-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P4zsznlloUJcXEDMoMhe3FnthqEf4Gfij4TtI/Mx32ytu9h86fCQlpdODK3DcNcx B3BwsEHaAbzRNyf5zlZtrw== /in/edgar/work/20000818/0000912057-00-038305/0000912057-00-038305.txt : 20000922 0000912057-00-038305.hdr.sgml : 20000922 ACCESSION NUMBER: 0000912057-00-038305 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000818 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HORIZON PHARMACIES INC CENTRAL INDEX KEY: 0001036260 STANDARD INDUSTRIAL CLASSIFICATION: [5912 ] IRS NUMBER: 752441557 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22403 FILM NUMBER: 705587 BUSINESS ADDRESS: STREET 1: 531 W MAIN STREET STREET 2: SUITE 100 CITY: DENISON STATE: TX ZIP: 75020 BUSINESS PHONE: 9034652397 MAIL ADDRESS: STREET 1: 531 W MAIN STREET STREET 2: SUITE 100 CITY: DENISON STATE: TX ZIP: 75020 10-Q 1 a10-q.txt FORM 10-Q ================================================================================ U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q (MARK ONE) /X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 2000 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______ COMMISSION FILE NUMBER 0-22403 ------------------------ HORIZON PHARMACIES, INC. (Exact name of registrant as specified in its charter) DELAWARE 75-2441557 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 531 WEST MAIN STREET DENISON, TEXAS 75020 (Address of principal executive offices) (903) 465-2397 (Registrant's telephone number) ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be flied by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
TITLE OF EACH CLASS OUTSTANDING AT AUGUST 11, 2000 Common stock, par value $.01 per share 5,948,774
================================================================================ 1 FORM 10-Q TABLE OF CONTENTS PART I - FINANCIAL INFORMATION....................................................................................3 Financial Statements.....................................................................................3 Condensed Consolidated Balance Sheets....................................................................3 Condensed Consolidated Statements of Operations (Unaudited)..............................................5 Condensed Consolidated Statements of Cash Flows (Unaudited)..............................................6 Notes to Condensed Consolidated Financial Statements (Unaudited).........................................7 Management's Discussion and Analysis of Financial Condition and Results of Operations....................9 Quantitative and Qualitative Disclosures about Market Risks.............................................17 PART II. OTHER INFORMATION......................................................................................18 Exhibits and Reports On Form 8-K........................................................................18 SIGNATURES.......................................................................................................19
2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. HORIZON Pharmacies, Inc. Condensed Consolidated Balance Sheets ASSETS
DECEMBER 31, JUNE 30, 1999 2000 ---- ---- (AUDITED) (UNAUDITED) (IN THOUSANDS) Current assets: Cash and cash equivalents .................................................. $ 1,263 $ 422 Certificate of deposit ..................................................... 375 375 Accounts receivable, net: Third-party providers ................................................... 8,828 9,199 Others .................................................................. 2,922 2,668 Inventories, at the lower of specific identification cost or market ........ 23,522 20,346 Other ...................................................................... 1,307 884 ------------ ------------ Total current assets .......................................................... 38,217 33,894 Debt issue costs and other, net of accumulated amortization ................... 595 1,953 Property, equipment and capital lease assets: Property and equipment: Land, buildings and improvements ........................................ 1,498 1,598 Software and equipment .................................................. 5,509 7,320 ------------ ------------ 7,007 8,918 Less accumulated depreciation .............................................. 1,057 1,580 ------------ ------------ Property and equipment, net ................................................ 5,950 7,338 Equipment under capital leases, net of accumulated amortization ............ 725 600 ------------ ------------ Property, equipment and capital lease assets, net ............................. 6,675 7,938 Intangibles, at cost: Noncompete covenants and customer lists .................................... 2,415 2,324 Goodwill ................................................................... 13,299 13,156 ------------ ------------ 15,714 15,480 Less accumulated amortization .............................................. 1,370 1,566 ------------ ------------ Intangibles, net .............................................................. 14,344 13,914 ------------ ------------ $ 59,831 $ 57,699 ============ ============
3
HORIZON PHARMACIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) DECEMBER 31, JUNE 30, 1999 2000 ------------ -------- (AUDITED) (UNAUDITED) (IN THOUSANDS) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ...................................................................... $ 12,615 $ 11,437 Accrued liabilities ................................................................... 1,420 1,241 Lease termination settlements and other exit costs .................................... 1,367 1,270 Notes payable ......................................................................... 5,566 7,000 Current portion of long-term debt ..................................................... 2,439 2,411 Current portion of obligations under capital leases ................................... 239 199 Long-term debt subject to acceleration ................................................ -- 10,678 ------------ ------------ Total current liabilities ................................................................ 23,646 34,236 Noncurrent liabilities: Lease termination settlements ......................................................... 1,250 673 Long-term debt ........................................................................ 19,204 10,195 Obligations under capital leases ...................................................... 481 329 Stockholders' equity: Preferred stock, $.01 par value, authorized 1,000,000 shares, none issued ............ -- -- Common stock, $.01 par value, authorized 14,000,000 shares; issued 5,888,965 shares in 1999 and 5,954,855 in 2000 ............................... 59 59 Additional paid-in capital ............................................................ 24,710 26,456 Accumulated deficit ................................................................... (9,449) (14,179) ------------ ------------ 15,320 12,336 Treasury Stock (6,081 shares), at cost ................................................ (70) (70) ------------ ------------ Total stockholders' equity ............................................................... 15,250 12,266 ------------ ------------ $ 59,831 $ 57,699 ============ ============
See accompanying notes. 4
HORIZON PHARMACIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 1999 2000 1999 2000 (IN THOUSANDS, EXCEPT PER SHARE DATA) Net revenues: Prescription drugs sales .............................. $ 23,798 $ 27,139 $ 47,413 $ 54,094 Other sales and services .............................. 7,742 8,471 15,112 16,618 ------------ ------------ ------------ ------------ Total net revenues ....................................... 31,540 35,610 62,525 70,712 Costs and expenses: Cost of sales and services: Prescription drugs ................................. 17,545 21,596 34,862 42,273 Other .............................................. 4,899 5,817 9,497 10,933 Depreciation and amortization ......................... 378 566 717 1,064 Provision for impairment .............................. -- 236 -- 250 Selling, general and administrative expenses .......... 8,120 9,872 16,137 19,634 ------------ ------------ ------------ ------------ Total costs and expenses ................................. 30,942 38,087 61,213 74,154 Income (loss) from operations ............................ 598 (2,477) 1,312 (3,442) Other income (expense): Interest and other income ............................. 51 2 121 19 Interest expense ...................................... (410) (651) (807) (1,307) ------------ ------------ ------------ ------------ Total other income (expense) ............................. (359) (649) (686) (1,288) ------------ ------------ ------------ ------------ Net income (loss) ........................................ $ 239 $ (3,126) $ 626 $ (4,730) ============ ============ ============ ============ Basic earnings (loss) per share (Note 2) ................. $ .04 $ (0.53) $ 0.11 $ (0.80) ============ ============ ============ ============ Diluted earnings (loss) per share (Note 2) ............... $ .04 $ (0.53) $ 0.11 $ (0.80) ============ ============ ============ ============
See accompanying notes. 5
HORIZON PHARMACIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, ---------------------------------- 1999 2000 ---------------- --------------- (IN THOUSANDS) OPERATING ACTIVITIES Net income (loss) ............................................................................... $ 626 $ (4,730) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization ............................................................. 717 1,064 Provision for impairment .................................................................. -- 250 Other ..................................................................................... 41 67 Changes in operating assets and liabilities, net of acquisitions of businesses: Accounts receivable .................................................................... (988) (171) Refundable income taxes ................................................................ 257 -- Inventories ............................................................................ (1,727) 2,850 Other current assets ................................................................... (202) 309 Accounts payable ....................................................................... 1,101 (1,178) Accrued liabilities .................................................................... 17 (194) ------------ ------------ Total adjustments ............................................................................... (784) 2,997 ------------ ------------ Net cash used in operating activities ........................................................... (158) (1,733) INVESTING Proceeds from sales of assets ................................................................... -- 701 Purchases of property and equipment ............................................................. (684) (2,094) Purchases of other assets ....................................................................... -- (200) Assets acquired for cash in acquisitions of businesses .......................................... (2,543) (101) ------------ ------------ Net cash used in investing activities ........................................................... (3,227) (1,694) FINANCING ACTIVITIES Borrowings ...................................................................................... 1,178 4,150 Debt issue costs incurred ....................................................................... -- (194) Principal payments on debt ...................................................................... (1,298) (1,225) Principal payments on obligations under capital leases .......................................... (114) (192) Issuance of common stock, net of offering costs (64,247 shares in 1999 and 11,854 shares in 2000)................................................................................ 277 47 ------------ ------------ Net cash provided by financing activities ....................................................... 43 2,586 ------------ ------------ Net decrease in cash and cash equivalents ....................................................... (3,342) (841) Cash and cash equivalents at beginning of period ................................................ 6,617 1,263 ------------ ------------ Cash and cash equivalents at end of period ...................................................... $ 3,275 $ 422 ============ ============ NONCASH INVESTING AND FINANCING ACTIVITIES Equipment leased under capital leases ........................................................... $ 445 $ -- Issuance of warrants to lenders and suppliers (555,000 shares) .................................. -- 1,418 Debt issue costs deducted from debt proceeds .................................................... -- 150 Acquisitions of businesses financed by debt and common stock: Accounts receivable and other .......................................................... $ 380 $ -- Inventories ............................................................................ 2,114 39 Property and equipment ................................................................. 225 169 Intangibles ............................................................................ 4,989 177 ------------ ------------ 7,708 385 Less cash paid ......................................................................... (2,543) (101) ------------ ------------ Assets acquired ........................................................................ $ 5,165 $ 284 ============ ============ Financed by: Debt ......................................................................................... $ 3,611 $ -- Common stock (196,398 shares in 1999 and 54,036 shares in 2000) .............................. 1,554 284 ------------ ------------ TOTAL ................................................................................. $ 5,165 $ 284 ============ ============
See accompanying notes. 6 HORIZON PHARMACIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA) NOTE 1 The unaudited condensed consolidated financial statements include all adjustments, consisting of normal, recurring accruals, which HORIZON Pharmacies, Inc. ("Horizon" or the "Company") considers necessary for a fair presentation of the financial position and the results of operations for the indicated periods. The notes to the financial statements should be read in conjunction with the notes to the financial statements contained in our Form 10-K for the year ended December 31, 1999. The results of operations for the six months ended June 30, 2000, are not necessarily indicative of the results to be expected for the full year ending December 31, 2000. Horizon's net revenues, costs and expenses are higher during peak holiday periods and from Christmas through Easter (the first and fourth quarters of the calendar year). Estimated gross profit rates were used to determine costs of sales for the three months and six months ended June 30, 1999 and 2000. NOTE 2 Weighted average common shares outstanding used in the calculation of basic earnings (loss) per share for the three month and six month periods ended June 30, 2000 totaled 5,948,774 and 5,917,421, respectively. Weighted average common shares outstanding for the three and six month periods in 1999 were 5,729,803 and 5,693,914, respectively. Common shares used in the calculation of diluted earnings per share for the three month and six month periods ended June 30, 2000 totaled 5,948,774 and 5,917,421, respectively. Common shares used for the calculation of fully diluted earnings per share for the three and six month periods in 1999 were 5,882,358 and 5,891,411, respectively. The differences between weighted average shares outstanding and fully diluted shares outstanding is attributable to dilutive stock options and warrants. Anti-dilutive employee stock options and warrants excluded amounted to 101,200 shares and 432,350 shares for the three months and six months ended June 30, 1999, respectively, and 81,763 shares and 80,985 shares for the three months and six months ended June 30, 2000, respectively. NOTE 3 No income taxes are provided due to the existence of net operating loss carry forwards. NOTE 4 At June 30, 2000, we operated 48 free-standing retail pharmacies, all of which were acquired from third parties in purchase transactions. Such acquisitions have generally been structured as asset purchases and generally have included inventories, store fixtures and the assumption of store operating lease arrangements. The acquisitions generally have been financed by debt to the sellers and/or an inventory supplier. The number of pharmacies acquired during the six months ended June 30, 1999 and 2000 were five and one, respectively. Proforma results of operations data giving effect to the acquisitions completed during the six month periods ended June 30, 1999 and 2000, as if the transactions had been consummated as of January 1, 1999, were not materially different from historical operating results. 7 NOTE 5 In March 2000, we signed an agreement with Informed.com, Inc. ("Informed.com") to sell to Informed.com a newly organized subsidiary d/b/a InformedScripts.com, Inc. ("InformedScripts.com") for $5,500 ($1,500 in cash and $4,000 in Informed.com's common stock). At the same time, we entered into a fulfillment and guaranty agreement with InformedScripts.com to be its exclusive fulfillment house for prescription drugs and OTC drug needs, and in exchange for the exclusive designation, we agreed to guarantee certain levels of gross sales and pretax profits of InformedScripts.com during the three-year term of the agreement. As additional consideration we issued warrants for the purchase of 700,000 shares of our common stock to Informed.com which have an estimated fair value of approximately $1,500 and which will be amortized over the term of the fulfillment and guaranty agreement. In lieu of receiving cash at closing, we accepted a short-term note subject to the completion of a private placement by Informed.com. Because InformedScripts.com failed to remit to us the required payments under the $1,500 note by August 15, 2000, we exercised our option to terminate the fulfillment and guaranty agreement. We have not reflected the above transaction in the accompanying financial statements because it is contingent on the collection of the $1,500 note. NOTE 6 The Company has a credit arrangement with its primary supplier which provides for borrowings up to $8,000 under a revolver and $3,000 under a term loan. Availability of the revolver is subject to a borrowing base determined by the supplier and amounted to $7,678 as of June 30, 2000. Borrowings outstanding at June 30, 2000 consist of $7,678 under the revolver and $3,000 under the term loan. The agreement requires the Company to maintain at least a specified amount of net worth and satisfy certain financial ratios. At June 30, 2000, the Company had not complied with several covenants of the credit agreement. These covenant violations have not been cured or waived, and the supplier has the right to demand payment of outstanding borrowings. Accordingly, amounts payable under the credit agreement are classified as current in the accompanying financial statements. If the violations are not waived or the compliance covenants are not revised, the Company may be required to liquidate additional stores or inventories in order to pay the debt. NOTE 7 The Company is dependent on existing credit agreements with lenders, including the largest supplier, and proceeds from potential debt and equity offerings in order to fund its operations and pay its obligations. As of June 30, 2000, the Company has working capital lines of credit with two lenders. These lines of credit are the primary sources of liquidity for the Company. As of June 30, 2000, the credit agreements provided for borrowings up to $17,678 including the Company's $7,000 bank credit facility which expires on September 1, 2000. As of June 30, 2000, the Company had no availability for additional borrowings under the lines and was in default on certain compliance covenants of the lines. Management's plan for the remainder of 2000 provides for the Company to improve its financial condition and operating results through the sale or closure of several underperforming pharmacies, increased selling prices, the reduction of receivables and inventories levels, reduction in store operating hours and labor costs and various debt and equity alternatives. As discussed above, the Company is in default on its working capital lines of credit. The Company believes that in the event that the lenders do not waive the defaults and renew or otherwise extend the credit facilities, it will be able to secure replacement financing at similar terms or otherwise retire the debt with sales 8 proceeds from the stores identified as held for disposal. In the event such sales proceeds are not sufficient or that alternative financing is not arranged, the Company may have to sell the assets of certain performing stores (which have previously received unsolicited purchase inquiries) to provide the additional funds to retire the debt. Such additional store sales would reduce future revenues and could have a material adverse effect on the financial position and results of operations of the Company. NOTE 8 During the fourth quarter of 1999, the Company identified several underperforming pharmacies with long-lived assets (primarily intangibles) carrying amounts of $1,001 and committed to a plan to sell them. Accordingly, the Company began marketing these pharmacies to potential buyers and sold several of these pharmacies during the six months ended June 30, 2000. The Company estimates the fair value (based primarily on bids received from potential buyers or previous sales proceeds) less costs to sell the pharmacies. During the six months ended June 30, 2000, the Company revised its estimates of fair values and recorded additional impairment of $64. As of June 30, 2000, the Company had identified one underperforming pharmacy whose operating results indicated that long-lived assets of this pharmacy might be impaired. The long-lived assets of this pharmacy had combined carrying amounts of $186. As a result of analyses performed, the Company determined that the pharmacy was impaired and recorded a $186 impairment loss. Management's estimate of undiscounted future cash flows indicates that the remaining carrying amounts as of December 31, 1999 are expected to be recovered. However, it is reasonably possible that the estimate of undiscounted cash flows may change in the near future resulting in the need to write-down one or more of the identified assets to fair value. NOTE 9 Under the 2000 stock option plan approved by stockholders in June 2000, options for up to 250,000 shares of common stock may be granted to employees and directors at prices as specified in the plan on the dates the options are granted. No options under the 2000 plan have been granted to date. NOTE 10 The Company and certain present and former officers or directors were named as defendants in an action that was filed seeking to certify a class of persons who purchased shares of the Company's common stock during the period between August 14, 1998 and March 3, 1999, inclusive, alleging that defendants failed to timely disclose complications with the Company's prescription pricing communications technology. The Company has contingent liabilities for other lawsuits and various other matters occurring in the ordinary course of business. Management of the Company believes that the ultimate resolution of these contingencies will not have a material adverse effect on the Company's financial position or results of operations. