-----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, QeNJ0JgmiDBqEHOpURsOUEAXLfGZqd12CifA7OyEvfdldsFi8xVfIJR+vfIsMOQV nyRz10/KnkYiVbQPsT4WRA== 0000912057-00-010627.txt : 20000310 0000912057-00-010627.hdr.sgml : 20000310 ACCESSION NUMBER: 0000912057-00-010627 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000128 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000309 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HORIZON PHARMACIES INC CENTRAL INDEX KEY: 0001036260 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 752441557 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-22403 FILM NUMBER: 564319 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 8-K 1 FORM 8-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JANUARY 28, 2000 --------------------------- HORIZON PHARMACIES, INC. (Exact name of Registrant as specified in its charter) DELAWARE 000-22403 75-2441557 (State or other (Commission File Number) (I.R.S. Employer jurisdiction of incorporation) Identification Number) 531 W. MAIN STREET SUITE 100 75020 DENISON, TEXAS (Zip code) (Address of principal executive offices) Registrant's telephone number, including area code: (903) 465-2397 NOT APPLICABLE (Former name or former address, if changed since last report) ================================================================================ ITEM 5. OTHER EVENTS On January 28, 2000, HORIZON Pharmacies, Inc., a Delaware corporation ("HORIZON"), entered into a Consulting Agreement with K-2 Financial Corp. ("K-2"). The term of the Consulting Agreement is 24 months. During the term of the agreement, K-2 will provide financial consulting services to the company as requested. Such services may include (i) consummation of mergers or acquisitions, (ii) changes in the internal capital structure of the company, (iii) placement of new debt or equity issues or (iv) any combination thereof. Pursuant to the Consulting Agreement, HORIZON issued to K-2 warrants to purchase 200,000 shares of HORIZON common stock, par value $.01 per share, at a per share purchase price of $2.75 per share. The warrants will vest immediately if the Consulting Agreement is terminated by HORIZON prior to the end of the term of the agreement, or in increments when certain performance objectives are attained by K-2. Also on January 28, 2000, HORIZON entered into an exclusive Investment Banking Agreement with Waterford Financial, Inc. ("Waterford"). The term of the Investment Banking Agreement is for 12 months and thereafter until Waterford, upon 90 days written notification to HORIZON, or HORIZON elects to terminate the agreement. The agreement provides that Waterford will act as HORIZON's exclusive investment banker and will assist HORIZON with various financings including (i) subordinated debentures, (ii) convertible and/or redeemable preferred stock, (iii) common stock, with or without warrants, (iv) convertible debt, (v) senior secured revolving credit and (vi) senior secured term loans. Pursuant to the Investment Banking Agreement, Waterford will receive a fee equal to a percentage of the value of a particular financing or transaction as the case may be. On February 1, 2000, HORIZON entered into a Software Development Agreement with 5Net5 Corp ("5Net5"). Pursuant to the Software Development Agreement, 5Net5 will provide HORIZON with consulting services including, but not limited to, designing of plans for, and implementation and oversight of, technology and Internet strategies. Specifically 5Net5 will provide (i) website design plans, (ii) plans for a Branch-to-Home Office Information Distribution System and (iii) plans for an Affinity Marketing Program. Pursuant to the Software Development Agreement, HORIZON issued to 5Net5 warrants to purchase 300,000 shares of HORIZON common stock, par value $.01 per share, at a per share purchase price of $2.63. One-half, or 150,000, warrants vested upon the signing of the Software Development Agreement. The remaining warrants vest in increments upon the attainment of certain performance goals. Further, 5Net5 will receive a consulting fee of $10,000 per month for one year and such fee may be retroactively doubled if certain performance goals are attained. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (c) EXHIBITS. 10.1 -- Consulting Agreement, dated January 28, 2000, between HORIZON Pharmacies, Inc. and K-2 Financial Corp. 10.2 -- Investment Banking Agreement, dated January 28, 2000, between HORIZON Pharmacies, Inc. and Waterford Financial, Inc. 10.3 -- Software Development Agreement, dated February 1, 2000, between HORIZON Pharmacies Inc. and 5Net5 Corp. 10.4 -- Amendment to Software Development Agreement, dated February 1, 2000, between HORIZON Pharmacies Inc. and 5Net5 Corp. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this current report to be signed on its behalf by the undersigned thereunto duly authorized. HORIZON PHARMACIES, INC. By: /s/ John N. Stogner --------------------------------------------- John N. Stogner Chief Financial Officer Date: March 9, 2000 EXHIBIT INDEX EXHIBIT NUMBER EXHIBIT TITLE ------- ------------- 10.1 -- Consulting Agreement, dated January 28, 2000, between HORIZON Pharmacies, Inc. and K-2 Financial Corp. 10.2 -- Investment Banking Agreement, dated January 28, 2000, between HORIZON Pharmacies, Inc. and Waterford Financial, Inc. 10.3 -- Software Development Agreement, dated February 1, 2000, between HORIZON Pharmacies Inc. and 5Net5 Corp. 10.4 -- Amendment to Software Development Agreement, dated February 1, 2000, between HORIZON Pharmacies Inc. and 5Net5 Corp. EX-10.1 2 EX-10.1 EXHIBIT 10.1 K-2 FINANCIAL CORP. ------------------- 400 SOUTH 4TH STREET, SUITE 955 MINNEAPOLIS MN 55415 TELEPHONE (612) 338-1097 - FAX (612) 338-1197 CONSULTING AGREEMENT THIS AGREEMENT is made as of January 28, 2000 By and Between HORIZON PHARMACIES, INC. (THE "COMPANY") And K-2 FINANCIAL CORP. (THE "CONSULTANT") RECITALS A. The Company desires to promote its business plans to the investment community and to build the value of the Company for the benefit of its respective Shareholders; B. The Consultant is involved in investment banking; C. The Company recognizes the experience and knowledge of the Consultant in matters relating to investment banking; D. The Company has determined that it is in the best interest of the Company to engage the services of the Consultant; and E. The Company desires to retain the services and counsel of the Consultant, and the Consultant desires to render such services to the Company upon the terms set forth in this Consulting Agreement (this "Agreement"). NOW THEREFORE, in consideration of the mutual promises and covenants set forth below, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby agree as follows: 1 1. ENGAGEMENT: The Company hereby engages the Consultant, and the Consultant accepts engagement by the Company, upon the terms and conditions set forth in this Agreement. 2. TERM: The term of this Agreement shall begin on the date hereof and shall continue for a period of twenty-four (24) months. 3. DUTIES: During the term of this Agreement, the Consultant shall provide financial consulting services to the Company as requested. The services shall be directed toward achieving the Company's business and financial goals as established by the Company's board of directors, which may include the consummation of mergers or acquisitions, changes in the internal capital structure of the Company, the placement of new debt or equity issues, or any combination thereof (any such transaction proposed by the Company, a "Proposed Transaction"). The Consultant's duties shall include, but not be limited to, assisting the Company (i) to develop strategies and structure proposals related to the Company's business and financial goals, and to analyze the financial implications thereof; (ii) to prepare and make presentations to the Company's board of directors regarding any such strategies or proposals; (iii) to formulate negotiation strategies and conduct any negotiations necessary to implementing such strategies and proposals; (iv) to prepare agreements in principle and definitive agreements necessary to implementing any Proposed Transaction; and (v) to assist in such other matters as may be agreed upon from time to time by the Company and the Consultant. The terms of any Proposed Transaction will be subject in all respects to the Company's approval, and Consultant is not authorized to make any agreement or commitment on behalf of the Company under any circumstances. When the Consultant presents a Proposed Transaction to the Company, the Company in a reasonable time will either approve or disapprove such Transaction in writing by an authorized officer of the Company. 