period from January 1, 2000 to March 31, 2000, the Company has
entered into several agreements for services in exchange for common stock
warrants aggregating 1,250,000 shares at exercise prices from $2.63 to $15.00.
The exercise prices were equal to the market value at dates of grant. The value
of these warrants will be charged to operations over the period of benefit.
STOCK OPTIONS
Under a 1997 stock option plan, options for 369,364 shares were granted by
the Company in July 1997. These options became exercisable in October 1997 and
expire in July 2007.
Under 1998 and 1999 stock options plans, options for up to 1,050,000 shares
of common stock may be granted to employees and directors at prices as specified
in the plans on the dates the options are granted. Options granted in 1998 are
generally exercisable in three equal annual installments commencing one year
from the dates of grants and expire ten years from the dates of grants. Options
for 427,900 shares were granted by the Company in 1998. In 1999, options for
544,950 shares of common stock were granted to directors and employees at option
prices from $3.38 to $8.69 per share. These options are exercisable in three
equal annual installments commencing in June 2000 and expire in June 2009. On
September 30, 1999, options for 30,000 shares of common stock were granted to
outside directors at an option price of $3.38 per share. These options are
exercisable in three annual installments commencing in September 2000 and expire
in September 2009.
All options granted by the Company have been at option prices equal to the
market values of the Company's common stock at the dates of grants. The
following pro forma information presents net loss and diluted loss per share
information as if the Company had accounted for stock options granted using the
fair value method. The fair values of issued stock options were estimated at the
dates of
F-17
<PAGE>
HORIZON PHARMACIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
9. STOCKHOLDERS' EQUITY (CONTINUED)
grants using a Black-Scholes option pricing model with the following assumptions
for 1997, 1998 and 1999, respectively: weighted average risk-free interest rates
of 5.76%, 5.47% and 5.77%; no dividends over the option terms; stock price
volatility factors of .75, .76 and .83, and weighted average expected option
lives of two and one-half years, five years and five years. The estimated fair
value as determined by the model is amortized to expense over the respective
vesting period. The pro forma information presented below is not necessarily
indicative of the pro forma effects to be presented in future periods.
The pro forma information is as follows for the years ended December 31:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net loss........................................... $(387) $(2,793) $(8,356)
Diluted loss per share............................. $(.14) $ (.55) $ (1.44)
</TABLE>
A summary of the Company's stock option activity and related information for
the years ended December 31 follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------------- ------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
-------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--beginning of year.............. -- $ -- 369,364 $4.00 676,563 $6.72
Granted..................................... 369,364 4.00 427,900 8.33 544,950 5.50
Exercised................................... -- -- (116,101) 4.00 (64,247) 4.00
Forfeited................................... -- -- (4,600) 6.87 (103,600) 7.87
------- -------- ---------
Outstanding--end of year.................... 369,364 $ 4.00 676,563 $6.72 1,053,666 $6.14
======= ======== =========
Exercisable at end of year.................. 369,364 $ 4.00 271,763 $4.31 319,833 $5.79
======= ======== =========
Weighted average fair value of options
granted during the year................... $ 5.94 $ 13.80 $ 9.33
</TABLE>
A summary of the Company's options as of December 31, 1999 follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- -------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
OF LIFE EXERCISE OF EXERCISE
RANGE OF EXERCISE PRICES OPTIONS (YEARS) PRICE OPTIONS PRICE
- ------------------------ --------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$3.38....................................... 30,000 9.9 $ 3.38 -- $ --
$4.00....................................... 187,516 7.5 4.00 187,516 4.00
$5.38 to $5.63.............................. 498,200 9.5 5.62 -- --
$8.25....................................... 283,950 8.1 8.25 114,650 8.25
$8.69 to $8.88.............................. 54,000 8.9 8.87 17,667 8.88
--------- ----- ------- ------- -----
1,053,666 8.7 $ 6.14 319,833 $5.79
========= ===== ======= ======= =====
</TABLE>
F-18
<PAGE>
HORIZON PHARMACIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
10. EMPLOYEE BENEFIT PLAN
The Company has a profit sharing plan for eligible employees whereby each
participant in the plan may contribute by payroll deduction up to 15% of their
compensation. The Company may make matching contributions of a portion of each
participant's contribution. The Company may also make a profit sharing
contribution. Profit sharing contributions were none in 1997, $67 in 1998 and
$107 in 1999.
11. CONTINGENCIES
The Company and certain present and former officers or directors are named
as defendants in an action that was filed on May 28, 1999. Plaintiffs seek to
certify a class of persons who purchased shares of the Company's common stock
during the period between August 14, 1998 and March 3, 1999, inclusive, alleging
that defendants failed to timely disclose complications with the Company's
prescription pricing communications technology. Plaintiffs seek unspecified
compensatory and/or rescissonary damages. The Company is vigorously defending
against the action and has filed a motion to dismiss the complaint. No decision
has been made by the court as to whether the matter may proceed as a class
action. The Company has contingent liabilities for other lawsuits and various
other matters occurring in the ordinary course of business.
Management of the Company believes that the ultimate resolution of these
contingencies will not have a material adverse effect on the Company's financial
position or results of operations.
F-19
<PAGE>
HORIZON PHARMACIES, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS AMOUNTS
BALANCE AT CHARGED TO WRITTEN OFF BALANCE
BEGINNING COSTS AND AGAINST THE AT END
DESCRIPTION OF YEAR EXPENSES ALLOWANCE RECOVERIES OF YEAR
- ----------- ---------- ---------- ----------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts receivable:
Year ended:
December 31, 1997....................... $ 20 $103 $11 $ -- $112
==== ==== === ========== ====
December 31, 1998....................... $112 $147 $42 $ -- $217
==== ==== === ========== ====
December 31, 1999....................... $217 $428 $ 3 $ -- $642
==== ==== === ========== ====
</TABLE>
F-20
<PAGE>
INDEXT TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. NAME OF EXHIBIT
- ----------- ------------------------------------------------------------
<C> <S>
3.1 Articles of Incorporation of HORIZON Pharmacies, Inc.,
incorporated by reference to Exhibit 3.1 of our Quarterly
Report on Form 10-QSB filed electronically on August 14,
1998.
3.2 Bylaws of HORIZON Pharmacies, Inc., incorporated by
reference to Exhibit 3.2 of our Quarterly Report on Form
10-QSB filed electronically on August 14, 1998.
4.1 Specimen Certificate of the common stock of HORIZON
Pharmacies, Inc. incorporated by reference to Exhibit 4.1 of
our Registration Statement on Form S-3 (File No. 333-61987).
4.2 Form of Warrant dated July 11, 1997 between HORIZON
Pharmacies, Inc. and Capital West Securities, Inc. and Com
Vest Partners, Inc., incorporated herein by reference to
Exhibit 4.2 of our Registration Statement on Form S-3 (File
No. 333-61987).
4.3 Warrant Agreement dated November 7, 1997 by and between
HORIZON Pharmacies, Inc. and Com Vest Partners, Inc.
incorporated by reference to Exhibit 4.3 of our Annual
Report on Form 10-KSB for the fiscal year ended
December 31, 1997 filed electronically on April 15, 1998.
4.4 Form of Warrant dated June 12, 1998 between HORIZON
Pharmacies, Inc. and the parties to the Securities Purchase
Agreement included herein as Exhibit 10.4, incorporated
herein by reference to Exhibit 99.1 of our Current Report on
Form 8-K filed electronically on June 25, 1998.
4.5 Amended and Restated Warrant Purchase Agreement dated
May 14, 1999 among HORIZON Pharmacies, Inc. and McKesson
HBOC, Inc. (filed electronically herewith).
4.6 First Amendment to Amended and Restated Warrant Purchase
Agreement dated March 30, 2000 between HORIZON Pharmacies,
Inc. and McKesson HBOC, Inc. (filed electronically herewith)
4.7 Warrant dated January 28, 2000 between HORIZON Pharmacies,
Inc. and K-2 Financial Corp. (filed electronically herewith)
4.8 Warrant dated February 1, 2000 between HORIZON Pharmacies,
Inc. and 5Net5 Corp. (filed electronically herewith)
4.9 Warrant dated March 14, 2000 between HORIZON Pharmacies,
Inc. and Informed.com, Inc. (filed electronically herewith)
4.10 Warrant dated March 14, 2000 between HORIZON Pharmacies,
Inc. and Informed.com, Inc. (filed electronically herewith)
4.11 Registration Rights Agreement dated March 14, 2000 by and
between HORIZON Pharmacies, Inc., and Informed.com, Inc.
(filed electronically herewith).
4.12 Warrant dated March 30, 2000 between HORIZON Pharmacies,
Inc. and McKesson HBOC, Inc. (filed electronically
herewith).
4.13 Warrant dated April 5, 2000 between HORIZON Pharmacies, Inc.
and eGrocery.com, Inc., incorporated herein by reference to
Exhibit 4.1 of our Current Report on Form 8-K filed
electronically on April 14, 2000.
10.1 Supply Agreement dated effective April 30, 1998 by and
between HORIZON Pharmacies, Inc. and McKesson Corporation,
incorporated herein by reference to Exhibit 10.1 of our Form
10-Q filed electronically on May 15, 1998.
10.2 Letter Agreement dated April 14, 1999 amending the Supply
Agreement included herein as Exhibit 10.1 (filed
electronically herewith)
10.3 Amendment to the Supply Agreement included as Exhibit 10.1
herein, dated March 30, 2000 between HORIZON
Pharmacies, Inc. and McKesson HBOC Inc. (filed
electronically herewith)
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.4 Securities Purchase Agreement dated June 15, 1998 by and
among HORIZON Pharmacies, Inc. and the Several Purchasers
named therein (filed electronically herewith).
10.5 Credit Agreement dated July 2, 1998 by and between the
HORIZON Pharmacies, Inc. and McKesson Corporation,
incorporated by reference to Exhibit 10.1 to our Current
Report on Form 8-K filed electronically on August 4, 1998.
10.6 First Amendment to the Credit Agreement included as Exhibit
10.5 herein, dated as of July 20, 1998 incorporated herein
by referenced to Exhibit 10.2 of our Current Report on Form
8-K filed electronically on August 4, 1998.
10.7 Second Amendment to Credit Agreement included as Exhibit
10.5 herein, dated as of August 26, 1998, incorporated
herein by reference to Exhibit 10.3 of our Current Report on
Form 8-K/A filed electronically on August 31, 1998.
10.8 Third Amendment to Credit Agreement included as Exhibit 10.3
herein, dated as of May 14, 1999 (filed electronically
herewith).
10.9 Fourth Amendment to the Credit Agreement included as Exhibit
10.3 herein, dated as of August 16, 1999 (filed
electronically herewith).
10.10 Fifth Amendment to the Credit Agreement included as Exhibit
10.3 herein, dated as of April 14, 2000 (filed
electronically herewith).
10.11* Form of Employment Agreement by and between HORIZON
Pharmacies, Inc. and each of Rick D. McCord, R.Ph., Charlie
K. Herr, R.Ph. and Robert D. Mueller, R.Ph., incorporated
herein by reference to Exhibit 10.4 to the Registration
Statement on Form SB-2 (File No. 333-25257).
10.12 Purchase Agreement dated November 8, 1998 by and between
HORIZON Pharmacies, Inc. and Holland's Drug Store, Inc.,
incorporated herein by reference to Exhibit 2.1 of our
Current Report on Form 8-K filed electronically on
November 18, 1998.
10.13 Consulting Agreement dated January 28, 2000 between HORIZON
Pharmacies, Inc. and K-2 Financial Corp., incorporated
herein by reference to Exhibit 10.1 of our Current Report on
Form 8-K filed electronically on March 9, 2000.
10.14 Investment Banking Agreement dated January 28, 2000 between
HORIZON Pharmacies, Inc. and Waterford Financial, Inc.,
incorporated herein by reference to Exhibit 10.2 of our
Current Report on Form 8-K filed electronically on March 9,
2000.
10.15 Software Development Agreement dated February 1, 2000
between HORIZON Pharmacies, Inc. and 5Net5 Corp.,
incorporated herein by reference to Exhibit 10.3 of our
Current Report on Form 8-K filed electronically on March 9,
2000.
10.16 Amendment to Software Development Agreement dated
February 1, 2000 between HORIZON Pharmacies, Inc. and 5Net5
Corp., incorporated herein by reference to Exhibit 10.4 of
our Current Report on Form 8-K filed electronically on
March 9, 2000.
10.17 Fulfillment and Guaranty Agreement dated March 14, 2000 by
and between HORIZON Pharmacies, Inc. and
InformedScripts.com, incorporated herein by reference to
Exhibit 10.1 of our Current Report on Form 8-K filed
electronically on April 6, 2000.
10.18 Limited Waiver and Consent dated March 30, 2000 between
HORIZON Pharmacies, Inc. and McKesson HBOC, Inc. (filed
electronically herewith).
10.19 Cooperative Marketing Agreement dated April 6, 2000 by and
between eGrocery.com, Inc. and HORIZON Pharmacies, Inc,
incorporated herein by reference to Exhibit 10.1 of our
Current Report on Form 8-K filed electronically on
April 14, 2000.
10.20 Letter Agreement, dated April 14, 2000, regarding the Loan
Agreement dated July 31, 1999 between HORIZON Pharmacies,
Inc. and Bank One, Texas, N.A. (filed electronically
herewith).
10.21* HORIZON Pharmacies, Inc. 401(k) Plan incorporated herein by
reference to Exhibit 4.2 to our Registration Statement on
Form S-8 (File No. 333-43607).
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.22* HORIZON Pharmacies, Inc. 1999 Stock Option Plan (filed
electronically herewith).
10.23* HORIZON Pharmacies, Inc. 1998 Stock Option Plan incorporated
by reference to Exhibit 4.2 of our Registration Statement on
Form S-8 (File No. 333-62805).
10.24 HORIZON Pharmacies, Inc. 1997 Stock Option Plan incorporated
herein by reference to Exhibit 4.4 to our Registration
Statement on Form SB-2, as amended (File No. 333-25257).
21.1 Subsidiaries of HORIZON Pharmacies, Inc. (filed
electronically herewith).
23.1 Consent of Ernst & Young LLP, Independent Auditors (filed
electronically herewith).
27.1 Financial data schedule (filed electronically herewith).
</TABLE>
- ------------------------
* Management contract or compensatory plan or arrangement.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
WARRANT PURCHASE AGREEMENT
Among
HORIZON PHARMACIES, INC.
And
McKESSON HBOC, INC.
Dated as of May 14, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C>
SECTION 1. CERTAIN DEFINITIONS AND TERMS..........................................................................1
SECTION 1.1 DEFINITIONS............................................................................1
SECTION 2. AUTHORIZATION OF WARRANTS..............................................................................3
SECTION 3. SALE AND PURCHASE OF WARRANTS..........................................................................4
SECTION 4. EXERCISE OF WARRANTS AND DETERMINATION OF SHARES.......................................................4
SECTION 5. WARRANT ISSUE DATE AND CONDITIONS TO ISSUANCE..........................................................4
SECTION 6. REPRESENTATIONS AND WARRANTIES.........................................................................5
SECTION 6.1 PURCHASE FOR INVESTMENT................................................................5
SECTION 6.2 SOURCE OF FUNDS........................................................................5
SECTION 7. TRANSFER; REGISTRATION RIGHTS..........................................................................5
SECTION 7.1 RESTRICTIONS ON TRANSFERABILITY........................................................5
SECTION 7.2 NOTICE OF PROPOSED TRANSFER; REGISTRATION NOT REQUIRED.................................5
SECTION 7.3 REQUIRED REGISTRATION..................................................................6
SECTION 7.4 CONDITIONS TO REQUIRED REGISTRATION...................................................11
SECTION 7.5 INCIDENTAL REGISTRATIONS..............................................................11
SECTION 7.6 UNDERWRITTEN OFFERINGS................................................................12
SECTION 7.7 EXPENSES; RELIANCE....................................................................12
SECTION 7.8 INDEMNIFICATION AND CONTRIBUTION......................................................13
SECTION 7.9 ADDITIONAL REGISTRATION RIGHTS........................................................15
SECTION 7.10 RESTRICTIVE LEGENDS...................................................................15
SECTION 7.11 STOCK EXCHANGE LISTING................................................................16
SECTION 7.12 MISCELLANEOUS.........................................................................16
SECTION 8. REDEMPTION OF WARRANTS................................................................................16
SECTION 9. LOST, STOLEN WARRANTS, ETC............................................................................16
SECTION 10. RESTRICTIONS ON CAPITAL STRUCTURE....................................................................17
SECTION 11. INDEX AND CAPTIONS...................................................................................17
SECTION 12. MISCELLANEOUS........................................................................................17
SECTION 12.1 NOTICES...............................................................................17
SECTION 12.2 SUCCESSORS AND ASSIGNS................................................................17
SECTION 12.3 SEVERABILITY..........................................................................17
SECTION 12.4 GOVERNING LAW.........................................................................18
SECTION 12.5 AMENDMENTS............................................................................18
</TABLE>
i.
<PAGE>
Schedule A -- Notice and Payment Instructions
Exhibit A -- Warrant
ii.
<PAGE>
AMENDED AND RESTATED WARRANT PURCHASE AGREEMENT
THIS AMENDED AND RESTATED WARRANT PURCHASE AGREEMENT (this "AGREEMENT")
is entered into as of May 14, 1999, between HORIZON PHARMACIES, INC., a Delaware
corporation ("COMPANY"), and McKESSON HBOC, INC., a Delaware corporation
formerly known as McKesson Corporation ("MCKESSON").
On July 2, 1998, Company issued its Warrant to purchase 101,500 shares
of Common Stock of Company to McKesson in connection with and as a condition to
the Loans. Such Warrants were issued pursuant to a Warrant Purchase Agreement
dated as of July 2, 1998 between Company and McKesson (the "Original
Agreement"). In consideration of certain amendments and waivers to the Credit
Agreement, Company has agreed to amend and restate the Original Agreement and to
issue new Warrants in exchange for the Warrants issued on July 2, 1998, and to
issue additional Warrants both concurrently with the execution and delivery
hereof and upon the satisfaction of certain conditions. In consideration of the
purchase by McKesson of the Warrants and of the credit facilities extended and
to be extended to Company, Company is willing to offer McKesson the rights
described herein, including, without limitation, registration rights and rights
of indemnity and other rights and privileges relating to the Warrants and the
Restricted Shares and Underlying Shares, all as more specifically set forth
herein.
NOW, THEREFORE, for and in consideration of the foregoing and the
mutual covenants herein contained, the parties hereto agree that the Original
Agreement is hereby amended and restated to read in full as follows:
SECTION 1. CERTAIN DEFINITIONS AND TERMS.
SECTION 1.1 DEFINITIONS. Terms not otherwise defined herein shall have
the respective meanings assigned thereto in the Credit Agreement. As used
herein, the following terms have the meanings indicated:
"BUSINESS DAY" shall mean any day other than a Saturday, a Sunday or a
day on which commercial banks in Princeton, Texas, or San Francisco, California,
are required or authorized to be closed.
"CERTIFICATE OF INCORPORATION" shall mean the Certificate of
Incorporation of Company as filed with the Delaware Secretary of State on April
27, 1998, without further amendment or modification thereto except as permitted
pursuant to the terms of this Agreement or the Warrant.
"CLOSING DATE" means the date on which all conditions precedent set
forth in Section 4.1 of the Credit Agreement have been satisfied or waived by
McKesson.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.
"COMMISSION" means the Securities and Exchange Commission, or any other
federal agency at the time administering the Securities Act or the Trust
Indenture Act of 1939, as amended, as the case may be.
1.
<PAGE>
"COMMON STOCK" means the shares of common stock, par value of $0.01 per
share, of Company described in the Certificate of Incorporation.
"CREDIT AGREEMENT" means that certain Credit Agreement dated as of July
2, 1998 between Company and McKesson, as it may be amended from time to time.
"CUTBACK DETERMINATION" is defined in SECTION 7.3(a).
"DEMAND REGISTRATION" is defined in SECTION 7.3(a).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
"EXERCISE PERIOD" means the period from but excluding on the fifteenth
day after the First Anniversary to and including the Expiration Date.
"EXISTING WARRANT AGREEMENTS" means (i) the Warrant Agreement dated
November 7, 1997 between Company and ComVest Partners, Inc., (ii) the Warrant
Agreement dated July 11, 1997 between Company and Capital West Securities, Inc.
and ComVest Partners, Inc. and (iii) the Securities Purchase Agreement dated
June 15, 1998 among Company, on the one hand, and Quantum Partners LDC, Collins
Capital Diversified Fund, L.P., White Rock Capital Partners, L.P., White Rock
Capital Offshore, Ltd., Legion Strategies Limited, Caxton International Limited
and White Rock Capital Management, L.P. (#10), in each case excluding any
amendments thereto not approved in writing by a majority of the Holders.
"EXPIRATION DATE" as to any Warrant means the date and time specified
as the "Expiration Date" in such Warrant.
"FIRST ANNIVERSARY" means the first anniversary of the Closing Date.
"HOLDER" means any beneficial owner of (i) any Restricted Share, or
(ii) any Warrant, in each case as the context may require.
"INCIDENTAL CUTBACK DETERMINATION" is defined in SECTION 7.5.
"INITIAL WARRANT ISSUE DATE" is defined in SECTION 5.
"PERMITTED INCIDENTAL REGISTRATION" means the registration of
Securities of another Person pursuant to the rights granted by the Company under
the Existing Warrant Agreements or the Registration Rights Agreement dated June
15, 1998 among Company, on the one hand, and Quantum Partners LDC, Collins
Capital Diversified Fund, L.P., White Rock Capital Partners, L.P., White Rock
Capital Offshore, Ltd., Legion Strategies Limited, Caxton International Limited
and White Rock Capital Management, L.P. (#10), in each case excluding any
amendments thereto not approved in writing by a majority of the Holders.
"PERSON" means an individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
2.
<PAGE>
"RESTRICTED SHARES" means the shares of Common Stock of Company issued
upon the exercise of any of the Warrants and evidenced by a certificate required
to bear the legend specified in SECTION 7.10.
"SECOND WARRANT ISSUE DATE" is defined in SECTION 5.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations promulgated thereunder,
all as the same shall be in effect at the time.
"SECURITY" or "SECURITIES" shall have the same meaning as in Section
2(1) of the Securities Act.
"THIRD AMENDMENT TO CREDIT AGREEMENT" means that certain Third
Amendment to Credit Agreement and Limited Waiver dated as of even date herewith
between Company and McKesson.
"UNDERLYING SHARES" means the shares of Common Stock of Company
issuable upon exercise of any of the Warrants in accordance with the Warrants
and this Agreement, and any references contained herein to a Holder or Holders
of any Underlying Shares shall be deemed to refer to the Holder of the Warrants
relating thereto.
"WARRANT ISSUE DATE" is defined in SECTION 5.
"WARRANT SHARES" means the shares of Common Stock issued upon exercise
of the Warrants.
"WARRANTS" is defined in SECTION 2.
SECTION 2. AUTHORIZATION OF WARRANTS.
In consideration of, and as an inducement to, McKesson's entering into
the Third Amendment to Credit Agreement and to continue to extend credit to
Company under the Credit Agreement, Company will authorize the issuance and sale
of, and Company agrees to deliver to McKesson on the Warrant Issue Dates, one or
more warrants (all warrants being delivered to McKesson being referred to
collectively as the "WARRANTS") substantially in the form attached hereto as
Exhibit A to purchase the number of shares of Common Stock of Company as set
forth in SECTION 4 of this Agreement for the consideration set forth in the
Warrants. The number of shares which may be purchased upon the exercise of the
Warrants and the price per share are subject to adjustment in the manner and on
the terms and conditions set forth in the Warrants.
The rights, powers and terms of and relating to the Common Stock will
be provided for in the Certificate of Incorporation, and as otherwise provided
by the Delaware General Corporation Law of the State of Delaware. In addition,
the Warrants and the shares of Common Stock issuable upon exercise thereof are
subject to the terms and provisions specified in this Agreement.
3.
<PAGE>
SECTION 3. SALE AND PURCHASE OF WARRANTS.
Subject to the terms and conditions of this Agreement, Company will
issue and sell to McKesson, and McKesson will purchase from Company, at the
relevant Warrant Issue Date, the following installments of Warrants:
(i) On the Initial Warrant Issue Date, Warrants for 101,500
shares of Common Stock of Company with an initial Exercise Price of
$5.71 in exchange for and upon surrender of the Warrants issued on July
2, 1998;
(ii) On the Initial Warrant Issue Date, additional Warrants
for 100,000 shares of Common Stock of Company with an initial Exercise
Price of $5.71; and
(iii) On the Second Warrant Issue Date, Warrants for 50,000
shares of Common Stock of Company with an Exercise Price equal to the
average closing price of Common Stock of Company for the five business
day period commencing on the date of the Approval Notice.
The aggregate purchase price for the Warrants shall be McKesson's execution and
delivery of the Credit Agreement.
Company and McKesson agree that the per share value of the Warrants for
tax purposes is $2.55. Company and McKesson agree to report the transaction in a
manner consistent with this paragraph.
SECTION 4. EXERCISE OF WARRANTS AND DETERMINATION OF SHARES.
The Warrants shall be exercisable from time to time at any time during
the Exercise Period on an aggregate basis into the number shares of Common Stock
specified in the Warrants, subject to adjustment in the manner and on the terms
and conditions set forth in the Warrants.
SECTION 5. WARRANT ISSUE DATE AND CONDITIONS TO ISSUANCE.
The issuance of the first two installments of Warrants under clauses
(i) and (ii) of Section 3 shall occur simultaneously with the execution and
delivery of the Third Amendment to Credit Agreement by the parties or on such
other Business Day within 30 days thereafter as may be agreed upon by Company
and McKesson (the "Initial Warrant Issue Date"). The issuance of the third
installment of Warrants under clause (iii) of Section 3, if any, shall occur on
the tenth day after the date of the Approval Notice or on such other Business
Day within 30 days thereafter as may be agreed upon by the Company and McKesson
(the "Second Warrant Issue Date" and together with the Initial Warrant Issue
Date, the "Warrant Issue Dates"). On each Warrant Issue Date, Company will
deliver to McKesson the relevant Warrants, the Warrants to be in the form of a
single Warrant (or such greater number of Warrants as McKesson may request)
registered in McKesson's name (or in the name of its nominee). If on a Warrant
Issue Date Company shall fail to deliver to McKesson such documents as provided
in the Credit Agreement or Company shall fail to tender to McKesson the Warrants
as provided above in this SECTION 5, or any of the conditions specified in
SECTION 5 shall not have been fulfilled to its satisfaction, McKesson shall, at
its election, be relieved of all further obligations under this Agreement and
the Credit
4.
<PAGE>
Agreement, without thereby waiving any rights McKesson may have by reason of
such failure or such nonfulfillment.
SECTION 6. REPRESENTATIONS AND WARRANTIES.
SECTION 6.1 PURCHASE FOR INVESTMENT. McKesson represents that it is
purchasing the Warrants for its own account and not with a view to the
distribution thereof, provided that the disposition of its property shall at all
times be within its control. McKesson further represents that it is an
accredited investor within the meaning of Rule 501(a) promulgated under the
Securities Act. McKesson understands that the Warrants have not been registered
under the Securities Act and may be resold only if registered pursuant to the
provisions of the Securities Act or if an exemption from registration is
available, except under circumstances where neither such registration nor such
an exemption is required by law, and that Company is not required to register
the Warrants.
SECTION 6.2 SOURCE OF FUNDS. McKesson represents that the source of
funds to be used by it to pay the purchase price of the Warrants does not
include assets of any employee benefit plan. As used in this SECTION 6.2, the
term "employee benefit plan" shall have the meaning assigned to such term in
Section 3 of ERISA.
SECTION 7. TRANSFER; REGISTRATION RIGHTS.
SECTION 7.1 RESTRICTIONS ON TRANSFERABILITY. The Warrants and the
Restricted Shares shall not be transferable except upon the conditions
hereinafter specified, which conditions are intended to ensure compliance with
the provisions of the Securities Act and any applicable state securities laws.
1. TRANSFER OF RIGHTS. Subject to SECTION 7.10, the
rights granted to McKesson under this SECTION 7 may be transferred to any person
or entity acquiring directly or indirectly any shares of Warrants or Restricted
Shares, as the case may be, from McKesson.
2. TRANSFEREES. Any transferee to whom rights under
SECTION 7 are transferred shall, as a condition to such transfer, agree to be
bound by the obligations imposed by SECTION 7 to the same extent as such
transferee's transferor was bound hereunder.
3. SUBSEQUENT TRANSFEREES. A transferee to whom
rights are transferred pursuant to this Section 7 may only transfer such rights
to another person or entity as provided in (a) and (b) of this Section 7.
SECTION 7.2 NOTICE OF PROPOSED TRANSFER; REGISTRATION NOT REQUIRED. The
Holder of each Warrant or any Restricted Shares, by acceptance thereof, agrees
to give prior written notice to Company of such Holder's intention to transfer
such Warrant (or the Underlying Shares relating thereto) or such Restricted
Shares (or, in each case, any portion thereof), describing briefly the manner
and circumstances of the proposed transfer; provided, however, that no such
notice shall be required for a transfer under a registration requested in
accordance with the provisions of Section 7.3 or in connection with a transfer
made in accordance with the exemptions afforded by Rule 144 or Rule 144A of the
General Rules and Regulations of the Commission (or any other available
exemption from the registration requirements of the
5.
<PAGE>
Securities Act) and exempt from all applicable registration requirements under
state securities laws.
SECTION 7.3 REQUIRED REGISTRATION (a) On (and including) or after the
twenty-fifth day after the First Anniversary, the Holders of at least 30% of the
aggregate then outstanding number of Underlying Shares and Restricted Shares
may, upon written request, require Company to effect the registration (a "DEMAND
REGISTRATION") or qualification under applicable federal or state securities
laws of such Underlying Shares and/or Restricted Shares. Upon receipt of such
written request, Company shall promptly give written notice to all Holders of
Warrants and Restricted Shares of a proposed registration or qualification, and
shall, subject to the conditions of SECTION 7.4, as expeditiously as possible,
use its best efforts to effect any such registration or qualification of:
(i) such Underlying Shares or such Restricted Shares, or any
combination thereof; or
(ii) all other Underlying Shares and Restricted Shares of
Holders of Warrants or Restricted Shares which shall have advised
Company in writing within 30 days after the giving of such written
notice by Company of their desire to have their Underlying Shares or
Restricted Shares registered or qualified or exempted,
with, or notification to or approval of, any governmental authority under any
federal or state securities laws, or listing with any securities exchange, which
may be required to permit the sale or other disposition of any such Underlying
Shares or Restricted Shares which the Holders thereof propose to make, and
Company will keep effective such registration, qualification, exemption,
notification or approval for such period as may be necessary to effect such
sales or dispositions up to a maximum period of nine months after initial
effectiveness.
If the managing underwriter engaged in connection with an underwritten
public offering of such Underlying Shares or Restricted Shares proposed for
registration under this SECTION 7.3 determines in good faith and for valid
business reasons that registration of such Underlying Shares or Restricted
Shares would have an adverse effect on the marketability or the price of such
offering (a "CUTBACK DETERMINATION"), such managing underwriter shall give
prompt written notice of such Cutback Determination to such requesting Holder or
Holders. In such event, Company, upon written notice to the Holders of such
Underlying Shares or Restricted Shares, shall have the right to limit such
Underlying Shares or such Restricted Shares to be registered, if any, to the
largest number which would not result in such adverse effect on marketability or
the price of such offering (such limitation being applied to each such
requesting Holder of Underlying Shares or Restricted Shares pro rata in respect
of the number of shares subject to such request). No Securities of any Person,
other than Securities of a Holder or Securities subject to a Permitted
Incidental Registration, may be included in any registration pursuant to this
SECTION 7.3 without the written consent of the Holders of at least a majority of
the Underlying Shares and/or Restricted Shares participating in such offering
if, with the inclusion of such Securities, the Holders are not able to include
in the registration at least 80% of the Underlying Shares and/or Restricted
Shares that they initially requested to be included.
6.
<PAGE>
(b) REGISTRATION PROCEDURES. In connection with Company's obligations
with respect to a Demand Registration pursuant to SECTION 7.3(a) hereof, Company
shall use its best efforts to effect or cause the registration or qualification
of the Underlying Shares and/or Restricted Shares under the Securities Act and
applicable state securities laws to permit the sale of such Underlying Shares
and/or Restricted Shares by the Holders thereof in accordance with the intended
method of distribution thereof (if such distribution is possible), and pursuant
thereto, Company shall:
(i) prepare and, within 60 days after receipt of the request
pursuant to SECTION 7.3(a) hereof, file with the Commission a
registration statement or registration statements with respect to a
Demand Registration on any form which may be utilized by Company and
which shall permit the disposition of the Underlying Shares and/or
Restricted Shares in accordance with the intended method or methods
thereof, and use its best efforts to cause such registration statement
or registration statements to become effective as expeditiously as
possible, but in any event not later than 120 days after receipt of
such request;
(ii) prepare and file with the Commission such amendments and
supplements to a registration statement or statements hereunder and the
prospectus used in connection therewith as may be necessary to maintain
the effectiveness of such registration statement for the applicable
period specified in SECTION 7.3(a) hereof, and comply in all material
respects with the provisions of the Securities Act and applicable state
securities laws with respect to the disposition of all of the
Underlying Shares and/or Restricted Shares to be included in such
registration statement during such applicable period in accordance with
the intended methods of disposition by the Holders thereof set forth in
the registration statement;
(iii) provide the Holders of the Underlying Shares and/or
Restricted Shares to be included in a registration statement hereunder
and the underwriters (which term, for purposes of this Agreement, shall
include a Person deemed to be an underwriter within the meaning of
Section 2(11) of the Securities Act), if any, of the Securities being
sold and counsel for such underwriters and not more than one counsel
for such Holders the opportunity to participate in the preparation of
such registration statement, each prospectus included therein or filed
with the Commission, and each amendment or supplement thereto; and make
available for inspection by such Persons such financial and other
information, books and records of Company, and cause the officers,
directors and employees of Company, and counsel and independent
certified public accountants for Company, to respond to such inquiries,
as shall be reasonably necessary, in the opinion of the respective
counsel to such Holders and such underwriters, to conduct a reasonable
investigation within the meaning of the Securities Act;
(iv) promptly notify the selling Holders of Underlying Shares
and/or Restricted Shares to be included in a registration statement
hereunder and the managing underwriters, if any, of the Securities
being sold and (if requested by any such Person) confirm such advice in
writing, (1) when such registration statement, the prospectus or any
prospectus supplement or post-effective amendment has been filed, and,
with respect to such registration statement or any post-effective
amendment, when the same has
7.
<PAGE>
become effective, (2) of any request by the Commission for amendments
or supplements to such registration statement or the prospectus or for
additional or supplemental information, (3) of the issuance by the
Commission of any stop order suspending the effectiveness of such
registration statement or the initiation of any proceedings for that
purpose, (4) if at any time the representations and warranties of
Company contemplated by paragraph (xi) below cease to be true and
correct in all material respects, (5) of the receipt by Company of any
notification with respect to the suspension of the qualification of the
Underlying Shares or Restricted Shares for sale in any jurisdiction or
the initiation or threat of any proceeding for such purpose, or (6) at
any time when a prospectus is required to be delivered under the
Securities Act, of the happening of any event as a result of which such
registration statement, prospectus, any prospectus supplement, or any
document incorporated by reference in any of the foregoing contains an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(v) make reasonable efforts to obtain the withdrawal of any
order suspending the effectiveness of a registration statement
hereunder or any post-effective amendment thereto at the earliest
practicable date;
(vi) if requested by the managing underwriter or underwriters
or the Holders of at least a majority of the Underlying Shares and/or
Restricted Shares being sold, promptly incorporate in a prospectus
supplement or post-effective amendment such information as such
managing underwriter or underwriters or such Holders of at least a
majority of the Underlying Shares and/or Restricted Shares being sold
specify should be included therein relating to the sale of the
Underlying Shares and/or Restricted Shares, including, without
limitation, information with respect to the number of Underlying Shares
and/or Restricted Shares being sold to such underwriters, the purchase
price being paid therefor by such underwriters and with respect to any
other terms of the underwritten (or best efforts underwritten) offering
of the Underlying Shares and/or Restricted Shares to be sold in such
offering, except to the extent that Company is advised in a written
opinion of outside counsel that the inclusion of such information is
reasonably likely to violate the federal securities laws; and make all
required filings of such prospectus supplement or post-effective
amendment promptly after notification of the matters to be incorporated
in such prospectus supplement or post-effective amendment;
(vii) furnish to each Holder of Underlying Shares and/or
Restricted Shares to be included in a registration statement hereunder
and each underwriter, if any, of the Securities being sold such number
of copies of such registration statement, each such amendment and
supplement thereto (in each case including all exhibits thereto), the
prospectus included in such registration statement and such other
documents as such Holder and underwriter, if any, may reasonably
request in order to facilitate the disposition of the Underlying Shares
and/or Restricted Shares owned by such Holder; Company consents to the
use of the prospectus or any amendment or supplement thereto by each of
the selling Holders of Underlying Shares and/or Restricted Shares and
the underwriters in connection with the offering and sale of the
Underlying Shares and/or Restricted Shares covered by the prospectus or
any supplement or amendment thereto;
8.
<PAGE>
(viii) use its best efforts to (1) register or qualify the
Underlying Shares and/or Restricted Shares to be included in a
registration statement hereunder under such other securities laws or
Blue Sky laws of such jurisdictions as any Holder of such Underlying
Shares and/or Restricted Shares and each underwriter, if any, of the
Securities being sold shall reasonably request, (2) keep such
registrations or qualifications in effect for so long as the
registration statement remains in effect and (3) take any and all such
actions as may be reasonably necessary or advisable to enable such
Holder and underwriter, if any, to consummate the disposition in such
jurisdictions of such Underlying Shares and/or Restricted Shares owned
by such Holder; PROVIDED, HOWEVER, that Company shall not be required
for any such purpose to (A) qualify generally to do business as a
foreign corporation in any jurisdiction wherein it would not otherwise
be required to qualify but for the requirements of this paragraph
(viii) or (B) consent to general service of process in any such
jurisdiction;
(ix) use its best efforts to cause all of the Underlying
Shares and/or Restricted Shares that are to be included in a
registration statement hereunder to be registered with or approved by
such other governmental agencies or authorities as may be necessary by
virtue of the business and operations of Company to enable the Holder
or Holders thereof to consummate the disposition of such Underlying
Shares and/or Restricted Shares;
(x) use its best efforts in cooperation with the Holders of
the Underlying Shares and/or Restricted Shares to be included in a
registration statement hereunder and the managing underwriters, if any,
to facilitate the timely preparation and delivery of certificates
representing Underlying Shares and/or Restricted Shares to be sold and
not bearing any restrictive legends; and, in the case of an
underwritten offering, enable such Underlying Shares and/or Restricted
Shares to be in such denominations and registered in such names as the
managing underwriters may request at least two Business Days prior to
any sale of the Underlying Shares and/or Restricted Shares;
(xi) enter into such customary agreements (including an
underwriting agreement, in the event that the shares to be included are
to be distributed by means of an underwritten public offering) and take
such other actions in connection therewith as the Holders of at least a
majority of the Underlying Shares and/or Restricted Shares to be
included in a registration statement hereunder shall reasonably request
in order to expedite or facilitate the disposition of such Underlying
Shares and/or Restricted Shares and in such connection, whether or not
an underwriting agreement is entered into and whether or not the
disposition is an underwritten offering, (1) make such representations,
warranties and indemnities to the Holders of such Underlying Shares
and/or Restricted Shares and the underwriters, if any, in form,
substance and scope as are customarily made in an underwritten
offering; (2) obtain an opinion of counsel to Company in customary form
and covering such matters of the type customarily covered by such
opinion as the Holders of at least a majority of the Underlying Shares
and/or Restricted Shares to be included in such registration statement
and the underwriters, if any, may reasonably request, addressed to the
selling Holders and the underwriters, if any, and dated the effective
date of such registration statement and dated the effective date of a
post-effective amendment to the registration statement, if such is
filed (or, if such registration statement covers an underwritten
offering, dated the date of the closing as specified in the
9.
<PAGE>
underwriting agreement); (3) obtain a "cold comfort" or procedures
letter from the independent certified public accountants of Company
addressed to the selling Holders of Underlying Shares and/or Restricted
Shares and to the underwriters, if any, dated the effective date of
such registration statement and dated the effective date of a
post-effective amendment to the registration statement, if such is
filed (and, if such registration statement covers an underwritten
offering, dated the date of the closing as specified in the
underwriting agreement), such letter to be in customary form and
covering such matters of the type customarily covered by such letter;
and (4) deliver such documents and certificates as may be reasonably
requested by the Holders of at least a majority of the Underlying
Shares and/or Restricted Shares being sold and the managing
underwriters, if any, to evidence compliance with clause (1) above and
with any customary conditions contained in the underwriting agreement
or other agreement entered into by Company;
(xii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an earnings
statement covering a period of at least twelve months which shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule
158 of the Commission thereunder;
(xiii) provide a transfer agent and registrar for all
Underlying Shares and/or Restricted Shares registered pursuant to such
registration statement and a CUSIP number for all such Underlying
Shares and/or Restricted Shares, in each case not later than the
effective date of such registration; and
(xiv) use its best efforts to have the Underlying Shares
and/or Restricted Shares listed, subject to notice, on the American
Stock Exchange or other applicable national securities exchange as
Company shall determine to be appropriate.
Upon the occurrence of any event contemplated by paragraph (iv) above,
Company shall, as soon as reasonably practicable, prepare and furnish to each
Holder included in such registration statement and underwriter, if any, a
reasonable number of copies of a prospectus supplemented or amended so that, as
thereafter delivered to the purchasers of the Underlying Shares and/or
Restricted Shares, such prospectus shall not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing. Each Holder of Underlying Shares and/or Restricted
Shares agrees that upon receipt of any notice from Company of the happening of
any event of the kind described in paragraph (iv) hereof, such Holder shall
forthwith discontinue the disposition of Underlying Shares and/or Restricted
Shares pursuant to the registration statement applicable to such Underlying
Shares and/or Restricted Shares until such Holder receives copies of such
amended or supplemented registration statement or prospectus, and, if so
directed by Company, such Holder shall deliver to Company (at Company's expense)
all copies, other than permanent file copies, then in such Holder's possession
of the prospectus covering such Underlying Shares and/or Restricted Shares at
the time of receipt of such notice.
10.
<PAGE>
Company may require each Holder of Underlying Shares and/or Restricted
Shares as to which any registration is being effected to furnish to Company such
information regarding such Holder and the distribution of such Underlying Shares
and/or Restricted Shares as Company may from time to time reasonably request in
writing in order to comply with the Securities Act. Each Holder of Underlying
Shares and/or Restricted Shares as to which any registration is being effected
agrees to notify Company as promptly as practicable of any inaccuracy or change
in information previously furnished by such Holder to Company or of the
happening of any event, in either case as a result of which any prospectus
relating to such registration contains an untrue statement of a material fact
regarding such Holder or the distribution of such Underlying Shares and/or
Restricted Shares or omits to state any material fact regarding such Holder or
the distribution of such Underlying Shares and/or Restricted Shares required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing, and to furnish promptly to Company any
additional information required to correct and update any previously furnished
information or required so that such prospectus shall not contain, with respect
to such Holder or the intended method of distribution of such Underlying Shares
and/or Restricted Shares, an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing.
SECTION 7.4 CONDITIONS TO REQUIRED REGISTRATION. Company shall not be
required to register or effect any registration or qualification of Underlying
Shares and/or Restricted Shares pursuant to SECTION 7.3:
(a) more than one (1) time, PROVIDED that no registration
shall be included as a required registration pursuant to this SECTION
7.4(a) until such time, if any, as the registration statement filed in
connection therewith shall be declared effective and remain effective
until such time as all Shares (and Underlying Shares, as applicable)
have been sold under such registration statement or may be freely sold
in the public market without registration in reliance upon Rule 144(k)
and unless the Holders requesting such registration are able to include
in such registration all of the Underlying Shares and/or Restricted
Shares that they initially requested to be included;
(b) unless there shall have elapsed after a previous
registration of Underlying Shares and/or Restricted Shares pursuant to
SECTION 7.3 or a registration of other shares in which the Holders of
the Underlying Shares or Restricted Shares could participate pursuant
to SECTION 7.5 a period of 90 days or such longer period, not to exceed
180 days, as the managing underwriter in any such registration shall
have determined to be necessary or desirable in light of then current
market conditions; and
(c) unless the request therefor is to register not less than
30% of the aggregate number of Underlying Shares and Restricted Shares
not theretofore registered pursuant to Section 7.3 or Section 7.5.
SECTION 7.5 INCIDENTAL REGISTRATIONS. Company agrees that at any time
it proposes to register any of its Securities in a primary or secondary offering
of such Securities under the Securities Act (otherwise than pursuant to SECTION
7.3) on Form S-1 or any other form of registration statement (other than Form
S-4 or Form S-8) then available for the registration under
11.
<PAGE>
the Securities Act of Securities of Company, it will give timely written notice
to all Holders of outstanding Warrants and Restricted Shares of its intention so
to do and upon the written request of the Holder of any such Warrants or
Restricted Shares, given within 30 days after receipt of any such notice from
Company, Company will in each instance, subject to the next paragraph of this
SECTION 7.5, use its best efforts to cause all Underlying Shares or Restricted
Shares requested to be included in such registration by any such requesting
Holder to be registered under the Securities Act and registered or qualified
under any state securities laws, all to the extent necessary to permit the sale
or other disposition thereof in the manner stated in such request by the
prospective seller of the Securities so registered. Nothing in this SECTION 7.5
shall be deemed to require Company to proceed with any registration of its
Securities after giving the notice herein provided. Registration pursuant to
this SECTION 7.5 shall be in accordance with, and subject to the provisions of,
the "Registration Procedures" set forth in SECTION 7.3(b).
If the managing underwriter engaged by Company in connection with an
underwritten public offering of Securities proposed for registration as
described in this Section 7.5 determines in good faith and for valid business
reasons that registration of the Underlying Shares or Restricted Shares proposed
for inclusion in such registration would, when combined with the other
Securities to be included in such registration, have an adverse effect on the
marketability or the price of such offering (an "Incidental Cutback
Determination"), such managing underwriter shall give prompt written notice of
such Incidental Cutback Determination to such requesting Holder or Holders. In
such event Company, upon written notice to the Holders of such Underlying Shares
or Restricted Shares, shall have the right to limit such Underlying Shares or
such Restricted Shares and such other Securities to be registered, if any, to
the largest number which would not result in such adverse effect on
marketability or the price of such offering (such limitation being applied to
each such requesting Holder of Underlying Shares or Restricted Shares and holder
of such other Securities pro rata in respect of the number of shares subject to
such request).
