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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
HORIZON PHARMACIES, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 5912 75-2441557
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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531 W. MAIN
DENISON, TEXAS 75020
(903) 465-2397
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
RICKY D. MCCORD
HORIZON PHARMACIES, INC.
531 W. MAIN
DENISON, TEXAS 75020
(903) 465-2397
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
JAY H. HEBERT
VINSON & ELKINS L.L.P.
3700 TRAMMELL CROW CENTER
2001 ROSS AVENUE
DALLAS, TEXAS 75201-2975
(214) 220-7700
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per
share................................ 1,437,500 shares $3.09(2) $4,441,875(2) $1,235(2)
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee.
(2) Calculated in accordance with Rule 457(c) under the Securities Act of 1933
using the average of the high and low sales prices of the Common Stock of
the Registrant on April 27, 2000, as reported on the American Stock
Exchange.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE>
1,437,500 SHARES OF COMMON STOCK
HORIZON PHARMACIES, INC.
531 W. MAIN
DENISON, TEXAS 75020
(903) 465-2397
------------------------
This prospectus relates to the offer and sale by the selling stockholder
identified in this prospectus of up to 1,437,500 shares of our common stock. We
are not selling any shares of our common stock in this offering, and we will not
receive any proceeds from the sale. The selling stockholder and any of its
pledgees, assignees and successors-in-interest may, from time to time, sell any
or all of its shares of our common stock on any stock exchange, market or
trading facility on which the shares are traded or in private transactions.
These sales may be at fixed or negotiated prices. The selling stockholder may
use one or more of certain methods when selling shares of our common stock, as
more fully described herein under "Plan of Distribution."
The selling stockholder can acquire the shares of our common stock covered
by this prospectus pursuant to warrants and convertible debentures, a form of
each of which is included as an exhibit to the registration statement of which
this prospectus forms a part, issued by us in a private placement. In connection
with the private placement, we agreed to register the shares of our common stock
covered by this prospectus.
The selling stockholder, together with any affiliate thereof, may not
beneficially own in excess of 4.999%, pursuant to a conversion of debentures,
and 9.999%, pursuant to an exercise of warrants, of the outstanding shares of
our common stock. Such restrictions may be waived by the selling stockholder as
to itself upon not less than 61 days' notice to us.
Our common stock is quoted on the American Stock Exchange under the symbol
"HZP." On April 27, 2000, the last reported sale price for our common stock on
the American Stock Exchange was $3.00.
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INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 2.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SHARES OF STOCK OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this prospectus is April 28, 2000
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TABLE OF CONTENTS
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PAGE
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Risk Factors................................................ 2
Forward-Looking Statements.................................. 7
Use of Proceeds............................................. 7
Description of Capital Stock................................ 8
Selling Stockholder......................................... 9
Plan of Distribution........................................ 10
Legal Matters............................................... 10
Experts..................................................... 11
Where You Can Find More Information......................... 11
</TABLE>
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ADDITIONAL INFORMATION AND OUR FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1999 AND NOTES TO THE FINANCIAL STATEMENTS IS INCORPORATED IN THIS
PROSPECTUS BY REFERENCE TO OUR REPORTS FILED WITH THE SEC. SEE "WHERE YOU CAN
FIND MORE INFORMATION." YOU ARE URGED TO READ THIS PROSPECTUS, INCLUDING THE
"RISK FACTORS," AND OUR SEC REPORTS IN THEIR ENTIRETY. ALL REFERENCES TO
"HORIZON," "THE COMPANY," "WE," "US," OR "OUR," MEAN HORIZON PHARMACIES, INC.,
AND ITS SUBSIDIARIES.
RISK FACTORS
The value of an investment in HORIZON will be subject to the significant
risks inherent in our business. You should consider carefully the risks and
uncertainties described below and the other information included in this
prospectus before you decide to purchase any shares of our common stock. The
occurrence of any one or more of the risks or uncertainties described below
could have a material adverse effect on our financial condition, results of
operations and cash flows. Additionally, further discussion of these risk
factors and other risks may be found in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business"
sections of our Form 10-K dated April 14, 2000, incorporated into this
prospectus by reference.
WE ARE PURSUING A NEW BUSINESS THAT WE HAVE NOT PREVIOUSLY OPERATED. WE MAY NOT
BE ABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS STRATEGY OR CORRECT OUR HISTORY
OF LOSSES.
We historically have operated retail pharmacy stores and have sustained
substantial operating and net losses from these operations. While we plan to
maintain and grow most of our existing retail pharmacy stores for the
foreseeable future, the principal focus of our business strategy is to expand
our Internet pharmacy operations. We also intend to increase our capital
expenditures to develop our Internet pharmacy operations. As a result, we
anticipate that our net and operating losses will continue unless we
successfully implement our business strategy. We cannot assure you that we can
develop, market and expand our Internet pharmacy operations to the extent
necessary to successfully compete in the Internet pharmacy industry.
WE MAY NOT BE ABLE TO OBTAIN THE ADDITIONAL FINANCING NECESSARY TO IMPLEMENT OUR
BUSINESS STRATEGY ON SATISFACTORY TERMS AND CONDITIONS.
To implement our long-term business strategy, we will need additional
capital for capital expenditures, operating expenses for development and
acquisition costs, including debt that may be assumed in future acquisitions. We
plan to finance these activities by debt or equity financings, secured or
unsecured credit facilities, joint ventures or other arrangements. We cannot
assure you that we will be able to obtain the financing we will need to fund the
implementation of our business strategy on satisfactory terms and conditions, if
at all. If we incur additional debt, we may have to dedicate a substantial
portion of our cash flow from operations to the payment of principal and
interest, which may cause us to be more vulnerable to competitive pressures and
economic downturns. If we fail to obtain additional financing in a timely manner
and on acceptable terms, our results of operations may be materially adversely
affected.
WE DEPEND IN PART UPON ACQUISITIONS FOR OUR CONTINUED GROWTH.
Our growth strategy depends in part upon our ability to continue to acquire,
consolidate and operate existing free-standing pharmacies on a profitable basis.
However, no assurance can be given that we will be able to find attractive
acquisition candidates, consummate additional acquisitions or that we will
successfully integrate, convert or operate any acquired business. In the event
that we make acquisitions, any acquisition expenses may have a material adverse
effect upon our operating results, particularly during the period in which those
operations are being integrated into the Company. Furthermore, our ability to
make acquisitions may depend upon our ability to obtain financing. There can be
no assurance that we will be able to obtain financing or, if available, that
financing will be on
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acceptable terms. We will compete for acquisition candidates with buyers who
have greater financial and other resources than we have and may be able to pay
higher acquisition prices than us. To the extent we are unable to acquire
suitable retail pharmacies, or to integrate such acquisitions successfully, our
ability to expand our business would be reduced significantly.
WE ARE DEPENDENT UPON SALES TO THIRD-PARTY PAYORS.
A growing percentage of our prescription drug volume has been accounted for
by sales to customers who are covered by third-party payment programs. It is
anticipated that prescription sales to third-party payors, in terms of both
dollar volume and as a percentage of total prescription sales, will continue to
increase. Although contracts with third-party payors may increase the volume of
prescription sales and gross profits, third-party payors typically negotiate
lower prescription prices than those of non third-party payors. Accordingly, our
gross profit margins on sales of prescription drugs has decreased from
historical levels and we expect this trend to continue in future periods.
WE ARE DEPENDENT UPON MEDICARE AND MEDICAID REIMBURSEMENTS.
Substantially all of our home healthcare revenues are attributable to
third-party payors, including Medicare and Medicaid, private issuers, managed
care plans and HMOs. The amounts received from government programs and private
third-party payors are dependent upon the specific benefits included under the
program or the patient's insurance policies. Like other medical service
providers, we are subject to lengthy reimbursement delays as a result of
third-party payment procedures. Substantial delays in reimbursement could
adversely affect our business, financial condition, cash flows and results of
operations. Accordingly, management of accounts receivable through effective
billing and reimbursement procedures is critical to our results of operations.
Alternate site healthcare is generally less costly to third-party payors
than hospital-based care. Therefore, alternate site healthcare providers have
generally benefited from cost containment initiatives aimed at reducing the
costs of medical care. However, as the alternate site market becomes a larger
percentage of the total healthcare market, cost containment initiatives aimed at
reducing the costs of delivering services at non-hospital sites are increasing
and may adversely affect the profitability of alternate site healthcare
providers. A significant reduction in the coverage or payment rates of third-
party payors, or from patients enrolled in the Medicare or Medicaid programs,
would have a material adverse effect on our revenues and profitability. Further,
our revenues and profitability, like those of other healthcare companies, are
affected by the continuing efforts of third-party payors to contain or reduce
the costs of healthcare by lowering reimbursement rates, increasing case
management review of services and negotiating reduced contract pricing.
Government reimbursement programs are subject to statutory and regulatory
changes, retroactive rate adjustments, administrative rulings and governmental
funding restrictions, all of which may materially increase or decrease the rate
of program payments to us for our services. In addition to being subject to
frequent changes in federal and state laws governing Medicare and Medicaid
coverage and reimbursement policies, we are subject to governmental audit of the
reimbursements we receive under the Medicare and Medicaid programs. Any
significant audit adjustments could have a material adverse effect on our
business, financial condition, cash flows or results of operations. There can be
no assurance that payments under governmental and private third-party payor
programs will remain at levels comparable to present levels or will, in the
future, be sufficient to cover the costs allocable to patients eligible for
reimbursement pursuant to such programs.
WE MAY NOT EFFECTIVELY MANAGE OUR GROWTH.
Our growth will require the implementation and integration of enhanced
operational and financial systems and additional management, operational and
financial resources. Failure to implement and
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integrate these systems and add these resources could have a material adverse
effect on our results of operations and financial condition. We may not be able
to manage our expanding operations effectively or be able to maintain or
accelerate our growth. Further, we may not experience growth in, or maintain the
present level of, net revenues.
WE MAY BE SUBJECT TO MALPRACTICE AND PROFESSIONAL LIABILITY.
The provision of 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 are 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 a future claim or claims will not be successful or if
successful will not exceed the limits of available insurance coverage or that
such coverage will continue to be available at acceptable costs and on favorable
terms.
OUR INDUSTRY IS HIGHLY COMPETITIVE AND WE MAY NOT BE ABLE TO EFFECTIVELY
COMPETE.
In each of our markets, we compete with one or more national retail pharmacy
chains (including Eckerd's and CVS), regional retail pharmacy chains, local
retail pharmacy chains, independent retail pharmacies, deep discount retail
pharmacies (including Walgreen's), supermarkets (including Kroger's and
Brookshire's), discount department stores (including Wal-Mart and K-Mart), mass
merchandisers and other retail stores, mail order operations and Internet
pharmacies. Most of these competitors have financial resources that are
substantially greater than ours. Competition among retail pharmacies generally
takes the form of price competition, store location, product selection and
customer service. We may not be able to effectively compete with our
competitors, whether they are retail, mail order or Internet pharmacies.
Our home healthcare services compete with other larger providers of home
healthcare services including chain operations and independent single unit
stores which are more established. The market for home healthcare services is
highly competitive. Many of our existing and potential competitors have
substantially greater financial, marketing and personnel resources than us and
have established generally greater name recognition in the home healthcare
industry. Most of our competitors also offer more extensive home healthcare
services than us. We may not be able to successfully compete with our
competitors in the home healthcare industry.
MANY OF OUR RETAIL PHARMACIES ARE LOCATED IN TEXAS AND NEW MEXICO. THEREFORE, WE
ARE DEPENDENT UPON THE TEXAS AND NEW MEXICO ECONOMIES.
Currently, 18 and 7 of our 51 retail pharmacies are located in Texas and New
Mexico, respectively, and other retail pharmacies located in Texas and New
Mexico may be acquired by the Company. Consequently, our results of operations
and financial condition are dependent upon general trends in the Texas and New
Mexico economies. While retail sales in the state of Texas and New Mexico have
been consistent with the generally favorable national economy during the past
five years, there can be no assurance that this trend will continue or that
retail spending will not decline in the future. If retail sales decline in Texas
and New Mexico, our results of operations could be materially adversely
affected.
WE MAY NOT BE ABLE TO SERVICE OUR CURRENT AND FUTURE DEBT.
In connection with our acquisition of retail pharmacies, we have incurred
substantial debt and we may incur additional indebtedness in the future in
connection with the acquisition of additional stores or capital expenditures
related to our new business strategy. Our ability to make cash payments to
satisfy our substantial indebtedness will depend upon our future operating
performance, which is subject to a number of factors including prevailing
economic conditions and financial, business and
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other factors beyond our control. Based on our expected ability to generate cash
flow from operating activities, we believe that we will have the funds necessary
to meet the principal and interest payments on our debt as it becomes due and to
operate and expand our business. However, there can be no assurance that we will
be able to do so. If we are unable to generate sufficient earnings and cash flow
to meet our obligations with respect to our outstanding indebtedness,
refinancing of certain of these debt obligations or disposition of certain
assets may be required. In the event debt refinancing is required, we may not be
able to effect refinancing on satisfactory terms. Although at year end 1999 we
were in breach of several covenants under our Credit Agreement with McKesson
Corporation and our Load Agreement with Bank One Corporation, we have received a
waiver from McKesson and Bank One with respect to the breach of those covenants.
WE WILL REQUIRE ADDITIONAL FINANCING TO IMPLEMENT OUR BUSINESS STRATEGY.
Although we believe that our operating revenues will be adequate to satisfy
our capital requirements for the next 12 months, circumstances, including the
acquisition of additional stores and capital expenditures related to our new
business strategy, may require us to obtain long or short-term financing to
realize certain business opportunities. We cannot assure you that such financing
will be obtained on favorable terms.
WE ARE DEPENDENT UPON A SINGLE SUPPLIER.
We currently purchase approximately 83% of our inventory from McKesson
Corporation. McKesson Corporation also provides us with order entry machines,
shelf labels and other supplies used in connection with our purchase and sale of
such inventory. 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.
Accordingly, we believe that we could obtain our inventory through another
similar distributor at competitive prices and upon competitive payment terms in
the event our relationship with McKesson Corporation was terminated. However, if
another supplier was not available upon acceptable terms, our results of
operations would be materially adversely affected.
WE ARE DEPENDENT UPON OUR KEY PERSONNEL.
Our future success will be highly dependent on the continued efforts of
Ricky D. McCord, R.Ph., President and Chief Executive Officer; Charlie K. Herr,
Senior Vice President and Secretary; John N. Stogner, Chief Financial Officer,
and Robert D. Mueller, President of HorizonScripts.com and Philip D. Stone,
R.Ph., our Chief Operating Officer. We have employment agreements with
Messrs. McCord, Herr, Stogner, Mueller and Stone. The loss of the services of
one or more of such key personnel could have a material adverse effect upon our
results of operations.
Our success is also dependent upon our ability to attract and retain
experienced retail managers, pharmacists, and employees skilled in home
healthcare services, and the ability of our personnel to manage our growth and
integrate our operations. If we are not successful in attracting and retaining
such personnel, our results of operations could be materially adversely
affected.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY.
We expect to experience fluctuations in future quarterly operating results
that may be caused by many factors, including the number and timing of store
acquisitions, additional and existing competition, marketing programs, weather,
special or unusual events and national, regional and local economic conditions
that may affect retailers in general. Any concentration of acquisitions near the
end of a quarter could have an adverse effect on the financial results for that
quarter and could lead to
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fluctuations in quarterly financial results. Furthermore, the retail pharmacy
business is somewhat seasonal, with the highest net revenues and net income
levels historically occurring during the first and fourth quarters of each year
(which include the holiday selling season). 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.
CORPORATE ACTIONS MAY BE CONTROLLED BY OUR OFFICERS, DIRECTORS AND THEIR
AFFILIATES.
Our executive officers and directors and their respective affiliates
beneficially own an aggregate of approximately 18% of the outstanding shares of
common stock. Those shareholders, if voting together, may, as a practical
matter, have sufficient voting power to elect our board of directors, exercise
significant control over our business, policies and affairs and, in general,
determine the outcome of any corporate transaction or other matters submitted to
the shareholders for approval, such as any amendment to our certificate of
incorporation, any merger, consolidation, sale of all or substantially all of
our assets or "going private" transactions and prevent or cause a change in
control of the Company, all of which may adversely affect the market price of
our common stock.
OUR ABILITY TO ISSUE "BLANK CHECK" PREFERRED STOCK MAY DELAY OR PREVENT A CHANGE
IN CONTROL OF THE COMPANY.
Our certificate of incorporation authorizes our board of directors, without
shareholder approval, to issue up to 1,000,000 shares of preferred stock, $.01
per share par value. The number of shares of each series and the designations,
powers, preferences, qualifications, limitations or restrictions of each series
shall be determined by the board of directors. The possible effects of an
issuance of preferred stock includes the grant of voting rights to holders of
preferred stock superior to yours, the grant of preferences in the payment of
dividends and upon liquidation of the Company in favor of the holders of
preferred stock, and the conferral of conversion rights which entitle the
holders of preferred stock to convert their shares into common stock, thereby
resulting in possible future dilution to you. The issuance of the preferred
stock could also have an effect of delaying or preventing a change in control of
the Company.
CERTAIN PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE OF INCORPORATION AND
BYLAWS MAY DELAY, DISCOURAGE OR PREVENT A CHANGE IN CONTROL OF THE COMPANY.
Certain provisions of Delaware law may discourage bids for our common stock
at a premium over the market price of the common stock and may adversely affect
the market price and the voting and other rights of the holders of common stock.
In addition, our board of directors has the authority without action by you to
fix the rights, privileges and preferences of and to issue shares of our
preferred stock which may have the effect of delaying, deterring or preventing a
change in control of the Company.
In addition to the authorization of preferred stock, our certificate of
incorporation and bylaws include several other provisions which may have the
effect of inhibiting a change of control of the Company. These include the
division of the board of directors into three classes serving staggered three
year terms (which could delay or prevent shareholders from effecting a change of
control of the Company), no shareholder action by written consent and advance
notice requirements for shareholder proposals and director nominations. These
provisions may discourage a party from making a tender offer for or otherwise
attempting to obtain control of the Company. Our board of directors does not
currently have any plans, arrangements, commitments or understandings to issue
any preferred stock.
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SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR
COMMON STOCK.
The 1,437,500 shares covered by this prospectus may be sold by the selling
stockholder into the public market at any time pursuant to this prospectus.
Future sales of shares of our common stock, or the perception that such sales
may occur, could adversely affect the market price of our common stock.
WE DO NOT INTEND TO PAY CASH DIVIDENDS.
We expect that our earnings in the immediate future will be used to fund
current operations and costs and expenses incurred in developing and
implementing our business strategy. Accordingly, we do not anticipate paying any
cash dividends on our common stock in the foreseeable future.
FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 with respect to
our financial condition, results of operations, business strategy and financial
needs. The words "may," "will," "expect," "believes," "plans," "intends,"
"anticipates," "estimates," "continue" and similar expressions, as they relate
to us, as well as discussions of strategy, are intended to identify
forward-looking statements. Such statements reflect our current view with
respect to future events and are based on our assessment of, and are subject to,
a variety of factors, contingencies, risks, assumptions and uncertainties deemed
relevant by management, including:
- business and economic conditions in our existing markets,
- competition, and
- those matters discussed specifically under "Risk Factors" and elsewhere
herein.
We cannot assure you that any of our expectations will be realized, and
actual results and occurrences may differ materially from our expectations as
stated in this prospectus. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of our common
stock offered pursuant to this prospectus.
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DESCRIPTION OF CAPITAL STOCK
Our certificate of incorporation authorizes us to issue up to 14,000,000
shares of common stock, par value $.01 per share, and 1,000,000 shares of
preferred stock, par value $.01 per share. The following summary of certain
provisions of our common stock does not purport to be complete and is subject
to, and qualified in its entirety by, the provisions of our certificate of
incorporation, which is included as an exhibit to the Registration Statement of
which this prospectus is a part, and by the provisions of applicable law.
As of April 27, 2000, (1) 5,888,965 shares of common stock were issued and
outstanding, (2) 3,008,768 shares of common stock were subject to, and reserved
for issuance upon the exercise of, warrants and options outstanding and
exercisable and (3) no shares of preferred stock were issued or outstanding. The
outstanding shares of our common stock are duly authorized, legally issued,
fully paid and nonassessable. Our board of directors does not currently intend
to issue any shares of preferred stock, although there can be no assurances that
the board of directors will not decide to issue preferred stock in the future.
COMMON STOCK
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. The shares of common
stock have no preemptive or conversion rights, redemption rights or sinking fund
provisions. Holders of common stock are entitled to receive ratably such
dividends as may be declared by our board of directors out of funds legally
available therefor. In the event of liquidation or dissolution, holders of
common stock are entitled to share ratably in all assets remaining after payment
of liabilities and liquidation preference of preferred stock. Holders of a
plurality of the shares of common stock voting for the election of directors can
elect all of the directors since the holders of the common stock will not have
cumulative voting rights.