4. GRANT AND VESTING OF WARRANTS; CONSULTING FEES: A. WARRANTS (1) In exchange for the payment of $50, the receipt and sufficiency of which are hereby acknowledged, the Company hereby issues to the Consultant warrants to purchase 200,000 shares of the Company's Common Stock, par value $.01 per share ("Common Stock"), for a purchase price per share equal to $2.75 per share (the closing price of the Company's Common Stock on the American Stock Exchange on January 27, 2000 -- the business day immediately preceding the grant of such warrants (the "Warrants"); provided, however, that the rights to exercise 2 such Warrants shall vest immediately if the Company terminates this Agreement other than pursuant to PARAGRAPH7(b) hereof prior to the second anniversary of the date hereof or as set forth below in this PARAGRAPH 4(a). The Warrants shall be in substantially in the form of EXHIBIT A attached hereto and shall contain such other terms and conditions as are to be mutually agreed upon by the parties. (i) STRATEGIC ALLIANCES. If through the efforts of the Consultant the Company enters into one or more strategic alliances, whether by way of merger, consolidation, joint venture, joint marketing agreement or similar agreements of strategic nature, but specifically not including agreements for investment banking, financial consulting or similar services (each, an "Alliance"), with one or more entities, then the Consultant shall be entitled to exercise a portion of the Warrant for the purchase of One Hundred Thousand (100,000) shares of Common Stock upon the consummation of each such Alliance; or (ii) ADVERTISING REVENUES. (A) If through the efforts of the Consultant the Company's monthly advertising revenues (the "Advertising Revenues") (i) increase by Ten Thousand dollars ($10,000) but less than Twenty Thousand dollars ($20,000) over the trailing three month period and (ii) remain at such level for four consecutive months, then the Consultant shall be entitled to exercise a portion of the Warrant for the purchase of Forty Thousand (40,000) shares of Common stock; or (B) If through the efforts of the Consultant the Company's monthly Advertising Revenues (i) increase by Twenty Thousand dollars ($20,000) but less than Thirty Thousand dollars ($30,000) over the trailing three month period and (ii) remain at such level for four consecutive months, then Consultant shall be entitled to exercise a portion of the Warrant for the purchase of Eighty Thousand (80,000) shares of Common stock; or (C) If through the efforts of the Consultant the Company's monthly Advertising Revenues (i) 3 increase by Thirty Thousand dollars ($30,000) but less than Forty Thousand dollars ($40,000) over the trailing three month period and (ii) remain at such level for four consecutive months, then the Consultant shall be entitled to exercise a portion of the Warrant for the purchase of One Hundred Twenty Thousand (120,000) shares of Common stock; or (D) If through the efforts of the Consultant the Company's monthly Advertising Revenues (i) increase by Forty Thousand dollars ($40,000) but less than Fifty Thousand dollars ($50,000) over the trailing three month period and (ii) remain at such level for four consecutive months, then the Consultant shall be entitled to exercise a portion of the Warrant for the purchase of One Hundred Sixty Thousand (160,000) shares of Common stock; or (E) If through the efforts of the Consultant the Company's monthly Advertising Revenues (i) increase by Fifty Thousand dollars ($50,000) or more over the trailing three month period and (ii) remain at such level for four consecutive months, then the Consultant shall be entitled to exercise a portion of the Warrant for the purchase of Two Hundred Thousand (200,000) shares of Common stock; (iii) DISPLAY ALLOWANCES. (A) If through the efforts of the Consultant the Company's monthly display allowances (the "Display Allowances") (i) increase by Ten Thousand dollars ($10,000) but less than Twenty Thousand dollars ($20,000) over the trailing three month period and (ii) remain at such level for four consecutive months, then the Consultant shall be entitled to exercise a portion of the Warrant for the purchase of Forty Thousand (40,000) shares of Common stock; or (B) If through the efforts of the Consultant the Company's monthly Display Allowances (i) increase by Twenty Thousand dollars ($20,000) but less than Thirty Thousand dollars ($30,000) over the trailing 4 three month period and (ii) remain at such level for four consecutive months, then the Consultant shall be entitled to exercise a portion of the Warrant for the purchase of Eighty Thousand (80,000) shares of Common stock; or (C) If through the efforts of the Consultant the Company's monthly Display Allowances (i) increase by Thirty Thousand dollars ($30,000) but less than Forty Thousand dollars ($40,000) over the trailing three month period (ii) remain at such level for four consecutive months, then the Consultant shall be entitled to exercise a portion of the Warrant for the purchase of One Hundred Twenty Thousand (120,000) shares of Common stock; or (D) If through the efforts of the Consultant the Company's monthly Display Allowances (i) increase by Forty Thousand dollars ($40,000) but less than Fifty Thousand dollars ($50,000) over the trailing three month period and (ii) remain at such level for four consecutive months, then the Consultant shall be entitled to exercise a portion of the Warrant for the purchase of One Hundred Sixty Thousand (160,000) shares of Common stock; or (E) If through the efforts of the Consultant the Company's monthly Display Allowances (i) increase by Fifty Thousand dollars ($50,000) or more over the trailing three month period and (ii) remain at such level for four consecutive months, then the Consultant shall be entitled to exercise a portion of the Warrant for the purchase of Two Hundred Thousand (200,000) shares of Common stock; (iv) MERCHANT REBATES. (A) If through the efforts of the Consultant the Company's monthly merchant rebates (the "Merchant Rebates") (i) increase by Ten Thousand dollars ($10,000) but less than Twenty Thousand dollars ($20,000) over the average amount of merchant rebates the Company received in the trailing three month period and (ii) remain at such level for four consecutive months, then the Consultant shall be entitled to exercise a portion of the Warrant for the 5 purchase of Forty Thousand (40,000) shares of Common stock; or (B) If through the efforts of the Consultant the Company's monthly Merchant Rebates (i) increase by Twenty Thousand dollars ($20,000) but less than Thirty Thousand dollars ($30,000) over the trailing three month period and (ii) remain at such level for four consecutive months, then the Consultant shall be entitled to exercise a portion of the Warrant for the purchase of Eighty Thousand (80,000) shares of Common stock; or (C) If through the efforts of the Consultant the Company's monthly Merchant Rebates (i) increase by Thirty Thousand dollars ($30,000) but less than Forty Thousand dollars ($40,000) over the trailing three month period and (ii) remain at such level for four consecutive months, then the Consultant shall be entitled to exercise a portion of the Warrant for the purchase of One Hundred Twenty Thousand (120,000) shares of Common stock; or (D) If through the efforts of the Consultant the Company's monthly Merchant Rebates (i) increase by Forty Thousand dollars ($40,000) but less than Fifty Thousand dollars ($50,000) over the trailing three month period and (ii) remain at such level for four consecutive months, then the Consultant shall be entitled to exercise a portion of the Warrant for the purchase of One Hundred Sixty Thousand (160,000) shares of Common stock; or (E) If through the efforts of the Consultant the Company's monthly Merchant Rebates (i) increase by Fifty Thousand dollars ($50,000) or more over the trailing three month period and (ii) remain at such level for four consecutive months, then the Consultant shall be entitled to exercise a portion of the Warrant for the purchase of Two Hundred Thousand (200,000) shares of Common stock; Pursuant to each of PARAGRAPH 4(a)(1)(ii), (iii) and (iv), only one vesting event may occur during any consecutive three- 6 month period. The vesting of Warrants under this PARAGRAPH 4(a)(i), (ii), (iii) AND (iv) can be combined and occur simultaneously upon satisfaction of the requirements set forth herein. (2) The Warrants shall be immediately forfeited by the Consultant if at any time (A) the Company terminates this Agreement by reason of a breach by the Consultant or (B) if the Consultant terminates this Agreement for any reason. (3) The Consultant hereby represents to the Company that it qualifies as an "accredited investor" under Rule 501 promulgated by the Securities and Exchange Commission under the Securities Act of 1933 ("Rule 501"). (4) The Warrants shall be immediately forfeited upon any transfer or assignment by the Consultant, or any transferee or assignee of the Consultant, to any person or entity not qualifying as an "accredited investor" under Rule 501. b. CONSULTING FEE: The Company shall pay a monthly consulting fee for one (1) year of Ten Thousand dollars ($10,000) per month, payable no later than the 10th of each month, effective as of February, 2000. 