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (DOLLARS IN THOUSANDS) OVERVIEW The following discussion and analysis reviews the operating results of Horizon for the three and six months ended June 30, 2000 and compares those results to the comparable periods of 1999. Certain statements contained in this discussion are not based on historical facts; rather, they are forward-looking statements that are based upon numerous assumptions about future conditions which may ultimately prove to be inaccurate, and actual 9 events and results may differ materially from anticipated results described in such statements. Our ability to achieve such results is subject to certain risks and uncertainties, such as those inherent generally in the retail pharmacy industry and the impact of competition, pricing and changing market conditions. We disclaim, however, any intent or obligation to update these forward-looking statements. As a result, you should not rely on these forward-looking statements. Horizon's principal business strategy since commencing operations in 1994 has been to establish a chain of retail pharmacies through the acquisition of free standing, full-line retail pharmacies and related businesses. In evaluating a retail pharmacy for potential acquisition, we (i) evaluate the target store's profits and losses for preceding years; (ii) review the store's income tax returns for preceding years; (iii) review computer-generated prescription reports showing historical information including prescriptions sold, average price of each prescription, gross margins and trends in prescription sales; (iv) analyze the store's location and competition in the immediate area; (v) review the store's lease agreement, if any; and (vi) assess targeted areas for growth patterns and trends. Based on our analysis of the foregoing items, we may prepare an offer to purchase the particular store. To assess the reasonableness of the seller's asking price, we consider the anticipated rate of return, payback period and the availability and terms of seller financing, with it being generally desired that one-third of the purchase price be seller-financed and the balance split between cash and other consideration, such as our Common Stock. In 1999, we made a strategic decision to enter the mail order and e-commerce business. In June 1999, we purchased a combination retail, mail order and Internet pharmacy operation, and in the fourth quarter of 1999 we started a new Internet pharmacy operation, HorizonScripts.com, which provides customers online access to thousands of prescription and non-prescription items at competitive prices. We believe this Internet pharmacy will enhance our traditional "brick and mortar" operations, and that the "brick and click" strategy will offer our existing and potential customers convenient sources for their health care needs. By expanding our presence through e-commerce, we believe we will expand our name recognition and revenue base, while also cementing our relationship with our existing customers. During the six months ended June 30, 1999, we acquired five retail pharmacies. During the six months ended June 30, 2000, we acquired the prescription files and inventory of one pharmacy and consolidated them into an existing store, and we acquired an infusion pharmacy operation in Corpus Christi, Texas. The primary measurement of the effect of acquisitions on our operating performance is the number of store operating months, which is the number of months we owned all of the stores during the relevant measuring period. We expect that continuing acquisitions and expansion of our e-commerce activities will be the most significant factors in our growth strategy. Currently, our primary source of revenue is the sale of prescription drugs. During the three months ended June 30, 1999 and 2000, sales of prescription drugs generated 75.5% and 76.2%, respectively, of net revenues; during the six month period ended June 30, 1999 and 2000, sales of prescription drugs generated 75.8% and 76.5%, respectively. We expect our prescription drug business to increase on an annual basis as a result of the demographic trends toward an aging population and the continued development of new pharmaceutical products. However, we anticipate that such sales will decrease as a percentage of our overall net revenues and gross margins as we expand our home healthcare and other non-pharmaceutical sales and services which have historically generated higher margins. Our net revenues and operating results should be improved during holiday periods and from Christmas through Easter. Sales of health-related products peak during seasonal outbreaks of cough and cold/flu viruses, which typically occur during the winter and spring. Accordingly, revenues and profits should be highest in the fourth quarter and the first quarter of each year. However, we have been making investments in the future of our e-commerce operations over the past three quarters. Consequently, we experienced losses in the fourth quarter of 1999 and the first and second quarters of 2000, which were attributable, in part, to such investments and, in part, 10 to certain underperforming stores. We expect to incur additional losses in the near future while we continue to invest in our e-commerce operations and the building of an infrastructure necessary for our growth. We anticipate entering into strategic alliances with various e-commerce companies, as well as pursuing e-commerce strategies through existing retail centers, such as grocery stores. During the first quarter of 2000, we entered into a relationship with Informed.com, an e-commerce start-up that provides telemedicine services (e.g., counseling and virtual nursing). Informed.com will provide us their e-commerce expertise as we design and develop electronic kiosks to conduct e-commerce in retail centers. We agreed to guaranty certain levels of gross sales and pretax profits for Informed.com's subsidiary, InformedScripts.com, Inc., and to serve, in essence, as its exclusive wholesale supplier for its prescription drug and OTC drug orders; however, because of InformedScripts.com, Inc.'s failure to remit certain payments to us under the terms of a promissory note, we exercised our option to terminate the fulfillment and guaranty agreement. During the second quarter, we entered into a Cooperative Marketing Agreement with eGrocery.com, Inc. ("eGrocery.com") pursuant to which eGrocery.com will, among other things, link our web site to, and display promotional advertisements on, certain web sites operated and maintained by eGrocery.com. eGrocery.com will also endeavor to generate cooperative advertising dollars for us from general merchandise, trade funds and display allowances at the retail stores we own and manage. We will attempt to enter into additional alliances in 2000 in order to provide us increased visibility in cyberspace and access to high traffic retail centers for electronic kiosks. RESULTS OF OPERATIONS The following table sets forth the percentage relationship of certain income statement data for the periods indicated:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------- -------- 1999 2000 1999 2000 ---- ---- ---- ---- INCOME STATEMENT DATA REVENUES: Net Revenues: Prescription drugs sales........................... 75.5% 76.2% 75.8% 76.5% Other sales and services........................... 24.5% 23.8% 24.2% 23.5% ------ ------ ------ ------ Total net revenues.............................. 100.0% 100.0% 100.0% 100.0% COSTS AND EXPENSES: Cost of sales-prescription drugs(1)................ 73.7% 79.6% 73.5% 78.1% Cost of sales-other(2)............................. 63.3% 68.7% 62.8% 65.8% Selling, general and administrative expenses(3).... 25.7% 27.7% 25.8% 27.8% Depreciation and amortization(3)................... 1.2% 1.6% 1.1% 1.5% Provision for impairment(3)........................ -- .7% -- .4% Interest expense, net(3) .......................... 1.1% 1.8% 1.1% 1.8% Net income (loss) (3).............................. .8% (8.8%) 1.0% (6.7%)
- ----------- (1) As a percentage of prescription drugs sales. (2) As a percentage of other sales and services. (3) As a percentage of total net revenues. Intangible assets, including but not limited to goodwill, pharmacy files and non-compete covenants, have historically represented a substantial portion of our acquisition costs. Such assets are amortized over a period of not more than 40 years. Accordingly, the amortization of intangible assets is not expected to have a significant effect on our future results of operations. 11 NET REVENUES Our net revenues increased $4,070, or 12.9%, to $35,610 for the three months ended June 20, 2000, compared to $31,540 for the three months ended June 30, 1999. The increase was attributable to an increase in same store sales and an increase in store operating months from 148 in the second quarter of 1999 to 152 in the second quarter of 2000. Our net revenues increased $8,187, or 13.1%, to $70,712 for the six months ended June 30, 2000, compared to $62,525 for the six months ended June 30, 1999. The increase was primarily attributable to the increase in store operating months from 292 in the six months ended June 30, 1999 to 308 for the six months ended June 30, 2000. Sales of prescription drugs increased from 75.5% of total net revenues for the three months ended June 30, 1999 to 76.2% of total net revenues for the three months ended June 30, 2000. Sales of prescription drugs increased from 75.8% of total net revenues for the six months ended June 30, 1999 to 76.5% of total net revenues for the six months ended June 30, 2000. We expect our prescription drug business to continue to increase on an annual basis as a result of the demographic trends toward an aging population and the continued development of new pharmaceutical products. Same store sales increased from $26,760 in the second quarter of 1999 to $28,031 in the second quarter of 2000, an increase of 4.7%. Same store sales for the six month period increased from $56,825 in 1999 to $58,941 in 2000, an increased of 3.7%. The following tables show our prescription drug gross margins and total revenues margins for the three months and six months ended June 30, 1999 and 2000:
GROSS MARGINS ON GROSS MARGINS ON PRESCRIPTION DRUG SALES TOTAL REVENUES ----------------------- -------------- AMOUNT PERCENTAGE AMOUNT PERCENTAGE ------ ---------- ------ ---------- Three Months Ended June 30, 2000........................... $ 5,543 20.4% $ 8,197 23.0% 1999........................... $ 6,253 26.3% $ 9,096 28.8% Six Months Ended June 30, 2000........................... $11,821 21.9% $17,506 24.8% 1999........................... $12,551 26.6% $18,166 29.1%
The decrease in the gross margin on prescription drug sales from 1999 to 2000 was primarily due to a decrease in margin on third party insurance plans and an increase in the percentage of third party prescription drug sales, which have lower margins. COSTS AND EXPENSES Cost of sales increased $4,969, or 22.1%, from $22,444 in the three months ended June 30, 1999 to $27,413 in the three months ended June 30, 2000. For the six month period cost of sales increased $8,847, or 19.9%, from $44,359 in 1999 to $53,206 in 2000. This increase is primarily the result of increased sales volume resulting from the increased number of store operating months. Our cost of sales as a percentage of total net revenues increased 5.8% from 71.2% in the three months ended June 30, 1999 to 77.0% in the three months ended June 30, 2000. For the six month period cost of sales as a percentage of revenues increased 4.2% from 70.9% in 1999 to 75.2% in 2000. This increase in total cost of sales is primarily due to an increase in third party prescriptions. Selling, general and administrative expenses increased from $8,120 in the three months ended June 30, 1999 to $9,872 in the three months ended June 30, 2000. Such expenses, expressed as a percentage of net 12 revenues, were 25.7% and 27.7% for the three months ended June 30, 1999 and 2000, respectively. For the six month period selling, general and administrative expenses increased from $16,137 in 1999 to $19,634 in 2000. Such expenses, expressed as a percentage of total net revenue were 25.8% and 27.8% for the six months ended June 30, 1999 and 2000, respectively. This increase is primarily due to costs associated with the loading of inventory levels and reorder points in the new pharmacy systems (which were installed in the third and fourth quarters of 1999), the additional personnel added to monitor and manage the new pharmacy systems, the start-up costs of HorizonScripts.com and the costs associated with the sale of the four stores. Additionally, a portion of the increase is due to an increased store count and the resulting increased store operating months. Depreciation and amortization increased from $378, or 1.2% of total net revenues, for the three months ended June 30, 1999 to $566, or 1.6% of net revenues, for the three months ended June 30, 2000. For the six month period, depreciation increased from $717, or 1.1% of total net revenues, in 1999 to $1,064 or 1.5% of total net revenues of 1999. These increases were due primarily to our purchase of new stores. Interest expense was $410 in the second quarter of 1999 compared to $651 during the second quarter of 2000. For the six month period interest expense was $807 in 1999 compared to $1,307 in 2000. The increases in interest expense for the three and six month periods resulted primarily from the increase in debt associated with our acquisitions. Interest and other income was $51 in the second quarter of 1999 compared to $2 in the second quarter of 2000. For the six month period interest and other income was $121 in 1999 compared to $19 in 2000. EARNINGS We had a net loss of $3,126 for the three months ended June 30, 2000 as compared to net income of $239 in the same period of 1999. We had a net loss of $4,730 for the six month period ended June 30, 2000 as compared to net income of $626 in the same period of 1999. We incurred no income tax expense in either period as a result of loss carryforwards. LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities increased $1,575 to $1,733 during the six months ended June 30, 2000 as compared to $158 for the six months ended June 30, 1999. The net loss was the primary reason for the increased usage of cash. Net cash used in investing activities was $1,694 for the six months ended June 30, 2000 as compared to $3,227 for the comparable period in 1999. Net cash provided by financing activities was $2,586 for the six months ended June 30, 2000 as compared to $43 in the six months ended June 30, 1999. Cash and cash equivalents decreased $841 to $422 during the six months ended June 30, 2000 as compared to $1,263 as of December 31, 1999. McKesson HBOC, Inc. ("McKesson") currently provides us with a $10,678 credit facility and provides a guaranty for a $7,000 revolving credit facility from Bank One, Texas, NA ("Bank One") due on September 1, 2000. Both the McKesson credit facility and the Bank One revolving credit facility are subject to certain restrictive covenants, including financial ratio requirements, which we must meet to maintain the credit facility and revolving line of credit. At June 30, 2000 we were in default of several of these covenants. These covenant violations have not been cured or waived, and the lenders have the right to demand payment of outstanding borrowings. At August 15, 2000, we had borrowed $10,678 under the credit facility and $7,000 under the revolving credit facility. 13 During February 2000, we acquired the prescription files and inventory of one store in Gering, Nebraska and consolidated it with our existing store. On March 31, 2000, we acquired (primarily for stock) the prescription files and inventory of an infusion therapy operation in Corpus Christi, Texas. As a result of the loss we incurred in 1999, we readjusted the formula we use when analyzing possible acquisitions. Until we are able to raise additional capital or secure additional credit lines for acquisitions, we will seek acquisition opportunities that require less cash and rely more on seller financing and the public or private offering of certain equity or long-term debt securities. Because of the federal moratorium on home healthcare licenses from September 1997 until January 1998 and the uncertainty of the current regulations, we do not plan to expand our home healthcare operations in 2000. We do expect, however, to offer home medical equipment through stores which have not heretofore offered such equipment. Our plan for 2000 is to improve our financial condition and operating results through the sale or closure of several underperforming pharmacies (four of which were sold in the second quarter of 2000), increase retail prices when possible, reduce our receivables, inventories levels, store operating hours and labor costs and analyze various debt and equity alternatives. In March 2000, the Company issued $2,500 in convertible debentures which netted the Company $2,175, which was used for working capital needs. As discussed above, the Company is in default on its working capital lines of credit. We believe that in the event the lenders do not waive the defaults and renew or otherwise extend the credit facilities, we will be able to secure replacement financing through a financial institution or supplier at similar terms or otherwise retire the debt with sales proceeds from underperforming stores. In the event such proceeds are not sufficient or that alternative financing is not arranged, we will sell the assets of certain performing stores (for which we have previously received unsolicited purchase inquiries) to provide the additional funds to retire the debt. The sale of such additional stores would reduce future revenues, and could have a material adverse effect on the financial position and results of operations of the Company. IMPACT OF INFLATION AND CHANGING PRICES Inflation continues to cause increases in product, occupancy and operating expenses, as well as the cost of acquiring capital assets. We attempt to minimize the effect of higher operating costs by achieving operating efficiencies through the use of technology. FACTORS AFFECTING OPERATIONS DEPENDENCE ON ACQUISITIONS FOR GROWTH. Our growth strategy is two-fold. First, we will continue to seek to acquire, consolidate and operate existing free-standing pharmacies and related businesses on a profitable basis subject to the availability of capital. We continually review acquisition proposals and are currently engaged in discussions with third parties with respect to possible acquisitions. However, we compete for acquisition candidates with buyers who have greater financial and other resources than us and, consequently, may be able to pay higher acquisition prices. To the extent we are unable to acquire suitable retail pharmacies or to integrate such stores successfully into our operations, our ability to expand our business may be reduced significantly. Second, we are expanding our operations into, and attempting to redirect revenues through, e-commerce by entering into strategic alliances with e-commerce partners. We believe this e-commerce strategy will allow us to increase our customer and prescription bases as well as our revenues. 14 SALES TO THIRD-PARTY PAYORS We sell a growing percentage of our prescription drugs to customers who are covered by third-party payment programs. Although contracts with third-party payors may increase the volume of prescription sales and gross profits, third-party payors typically negotiate lower prescription prices than non third-party payors. Accordingly, gross profit margins on sales of prescription drugs have been decreasing and are expected to continue to decrease in future periods. RELIANCE ON MEDICARE AND MEDICAID REIMBURSEMENTS Substantially all of our home healthcare revenues are attributable to third-party payors, including Medicare and Medicaid, private insurers, managed care plans and HMOs. The amounts we receive from government programs and private third-party payors are dependent upon the specific benefits included under the program or the patient's insurance policies. Any substantial delays in reimbursement or significant reductions in the coverage or payment rates of third-party payors, or from patients enrolled in the Medicare or Medicaid programs, would have a material adverse effect on our revenues and profitability. EXPANSION Our ongoing expansion will require us to implement and integrate enhanced operational and financial systems, and additional management, operational and financial resources. Our inability to implement and integrate these systems and/or add these resources could have a material adverse effect on our results of operations and financial condition. There can be no assurance that we will be able to manage our expanding operations effectively or maintain or accelerate our growth. Although we experienced growth in net revenues in 1999, we sustained a substantial loss (as a result of the decline in gross margins in the fourth quarter related to price conversion difficulties encountered during the pharmacy computer system conversions, the expenses associated with such conversions, the installation of the home office computer system, the installation of the frame relay telecommunication network, and the start-up expenses associated with new pharmacy web site, HorizonScripts.com). We also incurred a loss in 1998 (as a result of the malfunction of our computerized pricing system which failed to receive and integrate average wholesale price updates that were electronically transmitted from our primary supplier). We cannot assure you that we will not experience similar problems to those encountered in 1998 and 1999 related to expansion or that we will be able to maintain or increase net revenues. GOVERNMENT REGULATION AND HEALTHCARE REFORM Pharmacists and pharmacies are subject to a variety of state and Federal regulations and may be adversely affected by certain changes in such regulations. In addition, prescription drug sales represent a significant portion of our revenues and profits, and are a significant segment of our business. These revenues are affected by regulatory changes, including changes in programs providing for reimbursement of the cost of prescription drugs by third-party payment plans, such as government and private plans, and regulatory changes relating to the approval process for prescription drugs. REGULATION OF HOME HEALTHCARE SERVICES Our home healthcare business is subject to extensive Federal and state regulation. Changes in the law or new interpretations of existing laws could have a material adverse effect on permissible activities, the relative costs associated with doing business and the amount of reimbursement for our products and services paid by government and other third-party payors. 