PREFERRED STOCK
Our board of directors is authorized, without further action by our
stockholders, to issue preferred stock from time to time in one or more series
and to fix, as to any such series, the voting rights applicable to such series
and such other designations, preferences and special rights as the board of
directors may determine, including dividend, conversion, redemption and
liquidation rights and preferences. Currently, there are no shares of preferred
stock outstanding. The issuance of shares of preferred stock under certain
circumstances could have the effect of delaying or preventing a change in
control of HORIZON or other corporate actions. Any such issuances of preferred
stock, as well as the availability of authorized and unissued preferred stock,
also could adversely affect the market price of our common stock.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the common stock and preferred stock is
American Securities Transfer & Trust, Inc.
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SELLING STOCKHOLDER
This prospectus relates to offers and sales of our common stock by the
selling stockholder. The following table sets forth, as of April 27, 2000, the
name of the selling stockholder, the number of shares of common stock that the
selling stockholder has the right to acquire, and the percentage of outstanding
common stock that the selling stockholder has the right to acquire. The shares
of common stock subject to the offering and sale by the selling stockholder
pursuant to this prospectus constitute all of the shares of our common stock
that the selling stockholder has the right to acquire. Each selling stockholder
may offer and sell pursuant to this prospectus all of the shares of common stock
that such selling stockholder has the right to acquire as identified below and,
assuming that a selling stockholder sells all of its shares of our common stock
as listed below, such selling stockholder will no longer own any shares of our
common stock. Inclusion in the table below does not imply that any selling
stockholder will actually offer and sell any of the shares registered on behalf
of the selling stockholder.
<TABLE>
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SHARES OF PERCENT OF
NAME OF OWNER COMMON STOCK OFFERED CLASS
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Advantage Fund II Ltd............................ 958,333(1) 4.999%(2)
</TABLE>
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(1) Calculated based on the last reported sale price for our common stock
on April 27, 2000.
(2) Based on the 4.999% beneficial ownership limitation imposed by the
convertible debenture, as more fully described below.
Advantage Fund II, Ltd. (the "selling stockholder") purchased an aggregate
of $2.5 million of convertible debentures and warrants from us in a private
placement transaction which closed on March 31, 2000. As part of that private
placement, we issued to the selling stockholder debentures that may be converted
into our common stock and warrants to acquire our common stock. The selling
stockholder is prohibited from using the debentures and warrants to convert into
or acquire shares of our common stock to the extent that such conversion or
acquisition would result in the selling stockholder, together with any
affiliate, beneficially owning in excess of 4.999% and 9.999%, respectively, of
the outstanding shares of our common stock following such conversion or
acquisition. This restriction may be waived by the selling stockholder on not
less than 61 days' notice to us. Since the number of shares of our common stock
issuable upon conversion of the debentures will change based upon fluctuations
of the market price of our common stock prior to a conversion, the actual number
of shares of our common stock that will be issued under the debentures, and
consequently the number of shares of our common stock that are beneficially
owned by the selling stockholder, cannot be determined at this time. Because of
this fluctuating characteristic, we have agreed to register a number of shares
of our common stock that exceeds the number of shares beneficially owned by the
selling stockholder. The number of shares of our common stock listed in the
table above as being beneficially owned by the selling stockholder includes the
shares of our common stock that are issuable to them, subject to the 4.999% and
9.999% limitation, upon conversion of their debentures and exercise of their
warrants. However, the 4.999% and 9.999% limitation would not prevent the
selling stockholder from acquiring and selling in excess of 4.999% and 9.999%,
respectively, of our common stock through a series of conversions and sales
under the debentures and acquisitions and sales under the warrants.
Genesee International Inc., of which Mr. Donald R. Morken is the controlling
stockholder, has voting and investment power over the securities beneficially
owned by the selling stockholder.
9
<PAGE>
PLAN OF DISTRIBUTION
The selling stockholder and any of its pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of its shares of
our common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling stockholder may use one or more of the following
methods when selling shares:
- ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
- block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
- purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
- an exchange distribution in accordance with the rules of the applicable
exchange;
- privately negotiated transactions;
- short sales;
- broker-dealers may agree with the selling stockholder to sell a specified
number of such shares at a stipulated price per share;
- a combination of any such methods of sale; and
- any other method permitted pursuant to applicable law.
The selling stockholder may also sell shares under Rule 144 under the Securities
Act of 1933, if available, rather than under this prospectus.
The selling stockholder may also engage in short sales against the box, puts
and calls and other transactions in our securities or derivatives of our
securities and may sell or deliver shares in connection with these trades. The
selling stockholder may pledge its shares to their brokers under the margin
provisions of customer agreements. If a selling stockholder defaults on a margin
loan, the broker may, from time to time, offer and sell the pledged shares.
Broker-dealers engaged by the selling stockholder may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholder (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholder does not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The selling stockholder and any broker-dealers or agents that are involved
in selling the shares may be deemed to be "underwriters" within the meaning of
the Securities Act of 1933 in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration of
the shares, including fees and disbursements of counsel to the selling
stockholder. We have agreed to indemnify the selling stockholder against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the offering of the common stock
hereby have been passed upon for the Company by Vinson & Elkins L.L.P.,
2001 Ross Avenue, Suite 3700, Dallas, Texas.
10
<PAGE>
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our Annual Report on Form 10-K for
the year ended December 31, 1999, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. Our financial statements and schedule are incorporated by reference
in reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-3 (together
with all amendments and exhibits, referred to as the "Registration Statement")
under the Securities Act of 1933 with respect to the common stock covered by
this prospectus. This prospectus, which forms a part of the Registration
Statement, omits selected information contained in the Registration Statement,
and you should refer to the Registration Statement for further information with
respect to the Company and the common stock covered by this prospectus.
Statements contained in this prospectus concerning the provisions or contents of
any documents are necessarily summaries of such documents and each such
statement is qualified in its entirety by reference to the copy of the
applicable document filed with the SEC.
We are subject to the information requirements of the Securities Exchange
Act of 1934, and in accordance therewith file periodic reports, proxy statements
and other information with the SEC. Such reports, proxy statements and other
information, as well as the Registration Statement, including the exhibits and
schedules thereto, may be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the SEC
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials may be obtained from such offices, upon payment of the fees prescribed
by the SEC. You may obtain information on the SEC public reference facilities by
calling 1-800-SEC-0330. The SEC maintains a web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants, such as Nucentrix that submit electronic filings to the
SEC. Our common stock is listed on the American Stock Exchange under the symbol
"HZP," and such reports, proxy and information statements and certain other
information also can be inspected at the library of the American Stock Exchange,
86 Trinity Place, New York, New York 10006. The Company also maintains a web
site at http://www.horizonrx.com. The contents of our web site are not part of
this prospectus.
The SEC allows us to incorporate by reference information from other
documents that we file with them, which means that we can disclose important
information by referring to those documents. The information incorporated by
reference is considered to be part of this prospectus, and information that we
file later with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below and any
future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 before the sale of all the shares covered by
this prospectus:
- Annual Report on Form 10-K for the year ended December 31, 1999; and
- All other reports filed with the SEC in compliance with Sections 13(a) or
15(d) of the Exchange Act since the end of the fiscal year ended
December 31, 1999.
We will deliver to each person receiving this prospectus a copy of any or
all of the information that has been incorporated by reference and not delivered
with this prospectus. You may request a copy of these filings, at no cost, by
writing or telephoning:
HORIZON Pharmacies, Inc.
531 W. Main
Denison, Texas 75020
Attn: Charlie K. Herr
Telephone: (903) 465-2397
11
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT CONTAINED
IN THIS PROSPECTUS. THE STATEMENTS AND REPRESENTATIONS CONTAINED WITHIN THIS
PROSPECTUS ARE TRUE AND CORRECT AS OF THE DATE INDICATED ON THE COVER PAGE. THE
DELIVERY OF THIS PROSPECTUS DOES NOT, UNDER ANY CIRCUMSTANCES, CREATE THE
IMPLICATION THAT THERE HAS BEEN NO CHANGE SINCE THAT DATE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER
THAN THOSE REGISTERED SECURITIES TO WHICH THE PROSPECTUS RELATES. MOREOVER, THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY IN ANY CIRCUMSTANCES IN WHICH SUCH AN OFFER OR SOLICITATION IS UNLAWFUL.
1,437,500 SHARES
HORIZON PHARMACIES, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by HORIZON Pharmacies, Inc. (the
"registrant") in connection with the registration of the common stock offered
hereby are as follows:
<TABLE>
<S> <C>
SEC registration fee............................... $ 1,235
"Blue Sky" fees and expenses....................... N/A
Printing and engraving expenses.................... 15,000
Legal fees and expenses............................ 10,000
Accounting fees and expenses....................... 10,000
Transfer agent and registrar fees.................. N/A
Miscellaneous expenses............................. 0
-------
Total............................................ 26,235
=======
</TABLE>
The selling stockholder will not bear any of these expenses.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Generally, Section 145 of the General Corporation Law of the State of
Delaware (the "DGCL") permits a corporation to indemnify certain persons made a
party to an action, by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or enterprise. In the case of an action by or in the right of the
corporation, no indemnification may be made in respect of any matter as to which
such person was adjudged liable for negligence or misconduct in the performance
of such person's duty to the corporation unless the Delaware Court of Chancery
or the court in which such action was brought determines that despite the
adjudication of liability such person is fairly and reasonably entitled to
indemnity for proper expenses. To the extent such person has been successful in
the defense of any matter, such person shall be indemnified against expenses
actually and reasonably incurred by him.
Section 102(b)(7) of the DGCL enables a Delaware corporation to include a
provision in its certificate of incorporation limiting a director's liability to
the corporation or its stockholders for monetary damages for breaches of
fiduciary duty as a director. The registrant's Certificate of Incorporation and
Bylaws provide for indemnification of its officers and directors to the full
extent permitted under Delaware law.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
3.1 Certificate 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.
33-61987).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
*4.2 Form of Warrant, dated March 31, 2000, between HORIZON
Pharmacies, Inc. and each of Wharton Capital Partners,
Ltd. and Advantage Fund II Ltd.
*4.3 Form of 5% Convertible Debenture due March 31, 2003.
*4.4 Registration Rights Agreement, dated as of March 31, 2000,
among HORIZON Pharmacies, Inc. and Advantage Fund II Ltd.
*5.1 Legal Opinion of Vinson & Elkins L.L.P.
*10.1 Convertible Debenture Purchase Agreement, dated as of March
31, 2000, among HORIZON Pharmacies, Inc. and Advantage
Fund II Ltd.
*23.1 Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1).
*23.2 Consent of Ernst & Young LLP.
</TABLE>
- ------------------------
* Filed herewith.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the provisions in Item 14 above, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director or officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in such act and will
be governed by the final adjudication of such issue.
The Company hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to include any material
information with respect to the Plan of Distribution not previously disclosed in
the Registration Statement or any material change to such information in the
Registration Statement;
(2) that, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The Company hereby undertakes that, for purposes of determining any
liability under the Act, each filing of the Company's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-2
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Dallas, State of Texas, on April 28, 2000.
<TABLE>
<S> <C> <C>
HORIZON PHARMACIES, INC.
By: /s/ RICKY D. MCCORD
-----------------------------------------
Ricky D. McCord
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or amendment thereto has been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman of the Board,
/s/ RICKY D. MCCORD President and Chief Executive
------------------------------------------- Officer (Principal Executive April 28, 2000
Ricky D. McCord Officer)
Chief Financial Officer,
/s/ JOHN N. STOGNER Treasurer and Director
------------------------------------------- (Principal Financial and April 28, 2000
John N. Stogner Accounting Officer)
/s/ CHARLIE K. HERR
------------------------------------------- Senior Vice President, April 28, 2000
Charlie K. Herr Secretary and Director
/s/ ROBERT D. MUELLER
------------------------------------------- Director April 28, 2000
Robert D. Mueller
/s/ PHILIP H. YEILDING
------------------------------------------- Director April 28, 2000
Philip H. Yeilding
</TABLE>
II-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
3.1 Certificate 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.
33-61987).
*4.2 Form of Warrant, dated March 31, 2000, between HORIZON
Pharmacies, Inc. and each of Wharton Capital Partners,
Ltd. and Advantage Fund II Ltd.
*4.3 Form of 5% Convertible Debenture due March 31, 2003.
*4.4 Registration Rights Agreement, dated as of March 31, 2000,
among HORIZON Pharmacies, Inc. and Advantage Fund II Ltd.
*5.1 Legal Opinion of Vinson & Elkins L.L.P.
*10.1 Convertible Debenture Purchase Agreement, dated as of March
31, 2000, among HORIZON Pharmacies, Inc. and Advantage
Fund II Ltd.
*23.1 Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1).
*23.2 Consent of Ernst & Young LLP.
</TABLE>
- ------------------------
* Filed herewith.
<PAGE>
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
HORIZON PHARMACIES, INC.
WARRANT
Warrant No.3 Dated: March 31, 2000
HORIZON Pharmacies, Inc., a Delaware corporation (the "Company"),
hereby certifies that, for value received, Advantage Fund II Ltd. or its
registered assigns ("Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company up to a total of 13,500 shares of common
stock, $.01 par value per share (the "Common Stock"), of the Company (each such
share, a "Warrant Share" and all such shares, the "Warrant Shares") at an
exercise price equal to $6.45 per share (as adjusted from time to time as
provided in Section 8, the "Exercise Price"), at any time and from time to time
from and after the date hereof and through and including March 31, 2005 (the
"Expiration Date"), and subject to the following terms and conditions:
1. REGISTRATION OF WARRANT. The Company shall register
this Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.
2. REGISTRATION OF TRANSFERS AND EXCHANGES.
(a) The Company shall register the transfer of
any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, with the Form of Assignment attached hereto duly completed and signed,
to the Transfer Agent or to the Company at its address for notice
-1-
<PAGE>
set forth in Section 12. Upon any such registration or transfer, a new warrant
to purchase Common Stock, in substantially the form of this Warrant (any such
new warrant, a "New Warrant"), evidencing the portion of this Warrant so
transferred shall be issued to the transferee and a New Warrant evidencing the
remaining portion of this Warrant not so transferred, if any, shall be issued to
the transferring Holder. The acceptance of the New Warrant by the transferee
thereof shall be deemed the acceptance of such transferee of all of the rights
and obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the
surrender hereof by the Holder to the office of the Company at its address for
notice set forth in Section 12 for one or more New Warrants, evidencing in the
aggregate the right to purchase the number of Warrant Shares which may then be
purchased hereunder. Any such New Warrant will be dated the date of such
exchange.
3. DURATION AND EXERCISE OF WARRANTS.
(a) This Warrant shall be exercisable by the
registered Holder on any business day before 6:30 P.M., New York City time, at
any time and from time to time on or after the date hereof to and including the
Expiration Date. At 6:30 P.M., New York City time on the Expiration Date, the
portion of this Warrant not exercised prior thereto shall be and become void and
of no value. Prior to the Expiration Date, the Company may not call or otherwise
redeem this Warrant without the prior written consent of the Holder.
(b) Upon surrender of this Warrant, with the
Form of Election to Purchase attached hereto duly completed and signed, to the
Company at its address for notice set forth in Section 12 and upon payment of
the Exercise Price multiplied by the number of Warrant Shares that the Holder
intends to purchase hereunder, in the manner provided hereunder, all as
specified by the Holder in the Form of Election to Purchase, the Company shall
promptly (but in no event later than 3 business days after the Date of Exercise
(as defined herein)) issue or cause to be issued and cause to be delivered to or
upon the written order of the Holder and in such name or names as the Holder may
designate, a certificate for the Warrant Shares issuable upon such exercise,
free of restrictive legends except (i) either in the event that a registration
statement covering the resale of the Warrant Shares and naming the Holder as a
selling stockholder thereunder is not then effective or the Warrant Shares are
not freely transferable without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
or (ii) if this Warrant shall have been issued pursuant to a written agreement
between the original Holder and the Company, as required by such agreement. Any
person so designated by the Holder to receive Warrant Shares shall be deemed to
have become holder of record of such Warrant Shares as of the Date of Exercise
of this Warrant. The Company shall, upon request of the Holder, if available,
use its best efforts to deliver Warrant Shares hereunder electronically through
the Depository Trust Corporation or another established clearing corporation
performing similar functions.
A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
-2-
<PAGE>
(c) This Warrant shall be exercisable, either in
its entirety or, from time to time, for a portion of the number of Warrant
Shares. If less than all of the Warrant Shares which may be purchased under this
Warrant are exercised at any time, the Company shall issue or cause to be
issued, at its expense, a New Warrant evidencing the right to purchase the
remaining number of Warrant Shares for which no exercise has been evidenced by
this Warrant.
4. PIGGYBACK REGISTRATION RIGHTS. During the
Effectiveness Period (as defined in the Registration Rights Agreement, of even
date herewith, between the Company and the original Holder), the Company may not
file any registration statement with the Securities and Exchange Commission
(other than registration statements of the Company filed on Form S-8 or Form
S-4, each as promulgated under the Securities Act, pursuant to which the Company
is registering securities pursuant to a Company employee benefit plan or
pursuant to a merger, acquisition or similar transaction including supplements
thereto, but not additionally filed registration statements in respect of such
securities) at any time when there is not an effective registration statement
covering the resale of the Warrant Shares and naming the Holder as a selling
stockholder thereunder, unless the Company provides the Holder with not less
than 20 days notice of its intention to file such registration statement and
provides the Holder the option to include any or all of the applicable Warrant
Shares therein. The piggyback registration rights granted to the Holder pursuant
to this Section shall continue until all of the Holder's Warrant Shares have
been sold in accordance with an effective registration statement or upon the
Expiration Date. The Company will pay all registration expenses in connection
therewith.
5. PAYMENT OF TAXES. The Company will pay all
documentary stamp taxes attributable to the issuance of Warrant Shares upon the
exercise of this Warrant; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the registration of any certificates for Warrant Shares or Warrants in a name
other than that of the Holder. The Holder shall be responsible for all other tax
liability that may arise as a result of holding or transferring this Warrant or
receiving Warrant Shares upon exercise hereof.
6. REPLACEMENT OF WARRANT. If this Warrant is mutilated,
lost, stolen or destroyed, the Company shall issue or cause to be issued in
exchange and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if requested, satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
7. RESERVATION OF WARRANT SHARES. The Company covenants
that it will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holder (taking into account
the adjustments and restrictions of Section 8). The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon
-3-
<PAGE>
issuance and the payment of the applicable Exercise Price in accordance with the
terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable.
8. CERTAIN ADJUSTMENTS. The Exercise Price and number of
Warrant Shares issuable upon exercise of this Warrant are subject to adjustment
from time to time as set forth in this Section 8. Upon each such adjustment of
the Exercise Price pursuant to this Section 8, the Holder shall thereafter prior
to the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this
Warrant is outstanding, (i) shall pay a stock dividend (except scheduled
dividends paid on outstanding preferred stock as of the date hereof which
contain a stated dividend rate) or otherwise make a distribution or
distributions on shares of its Common Stock or on any other class of capital
stock payable in shares of Common Stock, (ii) subdivide outstanding shares of
Common Stock into a larger number of shares, or (iii) combine outstanding shares
of Common Stock into a smaller number of shares, the Exercise Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding before such event
and of which the denominator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding after such event. Any adjustment
made pursuant to this Section shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision or combination, and shall apply to
successive subdivisions and combinations.
(b) In case of any reclassification of the
Common Stock or any compulsory share exchange pursuant to which the Common Stock
is converted into other securities, cash or property, then the Holder shall have
the right thereafter to exercise this Warrant only into the shares of stock and
other securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification or share exchange, and the Holder
shall be entitled upon such event to receive such amount of securities or
property equal to the amount of Warrant Shares such Holder would have been
entitled to had such Holder exercised this Warrant immediately prior to such
reclassification or share exchange. The terms of any such reclassification or
share exchange shall include such terms so as to continue to give to the Holder
the right to receive the securities or property set forth in this Section 8(b)
upon any exercise following any such reclassification or share exchange.
(c) If the Company, at any time while this
Warrant is outstanding, shall distribute to all holders of Common Stock (and not
to holders of this Warrant) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security (excluding those referred to
in Sections 8(a), (b) and (d)), then in each such case the Exercise Price shall
be determined by multiplying the Exercise Price in effect immediately prior to
the record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of
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which the numerator shall be such Exercise Price on such record date less the
then fair market value at such record date of the portion of such assets or
evidence of indebtedness so distributed applicable to one outstanding share of
Common Stock as determined by the Company's independent certified public
accountants that regularly examines the financial statements of the Company (an
"Appraiser").