5. NATURE OF ENGAGEMENT: The Consultant is being engaged by the Company as an independent contractor and shall be responsible for payment of its own taxes. Nothing in this Agreement shall be construed so as to create an employer-employee relationship between the parties. 6. EXPENSES: Upon receipt of requests from the Consultant for reimbursement, the Company shall reimburse the Consultant for all reasonable and necessary expenses the Consultant incurs prior to and after the date of this Agreement in performing its duties in connection with this Agreement; provided, however, that the Company shall not be liable or obligated to reimburse the Consultant for more than $10,000 of expenses hereunder (not including, for the purpose of this limitation, any expenses that are incurred with the prior approval of the Chief Executive Officer ("CEO") or the Chief Financial Officer ("CFO") of the Company). 7 7. TERMINATION. a. This Agreement may be terminated by either party immediately upon written notice beginning twelve (12) months from the date of this Agreement. Such notice shall be effective upon receipt by the non-terminating party. b. Notwithstanding anything in this Agreement to the contrary, the Company shall have the right to terminate this Agreement at any time upon any breach by the Consultant of the provisions of this Agreement. If the Company elects to exercise such right, it shall provide the Consultant with written notice, and the termination shall be effective immediately upon receipt of such notice to the Consultant. 8. NOTICES: All notices, requests consents and other communications hereunder shall be in writing and shall be delivered in person, mailed by certified or registered mail, return receipt requested, sent by telecopier, telex or delivered by Federal Express, United Parcel Service or another similar company, addressed as follows: a. if to the Company, at 531 W. Main Street, Suite 100, Denison, Texas 75020, Attention: Ricky D. McCord, with a copy to Vinson & Elkins L.L.P., 3700 Trammell Crow Center, 2001 Ross Avenue, Dallas, Texas 75201, Attention: Jay H. Hebert; and b. if to the Consultant, at 400 South 4th Street, Suite 955, Minneapolis, Minnesota 55415, Attention: John M. Whitesides, with a copy to Paul des Hotels. c. Any notice or communication hereunder shall be deemed to have been given or made as of the date so delivered if personally delivered; when answered back, if telexed; when receipt is acknowledged, if telecopied; and five calendar days after mailing if sent by registered or certified mail (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. 9. MISCELLANEOUS PROVISIONS: a. GOVERNING LAW: This Agreement shall be governed by, interpreted and enforced in accordance with the laws of the State of Minnesota. b. WAIVER: The waiver by any party hereto of a breach of any provision of this Agreement shall not operate as a waiver of any other breach of any provision of this Agreement by any party. 8 c. ENTIRE AGREEMENT:This instrument contains the entire Agreement of the parties concerning engagement and may not be changed or modified except by written agreement duly executed by the parties hereto. d. SUCCESSORS AND ASSIGNS: This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. e. ADDITIONAL DOCUMENTS: The Company agrees to execute such other documents and agreements to effectuate the purposes of this Agreement, as the Consultant may request from time to time. f. ASSIGNMENTS: The obligation of the parties under this Agreement shall not be assigned without the written consent of the parties which shall not be unreasonably withheld. g. COUNTERPARTS: This Agreement may be executed in counterparts, and all counterparts will be considered as part of one agreement binding on all parties to this Agreement. h. FACSIMILE SIGNATURES: The parties may execute this Agreement by facsimile, which signature[s] shall be deemed as an original and shall be binding upon such party. i. SEVERABILITY: If any term, condition or provision of this Agreement or the application thereof to any party of circumstance shall, at any time or to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term, condition or provision to parties or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term, condition and provision of their Agreement shall be valid and enforceable to the fullest extent permitted by the Law. j. DISPUTE PROCEDURE: Any dispute, claim or controversy arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association at a location mutually acceptable to both parties. The parties further agree that they will abide by and perform any award rendered by the Arbitrator[s]. Judgment upon any such award may be in any court, State or Federal, having any arbitration demand, service or process, notice of motion or other application the court or any Judge thereof may require. Service may be by registered or certified mail, or by personal service, provided a reasonable time for appearance or answer is allowed. 9 k. AUTHORITY: The Company hereby represents and warrants that the person executing this Agreement on its behalf is duly authorized to do so, that the execution of the Agreement has been duly approved by the Board of Directors of the Company, and that this Agreement is binding upon the Company. l. INDEMNITY: (i) In addition to the amounts which the Company has herein agreed to pay to the Consultant, the Company shall indemnify and hold the Consultant and its officers, directors, agents and controlling persons harmless against any losses, claims, damages or liabilities to which the Consultant or any of them may become subject insofar as the same arises from an action which alleges or is based upon the alleged untrue statement of a material fact, or omission of a material fact, or any other violation of applicable securities or other laws, by the Company or its officers, directors, agents and controlling persons and to reimburse the Consultant for any legal or other expenses reasonably incurred by it in connection with investigating, settling or defending any action or claim in connection therewith; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability: (A) is found in a final judgment of a court of competent jurisdiction to have resulted from a breach of the Consultant's obligations to the Company in connection with the performance by the Consultant of the services pursuant hereto or from the Consultant's gross negligence or misfeasance in performing such services or (B) arises out of, or is based upon, any untrue statement of a material fact or omission of a material fact made in any written communication or any amendment or supplement thereto in reliance upon, and in conformity with, information furnished to the Company by the Consultant expressly for use therein. (ii) The Consultant shall indemnify and hold the Company and its officers, directors, agents and controlling persons harmless against any losses, claims, damages or liabilities to which the Company may become subject in connection with the transactions contemplated herein, insofar as such losses, claims, damages or liabilities arise out of, or are based upon (i) any untrue statement or misleading omissions made by the Consultant in writing expressly for use in connection with a Financing (other than untrue statements of a material fact or omission of a material fact made by the Consultant in reliance on information supplied to the Consultant by the 10 Company) or (ii) the Consultant's gross negligence, misfeasance or breach of the Consultant's obligation hereunder to the Company. The Consultant shall reimburse the Company for any legal or other reasonable expenses incurred by it in connection with investigating, settling or defending any such action or claim. (iii) Upon receipt by the Consultant or its officers, directors, agents or controlling persons (for purposes of PARAGRAPH 8(l)(i)), or the Company or its officers, directors, agents or controlling persons (for purposes of PARAGRAPH 8(l)(ii)) (in each case the "Indemnified Party"), of notice of any action, suit, proceeding, claim, demand or assessment against the Indemnified Party that might give rise to a claim pursuant to this section, the Indemnified Party shall give written notice thereof within ten days (the "Notice of Claim") to the Company, for purposes of PARAGRAPH 8(l)(i), or the Consultant, for purposes of PARAGRAPH 8(l)(ii) (in each case the "Indemnifying Party"), indicating the nature of such claim and the basis therefor. The Notice of Claim shall specify all facts known to the Indemnified Party giving rise to such claim and the amount of estimate of the amount of liability arising