15 MALPRACTICE LIABILITY The provision of retail pharmacy and home healthcare services entails an inherent risk of claims of medical and professional malpractice liability. We may be named as a defendant in such malpractice lawsuits and subject to the attendant risk of substantial damage awards. While we believe we have adequate professional and medical malpractice liability insurance coverage, there can be no assurance that we will not be sued, that any such lawsuit will not exceed our insurance coverage or that we will be able to maintain such coverage at acceptable costs and on favorable terms. COMPETITION The retail pharmacy and home healthcare businesses are highly competitive. We compete with national, regional and local retail pharmacy chains, independent retail pharmacies, deep discount retail pharmacies, supermarkets, discount department stores, mass merchandisers and other retail stores and mail order operations. Similarly, our home healthcare operations compete with larger providers of home healthcare services, including chain operations and independent single unit stores, which may have a more established presence in our markets and which may offer more extensive home healthcare services than us. Most of our competitors have financial resources that are substantially greater than ours, and we cannot assure you that we will be able to compete successfully with our competitors. GEOGRAPHIC CONCENTRATION Currently, 16 and 7 of our 48 retail pharmacies are located in Texas and New Mexico, respectively, and we plan to acquire other retail pharmacies located in such states. Consequently, our results of operations and financial condition are dependent upon general trends in the Texas and New Mexico economies and any significant healthcare legislative proposals enacted in those states. SUBSTANTIAL INDEBTEDNESS We have incurred substantial debt and may incur additional indebtedness in the future in connection with our plan of acquisitions. Our ability to make cash payments to satisfy our debt will depend upon our future operating performance, which is subject to a number of factors, including prevailing economic conditions and financial, business and other factors beyond our control. If we are unable to generate sufficient earnings and cash flow to service our debt, we may have to refinance certain of these obligations or dispose of certain assets. In the event we are required to refinance all or any part of our debt, there can be no assurance that we will be able to effect such refinancing on satisfactory terms. NEED FOR ADDITIONAL CAPITAL We believe that a planned reduction in our inventory and accounts receivable levels, the sale of certain underperforming stores and our existing credit facilities will be adequate to satisfy our working capital requirements for the next twelve months, although circumstances, including the acquisition of additional stores and certain alliances and/or joint ventures in e-commerce, will require that we obtain additional equity and/or long or short-term financing to realize certain business opportunities. No assurance can be made that we will be able to obtain such financing. RELIANCE ON SINGLE SUPPLIER We currently purchase approximately 80% of our inventory from McKesson, which also provides us with order-entry machines, shelf labels and other supplies. We believe that the wholesale pharmaceutical and non-pharmaceutical distribution industry is highly competitive because of the consolidation of the retail pharmacy 16 industry and the practice of certain large retail pharmacy chains to purchase directly from product manufacturers. Although we believe we could obtain our inventory through another distributor at competitive prices and upon competitive payment terms if our relationship with McKesson were terminated, there can be no assurance that the termination of such relationship would not adversely affect our business. POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY Our results of operations depend significantly upon the net sales generated during the first and fourth quarters, and any decrease in net sales for such periods could have a material adverse effect upon our profitability. As a result, we believe that period-to-period comparisons of our results of operations are not and will not necessarily be meaningful and should not be relied upon as an indication of future performance. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS. We are exposed to market risk from changes in interest rates on debt. Our exposure to interest rate risk currently consists of our outstanding lines of credit. The aggregate balance outstanding under the lines of credit was $17,678 at June 30, 2000. The impact on our results of operations of a one-point interest rate change on balances outstanding under the line of credit would be immaterial. This market risk discussion contains forward-looking statements. Actual results may differ materially from this discussion based upon general market conditions and changes in financial markets. 17 PART II. OTHER INFORMATION. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits
EXHIBIT NO. NAME OF EXHIBIT ----------- --------------- 3.1 Articles of Incorporation of HORIZON Pharmacies, Inc., incorporated by reference to Exhibit 3.1 of our Quarterly Report on Form 10-QSB filed 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 on August 14, 1998. 10.1* Employment Agreement by and between HORIZON Pharmacies, Inc. and John N. Stogner, dated July 31, 1999 (filed electronically herewith) 10.2* Employment Agreement by and between HORIZON Pharmacies, Inc. and Phillip Douglas Stone, dated March 7, 2000 and effective April 1, 2000 (filed electronically herewith) 10.3 Loan Agreement, dated July 31, 1999, between Bank One, Texas, National Association and HORIZON Pharmacies, Inc. (filed electronically herewith) 10.4 Promissory Note, dated July 31, 1999, from HORIZON Pharmacies, Inc. to Bank One, Texas, National Association (filed electronically herewith) 10.5 Modification of Promissory Note, dated July 31, 2000, between Bank One, Texas National Association and HORIZON Pharmacies, Inc. (filed electronically herewith) to the Promissory Note, dated July 31, 1999, between Bank One, Texas National Association and HORIZON Pharmacies, Inc. 10.6 Letter Agreement dated August 3, 2000 (filed electronically herewith) amending the Fulfillment and Guaranty Agreement, dated March 14, 2000 by and between HORIZON Pharmacies, Inc. and InformedScripts.com, incorporated herein by reference to Exhibit 10.1 of our Current Report on Form 8-K filed electronically on April 6, 2000 10.7* HORIZON Pharmacies, Inc. 2000 Stock Option Plan (filed electronically herewith) 27.1 Financial Data Schedule
----------------------------------------------------- * Management contract or compensatory plan or arrangement (b) Reports on Form 8-K During the six months ended June 30, 2000, the Company filed the following Current Reports on Form 8-K: (1) Current Report on Form 8-K filed with the Commission on March 9, 2000. 18 SIGNATURES In accordance with the requirements of the Exchange Act, the Company caused the report to be signed on its behalf by the undersigned, thereunto duly authorized. HORIZON Pharmacies, Inc., a Delaware corporation Date: August 18, 2000 /s/ Ricky D. Mccord ------------------------------------------ Ricky D. McCord President, Chief Executive Officer Date: August 18, 2000 /s/ John N. Stogner ------------------------------------------ John N. Stogner Chief Financial Officer 19 EXHIBIT LIST
EXHIBIT NO. NAME OF EXHIBIT ----------- --------------- 3.1 Articles of Incorporation of HORIZON Pharmacies, Inc., incorporated by reference to Exhibit 3.1 of our Quarterly Report on Form 10-QSB filed 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 on August 14, 1998. 10.1* Employment Agreement by and between HORIZON Pharmacies, Inc. and John N. Stogner, dated July 31, 1999 (filed electronically herewith) 10.2* Employment Agreement by and between HORIZON Pharmacies, Inc. and Phillip Douglas Stone, dated March 7, 2000 and effective April 1, 2000 (filed electronically herewith) 10.3 Loan Agreement, dated July 31, 1999, between Bank One, Texas, National Association and HORIZON Pharmacies, Inc. (filed electronically herewith) 10.4 Promissory Note, dated July 31, 1999, from HORIZON Pharmacies, Inc. to Bank One, Texas, National Association (filed electronically herewith) 10.5 Modification of Promissory Note, dated July 31, 2000, between Bank One, Texas National Association and HORIZON Pharmacies, Inc. (filed electronically herewith) to the Promissory Note, dated July 31, 1999, between Bank One, Texas National Association and HORIZON Pharmacies, Inc. 10.6 Letter Agreement dated August 3, 2000 (filed electronically herewith) amending the Fulfillment and Guaranty Agreement, dated March 14, 2000 by and between HORIZON Pharmacies, Inc. and InformedScripts.com, incorporated herein by reference to Exhibit 10.1 of our Current Report on Form 8-K filed electronically on April 6, 2000 10.7* HORIZON Pharmacies, Inc. 2000 Stock Option Plan (filed electronically herewith) 27.1 Financial Data Schedule
20 EX-10.1 2 ex-10_1.txt EXHIBIT 10.1 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made and entered into as of July 1, 1999 by and between HORIZON PHARMACIES, INC, a Delaware corporation (the "COMPANY"), and JOHN N. STOGNER (the "EMPLOYEE"). RECITAL The Board of Directors of the Company (the "BOARD") has determined that it is in the bestinterests of the Company and its stockholders to employ the Employee on the terms and conditions set forth herein. AGREEMENTS NOW, THEREFORE, in consideration of the respective agreements and covenants set forth herein and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: 1. EMPLOYMENT PERIOD. Subject to the terms and provisions of this Agreement, the Company hereby agrees to employ the Employee, and the Employee hereby agrees to be employed by the Company, for a period (the "EMPLOYMENT PERIOD") commencing on July 1, 1999, and ending on the third anniversary of such date, unless earlier terminated in accordance with Section 3. Any new employment agreement shall only be effective after having been reduced to writing and executed by both parties hereto. In the event the Employee continues to perform services after the Employment Period, and pending execution of a new employment agreement, if any, such services shall constitute employment for an unspecified term, terminable at-will, with or without cause or reason, with or without advance notice, and with or without pay in lieu of advance notice. 2. TERMS OF EMPLOYMENT. a. POSITION AND DUTIES. i. During the term of the Employee's employment, the Employee shall serve as Chief Financial Officer, Treasurer and Director and, in so doing, shall perform the normal duties associated with such position and such other duties as may be assigned from time to time by the Board, subject to the general direction, approval and control of the Board. ii. During the term of the Employee's employment, and excluding any periods of vacation and sick leave to which the Employee is entitled, the 1 Employee agrees to devote his full working time to the business and affairs of the Company and to use the Employee's best efforts to perform faithfully, effectively and efficiently such responsibilities. iii. The Employee agrees to observe and comply with the Company's policies, practices, and procedures, as adopted or amended from time to time. b. COMPENSATION. i. BASE SALARY. During the term of the Employee's employment, the Employee shall receive an annual base salary ("ANNUAL BASE SALARY"), which shall be paid in accordance with the customary payroll practices of the Company, in an amount equal to $165,000. The Board, in its sole discretion, may at any time adjust the amount of the Annual Base Salary as it may deem appropriate, and the term "ANNUAL BASE SALARY," as used in this Agreement, shall refer to the Annual Base Salary as it may be so adjusted. ii. INCENTIVE BONUS. Subject to the other terms and conditions of this Agreement and as further compensation for the performance of his services hereunder, during the Employment Period, the Employee shall be eligible to receive an annual incentive bonus ("INCENTIVE BONUS") of up to forty percent (40%) of the Employee's Annual Base Salary. (1) CRITERIA. Prior to the end of each fiscal year, the Board's Compensation Committee shall approve the criteria ("CRITERIA") upon which the Employee's Incentive Bonus for the following fiscal year will be based, except that the Criteria for fiscal year 1999 have been approved by the Board's Compensation Committee as of the date this Agreement is executed. The Criteria for fiscal year 1999 are described in EXHIBIT A, which is hereby incorporated as part of this Agreement. The Criteria for each subsequent fiscal year shall, after approved by the Board's Compensation Committee, be attached hereto as EXHIBIT A as a substitute for the previous year's Criteria, and shall become a part of this Agreement for such fiscal year. (2) TIME OF PAYMENT. The Incentive Bonus, if earned, shall be paid to the Employee upon completion of the Company's annual audit or earlier if the Compensation Committee of the Board determines that the Employee achieved one or more of the Criteria set forth in EXHIBIT A. The Employee understands and agrees that he is not guaranteed an Incentive Bonus and that the amount of the Incentive Bonus, if any, is dependant on the Compensation Committee of the 2 Board determining that the Employee achieved one or more of the Criteria set forth in EXHIBIT A. iii. STOCK OPTION PLANS. During the term of the Employee's employment, the Employee shall be entitled to participate in the Company's stock option plans as adopted or amended from time to time ("STOCK OPTION PLANS"). iv. WELFARE BENEFIT PLANS. During the term of the Employee's employment, the Employee and/or the Employee's family, as the case may be, shall be eligible for participation in and shall receive all benefits under the welfare benefit plans, practices, policies and programs applicable generally to other employees of the Company (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs), as adopted or amended from time to time ("WELFARE PLANS"). v. PERQUISITES. During the term of the Employee's employment, the Employee shall be entitled to receive (in addition to the benefits described above) such perquisites and fringe benefits appertaining to his position in accordance with any policies, practices, and procedures established by the Board, as amended from time to time. vi. EXPENSES. During the term of the Employee's employment, the Employee shall be entitled to receive prompt reimbursement for all reasonable business-related expenses incurred by the Employee in accordance with the Company's policies, practices and procedures, as adopted or amended from time to time. vii. VACATION. During the term of the Employee's employment, the Employee shall be entitled to four (4) weeks of paid vacation each calendar year. Any vacation shall be taken at the reasonable and mutual convenience of the Company and the Employee. Accrued vacation not taken in any calendar year will not be carried forward or used in any subsequent calendar year and the Employee shall not be entitled to receive pay in lieu of accrued but unused vacation in any calendar year. 3. TERMINATION OF EMPLOYMENT. a. DEATH OR DISABILITY. The Employee's employment shall terminate automatically upon the Employee's death during the Employment Period. If the Disability of the Employee has occurred during the Employment Period (pursuant to the definition of Disability set forth below), the Company may give to the Employee 3 written notice in accordance with Section 10(c) of its intention to terminate the Employee's employment. In such event, the Employee's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Employee (the "DISABILITY EFFECTIVE DATE"), provided that, within the 30 days after such receipt, the Employee shall not have returned to perform, with or without reasonable accommodation, the essential functions of his position. For purposes of this Agreement, "DISABILITY" shall mean the Employee's inability to perform, with or without reasonable accommodation, the essential functions of his position hereunder for a period of 180 consecutive days due to mental or physical incapacity, as determined by mutual agreement of a physician selected by the Company or its insurers and a physician selected by the Employee; provided, however, if the opinion of the Company's physician and the Employee's physician conflict, the Company's physician and the Employee's physician shall together agree upon a third physician, whose opinion shall be binding. b. CAUSE. The Company may terminate the Employee's employment at any time during the Employment Period with or without Cause. For purposes of this Agreement, "CAUSE" shall mean (i) a breach by the Employee of the Employee's obligations under Section 2(a) (other than as a result of physical or mental incapacity) which constitutes nonperformance by the Employee of his obligations and duties thereunder, as determined by the Board (which may, in its sole discretion, give the Employee notice of, and the opportunity to remedy, such breach), (ii) commission by the Employee of an act of fraud, embezzlement, misappropriation, willful misconduct or breach of fiduciary duty against the Company or other conduct harmful or potentially harmful to the Company's best interest, as reasonably determined by a majority of the members of the Board after a hearing by the Board following ten (10) days' notice to the Employee of such hearing, (iii) a material breach by the Employee of Sections 6, 7, 8 or 9, (iv) the Employee's conviction, plea of no contest or NOLO CONTENDERE, deferred adjudication or unadjudicated probation for any felony or any crime involving moral turpitude, (v) the failure of the Employee to carry out, or comply with, in any material respect, any lawful directive of the Board consistent with the terms of this Agreement (which the Board, in its sole discretion, may give the Employee notice of, and an opportunity to remedy), or (vi) the Employee's unlawful use (including being under the influence) or possession of illegal drugs. For purposes of the previous sentence, no act or omission on the Employee's part shall be deemed "willful" unless done, or omitted to be done, by the Employee not in good faith and without reasonable belief that the Employee's action or omission was in the best interest of the Company. The Company may suspend the Employee's title and authority pending the hearing provided for above. For purposes of this Agreement, "WITHOUT CAUSE" shall mean a termination by the Company of the Employee's employment during the Employment Period at the Company's sole discretion for any reason other than a termination based upon Cause, death or Disability. 4 c. RESIGNATION. The Employee's employment may be terminated during the Employment Period by the Employee. Such termination ("RESIGNATION") shall not preclude the Company from terminating the Employee's employment, in accordance with the terms of this Agreement, prior to the Date of Termination (as defined below) established by the Employee's Notice of Termination (as defined below). d. CHANGE OF CONTROL. If a Change of Control occurs during the Employment Period and the Board determines in good faith that it is in the Company's best interest to terminate the Employee's employment with the Company, within one year of such Change of Control the Company may terminate the Employee's employment by giving the Employee written notice in accordance with Section 10(c) of its intention to terminate the Employee's employment. Any such termination by the Company as contemplated in this Section 3(d) is referred to herein as a termination "upon a Change of Control." For purposes of this Agreement, "CHANGE OF CONTROL" means the occurrence of any of the following: (i) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's capital stock would convert into cash, securities or other property, other than a merger of the Corporation in which the holders of the Company's capital stock immediately prior to the merger have the same proportionate ownership of capital stock of the surviving corporation immediately after the merger, (ii) any sale, lease, exchange or other transfer (whether in one transaction or a series of related transactions) of all or substantially all of the assets of the Company, (iii) the stockholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company, (iv) any person (as used in Section 13(d) and 14(d)(2) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act")) becomes the beneficial owner (within the meaning of Rule 13D-3 under the Exchange Act) of 50% or more of the Company's outstanding capital stock, (v) during any period of two (2) consecutive years, individuals who at the beginning of that period constitute the entire Board of the Company, cease for any reason to constitute a majority of the Board unless the election or the nomination for election by the Company's stockholders of each new director received the approval of the Board by a vote of at least two-thirds of the directors then and still in office and who served as directors at the beginning of the period, or (vi) the Company becomes a subsidiary of any other Company. e. NOTICE OF TERMINATION. Any termination by the Company for Cause, without Cause, because of the Employee's Disability or upon a Change of Control as contemplated in Section 3(d), or by the Employee's Resignation, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 10(c). For purposes of this Agreement, a "NOTICE OF TERMINATION" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in 5 reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated, and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall not be more than 30 days after the giving of such notice). The failure by the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Cause shall not waive any right of the Company hereunder or preclude the Company from asserting such fact or circumstance in enforcing the Company's rights hereunder. f. DATE OF TERMINATION. "DATE OF TERMINATION" means (i) if the Employee's employment is terminated by the Company for Cause, without Cause or upon a Change of Control as contemplated in Section 3(d), or by the Employee's Resignation, the date of receipt of the Notice of Termination or any later date specified therein pursuant to Section 3(e), as the case may be, or (ii) if the Employee's employment is terminated by reason of death or Disability, the date of death of the Employee or the Disability Effective Date, as the case may be. 4. OBLIGATIONS OF THE COMPANY UPON TERMINATION. a. FOR CAUSE; RESIGNATION; OTHER THAN FOR DEATH OR DISABILITY. If, during the Employment Period, the Company shall terminate the Employee's employment for Cause or the Employee resigns from his employment, and the termination of the Employee's employment in any case is not due to his death or Disability, the Employee shall forfeit all rights to any Incentive Bonus otherwise due to him or to which he may be entitled, and the Company shall have no further payment obligations to the Employee or his legal representatives, other than for the payment of, in a lump sum in cash within thirty (30) days after the Date of Termination (or such earlier date as required by applicable law), that portion of the Employee's Annual Base Salary accrued through the Date of Termination to the extent not theretofore paid. b. DEATH; DISABILITY. If the Employee's employment is terminated by reason of the Employee's death or disability during the Employment Period, the Company shall have no further payment obligations to the Employee or his legal representatives, other than for payment of (i) in a lump sum in cash within thirty (30) days after the Date of Termination (or such earlier date as required by applicable law) that portion of the Employee's Annual Base Salary accrued through the Date of Termination to the extent not theretofore paid, and (ii) in a lump sum in cash within thirty (30) days after the Date of Termination (or such earlier date as required by applicable law), the Incentive Bonus prorated from the first day of the Company's then current fiscal year to the Date of Termination ("Prorated Incentive Bonus"). 