(d) If the Company or any subsidiary thereof, as
applicable with respect to Common Stock Equivalents (as defined below), at any
time while this Warrant is outstanding, shall issue shares of Common Stock or
rights, warrants, options or other securities or debt that is convertible into
or exchangeable for shares of Common Stock ("COMMON STOCK EQUIVALENTS"),
entitling any person to acquire shares of Common Stock at a price per share less
than the Exercise Price (if the holder of the Common Stock or Common Stock
Equivalent so issued shall at any time, whether by operation of purchase price
adjustments, reset provisions, floating conversion, exercise or exchange prices
or otherwise, or due to warrants, options or rights issued in connection with
such issuance, be entitled to receive shares of Common Stock at a price less
than the Exercise Price, such issuance shall be deemed to have occurred for less
than the Exercise Price), then the Exercise Price shall be multiplied by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such Common Stock or such
Common Stock Equivalents plus the number of shares of Common Stock which the
offering price for such shares of Common Stock or Common Stock Equivalents would
purchase at the Exercise Price, and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock so issued or issuable,
PROVIDED, that for purposes hereof, all shares of Common Stock that are issuable
upon conversion, exercise or exchange of Common Stock Equivalents shall be
deemed outstanding immediately after the issuance of such Common Stock
Equivalents. Such adjustment shall be made whenever such Common Stock or Common
Stock Equivalents are issued. However, upon the expiration of any Common Stock
Equivalents the issuance of which resulted in an adjustment in the Exercise
Price pursuant to this Section, if any such Common Stock Equivalents shall
expire and shall not have been exercised, the Exercise Price shall immediately
upon such expiration be recomputed and effective immediately upon such
expiration be increased to the price which it would have been (but reflecting
any other adjustments in the Exercise Price made pursuant to the provisions of
this Section after the issuance of such Common Stock Equivalents) had the
adjustment of the Exercise Price made upon the issuance of such Common Stock
Equivalents been made on the basis of offering for subscription or purchase only
that number of shares of the Common Stock actually purchased upon the exercise
of such Common Stock Equivalents actually exercised. Notwithstanding the
foregoing, the following shall not be deemed to be Common Stock Equivalents: (i)
issuances pursuant to a grant or exercise of stock or options which may
hereafter be granted or exercised under any employee benefit plan of the Company
now existing or to be implemented in the future; (ii) securities issued in
outstanding in connection with a Strategic Transaction (as defined below) or a
payment of purchase price in connection with a bona fide business combination;
(iii) securities issuable pursuant to convertible or exchangeable securities of
the Company that are outstanding on the Original Issue Date and specified in
Schedule 2.1(c) to the Purchase Agreement, (iv) shares of Common Stock issuable
upon conversion of the Debentures (as defined in the Purchase Agreement), and
(v) a warrant for the purchase of 10,000 shares of the Company's Common Stock
issued to McKesson Corporation. A "STRATEGIC TRANSACTION" shall mean a
transaction or relationship in which
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the Company issues Common Stock to an entity which is, itself or through its
subsidiaries, an operating company in a business related to the business of the
Company and in which the Company receives material benefits in addition to the
investment of funds, but shall not include a transaction in which the Company is
issuing securities primarily for the purpose of raising capital.
(e) In case of any (1) merger or consolidation
of the Company with or into another Person, or (2) sale by the Company of more
than one-half of the assets of the Company (on a book value basis) in one or a
series of related transactions, the Holder shall have the right thereafter to
exercise this Warrant for the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of Common Stock
following such merger, consolidation or sale, and the Holder shall be entitled
upon such event or series of related events to receive such amount of
securities, cash and property as the Common Stock for which this Warrant could
have been exercised immediately prior to such merger, consolidation or sales
would have been entitled. The terms of any such merger, sale or consolidation
shall include such terms so as continue to give the Holder the right to receive
the securities, cash and property set forth in this Section upon any conversion
or redemption following such event. This provision shall similarly apply to
successive such events.
(f) For the purposes of this Section 8, the
following clauses shall also be applicable:
(i) RECORD DATE. In case the Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them (A) to receive a dividend or other distribution payable in Common
Stock or in securities convertible or exchangeable into shares of Common Stock,
or (B) to subscribe for or purchase Common Stock or securities convertible or
exchangeable into shares of Common Stock, then such record date shall be deemed
to be the date of the issue or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(ii) TREASURY SHARES. The number of
shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition of any
such shares shall be considered an issue or sale of Common Stock.
(g) All calculations under this Section 8 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be.
(h) Whenever the Exercise Price is adjusted pursuant to
Section 8(c) above, the Holder, after receipt of the determination by the
Appraiser, shall have the right to select an additional appraiser (which shall
be a nationally recognized accounting firm), in which case the adjustment shall
be equal to the average of the adjustments recommended by each of the Appraiser
and such appraiser. The Holder shall promptly mail or cause to be mailed to the
Company, a notice setting forth the Exercise Price after such adjustment and
setting forth a brief statement of the facts
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requiring such adjustment. Such adjustment shall become effective immediately
after the record date mentioned above.
(i) If:
(i) the Company shall declare a
dividend (or any other
distribution) on its Common Stock;
or
(ii) the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
(iii) the Company shall authorize the
granting to all holders of the
Common Stock rights or warrants to
subscribe for or purchase any
shares of capital stock of any
class or of any rights; or
(iv) the approval of any stockholders of
the Company shall be required in
connection with any
reclassification of the Common
Stock, any consolidation or merger
to which the Company is a party,
any sale or transfer of all or
substantially all of the assets of
the Company, or any compulsory
share exchange whereby the Common
Stock is converted into other
securities, cash or property; or
(v) the Company shall authorize the
voluntary dissolution, liquidation
or winding up of the affairs of the
Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 20 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; PROVIDED, HOWEVER, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
9. PAYMENT OF EXERCISE PRICE. The Holder shall pay the
Exercise Price in one of the following manners:
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(a) CASH EXERCISE. The Holder may deliver
immediately available funds; or
(b) CASHLESS EXERCISE. The Holder may surrender
this Warrant to the Company together with a notice of cashless exercise, in
which event the Company shall issue to the Holder the number of Warrant Shares
determined as follows:
X = Y [(A-B)/A]
where:
X = the number of Warrant Shares to be
issued to the Holder.
Y = the number of Warrant Shares with
respect to which this Warrant is being
exercised.
A = the average of the closing sale prices
of the Common Stock for the five (5) trading
days immediately prior to (but not
including) the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
10. CERTAIN EXERCISE RESTRICTIONS.
(a) A Holder may not exercise this Warrant to
the extent such exercise would result in the Holder, together with any affiliate
thereof, beneficially owning (as determined in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") and the
rules promulgated thereunder) in excess of 4.999% of the then issued and
outstanding shares of Common Stock, including shares issuable upon such exercise
and held by such Holder after application of this Section. Since the Holder will
not be obligated to report to the Company the number of shares of Common Stock
it may hold at the time of an exercise hereunder, unless the exercise at issue
would result in the issuance of shares of Common Stock in excess of 4.999% of
the then outstanding shares of Common Stock without regard to any other shares
which may be beneficially owned by the Holder or an affiliate thereof, the
Holder shall have the authority and obligation to determine whether the
restriction contained in this Section will limit any particular exercise
hereunder and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of this
Warrant is exercisable shall be the responsibility and obligation of the Holder.
If the Holder has delivered a Form of Election to Purchase for a number of
Warrant Shares that, without regard to any other shares that the Holder or its
affiliates may beneficially own, would result in the issuance in excess of the
permitted amount hereunder, the Company shall notify the Holder of this fact and
shall honor the exercise for the maximum portion of this Warrant permitted to be
exercised on such Date of Exercise in accordance
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with the periods described herein and, at the option of the Holder, either keep
the portion of the Warrant tendered for exercise in excess of the permitted
amount hereunder for future exercises or return such excess portion of the
Warrant to the Holder. The provisions of this Section may be waived by a Holder
(but only as to itself and not to any other Holder) upon not less than 61 days
prior notice to the Company. Other Holders shall be unaffected by any such
waiver.
(b) A Holder may not exercise this Warrant to
the extent such exercise would result in the Holder, together with any affiliate
thereof, beneficially owning (as determined in accordance with Section 13(d) of
the Exchange Act and the rules promulgated thereunder) in excess of 9.999% of
the then issued and outstanding shares of Common Stock, including shares
issuable upon such exercise and held by such Holder after application of this
Section. Since the Holder will not be obligated to report to the Company the
number of shares of Common Stock it may hold at the time of an exercise
hereunder, unless the exercise at issue would result in the issuance of shares
of Common Stock in excess of 9.999% of the then outstanding shares of Common
Stock without regard to any other shares which may be beneficially owned by the
Holder or an affiliate thereof, the Holder shall have the authority and
obligation to determine whether the restriction contained in this Section will
limit any particular exercise hereunder and to the extent that the Holder
determines that the limitation contained in this Section applies, the
determination of which portion of this Warrant is exercisable shall be the
responsibility and obligation of the Holder. If the Holder has delivered a Form
of Election to Purchase for a number of Warrant Shares that, without regard to
any other shares that the Holder or its affiliates may beneficially own, would
result in the issuance in excess of the permitted amount hereunder, the Company
shall notify the Holder of this fact and shall honor the exercise for the
maximum portion of this Warrant permitted to be exercised on such Date of
Exercise in accordance with the periods described herein and, at the option of
the Holder, either keep the portion of the Warrant tendered for exercise in
excess of the permitted amount hereunder for future exercises or return such
excess portion of the Warrant to the Holder. The provisions of this Section may
be waived by a Holder (but only as to itself and not to any other Holder) upon
not less than 61 days prior notice to the Company. Other Holders shall be
unaffected by any such waiver.
11. FRACTIONAL SHARES. The Company shall not be required
to issue or cause to be issued fractional Warrant Shares on the exercise of this
Warrant. The number of full Warrant Shares which shall be issuable upon the
exercise of this Warrant shall be computed on the basis of the aggregate number
of Warrant Shares purchasable on exercise of this Warrant so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section, be
issuable on the exercise of this Warrant, the Company shall pay an amount in
cash equal to the Exercise Price multiplied by such fraction.
12. NOTICES. Any and all notices or other communications
or deliveries hereunder shall be in writing and shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 6:30 p.m. (New York City time) on a business
day, (ii) the business day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 6:30 p.m. (New York City time) on any date
and earlier than 11:59 p.m. (New York City time) on such date, (iii) the
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business day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be:
(i) if to the Company, to 501 Main Street, Denison, Texas 75020; facsimile
number (903) 465-6769, attention Chief Financial Officer, or (ii) if to the
Holder, to the Holder at the address or facsimile number appearing on the
Warrant Register or such other address or facsimile number as the Holder may
provide to the Company in accordance with this Section.
13. WARRANT AGENT. The Company shall serve as warrant
agent under this Warrant. Upon thirty (30) days' notice to the Holder, the
Company may appoint a new warrant agent. Any corporation into which the Company
or any new warrant agent may be merged or any corporation resulting from any
consolidation to which the Company or any new warrant agent shall be a party or
any corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business shall
be a successor warrant agent under this Warrant without any further act. Any
such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed (by first class mail, postage prepaid) to the Holder
at the Holder's last address as shown on the Warrant Register.
14. MISCELLANEOUS.
(a) This Warrant shall be binding on and inure
to the benefit of the parties hereto and their respective successors and
assigns. This Warrant may be amended only in writing signed by the Company and
the Holder and their successors and assigns.
(b) Subject to Section 14(a), above, nothing in
this Warrant shall be construed to give to any person or corporation other than
the Company and the Holder any legal or equitable right, remedy or cause under
this Warrant. This Warrant shall inure to the sole and exclusive benefit of the
Company and the Holder.
(c) The corporate laws of the State of Delaware
shall govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. The Company
and the Holder hereby irrevocably submit to the exclusive jurisdiction of the
state and federal courts sitting in the City of New York, borough of Manhattan,
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, or that
such suit, action or proceeding is improper. Each of the Company and the Holder
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by receiving a copy thereof
sent to the Company at the address in effect for notices to it under this
instrument and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
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(d) The headings herein are for convenience
only, do not constitute a part of this Warrant and shall not be deemed to limit
or affect any of the provisions hereof.
(e) In case any one or more of the provisions of
this Warrant shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its authorized officer as of the date first indicated above.
HORIZON PHARMACIES, INC.
By: /s/ Rick D. McCord
-------------------------------
Name: Rick D. McCord
-------------------------------
Title: President
-------------------------------
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NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
No. 5 $500,000
HORIZON PHARMACIES, INC.
5% CONVERTIBLE DEBENTURE
DUE MARCH 31, 2003
THIS DEBENTURE is one of a series of duly authorized and issued
debentures of HORIZON Pharmacies, Inc., a Delaware corporation, having a
principal place of business at 501 Main Street, Denison, Texas 75020 (the
"COMPANY"), designated as its 5% Convertible Debentures, due March 31, 2003, in
the aggregate principal amount of Two Million Five Hundred Thousand Dollars
($2,500,000) (the "DEBENTURES").
FOR VALUE RECEIVED, the Company promises to pay to Advantage Fund II,
Ltd., or its registered assigns (the "HOLDER"), the principal sum of Five
Hundred Thousand Dollars ($500,000), on March 31, 2003 or such earlier date as
the Debentures are required or permitted to be repaid as provided hereunder (the
"MATURITY DATE") and to pay interest to the Holder on the aggregate unconverted
and then outstanding principal amount of this Debenture at the rate of 5% per
annum, payable on each Conversion Date (as defined herein) and on the Maturity
Date, in cash or shares of Common Stock (as defined in Section 5). Subject to
the terms and conditions herein, the decision whether to pay interest hereunder
in shares of Common Stock or cash shall be at the discretion of the Company. Not
less than ten Trading Days (as defined in Section 5) prior to each Conversion
Date, the Company shall provide the Holder with written notice of its election
to pay interest hereunder either in cash or shares of Common Stock pursuant to
the terms of Section 4(a)(i) (the Company may indicate in such notice that the
election contained in such notice shall continue for later periods until
revised). Failure to timely provide such written notice shall be deemed an
election by the Company to pay the interest on such Conversion Date in shares of
Common Stock pursuant to the terms of Section 4(a)(i). Interest shall be
calculated on the basis on a 360-day year and shall accrue daily commencing on
the Original Issue Date (as defined in Section 5) until payment in full of the
principal sum, together with all accrued and unpaid interest and other amounts
which may become due hereunder, has been made. Interest hereunder will be paid
to the Person (as defined in Section 5) in whose name this Debenture is
registered on the records of the Company regarding
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registration and transfers of Debentures (the "DEBENTURE REGISTER"). All overdue
accrued and unpaid interest to be paid in cash hereunder shall entail a late fee
at the rate of 18% per annum (or such lower maximum amount of interest permitted
to be charged under applicable law) (to accrue daily, from the date such
interest is due hereunder through and including the date of payment), payable in
cash.
This Debenture is subject to the following additional provisions:
SECTION 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be made
for such registration of transfer or exchange.
SECTION 2. This Debenture has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement (as
defined in Section 5) and may be transferred or exchanged only in compliance
with the Purchase Agreement. Prior to due presentment to the Company for
transfer of this Debenture, the Company and any agent of the Company may treat
the Person (as defined in Section 5) in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
SECTION 3. EVENTS OF DEFAULT.
(a) "EVENT OF DEFAULT", wherever used herein, means any
one of the following events (whatever the reason and whether it shall be
voluntary or involuntary or effected by operation of law or pursuant to any
judgment, decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):
(i) any default in the payment of the principal
of, interest on or liquidated damages in respect of, any Debentures for
a period of five days following the due date of such payment free of
any claim of subordination (whether on a Conversion Date or the
Maturity Date or by acceleration or otherwise);
(ii) the Company shall fail to observe or perform
any other covenant, agreement or warranty contained in, or otherwise
commit any breach of any of the Transaction Documents (as defined in
Section 5), and such failure or breach shall not have been remedied
within 20 days after the date on which notice of such failure or breach
shall have been given;
(iii) the Company or any of its subsidiaries shall
commence, or there shall be commenced against the Company or any such
subsidiary a case under any applicable bankruptcy or insolvency laws as
now or hereafter in effect or any successor thereto, or the Company
commences any other proceeding under any reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter
in effect relating to the Company or any subsidiary
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thereof or there is commenced against the Company or any subsidiary
thereof any such bankruptcy, insolvency or other proceeding which
remains undismissed for a period of 60 days; or the Company or any
subsidiary thereof is adjudicated insolvent or bankrupt; or any order
of relief or other order approving any such case or proceeding is
entered; or the Company or any subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part
of its property which continues undischarged or unstayed for a period
of 60 days; or the Company or any subsidiary thereof makes a general
assignment for the benefit of creditors; or the Company shall fail to
pay, or shall state that it is unable to pay, or shall be unable to
pay, its debts generally as they become due; or the Company or any
subsidiary thereof shall call a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts; or
the Company or any subsidiary thereof shall by any act or failure to
act expressly indicate its consent to, approval of or acquiescence in
any of the foregoing; or any corporate or other action is taken by the
Company or any subsidiary thereof for the purpose of effecting any of
the foregoing;
(iv) the Company shall default in any of its
obligations under any other Debenture or any mortgage, credit agreement
or other facility, indenture agreement, factoring agreement or other
instrument under which there may be issued, or by which there may be
secured or evidenced any indebtedness for borrowed money or money due
under any long term leasing or factoring arrangement of the Company in
an amount exceeding an aggregate of two hundred fifty thousand dollars
($250,000), whether such indebtedness now exists or shall hereafter be
created, and such default shall result in such indebtedness becoming or
being declared due and payable prior to the date on which it would
otherwise become due and payable;
(v) the Common Stock is either delisted from the
American Stock Exchange ("AMEX") or suspended from trading on the AMEX
without resuming trading and/or being relisted or thereon or listed on
the New York Stock Exchange, American Stock Exchange, Nasdaq National
Market or Nasdaq SmallCap Market (each, a "SUBSEQUENT MARKET") or
having such suspension lifted, in either case, for more than the lesser
of five consecutive Trading Days or an aggregate of eight Trading Days
(which need not be consecutive Trading Days);
(vi) the Company shall be a party to any Change
of Control Transaction (as defined in Section 5), shall agree to sell
or dispose all or in excess of 50% of its assets in one or more
transactions (whether or not such sale would constitute a Change of
Control Transaction), or shall redeem or repurchase more than $75,000
of shares of Common Stock or other equity securities of the Company
(other than redemptions of Underlying Shares (as defined in Section
5));
(vii) an Underlying Shares Registration Statement
(as defined in Section 6) shall not have been declared effective by the
Commission (as defined in Section 5) by the 180th day after the
Original Issue Date;
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(viii) if, during the Effectiveness Period (as
defined in the Registration Rights Agreement (as defined in Section
8)), the effectiveness of the Underlying Shares Registration Statement
lapses for any reason or the Holder shall not be permitted to resell
Registrable Securities (as defined in the Registration Rights
Agreement) under the Underlying Shares Registration Statement, in
either case, for more than an aggregate of twenty-five Trading Days
(which need not be consecutive Trading Days);
(ix) an Event (as defined in the Registration
Rights Agreement) shall not have been cured to the satisfaction of the
Holder prior to the expiration of thirty days from the Event Date (as
defined in the Registration Rights Agreement) relating thereto (other
than an Event resulting from a failure of an Underlying Shares
Registration Statement to be declared effective by the Commission on or
prior to the 180th day after the Original Issue Date, which shall be
covered by Section 3(a)(vii));
(x) the Company shall fail for any reason to
deliver certificates to a Holder prior to the tenth day after a
Conversion Date pursuant to and in accordance with Section 4(b) or the
Company shall provide notice to the Holder, including by way of public
announcement, at any time, of its intention not to comply with requests
for conversions of any Debentures in accordance with the terms hereof;
(xi) the Company shall fail for any reason to
deliver the payment in cash pursuant to a Buy-In (as defined herein)
within seven days after notice is delivered hereunder; or
(b) During the time that any portion of this Debenture
remains outstanding, if any Event of Default occurs and is continuing, the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by such Holder), together with interest and other amounts
owing in respect thereof, to the date of acceleration shall become, at the
Holder's election immediately due and payable in cash. The aggregate amount
payable upon an Event of Default shall be equal to the sum of (i) the Mandatory
Prepayment Amount (as defined in Section 5) plus (ii) the product of (A) the
number of Underlying Shares issued in respect of conversions hereunder within
thirty (30) days of the date of a declaration of an Event of Default and then
held by the Holder and (B) the Per Share Market Value (as defined in Section 5)
on the date prepayment is due or the date the full prepayment price is paid,
whichever is greater. Interest shall accrue on the prepayment amount hereunder
from the seventh day after such amount is due (being the date of an Event of
Default) through the date of prepayment in full thereof at the rate of 18% per
annum (or such lesser maximum amount that is permitted to be paid by applicable
law), to accrue daily from the date such payment is due hereunder through and
including the date of payment. All Debentures and Underlying Shares for which
the full prepayment price hereunder shall have been paid in accordance herewith
shall promptly be surrendered to or as directed by the Company. The Holder need
not provide and the Company hereby waives any presentment, demand, protest or
other notice of any kind, and the Holder may immediately and without expiration
of any grace period enforce any and all of its rights and remedies hereunder and
all other remedies available to it under applicable law. Such declaration may be
rescinded and annulled by Holder at any time prior to payment hereunder.