therefrom. Any delay or failure to notify the Indemnifying Party shall relive the Indemnifying Party of its obligations hereunder only to the extent, if at all, that it is prejudiced by reason of such delay or failure. (iv) Promptly after a claim is made for which the Indemnified Party seeks indemnity, the Indemnified Party, at its option and expense, to assume the defense of such action, suit, proceeding, claim, demand or assessment with full authority to conduct such defense and the Indemnified Party will cooperate fully with such defense. The Indemnified Party shall have the right to employ separate counsel in any of the foregoing actions, claims or proceedings and to participate in the defense thereof, and the Indemnifying Party shall pay the reasonable fees and expenses of such counsel in advance at the request of the Indemnified Party. Anything in this section to the contrary notwithstanding, the Indemnified Party shall not, without the Indemnifying Party's prior written consent, settle or compromise any action or claim or proceeding or consent to entry of any judgment with respect to any such action or claim that requires the payment of money damages by the Indemnified Party or in any way is binding upon or affects the Indemnifying Party. (v) The respective reimbursement and indemnity obligation of the Consultant and the Company pursuant to subparagraphs (i) and 11 (ii) of this PARAGRAPH 8(l) shall be in addition to any liability which the Consultant or the Company may otherwise have and shall be binding upon, and inure to the benefit of, their respective successors, assigns, heirs, and personal representatives. (vi) The respective indemnity agreements of the Consultant and the Company contained in subparagraphs (i) and (ii) of this PARAGRAPH 8(l) shall remain operative and in full force and effect regardless of any termination of this Agreement or of any investigation made by or on behalf of this Company or the Consultant. M. CONSULTANT AUTHORITY: Consultant shall have no authority under this Agreement to bind the Company to any transaction or contract. The Company has the right in its sole and absolute discretion to reject any transaction or contract regardless of the terms proposed. 12 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. K-2 FINANCIAL CORP. HORIZON PHARMACIES, INC. By /s/ Richard A. Andolshek By /s/ Ricky D. McCord ------------------------------- -------------------------------- Richard A. Andolshek, President Ricky D. McCord, President & CEO S-1 EXHIBIT A --------- FORM OF WARRANT EX-10.2 3 EX-10.2 EXHIBIT 10.2 WATERFORD FINANCIAL, INC. 400 SOUTH 4TH STREET, SUITE 955 MINNEAPOLIS, MINNESOTA 55415 MEMBER NASD & SIPC TELEPHONE (612) 338-1097 FAX (612) 338-1197 OR 338-0996 E-MAIL: info@waterfordfinancial.com www.waterfordfinancial.com January 28, 2000 Mr. Rick McCord President & CEO HORIZON Pharmacies, Inc. 531 W. Main Street, Suite 100 Denison, TX 75020 Dear Mr. McCord: This letter of intent (the "Agreement") sets forth our mutual understanding and agreement regarding the establishment of an exclusive investment banking relationship between HORIZON Pharmacies, Inc., a Delaware corporation (the "Company") and Waterford Financial, Inc., a Minnesota corporation ("WFI"). WFI agrees to assist the Company in connection with future financings on the following terms and conditions: 1. ENGAGEMENT. Subject to PARAGRAPH 7 herein, the Company hereby engages WFI to act as the Company's exclusive investment banker to assist the Company with various financing arrangements of up to Twenty-Five Million dollars ($25,000,000), or such other amounts as shall be mutually agreed to by the parties, including, inclusive, (i) subordinated debentures, (ii) convertible and/or redeemable preferred stock, (iii) common stock, with or without warrants, (iv) convertible debt, (v) senior secured revolving credit and (vi) senior secured term loan (collectively, the "Financings"). In connection with any such Financings, WFI will use its best efforts to review proposals and advise the Company with respect to such proposals. In addition, WFI shall be ready to meet with officers or directors of the Company upon reasonable notice to consult on any financial matters or any items related to any issue of financing. Due to the nature of the investment banking relationship, it is extremely important that all prospects or referrals for investment during the Engagement Period (as defined in PARAGRAPH 6), be directed to WFI, subject to PARAGRAPH 7 herein. Page 2 When WFI presents a proposed Financing to the Company, the Company will either approve or disapprove such Financing in writing. 2. FEES. In consideration of the services to be rendered by WFI pursuant to this agreement, the Company agrees to pay, WFI a(n): (a) two percent (2%) fee of any Financing which WFI does not manage during the shorter of the Engagement Period or the next three (3) years, except for a Financing arranged, managed or controlled by an entity set forth in SCHEDULE A attached hereto; (b) three percent (3%) non-accountable expense allowance on all consideration raised in a Financing that WFI manages; (c) underwriter's commission, in the context of a Private Offering (as defined below) that WFI manages, that is equal to ten percent (10%) on all gross proceeds raised on behalf of the Company for equity or convertible debt. As used herein, "Private Offering" means a debt or equity offering that is not a Public Offering, subject to PARAGRAPH 7 herein; (d) underwriter's commission, in the context of a Public Offering (as defined below) that WFI manages, that is equal to the maximum amount allowable under the rules of the National Association of Security Dealers, Inc. (the "NASD") and the American Stock Exchange ("AMEX"), or, in the event that the Company is no longer trading its stock over AMEX, then whichever exchange the Company's stock trades; provided, however, that the underwriter's commission payable hereunder shall not, in any event, exceed six percent (6%) of the gross proceeds raised on behalf of the Company for equity or debt in such Public Offering, subject to PARAGRAPH 7 herein. As used herein, "Public Offering" means a debt or equity offering requiring the filing of a registration statement by the Company under the Securities Act of 1933; (e) five percent (5%) fee on any merger (a "Merger") or acquisition (an "Acquisition" and together with a Merger, an "M&A Transaction") of the Transaction Value (as defined below) with respect to which WFI provides financial consulting services. To the extent that the Transaction Value is greater than Five Million dollars ($5,000,000), then the five percent (5%) fee shall not apply to such excess amount; rather, the applicable fee shall be determined with respect to such excess amount by multiplying such excess amount by the Excess Formula (as defined below); Page 3 (i) As used herein, "Transaction Value" means all consideration payable to the seller(s) in connection with an M&A Transaction, including but not limited to (i) deferred installments of the purchase price, provided that any fees paid in respect of such deferred amounts shall be payable (without interest) only when and if such deferred amounts are actually received by the seller(s), (ii) any portion of the purchase price held in escrow subsequent to closing which is actually released to the seller(s) pursuant to the terms of the escrow arrangement and (iii) payments made to the seller(s) after closing upon the occurrence of certain contingencies or conditions or the satisfaction of certain earnings, sales levels or other performance objectives which are agreed to on or before the date of closing. In an Acquisition involving the purchase of assets where the Company assumes or repays all or a portion of the target company's, or, if more than one target company, companies' debt, the Transaction Value shall also include the aggregate amount of debt assumed or repaid by the purchaser(s). The Transaction Value shall not include debt assumed or repaid in situations where the M&A Transaction is a Merger, consolidation or purchase or exchange of capital stock; (ii) In the event that all or any portion of the Transaction Value is paid in stock or other securities, deferred installments or consideration other than cash at closing, the amount of the success fee payable with respect thereto shall be determined on the basis of the cash equivalent of such non-cash consideration as of the closing date of the M&A Transaction. If WFI and the Company are unable to agree on the cash equivalent of such non-cash consideration within thirty (30) days after the closing date, the determination of the cash equivalent shall be made promptly by an investment banker or other person experienced in valuing securities mutually acceptable to both WFI and the Company, such determination shall be binding on both WFI and the Company, and WFI