SECTION 7.6 UNDERWRITTEN OFFERINGS. If the intended method of
distributing the Underlying Shares and/or Restricted Shares to be included in a
registration pursuant to Section 7.3 or Section 7.5 is an underwritten public
offering, then Company shall select the managing underwriter(s) for such
offering, subject to the written consent of the Holders of at least 51% of the
Underlying Shares and/or Restricted Shares to be included in such registration,
which consent shall not be unreasonably withheld. Each Holder of said Underlying
Shares and/or Restricted Shares shall enter into an underwriting agreement,
custody agreement and power of attorney in such forms as the managing
underwriter(s) and Company shall reasonably request, provided that such
agreements and documents are in customary form and substance or reasonably
acceptable to the Holders of a majority of said Underlying Shares and/or
Restricted Shares. Each Holder of the Warrants or Restricted Shares shall
refrain from selling Warrants or Restricted Shares for a period not to exceed 90
days from the date of the public offering of any Underlying Shares or Restricted
Shares which are not included in registration pursuant to Section 7.3 or Section
7.5.
SECTION 7.7 EXPENSES; RELIANCE. Company will pay all expenses,
including, without limitation, registration fees, qualification fees, legal
expenses (including the reasonable fees and expenses of one counsel to the
Holders of Warrants or Restricted Shares whose Underlying Shares or Restricted
Shares are being registered), printing expenses and the costs of special
12.
<PAGE>
audits, if any, and "cold comfort" letters, expenses of underwriters (excluding
underwriting discounts and commissions, but including the reasonable fees and
expenses of any necessary special experts) in connection with the registration
and qualification, notification or exemption requested by any Holder or Holders
of Warrants or Restricted Shares pursuant to Section 7.3 or Section 7.5. The
Holders of the Underlying Shares and/or Restricted Shares shall be responsible
for applicable transfer taxes, brokerage commissions and their share of the
underwriting discounts and commissions.
SECTION 7.8 INDEMNIFICATION AND CONTRIBUTIO (a) In connection with any
registration, qualification, notification, or exemption of Securities under
SECTION 7.3 or SECTION 7.5, Company hereby indemnifies each Holder of the
Warrants, Underlying Shares and/or Restricted Shares, including each Person, if
any, who controls each such Holder within the meaning of Section 15 of the
Securities Act, against all losses, claims, damages and liabilities (including,
without limitation, any liability of any such Holder or Person to any
underwriter participating in any such registration, qualification, notification
or exemption) caused by any untrue, or alleged untrue, statement of a material
fact contained in any registration statement or prospectus or notification or
offering circular (and as amended or supplemented if Company shall have
furnished any amendments or supplements thereto) or any preliminary prospectus
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or alleged untrue statement or omission or
alleged omission based upon information furnished in writing to Company by such
Holder expressly for use therein, and Company and each officer, director and
controlling Person of Company shall be indemnified by each Holder of the
Underlying Shares and/or Restricted Shares for all such losses, claims, damages
and liabilities caused by any untrue statement or alleged untrue statement or
omission or alleged omission based upon information furnished in writing to
Company by each such Holder thereof expressly for any such use. The foregoing is
subject to the condition that, insofar as it relates to any untrue statement,
alleged untrue statement or omission or alleged omission made in any preliminary
prospectus but eliminated or remedied in the final prospectus (or in any
amendment or supplement thereto), the indemnity of Company shall not inure to
the benefit of any underwriter from whom the Person asserting any loss, claim or
damage purchased the Underlying Shares and/or Restricted Shares which were the
subject thereof (or to the benefit of any Person who controls such underwriter),
if a copy of the final prospectus (or such amendment or supplement thereto) was
not sent or given to such Person at or prior to the time such action is required
by the Securities Act.
(b) Promptly upon receipt by a party indemnified under this SECTION 7.8
of notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this SECTION 7.8, such indemnified party shall notify
the indemnifying party in writing of the commencement of such action, but the
failure so to notify the indemnifying party shall not relieve it of any
liability which it may have to any indemnified party (i) under this SECTION 7.8
except to the extent that the indemnifying party is materially prejudiced by
such failure to notify, or (ii) otherwise than under this SECTION 7.8. In case
notice of commencement of any such action shall be given to the indemnifying
party as above provided, the indemnifying party shall be entitled to participate
in and, to the extent it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense of such action at its own expense,
with counsel chosen by it and satisfactory
13.
<PAGE>
to such indemnified party. The indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, and
the fees and expenses of such counsel (other than reasonable costs of
investigation) shall be paid by the indemnifying party unless the indemnified
party agrees to pay the same. No indemnifying party shall be liable for any
settlement entered into without its consent. In addition to its other
obligations under this SECTION 7.8, each indemnifying party agrees that, as an
interim measure during the pendency of any claim, action, investigation, inquiry
or other proceeding arising out of or based upon any statement or omission, or
any alleged statement or omission, described in this SECTION 7.8, it will
reimburse each indemnified party on a monthly basis for all reasonable legal and
other expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the indemnifying party's obligation to reimburse the indemnified party or
parties for such expenses and the possibility that such payments might later be
held to have been improper by a court of competent jurisdiction.
(c) If the indemnification provided for in this SECTION 7.8 from the
indemnifying party is unavailable to an indemnified party hereunder in respect
of any losses, claims, damages, liabilities or expenses to which such
indemnified party would be otherwise entitled under SECTION 7.8(a), then the
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or expenses in such proportion as
is appropriate to reflect the relative fault of the indemnifying party and
indemnified parties in connection with the actions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding. In no event shall any Holder of Warrants,
Underlying Shares or Restricted Shares be required to contribute an amount
greater than the dollar amount of the proceeds received by such Person with
respect to the sale of any Warrants, Underlying Shares or Restricted Shares.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this SECTION 7.8(c) were determined by PRO RATA
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
(d) The indemnification and contribution provided for in this SECTION
7.8 shall survive, with respect to a Holder of Underlying Shares of Restricted
Shares, the transfer of Underlying Shares or Restricted Shares by such Holder
and with respect to a Holder of
14.
<PAGE>
Underlying Shares or Restricted Shares, shall remain in full force and effect
regardless of any investigation made by or on behalf of any indemnified party.
(e) In connection with any registration pursuant to Section 7.3 or
Section 7.5, Company agrees, and each Holder of Warrants or Restricted Shares
(except for McKesson and any other than any such Holder which shall have
executed and delivered a counterpart of this Agreement) by acceptance of such
Warrants, or Restricted Shares, agrees that it will enter into an agreement
containing substantially the indemnification provisions of this Section 7.8.
SECTION 7.9 ADDITIONAL REGISTRATION RIGHTS. Company will not grant to
any Person at any time after the date hereof the right to request Company to
effect the registration or qualification or filing for exemption under
applicable federal or state securities laws of any Securities of Company, unless
the agreement or agreements providing for such rights specifically provide that
the holders of such rights may not participate in any registration requested
pursuant to Section 7.3 if such participation would violate the last sentence of
Section 7.3(a).
SECTION 7.10 RESTRICTIVE LEGENDS. Each Warrant initially issued and
each Warrant issued in exchange therefor shall, unless otherwise permitted by
the provisions of this SECTION 7.10, bear on the face thereof a legend reading
substantially as follows:
This Warrant and the shares of Common Stock issuable upon
exercise hereof have not been registered or qualified for sale
under the Securities Act of 1933, as amended, or any state
securities laws and may not be offered for sale, sold or
otherwise transferred unless such offer, sale or transfer is
registered or qualified pursuant to the registration
requirements of such Securities Act and any applicable state
securities laws, or is preceded by an opinion of counsel
addressed to HORIZON Pharmacies, Inc. that such sale or other
transfer is exempt from all such registration requirements.
This Warrant and the shares of Common Stock issuable upon
exercise hereof are subject to the terms and provisions
specified in the Amended and Restated Warrant Purchase
Agreement dated as of May 14, 1999, between HORIZON
Pharmacies, Inc., and McKesson HBOC, Inc.
Each certificate for shares of Common Stock of Company initially issued
upon the exercise of any Warrant and each certificate for shares of Common Stock
of Company issued to a subsequent transferee of such certificate shall, unless
otherwise permitted by the provisions of this SECTION 7.10, bear on the face
thereof a legend reading substantially as follows:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
any state securities laws and may not be sold or transferred
in the absence of such registration unless such sale or
transfer is preceded by an opinion of counsel addressed to
HORIZON Pharmacies, Inc., that such sale or other transfer is
exempt from the registration requirements of said Securities
Act and any such state securities
15.
<PAGE>
laws which may be applicable and are subject to of the terms
and provisions specified in that certain Amended and Restated
Warrant Purchase Agreement dated as of May 14, 1999, between
HORIZON Pharmacies, Inc., and McKesson HBOC, Inc.
In the event that a registration statement covering Underlying Shares
or Restricted Shares shall become effective under the Securities Act and under
any applicable state securities laws or in the event that Company shall receive
an opinion of its counsel (or, at Company's election, nationally recognized
independent counsel to any Holder) that, in the opinion of such counsel, such
legend is not, or is no longer, necessary or required (including, without
limitation, because of the availability of the exemptions afforded by Rule 144
or Rule 144A of the General Rules and Regulations of the Commission), Company
shall, or shall instruct its transfer agents and registrars to, remove such
legend from the Warrants and certificates evidencing Restricted Shares or issue
new Warrants and certificates without such legend in lieu thereof. Upon the
written request of the Holder or Holders of any Warrants or any Restricted
Shares, Company covenants and agrees forthwith to request its counsel to render
an opinion with respect to the matters covered by this Section 7.10 and any
legends set forth on the Warrants and Restricted Share certificates and to bear
all reasonable expenses in connection with any opinion of counsel contemplated
hereinabove.
SECTION 7.11 STOCK EXCHANGE LISTING. In the event Company's Common
Stock is listed on a national securities exchange at the time of exercise of a
Warrant, Company will, at its expense, also list on such exchange, upon exercise
of the Warrant, all shares of Common Stock issuable pursuant to such Warrant.
SECTION 7.12 MISCELLANEOUS. Company shall comply with all issuer
reporting requirements set forth or referred to in Rule 144 or Rule 144A
promulgated under the Securities Act and will do all such other things as may be
reasonably necessary to permit the expeditious sale at any time of any Warrants,
Restricted Shares or Underlying Shares by the Holder thereof in accordance with
and to the extent permitted by said Rule 144 or Rule 144A, as the case may be,
or any other similar Rule or Rules promulgated by the Commission from time to
time.
SECTION 8. REDEMPTION OF WARRANTS.
Company shall have no right or option exercisable at its election to
redeem or call any Warrant or any Restricted Shares.
SECTION 9. LOST, STOLEN WARRANTS, ETC.
In case any Warrant shall be mutilated, lost, stolen or destroyed,
Company may issue a new Warrant of like date, tenor and denomination and deliver
the same in exchange and substitution for and upon surrender and cancellation of
the mutilated Warrant, or in lieu of the lost, stolen or destroyed Warrant, upon
receipt of evidence satisfactory to Company of the loss, theft or destruction of
such Warrant, and upon receipt of indemnity satisfactory to Company (which, in
the case of McKesson, shall consist of its unsecured agreement to indemnify
Company for a loss in connection with such loss, theft or destruction of such
Warrant).
16.
<PAGE>
SECTION 10. RESTRICTIONS ON CAPITAL STRUCTURE.
Company will not, without the written consent of the Holders of at
least 75% of the then outstanding Warrants and Restricted Shares (determined on
a Common Stock equivalent basis):
(i) be bound by or subject to (or permit Company to be bound
by or subject to) any debt or other agreement which restricts the right
or ability of Company to perform its obligations hereunder or under the
Warrants; or
(ii) amend or change the Certificate of Incorporation or
bylaws (each as currently amended and/or restated) in a manner which
could materially and adversely affect this Agreement, the Warrants, the
Restricted Shares or the rights of any Holder of any of the foregoing
(unless such amendment or change (a) is solely with respect to the
rights, preferences and privileges of the outstanding capital stock of
Company and (b) affects all shares of Common Stock equally) or violate
any of the terms or provisions thereof.
SECTION 11. INDEX AND CAPTIONS.
The index and the descriptive headings of the various sections of this
Agreement are for convenience only and shall not affect the meaning or
construction of the provisions hereof.
SECTION 12. MISCELLANEOUS.
SECTION 12.1 NOTICES. All notices and communications provided for
hereunder shall be in writing and sent (a) by telecopy if the sender on the same
day sends a confirming copy of such notice by a recognized overnight delivery
service (charges prepaid), or (b) by registered or certified mail with return
receipt requested (postage prepaid), or (c) by a recognized overnight delivery
service (specifying next business day delivery, with charges prepaid). Any such
notice must be sent:
(i) if to McKesson or its nominee, to McKesson at the address
specified for such communications in Schedule A, or at such other
address as McKesson shall have specified to Company in writing, or
(ii) if to Company, at 275 W. Princeton Drive, Princeton,
Texas 75407, or to such other address as Company may designate to the
Holders in writing.
Notices under this Section 12.1 will be deemed given only when actually
received.
SECTION 12.2 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon Company and its respective successors and assigns and shall inure to the
benefit of McKesson and its successors and permitted assigns, including each
successive Holder.
SECTION 12.3 SEVERABILITY. Should any part of this Agreement for any
reason be declared invalid or unenforceable, such decision will not affect the
validity or enforceability of any remaining portion, which remaining portion
will remain in force and effect as if this Agreement had been executed with the
invalid or unenforceable portion thereof eliminated and it
17.
<PAGE>
is hereby declared the intention of the parties hereto that they would have
executed the remaining portion of this Agreement without including therein any
such part or portion which may, for any reason, be hereafter declared invalid or
unenforceable.
SECTION 12.4 GOVERNING LAW. This Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the law of the State of California, excluding choice-of-law principles of the
law of such state that would require the application of the laws of a
jurisdiction other than such state.
SECTION 12.5 AMENDMENTS. This Agreement may be amended only by an
instrument in writing executed by the Holders of the Warrants and Restricted
Shares then outstanding and Company.
The execution hereof by the undersigned shall constitute a contract
between Company and McKesson for the uses and purposes hereinabove set forth.
This Agreement may be executed in any number of counterparts, each executed
counterpart constituting an original but all together only one agreement.
HORIZON PHARMACIES, INC.
By /s/ John N. Stogner
------------------------------
Its CFO/Treasurer
-------------------------
Accepted and agreed to as of May 14, 1999.
McKESSON HBOC, INC.
By /s/ Alan Pearce
------------------------------
Name Alan Pearce
Title Senior Vice President
Financial Services
18.
<PAGE>
SCHEDULE A
(TO WARRANT AGREEMENT)
NOTICE AND PAYMENT INSTRUCTIONS
Notices: McKesson HBOC, Inc.
One Post Street, 28th Floor
San Francisco, California 94104
Facsimile No.: (415) 983-8464
Attention: Assistant Treasurer
with a copy to: McKesson HBOC, Inc.
One Post Street, 29th Floor
San Francisco, California 94104
Facsimile No.: (415) 983-9369
Attention: Legal Department
Payment: McKesson HBOC, Inc.
Account No.: 12337-53022
Bank of America, N.T.&S.A.
ABA No.: 121000358
19.
<PAGE>
FIRST AMENDMENT TO AMENDED AND RESTATED
WARRANT PURCHASE AGREEMENT
This First Amendment to Amended and Restated Warrant Purchase
Agreement (this "Amendment") is entered into as of March 30, 2000, between
HORIZON Pharmacies, Inc., a Delaware corporation ("Company") and McKesson HBOC,
Inc., a Delaware corporation formerly known as McKesson Corporation
("McKesson").
RECITALS
WHEREAS, Company and McKesson are parties to that certain
Amended and Restated Warrant Purchase Agreement dated as of May 14, 1999 (the
"Warrant Purchase Agreement"). Capitalized terms used herein without definition
shall have the same meanings herein as ascribed thereto pursuant to the Warrant
Purchase Agreement.
WHEREAS, Company has requested that McKesson grant Company
certain waivers and consents with respect to matters in the Credit Agreement and
the Warrant Purchase Agreement, and McKesson is willing to do so upon certain
terms and conditions, including but not limited to certain amendments being made
in the Warrant Purchase Agreement and an additional Warrant being issued to
McKesson.
NOW, THEREFORE, in consideration of the promises and
agreements, provisions and covenants herein contained, and McKesson's concurrent
waiver and consent as to certain matters under the Credit Agreement, the parties
hereto agree as follows:
SECTION 1. THE ISSUANCE OF NEW WARRANT; AMENDMENTS TO WARRANT PURCHASE
AGREEMENT AND WARRANTS.
A. The Company hereby agrees to issue a new Warrant under the Warrant
Purchase Agreement (as amended pursuant hereto) for 10,000 shares of Company's
Common Stock with an exercise price of $5.5625 per share. The date of issuance
of such new Warrant shall be deemed to be the "Third Warrant Issue Date", and
the definition of "Warrant Issue Dates" in Section 5 of the Warrant Purchase
Agreement is hereby amended to mean the Initial Warrant Issue Date, the Second
Warrant Issue Date, and the Third Warrant Issue Date.
B. Section 3 of the Warrant Purchase Agreement is hereby amended to
read in full as follows:
SECTION 3. SALE AND PURCHASE OF WARRANTS.
Subject to the terms and conditions of this
Agreement, Company will issue and sell to McKesson, and
McKesson will purchase from Company, at the relevant Warrant
Issue Date, the following installments of Warrants:
<PAGE>
(i) On the Initial Warrant Issue Date,
Warrants for 101,500 shares of Common Stock of Company with an
initial Exercise Price of $5.71 in exchange for and upon
surrender of the Warrants issued on July 2, 1998;
(ii) On the Initial Warrant Issue Date,
additional Warrants for 100,000 shares of Common Stock of
Company with an initial Exercise Price of $5.71;
(iii) On the Second Warrant Issue Date,
Warrants for 50,000 shares of Common Stock of Company with an
Exercise Price equal to the average closing price of Common
Stock of Company for the five business day period commencing
on the date of the Approval Notice; and
(iv) On the Third Warrant Issue Date,
Warrants for 10,000 shares of Common Stock of Company with an
Initial Exercise Price of $5.5625.
The aggregate purchase price for the Warrants described in clauses (i),
(ii) and (iii) above shall be McKesson's execution and delivery of the
Credit Agreement. The purchase price for the Warrant described in
clause (iv) above shall be McKesson's execution and delivery of the
Limited Waiver and Consent dated the Third Warrant Issue Date.
Company and McKesson agree that the per share value of the
Warrants for tax purposes is $2.55. Company and McKesson agree to
report the transaction in a manner consistent with this paragraph.
C. Section 7.4 of the Warrant Purchase Agreement is hereby amended by
substituting in clause (a) thereof the phrase "more than two (2) times" for the
phrase "more than one (1) time".
D. The form of Exhibit A to the Warrant Purchase Agreement is hereby
amended by inserting the following sentence at the end of Section 3.3 thereof.
If the price per share at which any holder of Convertible
Securities may purchase Additional Shares of Common Stock is
modified because of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices
or otherwise, then the occurrence of any such change shall be
deemed to be a reissuance of such Convertible Securities and
such reissuance shall be subject to the provisions of this
Section 3.3.
Any of the Warrants already issued shall be deemed hereby amended to include
such additional sentence.
2
<PAGE>
SECTION 2. MISCELLANEOUS
A. Reference to and Effect on the Warrant Purchase Agreement and the
Other Loan Agreements.
(i) On and after the date hereof, each reference in the
Warrant Purchase Agreement to "this Agreement", "hereunder", "hereof", "herein"
or words of like import referring to the Warrant Purchase Agreement, and each
reference in the other Loan Documents to the "Warrant Purchase Agreement",
"thereunder", "thereof" or words of like import referring to the Warrant
Purchase Agreement shall mean and be a reference to the Warrant Purchase
Agreement as amended by this Amendment.
(ii) Except as specifically amended by this Amendment, the
Warrant Purchase Agreement, the Warrants and the other Loan Documents shall
remain in full force and effect and are hereby ratified and confirmed.
B. COSTS AND EXPENSES. The Company covenants to pay to or reimburse
McKesson, upon demand, for all costs, out-of-pocket expenses and reasonable
attorneys' fees expended or incurred by McKesson in connection with the
development, preparation, negotiation, execution and delivery of this Amendment
and the documents and transactions contemplated hereby.
C. HEADINGS. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
D. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
E. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. Each of
the parties hereto understands and agrees that this document (and any other
document required herein) may be delivered by any party thereto either in the
form of an executed original or an executed original sent by facsimile
transmission to be followed promptly by mailing of a hard copy original, and
that receipt by a party of a facsimile transmitted document purportedly bearing
the signature of the other party shall bind the other party with the same force
and effect as the delivery of a hard copy original. Any failure by a party to
receive the hard copy executed original of such document shall not diminish the
binding effect of receipt of the facsimile transmitted executed original of such
document of the other party.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
HORIZON PHARMACIES, INC.
By: /s/ Ricky D. McCord
--------------------------------------------
Title: CEO & President
-----------------------------------------
McKESSON HBOC, INC.
By: /s/ Alan Pearce
--------------------------------------------
Title: Senior Vice President Financial Services
-----------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED OR QUALIFIED FOR SALE UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD
OR OTHERWISE TRANSFERRED UNLESS SUCH OFFER, SALE OR TRANSFER IS REGISTERED OR
QUALIFIED PURSUANT TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR IS PRECEDED BY AN OPINION OF COUNSEL
ADDRESSED TO HORIZON PHARMACIES, INC. THAT SUCH SALE OR OTHER TRANSFER IS EXEMPT
FROM ALL SUCH REGISTRATION REQUIREMENTS. THE EXERCISE OF THIS WARRANT, THIS
WARRANT, AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF ARE
SUBJECT TO THE TERMS AND PROVISIONS SPECIFIED IN THE CONSULTING AGREEMENT DATED
AS OF JANUARY 28, 2000, BY AND BETWEEN HORIZON PHARMACIES, INC. AND K-2
FINANCIAL CORPORATION.
No. WR-2001
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
HORIZON PHARMACIES, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. EXERCISE OF WARRANT.............................................................................1
SECTION 2. RESERVATION.....................................................................................2
SECTION 3. PROTECTION AGAINST DILUTION.....................................................................2
Section 3.1 Stock Dividends, Subdivisions, and Combinations........................................2
Section 3.2 Issuance of Additional Shares of Common Stock..........................................3
Section 3.3 Issuance of Warrants or Other Rights, Convertible Securities...........................3
Section 3.4 Other Provisions Applicable to Adjustments.............................................4
Section 3.5 Extraordinary Dividends................................................................5
Section 3.6 Adjustment of Number of Shares Purchasable.............................................5
Section 3.7 Minimum Adjustment.....................................................................6
Section 3.8 Notice of Adjustments..................................................................6
SECTION 4. MERGERS, CONSOLIDATIONS, SALES..................................................................7
SECTION 5. DISSOLUTION OR LIQUIDATION......................................................................7
SECTION 6. NOTICE OF DIVIDENDS.............................................................................7
SECTION 7. FRACTIONAL SHARES...............................................................................8
SECTION 8. FULLY PAID STOCK; TAXES.........................................................................8
SECTION 9. CLOSING OF TRANSFER BOOKS.......................................................................8
SECTION 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT.........................................................8
Section 10.1 Partial Exercise.......................................................................8
Section 10.2 Assignment.............................................................................8
SECTION 11. DEFINITIONS.....................................................................................9
SECTION 12. WARRANT HOLDER NOT SHAREHOLDER.................................................................11
SECTION 13. SEVERABILITY...................................................................................11
SECTION 14. GOVERNING LAW..................................................................................11
</TABLE>
i
<PAGE>
Warrant
No. WR-2001
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
HORIZON PHARMACIES, INC.
THIS IS TO CERTIFY that, for value received and subject to the provisions
hereinafter set forth,
K-2 FINANCIAL CORP.
or its permitted assigns,
is entitled to purchase from HORIZON Pharmacies, Inc., a Delaware corporation
("COMPANY"), at any time and from time to time during the Exercise Period, up to
200,000 shares of Common Stock, par value $0.01 per share, of Company, subject
to the terms, provisions and conditions hereinafter set forth at a price per
share equal to $2.75. The price per share is subject to adjustment as
hereinafter provided (such price, or such price as last adjusted, as the case
may be, being herein referred to as the "PER SHARE WARRANT PRICE"). The said
number of shares purchasable hereunder is likewise subject to adjustment as
hereinafter provided.
The aggregate price of the Common Stock purchasable hereunder shall at
all times be equal to the price per share set forth in the preceding paragraph
multiplied by the number of shares initially purchasable hereunder. The
aggregate price is herein sometimes referred to as the "Aggregate Warrant Price"
and is not subject to adjustment.
The terms which are capitalized herein shall have the meanings
specified in Section 11 unless the context shall otherwise require.
SECTION 1. EXERCISE OF WARRANT.
Subject to the conditions hereinafter set forth and to the condition
set forth in Paragraph 4 of the Consulting Agreement, dated as of January 28,
2000, by and between the Company and K-2 Financial Corporation, this Warrant may
be exercised in whole or in part at any time and from time to time during the
Exercise Period by the surrender of this Warrant (with the subscription from at
the end hereof duly executed) at the principal office of Company in Denison,
Texas, and upon payment to Company of a sum equal to the per share Warrant Price
multiplied by the number of shares purchased in such exercise, which payment
shall be made by the wire transfer or other delivery to Company of one or more
types of Permitted Consideration.
1
<PAGE>
In the event that Warrants shall be delivered to Company as payment of
all or any portion of the purchase price payable hereunder, the amount of such
purchase price deemed to be paid by means of such delivery shall equal (a) the
aggregate number of shares of Underlying Shares related to any Warrants so
delivered, multiplied by (b) the result, not less than zero, equal to (i) the
Current Market Price then in effect (with the date of the exercise of the
Warrant being deemed to be the "Issuance Date" for purposes of making
determinations under the definition of "Current Market Price") MINUS (ii) the
per share Warrant Price then in effect.
If this Warrant is exercised in respect of less than all of the shares
of Common Stock at the time purchasable hereunder, following such exercise this
Warrant shall be returned to the holder hereof and shall remain exercisable in
respect of such number of shares of Common Stock as may thereafter be determined
hereunder.
This Warrant and all rights and options hereunder shall expire to the
extent that it has not been exercised on or before the Expiration Date.
Company shall pay all reasonable expenses, stamp, documentary and
transfer taxes and other charges payable in connection with the preparation,
execution and delivery of stock certificates pursuant to this Section,
regardless of the name or names in which such stock certificates shall be
registered.
SECTION 2. RESERVATION.
Company will at all times reserve and keep available such number of
authorized shares of its Common Stock, solely for the purpose of issue upon the
exercise of the rights represented by this Warrant as herein provided for, as
may at any time be issuable (based upon the number of shares of Common Stock
outstanding at any such time) upon the exercise of this Warrant.
SECTION 3. PROTECTION AGAINST DILUTION.
The per share Warrant Price and the number of shares deliverable
hereunder shall be adjusted from time to time as hereinafter set forth:
SECTION 3.1 STOCK DIVIDENDS, SUBDIVISIONS, AND COMBINATIONS. In case
after the date hereof Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend and declared to be
payable in, or other declared distribution of, Common Stock, or
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then the per share Warrant Price shall be adjusted to that price determined by
multiplying the per share Warrant Price in effect immediately prior to such
event by a fraction (i) the numerator of
2
<PAGE>
which shall be the total number of outstanding shares of Common Stock
immediately prior to such event, and (ii) the denominator of which shall be the
total number of outstanding shares of Common Stock immediately after such event.
SECTION 3.2 ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In case
after the date hereof Company shall (except as hereinafter provided) issue any
Additional Shares of Common Stock for a consideration less than the Current
Market Price per share, then the per share Warrant Price on each such issuance
shall be adjusted to that price determined by multiplying the per share Warrant
Price in effect immediately prior to such event by a fraction:
(a) the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of such
Additional Shares of Common Stock plus the number of full shares of
Common Stock which the aggregate consideration for the total number of
such Additional Shares of Common Stock so issued would purchase at the
Current Market Price per share, and
(b) the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of such
Additional Shares of Common Stock plus the number of such Additional
Shares of Common Stock so issued.
The provisions of this Section 3.2 shall not apply to any Additional
Shares of Common Stock which are distributed to holders of Common Stock as a
stock dividend or subdivision, for which an adjustment is provided for under
Section 3.1. No adjustment of the share per Warrant Price shall be made under
this Section 3.2 upon the issuance of any Additional Shares of Common Stock
which are issued pursuant to the exercise of any warrants or other subscription
or purchase rights or pursuant to the exercise of any conversion or exchange
rights in any Convertible Securities, if any such adjustment shall previously
have been made upon the issuance of such warrants or other rights or upon the
issuance of such Convertible Securities (or upon the issuance of any warrants or
other rights therefor) pursuant to Section 3.3.
SECTION 3.3 ISSUANCE OF WARRANTS OR OTHER RIGHTS, CONVERTIBLE
SECURITIES. In case Company shall issue any warrants or other rights to
subscribe for or purchase any Additional Shares of Common Stock or issue
Convertible Securities and the consideration per share for which Additional
Shares of Common Stock may at any time thereafter be issuable pursuant to such
warrants or other rights or pursuant to the terms of such Convertible Securities
shall be less than the Current Market Price per share, then the per share
Warrant Price shall be adjusted as provided in Section 3.2 above on the basis
that:
(a) the maximum number of Additional Shares of Common Stock
issuable pursuant to all such warrants or other rights or necessary to
effect the conversion or exchange of all such Convertible Securities
shall be deemed to have been issued as of the earlier of: (i) the date
on which Company shall enter a firm contract or commitment for the
issuance of such warrants, other rights or Convertible Securities or
(ii) the date of actual issuance of such warrants, other rights or
Convertible Securities, and
(b) the aggregate consideration for such maximum number of
Additional Shares of Common Stock shall be deemed to be the minimum
consideration received and receivable
3
<PAGE>
by Company for the issuance of such Additional Shares of Common Stock
pursuant to such warrants or other rights or pursuant to the terms of
such Convertible Securities.
No adjustment of the per share Warrant Price shall be made under this
Section 3.3 upon the issuance of any Convertible Securities which are issued
pursuant to the exercise of any warrants or other subscription or purchase
rights therefor, to the extent such adjustment shall previously have been made
upon the issuance of such warrants or other rights pursuant to this Section 3.3.
SECTION 3.4 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS. The following
provisions shall be applicable to the making of adjustments in the per share
Warrant Price hereinbefore provided in this Section 3:
(a) COMPUTATION OF CONSIDERATION. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any
warrants or other rights to subscribe for or purchase any Additional
Shares of Common Stock or any Convertible Securities shall be issued
for a cash consideration, the consideration received by Company
therefor shall be deemed to be the amount of the cash received by
Company therefor, or, if such Additional Shares of Common Stock or
Convertible Securities or warrants or other rights are offered by
Company for subscription, the subscription price, or, if such
Additional Shares of Common Stock or Convertible Securities or warrants
or other rights are sold to underwriters or dealers for public offering
without a subscription offering, the offering price, in any such case
excluding any amounts paid or receivable for accrued interest or
accrued dividends and without deduction of any compensation, discounts
or expenses paid or incurred by Company for and in the underwriting
thereof, or otherwise in connection with the issue thereof. To the
extent that such issuance shall be for a consideration other than cash,
then, except as herein otherwise expressly provided, the amount of such
consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as determined in good faith
by the Board of Directors of Company. The consideration for any
Additional Shares of Common Stock issuable pursuant to any warrants or
other rights to subscribe for or purchase the same shall be the
consideration received by Company for issuing such warrants or other
rights plus the additional consideration payable to Company upon the
exercise of such warrants or other rights. The consideration for any
Additional Shares of Common Stock issuable pursuant to the terms of any
Convertible Securities shall be the consideration received by Company
for issuing any warrants or other rights to subscribe for or purchase
such Convertible Securities plus the consideration paid or payable to
Company in respect of the subscription for or purchase of such
Convertible Securities plus the additional consideration, if any,
payable to Company upon the exercise of the right of conversion or
exchange of such Convertible Securities. In case of the issuance at any
time of any Additional Shares of Common Stock or Convertible Securities
in payment or satisfaction of any dividend upon any class of equity
securities other than Common Stock, Company shall be deemed to have
received for such Additional Shares of Common Stock or Convertible
Securities a consideration equal to the amount of such dividend so paid
or satisfied.
(b) READJUSTMENT OF PER SHARE WARRANT PRICE. Upon expiration
of the right of exercise, conversion or exchange of any Convertible
Securities, or upon the expiration of any rights, options or warrants,
or upon the termination of any firm contract or commitment for the
issuance of such rights, options, warrants or Convertible Securities,
or upon any increase
4
<PAGE>
in the minimum consideration receivable by Company for the issuance of
Additional Shares of Common Stock pursuant to such Convertible
Securities, rights, options or warrants, if any such Convertible
Securities shall not have been exercised, converted or exchanged, or if
any such rights, options or warrant shall not have been exercised, the
number of shares of Common Stock deemed to be issued and outstanding by
any reason of the fact that they were issuable upon exercise,
conversion or exchange of any such Convertible Securities or upon
exercise of any such rights, options or warrants shall no longer be
computed as set forth above, and the per share Warrant Price shall
forthwith be readjusted and thereafter be the price which it would have
been (but reflecting any other adjustments in the per share Warrant
Price made pursuant to the provisions of this Section 3 after the
issuance of such Convertible Securities, rights, options or warrants)
had the adjustment of the per share Warrant Price made upon the
issuance or sale of such Convertible Securities or the issuance of such
rights, options or warrants been made on the basis of the issuance only
of the number of Additional Shares of Common Stock actually issued upon
exercise, conversion or exchange of such Convertible Securities or upon
the exercise of such rights, options or warrants, or upon the basis of
such increased minimum consideration, as the case may be, and thereupon
only the number of Additional Shares of Common Stock actually so issued
plus the number thereof then issuable upon the basis of such increased
minimum consideration shall be deemed to have been issued and only the
consideration actually received plus increased minimum consideration
receivable by Company (computed in accordance with Section 3.4(a))
shall be deemed to have been received by Company.
(c) ROUNDING OF PER SHARE WARRANT PRICE. Any determination of
per share Warrant Price hereunder shall be expressed in United States
Dollars, cents and portions of cents and shall be rounded to the
nearest 1/1000 of one cent or, if there is no nearest 1/1000 of one
cent, to the next highest 1/1000 of one cent.
SECTION 3.5 EXTRAORDINARY DIVIDENDS. In case Company shall declare a
dividend upon its Common Stock (except a dividend payable in shares of Common
Stock referred to in Section 3.1(a) or a dividend payable in warrants, rights or
Convertible Securities referred to in Section 3.3) payable otherwise than out of
earnings or surplus (other than revaluation surplus or paid-in surplus), the per
share Warrant Price in effect immediately prior to the declaration of such
dividend shall be reduced by an amount equal, in the case of a dividend in cash,
to 10% of the amount thereof payable per share of Common Stock or, in the case
of any other dividend, to the fair value thereof per share of Common Stock as
determined in good faith by the Board of Directors of Company. For the purposes
of the foregoing, a dividend payable other than in cash shall be considered
payable out of earnings or surplus (other than revaluation surplus or paid-in
surplus) only to the extent that such earnings or surplus are charged an amount
equal to the fair value of such dividend as determined by the Board of Directors
of Company. If such dividend is paid or Company declares and becomes legally
liable to pay such dividend, such reduction shall take effect as of the date on
which a record is taken for the purpose of such dividend or, if a record is not
taken, the date as of which the holders of the Common Stock of record entitled
to such dividend are to be determined. Appropriate readjustment of the per share
Warrant Price shall be made in the event that any dividend referred to in this
Section 3.5 shall be lawfully abandoned.
SECTION 3.6 ADJUSTMENT OF NUMBER OF SHARES PURCHASABLE. Upon each
adjustment of the per share Warrant Price, the number of shares of Common Stock
purchasable hereunder shall be
5
<PAGE>
adjusted by multiplying the number of shares of Common Stock purchasable
hereunder immediately prior to such adjustment of the per share Warrant Price by
a fraction, the numerator of which shall be the per share Warrant Price in
effect immediately prior to such adjustment and the denominator of which shall
be the per share Warrant Price in effect immediately following such adjustment.
SECTION 3.7 MINIMUM ADJUSTMENT. Except as hereinafter provided, no
adjustment of the per share Warrant Price hereunder shall be made if such
adjustment results in a change of the per share Warrant Price then in effect of
less than 1%. Any adjustment of less than 1% shall be carried forward and shall
be made at the time of and together with any subsequent adjustment which,
together with the adjustment or adjustments so carried forward, amounts to 1% or
more of the per share Warrant Price then in effect. However, upon the exercise
of this Warrant, Company shall make all necessary adjustments not theretofore
made to the per share Warrant Price up to and including the date upon which this
Warrant is exercised.
SECTION 3.8 NOTICE OF ADJUSTMENTS. (a) Whenever the per share Warrant
Price or number of shares deliverable upon exercise of this Warrant shall be
adjusted pursuant to this Section 3, Company shall promptly prepare a
certificate signed by the President or a Vice President and by the Treasurer of
Company setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was calculated
(including a description of the basis on which the Board of Directors of Company
made any determination hereunder), and shall promptly cause copies of such
certificate to be mailed in the manner provided in Section 12.1 of the Warrant
Agreement to the holder of this Warrant.
(b) The adjustment set forth in the certificate furnished
pursuant to Section 3.8(a) shall be final and binding unless, within 90
days after receipt thereof, the Majority Holders of the Warrants
deliver to Company a written statement of objection to such adjustment.
(i) In the event of any such statement of objection
by said Majority Holders, Company's accountants and a firm of
independent public accountants selected by said Majority
Holders shall attempt to prepare a computation in which both
accountants concur. Any such joint computation shall be set
forth in a joint certificate to each holder of the Warrants
and Company and shall be final and binding.
(ii) If Company's accountants and said Majority
Holders' accountants are unable to resolve their differences
within 30 days after the receipt by Company of said Majority
Holders' statement of objection, they shall submit the matter
to a third firm of independent certified public accountants of
nationally recognized standing agreed upon by said Majority
Holders and Company or, if said Majority Holders and Company
are unable to agree within 10 days after the expiration of
said 30-day period, to such firm designated by the then
president of the state society of certified public accountants
for the state in which Company maintains its principal place
of business. Such third firm of accountants shall thereupon
compute the amount of the adjustment and, upon completion of
such computation, shall transmit its certificate to each
holder of the Warrants and Company setting forth such
computations, which shall be final and binding.
6
<PAGE>
(iii) The fees and expenses of all accountants
referred to in this Section 3.8(b) shall be borne by Company.
SECTION 4. MERGERS, CONSOLIDATIONS, SALES.
In the case of any consolidation or merger of Company with another
entity, or the sale of all or substantially all of its assets to another entity,
or any reorganization, recapitalization or reclassification of the Common Stock
or other equity securities of Company, then, as a condition of such
consolidation, merger, sale, reorganization, recapitalization or
reclassification, lawful and adequate provision shall be made whereby the holder
of this Warrant shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore purchasable hereunder, such shares of
stock, securities or assets as may (by virtue of such consolidation, merger,
sale, reorganization or reclassification) be issued or payable with respect to
or in exchange for a number of outstanding shares of Common Stock equal to the
number of shares of Common Stock immediately theretofore so purchasable
hereunder had such consolidation, merger, sale, reorganization, recapitalization
or reclassification not taken place. In any such case, appropriate provisions
shall be made with respect to the rights and interest of the holder of this
Warrant to the end that the provisions hereof shall thereafter be applicable, as
nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon exercise of this Warrant. Company shall not effect
any such consolidation, merger or sale, unless prior to or simultaneously with
the consummation thereof, the successor entity (if other than Company) resulting
from such consolidation or merger or the entity purchasing such assets shall
assume by written instrument executed and mailed or delivered to the holder of
this Warrant, the obligation to deliver to such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to receive.
SECTION 5. DISSOLUTION OR LIQUIDATION.
In the event of any proposed distribution of the assets of Company in
dissolution or liquidation except under circumstances when the foregoing Section
4 shall be payable, Company shall mail notice thereof to the holder of this
Warrant and shall make no distribution to shareholders until the expiration of
30 days from the date of mailing of the aforesaid notice and, in any such case,
the holder of this Warrant may exercise the purchase rights with respect to this
Warrant within 30 days from the date of mailing such notice and all rights
herein granted not so exercised within such 30-day period shall thereafter
become null and void.
SECTION 6. NOTICE OF DIVIDENDS.
If the Board of Directors of Company proposes to declare any dividend
or other distribution on its Common Stock, except by way of a stock dividend
payable on its Common Stock, Company shall mail notice thereof to the holder of
this Warrant as soon as possible (such notice being referred to as the
"DISTRIBUTION NOTICE"). Company shall not fix a record date until the lapse of a
10-day period beginning on the date of delivery of the Distribution Notice. The
holder of this Warrant shall not participate in such dividend or other
distribution or be entitled to any rights on account or as a result thereof
unless and to the extent that this Warrant is exercised prior to such record
date. The provisions of this paragraph shall not apply to distributions made in
connection with transactions covered by Section 4.
7
<PAGE>
SECTION 7. FRACTIONAL SHARES.
No fractional shares may be issued upon the exercise of this Warrant.
In the event that a Holder would otherwise be entitled to a fractional share
except for the operation of the previous sentence, in lieu of such fractional
share such Holder shall be paid a cash amount equal to (i) such fraction
multiplied by (ii) the Current Market Value of one full share of Common Stock on
the date of exercise.
SECTION 8. FULLY PAID STOCK; TAXES.
Company covenants and agrees that the shares of stock represented by
each and every certificate for its Common Stock to be delivered on the exercise
of the purchase rights and the payment of the applicable purchase price herein
provided for shall, at the time of such delivery, be validly issued and
outstanding and be fully paid and nonassessable. Company further covenants and
agrees that it will pay when due and payable any and all federal and state taxes
(other than income taxes) which may be payable in respect of this Warrant or any
Common Stock or certificates therefor upon the exercise of the rights herein and
in the Warrant Agreement provided for pursuant to the provisions hereof and
thereof. Company shall not, however, be required to pay any tax which may be
payable solely in respect of any transfer and delivery of stock certificates in
a name other than that of the holder exercising this Warrant, and any such tax
shall be paid by such holder at the time of presentation.
SECTION 9. CLOSING OF TRANSFER BOOKS.
The right to exercise this Warrant shall not be suspended during any
period that the stock transfer books of Company for its Common Stock may be
closed. Company shall not be required, however, to deliver certificates of its
Common Stock upon such exercise while such books are duly closed for any
purpose, but Company may postpone the delivery of the certificates for such
Common Stock until the opening of such books, and they shall, in such case, be
delivered forthwith upon the opening thereof, or as soon as practicable
thereafter.
SECTION 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT.
SECTION 10.1 PARTIAL EXERCISE. If this Warrant is exercised in part
only, the holder hereof shall surrender this Warrant upon such exercise for
endorsement thereon of the number of shares of Common Stock as to which it has
been exercised. No partial exercise of this Warrant shall be made in respect of
shares of Common Stock of Company representing less than 1% of Pro Forma Shares.
SECTION 10.2 ASSIGNMENT. (a) Subject to the conditions set forth in
Section 10.2(b) hereof, this Warrant may be assigned either in whole or in part
by surrender of this Warrant at the principal office of Company in Denison,
Texas (with the assignment or, as the case may be, partial assignment form at
the end hereof duly executed). If this Warrant is being assigned in whole, the
assignee shall receive a new Warrant (registered in the name of such assignee or
its nominee) which new Warrant shall cover 100% of the number of shares of
Common Stock then purchasable hereunder and shall set forth the Aggregate
Warrant Price. If this Warrant is being assigned in part, the assignor and
assignee shall each receive a new Warrant (which, in the case of the assignee,
shall be registered in the name of the assignee or its nominee), which new
Warrants shall cover the number of shares of
8
<PAGE>
Common Stock then purchasable hereunder not so assigned and so assigned,
respectively, and shall set forth the proportionate Aggregate Warrant Price
applicable to such shares.
(b) Neither this Warrant nor any Warrant Shares may be sold, assigned
or otherwise transferred unless such sale, assignment or transfer is registered
or qualified pursuant to the registration requirements of the Securities Act of
1933, as amended, and all applicable state securities laws, or is preceded by an
opinion of counsel addressed to Company that such sale, assignment or other
transfer is exempt from all such registration requirements; PROVIDED, HOWEVER,
that no such opinion of counsel shall be required in connection with any such
sale, assignment or transfer to any affiliate of the holder of this Warrant or
any Warrant Shares issued in respect hereof. The fees and expenses of such
counsel incurred in respect of such sales, assignments or transfers shall be
paid by the holder of this Warrant or any Warrant Shares which are the subject
of such proposed sale, assignment or transfer. All certificates representing the
Warrant Shares shall be stamped or imprinted with an appropriate restrictive
legend, substantially as set forth on the cover page hereof.
SECTION 11. DEFINITIONS.
Terms not otherwise defined herein shall have the respective meanings
assigned thereto in the Warrant Agreement and the Credit Agreement. In addition
to the terms defined elsewhere in this Warrant, the following terms have the
following respective meanings:
"ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of Common
Stock issued by Company after the Closing Date, except:
(a) Common Stock issued upon exercise of the Warrants;
(b) Common Stock issued upon exercise of warrants issued under
the Existing Warrant Agreements; and
(c) Common Stock issued to officers, directors or employees
of, or consultants to, Company pursuant to any existing or future stock option,
incentive, bonus or compensation plan or program approved by the Company's
shareholders (no later than 12 months following adoption of the plan or program
by the Company's Board of Directors).
"AGGREGATE WARRANT PRICE" has the meaning specified on the first page
of this Warrant.
"COMMON STOCK" shall mean the shares of Common Stock, par value $0.01
per share, of Company described in the Certificate of Incorporation.
"CONVERTIBLE SECURITIES" shall mean evidences of indebtedness, equity,
rights, options, warrants or other securities which are convertible into or
exchangeable for shares of Common Stock, either immediately or upon the arrival
of a specified date or the happening of a specified event, or otherwise.