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No such rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereon.
SECTION 4. CONVERSION.
(a) (i) CONVERSION AT OPTION OF HOLDER. (A) This
Debenture shall be convertible into shares of Common Stock at the option of the
Holder, in whole or in part at any time and from time to time, after the
Original Issue Date (subject to the limitations on conversion set forth in
Section 4(a)(ii) hereof). The number of shares of Common Stock issuable upon a
conversion hereunder shall be determined by adding the sum of (i) the quotient
obtained by dividing (x) the outstanding principal amount of this Debenture to
be converted and (y) the Conversion Price (as defined herein) on the Conversion
Date, and (ii) the amount equal to (I) the product of (x) the outstanding
principal amount of this Debenture to be converted and (y) the product of (1)
the quotient obtained by dividing .05 by 360 and (2) the number of days for
which such principal amount was outstanding, divided by (II) the Conversion
Price on the Conversion Date, PROVIDED, that if the Company shall have timely
elected to pay the interest due on a Conversion Date in cash pursuant to the
terms hereof, subsection (ii) shall not be used in the calculation of the number
of shares of Common Stock issuable upon a conversion hereunder.
(B) Notwithstanding anything to the contrary
contained herein, if on any Conversion Date:
(1) the number of shares of Common Stock at the
time authorized, unissued and unreserved for all purposes, or held as
treasury stock, is insufficient to pay interest hereunder in shares of
Common Stock;
(2) after the Interest Effectiveness Date (as
defined in Section 5) such shares of Common Stock (x) are not
registered for resale pursuant to an effective Underlying Shares
Registration Statement and (y) may not be sold without volume
restrictions pursuant to Rule 144(k) promulgated under the Securities
Act (as defined in Section 5), as determined by counsel to the Company
pursuant to a written opinion letter, addressed to the Company's
transfer agent in the form and substance acceptable to the applicable
Holder and such transfer agent (if the shares of Common Stock are
permitted by the Holder to be delivered under this clause (2) prior to
the Effectiveness Date (as defined in the Registration Rights
Agreement) and thereafter an Underlying Shares Registration Statement
shall be declared effective by the Commission, the Company shall,
within three Trading Days after the date of such declaration of
effectiveness, exchange such shares for shares of Common Stock that are
free of restrictive legends of any kind);
(3) the Common Stock is not listed or quoted on
the AMEX or on a Subsequent Market;
(4) the Company has failed to timely satisfy its
conversion obligations hereunder; or
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(5) the issuance of such shares of Common Stock
would result in a violation of Sections 4(a)(ii)(A) and (B),
then, at the option of the Holder, the Company, in
lieu of delivering shares of Common Stock pursuant to Section
4(a)(i)(A)(ii), shall deliver, within three Trading Days of each
applicable Conversion Date, an amount in cash equal to the product of
(a) the outstanding principal amount of the Debentures to be converted
on such Conversion Date and (b) the product of (x) the quotient
obtained by dividing .05 by 360 and (y) the number of days for which
such principal amount was outstanding.
(C) The Holder shall effect conversions by
surrendering the Debentures (or such portions thereof) to be converted, together
with the form of conversion notice attached hereto as EXHIBIT A (a "CONVERSION
NOTICE") to the Company. Each Conversion Notice shall specify the principal
amount of Debentures to be converted, the applicable Conversion Price and the
date on which such conversion is to be effected, which date may not be prior to
the date such Conversion Notice is deemed to have been delivered hereunder (a
"CONVERSION DATE"). If no Conversion Date is specified in a Conversion Notice,
the Conversion Date shall be the date that such Conversion Notice is deemed
delivered hereunder. Subject to Section 4(b), each Conversion Notice, once
given, shall be irrevocable. If the Holder is converting less than all of the
principal amount represented by the Debenture(s) tendered by the Holder with the
Conversion Notice, or if a conversion hereunder cannot be effected in full for
any reason, the Company shall honor such conversion to the extent permissible
hereunder and shall promptly deliver to such Holder (in the manner and within
the time set forth in Section 4(b)) a new Debenture for such principal amount as
has not been converted.
(ii) CERTAIN CONVERSION RESTRICTIONS.
(A) A Holder may not convert Debentures
or receive shares of Common Stock as payment of interest hereunder to the extent
such conversion or receipt of such interest payment would result in the Holder,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act (as defined in Section 6) and
the rules promulgated thereunder) in excess of 4.999% of the then issued and
outstanding shares of Common Stock, including shares issuable upon conversion
of, and payment of interest on, the Debentures held by such Holder after
application of this Section. Since the Holder will not be obligated to report to
the Company the number of shares of Common Stock it may hold at the time of a
conversion hereunder, unless the conversion at issue would result in the
issuance of shares of Common Stock in excess of 4.999% of the then outstanding
shares of Common Stock without regard to any other shares which may be
beneficially owned by the Holder or an affiliate thereof, the Holder shall have
the authority and obligation to determine whether the restriction contained in
this Section will limit any particular conversion hereunder and to the extent
that the Holder determines that the limitation contained in this Section
applies, the determination of which portion of the principal amount of
Debentures are convertible shall be the responsibility and obligation of the
Holder. If the Holder has delivered a Conversion Notice for a principal amount
of Debentures that, without regard to any other shares that the Holder or its
affiliates may beneficially own, would result in the issuance in excess of the
permitted amount hereunder, the Company shall notify the Holder of this fact and
shall honor the conversion for the maximum principal amount permitted to be
converted on such
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Conversion Date in accordance with the periods described in Section 4(b) and, at
the option of the Holder, either retain any principal amount tendered for
conversion in excess of the permitted amount hereunder for future conversions or
return such excess principal amount to the Holder. The provisions of this
Section may be waived by a Holder (but only as to itself and not to any other
Holder) upon not less than 61 days prior notice to the Company. Other Holders
shall be unaffected by any such waiver.
(B) A Holder may not convert Debentures
or receive shares of Common Stock as payment of interest hereunder to the extent
such conversion or receipt of such interest payment would result in the Holder,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules promulgated
thereunder) in excess of 9.999% of the then issued and outstanding shares of
Common Stock, including shares issuable upon conversion of, and payment of
interest on, the Debentures held by such Holder after application of this
Section. Since the Holder will not be obligated to report to the Company the
number of shares of Common Stock it may hold at the time of a conversion
hereunder, unless the conversion at issue would result in the issuance of shares
of Common Stock in excess of 9.999% of the then outstanding shares of Common
Stock without regard to any other shares which may be beneficially owned by the
Holder or an affiliate thereof, the Holder shall have the authority and
obligation to determine whether the restriction contained in this Section will
limit any particular conversion hereunder and to the extent that the Holder
determines that the limitation contained in this Section applies, the
determination of which portion of the principal amount of Debentures are
convertible shall be the responsibility and obligation of the Holder. If the
Holder has delivered a Conversion Notice for a principal amount of Debentures
that, without regard to any other shares that the Holder or its affiliates may
beneficially own, would result in the issuance in excess of the permitted amount
hereunder, the Company shall notify the Holder of this fact and shall honor the
conversion for the maximum principal amount permitted to be converted on such
Conversion Date in accordance with the periods described in Section 4(b) and, at
the option of the Holder, either retain any principal amount tendered for
conversion in excess of the permitted amount hereunder for future conversions or
return such excess principal amount to the Holder. The provisions of this
Section may be waived by a Holder (but only as to itself and not to any other
Holder) upon not less than 61 days prior notice to the Company. Other Holders
shall be unaffected by any such waiver.
(C) If the Common Stock is then listed
for trading on the AMEX and the Company has not obtained the Shareholder
Approval (as defined below), then the Company may not issue in excess of
1,173,863 shares of Common Stock upon conversions of Debentures or as payment of
interest thereon in shares of Common Stock (such number of shares, the "ISSUABLE
MAXIMUM"). The Issuable Maximum equals 19.999% of the number of shares of Common
Stock outstanding immediately prior to the closing of transactions set forth in
the Purchase Agreement. If on any Conversion Date (A) the Common Stock is listed
for trading on the AMEX, (B) the Conversion Price then in effect is such that
the aggregate number of shares of Common Stock that would then be issuable upon
conversion in full of all then outstanding Debentures and as payment of interest
thereon in shares of Common Stock, together with any shares of Common Stock
previously issued upon conversion of Debentures and as payment of interest
thereon, would exceed the Issuable Maximum, and (C) the Company shall not have
previously obtained the vote of shareholders (the "SHAREHOLDER APPROVAL"), if
any, as may be required by the applicable rules and
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<PAGE>
regulations of the American Stock Exchange (or any successor entity) applicable
to approve the issuance of shares of Common Stock in excess of the Issuable
Maximum pursuant to the terms hereof, then the Company shall issue to the Holder
requesting a conversion a number of shares of Common Stock equal to the Issuable
Maximum and, with respect to the remainder of the principal amount of Debentures
then held by such Holder for which a conversion in accordance with the
Conversion Price would result in an issuance of shares of Common Stock in excess
of the Issuable Maximum (the "EXCESS PRINCIPAL"), the converting Holder shall
have the option to require the Company to either (1) use its best efforts to
obtain the Shareholder Approval applicable to such issuance as soon as is
possible, but in any event not later than the 60th day after such request, or
(2) pay cash to the converting Holder in an amount equal to the Mandatory
Prepayment Amount for the Excess Principal. If the converting Holder shall have
elected the first option pursuant to the immediately preceding sentence and the
Company shall have failed to obtain the Shareholder Approval on or prior to the
60th day after such request, then within three days of the later to occur of
such 60th day or the date of the request therefor, the Company shall pay cash to
the converting Holder an amount equal to the Mandatory Prepayment Amount for the
Excess Principal. If the Company fails to pay the Mandatory Prepayment Amount in
full pursuant to this Section within seven days of the date payable, the Company
will pay interest thereon at a rate of 18% per annum (or such lesser maximum
amount that is permitted to be paid by applicable law) to the converting Holder,
accruing daily from the Conversion Date until such amount, plus all such
interest thereon, is paid in full. In the event there is more than one holder of
Debentures, the Issuable Maximum applicable to each Debenture holder shall be
determined pro rata by reference to the percentage of the principal amount of
the Debenture at issue and $2,500,000, PROVIDED that if one or more Debentures
shall have been redeemed or converted without having been issued its pro rata
allocated portion of the Issuable Maximum such unissued shares shall be
allocated pro rata to the remaining Holders. It is understood and agreed that
shares of Common Stock delivered to and held by the Holder or one of its
affiliates on account of conversion hereunder may not cast votes on the matter
of Shareholder Approval. Shares delivered on account of conversion hereunder and
not held by the Holder or its affiliates may cast votes on the matter of
Shareholder Approval.
(D) For so long as the Common Stock is
listed on the AMEX, Nasdaq National Market or Nasdaq SmallCap Market, unless the
Company shall have previously obtained the vote of the holders of the Common
Stock, if any, as may be required under the rules of the Amex or Nasdaq Stock
Market, as applicable to such issuance, the Holder will not hold in excess of
35% of the shares of Common Stock outstanding on the Original Issue Date as a
result of conversions or other deliveries hereunder.
(b) (i) Not later than three Trading Days after any
Conversion Date, the Company will deliver to the Holder (i) a certificate or
certificates which shall be free of restrictive legends and trading restrictions
(other than those required by Section 3.1(b) of the Purchase Agreement)
representing the number of shares of Common Stock being acquired upon the
conversion of Debentures (subject to the limitations set forth in Section
4(a)(ii) hereof), (ii) Debentures in a principal amount equal to the principal
amount of Debentures not converted, and (iii) a bank check in the amount of
accrued and unpaid interest (if the Company has timely elected or is required to
pay accrued interest in cash) and the Floor Prepayment Price (as defined in
Section 4(c)(i)(B)) (if applicable), PROVIDED, that the Company shall not be
obligated to issue certificates
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evidencing the shares of Common Stock issuable upon conversion of the principal
amount of Debentures until Debentures are delivered for conversion to the
Company, or the Holder notifies the Company that such Debentures have been lost,
stolen or destroyed and provides a bond (or other adequate security) reasonably
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection therewith. The Company shall, upon request of the Holder, if
available, use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section electronically
through the Depository Trust Corporation or another established clearing
corporation performing similar functions. If in the case of any Conversion
Notice such certificate or certificates are not delivered to or as directed by
the applicable Holder by the third Trading Day after a Conversion Date, the
Holder shall be entitled by written notice to the Company at any time on or
before its receipt of such certificate or certificates thereafter, to rescind
such conversion, in which event the Company shall immediately return the
certificates representing the principal amount of Debentures tendered for
conversion.
(ii) If the Company fails to deliver to the
Holder such certificate or certificates pursuant to Section 4(b)(i) by the third
Trading Day after the Conversion Date, the Company shall pay to such Holder, in
cash, as liquidated damages and not as a penalty, $5,000 for each Trading Day
after such third Trading Day until such certificates are delivered. Nothing
herein shall limit a Holder's right to pursue actual damages or declare an Event
of Default pursuant to Section 3 herein for the Company's failure to deliver
certificates representing shares of Common Stock upon conversion within the
period specified herein and such Holder shall have the right to pursue all
remedies available to it at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief. The exercise of any
such rights shall not prohibit the Holders from seeking to enforce damages
pursuant to any other Section hereof or under applicable law. Further, if the
Company shall not have delivered any cash due in respect of conversions of
Debentures or as payment of interest thereon by the third Trading Day after the
Conversion Date, the Holder may, by notice to the Company, require the Company
to issue shares of Common Stock pursuant to Section 4(c), except that for such
purpose the Conversion Price applicable thereto shall be the lesser of the
Conversion Price on the Conversion Date and the Conversion Price on the date of
such Holder demand. Any such shares will be subject to the provision of this
Section.
(iii) In addition to any other rights available to
the Holder, if the Company fails to deliver to the Holder such certificate or
certificates pursuant to Section 4(b)(i) by the third Trading Day after the
Conversion Date, and if after such third Trading Day the Holder purchases (in an
open market transaction or otherwise) Common Stock to deliver in satisfaction of
a sale by such Holder of the Underlying Shares which the Holder anticipated
receiving upon such conversion (a "BUY-IN"), then the Company shall (A) pay in
cash to the Holder (in addition to any remedies available to or elected by the
Holder) the amount by which (x) the Holder's total purchase price (including
brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the
product of (1) the aggregate number of shares of Common Stock that such Holder
anticipated receiving from the conversion at issue multiplied by (2) the market
price of the Common Stock at the time of the sale giving rise to such purchase
obligation and (B) at the option of the Holder, either reissue Debentures in
principal amount equal to the principal amount of the attempted conversion or
deliver to the Holder the number of shares of Common Stock that would have been
issued had the Company timely complied with its delivery requirements under
Section 4(b)(i). For example, if the
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Holder purchases Common Stock having a total purchase price of $11,000 to cover
a Buy-In with respect to an attempted conversion of Debentures with respect to
which the market price of the Underlying Shares on the date of conversion was a
total of $10,000 under clause (A) of the immediately preceding sentence, the
Company shall be required to pay the Holder $1,000. The Holder shall provide the
Company written notice indicating the amounts payable to the Holder in respect
of the Buy-In. Notwithstanding anything contained herein to the contrary, if a
Holder requires the Company to make payment in respect of a Buy-In for the
failure to timely deliver certificates hereunder and the Company timely pays in
full such payment, the Company shall not be required to pay such Holder
liquidated damages under Section 4(b)(ii) in respect of the certificates
resulting in such Buy-In.
(c) (i)(A) The conversion price in effect on any
Conversion Date shall be $5.9125 (the "INITIAL CONVERSION PRICE"). However,
subject to the provisions of the immediately following sentence, on up to three
occasions during the period between the 30th Trading Day following the Effective
Date (as defined in Section 5) and the 18th month anniversary of the Effective
Date, the Holder shall be entitled to deliver to the Company a notice (an
"ADJUSTMENT NOTICE") requiring that 1/3 of the original principal amount of all
Debentures acquired by it (and, with respect to the third such notice, the
lesser of 1/3 of such principal amount and the principal amount then outstanding
for which no prior Adjustment Notices have been delivered) are subject to
conversion at a conversion price equal to 92% of the average of the lowest five
Per Share Market Values (which need not occur on consecutive Trading Days)
during the thirty Trading Days immediately preceding the date of the delivery of
the Adjustment Notice (such conversion price, the "ADJUSTED CONVERSION PRICE"),
PROVIDED, HOWEVER, that such thirty Trading Day period shall be extended for the
number of Trading Days during such period in which (A) trading in the Common
Stock is suspended by the AMEX or a Subsequent Market on which the Common Stock
is then listed, or (B) the Underlying Shares Registration Statement is not
effective or the Prospectus included in the Underlying Shares Registration
Statement may not be used by the Holder for the resale of Underlying Shares. If
after the Effective Date the average of the Per Share Market Values for 20
consecutive Trading Days is greater than 150% of the Initial Conversion Price
(which number shall be subject to equitable adjustment as provided in Section
4(c)(ii)), then the Holder shall not be entitled to deliver any additional
Adjustment Notices. However, previously delivered Adjustment Notices shall
continue to remain in effect. As used herein, the term "CONVERSION PRICE" shall
equal the Initial Conversion Price as adjusted by the Adjusted Conversion Price
and the provisions of this Section with respect to anti-dilution protection.
(B) If on any Conversion Date, the Conversion Price shall
be lower than $4.14 (which number shall be subject to equitable adjustments as
provided in Section 4(C)(ii) (such Conversion Price, the "FLOOR PRICE" and a
Conversion Date on which such condition is met, a "RECORD DATE"), then the
Company will have the right, exercisable by delivery of a written notice to the
Holders delivered at least twenty Trading Days prior to the Record Date (the
"COMPANY NOTICE"), which notice shall remain in effect until a subsequent such
notice is provided by the Company to the Holders, to elect to honor the
conversion at issue by either: (x) issuing the number of shares of Common Stock
issuable at the actual Conversion Price pursuant to Section 4(c)(i)(A), or (y)
issue the number of shares of Common Stock issuable upon the conversion at
issue, as if the conversion price applicable to such conversion was equal to the
Floor Price and pay cash, no later than the third Trading Day following the
applicable Conversion Date, to the Holder, in an amount
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equal to the product of (A) the average of the Per Share Market Values for the
five Trading Days preceding the Conversion Date for such conversion and (B) the
number of shares of Common Stock as equals (x) the quotient obtained by dividing
the aggregate principal amount of Debentures for the conversion at issue by (y)
the difference between (i) the Floor Price and (ii) the Conversion Price on such
Conversion Date (the "FLOOR PREPAYMENT PRICE"). Failure by the Company to timely
deliver the Company Notice to the Holder pursuant to the terms of this Section
shall result conclusively be deemed an election by the Company under subsection
(x) hereunder. Failure by the Company to pay any portion of the Floor Prepayment
Price by the third Trading Day following the applicable Conversion Date shall
result in the invalidation AB INITIO of the unpaid portion of such optional
prepayment. In such event, the Company shall, at the option of the Holder,
either, (i) not later than three Trading Days from receipt of Holder's request
for such election, return to the Holder all of the principal amount of
Debentures for which such Floor Prepayment Price has not been paid in full (the
"UNPAID PREPAYMENT DEBENTURES") or (ii) convert all or any portion of the Unpaid
Prepayment Debentures in which event the Per Share Market Value for such shares
shall be the lower of the Per Share Market Value calculated on the date the
Floor Prepayment Price was originally due and the Per Share Market Value as of
the Holder's written demand for conversion. If the Holder elects option (ii)
above, the Company shall within three Trading Days of its receipt of such
election deliver to the Holder the shares of Common Stock issuable upon
conversion of the Unpaid Prepayment Debentures subject to such Holder conversion
demand and otherwise perform its obligations hereunder with respect thereto.
(ii) If the Company, at any time while any
Debentures are outstanding, (a) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or any other equity
or equity equivalent securities payable in shares of Common Stock, (b) subdivide
outstanding shares of Common Stock into a larger number of shares, (c) combine
(including by way of reverse stock split) outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of shares of
the Common Stock any shares of capital stock of the Company, then the Initial
Conversion Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or re-classification.