and the Company shall each be responsible for paying one-half (1/2) of the fees of such investment banker or other person; and (iii) If requested by the Company, WFI will determine whether the consideration to be paid in the M&A Transaction is fair to shareholders from a financial point of view. If WFI determines the consideration to be paid in the M&A Transaction is fair to the shareholders from a financial point of view, WFI will render a written opinion to that effect to the Board of Directors or to the Page 4 Special Committee of the Board of Directors of the Company. Such opinion shall be consistent with the generally accepted standards of practice in the investment banking industry for fairness opinions and WFI acknowledges that the Company may rely upon the opinion, in addition to such factors it deems appropriate, in determining whether to consummate the M&A Transaction. At the time the Company requests WFI to make a fairness determination, the Company will pay WFI a non-refundable fee of Twenty-Five Thousand dollars ($25,000); provided, however, that such fee shall be credited against any success fee payable as a result of the M&A Transaction; (iv) As used herein, "Excess Formula" means a four percent (4%) fee on excess amounts less than One Million dollars ($1,000,000), then a three percent (3%) fee on excess amounts equal to or greater than One Million dollars ($1,000,000) but less then Two Million dollars ($2,000,000), then a two percent (2%) fee on excess amounts equal to or greater than Two Million dollars ($2,000,000) but less than Three Million dollars ($3,000,000), then a one percent fee (1%) on any excess amounts greater than or equal to Three Million dollars ($3,000,000); (f) five percent (5%) fee on any non-convertible debt; and (g) in any transaction involving a Financing in which the common stock, par value $.01 per share, of the Company (the "Common Stock") is issued in connection therewith, a non-cancelable warrant to purchase an aggregate of ten (10) percent of shares sold in such Financing at an exercise price per share of 120% of the issuance price per share. Any such warrants shall expire within five (5) years of the date of grant and contain a cashless exercise provision with customary piggyback registration rights. The fees set forth in this PARAGRAPH 2 shall apply to any source (or source or contact of a source) introduced to the Company by WFI, or referred to WFI by the Company (a "Source"), during the Engagement Period and for twenty-four (24) months thereafter (the "Tail Period"); provided, however, that (i) under no circumstance shall any entity listed on SCHEDULE A attached hereto, or any such entities' employees, agents, officers, directors or representatives be considered a Source for purposes of this Agreement, (ii) if a Financing is consummated after the Engagement Period and is subject to the Tail Period, the three percent (3%) nonaccountable fee to be received by WFI hereunder shall be offset by amounts previously paid under PARAGRAPH 3 and (iii) the Tail Period shall not apply if the Page 5 Company terminates this Agreement for Cause or if WFI has received fees under subparagraphs (c), (d), (e), (f) or (g) of this PARAGRAPH 2. In the event that a corporate transaction involving more than one of the services for which WFI has been engaged is successfully concluded pursuant to this Agreement, WFI shall be paid the applicable fee designated in this Paragraph 2 for each of the services provided, but only in proportion to the extent such service or financing is proportionate to the entire corporate transaction. For instance, if in connection with an acquisition pursuant to subparagraph (e) the Company issues a non-convertible note that would also trigger a fee payable in accordance with subparagraph (f), then, with respect to such transaction, WFI would receive the designated fee for (i) Merger and Acquisition services calculated only upon the acquisition value included in the transaction and (ii) placement of the non-convertible note only for the value of the note. No fee designated in this PARAGRAPH 2 would apply to, or be paid for, any service or component of the corporate transaction subject to a fee designated under a separate provision of this PARAGRAPH 2. 3. EXPENSES. In the event a Financing does not occur during the Engagement Period, the Company will reimburse WFI for the following expenses incurred by WFI in relation to this Agreement: (a) The cost of printing and distributing the offering documents, private placement memorandum and blue sky memorandum and any additional agreements and/or disclosure documents required by WFI or its counsel; (b) The filing fees of the Securities and Exchange Commission (the "SEC"), the NASD, state blue sky filings and all regulatory filings, and any legal fees incurred by WFI in connection therewith; (c) The cost associated with publishing a "Tombstone" advertisement, not to exceed in size more than one-fourth of a standard size newspaper page, to be published in the Minneapolis and/or St. Paul papers, or a similar publication, to be chosen by WFI; and (d) All costs incurred for legal representation related to a Financing; provided, however, that such costs shall not exceed Twenty-Five Thousand dollars ($25,000). 4. OBLIGATION TO PAY FEES. If, and only if, WFI shall have produced a commitment (the "Commitment") from a lender or investor which the Company, in its sole discretion, accepts in writing, then WFI shall be deemed to have earned the Page 6 applicable fee as set forth above in PARAGRAPH 2. The Company shall pay such fee(s) to WFI on (i) the date it receives the proceeds of such loan or investment, and in the event such proceeds are to be paid to the Company in deferred installments, then the fee(s) payable to WFI shall be payable in amounts proportionate to each of the deferred installments, or (ii) if the Company fails to accept funding against an accepted commitment, on the expiration date of the accepted commitment; provided, however, if a funding against an accepted commitment does not occur as a result of (A) withdrawal by a lender or investor, (B) the Company is unable to agree with the lender or investor after negotiating in good faith on definitive documentation or (C) there are material changes either to the transaction or to the circumstances surrounding such transaction that (I) arise after the execution of the Company's acceptance of the Commitments or (II) are proposed by the lender or investor, then the Company shall have no obligation to pay the applicable fee set forth above in PARAGRAPH 2. 5. THIRD PARTY RIGHTS. This Agreement has been and is made solely for the benefit of WFI and the Company and for their respective agents, employees, officers and directors and any successors, assigns and heirs. No other person shall acquire or have any right under or by virtue of this Agreement. 6. TERM; TERMINATION. WFI's right under this Agreement shall extend from the date hereof for a period of twelve (12) months or after such period until either WFI, upon ninety (90) days written notification, or the Company, immediately upon such notification, communicates to the other party that it wishes to terminate this Agreement (the "Engagement Period"); provided, however, that the provisions of PARAGRAPHS 2, 8 and 9 will survive such expiration or termination except as otherwise set forth herein. For purposes herein, the effective date of Termination shall be deemed to have occurred upon the earlier of the actual or constructive date of delivery of the written notification. Notwithstanding anything in this Agreement to the contrary, the Company can terminate this Agreement at any time for Cause (as defined below). If the Company elects to terminate this Agreement for Cause, then (i) the Company shall owe none of the fees set forth in PARAGRAPH 2 to WFI under any circumstance whatsoever, including any fees that might arise during the Tail Period and (ii) the Company shall reimburse WFI only for those accountable expenses incurred in connection with this Agreement in accordance with PARAGRAPH 3, and (iii) the Company shall not be obligated to indemnify WFI as it otherwise would be required to do pursuant to PARAGRAPH 8. For purposes of this Agreement, "Cause" means (i) a breach of WFI's duties or obligations under this Agreement or (ii) WFI's gross negligence or misfeasance in performing its duties and obligations under this Agreement. Page 7 7. EXCLUSIVITY AND WFI'S FUTURE RIGHTS. During the term of this Agreement neither the Company, its officers, directors, shareholders or agents shall engage any other entity to secure Financings, nor shall the Company, its officers, directors, shareholders or agents initiate or pursue discussion with potential financing sources for the purpose of obtaining loans on equity funds for Financings, except in conjunction with and/or acknowledgment by