6 c. WITHOUT CAUSE. If the Employee's employment is terminated before expiration of the Employment Period by the Company without Cause, the Employee will be entitled to receive (i) in a lump sum in cash within thirty (30) days after the Date of Termination (or such earlier date as required by applicable law) that portion of the Employee's Annual Base Salary accrued through the Date of Termination to the extent not theretofore paid, (ii) in a lump sum in cash within thirty (30) days after the Date of Termination (or such earlier date as required by applicable law), the Prorated Incentive Bonus, and (iii) severance payments ("SEVERANCE PAYMENTS"), in accordance with the customary payroll practices of the Company, in an amount equal to that portion of his Annual Base Salary in effect on the Date of Termination for the lesser of (1) twelve (12) months, or (2) the number of full or partial calendar months remaining after termination and before the expiration of the Employment Period, ("SEVERANCE PERIOD"), provided that such Severance Payments shall be paid to the Employee only upon his execution and non-revocation of a release and waiver of claims in the form required by the Company. d. CHANGE OF CONTROL. If the Employee's employment is terminated upon a Change of Control as contemplated in Section 3(d), the Company shall have no further payment obligations to the Employee or his legal representatives, other than for payment of (i) in a lump sum in cash within thirty (30) days after the Date of Termination (or such earlier date as required by applicable law) that portion of the Employee's Annual Base Salary accrued through the Date of Termination to the extent not theretofore paid, (ii) in a lump sum in cash within thirty (30) days after the Date of Termination (or such earlier date as required by applicable law), the Prorated Incentive Bonus, and (iii) Severance Payments, in accordance with the customary payroll practices of the Company in an amount equal to the Employee's Annual Base Salary for the remainder of the Employment Period, provided that such Severance Payments shall be paid to the Employee only upon his execution and non-revocation of a release and waiver of claims in the form required by the Company. 5. FULL SETTLEMENT, MITIGATION. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Employee obtains other employment. Neither the Employee nor the Company shall be liable to the other party for any damages for breach of this Agreement in addition to the amounts payable under Section 4 arising out of the termination of the Employee's employment prior to the end of the Employment Period; provided, however, that the Company shall be entitled to seek damages from the Employee for any breach of Sections 6, 7, 8 or 9 by the Employee or for the Employee's criminal misconduct. 7 6. CONFIDENTIAL INFORMATION. a. The Employee acknowledges that the Company has trade, business and financial secrets and other confidential and proprietary information (collectively, the "CONFIDENTIAL INFORMATION"). Confidential information includes, but is not limited to, sales materials, technical information, processes and compilations of information, records, specifications and information concerning customers or venders, customer lists, and information regarding methods of doing business. As defined herein, Confidential Information shall not include information that is generally known to other persons or entities who can obtain economic value from its disclosure or use. b. The Employee is aware of those policies implemented by the Company to keep its Confidential Information secret. The Employee acknowledges that the Confidential Information has been developed or acquired by the Company through the expenditure of substantial time, effort and money and provides the Company with an advantage over competitors who do not know or use such Confidential Information. c. During and following the Employee's employment by the Company, the Employee shall hold in confidence and not directly or indirectly disclose or use or copy or make lists of any Confidential Information except to the extent authorized in writing by the Board or compelled by legal process, other than to an employee of the Company or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Employee of his duties as an employee of the Company. The Employee agrees to use reasonable efforts to give the Company notice of any and all attempts to compel disclosure of any Confidential Information, in such a manner so as to provide the Company with written notice at least five (5) days before disclosure or within one (1) business day after the Employee is informed that such disclosure is being or will be compelled, whichever is earlier. Such written notice shall include a description of the information to be disclosed, the court, government agency, or other forum through which the disclosure is sought, and the date by which the information is to be disclosed, and shall contain a copy of the subpoena, order or other process used to compel disclosure. d. The Employee further agrees not to use any Confidential Information for the benefit of any person or entity other than the Company. e. As used in this Section 6 "COMPANY" shall include Horizon Pharmacies, Inc. and any of its affiliates. 7. SURRENDER OF MATERIALS UPON TERMINATION. All records, files, documents and materials, or copies thereof, relating to the Company's and its affiliates' business which the Employee shall prepare, or use, or be provided with as a result of his employment with the 8 Company, shall be and remain the sole property of the Company or its affiliates, as the case may be, and shall be returned promptly by the Employee to the owner upon termination of the Employee's employment with the Company. 8. SUCCESSORS. The Company may assign its rights under this Agreement to any successor to all or substantially all the assets of the Company, by merger or otherwise, and may assign or encumber this Agreement and its rights hereunder as security for indebtedness of the Company and its subsidiaries subject to the assignee agreeing to assume and perform all of the Company's obligations hereunder. The rights and obligations of the Employee under this Agreement may not be assigned or encumbered by the Employee, voluntarily or involuntarily, during his lifetime, and any such purported assignment shall be void. However, all rights of the Employee under this Agreement shall inure to the benefit of and be enforceable by the Employee's personal or legal representatives, estates, executors, administrators, heirs and beneficiaries. All amounts payable to the Employee hereunder shall be paid, in the event of the Employee's death, to the Employee's estate, heirs and representatives. 9. NON-COMPETITION. a. During his employment by the Company, including the Employment Period, the Employee will have access to and become acquainted with Confidential Information of the Company as described in Section 6. Accordingly, in consideration for having access to such Confidential Information, and in the case of the Employee's termination without Cause or upon a Change of Control as contemplated in Section 3(d) in consideration for the Severance Payments, and in order to protect its value to the Company, the Employee agrees that during the Term of Non-Competition (as defined below) he will not directly or indirectly disclose or use for any reason whatsoever any Confidential Information obtained by reason of his employment with the Company or any predecessor, except as required to conduct the business of the Company. The obligations of the Employee set forth in the preceding sentence is in addition to, and not in lieu of, the obligations of the Employee set forth in Section 6 of this Agreement. The Term of Non-Competition (herein so called) shall be for a term beginning on the date hereof and continuing until (i) the first anniversary of the Date of Termination if the Employee's employment is terminated by the Company for Cause or due to Disability or by the Employee's Resignation, or (ii) the end of the Severance Period if the Employee's employment is terminated by the Company without Cause or upon a Change of Control. b. The Employee acknowledges and agrees that the nature of the Confidential Information to which he will have access during his employment by the Company would make it difficult, if not impossible, for him to perform in a similar capacity for a Competing Business (as defined below) without disclosing or utilizing the 9 Confidential Information. The Employee further acknowledges and agrees that the Company's business is conducted throughout the country in a highly competitive market. Accordingly, the Employee agrees that, during the term of Non-Competition, the Employee will not (other than for the benefit of the Company pursuant to this Agreement) directly or indirectly, individually or as an officer, director, employee, shareholder, consultant, contractor, partner, joint venturer, agent, equity owner or in any capacity whatsoever (i) engage in the operation of retail pharmacies or in any other business activity that the Company is conducting, or is intending to conduct, on the Date of Termination (a "COMPETING BUSINESS"), (ii) hire, attempt to hire, or contact or solicit with respect to hiring any employee of the Company, or (iii) divert or take away any customers of the Company. c. During the term of Non-Competition, the Employee will not use the Employee's access to, knowledge of, or application of Confidential Information to perform any duty for any Competing Business; it being understood and agreed to that this Section 9(c) shall be in addition to and not be construed as a limitation upon the covenants in Sections 6 and 9(b) hereof. d. The Employee acknowledges that the geographic boundaries, scope of prohibited activities, and time duration of the preceding paragraphs are reasonable in nature and are no broader than are necessary to maintain the confidentiality and the goodwill of the Company and the confidentiality of its Confidential Information and to protect the other legitimate business interests of the Company. e. If any court determines that any portion of this Section 9 is invalid or unenforceable, the remainder of this Section 9 shall not thereby be affected and shall be given full effect without regard to the invalid provisions. If any court construes any of the provisions of this Section 9, or any part thereof, to be unreasonable because of the duration or scope of such provision, such court shall have the power to reduce the duration or scope of such provision and to enforce such provision as so reduced. f. As used in this Section 9, "COMPANY" shall include Horizon Pharmacies, Inc. and any of its affiliates. 10. MISCELLANEOUS. a. CONSTRUCTION. This Agreement shall be deemed drafted equally by both the parties. Its language shall be construed as a whole and according to its fair meaning. Any presumption or principle that the language is to be construed against any party shall not apply. The headings in this Agreement are only for convenience and are not intended to affect construction or interpretation. Any references to paragraphs, subparagraphs, sections or subsections are to those parts of this Agreement, unless 10 the context clearly indicates to the contrary. Also, unless the context clearly indicates to the contrary, (i) the plural includes the singular and the singular includes the plural, (ii) "and" and "or" are each used both conjunctively and disjunctively, (iii) "any," "all," "each," or "every" means "any and all", and "each and every", (iv) "include" and "including" are each "without limitation", (v) "herein," "hereof," "hereunder" and other similar compounds of the word "here" refer to the entire Agreement and not to any particular paragraph, subparagraph, section or subsection, and (vi) all pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the entities or persons referred to may require. b. DEFINITIONS. As used in this Agreement, "AFFILIATE" means, with respect to a person, any other person controlling, controlled by or under common control with the first person; the term "CONTROL," and correlative terms, means the power, whether by contract, equity ownership or otherwise, to direct the policies or management of a person; and "PERSON" means an individual, partnership, corporation, limited liability company, trust or unincorporated organization, or a government or agency or political subdivision thereof. c. NOTICES. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee: John N. Stogner --------------------- --------------------- --------------------- If to the Company: Horizon Pharmacies, Inc. 531 W. Main Street Denison, Texas 75020 Attn: Ricky D. McCord or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. d. ENFORCEMENT. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term of this Agreement, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a portion of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. 11 Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. e. WITHHOLDING. The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. f. ARBITRATION. The Company and the Employee agree to the resolution by binding arbitration of all claims, demands, causes of action, disputes, controversies or other matters in question ("claims"), whether or not arising out of this Agreement or the Employee's employment (or its termination), whether sounding in contract, tort or otherwise and whether provided by statute or common law, that the Company may have against the Employee or that the Employee may have against the Company or its parents, subsidiaries and affiliates, and each of the foregoing entities' respective officers, directors, employees or agents in their capacity as such or otherwise; except that this agreement to arbitrate shall not limit the Company's right to seek equitable relief, including injunctive relief and specific performance, and damages in a court of competent jurisdiction for an alleged breach of Sections 6, 7, 8 or 9 of this Agreement. Claims covered by this agreement to arbitrate also include claims by the Employee for breach of this Agreement, wrongful termination, discrimination (based on age, race, sex, disability, national origin or any other factor) and retaliation. In the event of any breach of this Agreement by the Company, it is expressly agreed that notwithstanding any other provision of this Agreement, the only damages to which the Employee shall be entitled is lost compensation and benefits in accordance with Section 2(b) or 4. The Company and the Employee agree that any arbitration shall be in accordance with the Federal Arbitration Act ("FAA") and, to the extent an issue is not addressed by the FAA, with the then-current National Rules for the Resolution of Employment Disputes of the American Arbitration Association ("AAA") or such other rules of the AAA as applicable to the claims being arbitrated. If a party refuses to honor its obligations under this agreement to arbitrate, the other party may compel arbitration in either federal or state court. The arbitrator shall apply the substantive law of the State of Texas (excluding Texas choice-of-law principles that might call for the application of some other state's law), or federal law, or both as applicable to the claims asserted. The arbitrator shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this agreement to arbitrate, including any claim that all or part of this Agreement is void or voidable and any claim that an issue is not subject to arbitration. The parties agree that venue for arbitration will be in Denison, Texas, and that any arbitration commenced in any other venue will be transferred to Denison, Texas, upon the written request of any party to this Agreement. In the event that an arbitration is actually conducted pursuant to this Section 10(f), the party in whose favor the 12 arbitrator renders the award shall be entitled to have and recover from the other party all costs and expenses incurred, including reasonable attorneys' fees, expert witness fees, and costs actually incurred. Any and all of the arbitrator's orders, decisions and awards may be enforceable in, and judgment upon any award rendered by the arbitrator may be confirmed and entered by, any federal or state court having jurisdiction. All proceedings conducted pursuant to this agreement to arbitrate, including any order, decision or award of the arbitrator, shall be kept confidential by all parties. THE EMPLOYEE ACKNOWLEDGES THAT, BY SIGNING THIS AGREEMENT, THE EMPLOYEE IS WAIVING ANY RIGHT THAT THE EMPLOYEE MAY HAVE TO A JURY TRIAL OR A COURT TRIAL OF ANY EMPLOYMENT-RELATED CLAIM ALLEGED BY THE EMPLOYEE. g. NO WAIVER No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at any time. h. EQUITABLE AND OTHER RELIEF. The Employee acknowledges that money damages would be both incalculable and an insufficient remedy for a breach of Sections 6, 7, 8 or 9 by the Employee and that any such breach would cause the Company irreparable harm. Accordingly, the Company, in addition to any other remedies at law or in equity it may have, shall be entitled, without the requirement of posting of bond or other security, to equitable relief, including injunctive relief and specific performance, in connection with a breach of Sections 6, 7, 8 or 9 by the Employee. In addition to the remedies the Company may have at law or in equity, violation of Sections 6 or 9 herein will entitle the Company at its sole option to discontinue the Severance Payments to the Employee, and to seek repayment from the Employee of any Severance Payments paid to him by the Company during the period of time the Employee was in violation of Sections 6 or 9. No action taken by the Company under this Section 10(h) shall affect the enforceability of the release and waiver of claims executed by the Employee pursuant to Sections 4(d) and (e). i. COMPLETE AGREEMENT. The provisions of this Agreement constitute the entire and complete understanding and agreement between the parties with respect to the subject matter hereof, and supersedes all prior and contemporaneous oral and written agreements, representations and understandings of the parties, which are hereby terminated. Other than expressly set forth herein, the Employee and Company acknowledge and represent that there are no other promises, terms, conditions or representations (or written) regarding any matter relevant hereto. This Agreement may be executed in two or more counterparts. j. SURVIVAL. Sections 6, 7, 8, 9 and 10 of this Agreement shall survive the termination of this Agreement. 13 k. CHOICE OF LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas without reference to principles of conflict of laws of Texas or any other jurisdiction, and, where applicable, the laws of the United States. l. AMENDMENT. This Agreement may not be amended or modified at any time except by a written instrument approved by the Board and executed by the Company and the Employee. m. EMPLOYEE ACKNOWLEDGMENT. The Employee acknowledges that he has read and understands this Agreement, is fully aware of its legal effect, has not acted in reliance upon any representatives or promises made by the Company other than those contained in writing herein, and has entered into this Agreement freely based on his own judgment. IN WITNESS WHEREOF, the Employee has hereunto set the Employee's hand and, pursuant to the authorization from the Board, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written. EMPLOYEE: /s/ John N. Stogner -------------------------------------------- John N. Stogner HORIZON PHARMACIES, INC., a Delaware corporation. By: /s/ Ricky D. McCord ----------------------------------- Name: Ricky D. McCord --------------------------------- Title: President -------------------------------- 14 EXHIBIT A Employee's Incentive Bonus shall be payable upon the following criteria: - If the Company achieves a net profit per its annual business plan for fiscal year 1999, the Employee shall receive, as an Incentive Bonus, an amount equal to ten percent (10%) of his Annual Base Salary. - If the Company achieves the revenues projected in its annual business plan for fiscal year 1999, the Employee shall receive, as an Incentive Bonus, an amount equal to ten percent (10%) of his Annual Base Salary. - If the Company successfully completes the installation of the PDX pharmacy computer system in all pharmacies within twelve (12) months of the Effective Date of this Agreement, the Employee shall receive, as an Incentive Bonus, an amount equal to ten percent (10%) of his Annual Base Salary. - If the Company develops a plan for the complete integration of all systems, specifically its Pharmacy, Point-of-Sale, Med Act and Great Plains systems, the Employee shall receive, as an Incentive Bonus, an amount equal to ten percent (10%) of his Annual Base Salary. 15 EX-10.2 3 ex-10_2.txt EXHIBIT 10.2 EMPLOYMENT AGREEMENT This Employment Agreement (this Agreement) is entered into effective the 7th day of March, 2000, by and between HORIZON Pharmacies, Inc., a Delaware Corporation, with its principal place of business in Denison, Texas (Employer), and Phillip Douglas Stone (Employee). W I T N E S S E T H: WHEREAS, Employer desires to employ Employee as a C.O.O. at Employer's location in Denison, Texas and Employee desires to accept such employment. NOW THEREFORE, for and in consideration of the above, the employment of and the payment of salary, wages or other compensation to Employee by Employer, and the mutual covenants, promises, undertakings and agreements set forth below, Employee and Employer covenant and agree as follows: 1. DUTIES. Beginning on the effective date of this Agreement, Employee shall (i) perform in the above-described capacity; (ii) devote such time, energy, ability, skills, services and attention to the timely, diligent and professional performance of his duties as required by Employer and as may be required to perform his assigned duties and fulfill the performance requirements of Employer from time to time; (iii) perform such additional or different duties, and accept the election or appointment to such other offices or positions as required by Employer; and (iv) comply with all of Employers' policies, procedures and rules. The specific duties assigned to Employee may be extended or curtailed from time to time at Employers' discretion. 