"CURRENT MARKET PRICE" shall mean, at the date of determination
thereof, an amount equal to the market price on the Business Day occurring most
recently prior to the subject issuance of such shares of Common Stock (the
"ISSUANCE DATE"). The market price for such Business Day shall be
9
<PAGE>
the last sale price on such day on the American Stock Exchange, or, if the
Common Stock is not then listed or admitted to trading on the American Stock
Exchange, on such other principal stock exchange on which such shares are then
listed or admitted to trading, or, if no sale takes place on such day on any
such exchange, the average of the closing bid and asked prices on such day as
officially quoted on any such exchange, or, if the Common Stock is not then
listed or admitted to trading on any stock exchange, the market price for each
such Business Day shall be the last reported sale price on such day on The
Nasdaq Stock Market's National Market or The Nasdaq Stock Market's Small Cap
Market, as furnished by Nasdaq, or, if no sale takes place on such day on such
system, the average of the closing bid and asked prices on such day as
officially quoted by Nasdaq, or, if such price at the time is not available from
such system, the market price for such Business Day shall be the average of the
reported closing bid and asked prices on such day in the over-the-counter
market, as furnished by Nasdaq, or, if such price at the time is not available
from such system, such price shall be determined in good faith by Company's
Board of Directors, which shall be evidenced by a notice setting forth such
determination in reasonable detail (including computations and assumptions used)
(THE "CMP COMPUTATION NOTICE") to each holder of the Warrants not later than 30
days after the issuance date of the Common Stock giving rise to such
determination (the "CMP COMPUTATION DATE") setting forth such determination and
setting forth in detail the rights and procedures the holders of the Warrants
may take in the event the Majority Holders do not agree with the valuation set
forth in the CMP Computation Notice, PROVIDED, that if the Majority Holders of
such Warrants shall object to the valuation contained in the CMP Computation
Notice in writing to Company within 15 days of the CMP Computation Date, an
Appraiser, the expenses of whom shall be paid by said Majority Holders, shall be
selected by Company and said Majority Holders (on behalf of all of the holders
of the Warrants as a class), or, if said Majority Holders and Company are unable
to agree upon the selection of an Appraiser within 10 days of the date of the
written notice from said Majority Holders to Company objecting to the CMP
Computation Notice, by the American Arbitration Association. Said Majority
Holders and Company shall be jointly responsible for engaging the Appraiser
finally selected. In the event that the Majority Holders do not object to the
CMP Computation Notice within 15 days after receiving the CMP Computation
Notice, then the value shall be that which was determined solely by Company's
Board of Directors. The Appraiser appointed pursuant to the foregoing procedure
shall be instructed to determine such value within 15 days after the selection
of such Appraiser, and any such determination made by the Appraiser shall be
final and binding upon the parties. Notwithstanding the foregoing, in the event
that, on the Issuance Date, shares of Common Stock shall be offered for sale to
the public in connection with an underwritten public offering, the Current
Market Price in respect of said Issuance Date shall be deemed to be the price at
which said shares are initially sold to the public.
"Exercise Date" shall mean a date on which this Warrant is exercised.
"Expiration Date" means from and after 5:00 p.m. Denison, Texas time on
February 28, 2010 tenth anniversary of issuance of Warrant.
"MAJORITY HOLDERS" shall mean, at the time of any determination, the
holders of a majority of the Warrants (determined by the number of shares of
Common Stock represented by each such Warrant as if exercised).
"PER SHARE WARRANT PRICE" is defined in the first paragraph of this
Warrant.
10
<PAGE>
"PERMITTED CONSIDERATION" shall mean each of the following (or any
combination thereof):
(a) cash or other funds immediately available to Company; and
(b) Warrants.
"PRO FORMA SHARES" shall mean, as of the date of any determination
thereof, the sum of (i) the total number of outstanding shares of Common Stock,
plus (ii) the total number of shares of Common Stock issuable upon exercise of
the Warrants and any other warrants, options or other rights and upon the
exercise of any conversion or exchange rights with respect to Convertible
Securities.
"UNDERLYING SHARES" shall mean the shares of Common Stock issuable upon
exercise of any of the Warrants and any references contained herein to a holder
or holders of any Underlying Shares shall be deemed to refer to the holder of
the Warrants relating thereto.
"WARRANT PRICE" - see the definition of "per share Warrant Price".
"WARRANT SHARES" shall mean shares of Common Stock issued upon exercise
of the warrants.
"WARRANTS" as used herein shall refer to, collectively, this Warrant
and all other warrants issued in exchange or substitution for this Warrant.
SECTION 12. WARRANT HOLDER NOT SHAREHOLDER.
This Warrant does not confer upon the holder hereof any right to vote
or to consent or to receive notice as a shareholder of Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
shareholder, prior to the exercise hereof as hereinbefore provided.
SECTION 13. SEVERABILITY.
Should any part of this Warrant for any reason be declared invalid or
unenforceable, such decision shall not affect the validity or enforceability of
any remaining portion, which remaining portion shall remain in force and effect
as if this Warrant had been executed with the invalid or unenforceable portion
thereof eliminated, and it is hereby declared the intention of the parties
hereto that they would have executed and accepted the remaining portion of this
Warrant without including therein any such part, parts or portion which may, for
any reason, be hereafter declared invalid or unenforceable.
SECTION 14. GOVERNING LAW.
This Warrant shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the law of the State of Texas
excluding choice-of-law principles of the law of such state that would require
the application of the laws of a jurisdiction other than such state.
11
<PAGE>
IN WITNESS WHEREOF, Company has caused this Warrant to be signed by a
duly authorized officer and to be dated this 28th day of January, 2000.
HORIZON PHARMACIES, INC.
By: /s/ Ricky D. McCord
------------------------------------------
Ricky D. McCord
President and Chief Executive Officer
S-1
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED OR QUALIFIED FOR SALE UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD
OR OTHERWISE TRANSFERRED UNLESS SUCH OFFER, SALE OR TRANSFER IS REGISTERED OR
QUALIFIED PURSUANT TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR IS PRECEDED BY AN OPINION OF COUNSEL
ADDRESSED TO HORIZON PHARMACIES, INC. THAT SUCH SALE OR OTHER TRANSFER IS EXEMPT
FROM ALL SUCH REGISTRATION REQUIREMENTS. THE EXERCISE OF THIS WARRANT, THIS
WARRANT, AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF ARE
SUBJECT TO THE TERMS AND PROVISIONS SPECIFIED IN THE CONSULTING AGREEMENT DATED
AS OF FEBRUARY 1, 2000, BY AND BETWEEN HORIZON PHARMACIES, INC. AND 5NET5 CORP.
No. WR-2002
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
HORIZON PHARMACIES, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. EXERCISE OF WARRANT.............................................................................1
SECTION 2. RESERVATION.....................................................................................2
SECTION 3. PROTECTION AGAINST DILUTION.....................................................................2
Section 3.1 Stock Dividends, Subdivisions, and Combinations........................................2
Section 3.2 Issuance of Additional Shares of Common Stock..........................................3
Section 3.3 Issuance of Warrants or Other Rights, Convertible Securities...........................3
Section 3.4 Other Provisions Applicable to Adjustments.............................................4
Section 3.5 Extraordinary Dividends................................................................5
Section 3.6 Adjustment of Number of Shares Purchasable.............................................6
Section 3.7 Minimum Adjustment.....................................................................6
Section 3.8 Notice of Adjustments..................................................................6
SECTION 4. MERGERS, CONSOLIDATIONS, SALES..................................................................7
SECTION 5. DISSOLUTION OR LIQUIDATION......................................................................7
SECTION 6. NOTICE OF DIVIDENDS.............................................................................7
SECTION 7. FRACTIONAL SHARES...............................................................................8
SECTION 8. FULLY PAID STOCK; TAXES.........................................................................8
SECTION 9. CLOSING OF TRANSFER BOOKS.......................................................................8
SECTION 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT.........................................................8
Section 10.1 Partial Exercise.......................................................................8
Section 10.2 Assignment.............................................................................8
SECTION 11. PIGGYBACK REGISTRATION RIGHTS...................................................................9
Section 11.1 Right to Piggyback.....................................................................9
Section 11.2 Priority on Registration...............................................................9
SECTION 12. DEFINITIONS....................................................................................10
SECTION 13. WARRANT HOLDER NOT SHAREHOLDER.................................................................12
SECTION 14. SEVERABILITY...................................................................................13
SECTION 15. GOVERNING LAW..................................................................................13
</TABLE>
i
<PAGE>
Warrant
No. WR-2002
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
HORIZON PHARMACIES, INC.
THIS IS TO CERTIFY that, for value received and subject to the provisions
hereinafter set forth,
5NET5 CORP.
or its permitted assigns,
is entitled to purchase from HORIZON Pharmacies, Inc., a Delaware corporation
("COMPANY"), at any time and from time to time during the Exercise Period, up to
300,000 shares of Common Stock, par value $0.01 per share, of Company, subject
to the terms, provisions and conditions hereinafter set forth at a price per
share equal to $2.63. The price per share is subject to adjustment as
hereinafter provided (such price, or such price as last adjusted, as the case
may be, being herein referred to as the "PER SHARE WARRANT PRICE"). The said
number of shares purchasable hereunder is likewise subject to adjustment as
hereinafter provided.
The aggregate price of the Common Stock purchasable hereunder shall at
all times be equal to the price per share set forth in the preceding paragraph
multiplied by the number of shares initially purchasable hereunder. The
aggregate price is herein sometimes referred to as the "Aggregate Warrant Price"
and is not subject to adjustment.
The terms which are capitalized herein shall have the meanings
specified in Section 12 unless the context shall otherwise require.
SECTION 1. EXERCISE OF WARRANT.
Subject to the conditions hereinafter set forth and to the condition
set forth in Paragraph 2A of the Consulting Agreement, dated as of February 1,
2000, by and between the Company and 5Net5 Corp., this Warrant may be exercised
in whole or in part at any time and from time to time during the Exercise Period
by the surrender of this Warrant (with the subscription from at the end hereof
duly executed) at the principal office of Company in Denison, Texas, and upon
payment to Company of a sum equal to the per share Warrant Price multiplied by
the number of shares purchased in such exercise, which payment shall be made by
the wire transfer or other delivery to Company of one or more types of Permitted
Consideration.
1
<PAGE>
In the event that Warrants shall be delivered to Company as payment of
all or any portion of the purchase price payable hereunder ("Cashless
Exercise"), the amount of such purchase price deemed to be paid by means of such
delivery shall equal (a) the aggregate number of shares of Underlying Shares
related to that portion of the Warrants so delivered, multiplied by (b) the
result, not less than zero, equal to (i) the Current Market Price then in effect
as to which exercise is being effected (with the date of the exercise of the
Warrant being deemed to be the "Issuance Date" for purposes of making
determinations under the definition of "Current Market Price") MINUS (ii) the
per share Warrant Price then in effect. The number of shares of Common Stock to
be issued to 5Net5 Corp. would equal the result of the previous equation divided
by Current Market Price.
<TABLE>
<CAPTION>
Example of the herein described Cashless Exercise Warrant Exercise Provision (Example assumes a Current Market Price of $6.00)
-------------------------------------------------------------------------------------------------------------------------------
Shares of
Current Warrant Current Px Value Current Common Stock
Market Exercise MINUS of Warrants Market Issuable
Price Price Warr. Ex. Px Warrant being Delivered Price to 5Net5 Corp.
------------ ------------ --------------- ----------- ------------------ -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
$6.00 - $2.63 = $3.57 X 300,000 = $1,001,000 / $6.00 = 168,500
</TABLE>
If this Warrant is exercised in respect of less than all of the shares
of Common Stock at the time purchasable hereunder, following such exercise this
Warrant shall be returned to the holder hereof and shall remain exercisable in
respect of such number of shares of Common Stock into which the warrant remains
exercisable.
This Warrant shall expire to the extent that it has not been exercised
on or before the Expiration Date.
Company shall pay all reasonable expenses, stamp, documentary and
transfer taxes and other charges payable in connection with the preparation,
execution and delivery of stock certificates pursuant to this Section,
regardless of the name or names in which such stock certificates shall be
registered.
SECTION 2. RESERVATION.
Company will at all times reserve and keep available such number of
authorized shares of its Common Stock, solely for the purpose of issue upon the
exercise of the rights represented by this Warrant as herein provided for, as
may at any time be issuable (based upon the number of shares of Common Stock
outstanding at any such time) upon the exercise of this Warrant.
SECTION 3. PROTECTION AGAINST DILUTION.
The per share Warrant Price and the number of shares deliverable
hereunder shall be adjusted from time to time as hereinafter set forth:
SECTION 3.1 STOCK DIVIDENDS, SUBDIVISIONS, AND COMBINATIONS. In case
after the date hereof Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend and declared to be
payable in, or other declared distribution of, Common Stock, or
2
<PAGE>
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then the per share Warrant Price shall be adjusted to that price determined by
multiplying the per share Warrant Price in effect immediately prior to such
event by a fraction (i) the numerator of which shall be the total number of
outstanding shares of Common Stock immediately prior to such event, and (ii) the
denominator of which shall be the total number of outstanding shares of Common
Stock immediately after such event.
SECTION 3.2 ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In case
after the date hereof Company shall (except as hereinafter provided) issue any
Additional Shares of Common Stock for a consideration per share less than the
Current Market Price per share, then the per share Warrant Price on each such
issuance shall be adjusted to that price determined by multiplying the per share
Warrant Price in effect immediately prior to such event by a fraction:
(a) the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of such
Additional Shares of Common Stock plus the number of full shares of
Common Stock which the aggregate consideration for the total number of
such Additional Shares of Common Stock so issued would purchase at the
Current Market Price per share, and
(b) the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of such
Additional Shares of Common Stock plus the number of such Additional
Shares of Common Stock so issued.
The provisions of this Section 3.2 shall not apply to any Additional
Shares of Common Stock which are distributed to holders of Common Stock as a
stock dividend or subdivision, for which an adjustment is provided for under
Section 3.1. No adjustment of the Warrant Price shall be made under this
Section 3.2 upon the issuance of any Additional Shares of Common Stock which are
issued pursuant to the exercise of any warrants or other subscription or
purchase rights or pursuant to the exercise of any conversion or exchange rights
in any Convertible Securities, if any such adjustment shall previously have been
made upon the issuance of such warrants or other rights or upon the issuance of
such Convertible Securities (or upon the issuance of any warrants or other
rights therefor) pursuant to Section 3.3.
SECTION 3.3 ISSUANCE OF WARRANTS OR OTHER RIGHTS, CONVERTIBLE
SECURITIES OR WARRANTS TO PURCHASE CONVERTIBLE SECURITIES. In case Company shall
issue any warrants or other rights to subscribe for or purchase any Additional
Shares of Common Stock or issue Convertible Securities and the consideration per
share for which Additional Shares of Common Stock may at any time thereafter be
issuable pursuant to such warrants or other rights or pursuant to the terms of
such Convertible Securities shall be less than the Current Market Price per
share, then the per share Warrant Price shall be adjusted as provided in Section
3.2 above on the basis that:
(a) the maximum number of Additional Shares of Common Stock
issuable pursuant to all such warrants or other rights or necessary to
effect the conversion or exchange
3
<PAGE>
of all such Convertible Securities shall be deemed to have been issued
as of the earlier of: (i) the date on which Company shall enter a firm
contract or commitment for the issuance of such warrants, other rights
or Convertible Securities or (ii) the date of actual issuance of such
warrants, other rights or Convertible Securities, and
(b) the aggregate consideration for such maximum number of
Additional Shares of Common Stock shall be deemed to be the minimum
consideration received and receivable by Company for the issuance of
such Additional Shares of Common Stock pursuant to such warrants or
other rights or pursuant to the terms of such Convertible Securities.
No adjustment of the per share Warrant Price shall be made under this
Section 3.3 upon the issuance of any Convertible Securities which are issued
pursuant to the exercise of any warrants or other subscription or purchase
rights therefor, to the extent such adjustment shall previously have been made
upon the issuance of such warrants or other rights pursuant to this Section 3.3.
SECTION 3.4 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS. The following
provisions shall be applicable to the making of adjustments in the per share
Warrant Price hereinbefore provided in this Section 3:
(a) COMPUTATION OF CONSIDERATION. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any
warrants or other rights to subscribe for or purchase any Additional
Shares of Common Stock or any Convertible Securities shall be issued
for a cash consideration, the consideration received by Company
therefor shall be deemed to be the amount of the cash received by
Company therefor, or, if such Additional Shares of Common Stock or
Convertible Securities or warrants or other rights are offered by
Company for subscription, the subscription price, or, if such
Additional Shares of Common Stock or Convertible Securities or warrants
or other rights are sold to underwriters or dealers for public offering
without a subscription offering, the offering price, in any such case
excluding any amounts paid or receivable for accrued interest or
accrued dividends and without deduction of any compensation, discounts
or expenses paid or incurred by Company for and in the underwriting
thereof, or otherwise in connection with the issue thereof. To the
extent that such issuance shall be for a consideration other than cash,
then, except as herein otherwise expressly provided, the amount of such
consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as determined in good faith
by the Board of Directors of Company. The consideration for any
Additional Shares of Common Stock issuable pursuant to any warrants or
other rights to subscribe for or purchase the same shall be the
consideration received by Company for issuing such warrants or other
rights plus the additional consideration payable to Company upon the
exercise of such warrants or other rights. The consideration for any
Additional Shares of Common Stock issuable pursuant to the terms of any
Convertible Securities shall be the consideration received by Company
for issuing any warrants or other rights to subscribe for or purchase
such Convertible Securities plus the consideration paid or payable to
Company in respect of the subscription for or purchase of such
Convertible Securities plus the additional consideration, if any,
payable to Company upon the exercise of the right of conversion or
exchange of such Convertible Securities. In case of the issuance at any
time of any Additional Shares of Common Stock or Convertible Securities
in payment or satisfaction of any dividend upon any class of equity
securities other than Common Stock, Company shall
4
<PAGE>
be deemed to have received for such Additional Shares of Common Stock
or Convertible Securities a consideration equal to the amount of such
dividend so paid or satisfied.
(b) READJUSTMENT OF PER SHARE WARRANT PRICE. Upon expiration
of the right of exercise, conversion or exchange of any Convertible
Securities, or upon the expiration of any rights, options or warrants,
or upon the termination of any firm contract or commitment for the
issuance of such rights, options, warrants or Convertible Securities,
or upon any increase in the minimum consideration receivable by Company
for the issuance of Additional Shares of Common Stock pursuant to such
Convertible Securities, rights, options or warrants, if any such
Convertible Securities shall not have been exercised, converted or
exchanged, or if any such rights, options or warrant shall not have
been exercised, the number of shares of Common Stock deemed to be
issued and outstanding by reason of the fact that they were issuable
upon exercise, conversion or exchange of any such Convertible
Securities or upon exercise of any such rights, options or warrants
shall no longer be computed as set forth above, and the per share
Warrant Price shall forthwith be readjusted and thereafter be the price
which it would have been (but reflecting any other adjustments in the
per share Warrant Price made pursuant to the provisions of this
Section 3 after the issuance of such Convertible Securities, rights,
options or warrants) had the adjustment of the per share Warrant Price
made upon the issuance or sale of such Convertible Securities or the
issuance of such rights, options or warrants been made on the basis of
the issuance only of the number of Additional Shares of Common Stock
actually issued upon exercise, conversion or exchange of such
Convertible Securities or upon the exercise of such rights, options or
warrants, or upon the basis of such increased minimum consideration, as
the case may be, and thereupon only the number of Additional Shares of
Common Stock actually so issued plus the number thereof then issuable
upon the basis of such increased minimum consideration shall be deemed
to have been issued and only the consideration actually received plus
increased minimum consideration receivable by Company (computed in
accordance with Section 3.4(a)) shall be deemed to have been received
by Company.
(c) ROUNDING OF PER SHARE WARRANT PRICE. Any determination of
per share Warrant Price hereunder shall be expressed in United States
Dollars, cents and portions of cents and shall be rounded to the
nearest 1/1000 of one cent or, if there is no nearest 1/1000 of one
cent, to the next highest 1/1000 of one cent.
SECTION 3.5 EXTRAORDINARY DIVIDENDS. In case Company shall declare a
dividend upon its Common Stock (except a dividend payable in shares of Common
Stock referred to in Section 3.1(a) or a dividend payable in warrants, rights or
Convertible Securities referred to in Section 3.3) payable otherwise than out of
earnings or surplus (other than revaluation surplus or paid-in surplus), the per
share Warrant Price in effect immediately prior to the declaration of such
dividend shall be reduced by an amount equal, in the case of a dividend in cash,
to 10% of the amount thereof payable per share of Common Stock or, in the case
of any other dividend, to the fair value thereof per share of Common Stock as
determined in good faith by the Board of Directors of Company. For the purposes
of the foregoing, a dividend payable other than in cash shall be considered
payable out of earnings or surplus (other than revaluation surplus or paid-in
surplus) only to the extent that such earnings or surplus are charged an amount
equal to the fair value of such dividend as determined by the Board of Directors
of Company. If such dividend is paid or Company declares and becomes legally
liable to pay such dividend, such reduction shall take effect as of the date on
which a record is taken for
5
<PAGE>
the purpose of such dividend or, if a record is not taken, the date as of which
the holders of the Common Stock of record entitled to such dividend are to be
determined. Appropriate readjustment of the per share Warrant Price shall be
made in the event that any dividend referred to in this Section 3.5 shall be
lawfully abandoned.
SECTION 3.6 ADJUSTMENT OF NUMBER OF SHARES PURCHASABLE. Upon each
adjustment of the per share Warrant Price, the number of shares of Common Stock
purchasable hereunder shall be adjusted by multiplying the number of shares of
Common Stock purchasable hereunder immediately prior to such adjustment of the
per share Warrant Price by a fraction, the numerator of which shall be the per
share Warrant Price in effect immediately prior to such adjustment and the
denominator of which shall be the per share Warrant Price in effect immediately
following such adjustment.
SECTION 3.7 MINIMUM ADJUSTMENT. Except as hereinafter provided, no
adjustment of the per share Warrant Price hereunder shall be made if such
adjustment results in a change of the per share Warrant Price then in effect of
less than 1%. Any adjustment of less than 1% shall be carried forward and shall
be made at the time of and together with any subsequent adjustment which,
together with the adjustment or adjustments so carried forward, amounts to 1% or
more of the per share Warrant Price then in effect. However, upon the exercise
of this Warrant, Company shall make all necessary adjustments not theretofore
made to the per share Warrant Price up to and including the date upon which this
Warrant is exercised.
SECTION 3.8 NOTICE OF ADJUSTMENTS. (a) Whenever the per share Warrant
Price or number of shares deliverable upon exercise of this Warrant shall be
adjusted pursuant to this Section 3, Company shall promptly prepare a
certificate signed by the President or a Vice President and by the Treasurer of
Company setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was calculated
(including a description of the basis on which the Board of Directors of Company
made any determination hereunder), and shall promptly cause copies of such
certificate to be mailed in the manner provided in Section 12.1 of the Warrant
Agreement to the holder of this Warrant.
(b) The adjustment set forth in the certificate furnished
pursuant to Section 3.8(a) shall be final and binding unless, within 90
days after receipt thereof, the Majority Holders of the Warrants
deliver to Company a written statement of objection to such adjustment.
(i) In the event of any such statement of objection
by said Majority Holders, Company's accountants and a firm of
independent public accountants selected by said Majority
Holders shall attempt to prepare a computation in which both
accountants concur. Any such joint computation shall be set
forth in a joint certificate to each holder of the Warrants
and Company and shall be final and binding.
(ii) If Company's accountants and said Majority
Holders' accountants are unable to resolve their differences
within 30 days after the receipt by Company of said Majority
Holders' statement of objection, they shall submit the matter
to a third firm of independent certified public accountants of
nationally recognized standing agreed upon by said Majority
Holders and Company or, if said Majority Holders and Company
are unable to agree within 10 days after the expiration of
said 30-day
6
<PAGE>
period, to such firm designated by the then president of the
state society of certified public accountants for the state in
which Company maintains its principal place of business. Such
third firm of accountants shall thereupon compute the amount
of the adjustment and, upon completion of such computation,
shall transmit its certificate to each holder of the Warrants
and Company setting forth such computations, which shall be
final and binding.
(iii) The fees and expenses of all accountants
referred to in this Section 3.8(b) shall be borne by Company.
SECTION 4. MERGERS, CONSOLIDATIONS, SALES.
In the case of any consolidation or merger of Company with another
entity, or the sale of all or substantially all of its assets to another entity,
or any reorganization, recapitalization or reclassification of the Common Stock
or other equity securities of Company, then, as a condition of such
consolidation, merger, sale, reorganization, recapitalization or
reclassification, lawful and adequate provision shall be made whereby the holder
of this Warrant shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore purchasable hereunder, such shares of
stock, securities or assets as may (by virtue of such consolidation, merger,
sale, reorganization or reclassification) be issued or payable with respect to
or in exchange for a number of outstanding shares of Common Stock equal to the
number of shares of Common Stock immediately theretofore so purchasable
hereunder had such consolidation, merger, sale, reorganization, recapitalization
or reclassification not taken place. In any such case, appropriate provisions
shall be made with respect to the rights and interest of the holder of this
Warrant to the end that the provisions hereof shall thereafter be applicable, as
nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon exercise of this Warrant. Company shall not effect
any such consolidation, merger or sale, unless prior to or simultaneously with
the consummation thereof, the successor entity (if other than Company) resulting
from such consolidation or merger or the entity purchasing such assets shall
assume by written instrument executed and mailed or delivered to the holder of
this Warrant, the obligation to deliver to such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to receive.
SECTION 5. DISSOLUTION OR LIQUIDATION.
In the event of any proposed distribution of the assets of Company in
dissolution or liquidation except under circumstances when the foregoing Section
4 shall be payable, Company shall mail notice (including specific details and
amounts to be distributed) thereof to the holder of this Warrant and shall make
no distribution to shareholders until the expiration of 30 days from the date of
receipt of the aforesaid notice and, in any such case, the holder of this
Warrant may exercise the purchase rights with respect to this Warrant within 30
days from the date of receipt such notice and all rights herein granted not so
exercised within such 30-day period shall thereafter become null and void.
SECTION 6. NOTICE OF DIVIDENDS.
If the Board of Directors of Company proposes to declare any dividend
or other distribution on its Common Stock, except by way of a stock dividend
payable on its Common Stock, Company
7
<PAGE>
shall mail notice thereof to the holder of this Warrant as soon as possible
(such notice being referred to as the "DISTRIBUTION NOTICE"). Company shall not
fix a record date until the lapse of a 10-day period beginning on the date of
delivery of the Distribution Notice. The holder of this Warrant shall not
participate in such dividend or other distribution or be entitled to any rights
on account or as a result thereof unless and to the extent that this Warrant is
exercised prior to such record date. The provisions of this paragraph shall not
apply to distributions made in connection with transactions covered by
Section 4.
SECTION 7. FRACTIONAL SHARES.
No fractional shares may be issued upon the exercise of this Warrant.
In the event that a Holder would otherwise be entitled to a fractional share
except for the operation of the previous sentence, in lieu of such fractional
share such Holder shall be paid a cash amount equal to (i) such fraction
multiplied by (ii) the Current Market Value of one full share of Common Stock on
the date of exercise.
SECTION 8. FULLY PAID STOCK; TAXES.
Company covenants and agrees that the shares of stock represented by
each and every certificate for its Common Stock to be delivered on the exercise
of the purchase rights and the payment of the applicable purchase price herein
provided for shall, at the time of such delivery, be validly issued and
outstanding and be fully paid and nonassessable. Company further covenants and
agrees that it will pay when due and payable any and all federal and state taxes
(other than income taxes) which may be payable in respect of this Warrant or any
Common Stock or certificates therefor upon the exercise of the rights herein and
in the Warrant Agreement provided for pursuant to the provisions hereof and
thereof. Company shall not, however, be required to pay any tax which may be
payable solely in respect of any transfer and delivery of stock certificates in
a name other than that of the holder exercising this Warrant, and any such tax
shall be paid by such holder at the time of presentation.
SECTION 9. CLOSING OF TRANSFER BOOKS.
The right to exercise this Warrant shall not be suspended during any
period that the stock transfer books of Company for its Common Stock may be
closed. Company shall not be required, however, to deliver certificates of its
Common Stock upon such exercise while such books are duly closed for any
purpose, but Company may postpone the delivery of the certificates for such
Common Stock until the opening of such books, and they shall, in such case, be
delivered forthwith upon the opening thereof, or as soon as practicable
thereafter.
SECTION 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT.
SECTION 10.1 PARTIAL EXERCISE. If this Warrant is exercised in part
only, the holder hereof shall surrender this Warrant upon such exercise for
endorsement thereon of the number of shares of Common Stock as to which it has
been exercised.
SECTION 10.2 ASSIGNMENT. (a) Subject to the conditions set forth in
Section 10.2(b) hereof, this Warrant may be assigned either in whole or in part
by surrender of this Warrant at the principal office of Company in Denison,
Texas (with the assignment or, as the case may be, partial assignment
8
<PAGE>
form at the end hereof duly executed). If this Warrant is being assigned in
whole, the assignee shall receive a new Warrant (registered in the name of such
assignee or its nominee) which new Warrant shall cover 100% of the number of
shares of Common Stock then purchasable hereunder and shall set forth the
Aggregate Warrant Price. If this Warrant is being assigned in part, the assignor
and assignee shall each receive a new Warrant (which, in the case of the
assignee, shall be registered in the name of the assignee or its nominee), which
new Warrants shall cover the number of shares of Common Stock then purchasable
hereunder not so assigned and so assigned, respectively, and shall set forth the
proportionate Aggregate Warrant Price applicable to such shares.
(b) Neither this Warrant nor any Warrant Shares may be sold, assigned
or otherwise transferred unless such sale, assignment or transfer is registered
or qualified pursuant to the registration requirements of the Securities Act of
1933, as amended, and all applicable state securities laws, or is preceded by an
opinion of counsel addressed to Company that such sale, assignment or other
transfer is exempt from all such registration requirements; PROVIDED, HOWEVER,
that no such opinion of counsel shall be required in connection with any such
sale, assignment or transfer to any affiliate of the holder of this Warrant or
any Warrant Shares issued in respect hereof. The fees and expenses of such
counsel incurred in respect of such sales, assignments or transfers shall be
paid by the holder of this Warrant or any Warrant Shares which are the subject
of such proposed sale, assignment or transfer. All certificates representing the
Warrant Shares shall be stamped or imprinted with an appropriate restrictive
legend, substantially as set forth on the cover page hereof.
SECTION 11. PIGGYBACK REGISTRATION RIGHTS.
SECTION 11.1 RIGHT TO PIGGYBACK. Each time the Company proposes to
register any of its equity securities under the Securities Act of 1933 for sale
to the public, whether for the account of the Company or otherwise for the
account of any securityholder of the Company, and the form of registration
statement to be used permits the registration of Registrable Shares, the Company
shall give prompt written notice to 5Net5 Corp. (which notice shall be given not
less than 30 days prior to the effective date of the Company's registration
statement), which notice shall offer 5Net5 Corp. the opportunity to include any
or all of its Registrable Shares in such registration statement, subject to the
limitations contained in Section 11.2 hereof. If 5Net5 Corp. desires to have its
Registrable Shares included in such registration statement, it shall so advise
the Company in writing (stating the number of shares desired to be registered)
within 20 days after the date of such notice from the Company. 5Net5 Corp. shall
have the right to withdraw its request for inclusion of its Registrable Shares
in any registration statement pursuant to this Section 11.1 by giving written
notice to the Company of such withdrawal. Subject to Section 11.2 below, the
Company shall include in such registration statement all such Registrable Shares
so requested to be included therein; provided, however, that the Company may at
any time withdraw or cease proceeding with any such registration if it shall at
the same time withdraw or cease proceeding with the registration of all other
equity securities originally proposed to be registered.
SECTION 11.2 PRIORITY ON REGISTRATION. If, in connection with a
proposed registration of the Company's equity securities, the managing
underwriter advises the Company that the inclusion of Registrable Shares would
have a material adverse effect on the price or success of the offering, then (i)
the number of 5Net5 Corp.'s Registrable Shares to be included in the
registration statement shall be reduced to an amount which, in the judgment of
the managing underwriter, would eliminate such
9
<PAGE>
material adverse effect or (ii) if no such reduction would, in the judgment of
the managing underwriter, eliminate such material adverse effect, then the
Company shall have the right to exclude all such Registrable Shares from such
registration statement. Any partial reduction in the number of Registrable
Shares to be included in the registration statement pursuant to clause (i) of
the immediately preceding sentence shall be effected PRO RATA based on the ratio
which 5Net5 Corp.'s requested shares bear to the total number of shares
requested to be included in such registration statement by all persons who have
requested that their shares be included in such registration statement pursuant
to piggyback registration rights. It is acknowledged by the Company and 5Net5
Corp., that pursuant to the foregoing provision, the securities to be included
in such registration shall be allocated (x) if such registration has been
initiated by the Company for securities to be offered by the Company, (1) first,
to the Company, and (2) second, to 5Net5 Corp. and all other persons that have
piggyback registration rights with respect to such registration and who request
that securities be included therein in accordance with the above described
ratio, and (y) if such registration is a demand registration, (1) first, to
securities offered by persons exercising their right to cause a demand
registration, (2) second, to the Company, and (3) third, to 5Net5 Corp. and all
other persons that have piggyback registration rights with respect to such
registration and who request that securities be included therein in accordance
with the above described ratio. If as a result of the provisions of this Section
11.2 5Net5 Corp. shall not be entitled to include all Registrable Securities in
a registration that 5Net5 Corp. has requested to be so included, 5Net5 Corp. may
withdraw its request to include Registrable Shares in such registration
statement. 5Net5 Corp. may only participate in any registration statement
hereunder if 5Net5 Corp. (x) agrees to sell its Registrable Shares on the basis
provided in any underwriting arrangements approved by the Company and (y)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements, and other documents reasonably required under the terms
of such underwriting arrangements. 5Net5 Corp. shall be entitled to exercise its
right to have its Registrable Shares included in a registration statement only
on two separate occasions and thereafter 5Net5 Corp. shall no longer have any
rights, and the Company shall no longer have any obligations to 5Net5 Corp.
under Section 11.
SECTION 12. DEFINITIONS.
Terms not otherwise defined herein shall have the respective meanings
assigned thereto in the Warrant Agreement and the Credit Agreement. In addition
to the terms defined elsewhere in this Warrant, the following terms have the
following respective meanings:
"ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of Common
Stock issued by Company after the Closing Date, except:
(a) Common Stock issued upon exercise of the Warrants;
(b) Common Stock issued upon exercise of warrants issued under
the Existing Warrant Agreements; and
(c) Common Stock issued to officers, directors or employees
of, or consultants to, Company pursuant to any existing or future stock option,
incentive, bonus or compensation plan or program approved by the Company's
shareholders (no later than 12 months following adoption of the plan or program
by the Company's Board of Directors).
10
<PAGE>
"AGGREGATE WARRANT PRICE" has the meaning specified on the first page
of this Warrant.
"CASHLESS EXERCISE" has the meaning specified in Section 1.
"COMMON STOCK" shall mean the shares of Common Stock, par value $0.01
per share, of Company described in the Certificate of Incorporation.
"CONVERTIBLE SECURITIES" shall mean evidences of indebtedness, equity,
rights, options, warrants or other securities which are convertible into or
exchangeable for shares of Common Stock, either immediately or upon the arrival
of a specified date or the happening of a specified event, or otherwise.
"CURRENT MARKET PRICE" shall mean, at the date of determination
thereof, an amount equal to the market price on the Business Day occurring most
recently prior to the subject issuance of such shares of Common Stock (the
"ISSUANCE DATE"). The market price for such Business Day shall be the last sale
price on such day on the American Stock Exchange, or, if the Common Stock is not
then listed or admitted to trading on the American Stock Exchange, on such other
principal stock exchange on which such shares are then listed or admitted to
trading, or, if no sale takes place on such day on any such exchange, the
average of the closing bid and asked prices on such day as officially quoted on
any such exchange, or, if the Common Stock is not then listed or admitted to
trading on any stock exchange, the market price for each such Business Day shall
be the last reported sale price on such day on The Nasdaq Stock Market's
National Market or The Nasdaq Stock Market's Small Cap Market, as furnished by
Nasdaq, or, if no sale takes place on such day on such system, the average of
the closing bid and asked prices on such day as officially quoted by Nasdaq, or,
if such price at the time is not available from such system, the market price
for such Business Day shall be the average of the reported closing bid and asked
prices on such day in the over-the-counter market, as furnished by Nasdaq, or,
if such price at the time is not available from such system, such price shall be
determined in good faith by Company's Board of Directors, which shall be
evidenced by a notice setting forth such determination in reasonable detail
(including computations and assumptions used) (THE "CMP COMPUTATION NOTICE") to
each holder of the Warrants not later than 30 days after the issuance date of
the Common Stock giving rise to such determination (the "CMP COMPUTATION DATE")
setting forth such determination and setting forth in detail the rights and
procedures the holders of the Warrants may take in the event the Majority
Holders do not agree with the valuation set forth in the CMP Computation Notice,
PROVIDED, that if the Majority Holders of such Warrants shall object to the
valuation contained in the CMP Computation Notice in writing to Company within
15 days of the CMP Computation Date, an Appraiser, the expenses of whom shall be
paid by said Majority Holders, shall be selected by Company and said Majority
Holders (on behalf of all of the holders of the Warrants as a class), or, if
said Majority Holders and Company are unable to agree upon the selection of an
Appraiser within 10 days of the date of the written notice from said Majority
Holders to Company objecting to the CMP Computation Notice, by the American
Arbitration Association. Said Majority Holders and Company shall be jointly
responsible for engaging the Appraiser finally selected. In the event that the
Majority Holders do not object to the CMP Computation Notice within 15 days
after receiving the CMP Computation Notice, then the value shall be that which
was determined solely by Company's Board of Directors. The Appraiser appointed
pursuant to the foregoing procedure shall be instructed to determine such value
within 15 days after the selection of such Appraiser, and any such determination
made by the Appraiser shall be final and binding upon the parties.
11
<PAGE>
Notwithstanding the foregoing, in the event that, on the Issuance Date, shares
of Common Stock shall be offered for sale to the public in connection with an
underwritten public offering, the Current Market Price in respect of said
Issuance Date shall be deemed to be the price at which said shares are initially
sold to the public.
"EXERCISE DATE" shall mean a date on which this Warrant is exercised.
"EXERCISE PERIOD" means from the Exercise Date until, and including,
the Expiration Date.
"EXPIRATION DATE" means from and after 5:00 p.m. Denison, Texas time on
February 1, 2010, the tenth anniversary of issuance of this Warrant.
"MAJORITY HOLDERS" shall mean, at the time of any determination, the
holders of a majority of the Warrants (determined by the number of shares of
Common Stock represented by each such Warrant as if exercised).
"PER SHARE WARRANT PRICE" is defined in the first paragraph of this
Warrant.
"PERMITTED CONSIDERATION" shall mean each of the following (or any
combination thereof):
(a) cash or other funds immediately available to Company; and
(b) Warrants.
"PRO FORMA SHARES" shall mean, as of the date of any determination
thereof, the sum of (i) the total number of outstanding shares of Common Stock,
plus (ii) the total number of shares of Common Stock issuable upon exercise of
the Warrants and any other warrants, options or other rights and upon the
exercise of any conversion or exchange rights with respect to Convertible
Securities.
"REGISTRABLE SHARES" shall mean the shares of Common Stock purchasable
under the Warrant.
"UNDERLYING SHARES" shall mean the shares of Common Stock issuable upon
exercise of any of the Warrants and any references contained herein to a holder
or holders of any Underlying Shares shall be deemed to refer to the holder of
the Warrants relating thereto.
"WARRANT PRICE" - see the definition of "per share Warrant Price".
"WARRANT SHARES" shall mean shares of Common Stock issued upon exercise
of the warrants.
"WARRANTS" as used herein shall refer to, collectively, this Warrant
and all other warrants issued in exchange or substitution for this Warrant.
SECTION 13. WARRANT HOLDER NOT SHAREHOLDER.
This Warrant does not confer upon the holder hereof any right to vote
or to consent or to receive notice as a shareholder of Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
shareholder, prior to the exercise hereof as hereinbefore provided.
12
<PAGE>
SECTION 14. SEVERABILITY.
Should any part of this Warrant for any reason be declared invalid or
unenforceable, such decision shall not affect the validity or enforceability of
any remaining portion, which remaining portion shall remain in force and effect
as if this Warrant had been executed with the invalid or unenforceable portion
thereof eliminated, and it is hereby declared the intention of the parties
hereto that they would have executed and accepted the remaining portion of this
Warrant without including therein any such part, parts or portion which may, for
any reason, be hereafter declared invalid or unenforceable.
SECTION 15. GOVERNING LAW.
This Warrant shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the law of the State of Texas
excluding choice-of-law principles of the law of such state that would require
the application of the laws of a jurisdiction other than such state.
[Remainder of page intentionally left blank.]
13
<PAGE>
IN WITNESS WHEREOF, Company has caused this Warrant to be signed by a
duly authorized officer and to be dated this 1st day of February, 2000.
HORIZON PHARMACIES, INC.
By: /s/ Ricky D. McCord
-------------------------------------------
Ricky D. McCord
President and Chief Executive Officer
S-1
<PAGE>
Exhibit 4.9
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED OR QUALIFIED FOR SALE UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD
OR OTHERWISE TRANSFERRED UNLESS SUCH OFFER, SALE OR TRANSFER IS REGISTERED OR
QUALIFIED PURSUANT TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR IS PRECEDED BY AN OPINION OF COUNSEL
ADDRESSED TO HORIZON PHARMACIES, INC. THAT SUCH SALE OR OTHER TRANSFER IS EXEMPT
FROM ALL SUCH REGISTRATION REQUIREMENTS.
No. WR-_____
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
HORIZON PHARMACIES, INC.
March 14, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1. EXERCISE OF WARRANT....................................................1
SECTION 2. RESERVATION............................................................2
SECTION 3. PROTECTION AGAINST DILUTION............................................2
Section 3.1 Stock Dividends, Subdivisions, and Combinations..................2
Section 3.2 Issuance of Additional Shares of Common Stock....................3
Section 3.3 Issuance of Warrants or Other Rights, Convertible Securities.....3
Section 3.4 Other Provisions Applicable to Adjustments.......................4
Section 3.5 Extraordinary Dividends..........................................5
Section 3.6 Adjustment of Number of Shares Purchasable.......................6
Section 3.7 Minimum Adjustment...............................................6
Section 3.8 Notice of Adjustments............................................6
SECTION 4. MERGERS, CONSOLIDATIONS, SALES.........................................7
SECTION 5. DISSOLUTION OR LIQUIDATION.............................................7
SECTION 6. NOTICE OF DIVIDENDS....................................................8
SECTION 7. FRACTIONAL SHARES......................................................8
SECTION 8. FULLY PAID STOCK; TAXES................................................8
SECTION 9. CLOSING OF TRANSFER BOOKS..............................................8
SECTION 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT................................8
Section 10.1 Partial Exercise.................................................8
Section 10.2 Assignment.......................................................9
SECTION 11. DEFINITIONS............................................................9
SECTION 12. WARRANT HOLDER NOT SHAREHOLDER........................................11
SECTION 13. SEVERABILITY..........................................................12
SECTION 14. GOVERNING LAW.........................................................12
</TABLE>
i
<PAGE>
Warrant
No. WR-___
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
HORIZON PHARMACIES, INC.
THIS IS TO CERTIFY that, for value received and subject to the provisions
hereinafter set forth,
INFORMED.COM, INC.
or its permitted assigns,
is entitled to purchase from HORIZON Pharmacies, Inc., a Delaware corporation
("COMPANY"), at any time and from time to time during the Exercise Period, up to
300,000 shares of Common Stock, par value $0.01 per share, of Company, subject
to the terms, provisions and conditions hereinafter set forth at a price per
share equal to $5.00. The price per share is subject to adjustment as
hereinafter provided (such price, or such price as last adjusted, as the case
may be, being herein referred to as the "PER SHARE WARRANT PRICE"). The said
number of shares purchasable hereunder is likewise subject to adjustment as
hereinafter provided.
The aggregate price of the Common Stock purchasable hereunder shall at all
times be equal to the price per share set forth in the preceding paragraph
multiplied by the number of shares initially purchasable hereunder. The
aggregate price is herein sometimes referred to as the "AGGREGATE WARRANT PRICE"
and is not subject to adjustment.
The terms which are capitalized herein shall have the meanings specified in
Section 11 unless the context shall otherwise require.
SECTION 1. EXERCISE OF WARRANT.
Subject to the conditions hereinafter set forth, this Warrant may be
exercised in whole or in part at any time and from time to time during the
Exercise Period by the surrender of this Warrant (with the subscription from at
the end hereof duly executed) at the principal office of Company in Denison,
Texas, and upon payment to Company of a sum equal to the per share Warrant Price
multiplied by the number of shares purchased in such exercise, which payment
shall be made by wire transfer or other delivery to Company of one or more types
of Permitted Consideration.
In the event that Warrants shall be delivered to Company as payment of all
or any portion of the purchase price payable hereunder, the amount of such
purchase price deemed to be paid by means of such delivery shall equal (a) the
aggregate number of shares of Underlying Shares related
1
<PAGE>
to any Warrants so delivered, multiplied by (b) the result, not less than zero,
equal to (i) the Current Market Price then in effect (with the date of the
exercise of the Warrant being deemed to be the "Issuance Date" for purposes of
making determinations under the definition of "Current Market Price") MINUS (ii)
the per share Warrant Price then in effect.
If this Warrant is exercised in respect of less than all of the shares of
Common Stock at the time purchasable hereunder, following such exercise this
Warrant shall be returned to the holder hereof and shall remain exercisable in
respect of such number of shares of Common Stock as may thereafter be determined
hereunder.
This Warrant and all rights and options hereunder shall expire to the
extent that it has not been exercised on or before the Expiration Date.
In the event that Informed.com, Inc. completes an initial public offering
of its common stock, par value $___ per share, within two (2) years from the
date hereof, this Warrant shall be exercised in whole no later than twelve (12)
months from the date of completion of such initial public offering.
Company shall pay all reasonable expenses, stamp, documentary and transfer
taxes and other charges payable in connection with the preparation, execution
and delivery of stock certificates pursuant to this Section, regardless of the
name or names in which such stock certificates shall be registered.
SECTION 2. RESERVATION.
Company will at all times reserve and keep available such number of
authorized shares of its Common Stock, solely for the purpose of issue upon the
exercise of the rights represented by this Warrant as herein provided for, as
may at any time be issuable (based upon the number of shares of Common Stock
outstanding at any such time) upon the exercise of this Warrant.
SECTION 3. PROTECTION AGAINST DILUTION.
The per share Warrant Price and the number of shares deliverable hereunder
shall be adjusted from time to time as hereinafter set forth:
SECTION 3.1 STOCK DIVIDENDS, SUBDIVISIONS, AND COMBINATIONS. In case after
the date hereof Company shall:
(a) take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend and declared to be payable in, or
other declared distribution of, Common Stock, or
(b) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock,
2
<PAGE>
then the per share Warrant Price shall be adjusted to that price determined by
multiplying the per share Warrant Price in effect immediately prior to such
event by a fraction (i) the numerator of which shall be the total number of
outstanding shares of Common Stock immediately prior to such event, and (ii) the
denominator of which shall be the total number of outstanding shares of Common
Stock immediately after such event.