WFI; provided, however, that this Agreement shall not prohibit the Company from engaging in discussions or entering into any kind of financial arrangement, with any entity identified on SCHEDULE A attached hereto or their respective successors-in-interest, and nothing in this Agreement shall be applicable or enforceable with respect to any such arrangement that the Company discusses or enters into with those entities identified on SCHEDULE A attached hereto or their respective successors-in-interest. If a Financing is consummated during the term of this Agreement, WFI or a party designated on SCHEDULE A shall be designated as the placement agent. The fee structure for any such consummated Financing, or any additional Financing consummated during the Engagement Period, shall be determined in accordance with the provisions of PARAGRAPH 2 herein. If a Financing is consummated during the Engagement Period for which WFI provided substantial services and the Company desires to undertake an additional Financing (a "Subsequent Financing") through either a Private Offering or a Public Offering during the succeeding twelve months, the Company shall provide WFI with written notice of the proposed Subsequent Financing. WFI will respond by written notification to the Company within fifteen (15) days of such notice if it desires to act as placement agent for such Subsequent Financing. If WFI responds within such time period, then the Company will appoint WFI as the placement agent for such Subsequent Financing upon terms and conditions mutually acceptable to both the Company and WFI. 8. INDEMNITY. (a) In addition to the amounts which the Company has herein agreed to pay to WFI, the Company shall indemnify and hold WFI and its officers, directors, agents and controlling persons harmless against any losses, claims, damages or liabilities to which WFI or any of them may become subject insofar as the same arises from an action which alleges or is based upon the alleged untrue statement of a material fact, or omission of a material fact, or any other violation of applicable securities or other laws, by the Company or its officers, directors, agents and controlling persons and to reimburse WFI for any legal or other expenses reasonably incurred by it in connection with investigating, settling or defending any action or claim in connection therewith; provided, however, that the Company shall not be Page 8 liable in any such case to the extent that any such loss, claim, damage or liability: (i) is found in a final judgment of a court of competent jurisdiction to have resulted from a breach of WFI's obligations to the Company in connection with the performance by WFI of the services pursuant hereto or from WFI's gross negligence or misfeasance in performing such services or (ii) arises out of, or is based upon, any untrue statement of a material fact or omission of a material fact made in any written communication or any amendment or supplement thereto in reliance upon, and in conformity with, information furnished to the Company by WFI expressly for use therein. (b) WFI shall indemnify and hold the Company and its officers, directors, agents and controlling persons harmless against any losses, claims, damages or liabilities to which the Company may become subject in connection with the transactions contemplated herein, insofar as such losses, claims, damages or liabilities arise out of, or are based upon (i) any untrue statement or misleading omissions made by WFI in writing expressly for use in connection with a Financing (other than untrue statements of a material fact or omission of a material fact made by WFI in reliance on information supplied to WFI by the Company) or (ii) WFI's gross negligence, misfeasance or breach of WFI's obligation hereunder to the Company. WFI shall reimburse the Company for any legal or other reasonable expenses incurred by it in connection with investigating, settling or defending any such action or claim. (c) Upon receipt by WFI or its officers, directors, agents or controlling persons (for purposes of PARAGRAPH 8(a)), or the Company or its officers, directors, agents or controlling persons (for purposes of PARAGRAPH 8(b)) (in each case the "Indemnified Party"), of notice of any action, suit, proceeding, claim, demand or assessment against the Indemnified Party that might give rise to a claim pursuant to this section, the Indemnified Party shall give written notice thereof within ten days (the "Notice of Claim") to the Company, for purposes of PARAGRAPH 8(a), or WFI, for purposes of PARAGRAPH 8(b) (in each case the "Indemnifying Party"), indicating the nature of such claim and the basis therefor. The Notice of Claim shall specify all facts known to the Indemnified Party giving rise to such claim and the amount of estimate of the amount of liability arising therefrom. Any delay or failure to notify the Indemnifying Party shall relive the Indemnifying Party of its obligations hereunder only to the extent, if at all, that it is prejudiced by reason of such delay or failure. (d) Promptly after a claim is made for which the Indemnified Party seeks indemnity, the Indemnified Party, at its option and expense, to assume the Page 9 defense of such action, suit, proceeding, claim, demand or assessment with full authority to conduct such defense and the Indemnified Party will cooperate fully with such defense. The Indemnified Party shall have the right to employ separate counsel in any of the foregoing actions, claims or proceedings and to participate in the defense thereof, and the Indemnifying Party shall pay the reasonable fees and expenses of such counsel in advance at the request of the Indemnified Party. Anything in this section to the contrary notwithstanding, the Indemnified Party shall not, without the Indemnifying Party's prior written consent, settle or compromise any action or claim or proceeding or consent to entry of any judgment with respect to any such action or claim that requires the payment of money damages by the Indemnified Party or in any way is binding upon or affects the Indemnifying Party. (e) The respective reimbursement and indemnity obligation of WFI and the Company pursuant to subparagraphs (a) and (b) of this PARAGRAPH 8 shall be in addition to any liability which WFIP or the Company may otherwise have and shall be binding upon, and inure to the benefit of, their respective successors, assigns, heirs, and personal representatives. (f) Except as stated otherwise herein, the respective indemnify agreements of WFI and the Company contained in subparagraphs (a) and (b) of this PARAGRAPH 8 shall remain operative and in full force and effect regardless of any termination of this Agreement or of any investigation made by or on behalf of this Company or WFI. 9. CONFIDENTIAL INFORMATION. WFI acknowledges that as a consequence of or through its engagement by the Company, it will acquire information concerning the Company's business, products and services. All such information shall be "Confidential Information" regardless of whether it is reduced to writing, used or practiced during the Engagement Period. As a condition to the Company's entering into this Agreement, WFI agrees that it shall not at any time for a term beginning on the date hereof and ending two years after the termination of WFI's engagement hereunder, either directly or indirectly, use for the benefit of itself or communicate or divulge to any other person, partnership, association, corporation or other entity for their use or benefit, any Confidential Information known by, or then in the possession of, WFI without the prior written consent of the Company. The foregoing restriction shall not apply to Confidential Information that, at the time of disclosure to WFI, has become a part of the public domain through publication or communication by the Company or others, unless such matters become part of the public domain in connection with or as a result of a violation of this restriction by WFI. Page 10 10. BOARD OBSERVER. WFI shall have the right to appoint an individual to act as a non-voting observer of all meetings of the Board of Directors of the Company, subject to the terms and conditions of a Board Observer Agreement substantially in the form as the Board Observer Agreement attached hereto as EXHIBIT A. 11. NOTICES. All notices, requests consents and other communications hereunder shall be in writing and shall be delivered in person, mailed by certified or registered mail, return receipt requested, sent by telecopier, telex or delivered by Federal Express, United Parcel Service or another similar company, addressed as follows: (a) if to the Company, at 531 W. Main Street, Suite 100, Denison, Texas 75020, Attention: Ricky D. McCord, with a copy to Vinson & Elkins L.L.P., 3700 Trammell Crow Center, 2001 Ross Avenue, Dallas, Texas 75201, Attention: Jay H. Hebert and (b) if to WFI, at 400 South 4th Street, Suite 955, Minneapolis, Minnesota 55415, Attention: John M. Whitesides, with a copy to Paul des Hotels. (c) Any notice or communication hereunder shall be deemed to have been given or made as of the date so delivered if personally delivered; when answered back, if telexed; when receipt is acknowledged, if telecopied; and five calendar days after mailing if sent by registered or certified mail (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. 