2. COMPENSATION. As compensation for his services hereunder, Employee shall receive an annual salary in the amount of $165,000.00 per year, payable on a bi-weekly basis; and $55,000.00 potential bonus which is 33 1/3% of base salary separated into 4 categories of $13,750.00 each with the goals and parameters to be mutually agreed upon by both parties. Stock options to consist of 10,000 options from an existing plan to be vested over 3 years. 3. BENEFITS. During the term of this Agreement and subject to applicable eligibility requirements, Employee shall be entitled to all employment benefit plans of Employer, if any, now or hereafter in effect during the term of this Agreement, including, without limitation, health insurance and major medical coverage, on a no gain, no loss basis, paid holidays, 4 weeks vacation and sick leave as provided to the employees of Employer. Employee shall be entitled to being moved from his present residence to a location in North Texas at the employer's expense by a moving company that is mutually agreed upon by both parties. Employer agrees to pay one-half of Realtor's fees (not to exceed 8%) or a maximum of $4,000.00. Employee will also be awarded a $1,000.00 per month housing allowance for the first six months of his employment. 4. TERM AND TERMINATION. The term of this Agreement shall be one year commencing April 1, 2000 and ending on March 31, 2001 and shall be renegotiated within 30 days prior to the expiration of the current agreement. Prior to the end of the term, this Agreement may be terminated upon the occurrence of (i) either the death or disability of Employee or (ii) Employer has cause to 1 terminate this Agreement, and in any such event termination shall be effective immediately upon giving of notice by Employer. In the event Employee desires to terminate this Agreement prior to the end of the term, he may do so, provided, however, that notice of termination will be subject to a ninety (90) day notice by the terminating party. 5. EXPENSES. Employer agrees to reimburse Employee for all reasonable, out-of-pocket business expenses, as determined by the Chief Financial Officer of Employer or his designate, incurred by Employee in connection with his duties performed on behalf of Employer, provided, however, Employee has complied with Employer rules and procedures relative to such disbursement. 6. CONFIDENTIALITY AND NON-COMPETITION AGREEMENT. Employee and Employer have entered into a separate Confidentiality Agreement of event date herewith. 7. WAIVER, MODIFICATION AND INTEGRATION. The waiver by either party to this Agreement of a breach of any provision by the other party shall not operate or be construed as a waiver of any subsequent breach by any party. This instrument contains the parties' entire agreement concerning the matters recited herein, and supersedes all prior and contemporaneous representations, understandings and agreements, either oral or in writing, between the parties with respect to the subject matter of this Agreement. Any and all such prior or contemporaneous representations, understandings and agreements, both oral and written, are hereby terminated. This Agreement may not be modified, altered or amended except by a written agreement signed by Employer and Employee. 8. GOVERNING LAW; JURISDICTION; PROCESS OF SERVICE. It is the party's intention that the laws of the States of Texas shall govern the validity of this Agreement, the construction of its terms, and the interpretation of the party's rights and duties under this Agreement. Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement will be brought against any of the parties in the courts of the State of Texas and venue in Grayson County, Texas or, if it has or can acquire jurisdiction, in any United States District Court in Texas and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world. 9. COUNTERPART EXECUTION. This Agreement may be executed in two or more identical counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10. ATTORNEYS' FEES. In any action in any court of competent jurisdiction brought by either party to enforce any covenant or any of such party's rights or remedies under this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees and all costs, expenses and disbursements in connection with such action. 2 Executed as of the dated indicated above. EMPLOYER: HORIZON Pharmacies, Inc., a Delaware Corporation By: /s/ Ricky D. McCord -------------------------------------------- Its: President -------------------------------------- EMPLOYEE: By: /s/ Phillip Douglas Stone ------------------------------------------- Phillip Douglas Stone, Individually 3 EX-10.3 4 ex-10_3.txt EXHIBIT 10.3 EXHIBIT 10.3 LOAN AGREEMENT July 31, 1999 Horizon Pharmacies, Inc. 275 West Princeton Drive Princeton, Texas 75407 Ladies and Gentlemen: This Loan Agreement (the "LOAN AGREEMENT") will serve to set forth the terms of the financing transactions by and between HORIZON PHARMACIES, INC., a Delaware corporation ("BORROWER"), and BANK ONE, TEXAS, NATIONAL ASSOCIATION ("BANK"): 1. LINE OF CREDIT. Subject to the terms and conditions set forth in this Loan Agreement, the Tri-Party Agreement of even date herewith between Borrower, Bank and Guarantor (as hereinafter defined) and the other agreements, instruments and documents evidencing, securing, governing, guaranteeing and/or pertaining to the Loans, as hereinafter defined (collectively, together with the Loan Agreement, referred to hereinafter as the "LOAN DOCUMENTS"), Bank hereby agrees to lend to Borrower (the "LINE OF CREDIT"), on a revolving basis from time to time during the period commencing on the date hereof and continuing through the maturity date of the promissory note evidencing the credit facility from time to time, such amounts as Borrower may request hereunder, PROVIDED, HOWEVER, the total principal amount outstanding at any time under the Line of Credit shall not exceed $7,000,000.00 (the "COMMITTED SUM"). If at any time the aggregate principal amount outstanding under the Line of Credit exceeds the Committed Sum, Borrower agrees to immediately repay to Bank such excess amount, plus all accrued but unpaid interest thereon. Subject to the terms and conditions hereof, Borrower may borrow, repay and reborrow hereunder. The sum advanced under the Line of Credit shall be used for working capital and general corporate purposes, excluding acquisitions. All advances under the Line of Credit shall be collectively called the "LOANS". Bank reserves the right to require Borrower to give Bank not less than one (1) business day prior notice to each requested advance under the Line of Credit, specifying (i) the aggregate amount of such requested advance, (ii) the requested date of such advance, and (iii) the purpose for such advance, with such advances to be requested in a form satisfactory to Bank. 2. PROMISSORY NOTE. The Line of Credit shall be evidenced by a promissory note (such promissory note, together with any renewals, extensions and increases thereof, the "NOTE") duly executed by Borrower and payable to the order of Bank, in form and substance acceptable to Bank. Interest on the Note shall accrue at a rate set forth therein. The principal of and interest on the Note shall be due and payable in accordance with the terms and conditions set forth in the Note and in this Loan Agreement. 3. GUARANTOR. As a condition precedent to the Bank's obligation to make the Loans to Borrower, Borrower agrees to cause McKesson HBOC, Inc. (the "GUARANTOR") to execute and deliver to Bank contemporaneously herewith a guaranty agreement, in form and substance satisfactory to Bank (the "GUARANTY"). In the event the Guaranty is terminated for any reason, or Bank believes that Guarantor will fail to honor the Guaranty with respect to funded amounts or future advances under the Line of Credit, Bank shall have no further obligation to make advances under the Line of Credit. 4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants, and upon each request for an advance under the Line of Credit, further represents and warrants, to Bank as follows: (a) EXISTENCE. Borrower is a corporation duly organized, validly existing and in good stand standing under the laws of the State of Delaware and all other states where it is doing business (except where failure to qualify would not have a material adverse effect on Borrower), and has all requisite power and authority to execute and deliver the Loan Documents. (b) BINDING OBLIGATIONS. The execution, delivery, and performance of this Loan Agreement and all of the other Loan Documents by Borrower have been duly authorized by all necessary action by Borrower, and constitute legal, valid and binding obligations of Borrower, enforceable in accordance with their respective terms, except as limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors' rights and except to the extent specific remedies may generally be limited by equitable principles. (c) NO CONSENT. The execution, delivery and performance of this Loan Agreement and the other Loan Documents, and the consummation of the transactions contemplated hereby and thereby, do not (i) conflict with, result in a violation of, or constitute a default under (A) any provision of its articles of certificate of incorporation or bylaws, if Borrower is a corporation, or its partnership agreement, if Borrower is a partnership, or any agreement or other instrument binding upon Borrower, or (B) any law, governmental regulation, court decree or order applicable to Borrower, or (ii) require the consent, approval or authorization of any third party. (d) FINANCIAL CONDITION. Each financial statement of Borrower supplied to the Bank truly discloses and fairly presents Borrower's financial condition as of the date of each such statement. There has been no material adverse change in such financial condition or 2 results of operations of Borrower subsequent to the date of the most recent financial statement supplied to the Bank. (e) LITIGATION. There are no actions, suits or proceedings, pending or, to the knowledge of Borrower, threatened against or affecting Borrower or the properties of Borrower, before any court or governmental department, commission or board, which, if determined adversely to Borrower, would have a material adverse effect on the financial condition, properties, or operations of Borrower. (f) TAXES; GOVERNMENTAL CHARGES. Borrower has filed all federal, state and local tax reports and returns required by any law or regulation to be filed by it and has either duly paid all taxes, duties and charges indicated due on the basis of such returns and reports, or made adequate provision for the payment thereof, and the assessment of any material amount of additional taxes in excess of those paid and reported is not reasonably expected. 5. CONDITIONS PRECEDENT TO ADVANCES. Bank's obligation to make any advance under this Loan Agreement and the other Loan Documents shall be subject to the conditions precedent that, as of the date of such advance and after giving effect thereto (i) all representations and warranties made to Bank in this Loan Agreement and the other Loan Documents shall be true and correct, as of and as if made on such date, (ii) no material adverse change in the financial condition of Borrower since the effective date of the most recent financial statements furnished to Bank by Borrower shall have occurred and be continuing, (iii) no event has occurred and is continuing, or would result from the requested advance, which with notice or lapse of time, or both, would constitute an Event of Default (as hereinafter defined), and (iv) Bank's receipt of all Loan Documents appropriately executed by Borrower and all other proper parties. 6. AFFIRMATIVE COVENANTS. Until (i) the Note and all other obligations and liabilities of Borrower under this Loan Agreement and the other Loan Documents are fully paid and satisfied, and (ii) the Bank has no further commitment to lend hereunder, Borrower agrees and covenants that it will, unless Bank shall otherwise consent in writing: (a) ACCOUNTS AND RECORDS. Maintain its books and records in accordance with generally accepted accounting principles. (b) RIGHT OF INSPECTION. Permit Bank to visit its properties and installations and to examine, audit and make and take away copies or reproductions of Borrower's books and records, at all reasonable times. (c) RIGHT TO ADDITIONAL INFORMATION. Furnish Bank with such additional information and statements, lists of assets and liabilities, tax returns, and other reports with respect to Borrower's financial condition and business operations as Bank may reasonably request from time to time. (d) COMPLIANCE WITH LAWS. Conduct its business in an orderly and efficient manner consistent with good business practices, and perform and comply in all material respects with all statutes, rules, regulations and/or ordinances imposed by any governmental 3 unit upon Borrower its businesses, operations and properties (including, without limitation, all applicable environmental statutes, rules, regulations and ordinances). (e) TAXES. Pay and discharge when due all of its indebtedness and obligations, including, without limitation, all assessments, taxes, governmental charges, levies and liens, of every kind of nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits; provided, however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (i) the legality of the same shall be contested in good faith by appropriate judicial, administrative or other legal proceedings, and (ii) Borrower shall have established on its books adequate reserves with respect to such contested assessment, tax, charge, levy, lien or claim in accordance with generally accepted accounting principles, consistently applied. (f) INSURANCE. Maintain insurance, including but not limited to, fire insurance, comprehensive property damage, public liability, worker's compensation, business interruption and other insurance deemed necessary or otherwise reasonably required by Bank. (g) NOTICE OF INDEBTEDNESS. Promptly inform Bank of creation, incurrence or assumption by Borrower of any actual or contingent liabilities not permitted under this Loan Agreement. (h) NOTICE OF LITIGATION. Promptly after the commencement thereof, notify Bank of all actions, suits and proceedings before any court or any governmental department, commission or board affecting Borrower or any of its properties to the extent any such action, suit or proceeding could reasonably expected to have a financial impact on Debtor in excess of $100,000.00. (i) NOTICE OF MATERIAL ADVERSE CHANGE. Promptly inform Bank of (i) any and all material adverse changes in Borrower's financial condition, and (ii) all claims made against Borrower which could materially affect the financial condition of Borrower. (j) ADDITIONAL DOCUMENTATION. Execute and deliver, or cause to be executed and delivered, any and all other agreements, instruments or documents which Bank may reasonably request in order to give effect to the transactions contemplated under this Loan Agreement and the other Loan Documents. 7. NEGATIVE COVENANTS. Until (i) the Note and all other obligations and liabilities of Borrower under this Loan Agreement and the other Loan Documents are fully paid and satisfied, and (ii) the Bank has no further commitment to lend hereunder, Borrower will not, without the prior written consent of Bank: (a) NATURE OF BUSINESS. Make any material change in the nature of its business as carried on as of the date hereof. 4 (b) LIQUIDATIONS, MERGERS, CONSOLIDATIONS. Liquidate, merge or consolidate with or into any other entity, unless Borrower is the surviving entity. (c) SALE OF ASSETS. Sell, transfer or otherwise dispose of any of its assets or properties, other than (i) in the ordinary course of business or (ii) the grant of security interest to Guarantor. (d) CHANGE IN MANAGEMENT. Permit a change in the senior management of Borrower. (e) LOANS. Make any loans to any person or entity, other than loans to employees which do not exceed $25,000.00 in the aggregate per fiscal year. (f) TRANSACTIONS WITH AFFILIATES. Enter into any transaction, including, without limitation, the purchase, sale or exchange of property or the rendering of any service, with any Affiliates (as hereinafter defined) of Borrower, except in the ordinary course of and pursuant to the reasonable requirements of Borrower's business and upon fair and reasonable terms no less favorable to Borrower than would be obtained in a comparable arm's-length transaction with a person or entity not an Affiliate of Borrower. As used herein, the term "AFFILIATE" means any individual or entity directly or indirectly controlling, controlled by, or under common control with, another individual or entity. 8. REPORTING REQUIREMENTS. Until (i) the Note and all other obligations and liabilities of Borrower under this Loan Agreement and the other Loan Documents are fully paid and satisfied, and (ii) the Bank has no further commitment to lend hereunder, Borrower will, unless Bank shall otherwise consent in writing, furnish to Bank: (a) INTERIM FINANCIAL STATEMENTS. As soon as available, and in any event within fifteen (15) days after filing with the Securities and Exchange Commission, a Quarterly Report on Form 10-Q, including a balance sheet, income statement and cash flow statement of Borrower. (b) ANNUAL FINANCIAL STATEMENTS. As soon as available and in any event within fifteen (15) days after filing with the Securities and Exchange Commission, an Annual Report on Form 10-K. (c) OTHER REPORTS. As soon as available, and in any event within fifteen (15) days after filing with the Securities and Exchange Commission, any Current Report on Form 8-K of Borrower. 9. EVENTS OF DEFAULT. Each of the following shall constitute an "EVENT OF DEFAULT" under this Loan Agreement: 5 (a) The failure, refusal or neglect of Borrower to pay when due any part of the principal of, or interest on, the Note or any other indebtedness or obligations owing to Bank by Borrower from time to time, if such failure continues for ten (10) days. (b) The failure of Borrower or any Obligated Party (as defined below) to timely and properly observe, keep or perform any covenant, agreement, warranty or condition required herein or in any of the other Loan Documents (including, without implied limitation, the failure of Guarantor to comply with the reporting obligations set out in the Guaranty), if such failure continues for twenty (20). (c) The occurrence of an event of default under any of the other Loan Documents or under any other agreement now existing or hereafter arising between Bank and Borrower. (d) Any representation contained herein or in any of the other Loan Documents made by Borrower or any Obligated Party is false or misleading in any material respect. (e) The occurrence of any event which permits the acceleration of the maturity of any indebtedness owing by Borrower to any third party (including Guarantor) under any agreement or understanding. (f) If Borrower or any Obligated Party: (i) becomes insolvent, or makes a transfer in fraud of creditors, or makes an assignment for the benefit of creditors, or admits in writing its inability to pay its debts as such debts become due; (ii) generally is not paying its debts as such debts become due; (iii) has a receiver, trustee or custodian appointed for, or take possession of, all or substantially all of the assets of such party, either in a proceeding brought by such party or in a proceeding brought against such party or in a proceeding brought against such party and such appointment is not discharged or such possession is not terminated within sixty (60) days after the effective date thereof or such party consents to or acquiesces in such appointment or possession; (iv) files a petition for relief under the United States Bankruptcy Code or any other present or future federal or state insolvency, bankruptcy or similar laws (all of the foregoing hereinafter collectively called "APPLICABLE BANKRUPTCY LAW") or an involuntary petition for relief is filed against such party under any Applicable Bankruptcy Law and such involuntary petition is not dismissed within sixty (60) days after the filing thereof, or an order for relief naming such party is entered under any Applicable Bankruptcy Law, or any composition, rearrangement, extension, reorganization or other relief of debtors now or hereafter existing is requested or consented to by such party; (v) fails to have discharged within a period of thirty (30) days any attachment, sequestration or similar writ levied upon property of such party; or (vi) fails to pay within thirty (30) days any final money judgment against such party. (g) The liquidation, dissolution, merger and consolidation of Borrower or any Obligated Party. (h) The entry of any judgment against Borrower or the issuance or entry of any attachment or other lien against any of the property of Borrower for an amount in excess of 6 $200,000.00, if undischarged, unbonded or undismissed within thirty (30) days after such entry. (i) The failure of Guarantor to maintain, as of the end of each calendar quarter, a Moody's Unsecured Debt rating of "Baa" or better, or a Standard and Poor's rating of "BBB" or better. Nothing contained in this Loan Agreement shall be construed to limit the events of default enumerated in any of the other Loan Documents and all such events of default shall be cumulative. The term "OBLIGATED PARTY", as used herein, shall mean any party other than Borrower who securities, guarantees and/or is otherwise obligated to pay all or any portion of the indebtedness evidence by the Note. 10. REMEDIES. Upon the occurrence of any one or more of the foregoing Events of Default, (a) the entire unpaid balance of principal of the Note, together with all accrued but unpaid interest thereon, and all other indebtedness owing to Bank by Borrower at such time shall, at the option of Bank, become immediately due and payable without further notice, demand, presentation, notice of dishonor, notice of intent to accelerate, notice of acceleration, protest or notice of protest of any kind, all of which are expressly waived by Borrower, and (b) Bank may, at its option, cease further advances under the Note; PROVIDED, HOWEVER, concurrently and automatically with the occurrence of an Event of Default under SUBPARAGRAPH (f) in the immediately preceding paragraph (i) further advances under the Note shall cease, and (ii) the Note and all other indebtedness owing to Bank by Borrower at such time shall, without any action by Bank, become due and payable, without further notice, demand, presentation, notice of dishonor, notice of acceleration, notice of intent to accelerate, protest of notice of any kind, all of which are expressly waived by Borrower. All rights and remedies of Bank set forth in this Loan Agreement and in any of the other Loan Documents may also be exercised by Bank, at its option to be exercised in its sole discretion, upon the occurrence of an Event of Default. 