SECTION 3.2 ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In case after
the date hereof Company shall (except as hereinafter provided) issue any
Additional Shares of Common Stock for a consideration less than the Current
Market Price per share (other than pursuant to options or other rights to
purchase Additional Shares of Common Stock awarded to employees, officers, or
directors pursuant to compensatory or other arrangements approved by the Board
of Directors), then the per share Warrant Price on each such issuance shall be
adjusted to that price determined by multiplying the per share Warrant Price in
effect immediately prior to such event by a fraction:
(a) the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such Additional
Shares of Common Stock plus the number of full shares of Common Stock which
the aggregate consideration for the total number of such Additional Shares
of Common Stock so issued would purchase at the Current Market Price per
share, and
(b) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such Additional
Shares of Common Stock plus the number of such Additional Shares of Common
Stock so issued.
The provisions of this Section 3.2 shall not apply to any Additional Shares
of Common Stock which are distributed to holders of Common Stock as a stock
dividend or subdivision, for which an adjustment is provided for under Section
3.1. No adjustment of the share per Warrant Price shall be made under this
Section 3.2 upon the issuance of any Additional Shares of Common Stock which are
issued pursuant to the exercise of any warrants or other subscription or
purchase rights or pursuant to the exercise of any conversion or exchange rights
in any Convertible Securities, if any such adjustment shall previously have been
made upon the issuance of such warrants or other rights or upon the issuance of
such Convertible Securities (or upon the issuance of any warrants or other
rights therefor) pursuant to Section 3.3.
SECTION 3.3 ISSUANCE OF WARRANTS OR OTHER RIGHTS, CONVERTIBLE SECURITIES.
In case Company shall issue any warrants or other rights to subscribe for or
purchase any Additional Shares of Common Stock or issue Convertible Securities
and the consideration per share for which Additional Shares of Common Stock may
at any time thereafter be issuable pursuant to such warrants or other rights or
pursuant to the terms of such Convertible Securities shall be less than the
Current Market Price per share (other than pursuant to options or other rights
to purchase Additional Shares of Common Stock awarded to employees, officers, or
directors pursuant to compensatory or other arrangements approved by the Board
of Directors), then the per share Warrant Price shall be adjusted as provided in
Section 3.2 above on the basis that:
(a) the maximum number of Additional Shares of Common Stock issuable
pursuant to all such warrants or other rights or necessary to effect the
conversion or exchange of all such Convertible Securities shall be deemed
to have been issued as of the earlier of:
3
<PAGE>
(i) the date on which Company shall enter a firm contract or commitment for
the issuance of such warrants, other rights or Convertible Securities or
(ii) the date of actual issuance of such warrants, other rights or
Convertible Securities, and
(b) the aggregate consideration for such maximum number of Additional
Shares of Common Stock shall be deemed to be the minimum consideration
received and receivable by Company for the issuance of such Additional
Shares of Common Stock pursuant to such warrants or other rights or
pursuant to the terms of such Convertible Securities.
No adjustment of the per share Warrant Price shall be made under this
Section 3.3 upon the issuance of any Convertible Securities which are issued
pursuant to the exercise of any warrants or other subscription or purchase
rights therefor, to the extent such adjustment shall previously have been made
upon the issuance of such warrants or other rights pursuant to this Section 3.3.
SECTION 3.4 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS. The following
provisions shall be applicable to the making of adjustments in the per share
Warrant Price hereinbefore provided in this Section 3:
(a) COMPUTATION OF CONSIDERATION. To the extent that any Additional
Shares of Common Stock or any Convertible Securities or any warrants or
other rights to subscribe for or purchase any Additional Shares of Common
Stock or any Convertible Securities shall be issued for a cash
consideration, the consideration received by Company therefor shall be
deemed to be the amount of the cash received by Company therefor, or, if
such Additional Shares of Common Stock or Convertible Securities or
warrants or other rights are offered by Company for subscription, the
subscription price, or, if such Additional Shares of Common Stock or
Convertible Securities or warrants or other rights are sold to underwriters
or dealers for public offering without a subscription offering, the
offering price, in any such case excluding any amounts paid or receivable
for accrued interest or accrued dividends and without deduction of any
compensation, discounts or expenses paid or incurred by Company for and in
the underwriting thereof, or otherwise in connection with the issue
thereof. To the extent that such issuance shall be for a consideration
other than cash, then, except as herein otherwise expressly provided, the
amount of such consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as determined in good faith by
the Board of Directors of Company. The consideration for any Additional
Shares of Common Stock issuable pursuant to any warrants or other rights to
subscribe for or purchase the same shall be the consideration received by
Company for issuing such warrants or other rights plus the additional
consideration payable to Company upon the exercise of such warrants or
other rights. The consideration for any Additional Shares of Common Stock
issuable pursuant to the terms of any Convertible Securities shall be the
consideration received by Company for issuing any warrants or other rights
to subscribe for or purchase such Convertible Securities plus the
consideration paid or payable to Company in respect of the subscription for
or purchase of such Convertible Securities plus the additional
consideration, if any, payable to Company upon the exercise of the right of
conversion or exchange of such Convertible Securities. In case of the
issuance at any time of any Additional Shares of Common Stock or
Convertible Securities in payment or satisfaction of any dividend upon any
class of equity securities other than Common Stock, Company shall
4
<PAGE>
be deemed to have received for such Additional Shares of Common Stock or
Convertible Securities a consideration equal to the amount of such dividend
so paid or satisfied.
(b) READJUSTMENT OF PER SHARE WARRANT PRICE. Upon expiration of the
right of exercise, conversion or exchange of any Convertible Securities, or
upon the expiration of any rights, options or warrants, or upon the
termination of any firm contract or commitment for the issuance of such
rights, options, warrants or Convertible Securities, or upon any increase
in the minimum consideration receivable by Company for the issuance of
Additional Shares of Common Stock pursuant to such Convertible Securities,
rights, options or warrants, if any such Convertible Securities shall not
have been exercised, converted or exchanged, or if any such rights, options
or warrant shall not have been exercised, the number of shares of Common
Stock deemed to be issued and outstanding by any reason of the fact that
they were issuable upon exercise, conversion or exchange of any such
Convertible Securities or upon exercise of any such rights, options or
warrants shall no longer be computed as set forth above, and the per share
Warrant Price shall forthwith be readjusted and thereafter be the price
which it would have been (but reflecting any other adjustments in the per
share Warrant Price made pursuant to the provisions of this Section 3 after
the issuance of such Convertible Securities, rights, options or warrants)
had the adjustment of the per share Warrant Price made upon the issuance or
sale of such Convertible Securities or the issuance of such rights, options
or warrants been made on the basis of the issuance only of the number of
Additional Shares of Common Stock actually issued upon exercise, conversion
or exchange of such Convertible Securities or upon the exercise of such
rights, options or warrants, or upon the basis of such increased minimum
consideration, as the case may be, and thereupon only the number of
Additional Shares of Common Stock actually so issued plus the number
thereof then issuable upon the basis of such increased minimum
consideration shall be deemed to have been issued and only the
consideration actually received plus shall increased minimum consideration
receivable by Company (computed in accordance with Section 3.4(a)) shall be
deemed to have been received by Company.
(c) ROUNDING OF PER SHARE WARRANT PRICE. Any determination of per
share Warrant Price hereunder shall be expressed in United States Dollars,
cents and portions of cents and shall be rounded to the nearest 1/1000 of
one cent or, if there is no nearest 1/1000 of one cent, to the next highest
1/1000 of one cent.
SECTION 3.5 EXTRAORDINARY DIVIDENDS. In case Company shall declare a
dividend upon its Common Stock (except a dividend payable in shares of Common
Stock referred to in Section 3.1(a) or a dividend payable in warrants, rights or
Convertible Securities referred to in Section 3.3) payable otherwise than out of
earnings or surplus (other than revaluation surplus or paid-in surplus), the per
share Warrant Price in effect immediately prior to the declaration of such
dividend shall be reduced by an amount equal, in the case of a dividend in cash,
to 10% of the amount thereof payable per share of Common Stock or, in the case
of any other dividend, to the fair value thereof per share of Common Stock as
determined in good faith by the Board of Directors of Company. For the purposes
of the foregoing, a dividend payable other than in cash shall be considered
payable out of earnings or surplus (other than revaluation surplus or paid-in
surplus) only to the extent that such earnings or surplus are charged an amount
equal to the fair value of such dividend as determined by the Board of Directors
of Company. If such dividend is paid or Company declares and becomes legally
liable to pay such dividend, such reduction shall take effect as of the date on
which a record is taken for
5
<PAGE>
the purpose of such dividend or, if a record is not taken, the date as of which
the holders of the Common Stock of record entitled to such dividend are to be
determined. Appropriate readjustment of the per share Warrant Price shall be
made in the event that any dividend referred to in this Section 3.5 shall be
lawfully abandoned.
SECTION 3.6 ADJUSTMENT OF NUMBER OF SHARES PURCHASABLE. Upon each
adjustment of the per share Warrant Price, the number of shares of Common Stock
purchasable hereunder shall be adjusted by multiplying the number of shares of
Common Stock purchasable hereunder immediately prior to such adjustment of the
per share Warrant Price by a fraction, the numerator of which shall be the per
share Warrant Price in effect immediately prior to such adjustment and the
denominator of which shall be the per share Warrant Price in effect immediately
following such adjustment.
SECTION 3.7 MINIMUM ADJUSTMENT. Except as hereinafter provided, no
adjustment of the per share Warrant Price hereunder shall be made if such
adjustment results in a change of the per share Warrant Price then in effect of
less than 1%. Any adjustment of less than 1% shall be carried forward and shall
be made at the time of and together with any subsequent adjustment which,
together with the adjustment or adjustments so carried forward, amounts to 1% or
more of the per share Warrant Price then in effect. However, upon the exercise
of this Warrant, Company shall make all necessary adjustments not theretofore
made to the per share Warrant Price up to and including the date upon which this
Warrant is exercised.
SECTION 3.8 NOTICE OF ADJUSTMENTS.
(a) Whenever the per share Warrant Price or number of shares
deliverable upon exercise of this Warrant shall be adjusted pursuant to
this Section 3, Company shall promptly prepare a certificate signed by the
President or a Vice President and by the Treasurer of Company setting
forth, in reasonable detail, the event requiring the adjustment, the amount
of the adjustment, the method by which such adjustment was calculated
(including a description of the basis on which the Board of Directors of
Company made any determination hereunder), and shall promptly cause copies
of such certificate to be mailed in the manner provided in Section 12.1 of
the Warrant Agreement to the holder of this Warrant.
(b) The adjustment set forth in the certificate furnished pursuant to
Section 3.8(a) shall be final and binding unless, within 90 days after
receipt thereof, the Majority Holders deliver to Company a written
statement of objection to such adjustment.
(i) In the event of any such statement of objection by said
Majority Holders, Company's accountants and a firm of independent
public accountants selected by said Majority Holders shall attempt to
prepare a computation in which both accountants concur. Any such joint
computation shall be set forth in a joint certificate to each holder
of the Warrants and Company and shall be final and binding.
(ii) If Company's accountants and said Majority Holders'
accountants are unable to resolve their differences within 30 days
after the receipt by Company of said Majority Holders' statement of
objection, they shall submit the matter to a third firm of independent
certified public accountants of nationally recognized standing
6
<PAGE>
agreed upon by said Majority Holders and Company or, if said Majority
Holders and Company are unable to agree within 10 days after the
expiration of said 30-day period, to such firm designated by the then
president of the state society of certified public accountants for the
state in which Company maintains its principal place of business. Such
third firm of accountants shall thereupon compute the amount of the
adjustment and, upon completion of such computation, shall transmit
its certificate to each holder of the Warrants and Company setting
forth such computations, which shall be final and binding.
(iii) The fees and expenses of all accountants referred to in
this Section 3.8(b) shall be borne by Company.
SECTION 4. MERGERS, CONSOLIDATIONS, SALES.
In the case of any consolidation or merger of Company without another
entity, or the sale of all or substantially all of its assets to another entity,
or any reorganization, recapitalization or reclassification of the Common Stock
or other equity securities of Company, then, as a condition of such
consolidation, merger, sale, reorganization, recapitalization or
reclassification, lawful and adequate provision shall be made whereby the holder
of this Warrant shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately therefore purchasable hereunder, such shares of stock,
securities or assets as may (by virtue of such consolidation, merger, sale,
reorganization or reclassification) be issued or payable with respect to or in
exchange for a number of outstanding shares of Common Stock equal to the number
of shares of Common Stock immediately theretofore so purchasable hereunder had
such consolidation, merger, sale, reorganization, recapitalization or
reclassification not taken place. In any such case, appropriate provisions shall
be made with respect to the rights and interest of the holder of this Warrant to
the end that the provisions hereof shall thereafter be applicable, as nearly as
may be, in relation to any shares of stock, securities or assets thereafter
deliverable upon exercise of this Warrant. Company shall not effect any such
consolidation, merger or sale, unless prior to or simultaneously with the
consummation thereof, the successor entity (if other than Company) resulting
from such consolidation or merger or the entity purchasing such assets shall
assume by written instrument executed and mailed or delivered to the holder of
this Warrant, the obligation to deliver to such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to receive.
SECTION 5. DISSOLUTION OR LIQUIDATION.
In the event of any proposed distribution of the assets of Company in
dissolution or liquidation except under circumstances when the foregoing Section
4 shall be payable, Company shall mail notice thereof to the holder of this
Warrant and shall make no distribution to shareholders until the expiration of
30 days from the date of mailing of the aforesaid notice and, in any such case,
the holder of this Warrant may exercise the purchase rights with respect to this
Warrant within 30 days from the date of mailing such notice and all rights
herein granted not so exercised within such 30-day period shall thereafter
become null and void.
7
<PAGE>
SECTION 6. NOTICE OF DIVIDENDS.
If the Board of Directors of Company proposes to declare any dividend or
other distribution on its Common Stock, except by way of a stock dividend
payable on its Common Stock, Company shall mail notice thereof to the holder of
this Warrant as soon as possible (such notice being referred to as the
"DISTRIBUTION NOTICE"). Company shall not fix a record date until the lapse of a
10-day period beginning on the date of delivery of the Distribution Notice. The
holder of this Warrant shall not participate in such dividend or other
distribution or be entitled to any rights on account or as a result thereof
unless and to the extent that this Warrant is exercised prior to such record
date. The provisions of this paragraph shall not apply to distributions made in
connection with transactions covered by Section 4.
SECTION 7. FRACTIONAL SHARES.
No fractional shares may be issued upon the exercise of this Warrant. In
the event that a Holder would otherwise be entitled to a fractional share except
for the operation of the previous sentence, in lieu of such fractional share
such Holder shall be paid a cash amount equal to (i) such fraction multiplied by
(ii) the Current Market Value of one full share of Common Stock on the date of
exercise.
SECTION 8. FULLY PAID STOCK; TAXES.
Company covenants and agrees that the shares of stock represented by each
and every certificate for its Common Stock to be delivered on the exercise of
the purchase rights and the payment of the applicable purchase price herein
provided for shall, at the time of such delivery, be validly issued and
outstanding and be fully paid and nonassessable. Company further covenants and
agrees that it will pay when due and payable any and all federal and state taxes
(other than income taxes) which may be payable in respect of this Warrant or any
Common Stock or certificates therefor upon the exercise of the rights herein and
in the Warrant Agreement provided for pursuant to the provisions hereof and
thereof. Company shall not, however, be required to pay any tax which may be
payable solely in respect of any transfer and delivery of stock certificates in
a name other than that of the holder exercising this Warrant, and any such tax
shall be paid by such holder at the time of presentation.
SECTION 9. CLOSING OF TRANSFER BOOKS.
The right to exercise this Warrant shall not be suspended during any period
that the stock transfer books of Company for its Common Stock may be closed.
Company shall not be required, however, to deliver certificates of its Common
Stock upon such exercise while such books are duly closed for any purpose, but
Company may postpone the delivery of the certificates for such Common Stock
until the opening of such books, and they shall, in such case, be delivered
forthwith upon the opening thereof, or as soon as practicable thereafter.
SECTION 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT.
SECTION 10.1 PARTIAL EXERCISE. If this Warrant is exercised in part only,
the holder hereof shall surrender this Warrant upon such exercise for
endorsement thereon of the number of shares of
8
<PAGE>
Common Stock as to which it has been exercised. No partial exercise of this
Warrant shall be made in respect of shares of Common Stock of Company
representing less than 1% of Pro Forma Shares.
SECTION 10.2 ASSIGNMENT. (a) Subject to the conditions set forth in Section
10.2(b) hereof, this Warrant may be assigned either in whole or in part by
surrender of this Warrant at the principal office of Company in Denison, Texas
(with the assignment or, as the case may be, partial assignment form at the end
hereof duly executed). If this Warrant is being assigned in whole, the assignee
shall receive a new Warrant (registered in the name of such assignee or its
nominee) which new Warrant shall cover 100% of the number of shares of Common
Stock then purchasable hereunder and shall set forth the Aggregate Warrant
Price. If this Warrant is being assigned in part, the assignor and assignee
shall each receive a new Warrant (which, in the case of the assignee, shall be
registered in the name of the assignee or its nominee), which new Warrants shall
cover the number of shares of Common Stock then purchasable hereunder not so
assigned and so assigned, respectively, and shall set forth the proportionate
Aggregate Warrant Price applicable to such shares.
(b) Neither this Warrant nor any Warrant Shares may be sold, assigned or
otherwise transferred unless such sale, assignment or transfer is registered or
qualified pursuant to the registration requirements of the Securities Act of
1933, as amended, and all applicable state securities laws, or is preceded by an
opinion of counsel addressed to Company that such sale, assignment or other
transfer is exempt from all such registration requirements; PROVIDED, HOWEVER,
that no such opinion of counsel shall be required in connection with any such
sale, assignment or transfer to any affiliate of the holder of this Warrant or
any Warrant Shares issued in respect hereof. The fees and expenses of such
counsel incurred in respect of such sales, assignments or transfers shall be
paid by the holder of this Warrant or any Warrant Shares which are the subject
of such proposed sale, assignment or transfer. All certificates representing the
Warrant Shares shall be stamped or imprinted with an appropriate restrictive
legend, substantially as set forth on the cover page hereof.
SECTION 11. DEFINITIONS.
In addition to the terms defined elsewhere in this Warrant, the following
terms have the following respective meanings:
"ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of Common Stock
issued by Company after the Closing Date, except:
(a) Common Stock issued upon exercise of the Warrants;
(b) Common Stock issued upon exercise of warrants issued under the
Existing Warrant Agreements; and
(c) Common Stock issued to officers, directors or employees of, or
consultants to, Company pursuant to any existing or future stock option,
incentive, bonus or compensation plan or program approved by the Company's
shareholders (no later than 12 months following adoption of the plan or program
by the Company's Board of Directors).
"AGGREGATE WARRANT PRICE" has the meaning specified on the first page of
this Warrant.
9
<PAGE>
"BUSINESS DAY" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in the United States are
generally authorized or obligated by law or executive order to close.
"COMMON STOCK" shall mean the shares of Common Stock, par value $0.01 per
share, of Company described in the Certificate of Incorporation.
"CONVERTIBLE SECURITIES" shall mean evidences of indebtedness, equity,
rights, options, warrants or other securities which are convertible into or
exchangeable for shares of Common Stock, either immediately or upon the arrival
of a specified date or the happening of a specified event, or otherwise.
"CURRENT MARKET PRICE" shall mean, at the date of determination
thereof, an amount equal to the market price on the Business Day occurring most
recently prior to the subject issuance of such shares of Common Stock (the
"ISSUANCE DATE"). The market price for such Business Day shall be the last sale
price on such day on the American Stock Exchange, or, if the Common Stock is not
then listed or admitted to trading on the American Stock Exchange, on such other
principal stock exchange on which such shares are then listed or admitted to
trading, or, if no sale takes place on such day on any such exchange, the
average of the closing bid and asked prices on such day as officially quoted on
any such exchange, or, if the Common Stock is not then listed or admitted to
trading on any stock exchange, the market price for each such Business Day shall
be the last reported sale price on such day on The Nasdaq Stock Market's
National Market, as furnished by Nasdaq, or, if no sale takes place on such day
on such system, the average of the closing bid and asked prices on such day as
officially quoted by Nasdaq, or, if such price at the time is not available from
such system, the market price for such Business Day shall be the average of the
reported closing bid and asked prices on such day in the over-the-counter
market, as furnished by Nasdaq, or, if such price at the time is not available
from such system, such price shall be determined in good faith by Company's
Board of Directors, which shall be evidenced by a notice setting forth such
determination in reasonable detail (including computations and assumptions used)
(THE "CMP COMPUTATION NOTICE") to each holder of the Warrants not later than 30
days after the issuance date of the Common Stock giving rise to such
determination (the "CMP COMPUTATION DATE") setting forth such determination and
setting forth in detail the rights and procedures the holders of the Warrants
may take in the event the Majority Holders do not agree with the valuation set
forth in the CMP Computation Notice, PROVIDED, that if the Majority Holders of
such Warrants shall object to the valuation contained in the CMP Computation
Notice in writing to Company within 15 days of the CMP Computation Date, an
Appraiser, the expenses of whom shall be paid by said Majority Holders, shall be
selected by Company and said Majority Holders (on behalf of all of the holders
of the Warrants as a class), or, if said Majority Holders and Company are unable
to agree upon the selection of an Appraiser within 10 days of the date of the
written notice from said Majority Holders to Company objecting to the CMP
Computation Notice, by the American Arbitration Association. Said Majority
Holders and Company shall be jointly responsible for engaging the Appraiser
finally selected. In the event that the Majority Holders do not object to the
CMP Computation Notice within 15 days after receiving the CMP Computation
Notice, then the value shall be that which was determined solely by Company's
Board of Directors. The Appraiser appointed pursuant to the foregoing procedure
shall be instructed to determine such value within 15 days after the selection
of such Appraiser, and any such determination made by the Appraiser shall be
final and binding upon the parties. Notwithstanding the foregoing, in the event
that, on the Issuance Date, shares of
10
<PAGE>
Common Stock shall be offered for sale to the public in connection with an
underwritten public offering, the Current Market Price in respect of said
Issuance Date shall be deemed to be the price at which said shares are initially
sold to the public.
"EXERCISE DATE" shall mean a date on which this Warrant is exercised.
"EXERCISE PERIOD" shall mean the period beginning on, and including, the
date hereof through the Expiration Date.
"EXPIRATION DATE" shall mean from and after 5:00 p.m. Denison, Texas time
on the third anniversary of issuance of Warrant.
"MAJORITY HOLDERS" shall mean, at the time of any determination, the
holders of a majority of the Warrants (determined by the number of shares of
Common Stock represented by each such Warrant as if exercised).
"PER SHARE WARRANT PRICE" is defined in the first paragraph of this
Warrant.
"PERMITTED CONSIDERATION" shall mean each of the following (or any
combination thereof):
(a) cash or other funds immediately available to Company; and
(b) Warrants.
"PRO FORMA SHARES" shall mean, as of the date of any determination thereof,
the sum of (i) the total number of outstanding shares of Common Stock, plus (ii)
the total number of shares of Common Stock issuable upon exercise of the
Warrants and any other warrants, options or other rights and upon the exercise
of any conversion or exchange rights with respect to Convertible Securities.
"UNDERLYING SHARES" shall mean the shares of Common Stock issuable upon
exercise of any of the Warrants and any references contained herein to a holder
or holders of any Underlying Shares shall be deemed to refer to the holder of
the Warrants relating thereto.
"WARRANT PRICE" - see the definition of "per share Warrant Price".
"WARRANT SHARES" shall mean shares of Common Stock issued upon exercise of
the warrants.
"WARRANTS" as used herein shall refer to, collectively, this Warrant and
all other warrants issued in exchange or substitution for this Warrant.
SECTION 12. WARRANT HOLDER NOT SHAREHOLDER.
This Warrant does not confer upon the holder hereof any right to vote or to
consent or to receive notice as a shareholder of Company, as such, in respect of
any matters whatsoever, or any other rights or liabilities as a shareholder,
prior to the exercise hereof as hereinbefore provided.
11
<PAGE>
SECTION 13. SEVERABILITY.
Should any part of this Warrant for any reason be declared invalid or
unenforceable, such decision shall not affect the validity or enforceability of
any remaining portion, which remaining portion shall remain in force and effect
as if this Warrant had been executed with the invalid or unenforceable portion
thereof eliminated, and it is hereby declared the intention of the parties
hereto that they would have executed and accepted the remaining portion of this
Warrant without including therein any such part, parts or portion which may, for
any reason, be hereafter declared invalid or unenforceable.
SECTION 14. GOVERNING LAW.
This Warrant shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the law of the State of Texas
excluding choice-of-law principles of the law of such state that would require
the application of the laws of a jurisdiction other than such state.
[SIGNATURE PAGE TO FOLLOW]
12
<PAGE>
IN WITNESS WHEREOF, Company has caused this Warrant to be signed by a duly
authorized officer and to be dated this 14th day of March, 2000.
HORIZON PHARMACIES, INC.
By: /s/ Ricky D. McCord
-----------------------------------------
Ricky D. McCord
President
S-1
<PAGE>
Exhibit 4.10
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED OR QUALIFIED FOR SALE UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD
OR OTHERWISE TRANSFERRED UNLESS SUCH OFFER, SALE OR TRANSFER IS REGISTERED OR
QUALIFIED PURSUANT TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR IS PRECEDED BY AN OPINION OF COUNSEL
ADDRESSED TO HORIZON PHARMACIES, INC. THAT SUCH SALE OR OTHER TRANSFER IS EXEMPT
FROM ALL SUCH REGISTRATION REQUIREMENTS.
No. WR-_____
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
HORIZON PHARMACIES, INC.
March 14, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1. EXERCISE OF WARRANT.....................................................1
SECTION 2. RESERVATION.............................................................2
SECTION 3. PROTECTION AGAINST DILUTION.............................................2
Section 3.1 Stock Dividends, Subdivisions, and Combinations....................2
Section 3.2 Issuance of Additional Shares of Common Stock......................3
Section 3.3 Issuance of Warrants or Other Rights, Convertible Securities.......3
Section 3.4 Other Provisions Applicable to Adjustments.........................4
Section 3.5 Extraordinary Dividends............................................5
Section 3.6 Adjustment of Number of Shares Purchasable.........................6
Section 3.7 Minimum Adjustment.................................................6
Section 3.8 Notice of Adjustments..............................................6
SECTION 4. MERGERS, CONSOLIDATIONS, SALES..........................................7
SECTION 5. DISSOLUTION OR LIQUIDATION..............................................7
SECTION 6. NOTICE OF DIVIDENDS.....................................................8
SECTION 7. FRACTIONAL SHARES.......................................................8
SECTION 8. FULLY PAID STOCK; TAXES.................................................8
SECTION 9. CLOSING OF TRANSFER BOOKS...............................................8
SECTION 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT.................................8
Section 10.1 Partial Exercise...................................................8
Section 10.2 Assignment.........................................................9
SECTION 11. DEFINITIONS.............................................................9
SECTION 12. WARRANT HOLDER NOT SHAREHOLDER.........................................11
SECTION 13. SEVERABILITY...........................................................12
SECTION 14. GOVERNING LAW..........................................................12
</TABLE>
i
<PAGE>
Warrant
No. WR-___
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
HORIZON PHARMACIES, INC.
THIS IS TO CERTIFY that, for value received and subject to the provisions
hereinafter set forth,
INFORMED.COM, INC.
or its permitted assigns,
is entitled to purchase from HORIZON Pharmacies, Inc., a Delaware corporation
("COMPANY"), at any time and from time to time during the Exercise Period, up to
400,000 shares of Common Stock, par value $0.01 per share, of Company, subject
to the terms, provisions and conditions hereinafter set forth at a price per
share equal to $15.00. The price per share is subject to adjustment as
hereinafter provided (such price, or such price as last adjusted, as the case
may be, being herein referred to as the "PER SHARE WARRANT PRICE"). The said
number of shares purchasable hereunder is likewise subject to adjustment as
hereinafter provided.
The aggregate price of the Common Stock purchasable hereunder shall at all
times be equal to the price per share set forth in the preceding paragraph
multiplied by the number of shares initially purchasable hereunder. The
aggregate price is herein sometimes referred to as the "AGGREGATE WARRANT PRICE"
and is not subject to adjustment.
The terms which are capitalized herein shall have the meanings specified in
Section 11 unless the context shall otherwise require.
SECTION 1. EXERCISE OF WARRANT.
Subject to the conditions hereinafter set forth, this Warrant may be
exercised in whole or in part at any time and from time to time during the
Exercise Period by the surrender of this Warrant (with the subscription from at
the end hereof duly executed) at the principal office of Company in Denison,
Texas, and upon payment to Company of a sum equal to the per share Warrant Price
multiplied by the number of shares purchased in such exercise, which payment
shall be made by wire transfer or other delivery to Company of one or more types
of Permitted Consideration.
In the event that Warrants shall be delivered to Company as payment of all
or any portion of the purchase price payable hereunder, the amount of such
purchase price deemed to be paid by means of such delivery shall equal (a) the
aggregate number of shares of Underlying Shares related
1
<PAGE>
to any Warrants so delivered, multiplied by (b) the result, not less than zero,
equal to (i) the Current Market Price then in effect (with the date of the
exercise of the Warrant being deemed to be the "Issuance Date" for purposes of
making determinations under the definition of "Current Market Price") MINUS (ii)
the per share Warrant Price then in effect.
If this Warrant is exercised in respect of less than all of the shares of
Common Stock at the time purchasable hereunder, following such exercise this
Warrant shall be returned to the holder hereof and shall remain exercisable in
respect of such number of shares of Common Stock as may thereafter be determined
hereunder.
This Warrant and all rights and options hereunder shall expire to the
extent that it has not been exercised on or before the Expiration Date.
In the event that Informed.com, Inc. completes an initial public offering
of its common stock, par value $___ per share, within two (2) years from the
date hereof, this Warrant shall be exercised in whole no later than twelve (12)
months from the date of completion of such initial public offering.
Company shall pay all reasonable expenses, stamp, documentary and transfer
taxes and other charges payable in connection with the preparation, execution
and delivery of stock certificates pursuant to this Section, regardless of the
name or names in which such stock certificates shall be registered.
SECTION 2. RESERVATION.
Company will at all times reserve and keep available such number of
authorized shares of its Common Stock, solely for the purpose of issue upon the
exercise of the rights represented by this Warrant as herein provided for, as
may at any time be issuable (based upon the number of shares of Common Stock
outstanding at any such time) upon the exercise of this Warrant.
SECTION 3. PROTECTION AGAINST DILUTION.
The per share Warrant Price and the number of shares deliverable hereunder
shall be adjusted from time to time as hereinafter set forth:
SECTION 3.1 STOCK DIVIDENDS, SUBDIVISIONS, AND COMBINATIONS. In case after
the date hereof Company shall:
(a) take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend and declared to be payable in, or
other declared distribution of, Common Stock, or
(b) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock,
2
<PAGE>
then the per share Warrant Price shall be adjusted to that price determined by
multiplying the per share Warrant Price in effect immediately prior to such
event by a fraction (i) the numerator of which shall be the total number of
outstanding shares of Common Stock immediately prior to such event, and (ii) the
denominator of which shall be the total number of outstanding shares of Common
Stock immediately after such event.
SECTION 3.2 ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In case after
the date hereof Company shall (except as hereinafter provided) issue any
Additional Shares of Common Stock for a consideration less than the Current
Market Price per share (other than pursuant to options or other rights to
purchase Additional Shares of Common Stock awarded to employees, officers, or
directors pursuant to compensatory or other arrangements approved by the Board
of Directors), then the per share Warrant Price on each such issuance shall be
adjusted to that price determined by multiplying the per share Warrant Price in
effect immediately prior to such event by a fraction:
(a) the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such Additional
Shares of Common Stock plus the number of full shares of Common Stock which
the aggregate consideration for the total number of such Additional Shares
of Common Stock so issued would purchase at the Current Market Price per
share, and
(b) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such Additional
Shares of Common Stock plus the number of such Additional Shares of Common
Stock so issued.
The provisions of this Section 3.2 shall not apply to any Additional Shares
of Common Stock which are distributed to holders of Common Stock as a stock
dividend or subdivision, for which an adjustment is provided for under Section
3.1. No adjustment of the share per Warrant Price shall be made under this
Section 3.2 upon the issuance of any Additional Shares of Common Stock which are
issued pursuant to the exercise of any warrants or other subscription or
purchase rights or pursuant to the exercise of any conversion or exchange rights
in any Convertible Securities, if any such adjustment shall previously have been
made upon the issuance of such warrants or other rights or upon the issuance of
such Convertible Securities (or upon the issuance of any warrants or other
rights therefor) pursuant to Section 3.3.
SECTION 3.3 ISSUANCE OF WARRANTS OR OTHER RIGHTS, CONVERTIBLE SECURITIES.
In case Company shall issue any warrants or other rights to subscribe for or
purchase any Additional Shares of Common Stock or issue Convertible Securities
and the consideration per share for which Additional Shares of Common Stock may
at any time thereafter be issuable pursuant to such warrants or other rights or
pursuant to the terms of such Convertible Securities shall be less than the
Current Market Price per share (other than pursuant to options or other rights
to purchase Additional Shares of Common Stock awarded to employees, officers, or
directors pursuant to compensatory or other arrangements approved by the Board
of Directors), then the per share Warrant Price shall be adjusted as provided in
Section 3.2 above on the basis that:
(a) the maximum number of Additional Shares of Common Stock issuable
pursuant to all such warrants or other rights or necessary to effect the
conversion or exchange of all such Convertible Securities shall be deemed
to have been issued as of the earlier of:
3
<PAGE>
(i) the date on which Company shall enter a firm contract or commitment for
the issuance of such warrants, other rights or Convertible Securities or
(ii) the date of actual issuance of such warrants, other rights or
Convertible Securities, and
(b) the aggregate consideration for such maximum number of Additional
Shares of Common Stock shall be deemed to be the minimum consideration
received and receivable by Company for the issuance of such Additional
Shares of Common Stock pursuant to such warrants or other rights or
pursuant to the terms of such Convertible Securities.
No adjustment of the per share Warrant Price shall be made under this
Section 3.3 upon the issuance of any Convertible Securities which are issued
pursuant to the exercise of any warrants or other subscription or purchase
rights therefor, to the extent such adjustment shall previously have been made
upon the issuance of such warrants or other rights pursuant to this Section 3.3.
SECTION 3.4 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS. The following
provisions shall be applicable to the making of adjustments in the per share
Warrant Price hereinbefore provided in this Section 3:
(a) COMPUTATION OF CONSIDERATION. To the extent that any Additional
Shares of Common Stock or any Convertible Securities or any warrants or
other rights to subscribe for or purchase any Additional Shares of Common
Stock or any Convertible Securities shall be issued for a cash
consideration, the consideration received by Company therefor shall be
deemed to be the amount of the cash received by Company therefor, or, if
such Additional Shares of Common Stock or Convertible Securities or
warrants or other rights are offered by Company for subscription, the
subscription price, or, if such Additional Shares of Common Stock or
Convertible Securities or warrants or other rights are sold to underwriters
or dealers for public offering without a subscription offering, the
offering price, in any such case excluding any amounts paid or receivable
for accrued interest or accrued dividends and without deduction of any
compensation, discounts or expenses paid or incurred by Company for and in
the underwriting thereof, or otherwise in connection with the issue
thereof. To the extent that such issuance shall be for a consideration
other than cash, then, except as herein otherwise expressly provided, the
amount of such consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as determined in good faith by
the Board of Directors of Company. The consideration for any Additional
Shares of Common Stock issuable pursuant to any warrants or other rights to
subscribe for or purchase the same shall be the consideration received by
Company for issuing such warrants or other rights plus the additional
consideration payable to Company upon the exercise of such warrants or
other rights. The consideration for any Additional Shares of Common Stock
issuable pursuant to the terms of any Convertible Securities shall be the
consideration received by Company for issuing any warrants or other rights
to subscribe for or purchase such Convertible Securities plus the
consideration paid or payable to Company in respect of the subscription for
or purchase of such Convertible Securities plus the additional
consideration, if any, payable to Company upon the exercise of the right of
conversion or exchange of such Convertible Securities. In case of the
issuance at any time of any Additional Shares of Common Stock or
Convertible Securities in payment or satisfaction of any dividend upon any
class of equity securities other than Common Stock, Company shall
4
<PAGE>
be deemed to have received for such Additional Shares of Common Stock or
Convertible Securities a consideration equal to the amount of such dividend
so paid or satisfied.
(b) READJUSTMENT OF PER SHARE WARRANT PRICE. Upon expiration of the
right of exercise, conversion or exchange of any Convertible Securities, or
upon the expiration of any rights, options or warrants, or upon the
termination of any firm contract or commitment for the issuance of such
rights, options, warrants or Convertible Securities, or upon any increase
in the minimum consideration receivable by Company for the issuance of
Additional Shares of Common Stock pursuant to such Convertible Securities,
rights, options or warrants, if any such Convertible Securities shall not
have been exercised, converted or exchanged, or if any such rights, options
or warrant shall not have been exercised, the number of shares of Common
Stock deemed to be issued and outstanding by any reason of the fact that
they were issuable upon exercise, conversion or exchange of any such
Convertible Securities or upon exercise of any such rights, options or
warrants shall no longer be computed as set forth above, and the per share
Warrant Price shall forthwith be readjusted and thereafter be the price
which it would have been (but reflecting any other adjustments in the per
share Warrant Price made pursuant to the provisions of this Section 3 after
the issuance of such Convertible Securities, rights, options or warrants)
had the adjustment of the per share Warrant Price made upon the issuance or
sale of such Convertible Securities or the issuance of such rights, options
or warrants been made on the basis of the issuance only of the number of
Additional Shares of Common Stock actually issued upon exercise, conversion
or exchange of such Convertible Securities or upon the exercise of such
rights, options or warrants, or upon the basis of such increased minimum
consideration, as the case may be, and thereupon only the number of
Additional Shares of Common Stock actually so issued plus the number
thereof then issuable upon the basis of such increased minimum
consideration shall be deemed to have been issued and only the
consideration actually received plus shall increased minimum consideration
receivable by Company (computed in accordance with Section 3.4(a)) shall be
deemed to have been received by Company.
(c) ROUNDING OF PER SHARE WARRANT PRICE. Any determination of per
share Warrant Price hereunder shall be expressed in United States Dollars,
cents and portions of cents and shall be rounded to the nearest 1/1000 of
one cent or, if there is no nearest 1/1000 of one cent, to the next highest
1/1000 of one cent.
SECTION 3.5 EXTRAORDINARY DIVIDENDS. In case Company shall declare a
dividend upon its Common Stock (except a dividend payable in shares of Common
Stock referred to in Section 3.1(a) or a dividend payable in warrants, rights or
Convertible Securities referred to in Section 3.3) payable otherwise than out of
earnings or surplus (other than revaluation surplus or paid-in surplus), the per
share Warrant Price in effect immediately prior to the declaration of such
dividend shall be reduced by an amount equal, in the case of a dividend in cash,
to 10% of the amount thereof payable per share of Common Stock or, in the case
of any other dividend, to the fair value thereof per share of Common Stock as
determined in good faith by the Board of Directors of Company. For the purposes
of the foregoing, a dividend payable other than in cash shall be considered
payable out of earnings or surplus (other than revaluation surplus or paid-in
surplus) only to the extent that such earnings or surplus are charged an amount
equal to the fair value of such dividend as determined by the Board of Directors
of Company. If such dividend is paid or Company declares and becomes legally
liable to pay such dividend, such reduction shall take effect as of the date on
which a record is taken for
5
<PAGE>
the purpose of such dividend or, if a record is not taken, the date as of which
the holders of the Common Stock of record entitled to such dividend are to be
determined. Appropriate readjustment of the per share Warrant Price shall be
made in the event that any dividend referred to in this Section 3.5 shall be
lawfully abandoned.
SECTION 3.6 ADJUSTMENT OF NUMBER OF SHARES PURCHASABLE. Upon each
adjustment of the per share Warrant Price, the number of shares of Common Stock
purchasable hereunder shall be adjusted by multiplying the number of shares of
Common Stock purchasable hereunder immediately prior to such adjustment of the
per share Warrant Price by a fraction, the numerator of which shall be the per
share Warrant Price in effect immediately prior to such adjustment and the
denominator of which shall be the per share Warrant Price in effect immediately
following such adjustment.
SECTION 3.7 MINIMUM ADJUSTMENT. Except as hereinafter provided, no
adjustment of the per share Warrant Price hereunder shall be made if such
adjustment results in a change of the per share Warrant Price then in effect of
less than 1%. Any adjustment of less than 1% shall be carried forward and shall
be made at the time of and together with any subsequent adjustment which,
together with the adjustment or adjustments so carried forward, amounts to 1% or
more of the per share Warrant Price then in effect. However, upon the exercise
of this Warrant, Company shall make all necessary adjustments not theretofore
made to the per share Warrant Price up to and including the date upon which this
Warrant is exercised.
SECTION 3.8 NOTICE OF ADJUSTMENTS.
(a) Whenever the per share Warrant Price or number of shares
deliverable upon exercise of this Warrant shall be adjusted pursuant to
this Section 3, Company shall promptly prepare a certificate signed by the
President or a Vice President and by the Treasurer of Company setting
forth, in reasonable detail, the event requiring the adjustment, the amount
of the adjustment, the method by which such adjustment was calculated
(including a description of the basis on which the Board of Directors of
Company made any determination hereunder), and shall promptly cause copies
of such certificate to be mailed in the manner provided in Section 12.1 of
the Warrant Agreement to the holder of this Warrant.
(b) The adjustment set forth in the certificate furnished pursuant to
Section 3.8(a) shall be final and binding unless, within 90 days after
receipt thereof, the Majority Holders deliver to Company a written
statement of objection to such adjustment.
(i) In the event of any such statement of objection by said
Majority Holders, Company's accountants and a firm of independent
public accountants selected by said Majority Holders shall attempt to
prepare a computation in which both accountants concur. Any such joint
computation shall be set forth in a joint certificate to each holder
of the Warrants and Company and shall be final and binding.
(ii) If Company's accountants and said Majority Holders'
accountants are unable to resolve their differences within 30 days
after the receipt by Company of said Majority Holders' statement of
objection, they shall submit the matter to a third firm of independent
certified public accountants of nationally recognized standing
6
<PAGE>
agreed upon by said Majority Holders and Company or, if said Majority
Holders and Company are unable to agree within 10 days after the
expiration of said 30-day period, to such firm designated by the then
president of the state society of certified public accountants for the
state in which Company maintains its principal place of business. Such
third firm of accountants shall thereupon compute the amount of the
adjustment and, upon completion of such computation, shall transmit
its certificate to each holder of the Warrants and Company setting
forth such computations, which shall be final and binding.
(iii) The fees and expenses of all accountants referred to in
this Section 3.8(b) shall be borne by Company.
SECTION 4. MERGERS, CONSOLIDATIONS, SALES.
In the case of any consolidation or merger of Company without another
entity, or the sale of all or substantially all of its assets to another entity,
or any reorganization, recapitalization or reclassification of the Common Stock
or other equity securities of Company, then, as a condition of such
consolidation, merger, sale, reorganization, recapitalization or
reclassification, lawful and adequate provision shall be made whereby the holder
of this Warrant shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately therefore purchasable hereunder, such shares of stock,
securities or assets as may (by virtue of such consolidation, merger, sale,
reorganization or reclassification) be issued or payable with respect to or in
exchange for a number of outstanding shares of Common Stock equal to the number
of shares of Common Stock immediately theretofore so purchasable hereunder had
such consolidation, merger, sale, reorganization, recapitalization or
reclassification not taken place. In any such case, appropriate provisions shall
be made with respect to the rights and interest of the holder of this Warrant to
the end that the provisions hereof shall thereafter be applicable, as nearly as
may be, in relation to any shares of stock, securities or assets thereafter
deliverable upon exercise of this Warrant. Company shall not effect any such
consolidation, merger or sale, unless prior to or simultaneously with the
consummation thereof, the successor entity (if other than Company) resulting
from such consolidation or merger or the entity purchasing such assets shall
assume by written instrument executed and mailed or delivered to the holder of
this Warrant, the obligation to deliver to such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to receive.
SECTION 5. DISSOLUTION OR LIQUIDATION.
In the event of any proposed distribution of the assets of Company in
dissolution or liquidation except under circumstances when the foregoing Section
4 shall be payable, Company shall mail notice thereof to the holder of this
Warrant and shall make no distribution to shareholders until the expiration of
30 days from the date of mailing of the aforesaid notice and, in any such case,
the holder of this Warrant may exercise the purchase rights with respect to this
Warrant within 30 days from the date of mailing such notice and all rights
herein granted not so exercised within such 30-day period shall thereafter
become null and void.
7
<PAGE>
SECTION 6. NOTICE OF DIVIDENDS.
If the Board of Directors of Company proposes to declare any dividend or
other distribution on its Common Stock, except by way of a stock dividend
payable on its Common Stock, Company shall mail notice thereof to the holder of
this Warrant as soon as possible (such notice being referred to as the
"DISTRIBUTION NOTICE"). Company shall not fix a record date until the lapse of a
10-day period beginning on the date of delivery of the Distribution Notice. The
holder of this Warrant shall not participate in such dividend or other
distribution or be entitled to any rights on account or as a result thereof
unless and to the extent that this Warrant is exercised prior to such record
date. The provisions of this paragraph shall not apply to distributions made in
connection with transactions covered by Section 4.
SECTION 7. FRACTIONAL SHARES.
No fractional shares may be issued upon the exercise of this Warrant. In
the event that a Holder would otherwise be entitled to a fractional share except
for the operation of the previous sentence, in lieu of such fractional share
such Holder shall be paid a cash amount equal to (i) such fraction multiplied by
(ii) the Current Market Value of one full share of Common Stock on the date of
exercise.
SECTION 8. FULLY PAID STOCK; TAXES.
Company covenants and agrees that the shares of stock represented by each
and every certificate for its Common Stock to be delivered on the exercise of
the purchase rights and the payment of the applicable purchase price herein
provided for shall, at the time of such delivery, be validly issued and
outstanding and be fully paid and nonassessable. Company further covenants and
agrees that it will pay when due and payable any and all federal and state taxes
(other than income taxes) which may be payable in respect of this Warrant or any
Common Stock or certificates therefor upon the exercise of the rights herein and
in the Warrant Agreement provided for pursuant to the provisions hereof and
thereof. Company shall not, however, be required to pay any tax which may be
payable solely in respect of any transfer and delivery of stock certificates in
a name other than that of the holder exercising this Warrant, and any such tax
shall be paid by such holder at the time of presentation.
SECTION 9. CLOSING OF TRANSFER BOOKS.