(iii) If the Company, at any time while any
Debentures are outstanding, shall issue rights, options or warrants to all
holders of Common Stock (and not to Holders) entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the Per Share
Market Value at the record date mentioned below, then the Conversion Price shall
be multiplied by a fraction, of which the denominator shall be the number of
shares of the Common Stock (excluding treasury shares, if any) outstanding on
the date of issuance of such rights or warrants plus the number of additional
shares of Common Stock offered for subscription or purchase, and of which the
numerator shall be the number of shares of the Common Stock (excluding treasury
shares, if any) outstanding on the date of issuance of such rights or warrants
plus the number of shares which the aggregate offering price of the total number
of shares so offered
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would purchase at such Per Share Market Value. Such adjustment shall be made
whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such rights, options or warrants. However, upon the expiration of any
such right, option or warrant to purchase shares of the Common Stock the
issuance of which resulted in an adjustment in the Conversion Price pursuant to
this Section, if any such right, option or warrant shall expire and shall not
have been exercised, the Conversion Price shall immediately upon such expiration
be recomputed and effective immediately upon such expiration be increased to the
price which it would have been (but reflecting any other adjustments in the
Conversion Price made pursuant to the provisions of this Section after the
issuance of such rights or warrants) had the adjustment of the Conversion Price
made upon the issuance of such rights, options or warrants been made on the
basis of offering for subscription or purchase only that number of shares of the
Common Stock actually purchased upon the exercise of such rights, options or
warrants actually exercised.
(iv) If the Company or any subsidiary thereof, as
applicable with respect to Common Stock Equivalents (as defined below), at any
time while Debentures are outstanding, shall issue shares of Common Stock or
rights, warrants, options or other securities or debt that are convertible into
or exchangeable for shares of Common Stock ("COMMON STOCK EQUIVALENTS")
entitling any Person to acquire shares of Common Stock at a price per share less
than the Conversion Price (if the holder of the Common Stock or Common Stock
Equivalent so issued shall at any time, whether by operation of purchase price
adjustments, reset provisions, floating conversion, exercise or exchange prices
or otherwise, or due to warrants, options or rights issued in connection with
such issuance, be entitled to receive shares of Common Stock at a price less
than the Conversion Price, such issuance shall be deemed to have occurred for
less than the Conversion Price), then the Conversion Price shall be multiplied
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such shares of Common
Stock or such Common Stock Equivalents plus the number of shares of Common Stock
which the offering price for such shares of Common Stock or Common Stock
Equivalents would purchase at the Conversion Price, and the denominator of which
shall be the sum of the number of shares of Common Stock outstanding immediately
prior to such issuance plus the number of shares of Common Stock so issued or
issuable, PROVIDED, that for purposes hereof, all shares of Common Stock that
are issuable upon conversion, exercise or exchange of Common Stock Equivalents
shall be deemed outstanding immediately after the issuance of such Common Stock
Equivalents. Such adjustment shall be made whenever such shares of Common Stock
or Common Stock Equivalents are issued. However, upon the expiration of any
Common Stock Equivalents the issuance of which resulted in an adjustment in the
Conversion Price pursuant to this Section, if any such Common Stock Equivalents
shall expire and shall not have been exercised, the Conversion Price shall
immediately upon such expiration be recomputed and effective immediately upon
such expiration be increased to the price which it would have been (but
reflecting any other adjustments in the Conversion Price made pursuant to the
provisions of this Section after the issuance of such Common Stock Equivalents)
had the adjustment of the Conversion Price made upon the issuance of such Common
Stock Equivalents been made on the basis of offering for subscription or
purchase only that number of shares of Common Stock actually purchased upon the
exercise of such Common Stock Equivalents actually exercised. Notwithstanding
the foregoing, the following shall not be deemed to be Common Stock Equivalents:
(i) issuances pursuant to a grant or exercise of stock or options
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which may hereafter be granted or exercised under any employee benefit plan of
the Company now existing or to be implemented in the future; (ii) securities
issued in outstanding in connection with a Strategic Transaction (as defined
below) or a payment of purchase price in connection with a bona fide business
combination; (iii) securities issuable pursuant to convertible or exchangeable
securities of the Company that are outstanding on the Original Issue Date and
specified in Schedule 2.1(c) to the Purchase Agreement, and (iv) and (v) a
warrant for the purchase of 10,000 shares of the Company's Common Stock issued
to McKesson Corporation. A "STRATEGIC TRANSACTION" shall mean a transaction or
relationship in which the Company issues Common Stock to an entity which is,
itself or through its subsidiaries, an operating company in a business related
to the business of the Company and in which the Company receives material
benefits in addition to the investment of funds, but shall not include a
transaction in which the Company is issuing securities primarily for the purpose
of raising capital.
(v) If the Company, at any time while Debentures
are outstanding, shall distribute to all holders of Common Stock (and not to
Holders) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Conversion
Price at which Debentures shall thereafter be convertible shall be determined by
multiplying the Conversion Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the Per Share Market Value
determined as of the record date mentioned above, and of which the numerator
shall be such Per Share Market Value on such record date less the then fair
market value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holders of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(vi) In case of any reclassification of the
Common Stock or any compulsory share exchange pursuant to which the Common Stock
is converted into other securities, cash or property, the Holders shall have the
right thereafter to, at their option, (A) convert the then outstanding principal
amount, together with all accrued but unpaid interest and any other amounts then
owing hereunder in respect of this Debenture only into the shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of the Common Stock following such reclassification or share exchange,
and the Holders of the Debentures shall be entitled upon such event to receive
such amount of securities, cash or property as the shares of the Common Stock of
the Company into which the then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture could have been converted immediately prior to such
reclassification or share exchange would have been entitled or (B) require the
Company to prepay the aggregate of its outstanding principal amount of
Debentures, plus all interest and other amounts due and payable thereon, at a
price determined in accordance with Section 3(b). The entire prepayment price
shall be paid in cash. This provision shall similarly apply to successive
reclassifications or share exchanges.
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(vii) All calculations under this Section 4 shall
be made to the nearest cent or the nearest 1/100th of a share, as the case may
be. No adjustments in either the Conversion Price or the Initial Conversion
Price shall be required if such adjustment is less than $0.01, PROVIDED,
however, that any adjustments which by reason of this Section are not required
to be made shall be carried forward and taken into account in any subsequent
adjustment.
(viii) Whenever either the Initial Conversion Price
or the Conversion Price is adjusted pursuant to any of Section 4(c)(ii) - (v),
the Company shall promptly mail to each Holder a notice setting forth the
Initial Conversion Price or Conversion Price (as applicable) after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.
(ix) If (A) the Company shall declare a dividend
(or any other distribution) on the Common Stock; (B) the Company shall declare a
special nonrecurring cash dividend on or a redemption of the Common Stock; (C)
the Company shall authorize the granting to all holders of the Common Stock
rights or warrants to subscribe for or purchase any shares of capital stock of
any class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Company; then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of the Debentures, and shall
cause to be mailed to the Holders at their last addresses as they shall appear
upon the stock books of the Company, at least 20 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, PROVIDED, that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to convert Debentures during the 20-day
period commencing the date of such notice to the effective date of the event
triggering such notice.
(x) In case of any (1) merger or consolidation
of the Company with or into another Person, or (2) sale by the Company of more
than one-half of the assets of the Company (on an as valued basis) in one or a
series of related transactions, a Holder shall have the right to (A) if
permitted under Section 3(b) hereof, exercise its rights of prepayment under
Section 3(b) with respect to such event, (B) convert its aggregate principal
amount of Debentures then outstanding into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such merger, consolidation or sale, and such Holder shall
be entitled upon such event or series of related events to receive such amount
of
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securities, cash and property as the shares of Common Stock into which such
aggregate principal amount of Debentures could have been converted immediately
prior to such merger, consolidation or sales would have been entitled, or (C) in
the case of a merger or consolidation, (x) require the surviving entity to issue
shares of convertible preferred stock or convertible debentures with such
aggregate stated value or in such face amount, as the case may be, equal to the
aggregate principal amount of Debentures then held by such Holder, plus all
accrued and unpaid interest and other amounts owing thereon, which newly issued
shares of preferred stock or debentures shall have terms identical (including
with respect to conversion) to the terms of this Debenture (except, in the case
of preferred stock, as may be required to reflect the differences between equity
and debt) and shall be entitled to all of the rights and privileges of a Holder
of Debentures set forth herein and the agreements pursuant to which the
Debentures were issued (including, without limitation, as such rights relate to
the acquisition, transferability, registration and listing of such shares of
stock other securities issuable upon conversion thereof), and (y) simultaneously
with the issuance of such convertible preferred stock or convertible debentures,
shall have the right to convert such instrument only into shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such merger or consolidation. In the case of
clause (C), the conversion price applicable for the newly issued shares of
convertible preferred stock or convertible debentures shall be based upon the
amount of securities, cash and property that each share of Common Stock would
receive in such transaction and the Conversion Price in effect immediately prior
to the effectiveness or closing date for such transaction. The terms of any such
merger, sale or consolidation shall include such terms so as to continue to give
the Holders the right to receive the securities, cash and property set forth in
this Section upon any conversion or redemption following such event. This
provision shall similarly apply to successive such events.
(d) The Company covenants that it will at all times
reserve and keep available out of its authorized and unissued shares of Common
Stock solely for the purpose of issuance upon conversion of the Debentures and
payment of interest on the Debentures, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the Holders, not less than such number of shares of the Common Stock
as shall (subject to any additional requirements of the Company as to
reservation of such shares set forth in the Purchase Agreement) be issuable
(taking into account the adjustments and restrictions of Section 4(b)) upon the
conversion of the outstanding principal amount of the Debentures and payment of
interest hereunder. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly and validly authorized, issued
and fully paid, nonassessable and, if the Underlying Shares Registration
Statement has been declared effective under the Securities Act, registered for
public sale in accordance with such Underlying Shares Registration Statement.
(e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of the
Common Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the Per Share Market Value at such time.
If the Company elects not, or is unable, to make such a cash payment, the Holder
shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.
(f) The issuance of certificates for shares of the Common
Stock on conversion of the Debentures shall be made without charge to the
Holders thereof for any documentary stamp
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or similar taxes that may be payable in respect of the issue or delivery of such
certificate, provided that the Company shall not be required to pay any tax that
may be payable in respect of any transfer involved in the issuance and delivery
of any such certificate upon conversion in a name other than that of the Holder
of such Debentures so converted and the Company shall not be required to issue
or deliver such certificates unless or until the person or persons requesting
the issuance thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has been
paid.
(g) Any and all notices or other communications or
deliveries to be provided by the Holders hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid, addressed to the Company, at
501 Main Street, Denison, Texas 75020, Facsimile No.:(903) 465-6769, attention
Chief Financial Officer, or such other address or facsimile number as the
Company may specify for such purposes by notice to the Holders delivered in
accordance with this Section, with a copy to Vinson & Elkins L.L.P., 3700
Trammell Crow Center, 2001 Ross Avenue, Dallas, Texas 75201-2975 (facsimile
number (214) 220- 7716), attention: Jay Hebert, Esq. Any and all notices or
other communications or deliveries to be provided by the Company hereunder shall
be in writing and delivered personally, by facsimile, sent by a nationally
recognized overnight courier service or sent by certified or registered mail,
postage prepaid, addressed to each Holder at the facsimile telephone number or
address of such Holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of
business of the Holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 6:30 p.m. (New
York City time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 6:30 p.m. (New York City time) on any date
and earlier than 11:59 p.m. (New York City time) on such date, (iii) four days
after deposit in the United States mail, (iv) the Business Day following the
date of mailing, if sent by nationally recognized overnight courier service, or
(v) upon actual receipt by the party to whom such notice is required to be
given.
SECTION 5. DEFINITIONS. For the purposes hereof, the following terms
shall have the following meanings:
"BUSINESS DAY" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York or the State of Texas are authorized or required by law or
other government action to close.
"CHANGE OF CONTROL TRANSACTION" means the occurrence of any of
(i) an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 50% of the
voting securities of the Company, (ii) a replacement at one time or over time of
more than one-half of the members of the Company's board of directors which is
not approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals
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who are serving as members of the board of directors on any date whose
nomination to the board of directors was approved by a majority of the members
of the board of directors who are members on the date hereof), (iii) the merger
of the Company with or into another entity that is not wholly-owned by the
Company, consolidation or sale of 50% or more of the assets of the Company in
one or a series of related transactions, or (iv) the execution by the Company of
an agreement to which the Company is a party or by which it is bound, providing
for any of the events set forth above in (i), (ii) or (iii).
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock, $.01 par value per
share, of the Company and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"EFFECTIVE DATE" shall mean the date that an Underlying Shares
Registration Statement is declared effective by the Commission.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"INTEREST EFFECTIVENESS DATE" means the earlier to occur of
(x) the Effectiveness Date and (y) the Effective Date.
"MANDATORY PREPAYMENT AMOUNT" for any Debentures shall equal
the sum of (i) the greater of (A) 115% of the principal amount of Debentures to
be prepaid, plus all accrued and unpaid interest thereon, and (B) the principal
amount of Debentures to be prepaid, plus all accrued and unpaid interest
thereon, divided by the Conversion Price on (x) the date the Mandatory
Prepayment Amount is demanded or otherwise due or (y) the date the Mandatory
Prepayment Amount is paid in full, whichever is less, multiplied by the Per
Share Market Value on (x) the date the Mandatory Prepayment Amount is demanded
or otherwise due or (y) the date the Mandatory Prepayment Amount is paid in
full, whichever is greater, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of such Debentures.
"ORIGINAL ISSUE DATE" shall mean the date of the first
issuance of the Debentures regardless of the number of transfers of any
Debenture and regardless of the number of instruments which may be issued to
evidence such Debenture.
"PER SHARE MARKET VALUE" means on any particular date (a) the
closing bid price per share of Common Stock on such date on the AMEX or on such
Subsequent Market on which the shares of Common Stock are then listed or quoted,
or if there is no such price on such date, then the closing bid price on the
AMEX or on such Subsequent Market on the date nearest preceding such date, or
(b) if the shares of Common Stock are not then listed or quoted on the AMEX or a
Subsequent Market, the closing bid price for a share of Common Stock in the
over-the-counter market, as reported by the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the shares of
Common Stock are not then reported by the National Quotation Bureau Incorporated
(or similar organization or agency succeeding to its functions of reporting
prices), then the average of
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the "Pink Sheet" quotes for the relevant conversion period, as determined in
good faith by the Holder, or (d) if the shares of Common Stock are not then
publicly traded the fair market value of a share of Common Stock as determined
by an Appraiser selected in good faith by the Holders of a majority in interest
of the principal amount of Debentures then outstanding.
"PERSON" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"PURCHASE AGREEMENT" means the Convertible Debenture Purchase
Agreement, dated as of the Original Issue Date, to which the Company and the
original Holder are parties, as amended, modified or supplemented from time to
time in accordance with its terms.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the Original Issue Date, to which the Company and the
original Holder are parties, as amended, modified or supplemented from time to
time in accordance with its terms.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"TRADING DAY" means (a) a day on which the shares of Common
Stock are traded on the AMEX or on such Subsequent Market on which the shares of
Common Stock are then listed or quoted, or (b) if the shares of Common Stock are
not listed on the AMEX or a Subsequent Market, a day on which the shares of
Common Stock are traded in the over-the-counter market, as reported by the OTC
Bulletin Board, or (c) if the shares of Common Stock are not quoted on the OTC
Bulletin Board, a day on which the shares of Common Stock are quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices); PROVIDED, that in the event that the shares of Common Stock
are not listed or quoted as set forth in (a), (b) and (c) hereof, then Trading
Day shall mean any day except Saturday, Sunday and any day which shall be a
legal holiday or a day on which banking institutions in the State of New York
are authorized or required by law or other government action to close.
"TRANSACTION DOCUMENTS" shall have the meaning set forth in
the Purchase Agreement.
"UNDERLYING SHARES" means the shares of Common Stock issuable
upon conversion of Debentures or as payment of interest in accordance with the
terms hereof.
"UNDERLYING SHARES REGISTRATION STATEMENT" means a
registration statement meeting the requirements set forth in the Registration
Rights Agreement, covering among other things the resale of the Underlying
Shares and naming the Holder as a "selling stockholder" thereunder.
SECTION 6. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, interest and liquidated damages (if
any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Company. This
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Debenture ranks PARI PASSU with all other Debentures now or hereafter issued
under the terms set forth herein. As long as there are Debentures outstanding,
the Company shall not and shall cause it subsidiaries not to, without the
consent of the Holders, (i) amend its certificate of incorporation, bylaws or
other charter documents so as to adversely affect any rights of the Holders;
(ii) repay, repurchase or offer to repay, repurchase or otherwise acquire shares
of its Common Stock or other equity securities other than as to the Underlying
Shares to the extent permitted or required under the Transaction Documents; or
(iii) enter into any agreement with respect to any of the foregoing. The Company
may only voluntarily prepay the outstanding principal amount on the Debentures
in accordance with Section 5 hereof.
SECTION 7. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Company, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other proceedings of the
Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
SECTION 8. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
SECTION 9. Other than indebtedness now or hereafter owing to McKesson &
Company pursuant to the Company's Credit Agreement, dated as of July 2, 1998 (as
amended) and to Bank One, Texas, National Association, pursuant to the Loan
Agreement, dated as of July 31, 1999, no indebtedness of the Company is senior
to this Debenture in right of payment, whether with respect to interest, damages
or upon liquidation or dissolution or otherwise. Except under the Credit
Agreement, referred to in the immediately prior sentence, the Company will not
and will not permit any of its subsidiaries to, directly or indirectly, enter
into, create, incur, assume or suffer to exist any indebtedness of any kind, on
or with respect to any of its property or assets now owned or hereafter acquired
or any interest therein or any income or profits therefrom that is senior in
right of payment to this Debenture
SECTION 10. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof. The Company and the Holder hereby irrevocably submits
to the exclusive jurisdiction of the state and federal courts sitting in the
City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, or that such suit, action or proceeding is
improper. Each of the Company and the Holder hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by receiving a copy thereof sent to the Company at the address in
effect for notices to it under this instrument and agrees that such service
shall constitute good and sufficient service of process and
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notice thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law.
SECTION 11. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.
SECTION 12. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder shall violate
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
SECTION 13. Whenever any payment or other obligation hereunder shall be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Convertible
Debenture to be duly executed by a duly authorized officer as of the date first
above indicated.
HORIZON PHARMACIES, INC.
By: /s/ Rick D. McCord
-------------------------------
Name: Rick D. McCord
Title: President
Attest:
By:_______________________________
Name:
Title:
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REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made
and entered into as of March 31, 2000, among HORIZON Pharmacies, Inc., a
Delaware corporation (the "COMPANY"), and the investors signatory hereto (each
such investor is a "PURCHASER" and all such investors are, collectively, the
"PURCHASERS").
This Agreement is made pursuant to the Convertible Debenture
Purchase Agreement, dated as of the date hereof among the Company and the
Purchasers (the "PURCHASE AGREEMENT").
The Company and the Purchasers hereby agree as follows:
1. DEFINITIONS
Capitalized terms used and not otherwise defined herein that
are defined in the Purchase Agreement shall have the meanings given such terms
in the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:
"AFFILIATE" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "CONTROL," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "AFFILIATED," "CONTROLLING" and "CONTROLLED" have
meanings correlative to the foregoing.
"BUSINESS DAY" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York or the State of Texas generally are authorized or required by
law or other government actions to close.
"CLOSING DATE" shall have the meaning set forth in the
Purchase Agreement.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Company's common stock, $0.01 par
value per share, or such securities that such stock shall hereafter be
reclassified into.
"DEBENTURES" means the Convertible Debentures issued to the
Purchasers in accordance with the Purchase Agreement.
"EFFECTIVENESS DATE" means the 90th day following the Closing
Date.
"EFFECTIVENESS PERIOD" shall have the meaning set forth in
Section 2(a).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FILING DATE" means the 30th day following the Closing Date.
<PAGE>
"HOLDER" or "HOLDERS" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"INDEMNIFIED PARTY" shall have the meaning set forth in
Section 5(c).
"INDEMNIFYING PARTY" shall have the meaning set forth in
Section 5(c).
"LOSSES" shall have the meaning set forth in Section 5(a).
"PERSON" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"PROCEEDING" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"PROSPECTUS" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"REGISTRABLE SECURITIES" means the shares of Common Stock
issuable upon conversion in full of the Debentures and exercise in full of the
Warrants.
"REGISTRATION STATEMENT" means the registration statement and
any additional registration statements contemplated by Section 2(a), including
(in each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
"RULE 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"RULE 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"RULE 424" means Rule 424 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
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<PAGE>
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"SPECIAL COUNSEL" means one special counsel to the Holders,
for which the Holders will be reimbursed by the Company pursuant to Section 4.
"WARRANTS" shall mean (i) the Common Stock purchase warrants
issued to the Purchasers pursuant to the Purchase Agreement and (ii) the Common
Stock purchase warrant issued to Wharton Capital Partners, LP in connection with
the transactions contemplated by the Purchase Agreement.