12. GENERAL. This Agreement may not be modified except in writing. This Agreement represents the entire understanding between the Company and WFI and all prior discussions and negotiations and all prior engagement letters are merged into it. 13. ARBITRATION. Any dispute or controversy arising out of this Agreement shall be determined by arbitration in accordance with the rules of the National Association of Securities Dealers, Inc. as then in effect and at a location mutually acceptable to both parties. Any arbitration award shall be final and binding upon the Company and WFI, and judgment upon the award may be entered in any court having jurisdiction. 14. ASSIGNABILITY. WFI cannot assign its rights under this Agreement without the written consent of the Company. Page 11 15. SURVIVAL. Compensation, reimbursement, confidentiality and indemnity obligations of the Company and WFI, as applicable, under this Agreement shall survive any assignment of this Agreement and shall be binding upon and entered into the benefit of any successors, assigns, heirs and personal representatives of the Company and WFI. 16. COUNTERPARTS. This Agreement may be executed in counterparts, and all counterparts will be considered as part of one agreement binding on all parties to this Agreement. 17. FACSIMILE SIGNATURES. The parties may execute this Agreement by facsimile, which signature[s] shall be deemed an original and binding upon such party. 18. GOVERNING LAW. This Agreement shall be governed and construed in accordance with the laws of the State of Minnesota. If this letter correctly states our agreement, please so indicate by signing below and returning a signed copy to us. Upon receipt of a signed copy of this letter, the terms of such letter shall constitute a binding agreement between WFI and the Company. [Signature page follows] Page 12 WATERFORD FINANCIAL, INC. By /s/ John M. Whitesides ------------------------------ John M. Whitesides President Accepted this 28 day of January, 2000 HORIZON PHARMACIES, INC. By: /s/ Rick McCord ------------------------ Rick McCord President & CEO SCHEDULE A ENTITIES - -------- Allegiance Capital AmeriSource Amersco Bank Boston Bank of America Bank One Bergen Brunswig Bindley Western Cardinal Distribution C.A.S.E. Chase Bank Citicorp Deep Haven Capital Drug Emporium Finova First Union & Congress Financial Fleet Capital Fred's GE Capital GTCR (Golder Toma) Heller Financial J. E. Mathews, LLC LaSalle Bank McKesson HBOC Reichmann International USA Drug EXHIBIT A --------- FORM OF BOARD OBSERVER AGREEMENT EX-10.3 4 EX-10.3 EXHIBIT 10.3 5Net5 Corp. 133 Mercer St., Suite 6 New York, New York 10012 Horizon Pharmacies, Inc. 531 W. Main St. Suite 100 Denison, TX 75020 Attention: Rick McCord President and CEO Re: Software Development Agreement Dear Mr. McCord: This will confirm the arrangements, terms and conditions pursuant to which 5Net5 Corp. ("Consultant") has been retained as a Consultant to provide services (as described below) to Horizon Pharmacies, Inc. (the "Company"). The undersigned hereby agrees to the following terms and conditions: 1. DUTIES OF CONSULTANT. During the term of this Agreement, Consultant will provide consulting services to the Company as requested. These services will be performed on a best efforts basis and will include, without limitation, designing of plans for, and implementation oversight of, technology and Internet strategies, all with the objective of accomplishing the business and financial goals of the Company. The Company understands that it is engaging Consultant principally to design plans for technology, e-commerce, marketing, and information gathering systems. As such, Consultant shall be responsible for the creation of detailed plans and e-commerce platform with written specifications (within 100 days) for the construction and creation of detailed plans in writing, the systems and processes described below in subpoints A through C. Consultant will not be responsible for the purchase of, or payment for, any equipment, hardware or software, additional consulting or installation services, or any other expenditure necessary for the completion and implementation of the systems, strategies, and overall platform designed by Consultant. In each case, Consultant will exercises its best efforts to accomplish the goals established by the Company and shall comply with all applicable laws in connection with the performance of this Agreement. All deliverables and other work product created by Consultant under this Agreement will be considered "work made for hire" under applicable law, Consultant hereby irrevocably assigns to the Company without further consideration, all of Consultant's right, title and interest in and to that those deliverables and work product, including all intellectual property rights therein. Consultant agrees to execute any documents and take any other actions reasonably requested by the Company to document and evidence the Company's ownership thereof. Consultant will indemnify, defend and hold harmless the Company from and against any and all claims that any such deliverable or work product infringes the intellectual property rights of any third party. A. WEBSITE DESIGN: Consultant shall design viable plans in writing that are acceptable to the company for the infrastructure of a website for the Company with four main functionalities: (1) e-commerce, (2) health information and content provision, (3) customer/visitor information gathering systems, and (4) advertising and Internet traffic direction. i. E-COMMERCE FUNCTIONALITY: Consultant will design plans for systems which enhance current e-commerce capabilities on the Company's website and incorporate affinity marketing programs described below. ii. HEALTH INFORMATION AND CONTENT: Plans for the website will be designed to maximize customer interest through the provision of targeted health information and content offerings tailored to the Company's customer base. iii. CUSTOMER/VISITOR INFORMATION GATHERING SYSTEMS: Plans will be designed for systems to monitor all aspects of traffic and viewing patterns. Comprehensive information on what visitors see, how long they visit each page, how they interact with the site, and what they purchase will become the basis for targeted, and individual, marketing programs. iv. ADVERTISING AND INTERNET TRAFFIC DIRECTION STRATEGIES: Plans will operate on two levels: (1) on the Company's website and (2) on other websites. On the Company's website, Consultant will design an advertising program to allow other companies to purchase media. In addition, programs will be designed to increase traffic to the Company's website. On other websites, Consultant will design plans for an advertising program to increase brand recognition and exposure for the Company's e-commerce initiatives. B. BRANCH-TO-HOME OFFICE INFORMATION DISTRIBUTION SYSTEM: Consultant will design plans for a system, to work in conjunction with the Affinity Marketing Programs described in subpoint C below, to distribute customer purchase information for the branch locations to a home office central database. This system will have three parts: (1) hardware and system architecture, (2) software, (3) procedures. i. HARDWARE AND SYSTEM ARCHITECTURE: The basic architecture will encompass smartcards, card readers, servers in branches to collect data, frame relay communications from branch offices to the home office, and a central home office server to house information databases. Consultant must evaluate current technology systems and give report on current compatibility with the architecture being designed ii. SOFTWARE: Systems will be designed to transmit and database customers purchase information at the branch locations and in the home office central database. iii. PROCEDURES: Consultant will design plans for operating procedures to accompany the hardware and software portions of the communications system. C. AFFINITY MARKETING PROGRAMS: Consultant's affinity marketing program will have four main objectives: (1) communicating with customers, (2) tracking customer demands and buying patterns, (3) driving customers to demand and purchase higher-margin products and to visit, and purchase items at, the Company's e-commerce website, (4) increasing customer/Company bonds and loyalty. Consultant shall design technology and marketing systems, to include smart card programs, customer purchase information distribution systems between the branches and the home office, and online marketing program. i. COMMUNICATING WITH CUSTOMERS: Programs will focus on obtaining demographic and contact information from customers. Systems will be designed to reach customers via email, via direct mail, and via the Company's e-commerce website. 