The right to exercise this Warrant shall not be suspended during any period
that the stock transfer books of Company for its Common Stock may be closed.
Company shall not be required, however, to deliver certificates of its Common
Stock upon such exercise while such books are duly closed for any purpose, but
Company may postpone the delivery of the certificates for such Common Stock
until the opening of such books, and they shall, in such case, be delivered
forthwith upon the opening thereof, or as soon as practicable thereafter.
SECTION 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT.
SECTION 10.1 PARTIAL EXERCISE. If this Warrant is exercised in part only,
the holder hereof shall surrender this Warrant upon such exercise for
endorsement thereon of the number of shares of
8
<PAGE>
Common Stock as to which it has been exercised. No partial exercise of this
Warrant shall be made in respect of shares of Common Stock of Company
representing less than 1% of Pro Forma Shares.
SECTION 10.2 ASSIGNMENT. (a) Subject to the conditions set forth in Section
10.2(b) hereof, this Warrant may be assigned either in whole or in part by
surrender of this Warrant at the principal office of Company in Denison, Texas
(with the assignment or, as the case may be, partial assignment form at the end
hereof duly executed). If this Warrant is being assigned in whole, the assignee
shall receive a new Warrant (registered in the name of such assignee or its
nominee) which new Warrant shall cover 100% of the number of shares of Common
Stock then purchasable hereunder and shall set forth the Aggregate Warrant
Price. If this Warrant is being assigned in part, the assignor and assignee
shall each receive a new Warrant (which, in the case of the assignee, shall be
registered in the name of the assignee or its nominee), which new Warrants shall
cover the number of shares of Common Stock then purchasable hereunder not so
assigned and so assigned, respectively, and shall set forth the proportionate
Aggregate Warrant Price applicable to such shares.
(b) Neither this Warrant nor any Warrant Shares may be sold, assigned or
otherwise transferred unless such sale, assignment or transfer is registered or
qualified pursuant to the registration requirements of the Securities Act of
1933, as amended, and all applicable state securities laws, or is preceded by an
opinion of counsel addressed to Company that such sale, assignment or other
transfer is exempt from all such registration requirements; PROVIDED, HOWEVER,
that no such opinion of counsel shall be required in connection with any such
sale, assignment or transfer to any affiliate of the holder of this Warrant or
any Warrant Shares issued in respect hereof. The fees and expenses of such
counsel incurred in respect of such sales, assignments or transfers shall be
paid by the holder of this Warrant or any Warrant Shares which are the subject
of such proposed sale, assignment or transfer. All certificates representing the
Warrant Shares shall be stamped or imprinted with an appropriate restrictive
legend, substantially as set forth on the cover page hereof.
SECTION 11. DEFINITIONS.
In addition to the terms defined elsewhere in this Warrant, the following
terms have the following respective meanings:
"ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of Common Stock
issued by Company after the Closing Date, except:
(a) Common Stock issued upon exercise of the Warrants;
(b) Common Stock issued upon exercise of warrants issued under the
Existing Warrant Agreements; and
(c) Common Stock issued to officers, directors or employees of, or
consultants to, Company pursuant to any existing or future stock option,
incentive, bonus or compensation plan or program approved by the Company's
shareholders (no later than 12 months following adoption of the plan or program
by the Company's Board of Directors).
"AGGREGATE WARRANT PRICE" has the meaning specified on the first page of
this Warrant.
9
<PAGE>
"BUSINESS DAY" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in the United States are
generally authorized or obligated by law or executive order to close.
"COMMON STOCK" shall mean the shares of Common Stock, par value $0.01 per
share, of Company described in the Certificate of Incorporation.
"CONVERTIBLE SECURITIES" shall mean evidences of indebtedness, equity,
rights, options, warrants or other securities which are convertible into or
exchangeable for shares of Common Stock, either immediately or upon the arrival
of a specified date or the happening of a specified event, or otherwise.
"CURRENT MARKET PRICE" shall mean, at the date of determination thereof, an
amount equal to the market price on the Business Day occurring most recently
prior to the subject issuance of such shares of Common Stock (the "ISSUANCE
DATE"). The market price for such Business Day shall be the last sale price on
such day on the American Stock Exchange, or, if the Common Stock is not then
listed or admitted to trading on the American Stock Exchange, on such other
principal stock exchange on which such shares are then listed or admitted to
trading, or, if no sale takes place on such day on any such exchange, the
average of the closing bid and asked prices on such day as officially quoted on
any such exchange, or, if the Common Stock is not then listed or admitted to
trading on any stock exchange, the market price for each such Business Day shall
be the last reported sale price on such day on The Nasdaq Stock Market's
National Market, as furnished by Nasdaq, or, if no sale takes place on such day
on such system, the average of the closing bid and asked prices on such day as
officially quoted by Nasdaq, or, if such price at the time is not available from
such system, the market price for such Business Day shall be the average of the
reported closing bid and asked prices on such day in the over-the-counter
market, as furnished by Nasdaq, or, if such price at the time is not available
from such system, such price shall be determined in good faith by Company's
Board of Directors, which shall be evidenced by a notice setting forth such
determination in reasonable detail (including computations and assumptions used)
(THE "CMP COMPUTATION NOTICE") to each holder of the Warrants not later than 30
days after the issuance date of the Common Stock giving rise to such
determination (the "CMP COMPUTATION DATE") setting forth such determination and
setting forth in detail the rights and procedures the holders of the Warrants
may take in the event the Majority Holders do not agree with the valuation set
forth in the CMP Computation Notice, PROVIDED, that if the Majority Holders of
such Warrants shall object to the valuation contained in the CMP Computation
Notice in writing to Company within 15 days of the CMP Computation Date, an
Appraiser, the expenses of whom shall be paid by said Majority Holders, shall be
selected by Company and said Majority Holders (on behalf of all of the holders
of the Warrants as a class), or, if said Majority Holders and Company are unable
to agree upon the selection of an Appraiser within 10 days of the date of the
written notice from said Majority Holders to Company objecting to the CMP
Computation Notice, by the American Arbitration Association. Said Majority
Holders and Company shall be jointly responsible for engaging the Appraiser
finally selected. In the event that the Majority Holders do not object to the
CMP Computation Notice within 15 days after receiving the CMP Computation
Notice, then the value shall be that which was determined solely by Company's
Board of Directors. The Appraiser appointed pursuant to the foregoing procedure
shall be instructed to determine such value within 15 days after the selection
of such Appraiser, and any such determination made by the Appraiser shall be
final and binding upon the parties. Notwithstanding the foregoing, in the event
that, on the Issuance Date, shares of
10
<PAGE>
Common Stock shall be offered for sale to the public in connection with an
underwritten public offering, the Current Market Price in respect of said
Issuance Date shall be deemed to be the price at which said shares are initially
sold to the public.
"EXERCISE DATE" shall mean a date on which this Warrant is exercised.
"EXERCISE PERIOD" shall mean the period beginning on, and including, the
date hereof through the Expiration Date.
"EXPIRATION DATE" shall mean from and after 5:00 p.m. Denison, Texas time
on the third anniversary of issuance of Warrant.
"MAJORITY HOLDERS" shall mean, at the time of any determination, the
holders of a majority of the Warrants (determined by the number of shares of
Common Stock represented by each such Warrant as if exercised).
"PER SHARE WARRANT PRICE" is defined in the first paragraph of this
Warrant.
"PERMITTED CONSIDERATION" shall mean each of the following (or any
combination thereof):
(a) cash or other funds immediately available to Company; and
(b) Warrants.
"PRO FORMA SHARES" shall mean, as of the date of any determination thereof,
the sum of (i) the total number of outstanding shares of Common Stock, plus (ii)
the total number of shares of Common Stock issuable upon exercise of the
Warrants and any other warrants, options or other rights and upon the exercise
of any conversion or exchange rights with respect to Convertible Securities.
"UNDERLYING SHARES" shall mean the shares of Common Stock issuable upon
exercise of any of the Warrants and any references contained herein to a holder
or holders of any Underlying Shares shall be deemed to refer to the holder of
the Warrants relating thereto.
"WARRANT PRICE" - see the definition of "per share Warrant Price".
"WARRANT SHARES" shall mean shares of Common Stock issued upon exercise of
the warrants.
"WARRANTS" as used herein shall refer to, collectively, this Warrant and
all other warrants issued in exchange or substitution for this Warrant.
SECTION 12. WARRANT HOLDER NOT SHAREHOLDER.
This Warrant does not confer upon the holder hereof any right to vote or to
consent or to receive notice as a shareholder of Company, as such, in respect of
any matters whatsoever, or any other rights or liabilities as a shareholder,
prior to the exercise hereof as hereinbefore provided.
11
<PAGE>
SECTION 13. SEVERABILITY.
Should any part of this Warrant for any reason be declared invalid or
unenforceable, such decision shall not affect the validity or enforceability of
any remaining portion, which remaining portion shall remain in force and effect
as if this Warrant had been executed with the invalid or unenforceable portion
thereof eliminated, and it is hereby declared the intention of the parties
hereto that they would have executed and accepted the remaining portion of this
Warrant without including therein any such part, parts or portion which may, for
any reason, be hereafter declared invalid or unenforceable.
SECTION 14. GOVERNING LAW.
This Warrant shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the law of the State of Texas
excluding choice-of-law principles of the law of such state that would require
the application of the laws of a jurisdiction other than such state.
[SIGNATURE PAGE TO FOLLOW]
12
<PAGE>
IN WITNESS WHEREOF, Company has caused this Warrant to be signed by a duly
authorized officer and to be dated this 14th day of March, 2000.
HORIZON PHARMACIES, INC.
By: /s/ Ricky D. McCord
------------------------------------------
Ricky D. McCord
President
S-1
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Registration Rights Agreement")
dated as of March 14, 2000, is entered into by and between Informed.com, Inc., a
Florida corporation (the "Holder"), and HORIZON Pharmacies, Inc., a Delaware
corporation (the "Company").
Pursuant to that certain Stock Purchase Agreement, dated as of the date
hereof (the "Purchase Agreement"), by and between the Company and the Holder,
the Holder is acquiring (the "Acquisition") the capital stock of
InformedScripts.com, Inc., a Delaware corporation and wholly-owned subsidiary of
the Company, as further described in the Purchase Agreement.
As part of the Acquisition, the Holder is receiving two warrants to
purchase an aggregate of 700,000 shares of common stock, par value $.01 per
share (the "Common Stock"), of the Company under the terms of the respective
warrants (the "Registrable Shares").
In consideration of the premises, mutual covenants and agreements
hereinafter contained and for other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1
REGISTRATION RIGHTS
Section 1.1 INTENTIONALLY OMITTED.
Section 1.2 PIGGYBACK REGISTRATIONS.
1.2.1 RIGHT TO PIGGYBACK. Each time the Company proposes to register
any of its equity securities under the Securities Act for sale to the public,
whether for the account of the Company or otherwise for the account of any
securityholder of the Company, and the form of registration statement to be used
permits the registration of Registrable Shares, the Company shall give prompt
written notice to the Holder of Registrable Shares (which notice shall be given
not less than 30 days prior to the effective date of the Company's registration
statement), which notice shall offer the Holder the opportunity to include any
or all of its Registrable Shares in such registration statement, subject to the
limitations contained in Section 1.2.2 hereof. If the Holder desires to have its
Registrable Shares included in such registration statement, it shall so advise
the Company in writing (stating the number of shares desired to be registered)
within 20 days after the date of such notice from the Company. The Holder shall
have the right to withdraw its request for inclusion of its Registrable Shares
in any registration statement pursuant to this Section 1.2.1 by giving written
notice to the Company of such withdrawal. Subject to Section 1.2.2 below, the
Company shall include in such registration statement all such Registrable Shares
so requested to be included therein; provided, however, that the Company may at
any time withdraw or cease proceeding with any such registration if it shall at
the same time withdraw or cease proceeding with the registration of all other
equity securities originally proposed to be registered.
1.2.2 PRIORITY ON REGISTRATIONS. If the Registrable Shares requested to
be included in the registration statement by the Holder differ from the type of
securities proposed to be registered by the Company and the managing underwriter
advises the Company that due to such differences the inclusion of such
Registrable Shares would have a Material Adverse Effect, then (i) the number of
the Holder's
<PAGE>
Registrable Shares to be included in the registration statement shall be reduced
to an amount which, in the judgment of the managing underwriter, would eliminate
such Material Adverse Effect or (ii) if no such reduction would, in the judgment
of the managing underwriter, eliminate such Material Adverse Effect, then the
Company shall have the right to exclude all such Registrable Shares from such
registration statement provided no other securities of such type are included
and offered for the account of any other person in such registration statement.
Any partial reduction in the number of Registrable Shares to be included in the
registration statement pursuant to clause (i) of the immediately preceding
sentence shall be effected PRO RATA based on the ratio which the Holder's
requested shares bears to the total number of shares requested to be included in
such registration statement by all persons who have requested that their shares
be included in such registration statement. If the Registrable Shares requested
to be included in the registration statement are of the same type as the
securities being registered by the Company and the managing underwriter advises
the Company that the inclusion of such Registrable Shares would cause a Material
Adverse Effect, the Company will be obligated to include in such registration
statement, as to the Holder, only a portion of the shares the Holder has
requested be registered equal to the ratio which the Holder's requested shares
bears to the total number of shares requested to be included in such
registration statement by all persons (other than the Company, if such
registration has been initiated by the Company for securities to be offered by
the Company who have requested that their shares be included in such
registration statement. It is acknowledged by the Company and the Holder, that
pursuant to the foregoing provision, the securities to be included in such
registration shall be allocated (x) first, to the Company, if such registration
has been initiated by the Company for securities to be offered by the Company,
(y) second, to securities offered by persons exercising their right to cause a
demand registration, if such registration is a demand registration and (z)
third, to the Holder and all other persons requesting securities to be included
therein in accordance with the above described ratio. If as a result of the
provisions of this Section 1.2.2 the Holder shall not be entitled to include all
Registrable Securities in a registration that the Holder has requested to be so
included, the Holder may withdraw its request to include Registrable Shares in
such registration statement. No person may participate in any registration
statement hereunder unless such person (x) agrees to sell such person's
Registrable Shares on the basis provided in any underwriting arrangements
approved by the Company and (y) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements, and other documents
reasonably required under the terms of such underwriting arrangements; provided,
however, that no such person shall be required to make any representations or
warranties in connection with any such registration other than representations
and warranties as to (i) such person's ownership of its Registrable Shares to be
sold or transferred free and clear of all liens, claims, and encumbrances, (ii)
such person's power and authority to effect such transfer, and (iii) such
matters pertaining to compliance with securities laws as may be reasonably
requested; provided further, however, that the obligation of such person to
indemnify pursuant to any such underwriting arrangements shall be several, not
joint and several, among such persons selling Registrable Shares, and the
liability of each such person will be in proportion to, and provided further
that such liability will be limited to, the net amount received by such person
from the sale of its Registrable Shares pursuant to such registration. The
Holder shall be entitled to exercise its right to have its Registrable Shares
included in a registration statement only on two separate occasions and
thereafter the Holder shall no longer have any rights, and the Company shall no
longer have any obligations to the Holder, under Section 1.2.
1.3 HOLDBACK AGREEMENT. Unless the managing underwriter otherwise
agrees, the Holder agrees that, in connection with any underwritten
registration, it will not effect any public sale or private offer or
distribution of any Common Stock during the ten business days prior to the
effectiveness under the Securities Act of any underwritten registration and
during such time period after the effectiveness under the Securities Act of any
underwritten registration (not to exceed 180 days) (except, if applicable, as
part of such underwritten registration) as the Company and the managing
underwriter may agree.
2
<PAGE>
1.4 REGISTRATION PROCEDURES. Whenever the Holder has requested that any
Registrable Shares be registered pursuant to this Registration Rights Agreement,
the Company will use its commercially reasonable efforts to effect the
registration and the sale of such Registrable Shares in accordance with the
intended method of disposition thereof, and pursuant thereto the Company will as
expeditiously as possible:
(i) prepare and file with the SEC a registration statement on
any appropriate form under the Securities Act with respect to such Registrable
Shares and use its commercially reasonable efforts to cause such registration
statement to become effective;
(ii) prepare and file with the SEC such amendments,
post-effective amendments, and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period of not less than 180 days (or such
lesser period as is necessary for the underwriters in an underwritten offering
to sell unsold allotments) and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration statement;
(iii) furnish to each seller of Registrable Shares and the
underwriters of the securities being registered such number of copies of such
registration statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each preliminary prospectus),
any documents incorporated by reference therein and such other documents as such
seller or underwriters may reasonably request in order to facilitate the
disposition of the Registrable Shares owned by such seller or the sale of such
securities by such underwriters (it being understood that, subject to Section
1.5 and the requirements of the Securities Act and applicable State securities
laws, the Company consents to the use of the prospectus and any amendment or
supplement thereto by each seller and the underwriters in connection with the
offering and sale of the Registrable Shares covered by the registration
statement of which such prospectus, amendment or supplement is a part);
(iv) use its commercially reasonable efforts to register or
qualify such Registrable Shares under such other securities or blue sky laws of
such jurisdictions as the managing underwriter reasonably requests; use its
commercially reasonable efforts to keep each such registration or qualification
(or exemption therefrom) effective during the period in which such registration
statement is required to be kept effective; and do any and all other acts and
things which may be reasonably necessary or advisable to enable each seller to
consummate the disposition of the Registrable Shares owned by such seller in
such jurisdictions (provided, however, that the Company will not be required to
(A) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph or (B) consent to
general service of process in any such jurisdiction);
(v) promptly notify each seller and each underwriter and (if
requested by any such Person) confirm such notice in writing (A) when a
prospectus or any prospectus supplement or post-effective amendment has been
filed and, with respect to a registration statement or any post-effective
amendment, when the same has become effective, (B) of the issuance by any state
securities or other regulatory authority of any order suspending the
qualification or exemption from qualification of any of the Registrable Shares
under state securities or "blue sky" laws or the initiation of any proceedings
for that purpose, and (C) of the happening of any event which makes any
statement made in a registration statement or related prospectus untrue or which
requires the making of any changes in such registration statement, prospectus or
documents so that they will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and, as promptly as practicable
thereafter, prepare and file with the SEC and furnish a supplement or amendment
to such
3
<PAGE>
prospectus so that, as thereafter deliverable to the purchasers of such
Registrable Shares, such prospectus will not contain any untrue statement of a
material fact or omit a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
(vi) make generally available to the Company's securityholders
an earnings statement satisfying the provisions of Section 11(a) of the
Securities Act no later than 30 days after the end of the 12-month period
beginning with the first day of the Company's first fiscal quarter commencing
after the effective date of a registration statement, which earnings statement
shall cover said 12-month period, and which requirement will be deemed to be
satisfied if the Company timely files complete and accurate information on Forms
10-Q, 10-K and 8-K under the Securities Exchange Act of 1934 (the "Exchange
Act") and otherwise complies with Rule 158 under the Securities Act;
(vii) if requested by the managing underwriter or any seller,
promptly incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriter or any seller reasonably requests to be
included therein, including, without limitation, with respect to the Registrable
Shares being sold by such seller, the purchase price being paid therefor by the
underwriters and, with respect to any other terms of the underwritten offering
of the Registrable Shares to be sold in such offering, and promptly make all
required filings of such prospectus supplement or post-effective amendment;
(viii) as promptly as practicable after filing with the SEC of
any document which is incorporated by reference into a registration statement
(in the form in which it was incorporated), deliver a copy of each such document
to each seller;
(ix) cooperate with the sellers and the managing underwriter
to facilitate the timely preparation and delivery of certificates (which shall
not bear any restrictive legends unless required under applicable law)
representing securities sold under any registration statement, and enable such
securities to be in such denominations and registered in such names as the
managing underwriter or such sellers may request and keep available and make
available to the Company's transfer agent prior to the effectiveness of such
registration statement a supply of such certificates;
(x) promptly make available for inspection by any seller, any
underwriter participating in any disposition pursuant to any registration
statement, and any attorney, accountant or other agent or representative
retained by any such seller or underwriter (collectively, the "Inspectors"), all
financial and other records, pertinent corporate documents and properties of the
Company (collectively, the "Records"), as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and cause the
Company's officers, directors and employees to supply all information requested
by any such Inspector in connection with such registration statement; provided,
that, unless the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in the registration statement or the release of such
Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction, the Company shall not be required to provide any
information under this subparagraph (x) if (A) the Company believes, after
consultation with counsel for the Company, that to do so would cause the Company
to forfeit an attorney-client privilege that was applicable to such information
or (B) if either (1) the Company has requested and been granted from the SEC
confidential treatment of such information contained in any filing with the SEC
or documents provided supplementally or otherwise or (2) the Company reasonably
determines in good faith that such Records are confidential and so notifies the
Inspectors in writing unless prior to furnishing any such information with
respect to (A) or (B) the Holder of Registrable Securities requesting such
information agrees to enter into a confidentiality agreement in customary form
and subject to customary exceptions; and provided, further that the Holder of
Registrable Securities agrees that it will, upon learning that disclosure of
such Records is sought in a court of competent jurisdiction, give notice to the
Company and allow the
4
<PAGE>
Company at its expense, to undertake appropriate action and to prevent
disclosure of the Records deemed confidential;
(xi) furnish to each seller underwriter a signed counterpart
of (A) an opinion or opinions of counsel to the Company, and (B) a comfort
letter or comfort letters from the Company's independent public accountants,
each in customary form and covering such matters of the type customarily covered
by opinions or comfort letters, as the case may be, as the sellers or managing
underwriter reasonably requests;
(xii) cause the Registrable Shares included in any
registration statement to be (A) listed on each securities exchange, if any, on
which similar securities issued by the Company are then listed, or (B)
authorized to be quoted and/or listed (to the extent applicable) on the National
Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") or the
NASDAQ National Market System if the Registrable Shares so qualify;
(xiii) provide a CUSIP number for the Registrable Shares
included in any registration statement not later than the effective date of such
registration statement;
(xiv) cooperate with each seller and each underwriter
participating in the disposition of such Registrable Shares and their respective
counsel in connection with any filings required to be made with the National
Association of Securities Dealers, Inc. ("NASD");
(xv) during the period when the prospectus is required to be
delivered under the Securities Act, promptly file all documents required to be
filed with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act;
(xvi) notify each seller of Registrable Shares promptly of any
request by the SEC for the amending or supplementing of such registration
statement or prospectus or for additional information;
(xvii) prepare and file with the SEC promptly any amendments
or supplements to such registration statement or prospectus which, in the
opinion of counsel for the Company or the managing underwriter, is required in
connection with the distribution of the Registrable Shares;
(xviii) enter into such agreements (including underwriting
agreements in the managing underwriter's customary form) as are customary in
connection with an underwritten registration; and
(xix) advise each seller of such Registrable Shares, promptly
after it shall receive notice or obtain knowledge thereof, of the issuance of
any stop order by the SEC suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for such purpose
and promptly use its best efforts to prevent the issuance of any stop order or
to obtain its withdrawal at the earliest possible moment if such stop order
should be issued.
1.5 SUSPENSION OF DISPOSITIONS. The Holder agrees that, upon receipt of
any notice (a "Suspension Notice") from the Company of the happening of any
event of the kind described in Section 1.4(v)(C), the Holder will forthwith
discontinue disposition of Registrable Shares until the Holder's receipt of the
copies of the supplemented or amended prospectus, or until it is advised in
writing (the "Advice") by the Company that the use of the prospectus may be
resumed, and has received copies of any additional or supplemental filings which
are incorporated by reference in the prospectus, and, if so directed by the
Company, the Holder will deliver to the Company all copies, other than permanent
file copies then in the Holder's possession, of the prospectus covering such
Registrable Shares current at the time of receipt of
5
<PAGE>
such notice. In the event the Company shall give any such notice, the time
period regarding the effectiveness of registration statements set forth in
Section 1.4(ii) hereof shall be extended by the number of days during the period
from and including the date of the giving of the Suspension Notice to and
including the date when each seller of Registrable Shares covered by such
registration statement shall have received the copies of the supplemented or
amended prospectus or the Advice. The Company shall use its commercially
reasonable efforts and take such actions as are reasonably necessary to render
the Advice as promptly as practicable.
1.6 REGISTRATION EXPENSES. All expenses incident to the Company's
performance of or compliance with this Article 1 including, without limitation,
all registration and filing fees, all fees and expenses associated with filings
required to be made with the NASD (including, if applicable, the fees and
expenses of any "qualified independent underwriter" as such term is defined in
Schedule E of the By-Laws of the NASD, and of its counsel), as may be required
by the rules and regulations of the NASD, fees and expenses of compliance with
securities or "blue sky" laws (including reasonable fees and disbursements of
counsel in connection with "blue sky" qualifications of the Registrable Shares),
rating agency fees, printing expenses (including expenses of printing
certificates for the Registrable Shares in a form eligible for deposit with
Depository Trust Company and of printing prospectuses if the printing of
prospectuses is requested by a holder of Registrable Shares), messenger and
delivery expenses, the Company's internal expenses (including without limitation
all salaries and expenses of its officers and employees performing legal or
accounting duties), the fees and expenses incurred in connection with any
listing of the Registrable Shares, fees and expenses of counsel for the Company
and its independent certified public accountants (including the expenses of any
special audit or "cold comfort" letters required by or incident to such
performance), securities acts liability insurance (if the Company elects to
obtain such insurance), the fees and expenses of any special experts retained by
the Company in connection with such registration, and the fees and expenses of
other persons retained by the Company and reasonable fees and expenses of one
firm of counsel for the sellers (which shall be selected by the holders of a
majority of the Registrable Shares being included in any particular registration
statement) (all such expenses being herein called "Registration Expenses") will
be borne by the Company whether or not any registration statement becomes
effective; provided that, except as expressly otherwise provided above, in no
event shall Registration Expenses include any underwriting discounts,
commissions, or fees attributable to the sale of the Registrable Shares or any
counsel, accountants, or other persons retained or employed by the Holder.
1.7 INDEMNIFICATION.
1.7.1 The Company agrees to indemnify and reimburse, to the fullest
extent permitted by law, each seller of Registrable Shares, and each of its
employees, advisors, agents, representatives, partners, officers, and directors
and each Person who controls such seller (within the meaning of the Securities
Act or the Exchange Act) and any agent or investment advisor thereof
(collectively, the "Seller Affiliates") (A) against any and all losses, claims,
damages, liabilities, and expenses, joint or several (including, without
limitation, attorneys' fees and disbursements except as limited by Section
1.7.3) based upon, arising out of, related to or resulting from any untrue or
alleged untrue statement of a material fact contained in any registration
statement, prospectus, or preliminary prospectus or any amendment thereof or
supplement thereto, or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, (B) against any and all loss, liability, claim, damage, and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation or investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever based upon,
arising out of, related to or resulting from any such untrue statement or
omission or alleged untrue statement or omission, and (C) against any and all
costs and expenses (including reasonable fees and disbursements of counsel) as
may be reasonably incurred in investigating, preparing, or defending against any
litigation, or investigation or proceeding by any governmental agency or body,
commenced or
6
<PAGE>
threatened, or any claim whatsoever based upon, arising out of, related to or
resulting from any such untrue statement or omission or alleged untrue statement
or omission, to the extent that any such expense or cost is not paid under
subparagraph (A) or (B) above; except insofar as the same are made in reliance
upon and in strict conformity with information furnished in writing to the
Company by such seller or any Seller Affiliate for use therein or arise from
such seller's or any Seller Affiliate's failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements thereto
after the Company has furnished such seller or Seller Affiliate with a
sufficient number of copies of the same. The reimbursements required by this
Section 1.7.1 will be made by periodic payments during the course of the
investigation or defense, as and when bills are received or expenses incurred.
1.7.2 In connection with any registration statement in which a seller
of Registrable Shares is participating, each such seller will furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the fullest extent permitted by law, each such seller will
indemnify the Company and its directors and officers and each Person who
controls the Company (within the meaning of the Securities Act or the Exchange
Act) against any and all losses, claims, damages, liabilities, and expenses
(including, without limitation, reasonable attorneys' fees and disbursements
except as limited by Section 1.7.3) resulting from any untrue statement or
alleged untrue statement of a material fact contained in the registration
statement, prospectus, or any preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission is contained in any information or
affidavit so furnished in writing by such seller or any of its Seller Affiliates
specifically for inclusion in the registration statement; provided that the
obligation to indemnify will be several, not joint and several, among such
sellers of Registrable Shares, and the liability of each such seller of
Registrable Shares will be in proportion to, and provided further that such
liability will be limited to, the net amount received by such seller from the
sale of Registrable Shares pursuant to such registration statement; provided,
however, that such seller of Registrable Shares shall not be liable in any such
case to the extent that prior to the filing of any such registration statement
or prospectus or amendment thereof or supplement thereto, such seller has
furnished in writing to the Company information expressly for use in such
registration statement or prospectus or any amendment thereof or supplement
thereto which corrected or made not misleading information previously furnished
to the Company.
1.7.3 Any Person entitled to indemnification hereunder will (A) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification (provided that the failure to give such notice
shall not limit the rights of such Person) and (B) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided, however, that any person
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such person unless (x) the
indemnifying party has agreed to pay such fees or expenses, or (y) the
indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such person. If such defense is not
assumed by the indemnifying party as permitted hereunder, the indemnifying party
will not be subject to any liability for any settlement made by the indemnified
party without its consent (but such consent will not be unreasonably withheld).
If such defense is assumed by the indemnifying party pursuant to the provisions
hereof, such indemnifying party shall not settle or otherwise compromise the
applicable claim unless (1) such settlement or compromise contains a full and
unconditional release of the indemnified party or (2) the indemnified party
otherwise consents in writing. An indemnifying party who is not entitled to, or
elects not to, assume the defense of a claim will not be obligated to pay the
fees and expenses of more
7
<PAGE>
than one counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party, a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the reasonable fees and
disbursements of such additional counsel or counsels.
1.7.4 Each party hereto agrees that, if for any reason the
indemnification provisions contemplated by Section 1.7.1 or Section 1.7.2 are
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, claims, damages, liabilities, or expenses (or actions in respect
thereof) referred to therein, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of such losses,
claims, liabilities, or expenses (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and the indemnified party in connection with the actions which resulted in
the losses, claims, damages, liabilities or expenses as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such indemnifying party or indemnified party, and the parties relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 1.7.4 were determined by pro
rata allocation (even if the Holders or any underwriters or all of them were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in this
Section 1.7.4. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, liabilities, or expenses (or actions in respect
thereof) referred to above shall be deemed to include any legal or other fees or
expenses reasonably incurred by such indemnified party in connection with
investigating or, except as provided in Section 1.7.3, defending any such action
or claim. Notwithstanding the provisions of this Section 1.7.4, the Holder shall
not be required to contribute an amount greater than the dollar amount by which
the proceeds received by the Holder with respect to the sale of any Registrable
Shares exceeds the amount of damages which the Holder has otherwise been
required to pay by reason of such statement or omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Holder's obligations in this
Section 1.7.4 to contribute shall be several in proportion to the amount of
Registrable Shares registered by them and not joint.
If indemnification is available under this Section 1.7, the
indemnifying parties shall indemnify each indemnified party to the full extent
provided in Section 1.7.1 and Section 1.7.2 without regard to the relative fault
of said indemnifying party or indemnified party or any other equitable
consideration provided for in this Section 1.7.4.
1.7.5 The indemnification and contribution provided for under this
Section 1.7 will remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party or any officer, director, or
controlling Person of such indemnified party and will survive the transfer of
securities.
ARTICLE 2
TERMINATION
The provisions of this Agreement shall terminate on the availability of
Holder to transfer, without limitation, shares pursuant to Rule 144 of the
Securities Act.
8
<PAGE>
ARTICLE 3
MISCELLANEOUS
Section 3.1 NOTICES. Any notices or other communications required or
permitted hereunder shall be in writing, and shall be sufficiently given if made
by hand delivery, by telex, by telecopier or registered or certified mail,
postage prepaid, return receipt requested, addressed as follows (or at such
other address as may be substituted by notice given as herein provided):
If to the Holder:
Informed.com, Inc.
4404 Ivy Commons II
Route 250 West
Charlottesville, VA 22903
Attention: Michael R. Kerouac
Copies to:
Akerman Senterfitt
Citrus Center, 17th Floor
Orlando, FL 32801
Attention: Patrick T. Christiansen
If to the Company:
HORIZON Pharmacies, Inc.
531 West Main Street
Denison, Texas 75020
Attention: Rick McCord
Copies to:
Vinson & Elkins L.L.P.
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Jay H. Hebert
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
<PAGE>
Section 3.2 GOVERNING LAW; JURISDICTION. THIS REGISTRATION AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
Section 3.3 SUCCESSORS AND ASSIGNS. Whether or not an express
assignment has been made, provisions of this Registration Rights Agreement that
are for the Holder's benefit as the holder of any Registrable Shares are also
for the benefit of, and enforceable by, all subsequent holders of Registrable
Shares, except as otherwise expressly provided herein. This Registration Rights
Agreement shall be binding upon the Company, the Holder, and their respective
successors and assigns.
Section 3.4 DUPLICATE ORIGINALS. All parties may sign any number of
copies of this Registration Rights Agreement. Each signed copy shall be an
original, but all of them together shall represent the same agreement.
Section 3.5 SEVERABILITY. In case any provision in this Registration
Rights Agreement shall be held invalid, illegal or unenforceable in any respect
for any reason, the validity, legality and enforceability of any such provision
in every other respect and the remaining provisions shall not in any way be
affected or impaired thereby.
Section 3.6 NO WAIVERS; AMENDMENTS.
3.6.1 No failure or delay on the part of the Company or the Holder in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company or
the Holder at law or in equity or otherwise.
3.6.2 Any provision of this Registration Rights Agreement may be
amended or waived if, but only if, such amendment or waiver is in writing and is
signed by the Company and the Holder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
10
<PAGE>
SIGNATURES TO REGISTRATION RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed, all as of the date first written above.
HOLDER:
INFORMED.COM, INC.
By: /s/ Michael R. Kerouac
-----------------------------------
Michael R. Kerouac
President
COMPANY:
HORIZON PHARMACIES, INC.
By: /s/ Ricky D. McCord
-----------------------------------
Ricky D. McCord
President
S-1
<PAGE>
===============================================================================
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED OR QUALIFIED FOR SALE UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR
SALE, SOLD OR OTHERWISE TRANSFERRED UNLESS SUCH OFFER, SALE OR TRANSFER IS
REGISTERED OR QUALIFIED PURSUANT TO THE REGISTRATION REQUIREMENTS OF SUCH ACT
AND ANY APPLICABLE STATE SECURITIES LAWS, OR IS PRECEDED BY AN OPINION OF
COUNSEL ADDRESSED TO HORIZON PHARMACIES, INC. THAT SUCH SALE OR OTHER TRANSFER
IS EXEMPT FROM ALL SUCH REGISTRATION REQUIREMENTS. THIS WARRANT AND THE SHARES
OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE TERMS AND
PROVISIONS SPECIFIED IN THE AMENDED AND RESTATED WARRANT PURCHASE AGREEMENT
DATED AS OF MAY 14, 1999, BETWEEN HORIZON PHARMACIES, INC. AND McKESSON HBOC,
INC., AS IT MAY BE AMENDED FROM TIME TO TIME.
No. WR-5
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
HORIZON PHARMACIES, INC.
===============================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
HEADING PAGE
<S> <C> <C>
SECTION 1. EXERCISE OF WARRANT............................................................................1
SECTION 2. RESERVATION....................................................................................2
SECTION 3. PROTECTION AGAINST DILUTION....................................................................2
Section 3.1 Stock Dividends, Subdivisions and Combinations.........................................2
Section 3.2 Issuance of Additional Shares of Common Stock..........................................3
Section 3.3 Issuance of Warrants or Other Rights, Convertible Securities...........................3
Section 3.4 Other Provisions Applicable to Adjustments.............................................4
Section 3.5 Extraordinary Dividends................................................................5
Section 3.6 Adjustment of Number of Shares Purchasable.............................................6
Section 3.7 Minimum Adjustment.....................................................................6
Section 3.8 Notice of Adjustments..................................................................6
SECTION 4. MERGERS, CONSOLIDATIONS, SALES.................................................................7
SECTION 5. DISSOLUTION OR LIQUIDATION.....................................................................8
SECTION 6. NOTICE OF DIVIDENDS............................................................................8
SECTION 7. FRACTIONAL SHARES..............................................................................8
SECTION 8. FULLY PAID STOCK; TAXES........................................................................8
SECTION 9. CLOSING OF TRANSFER BOOKS......................................................................8
SECTION 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT........................................................9
Section 10.1 Partial Exercise.......................................................................9
Section 10.2 Assignment.............................................................................9
SECTION 11. DEFINITIONS....................................................................................9
SECTION 12. WARRANT HOLDER NOT SHAREHOLDER................................................................12
SECTION 13. SEVERABILITY..................................................................................12
SECTION 14. GOVERNING LAW.................................................................................12
</TABLE>
<PAGE>
No. WR-1
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
HORIZON PHARMACIES, INC.
THIS IS TO CERTIFY that, for value received and subject to the
provisions hereinafter set forth,
McKESSON HBOC, INC.
or its permitted assigns,
is entitled to purchase from HORIZON Pharmacies, Inc., a Delaware corporation
("COMPANY"), at any time and from time to time during the Exercise Period, up
to 10,000 shares of Common Stock, par value $0.01 per share, of Company,
subject to the terms, provisions and conditions hereinafter set forth at a
price per share equal to $5.5625. The price per share is subject to adjustment
as hereinafter provided (such price, or such price as last adjusted, as the
case may be, being herein referred to as the "PER SHARE WARRANT PRICE"). The
said number of shares purchasable hereunder is likewise subject to adjustment
as hereinafter provided.
The aggregate price of the Common Stock purchasable hereunder shall
at all times be equal to the price per share set forth in the preceding
paragraph multiplied by the number of shares initially purchasable hereunder.
The aggregate price is herein sometimes referred to as the "Aggregate Warrant
Price" and is not subject to adjustment.
The terms which are capitalized herein shall have the meanings
specified in Section 11 unless the context shall otherwise require.
SECTION 1. EXERCISE OF WARRANT.
Subject to the conditions hereinafter set forth, this Warrant may be
exercised in whole or in part at any time and from time to time during the
Exercise Period by the surrender of this Warrant (with the subscription form at
the end hereof duly executed) at the principal office of Company in Princeton,
Texas, and upon payment to Company of a sum equal to the per share Warrant Price
multiplied by the number of shares purchased in such exercise, which payment
shall be made by the wire transfer or other delivery to Company of one or more
types of Permitted Consideration.
In the event that Notes shall be delivered to Company as payment of all
or any portion of the purchase price payable hereunder, the portion of such
purchase price to be paid by means of such delivery shall equal the principal
amount of Notes so delivered (or such lesser principal
-1-
<PAGE>
amount as shall be designated by the holder hereof) and interest on such
principal amount and the like portion of principal and interest of the Notes
shall be deemed paid.
In the event that Notes shall be delivered to Company as payment of all
or any portion of the purchase price payable hereunder and the principal amount
of said Notes shall be in excess of the amount of principal sought to be applied
by the holder of this Warrant in respect of the purchase price payable
hereunder, said holder shall provide Company with notice to such effect and
Company shall (without charge to the holder) issue to said holder a new Note or
Notes in an aggregate principal amount equal to such excess and dated the date
of such issue and shall pay the holder all accrued but unpaid interest on the
unapplied principal of the surrendered Note through such date.
In the event that Warrants shall be delivered to Company as payment of
all or any portion of the purchase price payable hereunder, the amount of such
purchase price deemed to be paid by means of such delivery shall equal (a) the
aggregate number of shares of Underlying Shares related to any Warrants so
delivered, multiplied by (b) the result, not less than zero, equal to (i) the
Current Market Price then in effect (with the date of the exercise of the
Warrant being deemed to be the "Issuance Date" for purposes of making
determinations under the definition of "Current Market Price") MINUS (ii) the
per share Warrant Price then in effect.
If this Warrant is exercised in respect of less than all of the shares
of Common Stock at the time purchasable hereunder, following such exercise this
Warrant shall be returned to the holder hereof and shall remain exercisable in
respect of such number of shares of Common Stock as may thereafter be determined
hereunder.
This Warrant and all rights and options hereunder shall expire to the
extent that it has not been exercised on or before the Expiration Date.
Company shall pay all reasonable expenses, stamp, documentary and
transfer taxes and other charges payable in connection with the preparation,
execution and delivery of stock certificates pursuant to this Section,
regardless of the name or names in which such stock certificates shall be
registered.
SECTION 2. RESERVATION.
Company will at all times reserve and keep available such number of
authorized shares of its Common Stock, solely for the purpose of issue upon the
exercise of the rights represented by this Warrant as herein provided for, as
may at any time be issuable (based upon the number of shares of Common Stock
outstanding at any such time) upon the exercise of this Warrant.
SECTION 3. PROTECTION AGAINST DILUTION.
The per share Warrant Price and the number of shares deliverable
hereunder shall be adjusted from time to time as hereinafter set forth:
SECTION 3.1 STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. In case
after the date hereof Company shall:
-2-
<PAGE>
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend and declared to be
payable in, or other declared distribution of, Common Stock, or
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then the per share Warrant Price shall be adjusted to that price determined by
multiplying the per share Warrant Price in effect immediately prior to such
event by a fraction (i) the numerator of which shall be the total number of
outstanding shares of Common Stock immediately prior to such event, and (ii) the
denominator of which shall be the total number of outstanding shares of Common
Stock immediately after such event.
SECTION 3.2 ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In case
after the date hereof Company shall (except as hereinafter provided) issue any
Additional Shares of Common Stock for a consideration less than the Current
Market Price per share, then the per share Warrant Price upon each such issuance
shall be adjusted to that price determined by multiplying the per share Warrant
Price in effect immediately prior to such event by a fraction:
(a) the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of such
Additional Shares of Common Stock plus the number of full shares of
Common Stock which the aggregate consideration for the total number of
such Additional Shares of Common Stock so issued would purchase at the
Current Market Price per share, and
(b) the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of such
Additional Shares of Common Stock plus the number of such Additional
Shares of Common Stock so issued.
The provisions of this Section 3.2 shall not apply to any Additional
Shares of Common Stock which are distributed to holders of Common Stock as a
stock dividend or subdivision, for which an adjustment is provided for under
Section 3.1. No adjustment of the per share Warrant Price shall be made under
this Section 3.2 upon the issuance of any Additional Shares of Common Stock
which are issued pursuant to the exercise of any warrants or other subscription
or purchase rights or pursuant to the exercise of any conversion or exchange
rights in any Convertible Securities, if any such adjustment shall previously
have been made upon the issuance of such warrants or other rights or upon the
issuance of such Convertible Securities (or upon the issuance of any warrants or
other rights therefor) pursuant to Section 3.3.
SECTION 3.3 ISSUANCE OF WARRANTS OR OTHER RIGHTS, CONVERTIBLE
SECURITIES. In case Company shall issue any warrants or other rights to
subscribe for or purchase any Additional Shares of Common Stock or issue
Convertible Securities and the consideration per share for which Additional
Shares of Common Stock may at any time thereafter be issuable pursuant to such
warrants or other rights or pursuant to the terms of such Convertible Securities
shall be less
-3-
<PAGE>
than the Current Market Price per share, then the per share Warrant Price shall
be adjusted as provided in Section 3.2 above on the basis that:
(a) the maximum number of Additional Shares of Common Stock
issuable pursuant to all such warrants or other rights or necessary to
effect the conversion or exchange of all such Convertible Securities
shall be deemed to have been issued as of the earlier of: (i) the date
on which Company shall enter a firm contract or commitment for the
issuance of such warrants, other rights or Convertible Securities or
(ii) the date of actual issuance of such warrants, other rights or
Convertible Securities, and
(b) the aggregate consideration for such maximum number of
Additional Shares of Common Stock shall be deemed to be the minimum
consideration received and receivable by Company for the issuance of
such Additional Shares of Common Stock pursuant to such warrants or
other rights or pursuant to the terms of such Convertible Securities.
No adjustment of the per share Warrant Price shall be made under this
Section 3.3 upon the issuance of any Convertible Securities which are issued
pursuant to the exercise of any warrants or other subscription or purchase
rights therefor, to the extent such adjustment shall previously have been made
upon the issuance of such warrants or other rights pursuant to this Section 3.3.
SECTION 3.4 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS. The following
provisions shall be applicable to the making of adjustments in the per share
Warrant Price hereinbefore provided in this Section 3:
(a) COMPUTATION OF CONSIDERATION. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any
warrants or other rights to subscribe for or purchase any Additional
Shares of Common Stock or any Convertible Securities shall be issued
for a cash consideration, the consideration received by Company
therefor shall be deemed to be the amount of the cash received by
Company therefor, or, if such Additional Shares of Common Stock or
Convertible Securities or warrants or other rights are offered by
Company for subscription, the subscription price, or, if such
Additional Shares of Common Stock or Convertible Securities or warrants
or other rights are sold to underwriters or dealers for public offering
without a subscription offering, the offering price, in any such case
excluding any amounts paid or receivable for accrued interest or
accrued dividends and without deduction of any compensation, discounts
or expenses paid or incurred by Company for and in the underwriting
thereof, or otherwise in connection with the issue thereof. To the
extent that such issuance shall be for a consideration other than cash,
then, except as herein otherwise expressly provided, the amount of such
consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as determined in good faith
by the Board of Directors of Company. The consideration for any
Additional Shares of Common Stock issuable pursuant to any warrants or
other rights to subscribe for or purchase the same shall be the
consideration received by Company for issuing such warrants or other
rights plus the additional consideration payable to Company upon the
exercise of such warrants or other rights. The consideration for any
Additional Shares of Common Stock issuable pursuant to the terms of any
Convertible Securities shall be the consideration received by
-4-
<PAGE>
Company for issuing any warrants or other rights to subscribe for or
purchase such Convertible Securities plus the consideration paid or
payable to Company in respect of the subscription for or purchase of
such Convertible Securities plus the additional consideration, if any,
payable to Company upon the exercise of the right of conversion or
exchange of such Convertible Securities. In case of the issuance at any
time of any Additional Shares of Common Stock or Convertible Securities
in payment or satisfaction of any dividend upon any class of equity
securities other than Common Stock, Company shall be deemed to have
received for such Additional Shares of Common Stock or Convertible
Securities a consideration equal to the amount of such dividend so paid
or satisfied.