2. SHELF REGISTRATION
(a) On or prior to the Filing Date, the Company shall
prepare and file with the Commission a "Shelf" Registration Statement covering
the resale of all Registrable Securities for an offering to be made on a
continuous basis pursuant to Rule 415. The Registration Statement shall be on
Form S-3 (except if the Company is not then eligible to register for resale the
Registrable Securities on Form S-3, in which case such registration shall be on
another appropriate form in accordance herewith as the Holders may consent) and
shall contain (except if otherwise directed by the Holders) the "Plan of
Distribution" attached hereto as ANNEX A, and cause the Registration Statement
to become effective and remain effective as provided herein. The Company shall
use its best efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as possible after the filing
thereof, but in any event prior to the Effectiveness Date, and shall use its
best efforts to keep such Registration Statement continuously effective under
the Securities Act until the date which is two years after the date that such
Registration Statement is declared effective by the Commission or such earlier
date when all Registrable Securities covered by such Registration Statement have
been sold or may be sold without volume restrictions pursuant to Rule 144(k) as
determined by the counsel to the Company pursuant to a written opinion letter to
such effect, addressed and acceptable to the Company's transfer agent and the
affected Holders (the "EFFECTIVENESS PERIOD"), PROVIDED, that the Company shall
not be deemed to have used its best efforts to keep the Registration Statement
effective during the Effectiveness Period if it voluntarily takes any action
that would result in the Holders not being able to sell the Registrable
Securities covered by such Registration Statement during the Effectiveness
Period, unless such action is required under applicable law or the Company has
filed a post-effective amendment to the Registration Statement and the
Commission has not declared it effective.
(b) The initial Registration Statement required to be
filed hereunder shall include (but not be limited to) a number of shares of
Common Stock equal to no less than the sum of (i) 200% of the number of shares
of Common Stock issuable upon conversion in full of the outstanding principal
amount of the Debentures, assuming all interest is paid in shares of Common
Stock that the Debentures remain outstanding for three years, and that such
conversion occurred on the Closing Date, and (ii) the number of shares of Common
Stock issuable upon exercise in full of the Warrants.
(c) If (a) the initial Registration Statement is not
filed on or prior to the Filing Date (if the Company files such Registration
Statement without affording the Holder the opportunity to review and comment on
the same as required by Section 3(a) hereof, the Company shall not be deemed to
have satisfied this clause (a)), or (b) the Company fails to file with the
Commission a
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request for acceleration in accordance with Rule 461 promulgated under the
Securities Act, within five days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that a
Registration Statement will not be "reviewed," or not subject to further review,
or (c) the initial Registration Statement filed hereunder is not declared
effective by the Commission on or prior to the 30th day following the
Effectiveness Date, or (d) after a Registration Statement is filed with and
declared effective by the Commission, such Registration Statement ceases to be
effective as to all Registrable Securities at any time prior to the expiration
of the Effectiveness Period without being succeeded within ten days by an
amendment to such Registration Statement or by a subsequent Registration
Statement filed with and declared effective by the Commission, or (e) the Common
Stock shall be delisted or suspended from trading on the American Stock Exchange
("AMEX") or on the New York Stock Exchange, or Nasdaq National Market or Nasdaq
Smallcap Market (each, a "SUBSEQUENT MARKET") for more than three days (which
need not be consecutive days), or (f) the conversion rights of the Holders
pursuant to the Debentures are suspended for any reason, or (g) an amendment to
a Registration Statement is not filed by the Company with the Commission within
ten days of the Commission's notifying the Company that such amendment is
required in order for such Registration Statement to be declared effective (any
such failure or breach being referred to as an "EVENT," and for purposes of
clauses (a), (c), (f) the date on which such Event occurs, or for purposes of
clause (b) the date on which such five day period is exceeded, or for purposes
of clauses (d) and (g) the date which such 10 day-period is exceeded, or for
purposes of clause (e) the date on which such three day-period is exceeded,
being referred to as "EVENT DATE"), then, on the Event Date and each monthly
anniversary thereof until the applicable Event is cured, the Company shall pay
to each Holder 2.0% of the purchase price paid by such Holder pursuant to the
Purchase Agreement, in cash, as liquidated damages and not as a penalty. If the
Company fails to pay any liquidated damages pursuant to this Section in full
within seven (7) days after the date payable, the Company will pay interest
thereon at a rate of 18% per annum (or such lesser maximum amount that is
permitted to be paid by applicable law) to the Holder, accruing daily from the
date such liquidated damages are due until such amounts, plus all such interest
thereon, are paid in full. The liquidated damages pursuant to the terms hereof
shall apply on a pro-rata basis for any portion of a month prior to the cure of
an Event.
3. REGISTRATION PROCEDURES
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Not less than five Business Days prior to the filing
of the Registration Statement or any related Prospectus or any amendment or
supplement thereto (including any document that would be incorporated or deemed
to be incorporated therein by reference), the Company shall, (i) furnish to the
Holders and their Special Counsel copies of all such documents proposed to be
filed, which documents (other than those incorporated or deemed to be
incorporated by reference) will be subject to the review of such Holders and
their Special Counsel, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as shall
be necessary, in the reasonable opinion of respective counsel to such to conduct
a reasonable investigation within the meaning of the Securities Act. The Company
shall not file the Registration Statement or any such Prospectus or any
amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities and their Special Counsel shall reasonably object.
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(b) (i) Prepare and file with the Commission such
amendments, including post-effective amendments, to the Registration Statement
and the Prospectus used in connection therewith as may be necessary to keep the
Registration Statement continuously effective as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the Commission
such additional Registration Statements in order to register for resale under
the Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424; (iii)
respond as promptly as reasonably possible, and in any event within ten days, to
any comments received from the Commission with respect to the Registration
Statement or any amendment thereto and as promptly as reasonably possible
provide the Holders true and complete copies of all correspondence from and to
the Commission relating to the Registration Statement; and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange Act
with respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) File additional Registration Statements if the number
of Registrable Securities at any time exceeds 85% of the number of shares of
Common Stock then registered in a Registration Statement. The Company shall have
twenty-five days to file such additional Registration Statements after such
requirement notice of which is given by the Holders.
(d) Notify the Holders of Registrable Securities to be
sold and their Special Counsel as promptly as reasonably possible (and, in the
case of (i)(A) below, not less than five Business Days prior to such filing) and
(if requested by any such Person) confirm such notice in writing no later than
one Business Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is proposed
to be filed; (B) when the Commission notifies the Company whether there will be
a "review" of such Registration Statement and whenever the Commission comments
in writing on such Registration Statement (the Company shall provide true and
complete copies thereof and all written responses thereto to each of the
Holders); and (C) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Pro spectus or
for additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement contemplated hereby ceases to be true and
correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event or passage of time that makes
the financial statements included in the Registration Statement ineligible for
inclusion therein or any statement made in the Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to the
Registration Statement, Prospectus or other documents so that, in the case of
the Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material
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<PAGE>
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(e) Use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the effectiveness of
the Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(f) Furnish to each Holder and their Special Counsel,
without charge, at least one conformed copy of each Registration Statement and
each amendment thereto, including financial statements and schedules, all
documents incorporated or deemed to be incorporated therein by reference, and
all exhibits to the extent requested by such Person (including those previously
furnished or incorporated by reference) promptly after the filing of such
documents with the Commission.
(g) Promptly deliver to each Holder and their Special
Counsel, without charge, as many copies of the Prospectus or Prospectuses
(including each form of prospectus) and each amendment or supplement thereto as
such Persons may reasonably request. The Company hereby consents to the use of
such Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable
Securities, use its best efforts to register or qualify or cooperate with the
selling Holders and their Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Holder requests in
writing, to keep each such registration or qualification (or exemption
therefrom) effective during the Effectiveness Period and to do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by a Registration Statement;
PROVIDED, that the Company shall not be required to qualify generally to do
business in any jurisdiction where it is not then so qualified or subject the
Company to any material tax in any such jurisdiction where it is not then so
subject.
(i) Cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be delivered to a transferee pursuant to a Registration Statement, which
certificates shall be free, to the extent permitted by the Purchase Agreement,
of all restrictive legends, and to enable such Registrable Securities to be in
such denominations and registered in such names as any such Holders may request.
(j) Upon the occurrence of any event contemplated by
Section 3(d)(vi), as promptly as reasonably possible, prepare a supplement or
amendment, including a post-effective amendment, to the Registration Statement
or a supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will 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, in light of the circumstances under which they were made,
not misleading.
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<PAGE>
(k) Comply with all applicable rules and regulations of
the Commission.
(l) The Company may require each selling Holder to
furnish to the Company a certified statement as to the number of shares of
Common Stock beneficially owned by such Holder and, if requested by the
Commission, the controlling person thereof.
4. REGISTRATION EXPENSES. All fees and expenses incident
to the performance of or compliance with this Agreement by the Company shall be
borne by the Company whether or not any Registrable Securities are sold pursuant
to the Registration Statement. The fees and expenses referred to in the
foregoing sentence shall include, without limitation, (i) all registration and
filing fees (including, without limitation, fees and expenses (A) with respect
to filings required to be made with the AMEX and any Subsequent Market on which
the Common Stock is then listed for trading, and (B) in compliance with state
securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel for the Holders in connection with Blue Sky qualifica
tions or exemptions of the Registrable Securities and determination of the
eligibility of the Regis trable Securities for investment under the laws of such
jurisdictions as the Holders of a majority of Registrable Securities may
designate)), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing prospectuses if
the printing of prospectuses is requested by the holders of a majority of the
Registrable Securities included in the Registration Statement), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company and Special Counsel for the Holders, (v) Securities Act liability
insurance, if the Company so desires such insurance, and (vi) fees and expenses
of all other Persons retained by the Company in connection with the consummation
of the transactions contemplated by this Agreement. In addition, the Company
shall be responsible for all of its internal expenses incurred in connection
with the consummation of the transactions contemplated by this Agreement
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit and the fees and expenses incurred in connection with the listing of the
Registrable Securities on any securities exchange as required hereunder.
5. INDEMNIFICATION
(a) INDEMNIFICATION BY THE COMPANY. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents, brokers (including brokers who
offer and sell Registrable Securities as principal as a result of a pledge or
any failure to perform under a margin call of Common Stock), investment advisors
and employees of each of them, each Person who controls any such Holder (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) and the officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, costs of preparation and attorneys' fees) and expenses
(collectively, "LOSSES"), as incurred, arising out of or relating to any untrue
or alleged untrue statement of a material fact contained in the Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of the
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<PAGE>
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that (1) such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or supplement thereto
or (2) in the case of an occurrence of an event of the type specified in Section
3(d)(ii)-(vi), the use by such Holder of an outdated or defective Prospectus
after the Company has notified such Holder in writing that the Prospectus is
outdated or defective and prior to the receipt by such Holder of the Advice
contemplated in Section 6(e). The Company shall notify the Holders promptly of
the institution, threat or assertion of any Proceeding of which the Company is
aware in connection with the transactions contemplated by this Agreement.
(b) INDEMNIFICATION BY HOLDERS. Each Holder shall,
severally and not jointly, indemnify and hold harmless the Company, its
directors, officers, agents and employees, each Person who controls the Company
(within the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), and the directors, officers, agents or employees of such
controlling Persons, to the fullest extent permitted by applicable law, from and
against all Losses (as determined by a court of competent jurisdiction in a
final judgment not subject to appeal or review) arising solely out of or based
solely upon any untrue statement of a material fact contained in the
Registration Statement, any Prospectus, or any form of prospectus, or in any
amendment or supplement thereto, or arising solely out of or based solely upon
any omission of a material fact required to be stated therein or necessary to
make the statements therein not misleading to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
so furnished in writing by such Holder to the Company specifically for inclusion
in the Registration Statement or such Prospectus or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus, or in any amendment or supplement
thereto. In no event shall the liability of any selling Holder hereunder be
greater in amount than the dollar amount of the net proceeds received by such
Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any
Proceeding shall be brought or asserted against any Person entitled to indemnity
hereunder (an "INDEMNIFIED PARTY"), such Indemnified Party shall promptly notify
the Person from whom indemnity is sought (the "INDEMNIFYING PARTY") in writing,
and the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed
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in writing to pay such fees and expenses; or (2) the Indemnifying Party shall
have failed promptly to assume the defense of such Proceeding and to employ
counsel reasonably satisfactory to such Indemnified Party in any such
Proceeding; or (3) the named parties to any such Proceeding (including any
impleaded parties) include both such Indemnified Party and the Indemnifying
Party, and such Indemnified Party shall have been advised by counsel that a
conflict of interest is likely to exist if the same counsel were to represent
such Indemnified Party and the Indemnifying Party (in which case, if such
Indemnified Party notifies the Indemnifying Party in writing that it elects to
employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
such counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending Proceeding in respect of
which any Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten Business Days of written notice thereof to the Indemnifying
Party (regardless of whether it is ultimately determined that an Indemnified
Party is not entitled to indemnification hereunder; PROVIDED, that the
Indemnifying Party may require such Indemnified Party to undertake to reimburse
all such fees and expenses to the extent it is finally judicially determined
that such Indemnified Party is not entitled to indemnification hereunder).
(d) CONTRIBUTION. If a claim for indemnification under
Section 5(a) or 5(b) is unavailable to an Indemnified Party (by reason of public
policy or otherwise), then each 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, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses 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 any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or 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 action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limita tions set forth in Section 5(c), any reasonable attorneys' or
other reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by PRO
RATA allocation or by any other method of allo cation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 5(d), no Holder shall
be
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<PAGE>
required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by such Holder from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged 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 indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties.
6. MISCELLANEOUS
(a) REMEDIES. In the event of a breach by the Company or
by a Holder, of any of their obligations under this Agreement, each Holder or
the Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. Neither the Company nor
any of its subsidiaries has entered, as of the date hereof, nor shall the
Company or any of its subsidiaries, on or after the date of this Agreement,
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the Holders in this Agreement or otherwise conflicts
with the provisions hereof. Except as and to the extent specified in SCHEDULE
6(B) hereto, neither the Company nor any of its subsidiaries has previously
entered into any agreement granting any registration rights with respect to any
of its securities to any Person.
(c) NO PIGGYBACK ON REGISTRATIONS. Except as and to the
extent specified in SCHEDULE 6(b) hereto, neither the Company nor any of its
security holders (other than the Holders in such capacity pursuant hereto) may
include securities of the Company in the Registration Statement other than the
Registrable Securities, and the Company shall not after the date hereof enter
into any agreement providing any such right to any of its security holders.
(d) COMPLIANCE. Each Holder covenants and agrees that it
will comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement.
(e) DISCONTINUED DISPOSITION. Each Holder agrees by its
acquisition of such Registrable Securities that, upon receipt of a notice from
the Company of the occurrence of any event of the kind described in Sections
3(d)(ii), 3(d)(iii), 3(d)(iv), 3(d)(v) or 3(d)(vi), such Holder will forthwith
discontinue disposition of such Registrable Securities under the Registration
Statement until such Holder's receipt of the copies of the supplemented
Prospectus and/or amended Registration Statement contemplated by Section 3(j),
or until it is advised in writing (the "ADVICE") by the Company that the use of
the applicable Prospectus may be resumed, and, in either case, has received
copies of any additional or supplemental filings that are incorporated or deemed
to be
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incorporated by reference in such Prospectus or Registration Statement. The
Company may provide appropriate stop orders to enforce the provisions of this
paragraph.
(f) PIGGY-BACK REGISTRATIONS. If at any time during the
Effectiveness Period there is not an effective Registration Statement covering
all of the Registrable Securities and the Company shall determine to prepare and
file with the Commission a registration statement relating to an offering for
its own account or the account of others under the Securities Act of any of its
equity securities, other than on Form S-4 or Form S-8 (each as promulgated under
the Securities Act) or their then equivalents relating to equity securities to
be issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Holder written notice of such
determination and, if within fifteen days after receipt of such notice, any such
Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
holder requests to be registered.
(h) AMENDMENTS AND WAIVERS. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the same shall be in writing and
signed by the Company and the Holders of at least two-thirds of the then
outstanding Registrable Securities. Notwithstanding the foregoing, a waiver or
consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders and that does not directly or
indirectly affect the rights of other Holders may be given by Holders of at
least a majority of the Registrable Securities to which such waiver or consent
relates; PROVIDED, HOWEVER, that the provisions of this sentence may not be
amended, modified, or supplemented except in accordance with the provisions of
the immediately preceding sentence.
(i) NOTICES. Any and all notices or other communications
or deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 6:30 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 6:30
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City
time) on such date, (iii) the Business Day following the date of mailing, if
sent by nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as follows:
If to the Company: HORIZON Pharmacies, Inc.
501 Main Street
Denison, Texas 75020
Facsimile No.: (903) 465-6769
Attn: Chief Financial Officer
With copies to: Vinson & Elkins L.L.P.
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201-2975
Facsimile No.: (214) 220-7716
Attn: Jay Herbert, Esq.
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<PAGE>
If to a Purchaser: To the address set forth under such
Purchaser's name on the signature
pages hereto.
If to any other Person who is then the registered Holder:
To the address of such Holder as it
appears in the stock transfer books
of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(j) SUCCESSORS AND ASSIGNS. This Agreement shall inure
to the benefit of and be binding upon the successors and permitted assigns of
each of the parties and shall inure to the benefit of each Holder. The
Company may not assign its rights or obligations hereunder without the prior
written consent of each Holder. Each Holder may assign their respective
rights hereunder in the manner and to the Persons as permitted under the
Purchase Agreement.
(k) COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(l) GOVERNING LAW. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by and construed and enforced in accordance with the internal laws
of the State of New York, without regard to the principles of conflicts of law
thereof.
(m) CUMULATIVE REMEDIES. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(n) SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
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(o) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(p) SHARES HELD BY THE COMPANY AND ITS AFFILIATES.
Whenever the consent or approval of Holders of a specified percentage of
Registrable Securities is required hereunder, Registrable Securities held by the
Company or its Affiliates (other than any Holder or transferees or successors or
assigns thereof if such Holder is deemed to be an Affiliate solely by reason of
its holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
(q) INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND
RIGHTS. The obligations of each Purchaser hereunder is several and not joint
with the obligations of any other Purchaser hereunder, and neither Purchaser
shall be responsible in any way for the performance of the obligations of any
other Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES TO FOLLOW]
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IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.
HORIZON PHARMACIES, INC.
By: /s/ Rick D. McCord
-------------------------------
Name: Rick D. McCord
Title: President
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SIGNATURE PAGES OF PURCHASER TO FOLLOW]
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ADVANTAGE FUND II LTD.
By: /s/ Donald R. Morken
----------------------------
Name: Donald R. Morken
Title: President
Address for Notice:
c/o CITCO
Kaya Flamboyan 9
Curacao, Netherlands Antilles
Facsimile: 011-599-9732-2008
Attention: W.R. Weber
Jurisdiction of organization: British Virgin Islands
With copies to:
Genesee International Inc.
10500 NE 8th Street
Suite 1920
Bellevue, WA 98004
Facsimile: (425) 462-4645
Attention: Christopher Purrier
Robinson Silverman Pearce Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630 and (212) 541-1432
Attn: Eric L. Cohen, Esq.
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SIGNATURE PAGE FOR PURCHASER FOLLOWS]
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EXHIBIT 5.1
[VINSON & ELKINS L.L.P. LETTERHEAD]
April 28, 2000
HORIZON Pharmacies, Inc.
531 West Main
Denison, Texas 75020
Ladies and Gentlemen:
We have acted as counsel for HORIZON Pharmacies, Inc., a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933 (the "Securities Act"), of 1,437,500 shares (the
"Shares") of common stock, par value $.01 per share (the "Common Stock"), of
the Company pursuant to the Company's Registration Statement on Form S-3 filed
with the Securities and Exchange Commission (the "Commission") on April 28,
2000 (the "Registration Statement").
In reaching the opinions set forth herein, we have examined and are
familiar with originals or copies, certified or otherwise, of such documents
and records of the Company and such statutes, regulations and other
instruments as we have deemed necessary or advisable for purposes of this
opinion, including (i) the Registration Statement, (ii) the Certificate of
Incorporation of the Company, as filed with the Secretary of State of the
State of Delaware and (iii) the Bylaws of the Company.
We have assumed that (i) all information contained in all documents
reviewed by us is true, correct and complete, (ii) all signatures on all
documents reviewed by us are genuine, (iii) all documents submitted to us as
originals are true and complete, (iv) all documents submitted to us as copies
are true and complete copies of the originals thereof, and (v) all persons
executing and delivering originals or copies of documents examined by us were
competent to execute and deliver such documents.
Based on the foregoing and having due regard for the legal
considerations we deem relevant, we are of the opinion that the Shares to
which the Registration Statement relates, when issued pursuant to the terms
and conditions of the warrants and the convertible debentures, will be validly
issued by the Company, fully paid and non-assessable.
<PAGE>
HORIZON Pharmacies, Inc.
April 28, 2000
Page 2
This opinion is limited in all respects to the laws of the State of
Texas, the Delaware General Corporation Law and the federal laws of the United
States of America. You should be aware that we are not admitted to the
practice of law in the State of Delaware.