11. RIGHTS CUMULATIVE. All rights of Bank under the terms of this Loan Agreement shall be cumulative of, and in addition to, the rights of Bank under any and all other agreements between Borrower and Bank (including, but not limited to, the other Loan Documents), and not in substitution or diminution of any rights now or hereafter held by Bank under the terms of any other agreement. 12. WAIVER AND AGREEMENT. Neither the failure nor any delay on the part of Bank to exercise any right, power or privilege herein or under any of the other Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. No waiver of any provision in this Loan Agreement or in any other Loan Documents and no departure by Borrower therefrom shall be effective unless the same shall be in writing and signed by Bank, and then shall be effective only in the specific instance and for the purpose for which given and to the extent specified in such writing. No modification or amendment to this Loan Agreement or to any of the other Loan Documents shall be valid or effective unless the same is signed by the party against whom it is sought to be enforced. 7 13. BENEFITS. This Loan Agreement shall be binding upon and inure to the benefit of Bank and Borrower, and their respective successors and assigns, provided, however, that Borrower may not, without the prior written consent of Bank, assign any rights, powers, duties or obligations under this Loan Agreement or any of the other Loan Documents. 14. NOTICES. All notices, requests, demands or other communications required or permitted to be given pursuant to this Agreement shall be in writing and given by (i) personal delivery, (ii) expedited delivery service with proof of delivery, or (iii) United States mail, postage prepaid, registered or certified mail, return receipt requested, sent to the intended addressee at the address set forth on the signature page hereof and shall be deemed to have been received either, in the case of personal delivery, as of the time of personal delivery, in the case of expedited delivery service, as of the date of first attempted delivery at the address and in the manner provided herein, or in the case of mail, upon deposit in a depository receptacle under the care and custody of the United States Postal Service. Either party shall have the right to change its address for notice hereunder to any other location within the continental United States by notice to the other party of such new address at least thirty (30) days prior to the effective date of such new address. 15. CONSTRUCTION. THIS LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS HAVE BEEN EXECUTED AND DELIVERED IN THE STATE OF TEXAS, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, AND SHALL BE PERFORMABLE BY THE PARTIES HERETO IN THE COUNTY IN TEXAS WHERE THE BANK'S ADDRESS SET FORTH ON THE SIGNATURE PAGE HEREOF IS LOCATED. 16. INVALID PROVISIONS. If any provision of this Loan Agreement or any of the other Loan Documents is held to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable and the remaining provisions of this Loan Agreement or any of the other Loan Documents shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance. 17. EXPENSES AND FEES. Borrower shall pay all costs and expenses (including, without limitation, reasonable attorneys' fees) in connection with (i) any action required in the course of administration of the indebtedness and obligations evidenced by the Loan Documents, and (ii) any action in the enforcement of Bank's rights upon the occurrence of Event of Default. Upon execution of this Agreement, Borrower shall pay all costs and expenses, including Bank's legal fees, incurred in connection with the closing of the Line of Credit, and an origination fee of $10,000.00. In addition, Borrower shall pay to Bank an unused fee, for the period commending on the date of this Agreement and ending on and including the maturity date of the Note evidencing the Line of Credit, computed at a rate equal to one-fifth of one percent (.2%) per annum, calculated on the daily average unused portion of the Line of Credit, such fee being payable quarterly in arrears on the last calendar day of each calendar quarter and on the maturity date of the Note. 18. PARTICIPATION OF THE LOANS. Borrower agrees that Bank may, at its option, sell interests in the Loans and its rights under this Loan Agreement to a financial institution or institutions, and in connection with each such sale, Bank may disclose any financial and other information available to Bank concerning Borrower to each perspective purchaser. 8 19. ENTIRE AGREEMENT. This Loan Agreement (together with the other Loan Documents) contains the entire agreement among the parties regarding the subject matter hereof and supersedes all prior written and oral agreements and understandings among the parties hereto regarding same. 20. CONFLICTS. In the event any term or provision hereof is inconsistent with or conflicts with any provision of the other Loan Documents, the terms and provisions contained in this Loan Agreement shall be controlling. 21. COUNTERPARTS. This Loan Agreement may be separately executed in any number of counterparts, each of which shall be an original, but all of which, taken together, shall be deemed to constitute one and the same instrument. 22. ARBITRATION. Bank and Borrower agree that upon the written demand of either party, whether made before or after the institution of any legal proceedings, but prior to the rendering of any judgment in that proceeding, all disputes, claims and controversies between them, whether individual, joint, or class in nature, arising from this Loan Agreement, the Notes or any other Loan Document or otherwise, including, without limitation, contract disputes and tort claims, shall be resolved by binding arbitration pursuant to the Commercial Rules of the American Arbitration Association. Any arbitration proceeding held pursuant to this arbitration provision shall be conducted in the city nearest the Borrower's address having an AAA regional office, or at any other place selected by mutual agreement of the parties. No act to take or dispose of any Collateral shall constitute a waiver of this arbitration' agreement or be prohibited by this arbitration agreement. The arbitration provision shall not limit the right of either party during any dispute, claim or controversy to seek, use, and employ ancillary, or preliminary rights and/or remedies, judicial or otherwise, for the purposes of realizing upon, preserving, protecting, foreclosing, upon or proceeding under forcible entry and detainer for possession of, any real or personal property, and any such action shall not be deemed an election of remedies. Such remedies include, without limitation, obtaining injunctive relief or a temporary restraining order, invoking a power of sale under any deed of trust or mortgage, obtaining a writ of attachment or imposition of a receivership, or exercising any rights relating to personal property, including taking or disposing of such property with or without judicial process pursuant to Article 9 of the Uniform Commercial Code or when applicable, a judgment by confession of judgment. Any disputes, claims or controversies concerning the lawfulness or reasonableness of an act, or exercise of any right or remedy concerning any Collateral, including any claim to rescind, reform, or otherwise modify any agreement relating to the Collateral, shall also be arbitrated; provided, however, that no arbitrator shall have the right or the power to enjoin or restrain any act of either party. Judgment upon any award rendered by any arbitrator may be entered in any court having jurisdiction. Nothing in this arbitration provision shall preclude either party from seeking equitable relief from a court of competent jurisdiction. The statute of limitations, estoppel, waiver, laches and similar doctrines which would otherwise be applicable in an action brought by a party shall be applicable in any arbitration proceeding, and the commencement of an arbitration proceeding shall be deemed the commencement of any action for the purposes. The Federal Arbitration Act (Title 9 of the United States Code) shall apply to the construction, interpretatin, and enforcement of this arbitration provision. 9 23. JURY WAIVER. TO THE EXTENT PERMITTED UNDER APPLICABLE LAW THE UNDERSIGNED AND BANK (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE UNDERSIGNED AND BANK ARISING OUT OF OR IN ANY WAY RELATED TO THIS DOCUMENT OR ANY OTHER RELATED DOCUMENT. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE BANK TO PROVIDE THE FINANCING DESCRIBED HEREIN OR IN THE OTHER LOAN DOCUMENTS. If the foregoing correctly sets forth our mutual agreement, please so acknowledge by signing and returning this Loan Agreement to the undersigned. Very truly yours, BANK ONE, TEXAS, N.A. By: /s/ Julie Smith ------------------------------------- Name: Julie Smith ----------------------------------- Title: Vice President ---------------------------------- BANK'S ADDRESS: 1717 Main Street, 3rd Floor Dallas, Texas 75201 Attn: Julie Smith ACCEPTED as of the date first written above. BORROWER: HORIZON PHARMACIES, INC., a Delaware corporation By: /s/ John N. Stogner ------------------------------------- Name: John N. Stogner ----------------------------------- Title: CFO/Treasurer ---------------------------------- BORROWER'S ADDRESS: 531 West Main Street Suite 100 Denison, Texas 75020 10 EX-10.4 5 ex-10_4.txt EXHIBIT 10.4 PROMISSORY NOTE $7,000,000.00 July 31, 1999 FOR VALUE RECEIVED, on or before July 31, 2000 ("MATURITY DATE"), the undersigned HORIZON PHARMACIES, INC., a Delaware corporation ("BORROWER"), promises to pay to the order of BANK ONE, TEXAS, NATIONAL ASSOCIATION ("BANK") at its offices in Dallas County, Texas at 1717 Main Street, 3rd Floor, Dallas, Texas 75201, the principal amount of SEVEN MILLION AND NO/100 DOLLARS ($7,000,000.00) ("TOTAL PRINCIPAL AMOUNT"), or such amount less than the Total Principal Amount which has been advanced to Borrower if the total amount advanced under this Promissory Note ("NOTE") is less than the Total Principal Amount, together with interest on such portion of the Total Principal Amount which has been advanced to Borrower from the date advanced until paid at a fluctuating rate per annum which shall from day to day be equal to the lesser of (a) the Maximum Rate (as hereinafter defined), or (b) a rate ("CONTRACT RATE"), calculated on the basis of the actual days elapsed but computed as if each year consisted of three hundred sixty (360) days, equal to the sum of (i) the Prime Rate of interest ("PRIME RATE") as established from time to time by Bank (which may not be the lowest, best or most favorable rate of interest which Bank may charge on loans to its customers) LESS (ii) two percent (2%), each change in the rate to be charged on this Note to become effective without notice to Borrower on the effective date of each change in the Maximum Rate or the Prime Rate, as the case may be; provided, however, that if at any time the Contract Rate shall exceed the Maximum Rate, thereby causing the interest on this Note to be limited to the Maximum Rate, then any subsequent reduction in the Prime Rate shall not reduce the rate of interest on this Note below the Maximum Rate until the total amount of interest accrued on this Note equals the amount of interest which would have accrued on this Note if the Contract Rate had at all times been in effect. Interest shall be due and payable monthly as it accrues, commencing on the 1st day of September, 1999, and continuing on the 1st day of each successive month thereafter during the term of this Note; and the outstanding principal balance of this Note, together with all accrued but unpaid interest, shall be due and payable on the Maturity Date. If a payment is ten (10) or more days late, Borrower will pay a delinquency charge in an amount equal to the greater of (i) five percent (5%) of the amount of the delinquent payment up to the maximum amount of $250.00, or (ii) $25.00. Upon an Event of Default, including failure to pay upon final maturity, Bank, at its option, may also, if permitted under applicable law, do one or both of the following: (a) increase the Contract Rate three (3.00) percentage points, and (b) ADD any unpaid accrued interest to principal and such sum will bear interest therefrom until paid at the rate provided in this Note (including any increased Contract Rate). Borrower may from time to time prepay all or any portion of the principal of this Note without premium or penalty. Unless otherwise agreed to in writing, or otherwise required by applicable law, payments will be applied first to unpaid accrued interest, then to principal, and any remaining amount to any unpaid collection costs, delinquency charges and other charges; provided, however, upon delinquency or other Event of Default, Bank reserves the right to apply payments among principal, interest, delinquency charges, collection costs and other charges, at its discretion. All prepayments shall be applied to the indebtedness owing hereunder in such order and manner as 1 Bank may from time to time determine in its sole discretion. All payments and prepayments of principal of or interest on this Note shall be made in lawful money of the United States of America in immediately available funds, at the address of Bank indicated above, or such other place as the holder of this Note shall designate in writing to Borrower. If any payment of principal of or interest on this Note shall become due on a day which is not a Business Day (as hereinafter defined), such payment shall be made on the next succeeding Business Day and any such extension of time shall be included in computing interest in connection with such payment. As used herein, the term "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or any other day on which national banking associations are authorized to be closed. The books and records of Bank shall be PRIMA FACIE evidence of all outstanding principal of and accrued and unpaid interest on this Note. This Note has been executed and delivered pursuant to that certain Loan Agreement dated of even date herewith by and between Borrower and Bank ("LOAN AGREEMENT"). This Note, the Loan Agreement and all other documents evidencing, securing, governing, guaranteeing and/or pertaining to this Note, including, but not limited to, those documents described above, are hereinafter collectively referred to as the "LOAN DOCUMENTS". The holder of this Note is entitled to the benefits and security provided in the Loan Documents. Borrower agrees that no advances under this Note shall be used for personal, family or household purposes, and that all advances hereunder shall be used solely for business, commercial, investment, or other similar purposes. Borrower agrees that upon the occurrence of any one or more of the following events of default ("EVENT OF DEFAULT"): (a) Failure of Borrower to pay any installment of principal of or interest on this Note or on any other indebtedness of Borrower to Bank when due if such failure shall continue for ten (10) days; or (b) The occurrence of any event of default specified in any of the other Loan Documents; or (c) The bankruptcy or insolvency of, the assignment for the benefit of creditors by, or the appointment of a receiver for any of the property of, or the liquidation, termination, dissolution or death or legal incapacity of, any party liable for the payment of this Note, whether as maker, endorser, guarantor, surety or otherwise; the holder of this Note may, at its option, without further notice or demand, (i) declare the outstanding principal balance of and accrued but unpaid interest on this Note at once due and payable, (ii) refuse to advance any additional amounts under this Note, (iii) foreclose all liens securing payment hereof, (iv) pursue any and all other rights, remedies and recourses available to the holder hereof, including, but not limited to, any such rights, remedies or recourses under the Loan Documents, at law or in equity, or (v) pursue any combination of the foregoing. The failure to exercise the option to accelerate the maturity of this Note or any other right, remedy or recourse available to the holder hereof upon the occurrence of an Event of Default 2 hereunder shall not constitute a waiver of the right of the holder of this Note to exercise the same at that time or at any subsequent time with respect to such Event of Default or any other Event of Default. The rights, remedies and recourses of the holder hereof, as provided in this Note and in any of the other Loan Documents, shall be cumulative and concurrent and may be pursued separately, successively or together as often as occasion therefore shall arise, at the sole discretion of the holder hereof. The acceptance by the holder hereof of any payment under this Note which is less than the payment i full of all amounts due and payable at the time of such payment shall not (i) constitute a waiver of or impair, reduce, release or extinguish any right, remedy or recourse of the holder hereof, or nullify any prior exercise of any such right, remedy or recourse, or (ii) impair, reduce, release or extinguish the obligations of any party liable under any of the Loan Documents as originally provided herein or therein. This Note and all of the other Loan Documents are intended to be performed in accordance with, and only to the extent permitted by, all applicable usury laws. If any provision hereof or of any of the other Loan Documents or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, neither the application of such provision to any other person or circumstance nor the remainder of the instrument in which such provision is contained shall be affected thereby and shall be enforced to the greatest extent permitted by law. It is expressly stipulated and agreed to be the intent of the holder hereof to at all times comply with the usury and other applicable laws now or hereafter governing the interest payable on the indebtedness evidenced by this Note. If the applicable law is ever revised, repealed or judicially interpreted so as to render usurious any amount called for under this Note or under any of the other Loan Documents, or contracted for, charged, taken, reserved or received with respect to the indebtedness evidenced by this Note, or if Bank's exercise of the option to accelerate the maturity of this Note, or if any prepayment by Borrower results in Borrower having paid any interest in excess of that permitted by law, then it is the express intent of Borrower and Bank that all excess amounts theretofore collected by Bank be credited on the principal balance of this Note (or, if this Note and all other indebtedness arising under or pursuant to the other Loan Documents have been paid in full, refunded to Borrower), and the provisions of this Note and the other Loan Documents immediately be deemed reformed and the amounts thereafter collectable hereunder and thereunder reduced, without the necessity of the execution of any new document, so as to comply with the then applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder or thereunder. All sums paid, or agreed to be paid, by Borrower for the use, forbearance, detention, taking, charging, receiving or reserving of the indebtedness of Borrower to Bank under this Note or arising under or pursuant to the other Loan Documents shall, to the maximum extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of such indebtedness until payment in full so that the rate or amount of interest on account of such indebtedness does not exceed the usury ceiling from time to time in effect and applicable to such indebtedness for so long as such indebtedness is outstanding. To the extent federal law permits Bank to contract for, charge or receive a greater amount of interest, Bank will rely on federal law instead of the Texas Finance Code, as supplemented by Texas Credit Title, for the purpose of determining the Maximum Rate. Additionally, to the maximum extent permitted by applicable law now or hereafter in effect, Bank may, at its option and from time to time, implement any other method of computing the Maximum Rate under the Texas Finance Code, as supplemented by Texas Credit Title, or under other applicable law, by giving notice, if required, to Borrower as provided by applicable law now or hereafter in effect. Notwithstanding anything to the contrary contained herein 3 or in any of the other Loan Documents, it is not the intention of Bank to accelerate the maturity of any interest that has not accrued at the time of such acceleration or to collect unearned interest at the time of such acceleration. In no event shall Chapter 346 of the Texas Finance Code (which regulates certain revolving loan accounts and revolving tri-party accounts) apply to this Note. To the extent that Chapter 303 of the Texas Finance Code, is applicable to this Note, the "WEEKLY CEILING" specified in such Chapter 303 is the applicable ceiling; provided that, if any applicable law permits greater interest, the law permitting the greatest interest shall apply. If this Note is placed in the hands of an attorney for collection, or is collected in whole or in part by suit or through probate, bankruptcy or other legal proceedings of any kind, Borrower agrees to pay, in addition to all other sums payable hereunder, all costs and expenses of collection, including, but not limited to reasonable attorneys' fees. Borrower and any and all endorsers and guarantors of this Note severally waive presentment for payment, notice of nonpayment, protest, demand, notice of protest, notice of intent to accelerate, notice of acceleration and dishonor, diligence in enforcement and indulgences of every kind and without further notice hereby agrees to renewals, extensions, exchanges or releases of collateral, taking of additional collateral, indulgences or partial payments, either before or after maturity. THIS NOTE HAS BEEN EXECUTED UNDER, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, EXCEPT AS SUCH LAWS ARE PREEMPTED BY APPLICABLE FEDERAL LAWS. BORROWER: HORIZON PHARMACIES, INC., a Delaware corporation By: /s/ John N. Stogner ------------------------------------ Printed Name: John N. Stogner -------------------------- Title: CFO --------------------------------- 4 EX-10.5 6 ex-10_5.txt EXHIBIT 10.5 MODIFICATION OF PROMISSORY NOTE This Modification of Promissory Note ("Modification") is made effective the 31st day of July, 2000 with respect to that certain Promissory Note ("Note") dated July 31, 1999 in the original principal amount of $7,000,000.00 executed by HORIZON PHARMACIES, INC. ("Borrower") payable to the order of BANK ONE, TEXAS, NATIONAL ASSOCIATION ("Bank") for the purpose of extending the maturity date of the Note. Effective this date, the Maturity Date (as defined in the Note) is extended to September 1, 2000 and interest shall be due and payable prior to the Maturity Date, as extended, only on the effective date of this Modification. Except as herein expressly provided, all other terms and provisions of the Note shall continue in full force and effect. THE MODIFICATION REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. BANK: - ----- BANK ONE, TEXAS NATIONAL ASSOCIATION By: /s/ Bradley C. Peters ---------------------------------- NAME: Bradley C. Peters TITLE: Vice President BORROWER: - --------- BY: /s/ John N. Stogner ---------------------------------- NAME: John N. Stogner TITLE: Chief Financial Officer EX-10.6 7 ex-10_6.txt EXHIBIT 10.6 [HORIZON LETTERHEAD] August 3, 2000 Mr. Michael R. Kerouac President Informed.com, Inc. 217 N. Westmonte Drive, Suite 3023 Altamonte Springs, FL, 32714 Re: $1,500,000 Promissory Note (the "Note") dated March 14, 2000 by and between Informed.com, Inc. ("Informed") and HORIZON Pharmacies, Inc. ("Horizon") Dear Mr. Kerouac: I am in receipt of your letter (the "Letter") dated June 12, 2000 regarding proposed amendments to the Note. Before agreeing to changes, I would like to discuss revising Section 7.A of that certain Fulfillment and Guaranty Agreement (the "Guarantee Agreement"), dated March 14, 2000 between Informed and Horizon, so that it would read, as amended, as follows: A. In exchange for its designation as the exclusive fulfillment agent of Informed, Horizon hereby agrees to guaranty the Gross Sales (as defined) and Pretax Profit (as defined below) of Informed as follows: (a) For the twelve month period (the "Initial Period") beginning on the first day of the first month following payment in full by Informed of all of its obligations under that certain Promissory Note, dated March 14, 2000, by and between Informed (as "Maker") and Horizon (as "Payee") and ended on the last day of the twelfth month of the Initial Period, Gross Sales of Informed will be no less than $18,000,000.00 and Pretax Profit of Informed will be no less than $1,250,000.00; (b) For the twelve month period (the "Second Period") beginning on the first day of the first month following the Initial Period and ended on the last day of the twelfth month of the Second Period, Gross Sales of Informed will be no less than $22,000,000.00 and Pretax Profit of Informed will be no less than $1,750,000; and (c) For the twelve month period (the "Third Period") beginning on the first day of the first month following the Second Period and ended on the last day of the twelfth month of the Third Period, Gross Sales of Informed will be no less than $30,000,000.00 and Pretax Profit of Informed will be no less than $2,500,000.00. Assuming that this amendment to and restatement of Section 7.A of the Guarantee Agreement is acceptable, please execute this document as acknowledgment of your consent to amend the Guarantee Agreement and return an executed copy to me in the enclosed self-addressed envelope. With regard to the changes you propose to the Note, we will agree to waive the 5% fee we are entitled to under Section 3; however, we will not waive our right to an interest rate of 10% per annum that we are entitled to under Section 3. Thus, please re-draft the Letter to reflect the fact that we will receive an interest rate of 8% per annum for the 45 days prior to June 12, 2000 and an interest rate of 10% until either the Maturity Date or the date on which the entire unpaid principal balance together with accrued interest shall be paid. Very truly yours, HORIZON PHARMACIES, INC. /s/ Ricky D. McCord Ricky D. McCord President Accepted and Agreed as of August 4, 2000 INFORMED.COM, INC. By: /s/ Michael R. Kerouac -------------------------- Michael R. Kerouac President EX-10.7 8 ex-10_7.txt EXHIBIT 10.7 HORIZON PHARMACIES, INC. 2000 STOCK OPTION PLAN EFFECTIVE JULY 1, 2000 TABLE OF CONTENTS 1. Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3. Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 (a) Authority of the Committee . . . . . . . . . . . . . . . . . . . . . . 3 (b) Manner of Exercise of Committee Authority. . . . . . . . . . . . . . . 3 (c) Limitation of Liability. . . . . . . . . . . . . . . . . . . . . . . . 4 4. Stock Subject to Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 (a) Overall Number of Shares Available for Delivery. . . . . . . . . . . . 4 (b) Application of Limitation to Grants of Options . . . . . . . . . . . . 4 (c) Availability of Shares Not Delivered under Options . . . . . . . . . . 4 (d) Stock Offered. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 5. Eligibility; Per Person Option Limitations . . . . . . . . . . . . . . . . . 5 6. Specific Terms of Options. . . . . . . . . . . . . . . . . . . . . . . . . . 5 (a) General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (b) Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 7. Certain Provisions Applicable to Options . . . . . . . . . . . . . . . . . . 6 (a) Stand-Alone, Additional and Substitute Options . . . . . . . . . . . . 6 (b) Term of Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 (c) Form and Timing of Payment under Options; Deferrals. . . . . . . . . . 6 (d) Exemptions from Section 16(b) Liability. . . . . . . . . . . . . . . . 7 (e) Non-Competition Agreement. . . . . . . . . . . . . . . . . . . . . . . 7 8. Performance Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 (a) Performance Conditions . . . . . . . . . . . . . . . . . . . . . . . . 7 (b) Performance Awards Granted to Designated Covered Employees . . . . . . 7 (c) Written Determinations . . . . . . . . . . . . . . . . . . . . . . . . 9 (d) Status of Section 8(b) Performance Awards under Code Section 162(m). . 9 9. Recapitalization or Reorganization . . . . . . . . . . . . . . . . . . . . . 9 (a) Existence of Plans and Options . . . . . . . . . . . . . . . . . . . . 9 (b) Subdivision of Consolidation of Shares . . . . . . . . . . . . . . . . 10 (c) Corporate Restructuring. . . . . . . . . . . . . . . . . . . . . . . . 10 (d) Additional Issuances . . . . . . . . . . . . . . . . . . . . . . . . . 10 10. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 i (a) Restricted Securities. . . . . . . . . . . . . . . . . . . . . . . . . 11 (b) Limits on Transferability; Beneficiaries . . . . . . . . . . . . . . . 11 (c) Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 (d) Changes to the Plan and Options. . . . . . . . . . . . . . . . . . . . 11 (e) Limitation on Rights Conferred under Plan. . . . . . . . . . . . . . . 12 (f) Unfunded Status of Options . . . . . . . . . . . . . . . . . . . . . . 12 (g) Nonexclusivity of the Plan . . . . . . . . . . . . . . . . . . . . . . 12 (h) Fractional Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 12 (i) Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 (j) Other Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 (k) Plan Effective Date and Shareholder Approval . . . . . . . . . . . . . 13
ii HORIZON PHARMACIES, INC. 2000 STOCK OPTION PLAN EFFECTIVE JULY 1, 2000 1. PURPOSE. The purpose of the HORIZON Pharmacies, Inc. 2000 Stock Option Plan (the "Plan") is to provide a means through which HORIZON Pharmacies, Inc. (the "Company"), and its subsidiaries may attract and retain able persons as the employees of the Company and to provide a means whereby those employees upon whom the responsibilities of the successful administration and management of the Company rest, and whose present and potential contributions to the welfare of the Company are of importance, can acquire and maintain stock ownership, thereby strengthening their concern for the welfare of the Company and their desire to remain in its employ. A further purpose of the Plan is to provide such employees with additional incentive and reward opportunities designed to enhance the profitable growth of the Company. Accordingly, the Plan provides for granting Incentive Stock Options and options which do not constitute Incentive Stock Options, as is best suited to the circumstances of the particular employee as provided herein. 2. DEFINITIONS. For purposes of the Plan, the following terms shall be defined as set forth below, in addition to such terms defined in Section 1 hereof: (a) "Acquiring Person" means Acquiring Person as defined in Section 9 of the Plan. (b) "Beneficiary" means one or more persons, trusts or other entities which have been designated by a Participant in his or her most recent written beneficiary designation filed with the Committee to receive the benefits specified under the Plan upon such Participant's death or to which Options or other rights are transferred if and to the extent permitted under Section 10(b) hereof. If, upon a Participant's death, there is no designated Beneficiary or surviving designated Beneficiary, then the term Beneficiary means the persons, trusts or entities entitled by will or the laws of descent and distribution to receive such benefits. (c) "Beneficial Owner" shall have the meaning ascribed to such term in Rule 13d-3 under the Exchange Act and any successor to such Rule. (d) "Board" means the Company's Board of Directors. (e) "Change in Control" means Change in Control as defined in Section 9 of the Plan. (f) "Change in Control Price" means the amount calculated in accordance with Section 9 of the Plan. (g) "Code" means the Internal Revenue Code of 1986, as amended from time to time, including regulations thereunder and successor provisions and regulations thereto. (h) "Committee" means a committee of two or more directors designated by the Board to administer the Plan; provided, however, that, unless otherwise determined by the Board, the Committee shall consist solely of two or more directors, each of whom shall be (i) a "nonemployee director" within the meaning of Rule 16b-3 under the Exchange Act, unless administration of the Plan by "non-employee directors" is not then required in order for exemptions under Rule 16b-3 to apply to transactions under the Plan, and (ii) an "outside director" as defined under Code Section 162(m), unless administration of the Plan by "outside directors" is not then required in order to qualify for tax deductibility under Code Section 162(m). (i) "Covered Employee" means an Eligible Person who is a Covered Employee as specified in Section 8(d) of the Plan. (j) "Effective Date" means July 1, 2000. (k) "Eligible Person" means each Executive Officer and other officers and employees of the Company or of any subsidiary, and other persons who provide services to the Company or any of its subsidiaries including directors of the Company. An employee on leave of absence may be considered as still in the employ of the Company or a subsidiary for purposes of eligibility for participation in the Plan. (l) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, including rules thereunder and successor provisions and rules thereto. (m) "Executive Officer" means an executive officer of the Company as defined under the Exchange Act. (n) "Fair Market Value" of a share of Stock on a given day means, if the Stock is listed on an established exchange or exchanges, the closing sales price of a share of Stock as reported on such stock exchange or exchanges if such date is a business day and if such date is not a business day the preceding business day; or if not so reported, the average of the bid and asked prices, as reported on the National Association of Securities Dealers Automated Quotation System if such date is a business day and if such date is not a business day the preceding business day. If the price of a share of Stock is not so quoted, the Fair Market Value shall be determined by the Committee taking into account all relevant facts and circumstances. (o) "Incentive Stock Option" or "ISO" means any Option intended to be and designated as an incentive stock option within the meaning of Code Section 422 or any successor provision thereto. (p) "Option" means a right, granted to a Participant under Section 6(b) hereof, to purchase Stock at a specified price during specified time periods. (q) "Participant" means a person who has been granted an Option under the Plan which remains outstanding, including a person who is no longer an Eligible Person. 2 (r) "Performance Award" means a right, granted to a Participant under Section 8 hereof, to receive Options based upon performance criteria specified by the Committee. (s) "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, and shall include a "group" as defined in Section 13(d) thereof. (t) "Qualified Member" means a member of the Committee who is a "Non-Employee Director" within the meaning of Rule 16b-3(b)(3) and an "outside director" within the meaning of Regulation 1.162-27 under Code Section 162(m). (u) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and applicable to the Plan and Participants, promulgated by the Securities and Exchange Commission under Section 16 of the Exchange Act. (v) "Stock" means the Company's Common Stock, par value $.01 per share, and such other securities as may be substituted (or resubstituted) for Stock pursuant to Section 9. 3. ADMINISTRATION. (a) AUTHORITY OF THE COMMITTEE. The Plan shall be administered by the Committee except to the extent the Board elects to administer the Plan, in which case references herein to the "Committee" shall be deemed to include references to the "Board." The Committee shall have full and final authority, in each case subject to and consistent with the provisions of the Plan, to select Eligible Persons to become Participants, grant Options, determine the type, number and other terms and conditions of, and all other matters relating to, Options, prescribe Option agreements (which need not be identical for each Participant) and rules and regulations for the administration of the Plan, construe and interpret the Plan and Option agreements and correct defects, supply omissions or reconcile inconsistencies therein, and to make all other decisions and determinations as the Committee may deem necessary or advisable for the administration of the Plan. (b) MANNER OF EXERCISE OF COMMITTEE AUTHORITY. At any time that a member of the Committee is not a Qualified Member, any action of the Committee relating to an Option granted or to be granted to a Participant who is then subject to Section 16 of the Exchange Act in respect of the Company, or relating to an Option intended by the Committee to qualify as "performance-based compensation" within the meaning of Code Section 162(m) and regulations thereunder, may be taken either (i) by a subcommittee, designated by the Committee, composed solely of two or more Qualified Members, or (ii) by the Committee but with each such member who is not a Qualified Member abstaining or recusing himself or herself from such action; provided, however, that, upon such abstention or recusal, the Committee remains composed solely of two or more Qualified Members. Such action, authorized by such a subcommittee or by the Committee upon the abstention or recusal of such non-Qualified Member(s), shall be the action of the Committee for purposes of the Plan. Any action of the Committee shall be final, conclusive and binding on all persons, including the Company, its subsidiaries, Participants, Beneficiaries, transferees under Section 10(b) 3 hereof or other persons claiming rights from or through a Participant and shareholders. The express grant of any specific power to the Committee, and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee. The Committee may delegate to officers or managers of the Company or any subsidiary, or committees thereof, the authority, subject to such terms as the Committee shall determine, to perform such functions, including administrative functions, as the Committee may determine, to the extent that such delegation will not result in the loss of an exemption under Rule 16b-3(d)(1) for Options granted to Participants subject to Section 16 of the Exchange Act in respect of the Company and will not cause Options intended to qualify as "performance-based compensation" under Code Section 162(m) to fail to so qualify. The Committee may appoint agents to assist it in administering the Plan. (c) LIMITATION OF LIABILITY. The Committee and each member thereof shall be entitled to, in good faith, rely or act upon any report or other information furnished to him or her by any executive officer, other officer or employee of the Company or a subsidiary, the Company's independent auditors, consultants or any other agents assisting in the administration of the Plan. Members of the Committee and any officer or employee of the Company or a subsidiary acting at the direction or on behalf of the Committee shall not be personally liable for any action or determination taken or made in good faith with respect to the Plan, and shall, to the fullest extent permitted by law, be indemnified and held harmless by the Company with respect to any such action or determination. 4. STOCK SUBJECT TO PLAN. (a) OVERALL NUMBER OF SHARES AVAILABLE FOR DELIVERY. Subject to adjustment in a manner consistent with any adjustment made pursuant to Section 9, the total number of shares of Stock reserved and available for delivery in connection with Options under the Plan shall not exceed 250,000 shares. Notwithstanding the foregoing, the total number of shares available for delivery in connection with Options under the Plan in any given 12-month period shall not exceed the limitations set forth in SEC Reg. Section 230.701 if applicable. (b) APPLICATION OF LIMITATION TO GRANTS OF OPTIONS. No Option may be granted if the number of shares of Stock to be delivered in connection with such Option exceeds the number of shares of Stock remaining available under the Plan minus the number of shares of Stock issuable in settlement of then-outstanding Options. The Committee may adopt reasonable counting procedures to ensure appropriate counting, avoid double counting and make adjustments if the number of shares of Stock actually delivered differs from the number of shares previously counted in connection with an Option. (c) AVAILABILITY OF SHARES NOT DELIVERED UNDER OPTIONS. Shares of Stock subject to an Option under the Plan that expires or is canceled, forfeited, settled in cash or otherwise terminated without a delivery of shares to the Participant, including (i) the number of shares withheld in payment of any exercise or purchase price of an Option or taxes relating to Options and (ii) the number of shares surrendered in payment of any exercise or purchase price of an Option or taxes relating to any Option will again be available for Options under the Plan, except that if any such shares could not again be available for Options to a particular Participant under any applicable law 4 or regulation, such shares shall be available exclusively for Options to Participants who are not subject to such limitation. (d) STOCK OFFERED. The Stock to be offered pursuant to the grant of an Option may be authorized but unissued Stock or Stock previously issued and outstanding and reacquired by the Company. The Stock to be offered and sold pursuant to the grant of an Option may, if determined by the Committee to be required pursuant to applicable securities laws, bear the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM AND DELIVERY TO THE CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO IT THAT SUCH TRANSFER WILL NOT VIOLATE THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS." 5. ELIGIBILITY; PER PERSON OPTION LIMITATIONS. Options may be granted under the Plan only to Eligible Persons. In each fiscal year or 12 month period, as applicable during any part of which the Plan is in effect, an Eligible Person who is also a Covered Employee may not be granted Options relating to more than the lesser of (a) 100,000 shares of Stock or (b) the number of shares of Stock determined applying the limitations set forth in SEC Reg. Section 230.701, as applicable, subject to adjustment in a manner consistent with any adjustment made pursuant to Section 9, under each of Sections 6(b) and 8(b). 6. SPECIFIC TERMS OF OPTIONS. (a) GENERAL. Options may be granted on the terms and conditions set forth in this Section 6. In addition, the Committee may impose on any Option or the exercise thereof, at the date of grant or thereafter (subject to Section 10(d)), such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine, including terms requiring forfeiture of Options in the event of termination of employment by the Participant and terms permitting a Participant to make elections relating to his or her Option. The Committee shall retain full power and discretion to accelerate, waive or modify, at any time, any term or condition of an Option that is not mandatory under the Plan; provided, however, that the Committee shall not have any discretion to accelerate, waive or modify any term or condition of an Option that is intended to qualify as "performance-based compensation" for purposes of Code Section 162(m) if such discretion would cause the Option not to so qualify. Except in cases in which the Committee is authorized to require other forms of consideration under the Plan, or to the extent other forms of consideration must be paid to satisfy the requirements of the Delaware General Corporation Law, no consideration other than services may be required for the grant (but not the exercise) of any Option. 5 (b) OPTIONS. The Committee is authorized to grant Options to Participants on the following terms and conditions: (i) EXERCISE PRICE. The exercise price per share of Stock purchasable under an Option shall be determined by the Committee. (ii) TIME AND METHOD OF EXERCISE. The Committee shall determine the time or times at which or the circumstances under which an Option may be exercised in whole or in part (including based on achievement of performance goals and/or future service requirements), the methods by which such exercise price may be paid or deemed to be paid, the form of such payment, including, without limitation, cash, Stock, other Options or awards granted under other plans of the Company or any subsidiary, or other property (including notes or other contractual obligations of Participants to make payment on a deferred basis), and the methods by or forms in which Stock will be delivered or deemed to be delivered to Participants. (iii) ISOS. The terms of any ISO granted under the Plan shall comply in all respects with the provisions of Code Section 422. Anything in the Plan to the contrary notwithstanding, no term of the Plan relating to ISOs shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be exercised, so as to disqualify either the Plan or any ISO under Code Section 422, unless the Participant has first requested the change that will result in such disqualification. ISOs shall not be granted more than ten years after the earlier of the adoption of the Plan or the approval of the Plan by the Company's shareholders. Notwithstanding the foregoing, the Fair Market Value of shares of Stock subject to an ISO and the aggregate Fair Market Value of shares of stock of any parent or subsidiary corporation within the meaning of Code Section 424(e) and (f) subject to any other incentive stock option (within the meaning of Code Section 422) of the Company or a parent or subsidiary corporation within the meaning of Code Section 424(e) and (f) that first becomes purchasable by a Participant in any calendar year may not (with respect to that Participant) exceed $100,000, or such other amount as may be prescribed under Code Section 422 or applicable regulations or rulings from time to time. As used in the previous sentence, Fair Market Value shall be determined as of the date the incentive stock option is granted. Failure to comply with this provision shall not impair the enforceability or exercisability of any Option, but shall cause the excess amount of shares to be reclassified in accordance with the Code. 7. CERTAIN PROVISIONS APPLICABLE TO OPTIONS. (a) STAND-ALONE, ADDITIONAL AND SUBSTITUTE OPTIONS. Options granted under the Plan may, in the discretion of the Committee, be granted either alone or in addition to, or in substitution or exchange for, any other Option or any award granted under another plan of the Company, any subsidiary, or any business entity to be acquired by the Company or a subsidiary, or any other right of a Participant to receive payment from the Company or any subsidiary. Such additional and substitute or exchange Options may be granted at any time. If an Option is granted in substitution or exchange for another Option or award, the Committee shall require the surrender of such other award in consideration for the grant of the new Option. 