(b) READJUSTMENT OF PER SHARE WARRANT PRICE. Upon expiration
of the right of exercise, conversion or exchange of any Convertible
Securities, or upon the expiration of any rights, options or warrants,
or upon the termination of any firm contract or commitment for the
issuance of such rights, options, warrants or Convertible Securities,
or upon any increase in the minimum consideration receivable by Company
for the issuance of Additional Shares of Common Stock pursuant to such
Convertible Securities, rights, options or warrants, if any such
Convertible Securities shall not have been exercised, converted or
exchanged, or if any such rights, options or warrants shall not have
been exercised, the number of shares of Common Stock deemed to be
issued and outstanding by reason of the fact that they were issuable
upon exercise, conversion or exchange of any such Convertible
Securities or upon exercise of any such rights, options or warrants
shall no longer be computed as set forth above, and the per share
Warrant Price shall forthwith be readjusted and thereafter be the price
which it would have been (but reflecting any other adjustments in the
per share Warrant Price made pursuant to the provisions of this Section
3 after the issuance of such Convertible Securities, rights, options or
warrants) had the adjustment of the per share Warrant Price made upon
the issuance or sale of such Convertible Securities or the issuance of
such rights, options or warrants been made on the basis of the issuance
only of the number of Additional Shares of Common Stock actually issued
upon exercise, conversion or exchange of such Convertible Securities or
upon the exercise of such rights, options or warrants, or upon the
basis of such increased minimum consideration, as the case may be, and
thereupon only the number of Additional Shares of Common Stock actually
so issued plus the number thereof then issuable upon the basis of such
increased minimum consideration shall be deemed to have been issued and
only the consideration actually received plus such increased minimum
consideration receivable by Company (computed in accordance with
Section 3.4(a)) shall be deemed to have been received by Company.
(c) ROUNDING OF PER SHARE WARRANT PRICE. Any determination of
per share Warrant Price hereunder shall be expressed in United States
Dollars, cents and portions of cents and shall be rounded to the
nearest 1/1000 of one cent or, if there is no nearest 1/1000 of one
cent, to the next highest 1/1000 of one cent.
SECTION 3.5 EXTRAORDINARY DIVIDENDS. In case Company shall declare a
dividend upon its Common Stock (except a dividend payable in shares of Common
Stock referred to in Section 3.1(a) or a dividend payable in warrants, rights or
Convertible Securities referred to in Section 3.3) payable otherwise than out of
earnings or surplus (other than revaluation surplus or paid-in surplus), the
-5-
<PAGE>
per share Warrant Price in effect immediately prior to the declaration of such
dividend shall be reduced by an amount equal, in the case of a dividend in cash,
to 10% of the amount thereof payable per share of Common Stock or, in the case
of any other dividend, to the fair value thereof per share of Common Stock as
determined in good faith by the Board of Directors of Company. For the purposes
of the foregoing, a dividend payable other than in cash shall be considered
payable out of earnings or surplus (other than revaluation surplus or paid-in
surplus) only to the extent that such earnings or surplus are charged an amount
equal to the fair value of such dividend as determined by the Board of Directors
of Company. If such dividend is paid or Company declares and becomes legally
liable to pay such dividend, such reduction shall take effect as of the date on
which a record is taken for the purpose of such dividend or, if a record is not
taken, the date as of which the holders of the Common Stock of record entitled
to such dividend are to be determined. Appropriate readjustment of the per share
Warrant Price shall be made in the event that any dividend referred to in this
Section 3.5 shall be lawfully abandoned.
SECTION 3.6 ADJUSTMENT OF NUMBER OF SHARES PURCHASABLE. Upon each
adjustment of the per share Warrant Price, the number of shares of Common Stock
purchasable hereunder shall be adjusted by multiplying the number of shares of
Common Stock purchasable hereunder immediately prior to such adjustment of the
per share Warrant Price by a fraction, the numerator of which shall be the per
share Warrant Price in effect immediately prior to such adjustment and the
denominator of which shall be the per share Warrant Price in effect immediately
following such adjustment.
SECTION 3.7 MINIMUM ADJUSTMENT. Except as hereinafter provided, no
adjustment of the per share Warrant Price hereunder shall be made if such
adjustment results in a change of the per share Warrant Price then in effect of
less than 1%. Any adjustment of less than 1% shall be carried forward and shall
be made at the time of and together with any subsequent adjustment which,
together with the adjustment or adjustments so carried forward, amounts to 1% or
more of the per share Warrant Price then in effect. However, upon the exercise
of this Warrant, Company shall make all necessary adjustments not theretofore
made to the per share Warrant Price up to and including the date upon which this
Warrant is exercised.
SECTION 3.8 NOTICE OF ADJUSTMENTS. (a) Whenever the per share Warrant
Price or number of shares deliverable upon exercise of this Warrant shall be
adjusted pursuant to this Section 3, Company shall promptly prepare a
certificate signed by the President or a Vice President and by the Treasurer of
Company setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was calculated
(including a description of the basis on which the Board of Directors of Company
made any determination hereunder), and shall promptly cause copies of such
certificate to be mailed in the manner provided in Section 12.1 of the Warrant
Agreement to the holder of this Warrant.
(b) The adjustment set forth in the certificate furnished
pursuant to Section 3.8(a) shall be final and binding unless, within 90
days after receipt thereof, the Majority Holders of the Warrants
deliver to Company a written statement of objection to such adjustment.
(i) In the event of any such statement of objection
by said Majority Holders, Company's accountants and a firm of
independent public accountants
-6-
<PAGE>
selected by said Majority Holders shall attempt to prepare a
computation in which both accountants concur. Any such joint
computation shall be set forth in a joint certificate to each
holder of the Warrants and Company and shall be final and
binding.
(ii) If Company's accountants and said Majority
Holders' accountants are unable to resolve their differences
within 30 days after the receipt by Company of said Majority
Holders' statement of objection, they shall submit the matter
to a third firm of independent certified public accountants of
nationally recognized standing agreed upon by said Majority
Holders and Company or, if said Majority Holders and Company
are unable to agree within 10 days after the expiration of
said 30-day period, to such firm designated by the then
president of the state society of certified public accountants
for the state in which Company maintains its principal place
of business. Such third firm of accountants shall thereupon
compute the amount of the adjustment and, upon completion of
such computation, shall transmit its certificate to each
holder of the Warrants and Company setting forth such
computations, which shall be final and binding.
(iii) The fees and expenses of all accountants
referred to in this Section 3.8(b) shall be borne by Company.
SECTION 4. MERGERS, CONSOLIDATIONS, SALES.
In the case of any consolidation or merger of Company with another
entity, or the sale of all or substantially all of its assets to another entity,
or any reorganization, recapitalization or reclassification of the Common Stock
or other equity securities of Company, then, as a condition of such
consolidation, merger, sale, reorganization, recapitalization or
reclassification, lawful and adequate provision shall be made whereby the holder
of this Warrant shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore purchasable hereunder, such shares of
stock, securities or assets as may (by virtue of such consolidation, merger,
sale, reorganization or reclassification) be issued or payable with respect to
or in exchange for a number of outstanding shares of Common Stock equal to the
number of shares of Common Stock immediately theretofore so purchasable
hereunder had such consolidation, merger, sale, reorganization, recapitalization
or reclassification not taken place. In any such case, appropriate provisions
shall be made with respect to the rights and interests of the holder of this
Warrant to the end that the provisions hereof shall thereafter be applicable, as
nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon exercise of this Warrant. Company shall not effect
any such consolidation, merger or sale, unless prior to or simultaneously with
the consummation thereof, the successor entity (if other than Company) resulting
from such consolidation or merger or the entity purchasing such assets shall
assume by written instrument executed and mailed or delivered to the holder of
this Warrant, the obligation to deliver to such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to receive.
-7-
<PAGE>
SECTION 5. DISSOLUTION OR LIQUIDATION.
In the event of any proposed distribution of the assets of Company in
dissolution or liquidation except under circumstances when the foregoing Section
4 shall be applicable, Company shall mail notice thereof to the holder of this
Warrant and shall make no distribution to shareholders until the expiration of
30 days from the date of mailing of the aforesaid notice and, in any such case,
the holder of this Warrant may exercise the purchase rights with respect to this
Warrant within 30 days from the date of mailing such notice and all rights
herein granted not so exercised within such 30-day period shall thereafter
become null and void.
SECTION 6. NOTICE OF DIVIDENDS.
If the Board of Directors of Company proposes to declare any dividend
or other distribution on its Common Stock, except by way of a stock dividend
payable on its Common Stock, Company shall mail notice thereof to the holder of
this Warrant as soon as possible (such notice being referred to as the
"DISTRIBUTION NOTICE"). Company shall not fix a record date until the lapse of a
10-day period beginning on the date of delivery of the Distribution Notice. The
holder of this Warrant shall not participate in such dividend or other
distribution or be entitled to any rights on account or as a result thereof
unless and to the extent that this Warrant is exercised prior to such record
date. The provisions of this paragraph shall not apply to distributions made in
connection with transactions covered by Section 4.
SECTION 7. FRACTIONAL SHARES.
No fractional shares may be issued upon the exercise of this Warrant.
In the event that a Holder would otherwise be entitled to a fractional share
except for the operation of the previous sentence, in lieu of such fractional
share such Holder shall be paid a cash amount equal to (i) such fraction
multiplied by (ii) the Current Market Value of one full share of Common Stock on
the date of exercise.
SECTION 8. FULLY PAID STOCK; TAXES.
Company covenants and agrees that the shares of stock represented by
each and every certificate for its Common Stock to be delivered on the exercise
of the purchase rights and the payment of the applicable purchase price herein
provided for shall, at the time of such delivery, be validly issued and
outstanding and be fully paid and nonassessable. Company further covenants and
agrees that it will pay when due and payable any and all federal and state taxes
(other than income taxes) which may be payable in respect of this Warrant or any
Common Stock or certificates therefor upon the exercise of the rights herein and
in the Warrant Agreement provided for pursuant to the provisions hereof and
thereof. Company shall not, however, be required to pay any tax which may be
payable solely in respect of any transfer and delivery of stock certificates in
a name other than that of the holder exercising this Warrant, and any such tax
shall be paid by such holder at the time of presentation.
SECTION 9. CLOSING OF TRANSFER BOOKS.
The right to exercise this Warrant shall not be suspended during any
period that the stock transfer books of Company for its Common Stock may be
closed. Company shall not be
-8-
<PAGE>
required, however, to deliver certificates of its Common Stock upon such
exercise while such books are duly closed for any purpose, but Company may
postpone the delivery of the certificates for such Common Stock until the
opening of such books, and they shall, in such case, be delivered forthwith upon
the opening thereof, or as soon as practicable thereafter.
SECTION 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT.
SECTION 10.1 PARTIAL EXERCISE. If this Warrant is exercised in part
only, the holder hereof shall surrender this Warrant upon such exercise for
endorsement thereon of the number of shares of Common Stock as to which it has
been exercised. No partial exercise of this Warrant shall be made in respect of
shares of Common Stock of Company representing less than 1% of Pro Forma Shares.
SECTION 10.2 ASSIGNMENT (a) Subject to the conditions set forth in
Section 10.2(b) hereof, this Warrant may be assigned either in whole or in part
by surrender of this Warrant at the principal office of Company in Princeton,
Texas (with the assignment or, as the case may be, partial assignment form at
the end hereof duly executed). If this Warrant is being assigned in whole, the
assignee shall receive a new Warrant (registered in the name of such assignee or
its nominee) which new Warrant shall cover 100% of the number of shares of
Common Stock then purchasable hereunder and shall set forth the Aggregate
Warrant Price. If this Warrant is being assigned in part, the assignor and
assignee shall each receive a new Warrant (which, in the case of the assignee,
shall be registered in the name of the assignee or its nominee), which new
Warrants shall cover the number of shares of Common Stock then purchasable
hereunder not so assigned and so assigned, respectively, and shall set forth the
proportionate Aggregate Warrant Price applicable to such shares.
(b) Neither this Warrant nor any Warrant Shares may be sold, assigned
or otherwise transferred unless such sale, assignment or transfer is registered
or qualified pursuant to the registration requirements of the Securities Act of
1933, as amended, and all applicable state securities laws, or is preceded by an
opinion of counsel addressed to Company that such sale, assignment or other
transfer is exempt from all such registration requirements; PROVIDED, HOWEVER,
that no such opinion of counsel shall be required in connection with any such
sale, assignment or transfer to any affiliate of the holder of this Warrant or
any Warrant Shares issued in respect hereof. The fees and expenses of such
counsel incurred in respect of such sales, assignments or transfers shall be
paid by the holder of this Warrant or any Warrant Shares which are the subject
of such proposed sale, assignment or transfer. All certificates representing the
Warrant Shares shall be stamped or imprinted with an appropriate restrictive
legend, substantially as set forth on the cover page hereof.
SECTION 11. DEFINITIONS.
Terms not otherwise defined herein shall have the respective meanings
assigned thereto in the Warrant Agreement and the Credit Agreement. In addition
to the terms defined elsewhere in this Warrant, the following terms have the
following respective meanings:
"ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of Common
Stock issued by Company after the Closing Date, except:
-9-
<PAGE>
(a) Common Stock issued upon exercise of the Warrants;
(b) Common Stock issued upon exercise of warrants issued under
the Existing Warrant Agreements; and
(c) Common Stock issued to officers, directors or employees
of, or consultants to, Company pursuant to any existing or future stock
option, incentive, bonus or compensation plan or program approved by
the Company's shareholders (no later than 12 months following adoption
of the plan or program by the Company's Board of Directors).
"AGGREGATE WARRANT PRICE" has the meaning specified on the first page
of this Warrant.
"COMMON STOCK" shall mean the shares of Common Stock, par value $0.01
per share, of Company described in the Certificate of Incorporation.
"CONVERTIBLE SECURITIES" shall mean evidences of indebtedness, equity,
rights, options, warrants or other securities which are convertible into or
exchangeable for shares of Common Stock, either immediately or upon the arrival
of a specified date or the happening of a specified event, or otherwise.
"CURRENT MARKET PRICE" shall mean, at the date of determination
thereof, an amount equal to the market price on the Business Day occurring most
recently prior to the subject issuance of such shares of Common Stock (the
"ISSUANCE DATE"). The market price for such Business Day shall be the last sale
price on such day on the American Stock Exchange, or, if the Common Stock is not
then listed or admitted to trading on the American Stock Exchange, on such other
principal stock exchange on which such shares are then listed or admitted to
trading, or, if no sale takes place on such day on any such exchange, the
average of the closing bid and asked prices on such day as officially quoted on
any such exchange, or, if the Common Stock is not then listed or admitted to
trading on any stock exchange, the market price for each such Business Day shall
be the last reported sale price on such day on The Nasdaq Stock Market's
National Market, as furnished by Nasdaq, or, if no sale takes place on such day
on such system, the average of the closing bid and asked prices on such day as
officially quoted by Nasdaq, or, if such price at the time is not available from
such system, the market price for such Business Day shall be the average of the
reported closing bid and asked prices on such day in the over-the-counter
market, as furnished by Nasdaq, or, if such price at the time is not available
from such system, such price shall be determined in good faith by Company's
Board of Directors, which shall be evidenced by a notice setting forth such
determination in reasonable detail (including computations and assumptions used)
(the "CMP COMPUTATION NOTICE") to each holder of the Warrants not later than 30
days after the issuance date of the Common Stock giving rise to such
determination (the "CMP COMPUTATION DATE") setting forth such determination and
setting forth in detail the rights and procedures the holders of the Warrants
may take in the event the Majority Holders do not agree with the valuation set
forth in the CMP Computation Notice, PROVIDED, that if the Majority Holders of
such Warrants shall object to the valuation contained in the CMP Computation
Notice in writing to Company within 15 days of the CMP Computation Date, an
Appraiser, the expenses of whom shall be paid by Company, shall be selected by
Company and said Majority Holders (on behalf of all of the holders of the
Warrants as a class),
-10-
<PAGE>
or, if said Majority Holders and Company are unable to agree upon the selection
of an Appraiser within 10 days of the date of the written notice from said
Majority Holders to Company objecting to the CMP Computation Notice, by the
American Arbitration Association. Said Majority Holders and Company shall be
jointly responsible for engaging the Appraiser finally selected. In the event
that the Majority Holders do not object to the CMP Computation Notice within 15
days after receiving the CMP Computation Notice, then the value shall be that
which was determined solely by Company's Board of Directors. The Appraiser
appointed pursuant to the foregoing procedure shall be instructed to determine
such value within 15 days after the selection of such Appraiser, and any such
determination made by the Appraiser shall be final and binding upon the parties.
Notwithstanding the foregoing, in the event that, on the Issuance Date, shares
of Common Stock shall be offered for sale to the public in connection with an
underwritten public offering, the Current Market Price in respect of said
Issuance Date shall be deemed to be the price at which said shares are initially
sold to the public.
"EXERCISE DATE" shall mean a date on which this Warrant is exercised.
"EXPIRATION DATE" means from and after 5:00 p.m. Princeton, Texas time
on March 30, 2010.
"MAJORITY HOLDERS" shall mean, at the time of any determination, the
holders of a majority of the Warrants (determined by the number of shares of
Common Stock represented by each such Warrant as if exercised).
"NOTE" shall mean any of the Notes issued to McKesson pursuant to the
Credit Agreement.
"PER SHARE WARRANT PRICE" is defined in the first paragraph of this
Warrant.
"PERMITTED CONSIDERATION" shall mean each of the following (or any
combination thereof):
(a) cash or other funds immediately available to Company;
(b) any Note issued under the Credit Agreement; and
(c) Warrants.
"PRO FORMA SHARES" shall mean, as of the date of any determination
thereof, the sum of (i) the total number of outstanding shares of Common Stock,
plus (ii) the total number of shares of Common Stock issuable upon exercise of
the Warrants and any other warrants, options or other rights and upon the
exercise of any conversion or exchange rights with respect to Convertible
Securities.
"UNDERLYING SHARES" shall mean the shares of Common Stock issuable upon
exercise of any of the Warrants and any references contained herein to a holder
or holders of any Underlying Shares shall be deemed to refer to the holder of
the Warrants relating thereto.
-11-
<PAGE>
"WARRANT AGREEMENT" shall mean that certain Amended and Restated
Warrant Purchase Agreement between Company and McKesson HBOC, Inc. dated as of
May 14, 1999.
"WARRANT PRICE" - see the definition of "per share Warrant Price".
"WARRANT SHARES" shall mean shares of Common Stock issued upon exercise
of the warrants.
"WARRANTS" as used herein shall refer to, collectively, this Warrant
and all other warrants issued in exchange or substitution for this Warrant.
SECTION 12. WARRANT HOLDER NOT SHAREHOLDER.
This Warrant does not confer upon the holder hereof any right to vote
or to consent or to receive notice as a shareholder of Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
shareholder, prior to the exercise hereof as hereinbefore provided.
SECTION 13. SEVERABILITY.
Should any part of this Warrant for any reason be declared invalid or
unenforceable, such decision shall not affect the validity or enforceability of
any remaining portion, which remaining portion shall remain in force and effect
as if this Warrant had been executed with the invalid or unenforceable portion
thereof eliminated, and it is hereby declared the intention of the parties
hereto that they would have executed and accepted the remaining portion of this
Warrant without including therein any such part, parts or portion which may, for
any reason, be hereafter declared invalid or unenforceable.
SECTION 14. GOVERNING LAW.
This Warrant shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the law of the State of
California excluding choice-of-law principles of the law of such state that
would require the application of the laws of a jurisdiction other than such
state.
In WITNESS WHEREOF, Company has caused this Warrant to be signed by a
duly authorized officer and to be dated this 30th day of March 2000.
HORIZON PHARMACIES, INC.
By: /s/ Ricky D. McCord
--------------------------------------
Its: President and Chief Executive Officer
--------------------------------------
-12-
<PAGE>
SUBSCRIPTION
HORIZON PHARMACIES, INC.
The undersigned, ____________________, pursuant to the provisions of
the within Warrant, hereby elects to purchase ________ shares of Common Stock
pursuant to the attached Warrant.
Signature
--------------------------------
Address
--------------------------------
Dated:
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED ______________________ hereby sells, assigns and
transfers unto ____________________ the within Warrant and all rights evidenced
thereby and does irrevocably constitute and appoint ________________________,
attorney, to transfer the said Warrant on the books of HORIZON Pharmacies, Inc.
Signature
--------------------------------
Address
--------------------------------
Dated:
<PAGE>
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED ______________________ hereby sells, assigns and
transfers unto ____________________ that portion of the within Warrant and the
rights evidenced thereby which will on the date hereof entitle the holder to
purchase _________________ shares of Common Stock of HORIZON Pharmacies, Inc.
and irrevocably constitutes and appoints ________________________, attorney, to
transfer that part of the said Warrant on the books of HORIZON Pharmacies, Inc.
Signature
--------------------------------
Address
--------------------------------
Dated:
<PAGE>
April 14, 1999
Mr. Rick McCord, CEO
Horizon Pharmacies, Inc.
531 West Main St.
Denison, TX 75020
Subject: New Supply and Technology Agreements
Dear Rick:
Pursuant to our discussions yesterday, McKesson HBOC, Inc. ("McKesson") and
Horizon Pharmacies, Inc. ("Horizon") agree to the following:
1) Supply Agreement
Horizon will execute a new five year wholesale supply agreement with
McKesson effective May 1, 1999 on terms substantially similar to the
current wholesale supply agreement, including exclusions therein from cost
of goods, subject to:
a) Cost of goods sold based on current 45 day terms:
(EXCEPT ITEMS THAT May 1, 1999 through April 30, 2000 - cost plus 0.2%
ARE NET BILLED May 1, 2000 through April 30, 2001 - cost plus 0.1%
PURSUANT TO THE May 1, 2001 through April 30, 2002 - cost plus 0.0%
CURRENT SUPPLY May 1, 2002 through April 30, 2003 - cost minus 0.2%
AGREEMENT) May 1, 2003 through April 30, 2004 - cost minus 0.2%
For purposes of this section, "cost of goods" and "cost" shall have the
same meaning as applicable under the current wholesale supply agreement.
b) The above cost of goods sold margins shall be firm, with no reopener
rights during the term of the five year wholesale supply agreement.
c) McKesson will pay to Horizon the conversion allowance specified in
Section 6 of the current wholesale supply agreement based on purchases
through April 30, 1999. It is expressly understood that the repayment
formula specified in Section 6.B. of the current wholesale supply
agreement in the event of early termination or Horizon's failure to
meet its purchase volume commitment shall continue in full force and
effect under the new agreement.
<PAGE>
Mr. Rick McCord, CEO
April 14, 1999
Page 2
d) Unlike the current contract, there will not be a 50 bp rebate for first
year purchases commencing May 1, 1999.
e) Current contract language with respect to waiver of return charges
during the annual clean-up period will be clarified as follows:
i) Horizon shall submit to McKesson, annually no later than May 31st
of each year, dates for which individual stores have been
scheduled for their annual clean-up of return merchandise.
ii) Each store's clean-up period shall be for five contiguous business
days only and shall commence on the dates scheduled, unless
another commencement date shall be approved by McKesson
iii) Accept during the annual clean-up period for which there shall be
no return item charges, each store will be billed 15% and 25% for
salable and non-salable merchandise (as defined in the current
supply agreement), respectively.
f) In consideration of the substantial pricing concessions made by
McKesson under the proposed new supply agreement Horizon agrees that
the following sums shall be payable to McKesson as liquidated damages
in the event of cancellation of the new supply contract by either party
for any reason whatsoever prior to its expiration on April 30, 2004,
regardless of cause:
If termination occurs during the first year - $800,000
If termination occurs during the second year - $600,000
If termination occurs during the third year - $400,000
If termination occurs during the fourth year - $200,000
If termination occurs during the fifth year
(other than by expiration on April 30, 2004) - $100,000
2) Financing Agreements
a) McKesson hereby grants Horizon upon execution of this letter by both
parties a waiver on all breaches of financial covenants and such other
defaults as to which Horizon has specifically requested a waiver under
the current credit facility for Horizon's fiscal year ending December
31, 1998 and quarter ending March 31, 1999.
b) Notwithstanding any waivers granted by McKesson, McKesson will
reinstate the original credit facility commitment of $15 million for
acquisitions and operating capital only upon McKesson's approval, which
shall be in McKesson's sole discretion, of Horizon's twelve month
profitable operating plan.
c) McKesson will provide a $7 million guarantee to Bank One to facilitate
the bank's offering an unsecured revolving credit facility to Horizon
designed to more efficiently accommodate Horizon's daily fluctuations
in cash flow. The amount of commitment under the original McKesson
credit facility will be reduced by the aggregate amount guaranteed
under the Bank One facility, should Horizon decide to accept the bank's
offer.
<PAGE>
Mr. Rick McCord, CEO
April 14, 1999
Page 3
As a condition to providing the guarantee to the bank McKesson will
require the same protections available to McKesson under the original
credit facility, which among other conditions will include a
requirement that Horizon indemnify McKesson for any payment that
McKesson shall be obligated to pay Bank One pursuant to the guarantee.
Such indemnity shall be secured pursuant to the terms of the existing
security agreement.
d) In consideration of the proposed December 31, 1998 and March 31, 1999
waivers under the current credit facility, Horizon agrees to provide
McKesson warrants under substantially the same terms and conditions as
the original warrants granted to McKesson to purchase common stock of
Horizon, as follows:
- 100,000 new warrants priced at the average closing price of
Horizon stock for the five days ending April 16, 1999.
- Cancellation of the original 101,500 warrants and reissuance of an
additional $101,500 of new warrants priced at the average closing
price of Horizon stock for the five days ending April 16, 1999.
- 50,000 new warrants priced at the average closing price of Horizon
stock for the five day period commencing on the date McKesson
advises Horizon that it has reinstated the original credit
facility commitment.
3) Technology Agreement
Horizon agrees to enter into a five year Technology Agreement no later than
30 days following McKesson Pharmacy Systems ("MPS") delivery of a fully
operational Multi-Site Back Office System ("Host System"), in which
Horizon commits to installing MPS point of sales systems ("POS") in all of
its current and future store locations and further agrees to installing a
minimum of 100 POS systems, including existing installations, in its
stores by April 30, 2004. The cost of the new POS systems, training,
scheduling and other applicable services and conditions relevant to the
POS services, shall be the same as afforded by MPS to Horizon for the
current 23 installations, after adjusting for specific system
configurations pursuant to price quotations that MPS has previously
provided Horizon. McKesson acknowledges that this commitment is contingent
upon MPS delivering a fully operational Host System by October 15, 1999.
McKesson agrees to pay Horizon as compensation for its increased costs, a
penalty of $500 per day for each day the Host System is delayed beyond
October 31, 1999. Should McKesson determine that it is unable or unwilling
to provide the Host System, McKesson will give notice to Horizon of its
intent not to deliver the system in which case McKesson's obligation to
pay the penalty shall cease 30 days after giving notice. In the event
McKesson provides a Host System and Horizon fails to purchase a minimum of
77 new POS systems then Horizon shall pay McKesson on April 30, 2004 the
sum of $2,000 multiplied times the difference between 77 and the actual
number of new POS system Purchased during term of the Technology Agreement.
<PAGE>
Mr. Rick McCord, CEO
April 14, 1999
Page 4
4) Reimbursement for and Release of Disputes
In exchange for the payment by McKesson of $1 million, and for undertaking
the other obligations of McKesson set forth in this letter, as full and
final consideration for unresolved disputes arising in 1998 and the first
calendar quarter of 1999, Horizon agrees to the release of claims set forth
below, which shall be effective upon execution and delivery of this letter,
and to undertake the other obligations of Horizon that are set forth in
this letter.
RELEASE OF CLAIMS
For the consideration set forth above, Horizon on behalf of itself,
its employees, successors, predecessors, officers, directors,
stockholders, subsidiaries, insurers, and each and all of them
(collectively, the "Horizon"), hereby forever releases and
discharges, McKesson and its employees, attorneys, successors,
predecessors, officers, directors, stockholders, subsidiaries,
insurers, assigns, representatives and agents (collectively, the
"Releasees"), and hereby indemnifies the Releasees and holds them
harmless from and against any and all losses or costs of any kind
(including without limitation reasonable attorneys' fees and costs)
arising from Claims (as defined below) by its stockholders, in each
case from any and all manner of actions, claims, demands, damages,
liabilities, costs, or causes of action of any kind or nature
whatever, liquidated or unliquidated, known or unknown, matured or
unmatured, asserted or unasserted, fixed or contingent (collectively,
"Claims"), whether based in tort, contract or any other theory of
recovery, including without limitation court costs, expenses and
attorney fees, which they may have against Releasees based on facts
occurring on or before April 15, 1999 arising out of the relationship
(contractual or otherwise) between any Horizon and any Releasee,
including but not limited to the Credit Agreement and the Supply
Agreement (collectively the "Released Claims").
THIS RELEASE EXTENDS TO CLAIMS RELEASED TO AND INCLUDED AMONG THE
RELEASED CLAIMS WHICH HORIZON DOES NOT KNOW OR SUSPECT TO EXIST IN ITS
FAVOR, WHICH IF KNOWN BY HORIZON WOULD HAVE MATERIALLY AFFECTED ITS
DECISION TO ENTER INTO THIS RELEASE. HORIZON EXPRESSLY WAIVES AND
RELINQUISHES, WITH RESPECT TO THE RELEASED CLAIMS, ANY RIGHTS OR
BENEFIT WHICH IT HAS OR MAY HAVE UNDER ANY STATUTE OR LEGAL PRINCIPLE
WITH THE EFFECT THAT A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH
THE RELEASOR DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE
TIME OF EXECUTING THE RELEASE, WITHOUT LIMITING THE FOREGOING, HORIZON
EXPRESSLY WAIVES AND RELINQUISHES ANY RIGHTS OR BENEFIT WHICH HAS OR
MAY HAVE UNDER PARAGRAPH 1542 OF THE CIVIL CODE OF THE STATE OF
CALIFORNIA, WHICH PROVIDES AS FOLLOWS:
<PAGE>
Mr. Rick McCord, CEO
April 14, 1999
Page 5
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
Horizon acknowledges that after executing this Release it may discover
Claims in addition to or different from those which it now has or
believes to exist with respect to the Released Claims, but that it is
Horizon's intention hereby to fully settle and release all of the
Released Claims, known or unknown, which now exist, may exist, or
heretofore may have existed. In furtherance of this intention, the
release herein given shall be and will remain in effect as full and
complete release of the Released Claims and Claims arising out of the
Released Claims notwithstanding the discovery or existence of any such
additional or different Claim or fact.
This release shall become effective upon the execution and delivery of
this letter. Horizon hereby represents and warrants that (i) it has
exclusive authority to execute this Release, (ii) none of the Released
Claims has been assigned to any person not a party bound by this
Release, and (iii) all of the Released Claims are owned by Horizon and
by no other Person(s).
This Release constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes all
prior negotiations and agreements, whether written or oral, relating
to its subject matter, and is binding upon and inures to the benefit
of the parties' respective successors, assigns and representatives.
This Release may not be altered, amended, or modified, except by
another written agreement that specifically refers to this Release,
duly executed by another written agreement that specifically refers
to Release, duly executed by authorized representatives of each of
Horizon and McKesson.
This Release shall be governed by the laws of the State of California,
and by executing this Release each party hereby waives any claim of
inconvenient forum, lack of jurisdiction or similar claim contesting
the ability of the courts of the State of California to decide any
disputes arising hereunder.
5) Public Disclosures
Horizon agrees to provide McKesson drafts of all press releases and other
forms of written public disclosure regarding the above agreements for
review and approval by McKesson prior to release. Furthermore, Horizon
agrees to refrain from any verbal discussion regarding the agreements other
than to reiterate information contained in written disclosures that have
been approved by McKesson. The draft press release dated April 14, 1999
entitled "HORIZON Pharmacies, Inc. Negotiates New Technology and Supply
Agreement with Primary Supplier" is satisfactory to McKesson.
<PAGE>
Mr. Rick McCord, CEO
April 14, 1999
Page 6
The following signatures authorize approval by both companies of all criteria
as stated above.
Bill Hamik, McKesson HBOC, Inc. /s/ Bill Hamik Date: April 14, 1999
-------------------------- --------------
Rick McCord, Horizon Pharmacies, Inc. /s/ Ricky D. McCord Date: April 14, 1999
-------------------- --------------
<PAGE>
AMENDMENT TO SUPPLY AGREEMENT
This Amendment to Supply Agreement (this "Amendment") is
entered into as of March 30, 2000, between HORIZON Pharmacies, Inc., a Delaware
corporation ("Horizon"), and McKesson HBOC, Inc., a Delaware corporation
formerly known as McKesson Corporation ("McKesson").
RECITALS
WHEREAS, Horizon and McKesson are parties to that certain
Strategic Partnership Supply Agreement dated as of April 30, 1998, as amended by
that certain letter agreement dated April 14, 1999 (as so amended, the "Supply
Agreement"). Capitalized terms used herein without definition shall have the
same meanings herein as set forth in the Supply Agreement.
WHEREAS, Horizon has requested certain waivers and consents
under the Supply Agreement and the Credit Agreement dated as of July 2, 1998
between Horizon and Mckesson (as amended from time to time, the "Credit
Agreement"), and McKesson is willing to grant such waivers and consents on
certain terms and conditions, including the execution and delivery of this
Amendment.
NOW, THEREFORE, in consideration of the promises and
agreements, provisions and covenants herein contained, and the granting of the
waivers and consents referred to above, the parties hereto agree as follows:
SECTION 1. AMENDMENT TO SUPPLY AGREEMENT
The Supply Agreement is hereby amended by deleting therefrom
the "45 Day Extended Payment Terms" referred to in Section 4.A of the Supply
Agreement, effective as of June 1, 2000. Horizon shall have the choice of the
other options set forth in Section 4.A of the Supply Agreement and agrees that
by June 1, 2000, it will be in full compliance with the option chosen for all
amounts incurred prior to June 1, 2000.
SECTION 2. MISCELLANEOUS
A. Reference to and Effect on the Supply Agreement.
(i) Each reference in the Supply Agreement to "this
Agreement", "hereunder", "hereof", "herein" or words of like import referring to
the Supply Agreement, and each reference in the Loan Documents (as defined in
the Credit Agreement) to the "Supply Agreement", "thereunder", "thereof" or
words of like import referring to the Supply Agreement shall mean and be a
reference to the Supply Agreement as amended by this Amendment.
(ii) Except as specifically amended by this Amendment, the
Supply Agreement shall remain in full force and effect and are hereby ratified
and confirmed.
<PAGE>
B. COSTS AND EXPENSES. The Horizon covenants to pay to or reimburse
McKesson, upon demand, for all costs, out-of-pocket expenses and reasonable
attorneys' fees expended or incurred by McKesson in connection with the
development, preparation, negotiation, execution and delivery of this Amendment
and the documents and transactions contemplated hereby.
C. HEADINGS. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
D. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
E. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. Each of
the parties hereto understands and agrees that this document (and any other
document required herein) may be delivered by any party thereto either in the
form of an executed original or an executed original sent by facsimile
transmission to be followed promptly by mailing of a hard copy original, and
that receipt by a party of a facsimile transmitted document purportedly bearing
the signature of the other party shall bind the other party with the same force
and effect as the delivery of a hard copy original. Any failure by a party to
receive the hard copy executed original of such document shall not diminish the
binding effect of receipt of the facsimile transmitted executed original of such
document of the other party.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
HORIZON PHARMACIES, INC.
By: /s/ Ricky D. McCord
---------------------------------------------
Title: CEO & President
------------------------------------------
McKESSON HBOC, INC.
By: /s/ Alan Pearce
---------------------------------------------
Title: Senior Vice President Financial Services
------------------------------------------
2
<PAGE>
SECURITIES PURCHASE AGREEMENT
BY AND AMONG
HORIZON PHARMACIES, INC.
AND
THE SEVERAL PURCHASERS NAMED IN SCHEDULE I
DATED AS OF JUNE 15, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS.....................................................................................1
ARTICLE II PURCHASE AND SALE OF SECURITIES.................................................................2
ARTICLE III SECURITIES PURCHASE AGREEMENT...................................................................2
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS................................................4
ARTICLE V PURCHASERS' CONDITIONS TO CLOSING...............................................................4
ARTICLE VI COMPANY CONDITIONS TO CLOSING...................................................................5
ARTICLE VII MISCELLANEOUS...................................................................................5
</TABLE>
SCHEDULES:
- ----------
Schedule I - Purchasers
Schedule II - Financial Statements
ANNEXES:
- --------
Annex "A" - Warrant
Annex "B" - Registration Rights Agreement
<PAGE>
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of June 15,
1998, by and among HORIZON Pharmacies, Inc., a Texas corporation (the
"Company"), and the several purchasers named in the attached Schedule I
(collectively, the "Purchasers").
WITNESSETH
WHEREAS, the Company wishes to sell and issue to the Purchasers for
an aggregate purchase price of $7,000,000, 736,838 shares of Common Stock (as
hereinafter defined) at a price of $9.50 per share, and 41,000 Warrants (as
hereinafter defined) at a price of $.001 per share (collectively, the
"Securities"); and
WHEREAS, the Purchasers wish to purchase the Securities on the terms
and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
For purposes hereof, the following terms shall have the meanings set
forth below:
1.01 "ARTICLES OF INCORPORATION" shall have the meaning given such
term in Section 3.02.
1.02 "AUDITED BALANCE SHEET" shall have the meaning given such
term in Section 3.05.
1.03 "BEST KNOWLEDGE" or "BEST OF ITS KNOWLEDGE" shall mean the
due inquiry of the person making such statement of its officers, directors and
appropriate employees and advisors who would reasonably be anticipated to have
knowledge of such matter.
1.04 "CLOSING" shall have the meaning set forth in Section 2.02.
1.05 "CLOSING DATE" shall be the date of the Closing, which will
be held at such time or times as provided in Section 2.02.
1.06 "COMMISSION" shall mean the Securities and Exchange
Commission.
1.07 "COMMON STOCK" shall mean the common stock of the company,
par value $0.01 per share.
1.08 "COMPANY" shall mean HORIZON Pharmacies, Inc., a Texas
corporation.
1.09 "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
1.10 "FINANCIAL STATEMENTS" shall have the meaning given such term
in Section 3.05.
1.11 "PERSON" shall mean an individual, corporation, trust,
partnership, joint venture, unincorporated organization, government agency or
any agency or political subdivision thereof, or other entity.
1.12 "PURCHASERS" shall have the meaning given in the preamble to
this Agreement.
1.13 "SEC REPORTS" shall have the meaning given such term in
Section 3.06.
1.14 "SECURITIES" shall mean the Common Stock and Warrants to be
purchased by the Purchasers.
<PAGE>
1.15 "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
1.16 "WARRANTS" shall mean warrants to purchase shares of the
Common Stock on the terms set forth herein.
ARTICLE II
PURCHASE AND SALE OF SECURITIES
2.01 SALE OF SECURITIES. Subject to all of the terms and
conditions herein stated, the Company agrees to sell, assign, transfer and
deliver to the Purchasers and the Purchasers agree to purchase from the
Company on the Closing Date, the Securities at an aggregate purchase price of
$7,000,000.
2.02 TERMS OF WARRANTS. Each Warrant shall entitle the Purchasers
to purchase one share of Common Stock at a purchase Price of $9.50 per share,
upon terms and conditions substantially the same as those set forth in the
Warrant attached hereto as Annex "A."
2.03 CLOSING. The closing of the sale (the "Closing") referred to
in Section 2.01 of this Agreement shall take place at 1:00 p.m. at the offices
of Phillips McFall McCaffrey McVay & Murrah, P.C. 211 N.Robinson, 12th Floor,
Oklahoma City, Oklahoma 73102, on June 15, 1998 (the "Closing Date"), or at
such time or place as the parties hereto shall by written instrument designate.
2.04 CLOSING DELIVERIES. At Closing, the Company shall issue and
deliver to the Purchasers certificates in definitive form registered in the
name of such Purchasers and representing the Common Stock and Warrants. As
payment in full for the Securities, and against delivery of the certificates
therefor as aforesaid, on the Closing Date each of the Purchasers shall: (i)
deliver to the Company a check, payable to the order of HORIZON Pharmacies,
Inc. in the amount set forth opposite the name of such Purchaser on
Schedule 1, (ii) transfer such sum to the account of the Company by wire
transfer; or (iii) deliver or transfer such sum to the Company by any
combination of such methods of payments.
2.05 BROKERS' FEE. The Company agrees to pay at Closing and out
of the proceeds of the sale of the Securities hereunder, to any broker agreed
upon by the parties, a brokers' fee of no more than $150,000.
2.06 REGISTRATION RIGHTS. At the Closing, the Company and each
Purchaser shall enter into a Registration Rights Agreement having
substantially the terms set forth in Appendix "B" attached hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.01 ORGANIZATION AND QUALIFICATIONS. The Company (i) has been
duly incorporated, and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its organization; and (ii) is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the ownership or leasing of its properties or the
conduct of its business requires such qualification except where the failure
to be so qualified or to be in good standing would not have a material adverse
effect on the Company's condition (financial or otherwise), earnings,
operations, business or business prospects.
3.02 AUTHORIZATION. The execution and delivery by the Company of
this Agreement and the performance by the Company of its obligations
hereunder, including but not limited to the execution and delivery by the
Company of the Warrant and the Registration Rights Agreement and the issuance,
sale and delivery of the Securities, have been duly authorized by all
requisite corporate action and will not violate any provision of law, any
order of any court or other agency of government, the Articles of
Incorporation of the Company, as amended (the "Articles of Incorporation"), or
the Bylaws of the Company, as amended, or any provision of any indenture,
agreement or other instrument to which the Company or any of its properties or
assets is bound, or conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under any such Indenture,
agreement or other instrument, or result in the creation or
2
<PAGE>
imposition of any lien, charge, restriction, claim or encumbrance of any
nature whatsoever upon any of the properties or assets of the Company.
3.03 VALIDITY. This Agreement, the Warrant and the Registration
Rights Agreement have been duly exercised and delivered by the Company and
constitute the legal, valid and binding obligations of the company,
enforceable in accordance with its terms, except as limited by applicable
bankruptcy, insolvency, reorganization and moratorium laws and other laws
affecting enforcement of creditors' rights generally and by general principles
of equity.
3.04 AUTHORIZED CAPITAL STOCK. The authorized capital stock of
the Company consists of (i) 14,000,000 shares of Common Stock, $.01 par value,
of which 4,517,387 shares were outstanding at June 1, 1998; and (ii) 1,000,000
shares of Preferred Stock, none of which were outstanding immediately prior to
Closing. The designations, powers, preferences, rights qualifications,
limitations and restrictions in respect of each class and series of authorized
capital stock of the Company are as set forth in the Articles of Incorporation
and all such designations, powers, preferences, rights, qualifications,
limitations and restrictions are valid, binding and enforceable and in
accordance with all applicable laws. Upon receipt of payment for the
Securities, such Securities will be validly issued, fully paid and
nonassessable and shall not be subject to any preemptive rights.
3.05 FINANCIAL STATEMENTS. The Company has furnished to the
Purchasers the audited consolidated balance sheet (the "Audited Balance
Sheet") of the Company as of December 31, 1997 and the related audited
consolidated statements of income, shareholders' equity and cash flows of the
Company for the years ended December 31, 1996 and 1997, and the unaudited
consolidated balance sheet of the Company as of March 31, 1998 and the related
unaudited consolidated statements of income, shareholders' equity and cash
flows of the Company for the three months ended March 3, 1998 (collectively,
the "Financial Statements"). All such Financial Statements have been prepared
in accordance with generally accepted accounting principles consistently
applied (except that such unaudited financial statements do not contain all of
the required footnotes) and fairly present the financial position of the
Company as of December 31, 1996 and 1997, respectively, and the results of the
company's operations and cash flows for the years ended December 31, 1996 and
1997 and the three months ended March 31, 1998, respectively.
3.06 NO MATERIAL MISREPRESENTATIONS. The Company has filed all
reports (the "SEC Reports") required to be filed under the Exchange Act, and
the SEC Reports, as of their respective dates, contained no untrue statement
of a material fact or omission? to state a material fact necessary in order to
make the statement made therein, in light of the circumstances under which
they were made, not misleading. None of the written statements, documents or
certificates delivered to the Purchasers in connection with the transactions
contemplated hereby contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained therein not
misleading. There is no fact which the Company has not disclosed to the
Purchasers of which the Company is aware which materially and adversely
affects or could materially and adversely affect the business, prospects,
financial conditions, operations, property or affairs of the Company. Except
as disclosed on the Company's quarterly report on Form 10-QSB for the period
ended March 31, 1998, there have been no material developments with the
Company since December 31, 1997.
3.07 RECORD DATE. Since April 7, 1998, the record date for the
Company's annual meeting of shareholders, the Company has not established any
record date for a dividend or other corporate action, and the Company will not
establish such a record date as of a date prior to the date each Purchaser
becomes a recordholder of the Securities.
3.08 FIRPTA. Collectively, the Company and its subsidiary are not
a "United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Internal Revenue Code of 1986, as amended.
3.09 NO RESTRICTIONS. There are no restrictions in the Company's
Articles of Incorporation or Bylaws, nor any contractual restrictions or other
legal restrictions that would adversely affect any Purchaser in any manner
different from any other security holder of the Company which owns less than
15% of the total number of shares of Common stock outstanding.
3
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
4.01 SUITABILITY. Each Purchaser represents and warrants to the
Company that:
(a) it is an "accredited investor" within the meaning of
Rule 501 under the Securities Act and was not organized for the
specific purpose of acquiring the Securities or an investment company
as defined in the Investment Company Act of 1940, as applicable;
(b) it has sufficient knowledge and experience in investing
in companies similar to the Company in forms of the Company's stage of
development so as to be able to evaluate the risks and merits of an
investment in the Securities and is able financially to bear the risks
thereof;
(c) it has had access to the SEC Reports and has been
provided an opportunity to discuss the Company's business, management
and financial affairs with the Company's management;
(d) the Securities being issued to it are being acquired
for its own account for the purpose of investment and not with a view
to or for sale in connection with any distribution thereof in
violation of the Securities Act; and
(e) it understands that (i) the Securities have not been
registered under the Securities Act by reason of their issuance in a
transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506
promulgated under the Securities Act; (ii) the Securities must be held
a minimum of one year unless a settlement disposition thereof is
registered under the Securities Act or is exempt from such
registration; (iii) the Securities will bear a legend to such effect;
and (iv) the Company will make a notation on its transfer books to
such effect.
ARTICLE V
PURCHASERS' CONDITIONS TO CLOSING
The obligation of each Purchaser to purchase the Securities under
Article II is, at its option, subject to the satisfaction, on or before the
Closing Date of the following conditions:
5.01 DOCUMENTS AND PROCEEDINGS. All documents and instruments to
be delivered by the Company and all corporate and other proceedings in
connection with this transaction shall have been so delivered and performed
and shall be reasonably satisfactory to the Purchasers and their legal counsel.
5.02 REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The
representations and warranties contained in Article III shall be true,
complete and correct on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of such
date.
5.03 PERFORMANCE. The Company shall have performed and complied
with all agreements contained herein required to be performed or complied with
by it prior to or at the Closing Date.