This opinion letter may be filed as an exhibit to the Registration
Statement. Consent is also given to the reference to us under the caption
"Legal Matters" in the Registration Statement as having passed on the validity
of the Shares. In giving this consent, we do not thereby admit that it comes
within the category of persons whose consent is required under Section 7 of
the Securities Act or the rules and regulations of the Commission promulgated
thereunder.
Very truly yours,
/s/ VINSON & ELKINS L.L.P.
<PAGE>
================================================================================
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
Among
HORIZON PHARMACIES, INC.
and
THE INVESTORS SIGNATORY HERETO
Dated as of March 31, 2000
================================================================================
<PAGE>
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT (this "AGREEMENT"), dated as
of March 31, 2000, among HORIZON Pharmacies, Inc., a Delaware corporation (the
"COMPANY"), and the investors signatory hereto (each such investor is a
"PURCHASER" and all such investors are, collectively, the "PURCHASERS").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers and the
Purchasers, severally and not jointly, desire to purchase from the Company an
aggregate principal amount of $2,500,000 of the Company's 5% Convertible
Debentures, due March 31, 2003, which shall be in the form of EXHIBIT A (the
"DEBENTURES"), and which are convertible into shares of the Company's common
stock, $0.01 par value per share (the "Common Stock").
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy are hereby acknowledged, the Company and the Purchasers agree as
follows:
ARTICLE I
PURCHASE AND SALE
1.1 THE CLOSING.
(a) THE CLOSING. (i) Subject to the terms and conditions
set forth in this Agreement, the Company shall issue and sell to the Purchasers
and the Purchasers shall, severally and not jointly, purchase from the Company
the Debentures for an aggregate purchase price of $2,500,000. The closing of the
purchase and sale of the Debentures (the "CLOSING") shall take place at the
offices of Robinson Silverman Pearce Aronsohn & Berman LLP ("ROBINSON
SILVERMAN"), 1290 Avenue of the Americas, New York, New York 10104, immediately
following the execution hereof or such later date as the parties shall agree.
The date of the Closing is hereinafter referred to as the "CLOSING DATE."
(ii) On the Closing Date, the parties shall
deliver or shall cause to be delivered the following: (A) the Company shall
deliver to each Purchaser (1) the Debentures in the aggregate principal amount
indicated below such Purchaser's name on the signature page to this Agreement,
registered in the name of such Purchaser, (2) a Common Stock purchase warrant,
in the form of EXHIBIT D, registered in the name of such Purchaser, pursuant to
which such Purchaser shall have the right to acquire the number of shares of
Common Stock indicated below such Purchaser's name on the signature page to this
Agreement (collectively, the "WARRANTS"), (3) the legal opinion of Vinson &
Elkins L.L.P., outside counsel to the Company, in the form of EXHIBIT C, and (4)
an executed Registration Rights Agreement, dated the date hereof, among the
Company and the Purchasers, in the form of EXHIBIT B (the "REGISTRATION RIGHTS
AGREEMENT"), and the Transfer Agent Instructions, in the form of EXHIBIT E,
delivered to and acknowledged by the Company's transfer agent (the "TRANSFER
AGENT INSTRUCTIONS"); and (5) the consent of McKesson HBOC, Inc, in form
mutually agreed by the parties and (B) each Purchaser shall deliver (1) the
purchase price indicated below such Purchaser's name on the signature page to
this Agreement in United States dollars in immediately available funds by wire
transfer to an account designated in writing by the Company for such purpose,
and (2) an executed Registration Rights Agreement.
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<PAGE>
1.2 CERTAIN DEFINED TERMS. For purposes of this
Agreement, "CONVERSION PRICE," "ORIGINAL ISSUE DATE" and "TRADING DAY" shall
have the meanings set forth in the Debentures; "BUSINESS DAY" shall mean any day
except Saturday, Sunday and any day which shall be a federal legal holiday or a
day on which banking institutions in the State of New York or the State of Texas
are authorized or required by law or other governmental action to close;
"PERSON" means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company hereby makes the following representations and warranties to the
Purchasers:
(a) ORGANIZATION AND QUALIFICATION. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware with the requisite corporate power and authority
to own and use its properties and assets and to carry on its business as
currently conducted. The Company has no subsidiaries other than as set forth in
SCHEDULE 2.1(a) (collectively the "SUBSIDIARIES"). Except as set forth in
Schedule 2.1(a), each of the Subsidiaries is an entity, duly incorporated or
otherwise organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the
requisite power and authority to own and use its properties and assets and to
carry on its business as currently conducted. Each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate, (x) adversely affect the legality,
validity or enforceability of the Securities (as defined below) or any of this
Agreement, the Registration Rights Agreement, the Transfer Agent Instructions,
the Debentures or the Warrants (collectively, the "TRANSACTION DOCUMENTS"), (y)
have or result in a material adverse effect on the results of operations,
assets, prospects, or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (z) adversely impair the Company's ability to
perform fully on a timely basis its obligations under any of the Transaction
Documents (any of (x), (y) or (z), a "MATERIAL ADVERSE EFFECT").
(b) AUTHORIZATION; ENFORCEMENT. The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and otherwise to
carry out its obligations thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company. Each of the Transaction Documents has been duly executed by the Company
and, when delivered (or filed, as the case may be) in accordance with the terms
hereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms. Neither the
Company nor any
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<PAGE>
Subsidiary is in violation of any of the provisions of its respective
certificate or articles of incorporation, by-laws or other organizational or
charter documents.
(c) CAPITALIZATION. The number of authorized, issued and
outstanding capital stock of the Company is set forth in SCHEDULE 2.1(c). Except
as disclosed in Schedule 2.1(c), the Company owns all of the capital stock of
each Subsidiary. No shares of Common Stock are entitled to preemptive or similar
rights, nor is any holder of the Common Stock entitled to preemptive or similar
rights arising out of any agreement or understanding with the Company by virtue
of any of the Transaction Documents. Except as a result of the purchase and sale
of the Debentures and the Warrants and except as disclosed in SCHEDULE 2.1(c),
there are no outstanding options, warrants, script rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person (as
defined below) any right to subscribe for or acquire, any shares of Common
Stock, or contracts, commitments, understandings, or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional shares of
Common Stock, or securities or rights convertible or exchangeable into shares of
Common Stock.
(d) ISSUANCE OF THE DEBENTURES AND THE WARRANTS. The
Debentures and the Warrants are duly authorized and, when issued and paid for in
accordance with the terms hereof, will be duly and validly issued, fully paid
and nonassessable, free and clear of all liens, encumbrances and rights of first
refusal of any kind (collectively, "LIENS"). The Company has on the date hereof
and will, at all times while the Debentures and the Warrants are outstanding,
maintain an adequate reserve of duly authorized shares of Common Stock, reserved
for issuance to the holders of the Debentures and the Warrants, to enable it to
perform its conversion, exercise and other obligations under this Agreement, the
Debentures and the Warrants. Such number of reserved and available shares of
Common Stock is not less than the sum of (i) 200% of the number of shares of
Common Stock which would be issuable upon conversion in full of the Debentures,
assuming such conversion occurred on the Original Issue Date, the Debentures
remain outstanding for three years and all interest is paid in shares of Common
Stock and (ii) the number of shares of Common Stock issuable upon exercise of
the Warrants (such number of shares of Common Stock as contemplated in clauses
(i)-(ii), the "INITIAL MINIMUM"). All such authorized shares of Common Stock
shall be duly reserved for issuance to the holders of the Debentures and the
Warrants. The shares of Common Stock issuable upon conversion of the Debentures
and upon exercise of the Warrants are collectively referred to herein as the
"UNDERLYING SHARES." The Debentures, the Warrants and the Underlying Shares are
collectively referred to herein as, the "SECURITIES." When issued in accordance
with the Debentures and the Warrants, the Underlying Shares will be duly
authorized, validly issued, fully paid and nonassessable, free and clear of all
Liens.
(e) NO CONFLICTS. The execution, delivery and performance
of the Transaction Documents by the Company and the consummation by the Company
of the transactions contemplated thereby do not and will not (i) conflict with
or violate any provision of the Company's or any Subsidiary's certificate or
articles of incorporation, bylaws or other charter documents (each as amended
through the date hereof), or (ii) other than with respect to the matters
specified in Section 2.1(e), subject to obtaining the Required Approvals (as
defined below), conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation (with or
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<PAGE>
without notice, lapse of time or both) of, any agreement, credit facility, debt
or other instrument (evidencing a Company or Subsidiary debt or otherwise) or
other understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or asset of the
Company is bound or affected; except in the case of each of clauses (ii) and
(iii), as could not, individually or in the aggregate, have or result in a
Material Adverse Effect. The business of the Company or a Subsidiary is not
being conducted in violation of any law, ordinance or regulation of any
governmental authority, except for violations which, individually or in the
aggregate, could not have or result in a Material Adverse Effect.
(f) FILINGS, CONSENTS AND APPROVALS. Neither the Company
nor any Subsidiary is required to obtain any consent, waiver, authorization or
order of, give any notice to, or make any filing or registration with, any court
or other federal, state, local or other governmental authority or other Person
in connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filings required pursuant to Section
3.10, (ii) the filing with the Securities and Exchange Commission (the
"Commission") of a registration statement meeting the requirements set forth in
the Registration Rights Agreement and covering the resale of the Underlying
Shares by the Purchasers (the "UNDERLYING SHARES REGISTRATION STATEMENT"), (iii)
the application(s) to the American Stock Exchange ("AMEX") for the listing of
the Underlying Shares for trading on the AMEX (and with any other national
securities exchange or market on which the Common Stock is then listed in the
time and manner required thereby), (iv) applicable Blue Sky filings and (v) in
all other cases where the failure to obtain such consent, waiver, authorization
or order, or to give such notice or make such filing or registration could not
have or result in, individually or in the aggregate, a Material Adverse Effect
(collectively, the "REQUIRED APPROVALS").
(g) LITIGATION; PROCEEDINGS. There is no action, suit,
inquiry, notice of violation, proceeding or investigation pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries or any of their respective properties before or by any court,
arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an "Action") which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, individually or in
the aggregate, have or result in a Material Adverse Effect.
(h) NO DEFAULT OR VIOLATION. Except as set forth in
SCHEDULE 2.1(h), neither the Company nor any Subsidiary (i) is in default under
or in violation of (and no event has occurred which has not been waived which,
with notice or lapse of time or both, would result in a default by the Company
or any Subsidiary under), nor has the Company or any Subsidiary received notice
of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound, (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is in violation of any statute, rule or regulation of any governmental
authority, in each case of clauses (i), (ii) or (iii) above, except as could not
individually or in the aggregate, have or result in a Material Adverse Effect.
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(i) PRIVATE OFFERING. Assuming the accuracy of the
representations and warranties of the Purchasers set forth in Sections
2.2(b)-(g), the offer, issuance and sale of the Securities to the Purchasers as
contemplated hereby are exempt from the registration requirements of the
Securities Act of 1933, as amended (the "SECURITIES ACT"). Neither the Company
nor any Person acting on its behalf has taken or is, to the knowledge of the
Company, contemplating taking any action which could subject the offering,
issuance or sale of the Securities to the registration requirements of the
Securities Act including soliciting any offer to buy or sell the Securities by
means of any form of general solicitation or advertising.
(j) SEC DOCUMENTS; FINANCIAL STATEMENTS. The Company has
filed all reports required to be filed by it under the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT"), including pursuant to Section 13(a) or
15(d) thereof, for the two years preceding the date hereof (or such shorter
period as the Company was required by law to file such material) (the foregoing
materials being collectively referred to herein as the "SEC DOCUMENTS" and,
together with the Schedules to this Agreement, the "DISCLOSURE MATERIALS") on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Documents prior to the expiration of any such extension. As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, and none of the SEC
Documents, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. All material agreements to which the Company is
a party or to which the property or assets of the Company are subject have been
filed as exhibits to the SEC Documents as required. The financial statements of
the Company included in the SEC Documents comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
("GAAP"), except as may be otherwise specified in such financial statements or
the notes thereto, and fairly present in all material respects the financial
position of the Company and its consolidated subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments. Since December 31, 1999, except as specifically
disclosed in the SEC Documents, (a) there has been no event, occurrence or
development that has or that could result in a Material Adverse Effect, (b) the
Company has not incurred any liabilities (contingent or otherwise) other than
(x) liabilities incurred in the ordinary course of business consistent with past
practice and (y) liabilities not required to be reflected in the Company's
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (c) the Company has not altered its method of
accounting or the identity of its auditors and (d) the Company has not declared
or made any payment or distribution of cash or other property to its
stockholders or officers or directors (other than in compliance with existing
Company stock option plans) with respect to its capital stock, or purchased,
redeemed (or made any agreements to purchase or redeem) any shares of its
capital stock.
(k) INVESTMENT COMPANY. The Company is not, and is not an
Affiliate (as defined in Rule 405 under the Securities Act) of, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
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(l) CERTAIN FEES. Except for certain fees payable to
Wharton Capital Markets, LLC, Allegiance Financial, Waterford Financial and
Nealtown N.V. by the Company, no fees or commissions will be payable by the
Company to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement. The Purchasers shall have no obligation with
respect to any fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by this Agreement. The Company
shall indemnify and hold harmless the Purchasers, their employees, officers,
directors, agents, and partners, and their respective Affiliates, from and
against all claims, losses, damages, costs (including the costs of preparation
and attorney's fees) and expenses suffered in respect of any such claimed or
existing fees, as such fees and expenses are incurred.
(m) FORM S-3 ELIGIBILITY. The Company is eligible to
register securities for resale with the Commission under Form S-3 promulgated
under the Securities Act.
(n) EXCLUSIVITY. The Company shall not issue and sell the
Debentures to any Person other than the Purchasers without the specific prior
written consent of the Purchasers.
(o) LISTING AND MAINTENANCE REQUIREMENTS COMPLIANCE.
Except as set forth in the SEC Documents, the Company has not, in the two years
preceding the date hereof, received written notice from the AMEX or any other
stock exchange, market or trading facility on which the Common Stock is or has
been listed (or on which it has been quoted) to the effect that the Company is
not in compliance with the listing or maintenance requirements of such exchange
or market. The Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing and
maintenance requirements.
(p) PATENTS AND TRADEMARKS. The Company and its
Subsidiaries have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, copyrights,
licenses and rights which are necessary or material for use in connection with
their respective businesses, as described in the SEC Documents and which the
failure to so have would have a Material Adverse Effect (collectively, the
"INTELLECTUAL PROPERTY RIGHTS"). Neither the Company nor any Subsidiary has
received a written notice that the Intellectual Property Rights used by the
Company or its Subsidiaries violates or infringes upon the rights of any Person.
To the best knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any of
the Intellectual Property Rights.
(q) REGISTRATION RIGHTS; RIGHTS OF PARTICIPATION. Except
as set forth on SCHEDULE 6(B) to the Registration Rights Agreement, the Company
has not granted or agreed to grant to any Person any rights (including
"piggy-back" registration rights) to have any securities of the Company
registered with the Commission or any other governmental authority which has not
been satisfied. No Person, has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents.
(r) REGULATORY PERMITS. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
Federal, state or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Documents,
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<PAGE>
except where the failure to possess such permits could not, individually or in
the aggregate, have or result in a Material Adverse Effect ("MATERIAL PERMITS"),
and neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material Permit.
(s) ABSENCE OF CERTAIN PROCEEDINGS. Except as described
in the SEC Reports, (i) there is no Action pending or, to the knowledge of the
Company, threatened against the Company, in any such case wherein an unfavorable
decision, ruling or finding could have or result in a Material Adverse Effect;
(ii) neither the Company nor any Subsidiary, nor any director or officer
thereof, is or has been the subject of any Action involving (A) a claim of
violation of or liability under federal or state securities laws or (B) a claim
of breach of fiduciary duty; (iii) the Company does not have pending before the
Commission any request for confidential treatment of information and the Company
has no knowledge of any expected such request that would be made prior to the
Effectiveness Date (as defined in the Registration Rights Agreement); and (iv)
there has not been, and to the best of the Company's knowledge there is not
pending or contemplated, any investigation by the Commission involving the
Company or any current or former director or officer of the Company.
(t) LABOR RELATIONS. No labor problem exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company which could have or result in a Material Adverse Effect.
(x) DISCLOSURE. The Company confirms that neither it nor
any other Person acting on its behalf has provided any of the Purchasers or its
agents or counsel with any information that constitutes or might constitute
material non-public information. The Company understands and confirms that the
Purchasers shall be relying on the foregoing representations in effecting
transactions in securities of the Company. All disclosure provided to the
Purchasers regarding the Company, its business and the transactions contemplated
hereby, including the Schedules to this Agreement, furnished by or on behalf of
the Company are true and correct and do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each
Purchaser hereby for itself and for no other Purchaser represents and warrants
to the Company as follows:
(a) ORGANIZATION; AUTHORITY. Such Purchaser is an entity
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The purchase by such Purchaser of the Securities
hereunder has been duly authorized by all necessary action on the part of such
Purchaser. Each of this Agreement and the Registration Rights Agreement has been
duly executed by such Purchaser, and when delivered by such Purchaser in
accordance with the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with its
terms.
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(b) INVESTMENT INTENT. Such Purchaser is acquiring the
Securities as principal for its own account for investment purposes only and not
with a view to or for distributing or reselling such Securities or any part
thereof, without prejudice, however, to such Purchaser's right, subject to the
provisions of this Agreement, the Registration Rights Agreement and the Warrant,
at all times to sell or otherwise dispose of all or any part of such Securities
pursuant to an effective registration statement under the Securities Act or
under an exemption from such registration and in compliance with applicable
federal and state securities laws. Such Purchaser is acquiring the Securities
hereunder in the ordinary course of its business. Such Purchaser does not have
any agreement or understanding, directly or indirectly, with any person to
distribute the Securities.
(c) PURCHASER STATUS. At the time such Purchaser was
offered the Debentures and its respective Warrants, it was, and at the date
hereof it is, and at each exercise date under its respective Warrants, it will
be, an "accredited investor" as defined in Rule 501(a) under the Securities Act.
Such Purchaser has not been formed solely for the purpose of acquiring the
Securities.
(d) EXPERIENCE OF SUCH PURCHASER. Such Purchaser, either
alone or together with its representatives, has such knowledge, sophistication
and experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the Securities,
and has so evaluated the merits and risks of such investment.
(e) ABILITY OF SUCH PURCHASER TO BEAR RISK OF INVESTMENT.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of such
investment.
(f) ACCESS TO INFORMATION. Such Purchaser acknowledges
that it has reviewed the Disclosure Materials and has been afforded (i) the
opportunity to ask such questions as it has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms and conditions
of the offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment and to verify the
accuracy and completeness of the information contained in the Disclosure
Materials. Neither such inquiries nor any other investigation conducted by or on
behalf of such Purchaser or its representatives or counsel shall modify, amend
or affect such Purchaser's right to rely on the truth, accuracy and completeness
of the Disclosure Materials and the Company's representations and warranties
contained in the Transaction Documents.
(g) GENERAL SOLICITATION. Such Purchaser is not
purchasing the Securities as a result of or subsequent to any advertisement,
article, notice or other communication regarding the Securities published in any
newspaper, magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
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(h) RELIANCE. Such Purchaser understands and acknowledges
that (i) the Securities are being offered and sold to it without registration
under the Securities Act in a private placement that is exempt from the
registration provisions of the Securities Act and (ii) the availability of such
exemption, depends in part on, and the Company will rely upon the accuracy and
truthfulness of, the foregoing representations and such Purchaser hereby
consents to such reliance.
(i) TRADING IN COMMON STOCK. Such Purchaser does not
maintain a short position in the Common Stock as of the Closing Date.
The Company acknowledges and agrees that no Purchaser makes or
has made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 TRANSFER RESTRICTIONS. (a) Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from or in a transaction not
subject to the registration requirements of the Securities Act, and in
compliance with any applicable federal and state securities laws. In connection
with any transfer of Securities other than pursuant to an effective registration
statement or to the Company, except as otherwise set forth herein, the Company
may require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred securities under the
Securities Act. Notwithstanding the foregoing, the Company, without requiring a
legal opinion as described in the immediately preceding sentence, hereby
consents to and agrees to register on the books of the Company and with any
transfer agent for the securities of the Company any transfer of Securities by a
Purchaser to an Affiliate of such Purchaser or to one or more funds or managed
accounts under common management with such Purchaser, and any transfer among any
such Affiliates or one or more funds or managed accounts, provided that the
transferee certifies to the Company that it is an "accredited investor" as
defined in Rule 501(a) under the Securities Act and that it is acquiring the
Securities solely for investment purposes (subject to the qualifications
hereof). Any such transferee shall agree in writing to be bound by the terms of
this Agreement and shall have the rights of a Purchaser under this Agreement and
the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
Underlying Shares shall not contain the legend set forth above
nor any other legend if the conversion of Debentures and exercise of the
Warrants or other issuances of Underlying Shares as contemplated hereby, by the
Debentures or the Warrants occurs at any time while an Underlying Shares
Registration Statement is effective under the Securities Act or, in the event
there is not an effective Underlying Shares Registration Statement, at such
time, in the opinion of counsel to the Company, such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company shall cause its counsel to issue the legal opinion included in the
Transfer Agent Instructions to the Company's transfer agent on the day that the
Underlying Shares Registration Statement is declared effective by the Commission
(the "EFFECTIVE DATE"). The Company agrees that, in the event any Underlying
Shares are issued with a legend in accordance with this Section 3.1(b), it will,
as soon as practicable but in no event later than three (3) Trading Days after
request therefor by a Purchaser, provide such Purchaser with a certificate or
certificates representing such Underlying Shares, free from such legend at such
time as such legend would not have been required under this Section 3.1(b) had
such issuance occurred on the date of such request. The Company may not make any
notation on its records or give instructions to any transfer agent of the
Company which enlarge the restrictions of transfer set forth in this Section.