6 (b) TERM OF OPTIONS. The term of each Option shall be for such period as may be determined by the Committee; provided that in no event shall the term of any Option exceed a period of ten years (or such shorter term as may be required in respect of an ISO under Code Section 422). (c) FORM AND TIMING OF PAYMENT UNDER OPTIONS; DEFERRALS. Subject to the terms of the Plan and any applicable Option agreement, payments to be made by the Company or a subsidiary upon the exercise of an Option may be made in such forms as the Committee shall determine, including, without limitation, cash, Stock, other Options or other property, and may be made in a single payment or transfer, in installments, or on a deferred basis. The settlement of any Option may be accelerated, and cash paid in lieu of Stock in connection with such settlement, in the discretion of the Committee or upon occurrence of one or more specified events (in addition to a Change in Control). Installment or deferred payments may be required by the Committee (subject to Section 10(d) of the Plan, including the consent provisions thereof in the case of any deferral of an outstanding Option not provided for in the original Option agreement) or permitted at the election of the Participant on terms and conditions established by the Committee. Payments may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments. Any deferral shall only be allowed as is provided in a separate deferred compensation plan adopted by the Company. The Plan shall not constitute an "employee benefit plan" for purposes of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended. (d) EXEMPTIONS FROM SECTION 16(b) LIABILITY. It is the intent of the Company that the grant of any Options to or other transaction by a Participant who is subject to Section 16 of the Exchange Act shall be exempt from Section 16 pursuant to an applicable exemption (except for transactions acknowledged in writing to be non-exempt by such Participant). Accordingly, if any provision of this Plan or any Option agreement does not comply with the requirements of Rule 16b-3 as then applicable to any such transaction, such provision shall be construed or deemed amended to the extent necessary to conform to the applicable requirements of Rule 16b-3 so that such Participant shall avoid liability under Section 16(b). (e) NON-COMPETITION AGREEMENT. Each Participant to whom an Option is granted under the Plan, who has not already done so at the time of such grant, may be required to agree in writing as a condition to the granting of such Option not to engage in conduct in direct competition with the Company or any of its subsidiaries for a period after the termination of such Participant's employment with the Company and its subsidiaries. 8. PERFORMANCE AWARDS. (a) PERFORMANCE CONDITIONS. The right of a Participant to exercise or receive a grant of any Option, and the timing thereof, may be subject to such performance conditions as may be specified by the Committee. The Committee may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions, and may exercise its discretion to reduce or increase the amounts payable under any Option subject to 7 performance conditions, except as limited under Section 8(b) hereof in the case of a Performance Award intended to qualify under Code Section 162(m). (b) PERFORMANCE AWARDS GRANTED TO DESIGNATED COVERED EMPLOYEES. If the Committee determines that a Performance Award to be granted to an Eligible Person who is designated by the Committee as likely to be a Covered Employee should qualify as "performance-based compensation" for purposes of Code Section 162(m), the grant, exercise and/or settlement of such Performance Award may be contingent upon achievement of preestablished performance goals and other terms set forth in this Section 8(b). (i) PERFORMANCE GOALS GENERALLY. The performance goals for such Performance Awards shall consist of one or more business criteria and a targeted level or levels of performance with respect to each of such criteria, as specified by the Committee consistent with this Section 8(b). Performance goals shall be objective and shall otherwise meet the requirements of Code Section 162(m) and regulations thereunder (including Regulation 1.162-27 and successor regulations thereto), including the requirement that the level or levels of performance targeted by the Committee result in the achievement of performance goals being "substantially uncertain." The Committee may determine that such Performance Awards shall be granted, exercised, and/or settled upon achievement of any one performance goal or that two or more of the performance goals must be achieved as a condition to grant or exercise of such Performance Awards. Performance goals may differ for Performance Awards granted to any one Participant or to different Participants. (ii) BUSINESS CRITERIA. One or more of the following business criteria for the Company, on a consolidated basis, and/or for specified subsidiaries or business or geographical units of the Company (except with respect to the total shareholder return and earnings per share criteria), shall be used by the Committee in establishing performance goals for such Performance Options: (A) earnings per share; (B) increase in revenues or margin; (C) increase in cash flow; (D) increase in cash flow return; (E) revenue; (F) return on net assets; return on assets; return on investment; return on capital; or return on equity; (G) operating profits in excess of cost of capital employed; (H) direct contribution; (I) net income; pretax earnings; pretax earnings before interest, depreciation and amortization (EBITDA); pretax earnings after interest expense and before incentives, service fees, and extraordinary or special items; operating income; or income before interest income or expense, unusual items and income taxes (local, state or federal) and excluding budgeted and actual bonuses which might be paid under any ongoing bonus plans of the Company; (J) working capital; (K) management of fixed costs or variable costs; (L) identification and/or consummation of investment opportunities or completion of specified projects in accordance with corporate business plans, including strategic mergers, acquisitions or divestures; (M) total shareholder return; (N) debt reduction; and (O) any of the above goals determined on an absolute or relative basis or as compared to the performance of a published or special index deemed applicable by the Committee including, but not limited to, the Standard & Poor's 500 Stock Index or a group of comparable companies. (iii) PERFORMANCE PERIOD; TIMING FOR ESTABLISHING PERFORMANCE GOALS. Achievement of performance goals in respect of such Performance Awards shall be measured over a performance period of up to ten years, as specified by the Committee. Performance goals shall be 8 established not later than 90 days after the beginning of any performance period applicable to such Performance Awards, or at such other date as may be required or permitted for "performance-based compensation" under Code Section 162(m). (iv) PERFORMANCE AWARD POOL. The Committee may establish a Performance Award pool, which shall be an unfunded pool, for purposes of measuring performance of the Company in connection with Performance Awards. The amount of such Performance Award pool shall be based upon the achievement of a performance goal or goals based on one or more of the business criteria set forth in Section 8(b)(ii) hereof during the given performance period, as specified by the Committee in accordance with Section 8(b)(iii) hereof. The Committee may specify the amount of the Performance Award pool as a percentage of any of such business criteria, a percentage thereof in excess of a threshold amount, or as another amount which need not bear a strictly mathematical relationship to such business criteria. (v) SETTLEMENT OF PERFORMANCE AWARDS; OTHER TERMS. After the end of each performance period, the Committee shall determine the amount, if any, of (A) the Performance Award pool, and the maximum amount of potential Performance Award payable to each Participant in the Performance Award pool, or (B) the amount of potential Performance Award otherwise payable to each Participant. Settlement of such Performance Awards shall be in cash, Stock, other Options or other property, in the discretion of the Committee. The Committee may, in its discretion, reduce the amount of a settlement otherwise to be made in connection with such Performance Awards, but may not exercise discretion to increase any such amount payable to a Covered Employee in respect of a Performance Award subject to this Section 8(b). The Committee shall specify the circumstances in which such Performance Awards shall be paid or forfeited in the event of termination of employment by the Participant prior to the end of a performance period or settlement of Performance Awards. (c) WRITTEN DETERMINATIONS. All determinations by the Committee as to the establishment of performance goals, the amount of any Performance Award pool or potential individual Performance Awards and as to the achievement of performance goals relating to Performance Awards under Section 8(b) shall be made in writing in the case of any Option intended to qualify under Code Section 162(m). The Committee may not delegate any responsibility relating to such Performance Awards. (d) STATUS OF SECTION 8(b) PERFORMANCE AWARDS UNDER CODE SECTION 162(m). It is the intent of the Company that Performance Awards under Section 8(b) hereof granted to persons who are designated by the Committee as likely to be Covered Employees within the meaning of Code Section 162(m) and regulations thereunder (including Regulation 1.162-27 and successor regulations thereto) shall, if so designated by the Committee, constitute "performance-based compensation" within the meaning of Code Section 162(m) and regulations thereunder. Accordingly, the terms of Sections 8(a), (b) and (c), including the definitions of Covered Employee and other terms used therein, shall be interpreted in a manner consistent with Code Section 162(m) and regulations thereunder. The foregoing notwithstanding, because the Committee cannot determine with certainty whether a given Participant will be a Covered Employee with respect to a fiscal year that has not yet been completed, the term Covered Employee as used herein shall mean 9 only a person designated by the Committee, at the time of grant of Performance Awards, who is likely to be a Covered Employee with respect to that fiscal year. If any provision of the Plan as in effect on the date of adoption or of any agreements relating to Performance Awards that are designated as intended to comply with Code Section 162(m) does not comply or is inconsistent with the requirements of Code Section 162(m) or regulations thereunder, such provision shall be construed or deemed amended to the extent necessary to conform to such requirements. 9. RECAPITALIZATION OR REORGANIZATION. (a) EXISTENCE OF PLANS AND OPTIONS. The existence of the Plan and the Options granted hereunder shall not affect in any way the right or power of the Board or the shareholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company, any issue of debt or equity securities ahead of or affecting Stock or the rights thereof, the dissolution or liquidation of the Company or any sale, lease, exchange or other disposition of all or any part of its assets or business or any other corporate act or proceeding. (b) SUBDIVISION OF CONSOLIDATION OF SHARES. The shares with respect to which Options may be granted are shares of Stock as presently constituted, but if, and whenever, prior to the expiration of an Option theretofore granted, the Company shall effect a subdivision or consolidation of shares of Stock or the payment of a stock dividend on Stock without receipt of consideration by the Company, the number of shares of Stock with respect to which such Option may thereafter be exercised (i) in the event of an increase in the number of outstanding shares shall be proportionately increased, and the purchase price per share shall be proportionately reduced, and (ii) in the event of a reduction in the number of outstanding shares shall be proportionately reduced, and the purchase price per share shall be proportionately increased. (c) CORPORATE RESTRUCTURING. If the Company recapitalizes, reclassifies its capital stock, or otherwise changes its capital structure (a "recapitalization"), the number and class of shares of Stock covered by an Option theretofore granted shall be adjusted so that such Option shall thereafter cover the number and class of shares of stock and securities to which the holder would have been entitled pursuant to the terms of the recapitalization if, immediately prior to the recapitalization, the holder had been the holder of record of the number of shares of Stock then covered by such Option. If (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act, hereinafter an "Acquiring Person") becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities; (ii) an Acquiring Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's then outstanding securities and, during the two-year period commencing at the time such Acquiring Person becomes the Beneficial Owner of such securities, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof; (iii) the Company's stockholders approve an agreement to merge or consolidate the Company with another corporation (other than a corporation 50% or more of which is controlled by, or is under common control with, the Company) and, during the period commencing six months before such approval and ending two years after such approval, individuals 10 who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof; or (iv) during any two year period, individuals who at the date on which the period commences constitute a majority of the Board cease to constitute a majority thereof as a result of one or more contested elections for positions on such Board (each such event is referred to herein as a "Change in Control"), then, unless otherwise provided in the Option agreement, (x) any Option granted under the Plan and outstanding at such time will become fully and immediately exercisable and will remain exercisable until its expiration or termination as provided in the Plan, and (y) all performance conditions will be deemed met if and to the extent so provided in the Option agreement relating to such Option. (d) ADDITIONAL ISSUANCES. Except as hereinbefore expressly provided, the issuance by the Company of shares of stock of any class or securities convertible into shares of stock of any class, for cash, property, labor or services, upon direct sale, upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, and in any case whether or not for fair value, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Stock subject to Options theretofore granted or the purchase price per share, if applicable. 10. GENERAL PROVISIONS. (a) RESTRICTED SECURITIES. The Stock to be issued under the Plan, which is issued in reliance on the exemption from registration set forth in SEC Reg. Section 230.701, shall be deemed to be "restricted securities" as defined in SEC Reg. Section 230.144 and shall bear the legend identified in Section 4. Resales of such Stock by the holder thereof shall be in compliance with the Securities Act of 1933 or an exemption therefrom. (b) LIMITS ON TRANSFERABILITY; BENEFICIARIES. No Option or other right or interest of a Participant under the Plan shall be pledged, hypothecated or otherwise encumbered or subject to any lien, obligation or liability of such Participant to any party (other than the Company or a subsidiary), or assigned or transferred by such Participant otherwise than by will or the laws of descent and distribution or to a Beneficiary upon the death of a Participant, and such Options or rights that may be exercisable shall be exercised during the lifetime of the Participant only by the Participant or his or her guardian or legal representative, except that Options and other rights (other than ISOs) may be transferred to one or more Beneficiaries or other transferees during the lifetime of the Participant, and may be exercised by such transferees in accordance with the terms of such Option, but only if and to the extent such transfers are permitted by the Committee pursuant to the express terms of an Option agreement (subject to any terms and conditions which the Committee may impose thereon). A Beneficiary, transferee, or other person claiming any rights under the Plan from or through any Participant shall be subject to all terms and conditions of the Plan and any Option agreement applicable to such Participant, except as otherwise determined by the Committee, and to any additional terms and conditions deemed necessary or appropriate by the Committee. (c) TAXES. The Company and any subsidiary is authorized to withhold from any Option granted, any payment relating to an Option under the Plan, including from a distribution of Stock, or any payroll or other payment to a Participant, amounts of withholding and other taxes due 11 or potentially payable in connection with any transaction involving an Option and to take such other action as the Committee may deem advisable to enable the Company and Participants to satisfy obligations for the payment of withholding taxes and other tax obligations relating to any Option. This authority shall include authority to withhold or receive Stock or other property and to make cash payments in respect thereof in satisfaction of a Participant's tax obligations, either on a mandatory or elective basis in the discretion of the Committee. (d) CHANGES TO THE PLAN AND OPTIONS. The Board may amend, alter, suspend, discontinue or terminate the Plan or the Committee's authority to grant Options under the Plan without the consent of shareholders or Participants, except that any amendment or alteration to the Plan shall be subject to the approval of the Company's shareholders not later than the annual meeting next following such Board action if such shareholder approval is required by any federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the Stock may then be listed or quoted, and the Board may otherwise, in its discretion, determine to submit other such changes to the Plan to shareholders for approval; provided that, without the consent of an affected Participant, no such Board action may materially and adversely affect the rights of such Participant under any previously granted and outstanding Option. The Committee may waive any conditions or rights under, or amend, alter, suspend, discontinue or terminate any Option theretofore granted and any Option agreement relating thereto, except as otherwise provided in the Plan; provided that, without the consent of an affected Participant, no such Committee action may materially and adversely affect the rights of such Participant under such Option. (e) LIMITATION ON RIGHTS CONFERRED UNDER PLAN. Neither the Plan nor any action taken hereunder shall be construed as (i) giving any Eligible Person or Participant the right to continue as an Eligible Person or Participant or in the employ or service of the Company or a subsidiary,(ii) interfering in any way with the right of the Company or a subsidiary to terminate any Eligible Person's or Participant's employment or service at any time,(iii) giving an Eligible Person or Participant any claim to be granted any Option under the Plan or to be treated uniformly with other Participants and employees, or (iv) conferring on a Participant any of the rights of a shareholder of the Company unless and until the Participant is duly issued or transferred shares of Stock in accordance with the terms of an Option. (f) UNFUNDED STATUS OF OPTIONS. The Plan is intended to constitute an "unfunded" plan. (g) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the Board nor its submission to the shareholders of the Company for approval shall be construed as creating any limitations on the power of the Board or a committee thereof to adopt such other incentive arrangements as it may deem desirable including incentive arrangements and awards which do not qualify under Code Section 162(m). Nothing contained in the Plan shall be construed to prevent the Company or any subsidiary from taking any corporate action which is deemed by the Company or such subsidiary to be appropriate or in its best interest, whether or not such action would have an adverse effect on the Plan or any Option made under the Plan. No employee, beneficiary or other person shall have any claim against the Company or any subsidiary as a result of any such action. 12 (h) FRACTIONAL SHARES. No fractional shares of Stock shall be issued or delivered pursuant to the Plan or any Option. The Committee shall determine whether cash, other Options or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated. (i) GOVERNING LAW. The validity, construction and effect of the Plan, any rules and regulations under the Plan, and any Option agreement shall be determined in accordance with the laws of the State of Delaware. (j) OTHER LAWS. The Company shall not be obligated to issue any Stock pursuant to any Option granted under the Plan at any time when the shares covered by such Option have not been registered under the Securities Act of 1933 and such other state and federal laws, rules or regulations as the Company or the Committee deems applicable and, in the opinion of legal counsel for the Company, there is no exemption from the registration requirements of such laws, rules or regulations available for the issuance and sale of such shares. In this connection, until such time as the Company is subject to the reporting requirements of Section 13 and 15(d) of Exchange Act, the Company is and intends to rely on the exemption from registration provided in SEC Reg. Section 230.701. (k) PLAN EFFECTIVE DATE AND SHAREHOLDER APPROVAL. The Plan has been adopted by the Board effective July 1, 2000, subject to approval by the shareholders of the Company. 13 EXECUTED this 26th day of June, 2000. ---- ---- HORIZON PHARMACIES, INC. By: /s/ Rick McCord ---------------------------------- Name: Rick McCord -------------------------------- Title: President ------------------------------- 14 EX-27 9 ex-27.txt EXHIBIT 27
5 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 797 0 12,581 (714) 20,346 33,894 10,081 (2,143) 57,699 34,236 10,195 0 0 59 12,207 57,699 70,712 70,712 53,206 74,154 0 0 1,307 (4,730) 0 (4,730) 0 0 0 (4,730) (.80) (.80)
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