5.04 SIMULTANEOUS TRANSACTIONS. The obligations of each of the
Purchasers hereunder are subject to all of the transactions contemplated
hereby closing automatically.
4
<PAGE>
ARTICLE VI
COMPANY CONDITIONS TO CLOSING
The obligations of the Company to consummate the Closing hereunder
and sell the Securities shall be subject to the satisfaction at or before the
Closing of the following conditions:
6.01 DOCUMENTS AND PROCEEDINGS. All documents and instruments to
be delivered by the Purchasers and all corporate and other proceedings in
connection with this transaction shall have been so delivered and performed
and shall be reasonably satisfactory to the Company and its legal counsel.
6.02 PERFORMANCE OF AGREEMENT. The Purchasers shall have
performed and complied with all agreements contained herein required to be
performed or complied with by them prior to or at the Closing Date.
6.03 REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The
representations and warranties of the Purchasers contained in Article IV of
this Agreement shall be true, complete and correct on and as of the Closing
Date with the same effect as though such representations and warranties had
been made on and as of such date.
ARTICLE VII
MISCELLANEOUS
7.01 EXPENSES. Except as provided in Section 2.05(d), each party
hereto will pay its own expenses in connection with the transactions
contemplated hereby, whether or not such transactions shall be consummated.
7.02 SURVIVAL OF AGREEMENTS. All covenants, agreements,
representations and warranties made herein or in any instrument delivered to
the Purchasers pursuant to or in connection with this Agreement shall survive
the execution and delivery of this Agreement, the issuance, sale and delivery
of the Securities, and all statements contained in any instrument delivered by
the Company hereunder or thereunder or in connection herewith or therewith
shall be deemed to constitute representations and warranties made by the
Company.
7.03 PARTIES IN INTEREST. All representations, covenants and
agreements contained in this Agreement by or on behalf of either of the
parties hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether so expressed or not.
Without limiting the generality of the foregoing, all representations,
covenants and agreements benefiting the Purchasers shall inure to the benefit
of any and all subsequent holders from time to time of the Securities.
7.04 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 or sent by
telecopier or telex, addressed as follows:
(a) if to the Company, at 275 West Princeton Drive,
Princeton, Texas 75407, Attention: Ricky D. McCord, President, with a
copy to B. Kay Carol, Esq., Phillips McFall McCaffrey McVay and
Murrah, P.C., 211 North Robinson, 12th Floor, Oklahoma City, Oklahoma
73102?; and
(b) if to the Purchasers, c/o White Rock Capital, Inc., at
3131 Turtle Creek Blvd., Suite 100, Dallas, Texas 75210?;
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the other.
7.05 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas;
5
<PAGE>
7.06 ENTIRE AGREEMENT. This Agreement, including the Schedules
hereto, constitutes the sale and entire agreement of the parties with respect
to the subject matter hereof. All Schedules are hereby incorporated herein by
reference.
7.07 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same counterpart.
7.08 AMENDMENTS. This Agreement may not be amended or modified,
and no provisions hereof may be waived, without the written consent of the
Company.
7.09 SEVERABILITY. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority,
the validity of any other provision and of the entire Agreement shall not be
affected thereby.
7.10 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are for convenience only and are not to be considered in construing
or interpreting any term or provision of this Agreement.
6
<PAGE>
IN WITNESS WHEREOF, the Company and each of the Purchasers have
executed this Agreement as of the day and year first above written.
COMPANY: HORIZON PHARMACIES, INC.,
a Texas corporation
By: /s/ Ricky D. McCord
-----------------------------------
Ricky D. McCord, President
PURCHASER: QUANTUM PARTNERS INC.
By:
-----------------------------------
Joseph V. Barton
COLLINS CAPITAL DIVERSIFIED FUND, L.P.
By:
-----------------------------------
Joseph V. Barton
WHITE ROCK CAPITAL PARTNERS, L.P.
By:
-----------------------------------
Joseph V. Barton
WHITE ROCK CAPITAL OFFSHORE, LTD.
By:
-----------------------------------
Joseph V. Barton
LEGION STRATEGIES LIMITED
By:
-----------------------------------
Joseph V. Barton
CAXTON INTERNATIONAL LIMITED
By:
-----------------------------------
Joseph V. Barton
WHITEROCK CAPITAL MANAGEMENT, L.P.
By:
-----------------------------------
Joseph V. Barton
7
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
PURCHASERS
NUMBER OF NUMBER OF AGGREGATE
PURCHASER SHARES WARRANTIES PURCHASE PRICE
--------- ------ ---------- --------------
<S> <C> <C> <C>
Quantum Partners LDC 206,300 11,500 $1,959,860
White Rock Capital Partners, L.P. 117,900 6,600 1,120,060
White Rock Capital Offshore, Ltd. 184,300 10,000 1,750,860
Canton International Limited 116,000 6,400 1,083,000
Legion Strategies Limited 81,200 4,500 771,400
White Rock Capital Management, L.P. (#10) 11,138 700 105,820
Collins Capital Diversified Fund, L.P. 22,000 1,300 209,000
-------- -------- ------------
Total 736,838 41,000 $7,000,000
</TABLE>
<PAGE>
SCHEDULE II
FINANCIAL STATEMENTS
Attached.
<PAGE>
ANNEX "A"
WARRANT
<PAGE>
ANNEX "B"
REGISTRATION RIGHTS AGREEMENT
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into
this 15th day of June, 1998, by and among HORIZON Pharmacies, Inc., a Texas
corporation (the "Corporation"), and Quantum Partners LDC, Collins Capital
Diversified Fund, L.P., White Rock Capital Partners, L.P., White Rock Capital
Offshore, Ltd., Legion Strategies Limited Caxton International Limited and
White Rock Capital Management, L.P. (#10) (collectively, the "Selling
Shareholders").
W I T N E S S E T H:
WHEREAS, the Selling Shareholders have agreed to purchase an
aggregate 736,838 shares (the "Shares") of the Corporation's common stock,
$.01 par value (the "Common Stock"), and an aggregate 41,000 Common Stock
purchase warrants (the "Warrants") pursuant to that certain Securities
Purchase Agreement of even date herewith (the "Securities Purchase
Agreement"), by and among the Corporation and the Selling Shareholders; and
WHEREAS, pursuant to the terms of the Securities Purchase Agreement,
the Corporation has granted to the Selling Shareholders certain registration
rights with regard to the Securities;
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange
Commission, or any other Federal agency at the time administering the
Securities Act.
"COMMON STOCK" shall mean the Corporation's common stock,
$.01 par value, as constituted as of the date of this Agreement.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, or any similar Federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in
effect at the time.
"REGISTRABLE SHARES" shall mean the Shares and/or Warrant
Shares, as the context requires.
"REGISTRATION EXPENSES" shall mean the expenses as described
in Section 4.
"SHARES" shall have the meaning set forth in the recitals
hereto and as adjusted for events under Section 6, but excluding
Shares which have been (a) registered under the Securities Act
pursuant to an effective registration statement filed thereunder and
disposed of in accordance with the registration statement covering
them; or (b) publicly sold pursuant to Rule 144 under the Securities
Act.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar Federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at
the time.
"SELLING EXPENSES" shall mean the expenses so described in
Section 4.
"SELLING SHAREHOLDERS" shall have the meaning set forth in the
preamble to this Agreement.
"WARRANTS" shall have the meaning set forth in the recitals
hereto and as adjusted for events under Section 6.
"WARRANT SHARES" shall have the meaning given such term in
Section 2.
<PAGE>
2. REQUIRED REGISTRATION. (a) The Corporation shall promptly
within 75 days following the date of this Agreement, file a registration
statement on Form S-3 under the Securities Act for all of the Shares held by
the Selling Shareholders, on the terms set forth herein. The Corporation shall
be obligated to register Shares pursuant to this Section 2(a) on one occasion
only; provided, however, that such obligation shall be deemed satisfied only
when a registration statement covering all such Shares shall have become and
remain effective as contemplated in Section 3(a).
3. REGISTRATION PROCEDURES. For any registration statement the
Corporation is required to file under Section 2 above, the Corporation will:
(a) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause
such registration statement to become and remain effective until such time as
all Shares (and Warrant Shares, as applicable) have been sold under such
registration statement or may be freely sold in the public market without
registration in reliance upon Rule 144(k);
(b) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for the period specified in paragraph (a) above and comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Shares covered by such registration statement in accordance with
the Selling Shareholders' intended method of disposition set forth in such
registration statement for such period.
(c) furnish to the Selling Shareholders and to each
underwriter such number of copies of the registration statement and the
prospectus included therein (including such preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or other
disposition of the Registrable Shares covered by such registration statement;
(d) use its best efforts to register or qualify the
securities covered by such registration statement under the securities or
"blue sky" laws of such jurisdictions as the Selling Shareholders provided,
however, that the Corporation shall not for any such purpose be required to
qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction;
(e) use its best efforts to list the Registrable Shares
covered by such registration statement with any securities exchange on which
the Common Stock of the corporation is then listed;
(f) immediately notify the Selling Shareholders at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event of which the Corporation has
knowledge as a result of which the prospectus contained in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing, and use its best efforts to prepare and file post-effective
amendment(s) to such prospectus disclosing the occurrence of such event and
correcting such untrue or misleading statement; and
(g) make available for inspection by the Selling
Shareholders and any attorney, accountant or other agent retained by the
Selling Shareholders all financial and other records, pertinent corporate
documents and properties of the Corporation and cause the Corporation's
officers, directors and employees to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent in
connection with such registration statement.
In connection with each registration hereunder, the Selling
Shareholders will furnish to the Corporation in writing such information with
respect to them and the proposed distribution by them as reasonably shall be
necessary in order to assure compliance with Federal and applicable state
securities laws.
4. EXPENSES. All expenses incurred by the Corporation in
complying with Section 3 including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Corporation, fees and expenses
(including counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of
2
<PAGE>
transfer agents and registrars ad costs of insurance, but excluding any
Selling Expenses, are called "Registration Expenses."
The Corporation will pay all Registration Expenses in connection with
such registration statement under Section 3. all Selling Expenses in
connection with each registration statement under Section 3 shall be borne by
the Selling Shareholders in proportion to the number of Registrable Shares
sold by them to the number of shares sold by participating sellers other than
the Corporation (except to the extent the Corporation shall be a seller) as
they may agree.
5. INDEMNIFICATION AND CONTRIBUTION. (a) In the event of a
registration of any of the Registrable Shares under the Securities Act
pursuant to Section 3, the Corporation will indemnify and hold harmless the
Selling Shareholders, each underwriter within the meaning of the Securities
Act, against any losses, claims, damages or liabilities, joint or several, to
which such seller, underwriter or controlling person may become subject under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such Registrable Shares was registered
under the Securities Act pursuant to Section 3, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading and will reimburse the Selling Shareholders,
each such underwriter and each such controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided,
however, that the Corporation will not be liable in any such case if and to
the extent that any such loss, claim damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by the
Selling Shareholders, any such underwriter or any such enrolling person in
writing specifically for use in such registration statement or prospectus.
(b) In the event of a registration of any of the
Registrable Shares under the Securities Act pursuant to Section 3, the Selling
Shareholders will indemnify and hold harmless the Corporation, each person, if
any, who controls the corporation within the meaning of the Securities Act,
each officer of the Corporation who signs the registration statement, each
director of the Corporation, each underwriter and each person who controls any
underwriter within the meaning of the Securities Act, against all losses,
claims, damages or liabilities, joint or several, to which the Corporation or
such officer, director, underwriter or controlling person may become subject
under the Securities Act or otherwise, insofar as such leases, claims damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in the registration statement under which such securities were
registered under the Securities Act pursuant to Section 3, any preliminary
prospectus or fiscal prospectus contained therein, or any amendment or
supplement thereof, or arise out of or are based upon, the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse
the Corporation and each such officer, director, underwriter and controlling
person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Selling Shareholders will be
liable hereunder in any such case if and only to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with information pertaining to the Selling
Shareholders, as sellers, furnished in writing to the Corporation by the
Selling Shareholders specifically for use in such registration statement or
prospectus, and provided, further, however, that the liability of the Selling
Shareholders hereunder shall be limited to the proportion of any such loss,
claim, damage, liability or expenses which is equal to the proportion that the
public offering price of the shares sold by the Selling Shareholders under
such registration statement bears to the total public offering price of all
securities from the sale of the Registrable Shares covered by such
registration statement.
(c) Promptly after receipt by the indemnified party of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party
hereunder, notify the indemnifying party in writing thereof, but the omission
so to notify the indemnifying party shall not relieve it from any liability
which it may have to such indemnified party other than under this Section 5
and shall only relieve it from any liability which it may have to such
indemnified party under this Section 5 if and to the extent the indemnifying
party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of
the commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel satisfactory to such indemnified party,
3
<PAGE>
and, after notice form the indemnifying party to such indemnified party of its
election so to assure and undertake the defense thereof, the indemnifying
party shall not be liable to such indemnified party under this Section 5 for
any legal expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation and of liaison with counsel so selected, provided, however,
that, if the defendants in any such action included both the indemnified party
and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the indemnifying party or
if the interests of the indemnified party reasonably may be deemed to conflict
with the interests of the indemnifying party, the indemnified party shall have
the right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in which
either (i) the Selling Shareholders, or any controlling person thereof, makes
a claim for indemnification pursuant to this Section 5 but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to approve or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 5 provides for indemnification in
such case, or (ii) contribution under the Securities Act may be required on
the part of the Selling Shareholder or pay such controlling person in
circumstances for which indemnification is provided under this Section 5;
then, and in each such case, the Corporation and the Selling Shareholders will
contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion so
that the Selling Shareholders are responsible for the portion represented by
the percentage that the public offering price of their Shares offered by the
registration statement bears to the public offering price of all securities
offered by such registration statement, and the Corporation is responsible for
the remaining portion; provided, however, that, in any such case, (A) the
Selling Shareholders will not be required to contribute any amount in excess
of the public offering price of all such Registrable Shares offered by it
pursuant to such registration statement; and (B) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any person or entity who
was not guilty of such fraudulent misrepresentation.
6. CHANGES IN CAPITAL STOCK. If, and as often as, there is any
change in the Common Stock of the Corporation by way of a stock split, stock
dividend, combination or reclassification, or through a merger, consolidation,
reorganization or recapitalization, or by any other means, appropriate
adjustment shall be made in the provisions hereof so that the rights and
privileges granted hereby shall continue with respect to the Common Stock as
so changed.
7. RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Registrable Shares to the public without
registration, at all times after 90 days after any registration statement
covering a public offering of securities of the Corporation under the
Securities Act shall have become effective, the Corporation agrees to:
(a) take and keep public information available, as those
terms are understood and defined in Rule 144 and under the Securities Act;
(b) use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Corporation
under the Securities Act and the Exchange Act; and
(c) furnish to the Selling Shareholders forthwith upon
request a written statement by the Corporation as to its compliance with the
reporting requirements of such Rule 144 and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Corporation, and rush other reports and documents so filed by the Corporation
as such holder may reasonably request in availing itself of any rule or
regulations of the Commission allowing the Selling Shareholders to sell any
securities without registration.
8. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION. The
Corporation represents and warrants to the Selling Shareholders as follows:
(a) The execution, delivery and performance of this
Agreement by the Corporation have been duly authorized by all requisite
corporate action and will not violate any provisions of law, any order of any
court or other agency of government, the Articles of Incorporation or Bylaws
of the Corporation or any provision of any
4
<PAGE>
indenture, agreement or other instrument to which it or any of its properties
or assets is bound, conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under any such indenture,
agreement or other instrument or result in the creation or imposition of any
lien, charge of encumbrance of any nature whatsoever upon any of the
properties or assets of the Corporation.
(b) This Agreement has been executed and delivered by the
Corporation and constitutes the legal, valid and binding obligation of the
Corporation, enforceable in accordance with its terms.
9. MISCELLANEOUS.
(a) All covenants and agreements contained in this
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto
(including without limitation transferees of any Shares or Warrant Shares),
whether so expressed or not
(b) Any notice relating to this Agreement shall be deemed
sufficiently given and served for all purposes if given by a telegram filed,
charges prepaid, or a writing deposited in the United States mail, postage
prepaid and registered or certified within the Continental United States,
addressed as follows:
If to the Corporation:
Horizon Pharmacies, Inc.
Attention: Ricky D. McCord, President
275 W. Princeton Drive
Princeton, Texas 75207
with copies to:
Phillips McFall McCaffrey McVay & Murrah, P.C.
Attention: B. Kay Carrol, Esq.
12th Floor, 211 N. Robinson
Oklahoma City, Oklahoma 73102
If to the Selling Shareholders:
c/o White Rock Capital, Inc.
3131 Turtle Creek Blvd.
Suite 800?
Dallas, Texas 75219
Any notice so duly sent by mail shall be deemed given two (2) days
after deposit in a proper governmental mailing facility and nay notice given
by telegram shall be deemed given on the day such notice is delivered to the
telegram company, charges paid.
(c) This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
(d) This Agreement may not be amended or modified, and no
provisions hereof may be waived, without the written consent of the
Corporation and the Selling Shareholders.
(e) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
(f) Notwithstanding the provisions of Section 3(a), the
Corporation's obligation to file a registration statement, or cause such
registration statement to become and remain effective, shall be suspended for a
5
<PAGE>
period not to exceed 60 days in any 24-month period if there exists at the
time material non-public information relating to the Corporation which, in the
reasonable opinion of the Corporation, should not be disclosed.
(g) The Corporation shall not grant to any third party
any registration rights more favorable than or inconsistent with any of those
contained herein, so long as any of the registration rights under this
Agreement remain in effect.
(h) If any provision of this Agreement shall be held to
be illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any
manner affect or render illegal, invalid or unenforceable any other provisions
of this Agreement, and this Agreement shall be carried out as if any such
illegal, invalid or unenforceable provision were not contained herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first written above.
CORPORATION: HORIZON PHARMACIES, INC.,
a Texas corporation
By:
-----------------------------------
Ricky D. McCord, President
SELLING SHAREHOLDERS: QUANTUM PARTNERS INC.
By:
-----------------------------------
COLLINS CAPITAL DIVERSIFIED FUND, L.P.
By:
-----------------------------------
WHITE ROCK CAPITAL PARTNERS, L.P.
By:
-----------------------------------
WHITE ROCK CAPITAL OFFSHORE, LTD.
By:
-----------------------------------
LEGION STRATEGIES LIMITED
By:
-----------------------------------
6
<PAGE>
CAXTON INTERNATIONAL LIMITED
By:
-----------------------------------
WHITEROCK CAPITAL MANAGEMENT, L.P. (#10)
By:
-----------------------------------
7
<PAGE>
THIRD AMENDMENT
TO CREDIT AGREEMENT
AND LIMITED WAIVER
This THIRD AMENDMENT TO CREDIT AGREEMENT AND LIMITED WAIVER
(this "AMENDMENT") is dated as of May 14, 1999 between HORIZON Pharmacies, Inc.,
a Delaware corporation ("BORROWER"), and McKesson HBOC, Inc., a Delaware
corporation formerly known as McKesson Corporation ("MCKESSON").
RECITALS
WHEREAS, Borrower and McKesson are parties to that certain
Credit Agreement dated as of July 2, 1998, as amended by a First Amendment to
Credit Agreement dated as of July 20, 1998 and a Second Amendment to Credit
Agreement dated as of August 26, 1998 (as so amended, the "CREDIT AGREEMENT").
Capitalized terms used herein without definition shall have the same meanings
herein as set forth in the Credit Agreement.
WHEREAS, Borrower has requested that McKesson consent to the
amendment or waiver of certain covenants and other provisions set forth in the
Credit Agreement, and McKesson is willing to do so upon the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of the promises and the
agreements, provisions and covenants herein contained, the parties hereto agree
as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
A. The Credit Agreement is hereby amended to add a new Section
1.9 to read as follows:
SECTION 1.9 GUARANTY OF BANK FACILITY. If requested by
Borrower, McKesson will provide a guaranty to Bank One (the
"McKesson Guaranty") of up to $7,000,000 of indebtedness under
an unsecured revolving credit facility from Bank One to
Borrower not in excess of $7,000,000 (the "Bank One
Facility"), subject to McKesson's reasonable approval of the
form of McKesson Guaranty and related documentation. If the
McKesson Guaranty is issued by McKesson, the figure
"$15,000,000" in Section 1.1(a) and in clause (i) of Section
1.8 above shall be reduced by the maximum amount of the
McKesson Guaranty. As a condition to McKesson's issuing the
McKesson Guaranty, Borrower shall execute and deliver to
McKesson an Indemnification Agreement substantially in the
form of Exhibit J hereto (the "Indemnification
1.
<PAGE>
Agreement") and the Security Documents shall be amended as
appropriate so that Borrower's obligations under the
Indemnification Agreement are secured under the terms of the
Security Documents. If the McKesson Guaranty is issued by
McKesson, Borrower agrees to pay to McKesson a guaranty fee on
the maximum dollar amount guaranteed under the McKesson
Guaranty at a rate per annum equal to the Guaranty Fee Amount,
payable quarterly in arrears on the last Business Day of each
calendar quarter (commencing on the first such date after the
McKesson Guaranty is issued) and on the date the McKesson
Guaranty is released or otherwise terminated in accordance
with its terms.
B. Section 2.3(b)(i) of the Credit Agreement is hereby amended
by changing the figure of "$5,000,000" therein to "$8,000,000."
C. The Credit Agreement is hereby amended by adding a new
Section 4.3 to read as follows:
SECTION 4.3 CONDITIONS PRECEDENT TO LOANS AFTER APRIL 1, 1999.
The obligation of McKesson to make any Loan on or after April 1, 1999
shall be subject to
(a) McKesson's approval, which shall be in McKesson's sole
discretion, of Borrower's twelve month profitable operating plan for
the twelve months commencing January 1, 1999;
(b) The Warrant Purchase Agreement shall have been amended and
restated substantially in the form of Exhibit K hereto;
(c) Borrower shall have issued to McKesson a new Warrant under
the Warrant Purchase Agreement (as amended pursuant to clause (b)
above) for 101,500 shares of Borrower's Common Stock with an exercise
price of $5.71 per share in exchange for the cancellation of the
Warrant issued under the Warrant Purchase Agreement on July 2, 1998;
(d) Borrower shall have issued to McKesson a Warrant for
100,000 shares of Borrower's Common Stock in addition to those
described in clause (c) above but upon the same terms and conditions as
those described in clause (c) above; and
(e) Upon or promptly after McKesson's notice to Borrower that
the condition in clause (a) above has been met (the "Approval Notice"),
Borrower shall have issued a Warrant for 50,000 shares of Borrower's
Common Stock with an exercise price per share equal to the average
closing price on the American Stock Exchange of Borrower's Common Stock
for the five Business Day period commencing on the date on which
McKesson gives the Approval Notice and with a termination date on the
tenth anniversary of the date of the Approval Notice.
2.
<PAGE>
D. Section 5.3(e) of the Credit Agreement is hereby amended
and restated as follows:
(e) by the twentieth day of each calendar month, a completed
Borrowing Base Certificate as of the last day of the preceding
calendar month duly executed by the Treasurer or Chief
Financial Officer of Borrower; PROVIDED, HOWEVER, that,
notwithstanding the foregoing, effective 30 days after the
date on which Borrower has installed the McKesson Pharmacy
Systems Multi-Site Back Office System ("Host System"),
Borrower shall deliver each such completed Borrowing Base
Certificate duly executed by the Treasurer or Chief Financial
Officer of Borrower by no later than the tenth day of each
calendar month;
E. Section 5.3 of the Credit Agreement is hereby further
amended by adding a new clause (g) at the end thereof to read as follows:
(g) Within 45 days after the end of each fiscal quarter, an
inventory report as to the pharmaceutical inventory of
Borrower and its Subsidiaries as of the end of such fiscal
quarter.
F. Section 6.1(a) of the Credit Agreement is hereby amended by
adding the word "Permitted" before "Acquisition" in clause (ii) thereof.
G. Section 6.9(d) of the Credit Agreement is amended by adding
the word "Permitted" before "Acquisition" in the last line thereof.
H. Section 8.1 of the Credit Agreement is amended by adding
the following definitions in appropriate alphabetical order:
"BANK ONE FACILITY" has the meaning set forth in Section 1.9.
"GUARANTY FEE AMOUNT" means, on any date, a rate per annum
(greater than zero) equal to the difference between (i) the rate of interest
that would apply to the principal amount of the Loans outstanding hereunder on
such date (regardless of whether any such amounts are then outstanding
hereunder) MINUS (ii) the rate of interest that would apply to the principal
amount of indebtedness outstanding under the Bank One Facility on such date
(regardless of whether any such amounts are then outstanding under the Bank One
Facility).
"INDEMNIFICATION AGREEMENT" has the meaning set forth in
Section 1.9.
"MCKESSON GUARANTY" has the meaning set forth in Section 1.9.
I. The definition of "Loan Documents" in Section 8.1 of the
Credit Agreement is amended to add ", the Indemnification Agreement" after "the
Warrant Documents."
3.
<PAGE>
J. The definition of "Permitted Acquisition" in Section 8.1 of
the Credit Agreement is amended by inserting after the word "Borrower" in the
first line thereof the following:
(and, if after April 30, 1999, approved in writing by
McKesson)
K. The definition of "Permitted Guaranty" in Section 8.1 of
the Credit Agreement is amended by adding the word "Permitted" before
"Acquisition" in the last line thereof.
L. The definition of "Seller" in Section 8.1 of the Credit
Agreement is amended by adding the word "Permitted" before "Acquisition"
wherever that word appears in such definition.
M. Section 9.2(a) of the Credit Agreement is amended and
restated as follows:
If to Borrower:
HORIZON Pharmacies, Inc.
501 West Main Street
Denison, TX 75020
Attn: Chief Financial Officer
Facsimile: (903) 465-6769
with a copy to:
Jay H. Hebert, Esq.
Vinson & Elkins
2001 Ross, Suite 3700
Dallas, TX 75201
Facsimile: (214) 999-7745
N. The Credit Agreement is hereby amended to add Exhibits J
and K attached hereto as Exhibits to the Credit Agreement.
SECTION 2. LIMITED WAIVER
McKesson hereby gives a limited one-time waiver as to:
(a) Borrower's failure to comply with Section 2.3(b)(i) at any
time prior to the date of this Amendment;
(b) Borrower's failure to comply with the conditions of
Section 4.2(d) with regard to any Loan made on or prior to March 31,
1999;
(c) Borrower's failure to comply with Section 5.3(d) of the
Credit Agreement insofar as Borrower has failed to timely deliver a
completed Compliance Certificate for
4.
<PAGE>
the fiscal year ended December 31, 1998, duly executed by the Treasurer
or Chief Financial Officer of Borrower; PROVIDED that Borrower delivers
such completed and duly executed Compliance Certificate for the fiscal
year ended December 31, 1998, by no later than the Third Amendment
Date.
(d) Borrower's failure to comply with Section 5.3(e) of the
Credit Agreement with regard to the calendar month of April 1999 or any
prior calendar month, provided that (i) a completed Borrowing Base
Certificate as of the last day of April 1999 duly executed by the
Treasurer or Chief Financial Officer of Borrower be delivered to
McKesson by no later than May 20, 1999;
(e) Borrower's failure to comply with the requirements of
Section 5.9(b) of the Credit Agreement with respect to any fiscal
quarter ending on or before March 31, 1999;
(f) Borrower's failure to comply with the requirements of
Section 5.9(f) of the Credit Agreement with respect to any fiscal
quarter ending on or before March 31, 1999;
(g) Borrower's failure to comply with the requirements of
Section 5.9(g) of the Credit Agreement with respect to any fiscal
quarter ending on or before December 31, 1998; and
(h) The existence of a Material Adverse Change under Section
7.1(j) resulting from the loss of approximately $3,004,000 incurred by
Borrower during fiscal quarter ended December 31, 1998, and Borrower's
failure to comply with the conditions of Section 4.2(b) and 4.2(c) as a
result thereof.
SECTION 3. CONDITIONS TO EFFECTIVENESS
This Amendment shall become effective as of the first date (the "THIRD
AMENDMENT DATE") on or before May 18, 1999 upon which the following conditions
have been satisfied:
(i) Borrower and McKesson shall have delivered to one another
duly executed counterparts of this Amendment;
(ii) all the representations and warranties in Section 4 below
(after giving effect to any amendments to the Representation Certificate
delivered to McKesson prior to the date of this Amendment) shall be true and
correct as of the date of this Amendment;
(iii) no Default shall have occurred and be continuing on the
date of this Amendment (other than Defaults which are not the subject of the
limited waiver in Section 2 above which might occur under Section 5.9 of the
Credit Agreement with respect to the fiscal quarter ending March 31, 1999, as to
which Borrower currently makes no representation and McKesson gives no waiver in
this Amendment) or will result from the consummation of this Amendment (after
giving effect to this Amendment);
5.
<PAGE>
(iv) Borrower shall have executed and delivered UCC financing
statements satisfactory to McKesson for filing with appropriate officers of the
states of Illinois, Indiana and Kansas.
(v) Borrower and McKesson shall have executed and delivered to
one another the documentation concerning the Amended and Restated Warrant
Purchase Agreement and the Warrants described in clauses (b), (c) and (d) of
Section 4.3 of the Credit Agreement as added by this Amendment; and
(vi) Borrower shall have delivered to McKesson an opinion of
counsel, satisfactory to McKesson in form and substance, concerning the Amended
and Restated Warrant Purchase Agreement and the Warrants described in clauses
(b), (c) and (d) of Section 4.3 of the Credit Agreement as added by this
Amendment.
When and if this Amendment becomes effective, the amendments set forth in
Section 1 shall be deemed effective as of April 14, 1999.
SECTION 4. BORROWER'S REPRESENTATIONS AND WARRANTIES
In order to induce McKesson to enter into this Amendment, to amend the
Credit Agreement in the manner provided herein and to grant the waivers
contained herein, Borrower represents and warrants to McKesson that the
following statements are true, correct and complete:
A. CORPORATE POWER AND AUTHORITY. Borrower has all requisite
corporate power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Credit
Agreement as amended by this Amendment (the "AMENDED AGREEMENT").
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of
this Amendment and the performance of the Amended Agreement have been duly
authorized by all necessary corporate action on the part of Borrower.
C. NO CONFLICT. The execution and delivery by Borrower of this
Amendment does not and will not contravene (i) any law or any governmental rule
or regulation applicable to Borrower or any of its Subsidiaries, (ii) the
Certificate of Incorporation or Bylaws of Borrower, (iii) any order, judgment or
decree of any court or other agency of government binding on Borrower or any of
its Subsidiaries or (iv) any material agreement or instrument binding on
Borrower or any of its Subsidiaries.
D. GOVERNMENTAL CONSENTS. The execution and delivery by
Borrower of this Amendment and the performance by Borrower of the Amended
Agreement do not and will not require any registration with, consent or approval
of, or notice to, or other action to, with or by, any federal, state or other
governmental authority or regulatory body.
6.
<PAGE>
E. BINDING OBLIGATION. This Amendment and the Amended
Agreement have been duly executed and delivered by Borrower and are the binding
obligations of Borrower, enforceable against Borrower in accordance with their
respective terms, except in each case as such enforceability may be limited by
bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar
laws of general application and equitable principles relating to or affecting
creditors' rights.
F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT
AGREEMENT. The representations and warranties contained in Article III of the
Credit Agreement are and will be true, correct and complete in all material
respects on and as of the date of this Amendment to the same extent as though
made on and as of such date, except to the extent such representations and
warranties specifically relate to an earlier date, in which case they were true,
correct and complete in all material respects on and as of such earlier date.
G. ABSENCE OF DEFAULT. No event has occurred and is continuing
as of the date of this Amendment (other than Defaults which are not the subject
of the limited waiver in Section 2 above which might occur under Section 5.9 of
the Credit Agreement with respect to the fiscal quarter ending March 31, 1999,
as to which Borrower currently makes no representation and McKesson gives no
waiver in this Amendment) or will result from the consummation of the
transactions contemplated by this Amendment that would constitute a Default or
an Event of Default (as determined after giving effect to the amendments made by
this Amendment).
H. CASH AND CASH EQUIVALENTS. Borrower would not have been in
violation of Section 2.3(b)(i) at any time prior to the date of this Amendment
if the figure of "$5,000,000" contained in such section had read "$8,000,000."
I. PERMITTED LIENS. Each of the following UCC financing
statements evidences a security interest securing only indebtedness permitted
under Section 6.9(d) of the Credit Agreement (as amended by this Amendment):
<TABLE>
<CAPTION>
State File No. Secured Party
----- -------- -------------
<S> <C> <C>
New Mexico 981102069 Ronald Paynter
New Mexico 981207058 Kenn's Pharmacy, Inc.
Texas 95001121142 Econo RX, Inc.
Texas 9800155379 David DeVido
Texas 9800172367 Moore's Home Health Care, Inc.
Texas 9800177834 Borger Pharmacy, Inc.
</TABLE>
7.
<PAGE>
UCC Financing Statement 970903045 filed in New Mexico in favor of Checkpoint
Financial Services evidences a security interest in connection with a lease
permitted by Section 6.9(b) of the Credit Agreement. UCC Financing Statement
9700028567 filed in Texas in favor of Banker's Trust Company evidences a
security interest in connection with factoring arrangements with Pharmacy Fund
as to which all indebtedness has been paid by Borrower.
SECTION 5. RESERVATION OF RIGHTS
Borrower acknowledges and agrees that the execution and delivery by
McKesson of this Amendment shall not be deemed to create a course of dealing or
otherwise obligate McKesson to forebear or execute similar amendments under the
same or similar circumstances in the future.
SECTION 6. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement and the
Other Loan Agreements.
(i) On and after the Third Amendment Date, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import referring to the Credit Agreement, and each reference in
the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement shall mean and be a
reference to the Amended Agreement.
(ii) Except as specifically amended by this Amendment, the
Credit Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this
Amendment shall not, except as expressly provided herein, constitute a waiver of
any provision of, or operate as a waiver of any right, power or remedy of
McKesson under, the Credit Agreement or any of the other Loan Documents nor to
create any course of dealing or otherwise obligate McKesson to forebear or
execute similar amendments or any waiver in similar circumstances in the future.
B. COSTS AND EXPENSES. The Company covenants to pay to or
reimburse McKesson, upon demand, for all costs, out-of-pocket expenses and
reasonable attorneys' fees expended or incurred by McKesson in connection with
the development, preparation, negotiation, execution and delivery of this
Amendment and the documents and transactions contemplated hereby.
C. HEADINGS. Section and subsection headings in this Amendment
are included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
D. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
8.
<PAGE>
INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES.
E. COUNTERPARTS. This Amendment may be executed in any number
of counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. Each of
the parties hereto understands and agrees that this document (and any other
document required herein) may be delivered by any party thereto either in the
form of an executed original or an executed original sent by facsimile
transmission to be followed promptly by mailing of a hard copy original, and
that receipt by a party of a facsimile transmitted document purportedly bearing
the signature of the other party shall bind the other party with the same force
and effect as the delivery of a hard copy original. Any failure by a party to
receive the hard copy executed original of such document shall not diminish the
binding effect of receipt of the facsimile transmitted executed original of such
document of the other party.
F. RELATION TO APRIL 14 LETTER. This Amendment, among other
things, implements the provisions of Section 2 of that certain letter dated
April 14, 1999 between Borrower and McKesson (the "April 14 Letter"). In the
event of any inconsistency between this Amendment and Section 2 of the April 14
Letter, this Amendment shall govern.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
HORIZON PHARMACIES, INC.
By: /s/ John N. Stogner
------------------------------
Title: CFO/Treasurer
---------------------------
McKESSON HBOC, INC.,
FORMERLY KNOW AS
McKESSON CORPORATION
By: /s/ Alan Pearce
------------------------------
Title: Senior Vice President
Financial Services
---------------------------
9.
<PAGE>
ACKNOWLEDGMENT AND CONSENT OF GUARANTOR
The undersigned in its capacity as a guarantor under that
certain Guaranty dated as of July 2, 1998 made in favor of McKesson hereby (i)
acknowledges and consents to the execution, delivery and performance by Borrower
of the foregoing Third Amendment to Credit Agreement and Limited Waiver (the
"Amendment"), (ii) acknowledges that the undersigned's consent is being sought
purely as a protective measure and understands that the terms of the Credit
Agreement dated as of July 2, 1998 may be amended without prior notice to or
consent of the undersigned and without discharging or otherwise affecting the
liability of the undersigned under the Guaranty, and (iii) reaffirms that it
will continue to be bound by all of the provisions of the Guaranty and that such
Guaranty will remain in full force and effect notwithstanding the execution and
delivery by Borrower of the Amendment referred to above.
HORIZON HOME CARE, INC.
By: /s/ John N. Stogner
------------------------------
Its: CFO/Treasurer
-----------------------------
10.
<PAGE>
FOURTH AMENDMENT
TO CREDIT AGREEMENT
This FOURTH AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT")
is dated as of August 16, 1999 between HORIZON Pharmacies, Inc., a Delaware
corporation ("BORROWER"), and McKesson HBOC, Inc., a Delaware corporation
formerly known as McKesson Corporation ("MCKESSON").
RECITALS
WHEREAS, Borrower and McKesson are parties to that certain
Credit Agreement dated as of July 2, 1998, as amended by a First Amendment to
Credit Agreement dated as of July 20, 1998, a Second Amendment to Credit
Agreement dated as of August 26, 1998 and a Third Amendment to Credit Agreement
(the "THIRD AMENDMENT") dated as of May 14, 1999 (as so amended, the "CREDIT
AGREEMENT"). Capitalized terms used herein without definition shall have the
same meanings herein as set forth in the Credit Agreement.
WHEREAS, Borrower and McKesson wish to amend certain
provisions set forth in the Credit Agreement, upon the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the promises and the
agreements, provisions and covenants herein contained, the parties hereto agree
as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
A. Section 1.9 of the Credit Agreement is (as added by the
Third Amendment) hereby amended to read in full as follows:
SECTION 1.9 GUARANTY OF BANK FACILITY. If requested by
Borrower, McKesson will provide a guaranty to Bank One (the "McKesson
Guaranty") of up to $7,000,000 of indebtedness under an unsecured
revolving credit facility from Bank One to Borrower not in excess of
$7,000,000 (the "Bank One Facility"), subject to McKesson's reasonable
approval of the form of McKesson Guaranty and related documentation. If
the McKesson Guaranty is issued by McKesson, the figure "$15,000,000"
in Section 1.1(a) and in clause (i) of Section 1.8 above shall be
reduced by the maximum amount of the McKesson Guaranty and clause (ii)
of Section 1.1(a) shall be amended by adding at the end thereof:
LESS (E) the principal and interest outstanding under
the Bank One Facility.
1.
<PAGE>
As a condition to McKesson's issuing the McKesson Guaranty,
Borrower shall execute and deliver to McKesson an Indemnification
Agreement substantially in the form of Exhibit J hereto (the
"Indemnification Agreement") and the Security Documents shall be
amended as appropriate so that Borrower's obligations under the
Indemnification Agreement are secured under the terms of the Security
Documents. If the McKesson Guaranty is issued by McKesson, Borrower
agrees to pay to McKesson a guaranty fee on the maximum dollar amount
guaranteed under the McKesson Guaranty at a rate per annum equal to the
Guaranty Fee Amount, payable quarterly in arrears on the last Business
Day of each calendar quarter (commencing on the first such date after
the McKesson Guaranty is issued) and on the date the McKesson Guaranty
is released or otherwise terminated in accordance with its terms.
B. Section 8.1 of the Credit Agreement as hereby amended by
replacing the definition of "Permitted Acquisition" by the following:
"PERMITTED ACQUISITION" means the acquisition by a Borrower of
a retail pharmacy or pharmacies, durable medical equipment
and/or home medical equipment operations, intravenous infusion
operations, home healthcare agencies, closed door
institutional pharmacies, mail order pharmacies and other
pharmaceutical and healthcare related businesses (including in
each case, at such Borrower's option, the Rx Files thereof)
from an unaffiliated Person or Persons so long as such
business is located in the United States; PROVIDED THAT any
indebtedness by the Seller to McKesson is either assumed by
Borrower or paid as a condition to the closing of the
acquisition.
C. The Credit Agreement is hereby amended by substituting
Exhibit B attached hereto for Exhibit B to the Credit Agreement.
SECTION 2. CONDITIONS TO EFFECTIVENESS
This Amendment shall become effective as of the first date (the "FOURTH
AMENDMENT DATE") on or before August 25, 1999 upon which the following
conditions have been satisfied:
(i) Borrower and McKesson shall have delivered to one another
duly executed counterparts of this Amendment;
(ii) all the representations and warranties in Section 3 below
(after giving effect to any amendments to the Representation Certificate
delivered to McKesson prior to the date of this Amendment) shall be true and
correct as of the date of this Amendment; and
(iii) no Default shall have occurred and be continuing on the
date of this Amendment or will result from the consummation of this Amendment
(after giving effect to this Amendment).
2.
<PAGE>
When and if this Amendment becomes effective, the amendments set forth in
Section 1 shall be deemed effective as of the Fourth Amendment Date.
SECTION 3. BORROWER'S REPRESENTATIONS AND WARRANTIES
In order to induce McKesson to enter into this Amendment, to amend the
Credit Agreement in the manner provided herein and to grant the waivers
contained herein, Borrower represents and warrants to McKesson that the
following statements are true, correct and complete:
A. CORPORATE POWER AND AUTHORITY. Borrower has all requisite
corporate power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Credit
Agreement as amended by this Amendment (the "AMENDED AGREEMENT").
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of
this Amendment and the performance of the Amended Agreement have been duly
authorized by all necessary corporate action on the part of Borrower.
C. NO CONFLICT. The execution and delivery by Borrower of this
Amendment does not and will not contravene (i) any law or any governmental rule
or regulation applicable to Borrower or any of its Subsidiaries, (ii) the
Certificate of Incorporation or Bylaws of Borrower, (iii) any order, judgment or
decree of any court or other agency of government binding on Borrower or any of
its Subsidiaries or (iv) any material agreement or instrument binding on
Borrower or any of its Subsidiaries.
D. GOVERNMENTAL CONSENTS. The execution and delivery by
Borrower of this Amendment and the performance by Borrower of the Amended
Agreement do not and will not require any registration with, consent or approval
of, or notice to, or other action to, with or by, any federal, state or other
governmental authority or regulatory body.
E. BINDING OBLIGATION. This Amendment and the Amended
Agreement have been duly executed and delivered by Borrower and are the binding
obligations of Borrower, enforceable against Borrower in accordance with their
respective terms, except in each case as such enforceability may be limited by
bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar
laws of general application and equitable principles relating to or affecting
creditors' rights.
F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT
AGREEMENT. The representations and warranties contained in Article III of the
Credit Agreement are and will be true, correct and complete in all material
respects on and as of the date of this Amendment to the same extent as though
made on and as of such date, except to the extent such representations and
warranties specifically relate to an earlier date, in which case they were true,
correct and complete in all material respects on and as of such earlier date.
3.
<PAGE>
G. ABSENCE OF DEFAULT. No event has occurred and is continuing
as of the date of this Amendment or will result from the consummation of the
transactions contemplated by this Amendment that would constitute a Default or
an Event of Default (as determined after giving effect to the amendments made by
this Amendment).
SECTION 4. RESERVATION OF RIGHTS
Borrower acknowledges and agrees that the execution and delivery by
McKesson of this Amendment shall not be deemed to create a course of dealing or
otherwise obligate McKesson to forebear or execute similar amendments under the
same or similar circumstances in the future.
SECTION 5. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement and the
Other Loan Agreements.
(i) On and after the Fourth Amendment Date, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import referring to the Credit Agreement, and each reference in
the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement shall mean and be a
reference to the Amended Agreement.
(ii) Except as specifically amended by this Amendment, the
Credit Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this
Amendment shall not, except as expressly provided herein, constitute a waiver of
any provision of, or operate as a waiver of any right, power or remedy of
McKesson under, the Credit Agreement or any of the other Loan Documents nor to
create any course of dealing or otherwise obligate McKesson to forebear or
execute similar amendments or any waiver in similar circumstances in the future.
B. COSTS AND EXPENSES. The Company covenants to pay to or
reimburse McKesson, upon demand, for all costs, out-of-pocket expenses and
reasonable attorneys' fees expended or incurred by McKesson in connection with
the development, preparation, negotiation, execution and delivery of this
Amendment and the documents and transactions contemplated hereby.
C. HEADINGS. Section and subsection headings in this Amendment
are included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
D. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
4.
<PAGE>
INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES.
E. COUNTERPARTS. This Amendment may be executed in any number
of counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. Each of
the parties hereto understands and agrees that this document (and any other
document required herein) may be delivered by any party thereto either in the
form of an executed original or an executed original sent by facsimile
transmission to be followed promptly by mailing of a hard copy original, and
that receipt by a party of a facsimile transmitted document purportedly bearing
the signature of the other party shall bind the other party with the same force
and effect as the delivery of a hard copy original. Any failure by a party to
receive the hard copy executed original of such document shall not diminish the
binding effect of receipt of the facsimile transmitted executed original of such
document of the other party.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
HORIZON PHARMACIES, INC.
By: /s/ John N. Stogner
------------------------------
Title: CFO/Treasurer
---------------------------
McKESSON CORPORATION
By: /s/ Lincoln Walworth
------------------------------
Title: Assistant Treasurer
---------------------------
5.
<PAGE>
ACKNOWLEDGMENT AND CONSENT OF GUARANTOR
The undersigned in its capacity as a guarantor under that
certain Guaranty dated as of July 2, 1998 made in favor of McKesson hereby (i)
acknowledges and consents to the execution, delivery and performance by Borrower
of the foregoing Fourth Amendment to Credit Agreement (the "Amendment"), (ii)
acknowledges that the undersigned's consent is being sought purely as a
protective measure and understands that the terms of the Credit Agreement dated
as of July 2, 1998 may be amended without prior notice to or consent of the
undersigned and without discharging or otherwise affecting the liability of the
undersigned under the Guaranty, and (iii) reaffirms that it will continue to be
bound by all of the provisions of the Guaranty and that such Guaranty will
remain in full force and effect notwithstanding the execution and delivery by
Borrower of the Amendment referred to above.
HORIZON HOME CARE, INC.
By: /s/ John N. Stogner
-----------------------------
Its: CFO/Treasurer
-----------------------------
6.
<PAGE>
FIFTH AMENDMENT
TO CREDIT AGREEMENT
This FIFTH AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is
dated as of April 14, 2000 between HORIZON Pharmacies, Inc., a Delaware
corporation ("BORROWER"), and McKesson HBOC, Inc., a Delaware corporation
formerly known as McKesson Corporation ("MCKESSON").