3.2 ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the
issuance of the Underlying Shares upon (i) conversion of the Debentures in
accordance with the terms of the Debentures, and (ii) exercise of the Warrants
in accordance with their terms, will result in dilution of the outstanding
shares of Common Stock, which dilution may be substantial under certain market
conditions. The Company further acknowledges that its obligation to issue
Underlying Shares upon (x) conversion of the Debentures in accordance with the
terms of the Debentures, and (y) exercise of the Warrants in accordance with
their terms, is unconditional and absolute, subject to the limitations set forth
herein in the Debentures or pursuant to the Warrants, regardless of the effect
of any such dilution.
3.3 FURNISHING OF INFORMATION. As long as the Purchasers own
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act. As long as the Purchasers own Securities, if
the Company is not required to file reports pursuant to such sections, it will
prepare and furnish to the Purchasers and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act such information as is
required for the Purchasers to sell the Securities under Rule 144 promulgated
under the Securities Act. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell Underlying
Shares without registration under the Securities Act within the limitation of
the exemptions provided by Rule 144 promulgated under the Securities Act,
including causing
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its attorneys to render and deliver any legal opinion required in order to
permit a Purchaser to sell Underlying Shares under Rule 144 upon notice of an
intention to sell or other form of notice having a similar effect the legal
opinion referenced above in this Section. Upon the request of any such Person,
the Company shall deliver to such Person a written certification of a duly
authorized officer as to whether it has complied with such requirements.
3.4 INTEGRATION. The Company shall not, and shall use its best
efforts to ensure that, no Affiliate of the Company shall, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers or that
would be integrated with the offer or sale of the Securities for purposes of the
rules and regulations of the AMEX.
3.5 INCREASE IN AUTHORIZED SHARES. If on any date the Company
would be, if a notice of conversion or exercise (as the case may be) were to be
delivered on such date, precluded from (a) issuing (a) 200% of the number of
Underlying Shares as would then be issuable upon a conversion in full of the
Debentures, and (b) the number of Underlying Shares issuable upon exercise in
full of the Warrants (the "CURRENT REQUIRED MINIMUM"), in either case, due to
the unavailability of a sufficient number of authorized but unissued or reserved
shares of Common Stock, then the Board of Directors of the Company shall
promptly prepare and mail to the stockholders of the Company proxy materials
requesting authorization to amend the Company's certificate or articles of
incorporation to increase the number of shares of Common Stock which the Company
is authorized to issue to at least such number of shares as reasonably requested
by the Purchasers in order to provide for such number of authorized and unissued
shares of Common Stock to enable the Company to comply with its issuance,
conversion exercise and reservation of shares obligations as set forth in this
Agreement, the Debentures and the Warrants (the sum of (x) the number of shares
of Common Stock then outstanding plus all shares of Common Stock issuable upon
exercise of all outstanding options, warrants and convertible instruments, and
(y) the Current Required Minimum, shall be a reasonable number). In connection
therewith, the Board of Directors shall (a) adopt proper resolutions authorizing
such increase, (b) recommend to and otherwise use its best efforts to promptly
and duly obtain stockholder approval to carry out such resolutions (and hold a
special meeting of the stockholders no later than the earlier to occur of the
60th day after delivery of the proxy materials relating to such meeting and the
120th day after request by a holder of Securities to issue the number of
Underlying Shares in accordance with the terms hereof) and (c) within five
Business Days of obtaining such stockholder authorization, file an appropriate
amendment to the Company's certificate or articles of incorporation to evidence
such increase.
3.6 RESERVATION AND LISTING OF UNDERLYING SHARES. (a) The Company
shall (i) in the time and manner required by AMEX and such other exchange,
market or quotation system on which the Common Stock is traded, prepare and file
with the AMEX (and such other national securities exchange or market or trading
or quotation facility on which the Common Stock is then listed) an additional
shares listing application covering a number of shares of Common Stock which is
not less than the Initial Minimum, (ii) take all steps necessary to cause such
shares of Common Stock to be approved for listing on the AMEX (as well as on any
such other national securities exchange or market or trading or quotation
facility on which the Common Stock is then listed) as soon as possible
thereafter, and (iii) provide to the Purchasers evidence of such listing, and
the Company shall
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maintain the listing of its Common Stock thereon. If the number of Underlying
Shares issuable upon conversion in full of the then outstanding Debentures and
upon exercise of the then unexercised portion of the Warrants exceeds 85% of the
number of Underlying Shares previously listed on account thereof with AMEX (and
any such other required exchanges), then the Company shall take the necessary
actions to immediately list a number of Underlying Shares as equals no less than
the then Current Required Minimum.
(b) The Company shall maintain a reserve of shares of
Common Stock for issuance upon conversion of the Debentures in full and upon
exercise in full of the Warrants in accordance with this Agreement, the
Debentures and the Warrants, respectively, in such amount as may be required to
fulfill its obligations in full under the Transaction Documents, which reserve
shall equal no less than the then Current Required Minimum.
3.7 CONVERSION AND EXERCISE PROCEDURES. The Transfer Agent
Instructions, Conversion Notice (as defined in the Debentures) and Notice of
Exercise under the Warrants set forth the totality of the procedures with
respect to the conversion of the Debentures and exercise of the Warrants,
including the form of legal opinion, if necessary, that shall be rendered to the
Company's transfer agent and such other information and instructions as may be
reasonably necessary to enable the Purchasers to convert their Debentures and
exercise their Warrants as contemplated in the Debentures and the Warrants (as
applicable).
3.8 RIGHT OF FIRST REFUSAL; SUBSEQUENT REGISTRATIONS. (a) The
Company shall not, directly or indirectly, without the prior written consent of
the Purchasers, offer, sell, grant any option to purchase, or otherwise dispose
of (or announce any offer, sale, grant or any option to purchase or other
disposition) any of its or its Affiliates' equity or equity-equivalent
securities including the issuance of any debt or other instrument at any time
over life thereof convertible into or exchangeable for Common Stock, or any
other transaction intended to be exempt or not subject to registration under the
Securities Act (a "SUBSEQUENT PLACEMENT") for a period of 180 Trading Days after
the Effective Date, PROVIDED, that such 180 Trading Day period shall be extended
for the number of Trading Days during such period (A) in which trading in the
Common Stock is suspended by the AMEX or such market or quotation system on
which the Common Stock is then listed, or (B) during which the Underlying Shares
Registration Statement is not effective, or (C) during which the prospectus
included in the Underlying Shares Registration Statement may not be used by the
holders thereof for the resale of Underlying Shares, except (i) the granting of
options or warrants to employees, officers and directors, and the issuance of
shares upon exercise of options granted, under any stock option plan heretofore
or hereinafter duly adopted by the Company, (ii) shares of Common Stock issuable
upon exercise of any currently outstanding warrants and upon conversion of any
currently outstanding convertible securities of the Company, in each case
disclosed in SCHEDULE 2.1(c), (iii) shares of Common Stock issuable upon
conversion of Debentures and upon exercise of the Warrants in accordance with
the Debentures or the Warrants, and (iv) shares of Common Stock issued in
connection with a Strategic Transaction (as defined below) or as payment of
purchase price in connection with a bona fide business combination, unless (A)
the Company delivers to each of the Purchasers a written notice (the "SUBSEQUENT
PLACEMENT NOTICE") of its intention to effect such Subsequent Placement, which
Subsequent Placement Notice shall describe in reasonable detail the proposed
terms of such Subsequent Placement, the amount of proceeds intended to be raised
thereunder, the Person with whom such Subsequent Placement shall be effected,
and attached to
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which shall be a term sheet or similar document relating thereto and (B) such
Purchaser shall not have notified the Company by 5:00 p.m. (New York City time)
on the tenth Trading Day after its receipt of the Subsequent Placement Notice of
its willingness to provide (or to cause its sole designee to provide), subject
to completion of mutually acceptable documentation, financing to the Company on
the same terms set forth in the Subsequent Placement Notice. If the Purchasers
shall fail to notify the Company of their intention to enter into such
negotiations within such time period, the Company may effect the Subsequent
Placement substantially upon the terms and to the Persons (or Affiliates of such
Persons) set forth in the Subsequent Placement Notice; PROVIDED, that the
Company shall provide the Purchasers with a second Subsequent Placement Notice,
and the Purchasers shall again have the right of first refusal set forth above
in this paragraph (a), if the Subsequent Placement subject to the initial
Subsequent Placement Notice shall not have been consummated for any reason on
the terms set forth in such Subsequent Placement Notice within forty-five
Trading Days after the date of the initial Subsequent Placement Notice with the
Person (or an Affiliate of such Person) identified in the Subsequent Placement
Notice. If the Purchasers shall indicate a willingness to provide financing in
excess of the amount set forth in the Subsequent Placement Notice, then each
Purchaser shall be entitled to provide financing pursuant to such Subsequent
Placement Notice up to an amount equal to such Purchaser's pro-rata portion of
the aggregate principal amount of Debentures purchased by such Purchaser under
this Agreement, but the Company shall not be required to accept financing from
the Purchasers in an amount in excess of the amount set forth in the Subsequent
Placement Notice. A "STRATEGIC TRANSACTION" shall mean a transaction or
relationship in which the Company issues Common Stock to an entity which is,
itself or through its subsidiaries, an operating company in a business related
to the business of the Company and in which the Company receives material
benefits in addition to the investment of funds, but shall not include a
transaction in which the Company is issuing securities primarily for the purpose
of raising capital.
(b) Except for (x) Underlying Shares, (y) other "Registrable
Securities" (as such term is defined in the Registration Rights Agreement) to be
registered, and securities of the Company permitted pursuant to Schedule 6(b) of
the Registration's Rights Agreement to be registered, in the Underlying Shares
Registration Statement in accordance with the Registration Rights Agreement, and
(z) Common Stock permitted to be issued pursuant to paragraph (a)(i)- (iv) of
Section 3.8(a), the Company shall not, for a period of not less than 90 Trading
Days after the Effective Date, without the prior written consent of the
Purchasers (i) issue or sell any of its or any of its Affiliates' equity or
equity-equivalent securities pursuant to Regulation S promulgated under the
Securities Act, or (ii) register any securities of the Company. Any days that a
Purchaser is unable to sell Underlying Shares under the Underlying Shares
Registration Statement shall be added to such 90 Trading Day period for the
purposes of (i) and (ii) above.
3.9 CERTAIN SECURITIES LAWS DISCLOSURES; PUBLICITY. The Company
shall: (i) on the Closing Date issue a press release acceptable to the
Purchasers disclosing the transactions contemplated hereby, (ii) file with the
Commission a Report on Form 8-K disclosing the transactions contemplated hereby
within ten Business Days after the Closing Date, and (iii) timely file with the
Commission a Form D promulgated under the Securities Act as required under
Regulation D promulgated under the Securities Act and provide a copy thereof to
the Purchasers promptly after the filing thereof. The Company shall, no less
than one Business Day prior to the filing of any disclosure required by clauses
(ii) and (iii) above, provide a copy thereof to the Purchasers. No such
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filing or disclosure may be made that mentions the Purchasers by name without
the prior consent of the Purchasers. The Company and the Purchasers shall
consult with each other in issuing any press releases or otherwise making public
statements or filings and other communications with the Commission or any
regulatory agency or stock market or trading facility with respect to the
transactions contemplated hereby and neither party shall issue any such press
release or otherwise make any such public statement, filings or other
communications without the prior written consent of the other, which consent
shall not be unreasonably withheld or delayed, except that no prior consent
shall be required if such disclosure is required by law, in which such case the
disclosing party shall provide the other party with prior notice of such public
statement, filing or other communication. Notwithstanding the foregoing, the
Company shall not publicly disclose the names of the Purchasers, or include the
names of the Purchasers in any filing with the Commission, or any regulatory
agency, trading facility or stock market without the prior written consent of
the Purchasers, except to the extent such disclosure (but not any disclosure as
to the controlling Persons thereof) is required by law, in which case the
Company shall provide the Purchasers with prior notice of such disclosure.
3.10 USE OF PROCEEDS. The Company shall use the net proceeds from
the sale of the Securities hereunder for working capital purposes and not for
the satisfaction of any portion of the Company's debt (other than payment of
trade payables in the ordinary course of the Company's business and prior
practices), to redeem any Company equity or equity-equivalent securities or to
settle any outstanding litigation.
3.11 REIMBURSEMENT. If any Purchaser, other than by reason of its
gross negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by or against any Person, including
stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated by the Transaction Documents, the
Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation and preparation) incurred in
connection therewith, as such expenses are incurred. In addition, other than
with respect to any matter in which a Purchaser is a named party, the Company
will pay such Purchaser the charges, as reasonably determined by such Purchaser,
for the time of any officers or employees of such Purchaser devoted to appearing
and preparing to appear as witnesses, assisting in preparation for hearings,
trials or pretrial matters, or otherwise with respect to inquiries, hearings,
trials, and other proceedings relating to the subject matter of this Agreement.
The reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company in connection with or as a result of the consummation of
the Transaction Documents except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from the gross negligence
or willful misconduct of the applicable Purchaser or entity in connection with
the transactions contemplated by this Agreement.
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3.12 CERTAIN TRADING RESTRICTIONS. Each Purchaser agrees that,
prior to the Effective Date, it shall not enter into any Short Sales (as defined
herein). For purposes of this Section 3.12, a "Short Sale" by a Purchaser shall
mean a sale of Common Stock by such Purchaser that is marked as a short sale and
that is made at a time when there is no equivalent offsetting long position in
Common Stock held by the Purchaser. For purposes of determining whether there is
an equivalent offsetting long position in Common Stock held by a Purchaser,
Underlying Shares that are issuable on conversion of the Debentures or exercise
of the Warrants (as the case may be) for which a conversion or exercise notice
(as the case may be) has been delivered by a Purchaser on or prior to a Trading
Day shall be deemed to be held long by such Purchaser on such Trading Day.
3.13 GOOD STANDINGS. The Company shall use its best efforts to
cause it and its subsidiaries to be in "Good Standing" in each jurisdiction
referenced as not in "Good Standing" on Schedule 2.1(c), as soon as possible and
in any event prior to the 60th day following the Closing Date.
ARTICLE IV
MISCELLANEOUS
4.1 FEES AND EXPENSES. At the Closing, the Company shall
reimburse the Purchasers for their legal fees and expenses incurred in
connection with the preparation and negotiation of the Transaction Documents by
paying to Robinson Silverman $25,000 for the preparation and negotiation of the
Transaction Documents. The amount contemplated by the immediately preceding
sentence shall be retained by the Purchasers and shall not be delivered to the
Company at the Closing. Other than the amount contemplated herein, and except as
otherwise set forth in the Registration Rights Agreement, each party shall pay
the fees and expenses of its advisers, counsel, accountants and other experts,
if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all stamp and other taxes and duties levied in connection
with the issuance of the Securities.
4.2 ENTIRE AGREEMENT; AMENDMENTS. The Transaction
Documents, together with the Exhibits and Schedules thereto and the Transfer
Agent Instructions contain the entire understanding of the parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
4.3 NOTICES. Any and all notices or other communications
or deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 6:30 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Agreement later than 6:30 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom
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such notice is required to be given. The address for such notices and
communications shall be as follows:
If to the Company: HORIZON Pharmacies, Inc.
501 Main Street
Denison, Texas 75020
Facsimile No.: (903) 465-6769
Attn: Chief Financial Officer
With copies to: Vinson & Elkins L.L.P.
3700 Trammell Crow Center
2011 Ross Avenue
Dallas, Texas 75201-2975
Facsimile No.: (214) 220-7716
Attn: Jay Hebert, Esq.
If to a Purchaser: To the address
set forth under such
Purchaser's name on the
signature pages hereto.
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.4 AMENDMENTS; WAIVERS. No provision of this Agreement
may be waived or amended except in a written instrument signed, in the case of
an amendment, by the Company and each of the Purchasers or, in the case of a
waiver, by the party against whom enforcement of any such waiver is sought. No
waiver of any default with respect to any provision, condition or require ment
of this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right accruing to it thereafter.
4.5 HEADINGS. The headings herein are for convenience
only, do not constitute a part of this Agreement and shall not be deemed to
limit or affect any of the provisions hereof.
4.6 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
permitted assigns. The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Purchasers.
Except as set forth in Section 3.1(a), the Purchasers may not assign this
Agreement or any of the rights or obligations hereunder without the consent of
the Company. This provision shall not limit any Purchaser's right to transfer
securities or transfer or assign rights under the Registration Rights Agreement.
4.7 NO THIRD-PARTY BENEFICIARIES. This Agreement is
intended for the benefit of the parties hereto and their respective successors
and permitted assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other Person.
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4.8 GOVERNING LAW. The corporate laws of the State of
Delaware shall govern all issues concerning the relative rights of the Company
and its stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof.
4.9 SURVIVAL. The representations, warranties, agreements
and covenants contained herein shall survive the Closing and the delivery and
conversion or exercise (as the case may be) of the Debentures and the Warrants.
4.10 EXECUTION. This Agreement may be executed in two or
more counterparts, all of which when taken together shall be considered one and
the same agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
4.11 SEVERABILITY. In case any one or more of the
provisions of this Agreement shall be invalid or unenforceable in any respect,
the validity and enforceability of the remaining terms and provisions of this
Agreement shall not in any way be affecting or impaired thereby and the parties
will attempt to agree upon a valid and enforceable provision which shall be a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
4.12 REMEDIES. In addition to being entitled to exercise
all rights provided herein or granted by law, including recovery of damages,
each of the Purchasers will be entitled to specific performance of the
obligations of the Company under the Transaction Documents. The Company and each
of the Purchasers agree that monetary damages may not be adequate compensation
for any loss incurred by reason of any breach of its obligations described in
the foregoing sentence and hereby agrees to waive in any action for specific
performance of any such obligation the defense that a remedy at law would be
adequate.
4.13 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND
RIGHTS. The obligations of each Purchaser under any Transaction Document is
several and not joint with the obligations of any other Purchaser and no
Purchaser shall be responsible in any way for the performance of the obligations
of any other Purchaser under any Transaction Document. Nothing contained herein
or in any Transaction Document, and no action taken by any Purchaser pursuant
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert with respect to
such obligations or the transactions contemplated by the Transaction Document.
Each Purchaser shall be entitled to independently protect and enforce its
rights, including without limitation the rights arising out of this Agreement or
out of the other Transaction Documents, and it shall not be necessary for any
other Purchaser to be joined as an additional party in any proceeding for such
purpose.
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SIGNATURE PAGES FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this
Convertible Debenture Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
HORIZON PHARMACIES, INC.
By: /s/ Rick D. McCord
-------------------------------
Name: Rick D. McCord
Title: President
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SIGNATURE PAGE FOR PURCHASER FOLLOWS]
<PAGE>
ADVANTAGE FUND II LTD.
By: /s/ Donald R. Morken
----------------------------
Name: Donald R. Morken
Title: President
Purchase Price for Debentures to be
acquired at Closing: $2,500,000
Number of Shares underlying Warrant: 50,000
Address for Notice:
c/o CITCO
Kaya Flamboyan 9
Curacao, Netherlands Antilles
Facsimile: 011-599-9732-2008
Attention: W.R. Weber
Jurisdiction of organization: British Virgin Islands
With copies to:
Genesee International Inc.
10500 NE 8th Street
Suite 1920
Bellevue, WA 98004
Facsimile: (425) 462-4645
Attention: Christopher R. Purrier
Robinson Silverman Pearce Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630 and (212) 541-1432
Attn: Eric L. Cohen, Esq.
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SIGNATURE PAGE FOR PURCHASER FOLLOWS]
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in this
Registration Statement and related Prospectus of HORIZON Pharmacies, Inc. for
the registration of shares of its common stock and to the incorporation by
reference therein 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 its Annual Report (Form 10-K) for the year ended December
31, 1999, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Oklahoma City, Oklahoma
April 28, 2000