RECITALS
WHEREAS, Borrower and McKesson are parties to that certain
Credit Agreement dated as of July 2, 1998, as amended by a First Amendment to
Credit Agreement dated as of July 20, 1998, a Second Amendment to Credit
Agreement dated as of August 26, 1998, a Third Amendment to Credit Agreement
dated as of May 14, 1999 and a Fourth Amendment to Credit Agreement dated as of
August 16, 1999 (as so amended, the "CREDIT AGREEMENT"). Capitalized terms used
herein without definition shall have the same meanings herein as set forth in
the Credit Agreement.
WHEREAS, Borrower and McKesson wish to amend certain
provisions set forth in the Credit Agreement, upon the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the promises and the
agreements, provisions and covenants herein contained, the parties hereto agree
as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
A. Section 1.1(a) of the Credit Agreement is hereby amended
to read in full as follows:
REVOLVING LOANS. McKesson agrees, on the terms and conditions
hereinafter set forth, to make revolving loans denominated in U.S.
Dollars (each a "REVOLVING LOAN" and, collectively, the "REVOLVING
LOANS") to Borrower from time to time on any Business Day during the
period from the Closing Date until the Revolving Loans Maturity Date,
in an aggregate principal amount up to but not exceeding at any time
outstanding the Revolving Facility Commitment; PROVIDED, HOWEVER, that
immediately after giving effect to any Revolving Loans, the aggregate
principal amount of Revolving Loans then outstanding shall not exceed
the lesser of (i) $8,000,000 and (ii) at any time, the sum of (without
duplication) (A) 70% of Eligible Pharmaceutical Inventory then in
effect, PLUS (B) 50% of Eligible Other Inventory then in effect, PLUS
(C) 85% of Eligible Insurer Accounts Receivable then in effect, PLUS
(D) 50% Eligible Other Accounts Receivable
1
<PAGE>
then in effect, PLUS (E) the Eligible Rx Files Value then in effect
(except that the Eligible Rx Files Value shall not be included during
the calendar year 2000) LESS (F) the principal and interest outstanding
under the Bank One Facility. Within the foregoing limits, during such
period Borrower may borrow Revolving Loans, repay the Revolving Loans
in whole or in part, and reborrow Revolving Loans, all in accordance
with the terms and conditions hereof.
If the Bank One Facility is not renewed prior to July 1, 2000
and no Event of Default has occurred and is continuing and Borrower is
in full compliance with Section 2.3(b)(ii) without regard to the
proviso contained therein, then McKesson shall negotiate with Borrower
with respect to an amendment of this Agreement to provide for McKesson
either (x) guarantying a replacement line of credit for the Bank One
Facility or (y) increasing the $8,000,000 limit set forth in clause (i)
of the preceding paragraph, in each case with McKesson's total credit
exposure under this Agreement and any guaranty of a replacement line of
credit not to exceed an amount in excess of $15,000,000, it being
understood that both parties reserve the right in their sole discretion
to place terms and conditions upon any such amendment.
B. Section 2.3(b)(ii) of the Credit Agreement as hereby
amended to read in full as follows:
If at any time the aggregate principal amount of the
outstanding Revolving Loans shall exceed the maximum borrowing limits
set forth in Section 1.1(a), Borrower, upon becoming aware of such
excess, shall immediately prepay the outstanding principal amount of
the Revolving Loans in an amount equal to such excess; provided that
any excess amount in existence as of April 6, 2000 shall not need to be
prepaid until September 30, 2000, provided that the Borrower shall
immediately apply as a mandatory prepayment to any such excess any
amount received by Borrower from (x) up to $5,000,000 of the net
proceeds of the issuance by Borrower or its Subsidiaries of any debt or
equity securities on or after April 6, 2000 and (y) up to $1,500,000 of
any funds received from Informed (less amounts received from Informed
used to bring Borrower into compliance with the terms of the Supply
Agreement as amended on March 30, 2000).
C. Section 4.2(d) of the Credit Agreement as hereby amended
to read in full as follows:
CERTAIN FINANCIAL TESTS. Borrower's ratio of Consolidated
EBITDA to Sales as at the last day of the fiscal quarter ended
immediately prior to the proposed Loan shall not be less than the ratio
set forth opposite such fiscal quarter:
2
<PAGE>
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING IN: RATIO
------------------------- -----
<S> <C>
any quarter in 1998 .02:1.0
any quarter in 1999 .02:1.0
March 2000 (.015:1.0)
June 2000 .01:1.0
September 2000 .03:1.0
December 2000 .035:1.0
any quarter in 2001 .035:1.0
any quarter in 2002 .035:1.0
any quarter in 2003 .035:1.0
</TABLE>
Numbers in parentheses are negative numbers. For the avoidance of
doubt, (12) is less than (10).
D. Section 5.9 of the Credit Agreement as hereby amended to
read in full as follows:
FINANCIAL CONDITION. Maintain the consolidated financial
condition of Borrower and its Subsidiaries according to the following
schedules:
(a) a minimum Current Ratio of 1.3:1.0 as at the end of each
fiscal quarter;
(b) a ratio of Consolidated EBITDA to Consolidated Interest
Expense as at the end of each fiscal quarter of not less than the ratio
set forth opposite such fiscal quarter:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING IN: RATIO
------------------------- -----
<S> <C>
any quarter in 1998 1.3:1.0
any quarter in 1999 1.3:1.0
March 2000 (0.9:1.0)
June 2000 0.5:1.0
September 2000 1.5:1.0
December 2000 2.0:1.0
any quarter in 2001 2.0:1.0
any quarter in 2002 2.0:1.0
any quarter in 2003 2.0:1.0
</TABLE>
(c) a minimum Net Worth as at the end of each fiscal quarter
of not less than (i) $12,700,000 PLUS (ii) 50% of cumulative quarterly
Consolidated Net Income (but not losses) after December 31, 1999 PLUS
(iii) 75% of the Net Cash Proceeds received by Borrower or any
Subsidiary from the sale or issuance of equity securities to any Person
after December 31, 1999;
3
<PAGE>
(d) a maximum ratio of (i) Debt of Borrower and its
Subsidiaries on a consolidated basis to (ii) Capital as at the end of
the fiscal quarter ending March 31, 2000 of not greater than 0.90:1.0,
as at the end of the fiscal quarter ending June 30, 2000 of not greater
than 0.85:1.0, and as at the end of any other fiscal quarter of not
greater than 0.75:1.0.
(e) a minimum Quick Ratio as at the end of each fiscal quarter
of not less than 0.4:1.0.
(f) a ratio of Consolidated EBIT to Consolidated Interest
Expense as at the end of each fiscal quarter set forth below of not
less than the ratio set forth opposite such fiscal quarter:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING IN: RATIO
------------------------- -----
<S> <C>
any quarter in 1998 0.8:1.0
any quarter in 1999 1.0:1.0
March 2000 (1.7:1.0)
June 2000 (0.3:1.0)
September 2000 0.85:1.0
December 2000 1.5:1.0
any quarter in 2001 1.5:1.0
any quarter in 2002 1.5:1.0
any quarter in 2003 1.5:1.0
</TABLE>
(g) a ratio of Consolidated EBITDA to Sales as at the end of
each fiscal quarter of not less than the ratio set forth opposite such
fiscal quarter:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING IN RATIO
------------------------ -----
<S> <C>
any quarter in 1998 0
any quarter in 1999 0
March 2000 (.015:1.0)
June 2000 .01:1.0
September 2000 .02:1.0
December 2000 .02:1.0
any quarter in 2001 .02:1.0
any quarter in 2002 .02:1.0
any quarter in 2003 .02:1.0
</TABLE>
E. Section 5.12 of the Credit Agreement is hereby amended by
correcting the reference to Section 5.14 in line 8 thereof to Section 5.12.
4
<PAGE>
F. Exhibit B to the Credit Agreement is hereby amended to
read in full as set forth on Exhibit B hereto.
SECTION 2. CONDITIONS TO EFFECTIVENESS
This Amendments set forth in Section 1 shall become effective as of the
first date (the "FIFTH AMENDMENT DATE") on or before April 18, 2000 upon which
the following conditions have been satisfied:
(i) Borrower and McKesson shall have delivered to one
another duly executed counterparts of this Amendment;
(ii) all the representations and warranties in Section 3
below (after giving effect to any amendments to the Representation Certificate
delivered to McKesson prior to the date of this Amendment) shall be true and
correct as of the date of this Amendment; and
(iii) no Default shall have occurred and be continuing on the
date of this Amendment or will result from the consummation of this Amendment
(after giving effect to this Amendment).
When and if this Amendment becomes effective, the amendments set forth in
Section 1 shall be deemed effective as of the Fifth Amendment Date.
SECTION 3. BORROWER'S REPRESENTATIONS AND WARRANTIES
In order to induce McKesson to enter into this Amendment, to amend the
Credit Agreement in the manner provided herein and to grant the waivers
contained herein, Borrower represents and warrants to McKesson that the
following statements are true, correct and complete:
A. CORPORATE POWER AND AUTHORITY. Borrower has all requisite
corporate power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Credit
Agreement as amended by this Amendment (the "AMENDED AGREEMENT").
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of
this Amendment and the performance of the Amended Agreement have been duly
authorized by all necessary corporate action on the part of Borrower.
C. NO CONFLICT. The execution and delivery by Borrower of
this Amendment does not and will not contravene (i) any law or any governmental
rule or regulation applicable to Borrower or any of its Subsidiaries, (ii) the
Certificate of Incorporation or Bylaws of Borrower, (iii) any order, judgment or
decree of any court or other agency of government binding on
5
<PAGE>
Borrower or any of its Subsidiaries or (iv) any material agreement or instrument
binding on Borrower or any of its Subsidiaries.
D. GOVERNMENTAL CONSENTS. The execution and delivery by
Borrower of this Amendment and the performance by Borrower of the Amended
Agreement do not and will not require any registration with, consent or approval
of, or notice to, or other action to, with or by, any federal, state or other
governmental authority or regulatory body.
E. BINDING OBLIGATION. This Amendment and the Amended
Agreement have been duly executed and delivered by Borrower and are the binding
obligations of Borrower, enforceable against Borrower in accordance with their
respective terms, except in each case as such enforceability may be limited by
bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar
laws of general application and equitable principles relating to or affecting
creditors' rights.
F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM
CREDIT AGREEMENT. The representations and warranties contained in Article III of
the Credit Agreement are and will be true, correct and complete in all material
respects on and as of the date of this Amendment to the same extent as though
made on and as of such date, except to the extent such representations and
warranties specifically relate to an earlier date, in which case they were true,
correct and complete in all material respects on and as of such earlier date.
G. ABSENCE OF DEFAULT. No event has occurred and is
continuing as of the date of this Amendment or will result from the consummation
of the transactions contemplated by this Amendment that would constitute a
Default or an Event of Default (as determined after giving effect to the
amendments made by this Amendment).
SECTION 4. RESERVATION OF RIGHTS
Borrower acknowledges and agrees that the execution and delivery by
McKesson of this Amendment shall not be deemed to create a course of dealing or
otherwise obligate McKesson to forebear or execute similar amendments under the
same or similar circumstances in the future.
SECTION 5. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement and the
Other Loan Agreements.
(i) On and after the Fifth Amendment Date, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import referring to the Credit Agreement, and each reference in
the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement shall mean and be a
reference to the Amended Agreement.
6
<PAGE>
(ii) Except as specifically amended by this Amendment, the
Credit Agreement and the other Loan Documents and the Supply Agreement
(including the Amendment to Supply Agreement dated March 30, 2000) shall remain
in full force and effect and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this
Amendment shall not, except as expressly provided herein, constitute a waiver of
any provision of, or operate as a waiver of any right, power or remedy of
McKesson under, the Credit Agreement or any of the other Loan Documents nor to
create any course of dealing or otherwise obligate McKesson to forebear or
execute similar amendments or any waiver in similar circumstances in the future.
B. COSTS AND EXPENSES. The Company covenants to pay to or
reimburse McKesson, upon demand, for all costs, out-of-pocket expenses and
reasonable attorneys' fees expended or incurred by McKesson in connection with
the development, preparation, negotiation, execution and delivery of this
Amendment and the documents and transactions contemplated hereby.
C. HEADINGS. Section and subsection headings in this
Amendment are included herein for convenience of reference only and shall not
constitute a part of this Amendment for any other purpose or be given any
substantive effect.
D. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
E. COUNTERPARTS. This Amendment may be executed in any number
of counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. Each of
the parties hereto understands and agrees that this document (and any other
document required herein) may be delivered by any party thereto either in the
form of an executed original or an executed original sent by facsimile
transmission to be followed promptly by mailing of a hard copy original, and
that receipt by a party of a facsimile transmitted document purportedly bearing
the signature of the other party shall bind the other party with the same force
and effect as the delivery of a hard copy original. Any failure by a party to
receive the hard copy executed original of such document shall not diminish the
binding effect of receipt of the facsimile transmitted executed original of such
document of the other party.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
7
<PAGE>
HORIZON PHARMACIES, INC.
By: /s/ Ricky D. McCord
-----------------------------------
Title: President and CEO
--------------------------------
McKESSON CORPORATION
By: /s/ Ana Schrank
-----------------------------------
Title: Director Financial SVCS
--------------------------------
8
<PAGE>
ACKNOWLEDGMENT AND CONSENT OF GUARANTOR
The undersigned in its capacity as a guarantor under that
certain Guaranty dated as of July 2, 1998 made in favor of McKesson hereby (i)
acknowledges and consents to the execution, delivery and performance by Borrower
of the foregoing Fifth Amendment to Credit Agreement (the "Amendment"), (ii)
acknowledges that the undersigned's consent is being sought purely as a
protective measure and understands that the terms of the Credit Agreement dated
as of July 2, 1998 may be amended without prior notice to or consent of the
undersigned and without discharging or otherwise affecting the liability of the
undersigned under the Guaranty, and (iii) reaffirms that it will continue to be
bound by all of the provisions of the Guaranty and that such Guaranty will
remain in full force and effect notwithstanding the execution and delivery by
Borrower of the Amendment referred to above.
HORIZON HOME CARE, INC.
By: /s/ John N. Stogner
-----------------------------------
Its: CFO / Treasurer
----------------------------------
9
<PAGE>
LIMITED WAIVER AND CONSENT
This LIMITED WAIVER AND CONSENT (this "LIMITED WAIVER") is
dated as of March 30, 2000 between HORIZON Pharmacies, Inc., a Delaware
corporation ("BORROWER"), and McKesson HBOC, Inc., a Delaware corporation
formerly known as McKesson Corporation ("MCKESSON").
RECITALS
WHEREAS, Borrower and McKesson are parties to that certain
Credit Agreement dated as of July 2, 1998, as amended from time to time (the
"CREDIT AGREEMENT"). Capitalized terms used herein without definition shall have
the same meanings herein as set forth in the Credit Agreement.
WHEREAS, Borrower has requested that McKesson grant Borrower a
one-time limited waiver of certain covenants set forth in the Credit Agreement
and in certain related documents and that McKesson consent to certain
transactions by Borrower, and McKesson is willing to do so upon the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the promises and the
agreements, provisions and covenants herein contained, the parties hereto agree
as follows:
SECTION 1. LIMITED WAIVER AND CONSENT
A. McKesson hereby gives a limited one-time waiver as to
Borrower's failure to comply with:
(i) Section 5.9(b) of the Credit Agreement for the fiscal
quarter ending December 31, 1999, provided that the ratio of Consolidated EBITDA
to Consolidated Interest Expense for such quarter is not less than a negative
11.5 to 1.0 (for the avoidance of any doubt, a negative 13.0 to 1.0 is less than
a negative 12.0 to 1.0);
(ii) Section 5.9(c) of the Credit Agreement for the fiscal
quarter ending December 31, 1999, provided that Net Worth as of the end of such
quarter is not less than $15,250,000;
(iii) Section 5.9(d) of the Credit Agreement for the fiscal
quarter ending December 31, 1999, provided that the ratio of Debt of Borrower
and its Subsidiaries on a consolidated basis to Capital for such quarter is not
greater than 0.8 to 1.0;
1.
<PAGE>
(iv) Section 5.9(f) of the Credit Agreement for the fiscal
quarter ending December 31, 1999, provided that the ratio of Consolidated EBIT
to Consolidated Interest Expense for such quarter is not less than a negative
12.3 to 1.0;
(v) Section 5.9(g) of the Credit Agreement for the fiscal
quarter ending December 31, 1999, provided that the ratio of Consolidated EBITDA
to Sales for such quarter is not less than a negative 1.9 to 1.0; and
(vi) Section 6.6 of the Credit Agreement resulting from the
Borrower's loans to Rick McCord, Charlie Herr and Robert Mueller on or about
September 30, 1999 in the aggregate amount of approximately $107,000 , provided
that all such loans were repaid to Borrower on or before November 15, 1999.
B. McKesson hereby consents to the Borrower's incurrence of
$5,000,000 in principal amount of indebtedness under that certain Convertible
Debenture Purchase Agreement (the "Debenture Agreement") dated on or about the
date hereof among Borrower, Advantage Fund II Ltd. and Koch Investment Group
Ltd. (the "Debenture Investors") and as anticipated by that certain letter
agreement dated on or about the date hereof among the parties to the Debenture
Agreement. Nothing in this Limited Waiver shall amend or waive McKesson's rights
under any provisions protecting against dilution in any Warrants issued to
McKesson (including but not limited to rights under Section 3 of the Warrants)
resulting from the issuance of the Debentures or the operation of any adjustment
to the Conversion Price (as those terms are defined in the Debenture Agreement).
C. McKesson hereby grants a limited one-time waiver under
Section 7.1(d) of the Credit Agreement with respect to Borrower's failure to pay
certain of the amounts due to McKesson under the Supply Agreement for periods
prior to March 15, 2000, provided that all such amounts due on or prior to March
15, 2000 are paid on or prior to June 1, 2000 (except for amounts subject to
disputes submitted to McKesson in writing prior to March 26, 2000) and that all
other amounts incurred under the Supply Agreement prior to the date hereof are
not delinquent as of the date hereof (except for amounts subject to disputes
submitted to McKesson in writing prior to March 26, 2000).
D. McKesson hereby waives its rights under Section 7.5 of the
Amended and Restated Warrant Purchase Agreement dated as of May 14, 1999 between
Borrower and McKesson (the "Warrant Purchase Agreement") to participate in the
offering of Borrower's Securities contemplated by Section 2 of the Registration
Rights Agreement among Borrower and the Debenture Investors dated as of even
date herewith (the "Debenture Registration Rights Agreement").
E. McKesson hereby gives a limited one-time waiver as to
Borrower's failure to comply with Section 7.9 of the Warrant Purchase Agreement
with respect to warrants issued to 5Net5 Corp., Informed.com, Inc. and K-2
Financial Corp. on or prior to March 15, 2000 (the last sentence of Section
7.9).
2.
<PAGE>
SECTION 2. CONDITIONS TO EFFECTIVENESS
This Limited Waiver shall become effective as of the first date upon
which the following conditions have been satisfied:
(i) Borrower and McKesson shall have delivered to one another
duly executed counterparts of this Limited Waiver;
(ii) all the representations and warranties in Section 3 below
(after giving effect to any amendments to the last Representation Certificate
delivered to McKesson prior to the date of this Limited Waiver) shall be true
and correct as of the date of this Limited Waiver;
(iii) no Default shall have occurred and be continuing on the
date of this Limited Waiver (other than Defaults which are the subject of the
waiver in Section 1 above);
(iv) Borrower and McKesson shall have executed and delivered
to one another a First Amendment to the Amended and Restated Warrant Purchase
Agreement as well as other ancillary documents related thereto in form and
substance satisfactory to McKesson;
(v) Borrower shall have issued to McKesson a Warrant for
10,000 shares of Borrower's Common Stock in addition to those described in
clause 4.3(c) of the Credit Agreement as set forth in the Warrant Purchase
Agreement;
(vi) Borrower shall have paid to McKesson a waiver fee in the
amount of $17,600; and
(vii) Borrower and McKesson shall have delivered to one
another a duly executed counterpart of an amendment to the Supply Agreement
substantially in the form of Exhibit A hereto.
SECTION 3. BORROWER'S REPRESENTATIONS AND WARRANTIES
In order to induce McKesson to enter into this Limited Waiver, Borrower
represents and warrants to McKesson that the following statements are true,
correct and complete:
A. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT
AGREEMENT. The representations and warranties contained in Article III of the
Credit Agreement are and will be true, correct and complete in all material
respects on and as of the date of this Limited Waiver to the same extent as
though made on and as of such date, except to the extent such representations
and warranties specifically relate to an earlier date, in which case they were
true, correct and complete in all material respects on and as of such earlier
date.
B. ABSENCE OF DEFAULT. No Event of Default has occurred and is
continuing as of the date of this Limited Waiver (other than Defaults which are
the subject of the waiver in Section 1 above).
3.
<PAGE>
SECTION 4. RESERVATION OF RIGHTS
Borrower acknowledges and agrees that the execution and delivery by
McKesson of this Limited Waiver shall not be deemed to create a course of
dealing or otherwise obligate McKesson to forebear or execute similar waivers
under the same or similar circumstances in the future.
SECTION 5. MISCELLANEOUS
A. Reference to and effect on the Credit Agreement and the
Other Loan Agreements.
(i) Except as specifically modified by this Limited Waiver,
the Credit Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
(ii) The execution, delivery and performance of this Limited
Waiver shall not, except as expressly provided herein, constitute a waiver of
any provision of, or operate as a waiver of any right, power or remedy of
McKesson under, the Credit Agreement or any of the other Loan Documents nor to
create any course of dealing or otherwise obligate McKesson to forebear or
execute similar waivers or any waivers in similar circumstances in the future.
B. COSTS AND EXPENSES. The Company covenants to pay to or
reimburse McKesson, upon demand, for all costs, out-of-pocket expenses and
reasonable attorneys' fees expended or incurred by McKesson in connection with
the development, preparation, negotiation, execution and delivery of this
Limited Waiver and the documents and transactions contemplated hereby.
C. HEADINGS. Section and subsection headings in this Limited
Waiver are included herein for convenience of reference only and shall not
constitute a part of this Limited Waiver for any other purpose or be given any
substantive effect.
D. APPLICABLE LAW. THIS LIMITED WAIVER SHALL BE GOVERNED BY,
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
E. COUNTERPARTS. This Limited Waiver may be executed in any
number of counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. Each of
the parties hereto understands and agrees that this document (and any other
document required herein) may be delivered by any party thereto either in the
form of an executed original or an executed original sent by facsimile
transmission to be followed promptly by mailing of a hard copy original, and
that receipt by a party of a facsimile transmitted document purportedly bearing
the signature of the other party shall bind the other party with the same force
and effect as the delivery of a hard copy original. Any failure by a party to
receive the hard copy executed original of such document shall not
4.
<PAGE>
diminish the binding effect of receipt of the facsimile transmitted executed
original of such document of the other party.
IN WITNESS WHEREOF, the parties hereto have caused this
Limited Waiver to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
HORIZON PHARMACIES, INC.
By: /s/ Ricky D. McCord
------------------------------------------------
Title: CEO & President
---------------------------------------------
McKESSON HBOC, INC.
By: /s/ Alan Pearce
------------------------------------------------
Title: Senior Vice President and Financial Services
---------------------------------------------
5.
<PAGE>
April 14, 2000
Horizon Pharmacies, Inc.
275 West Princeton Drive
Princeton, Texas 75407
Re: Loan Agreement dated July 31, 1999 (the "Loan Agreement")
between Horizon Pharmacies, Inc. ("Borrower") and Bank One,
Texas, National Association ("Bank"); capitalized terms used
in this letter shall have the same meaning as set forth in the
Loan Agreement
Ladies and Gentlemen:
Borrower has informed Bank that as of December 31, 1999 Borrower has
failed to comply with PARAGRAPH 7.(e) of the Loan Agreement. The failure to
comply with PARAGRAPH 7.(e) of the Loan Agreement constitutes an Event of
Default thereunder pursuant to PARAGRAPH 9.(b) thereof.
Borrower has also notified Bank that as of December 31, 1999 one or
more events of default have occurred with respect to obligations owing by
Borrower to McKesson HBOC, Inc. and Banc One Leasing Corporation. The occurrence
of such events of default constitute an Event of Default pursuant to PARAGRAPH
9.(e) of the Loan Agreement.
Borrower has requested that Bank waive the above described Events of
Default as of December 31, 1999. This letter confirms that Bank hereby waives
the Events of Default described above; PROVIDED that this waiver is expressly
limited as provided herein and all other requirements of the Loan Agreement,
including, without limitation, the requirement of Borrower to comply with
PARAGRAPH 7.(e) at all times and the Events of Default set forth in PARAGRAPH
9.(b) and PARAGRAPH 9.(e), shall remain in full force and effect.
The waiver contained in this letter shall be limited strictly as
written and shall not be deemed to constitute a waiver of, or any consent to
noncompliance with, any term or provision of the Loan Agreement except as
expressly set forth herein. Further, the waiver contained herein shall not
constitute a waiver of any future default or Event of Default that may occur
under the Loan Agreement. No delay or omission by Bank in exercising any power,
right, or remedy shall impair such power, right, or remedy or be construed as a
waiver thereof or an acquiescence therein, and no single or partial exercise of
any such power, right, or remedy shall preclude other or further exercise
1
<PAGE>
thereof or the exercise of any other power, right, or remedy under the Loan
Agreement, the other Loan Documents, or otherwise.
BANK ONE, TEXAS, NATIONAL
ASSOCIATION
By: /s/ Alan Miller
-----------------------------------
Alan Miller
Division Manager
ACKNOWLEDGED AND ACCEPTED:
- --------------------------
HORIZON PHARMACIES, INC.
By: /s/ John N. Stogner
---------------------
Name: JOHN N. STOGNER
-------------------
Title: CFO / Treasurer
------------------
2
<PAGE>
The undersigned hereby consents to Borrower and Bank entering into the
waiver described on the foregoing letter and agrees that the Guaranty, the
Tri-Party Agreement, and any other Loan Documents to which it is a party shall
remain in full force and effect and shall continue to be the legal, valid, and
binding obligation of the undersigned enforceable against it in accordance with
their respective terms.
AGREED AS OF THIS
14th DAY OF APRIL:
MCKESSON HBOC, INC.
By: /s/ Ana Schrank
----------------------------------
Name: Ana Schrank
--------------------------------
Title: Director - Financial Sevices
-------------------------------
3
<PAGE>
HORIZON PHARMACIES, INC.
1999 STOCK OPTION PLAN
1. PURPOSE. The purposes of the Plan are to enable the Company to
attract and retain the services of employees and directors and to provide them
with increased motivation and incentive to exert their best efforts on behalf
of the Company by enlarging their personal stake in the Company's success.
2. DEFINITIONS. As used in the Plan, the following definitions apply
to the terms indicated below:
"BOARD" means the Board of Directors of the Company.
"CHANGE IN CONTROL" means the occurrence of any of the following:
(i) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "Exchange
Act"), hereinafter an "Acquiring Person")) becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 promulgated under
the Exchange Act, hereinafter a "Beneficial Owner"), directly or
indirectly, of securities of the Company representing 25% or more
of the combined voting power of the Company's then outstanding
securities;
(ii) an Acquiring Person becomes the Beneficial Owner,
directly or indirectly of securities of the Company representing
10% or more of the combined voting power of the Company's then
outstanding securities and, during the two-year period commencing
at the time such Acquiring Person becomes the Beneficial Owner of
such securities, individuals who at the beginning of such period
constitute the Board cease for any reason to constitute at least a
majority thereof;
(iii) the Company's stockholders approve an agreement to
merge or consolidate the Company with another corporation (other
than a corporation 50% or more of which is controlled by, or is
under common control with, the Company) and, during the period
commencing six months before such approval and ending two years
after such approval, individuals who at the beginning of such
period constitute the Board cease for any reason to constitute at
least a majority thereof; and
(iv) during any two year period, individuals who at the date
on which the period commences constitute a majority of the Board
cease to constitute a majority thereof as a result of one or more
contested elections for positions on such Board.
<PAGE>
"COMMITTEE" means the committee appointed by the Board from time
to time to administer the Plan pursuant to Section 4 hereof.
"COMPANY" means HORIZON Pharmacies, Inc., a Delaware corporation.
"FAIR MARKET VALUE" of a Share on a given day means, if Shares are
listed on an established stock exchange or exchanges, the highest closing
sales price of a Share as reported on such stock exchange or exchanges; or if
not so reported, the average of the bid and asked prices, as reported on the
National Association of Securities Dealers Automated Quotation System. If the
price of a share shall not be so quoted, the Fair Market Value shall be
determined by the Committee taking into account all relevant facts and
circumstances.
"INCENTIVE STOCK OPTION" means an Option that qualified as an
incentive stock option within the meaning of Section 422 of the Code and which
is identified as an Incentive Stock Option in the agreement by which it is
evidenced.
"CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
"OPTION" means a right to purchase shares under the terms and
conditions of the Plan as evidenced by an option certificate in such form not
inconsistent with the Plan, as the Committee may adopt for general use or for
specific cases from time to time.
"NONQUALIFIED STOCK OPTION" means an Option that is not an
Incentive Stock Option and which is identified as a Nonqualified Stock Option
in the agreement by which it is evidenced.
"PARTICIPANT" means any employee or director eligible to
participate in the Plan under Section 5 hereof, to whom an Option is granted
under the Plan.
"PLAN" means the HORIZON Pharmacies, Inc. 1999 Stock Option Plan,
including any amendments to the Plan.
"SHARES" means shares of the Company's Common Stock, $.01 par
value, now or hereafter owned by the Company as treasury stock or authorized
but unissued shares of the Company's Common Stock, subject to adjustment as
provided in the Plan.
"SUBSIDIARY" means any corporation, now or hereafter existent, in
which the Company owns, directly or indirectly, stock comprising 50% or more
of the total combined voting power of all classes of stock of such corporation.
A-2
<PAGE>
3. PLAN ADOPTION AND TERM.
A. The Plan shall become effective upon its adoption by the
Board, and Options may be issued upon such adoption and from time to time
thereafter; provided, however, that the Plan shall be submitted to the
Company's stockholders f or their approval at the next annual meeting of
stockholders, or prior thereto at a special meeting of stockholders expressly
called for such purpose, or by a unanimous consent of all stockholders
executed in writing; and provided further, that the approval of the Company's
stockholders shall be obtained within 12 months of the date of adoption of the
Plan. If the Plan is not approved at the annual meeting or special meeting by
the affirmative vote of a majority of all shares entitled to vote upon the
matter, or by unanimous written consent of all stockholders, then the Plan and
all Options then outstanding shall forthwith automatically terminate and be of
no force and effect.
B. Subject to the provisions hereinafter contained relating to
amendment or discontinuance, the Plan shall continue in effect for 10 years
from the date of its adoption by the Board. No Option may be granted hereunder
after such 10-year period.
4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee, consisting of not less than two persons, who shall be directors of
the Company, who shall not be employees of the Company, and who shall be
appointed by the Board to serve at the pleasure of the Board. Except as
otherwise expressly provided in the Plan, the Committee shall have sole and
final authority to interpret the provisions of the Plan and the terms of any
Option issued under it and to promulgate and interpret such rules and
regulations relating to the Plan and Options as it may deem necessary or
desirable for the administration of the Plan. Without limiting the foregoing,
the Committee shall, subject to Section 6 and to the extent and in the manner
contemplated herein, determine who shall receive Options under the Plan and
how many Shares shall be subject to each such Option. The Committee shall
report to the Board the names of those granted Options and the terms and
conditions of each Option granted by it. The Committee may correct any defect
in the Plan or any Option in the manner and to the extent it shall deem
expedient to carry the Plan into effect and shall be the sole and final judge
of such expediency.
No member of the Committee shall be liable for any action taken or
omitted or any determination made by him in good faith relating to the Plan,
and the Company shall indemnify and hold harmless each member of the Committee
and each other director or employee of the Company to whom any duty or power
relating to the administration or interpretation of the Plan has been
delegated against any cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim with the approval of the
Committee) arising out of any act or omission in connection with the Plan,
unless arising out of such person's own fraud or bad faith.
5. ELIGIBILITY. The employees and directors of the Company and its
Subsidiaries, who, in the opinion of the Committee, have a capacity for
contributing in a substantial measure to the
A-3
<PAGE>
success of the Company and its Subsidiaries, shall be eligible to participate
in the Plan. No options intended to qualify as Incentive Stock Options shall
be granted under the Plan to any person who, before or after the grant or
exercise of any Option, owns or would own, directly or indirectly, more than
10% of the total combined voting power of all classes of stock of the Company,
or its parent or any Subsidiary, or who is not an employee or director of the
Company.
6. STOCK SUBJECT TO THE PLAN. Subject to adjustment as provided in
Section 13 hereof, Options may be granted pursuant to the Plan with respect to
a number of shares that, in the aggregate, does not exceed Six Hundred
Thousand (600,000) Shares.
7. OPTIONS.
A. All Options granted under the Plan shall be clearly
identified either as Incentive Stock Options or as Nonqualified Stock Options.
All Options granted under the Plan shall be evidenced by agreements in such
form, not inconsistent with the Plan, as the Committee may adopt for general
use or for specific use from time to time. An Option shall be deemed "granted"
under the Plan on the date on which the Committee, by appropriate action,
awards the Option to a Participant, or on such subsequent date as the
Committee may designate.
B. (i) The aggregate Fair Market Value of Shares with respect to
which Incentive Stock Options granted under the Plan are exercisable for the
first time by a Participant during any calendar year under the Plan and any
other stock option plan of the Company (and its parent and subsidiary
corporations as those terms are used in Section 422 of the Code) shall not
exceed $100,000. Such Fair Market Value shall be determined as of the date on
which each such Incentive Stock Option is granted. To the extent that the
aggregate Fair Market Value of Shares with respect to such Incentive Stock
Options exceeds $100,000, such Incentive Stock Options shall be treated as
Nonqualified Options, but all other terms and provisions of such Incentive
Stock Options shall remain unchanged.
(ii) Subparagraph (i) of this Paragraph B shall be applied by
taking Options into account in the order in which they were granted.
8. OPTION PRICE. The price per share at which Shares may be purchased
pursuant to any Option granted under the Plan shall be not less than 100% of
the Fair Market Value of a Share on the date the Option is granted.
9. DURATION OF OPTIONS. No Option granted hereunder shall be
exercisable after the expiration of 10 years from the date such Option was
granted. All Options shall be subject to earlier termination as provided
elsewhere in the Plan.
10. CONDITIONS RELATING TO EXERCISE OF OPTIONS.
A-4
<PAGE>
A. The Board may, at its discretion, provide that an Option may
not be exercised in whole or in part for any period or periods of time
specified in the Option agreement. Except as provided in the Option agreement,
an Option may be exercised in whole or in part at any time during its term. No
Option may be exercised for a fractional share of stock.
B. No Option shall be transferable by a Participant otherwise
than by will or the laws of descent and distribution and Options shall be
exercisable during the lifetime of a Participant only by such Participant.
C. An Option shall be exercised by the delivery to the Company
of a written notice signed by the Participant, which specifics the number of
Shares with respect to which the Option is being exercised and the date of the
proposed exercise. Such notice shall be delivered to the Company's principal
office, to the attention of its Secretary, no less than three business days in
advance of the date of the proposed exercise and shall be accompanied by the
applicable option certificate evidencing the Option. A Participant may
withdraw such notice at any time prior to the close of business on the
proposed date of exercise, in which case the option certificate evidencing the
Option shall be returned to the Participant.
D. Payment for Shares purchased upon exercise of an Option shall
be made at the time of exercise either in cash, by certified check or bank
cashier's check or in Shares owned by the Participant and valued at their Fair
Market Value on the date of exercise, or partly in Shares with the balance in
cash or by certified check or bank cashier's check. Any payment in Shares
shall be effected by their delivery to the Secretary of the Company, endorsed
in blank or accompanied by stock powers executed in blank.
E. Certificates for Shares purchased upon exercise of Options
shall be issued and delivered as soon as practicable following the date the
Option is exercised. Certificates for Shares purchased upon exercise of
Options shall be issued in the name of the Participant.
F. Notwithstanding any other provision in the Plan, no Option
may be exercised unless and until the shares to be issued upon the exercise
thereof have been registered under the Securities Act of 1933 and applicable
state securities laws, or are, in the opinion of counsel to the Company,
exempt from such registration. Prior to the occurrence of a change in Control,
the Company shall not be under any obligation to register under applicable
federal or state securities laws any Shares to be issued upon the exercise of
an Option granted hereunder, or to comply with an appropriate exemption from
registration under such laws in order to permit the exercise of an Option and
the issuance and sale of the Shares subject to such Option. If the Company
chooses to comply with such an exemption from registration, the shares issued
under the Plan may, at the discretion of the Committee, bear an appropriate
restrictive legend restricting the transfer or pledge of the Shares
represented thereby, and the Committee may also give appropriate stop-transfer
instructions to the transfer agent to the Company. On or after the occurrence
of a Change in Control,
A-5
<PAGE>
the Company shall be under an obligation to register under applicable Federal
or state securities law any Shares to be issued upon the exercise of an Option
granted hereunder, or to comply with an appropriate exemption from
registration under state or Federal securities laws in order to permit the
exercise of an Option and the issuance and sale of the Shares subject to such
Option.
G. Any person exercising an Option or transferring or receiving
Shares shall comply with all regulations and requirements of any governmental
authority having jurisdiction over the issuance, transfer, or sale of capital
stock of the Company, and as a condition to receiving any Shares, shall
execute all such instruments as the Company in its sole discretion may deem
necessary or advisable.
H. Notwithstanding Paragraph A of this Section 10, the Committee
may, in its sole discretion, accelerate the date on which any Option granted
under the Plan, and outstanding at such time, shall became exercisable.
I. Notwithstanding Paragraph A of this Section 10, upon the
occurrence of a Change in Control any Option granted under the Plan and
outstanding at such time shall become fully and immediately exercisable and
shall remain exercisable until its expiration or termination as provided in
the Plan.
J. In the event of termination of a Participant's employment by
reason of such Participant's retirement in accordance with an applicable
retirement plan, any outstanding Option held by such Participant shall be or
immediately become fully exercisable as to the total number of Shares subject
thereto (whether or not exercisable to that extent prior to termination of
employment) and shall remain so exercisable but only for a period of three
months after commencement of such retirement, at the end of which time it
shall terminate (unless such Option expires earlier by its terms).
K. In the event of termination of a Participant's employment by
reason of such Participant's disability within the meaning of Section 22(e)(3)
of the Code, any outstanding Option held by such Participant shall be or
immediately become fully exercisable as to the total number of Shares subject
thereto (whether or not exercisable to that extent prior to termination of
employment) and shall remain so exercisable but only for a period of one year
after termination of employment for such disability, at the end of which time
it shall terminate (unless such Option expires earlier by its terms).
L. In the event of the death of any Participant (including death
during an approved leave of absence or following a Participant's retirement or
disability, any Option then held by him which shall not have lapsed or
terminated prior to his death shall be or immediately become fully exercisable
by the executors, administrators, legatees, or distributees of his estate, as
may be appropriate, as to the total number of Shares subject thereto (whether
or not exercisable to that extent
A-6
<PAGE>
at the time of death) and shall remain so exercisableb ut only for a period of
one year after death, at the end of which time it shall terminate (unless such
Option expires earlier by its terms).
M. In the event of the termination of the Participant's
employment otherwise than as described in paragraphs J, K and L, any
outstanding Option held by such Participant shall be exercisable to the extent
exercisable at the time of such termination and remain so exercisable for a
period of 30 days following such termination. Whether an authorized leave of
absence, or absence in military or government service, shall constitute
termination of employment shall be determined by the Committee.
11. NO EMPLOYMENT RIGHTS. Nothing contained in the Plan or any Option
shall confer upon any Participant any right with respect to the continuation
of his employment by the Company or interfere in any way with the right of the
Company, subject to the terms of any separate employment agreement to the
contrary, at any time to terminate such employment or to increase or decrease
the compensation of the Participant from the rate in existence at the time of
the grant of an Option.
12. RIGHTS OF A STOCKHOLDER. No person shall have any rights with
respect to any Shares covered by or relating to any grant hereunder of an
Option until the date of issuance of a certificate to him evidencing such
shares. Except as otherwise expressly provided in the Plan, no adjustment to
any Option shall be made for dividends or other rights for which the record
date occurs prior to the date such certificate is issued.
13. ADJUSTMENT UPON CHANGES IN CAPITAL STOCK.
A. If the capital stock of the Company shall be subdivided or
combined, whether by reclassification, stock dividend, stock split, reverse
stock split or other similar transaction, then the number of shares authorized
under the Plan, the number of shares then subject to or relating to
unexercised Options granted hereunder and the exercise price per Share will be
adjusted proportionately. A stock dividend shall be treated as a subdivision
of the whole number of shares equal to such whole number of shares so
outstanding plus the number of Shares issued as a stock dividend.
B. In the case of any capital reorganization or any
reclassification of the capital stock of the Company (except pursuant to a
transaction described in Paragraph A of this Section 13) (a "Reorganization"),
appropriate adjustment may be made by the Committee in the number and class of
shares authorized to be issued under the Plan and the number and class of
shares subject to or relating to Options awarded under the Plan and
outstanding at the time of such Reorganization.
A-7
<PAGE>
C. Each Participant will be notified of any adjustment made
pursuant to this Section 13 and any such adjustment, or the failure to make
such adjustment, shall be binding on the Participant.
D. Except as expressly set forth herein, the number and kind of
Shares subject to Options, shall not be affected by any transaction
(including, without limitation, any merger, recapitalization, stock split,
stock dividend, issuance of stock or similar transaction) affecting the
capital stock of the Company and no Participant shall be entitled to any
additional Options on account thereof.
14. WITHHOLDING TAXES.
A. Whenever Shares are to be issued upon the exercise of an
Option, the Company shall have the right to require the Participant to remit
to the Company in cash an amount sufficient to satisfy Federal, state and
local withholding tax requirements, if any, prior to the delivery of any
certificate or certificates for such shares.
B. Notwithstanding Paragraph A of this Section 14, at the
election of a Participant, subject to the approval of the Committee, when
shares are to be issued upon the exercise of an Option, the Participant may
tender to the Company a number of Shares, or the Company shall withhold a
number of such shares, the Fair Market Value of which is sufficient to satisfy
the Federal, state and local tax requirements, if any, attributable to such
exercise or occurrence. The Committee hereby grants its approval to any
election made pursuant to this Paragraph B, but reserves the right, in its
absolute discretion, to withdraw such approval in case of any such election
effective upon its delivery of notice thereof to the Participant.
C. Notwithstanding Paragraph E of Section 10 hereof, if a
Participant subject to the provisions of Section 16(b) of the Exchange Act who
has not made an election pursuant to Section 83(b) of the Code, makes an
election described in Paragraph B of this Section 14 to have Shares withheld
with respect to an Option, then the Company shall hold as custodian for the
Participant certificates evidencing the total number of Shares required to be
issued pursuant to the exercise of the Option until the expiration of six
months following the date of such exercise. Upon the expiration of such
six-month period, the Company shall deliver to such Participant certificates
evidencing such Shares minus a number of such Shares, the Fair Market Value of
which on the date on which such period expires is sufficient to satisfy the
Federal, state and local tax requirements attributable to such exercise.
D. Notwithstanding any other provisions of the Plan, an
individual who is subject to Section 16(b) of the Exchange Act, may not make
either of the elections described in Paragraph B of this Section 14 prior to
the expiration of six months after the date on which the applicable Option was
granted. Such elections must be made either (i) during the 10-day window
period described in
A-8
<PAGE>
Section (e)(3)(iii) of Rule 16b-3 promulgated under such Section 16(b) of the
Exchange Act, or (ii) at least six months prior to the date as of which the
income attributable to the exercise of the related Option is recognized under
the Code. Such elections shall be irrevocable and shall be made by the
delivery to the Company's principal office, to the attention of its Secretary,
of a written notice signed by Participant.
15. AMENDMENT OF THE PLAN.
A. The Board may at any time and from time to time suspend,
discontinue, modify or amend the Plan in any respect whatsoever except that
the Board may not suspend, discontinue, modify or amend the Plan so as to
adversely affect the rights of a Participant with respect to any grants that
have theretofore been made to such Participant without such Participant's
approval.
B. No amendment to or modification of the Plan which (i)
materially increases the benefits accruing to Participants; (ii) except as
provided in Sections 6 and 13 hereof, increases the number of Shares that may
be issued under the Plan; or (iii) modifies the requirements as to eligibility
for participation under the Plan shall be effective without stockholder
approval.
16. MISCELLANEOUS.
A. It is expressly understood that the Plan grants powers to the
Committee but does not require their exercise nor shall any person, by reason
of the adoption of the Plan, be deemed to be entitled to the grant of any
Option; nor shall any rights be deemed to accrue under the Plan except as
Options may be granted hereunder.
B. All rights hereunder shall be governed by and construed in
accordance with the laws of Delaware.
C. All expenses of the Plan, including the cost of maintaining
records, shall be borne by the Company.
Approved by the Board of Directors March 24, 1999; Adopted by the
Stockholders June 28, 1999.
A-9
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
STATE OF
INCORPORATION
ENTITY NAME OR ORGANIZATION
- ----------------------------------------- ---------------------------------
<S> <C>
HORIZON HOME CARE, Inc. Texas
HorizonScripts.com Inc. Texas
Jones Low Priced Drugs, Inc. Delaware
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-40533) pertaining to the HORIZON Pharmacies, Inc. 1997 Stock Option
Plan, the Registration Statement (Form S-8 No. 333-43607) pertaining to the
HORIZON Pharmacies, Inc. 401(k) Plan and the Registration Statement (Form S-8
No. 333-62805) pertaining to the HORIZON Pharmacies, Inc. 1998 Stock Option Plan
of our report dated March 31, 2000, except for the third paragraph of Note 7(A)
as to which the date is April 14, 2000, with respect to the consolidated
financial statements and schedule of HORIZON Pharmacies, Inc. included in the
Annual Report (Form 10-K) for the year ended December 31, 1999.
/s/ ERNST & YOUNG LLP
Oklahoma City, Oklahoma
April 14, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,638
<SECURITIES> 0
<RECEIVABLES> 12,392
<ALLOWANCES> 642
<INVENTORY> 23,522
<CURRENT-ASSETS> 38,217
<PP&E> 7,007
<DEPRECIATION> 1,057
<TOTAL-ASSETS> 59,831
<CURRENT-LIABILITIES> 23,646
<BONDS> 20,935
0
0
<COMMON> 59
<OTHER-SE> 15,191
<TOTAL-LIABILITY-AND-EQUITY> 59,831
<SALES> 131,756
<TOTAL-REVENUES> 131,756
<CGS> 96,918
<TOTAL-COSTS> 137,604
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,198
<INTEREST-EXPENSE> 1,898
<INCOME-PRETAX> (7,548)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,548)
<EPS-BASIC> (1.30)
<EPS-DILUTED> (1.30)
</TABLE>