2 ii. TRACKING CUSTOMERS: Plans will be designed to identify individual customers at the point-of-sale through smartcards and on the Company's website to allow more effective marketing of products (i.e., by learning what type of customer buys what products, which customers visit which locations, how often customers purchase, etc.) By identifying purchases on an individual basis, the Company will have the ability to clearly see the correlation between customer purchases and can more accurately design marketing and inventory programs to maximize purchases of higher-margin items and items available for purchase on the Company's website. iii. DRIVING CUSTOMERS: Plans will be developed to encourage purchases of higher-margin merchandise and items available for purchase on the Company's e-commerce website. iv. INCREASING CUSTOMER LOYALTY: Thorough knowledge of the customer base will allow the Company to more specifically design its product offerings to the demands of its customers, and more specifically tailor customer service, resulting in more satisfied and loyal customers. 2. COMPENSATION: A. As compensation for the services to be performed by Consultant described in paragraph 1 above, Consultant shall be compensated with a grant of 300,000 warrants by the Company at market price of the business day previous to closing with performance vesting as follows: i. 150,000 warrants, each to purchase one share of the common stock of the Company at market price of the business day previous to closing, vested upon signing of the 5x5net corporation agreement. ii. Within two (2) business days after the 45th day the publicly traded common stock of the Company closes at a market price greater than, or equal to, a 45 calendar day trailing average of $4.00 per share the Company shall vest to the Consultant 50,000 warrants, each to purchase one share of the common stock of the Company as granted above. iii. Within two (2) business days after the 45th day the publicly traded common stock of the Company closes at a market price greater than, or equal to, a 45 calendar day trailing average of $5.00 per share the Company shall vest to the Consultant 50,000 warrants, each to purchase one share of the common stock of the Company as granted above. iv. Within two (2) business days after the 45th day the publicly traded common stock of the Company closes at a market price greater than, or equal to, a 45 calendar day trailing average of $6.00 per share the Company shall vest to the Consultant 50,000 warrants, each to purchase one share of the common stock of the Company as granted above. v. The following are the terms and conditions of all warrants on the Company's common stock to be delivered to the Consultant by the Company: i. These warrants shall contain a cashless exercise provision satisfactory to Consultant. ii. The shares underlying all warrants shall be voting common stock of the Company after vesting iii. Upon written notice to the Company by the Consultant (or its permitted designee), the Company shall deliver within twenty (20) business days certificates representing all of the shares underlying the warrants then being exercised. Such certificates shall be duly endorsed for transfer to the Consultant (or its permitted designee(s)) or accompanied by properly 3 executed stock powers. The Company shall at that time deliver good and valid title to said shares, free and clear of any and all liens, claims, charges, and encumbrances of any nature whatsoever. iv. The company shall grant piggyback registration rights in accordance to the SEC rules and regulations. Once effective, the Company covenants and agrees to use its best efforts to maintain the effectiveness of the Registration Statement until the earlier of (i) the date that all of the Registrable Securities have been sold pursuant to a Registration Statement or Rule 144 of the General Rules and Regulations promulgated under the Act ("Rule 144"), or (ii) the date that the Holders of the Registrable Securities receive an opinion of counsel to the Company that all of the Registrable Securities may be freely traded (without limitation or restriction as to quantity or timing and without registration under the Act) pursuant to Rule 144 or otherwise. v. the Warrants shall be immediately forfeited upon any transfer or assignment by the Consultant, or any transferee or assignee of the Consultant, to any person or entity not qualifying as an "accredited investor" (non-employees) under Rule 501. vi. A consulting fee of $10,000 per month for one (1) year, payable no later than the 10th calendar day of each month; provided, however, that the first month's fee shall be payable to Consultant on February 1st, 2000. If the publicly traded common stock of the Company closes at a market price greater than, or equal to, $5.00 for ten (10) trading days, this consulting fee shall become $20,000 per month for the remainder of the period of this agreement. In addition, the Company shall pay the Consultant retroactively an additional $10,000 for each month of this agreement prior to the month when payment of the $20,000 consulting fee is begun under the above provision. vii. The Consultant shall be responsible for placing or brokering all advertising on the Company's website with approval in writing by the company, for a period of three (3) years from the date of this agreement and shall receive 15% of gross revenue from such advertising fees that and will be paid within 30 days upon receipt of said revenues by the Company. Consultant shall receive an additional 15% on e-commerce advertising fees that the consultant directly contracts. B. The Company shall reimburse non-ordinary expenses, with advanced company approval in writing, consultant immediately upon request for all reasonable and necessary out-of-pocket expenses incurred by Consultant in connection with the rendering by Consultant of the services provided in this Agreement upon presentation of vouchers and proof of expenses incurred. 3. TERM. Unless otherwise extended by the Board of Directors of the Company, this Agreement shall terminate upon one year from the date the Company executes this Agreement; provided no substantial breach of contract. 4. CAPITAL EXPENDITURES. The consultant is not responsible for any capital or other expenditures necessary for the completion of the plans for technology, e-commerce, marketing, and information gathering systems to be designed by the Consultant as described in paragraph 1 above. The Company recognizes that such expenditures are likely to include, without limitation, website programming, website hosting, information/data feeds, communications lines and equipment, and 4 installation service. Company is responsible for implementation, installation, ongoing maintenance and support of all hardware, software, and systems. Company is responsible for programming, construction, support, hosting, connectivity, content fees, data fees, and all other expenses relating to the construction and ongoing maintenance of its website solely at the companies discretion. 5. AVAILABLE TIME. Consultant shall make available such time as reasonable to both parties to perform its obligations under this Agreement. 6. RELATIONSHIP. Nothing herein shall constitute Consultant as an employee or agent of the Company, except to such extent as might hereinafter be agreed in writing upon for a particular purpose. Except as might hereinafter be expressly agreed, Consultant shall not have the authority to obligate or commit the Company in any manner whatsoever. 7. CONFIDENTIALITY. Without the prior written consent of the Company, Consultant will not at any time, directly or indirectly, use, reproduce or disclose any trade secrets, know-how or other information provided to Consultant by or on behalf of the Company in connection with this Agreement unless and until such information becomes publicly known through no fault of Consultant. All information regarding the Company's customers, suppliers, strategies, technology and plans will remain the sole property of the Company and Consultant will maintain the confidentiality thereof in accordance with this Section. 8. ASSIGNMENT. This Agreement shall not be assignable by any party for any reason whatsoever without the prior written consent of the other party, which consent may be arbitrarily withheld by the party whose consent is required; provided, however, Consultant may assign its rights under this Agreement to any funds payable to it, to common stock of the Company issuable to it or to warrants of the Company issuable to it. 9. GOVERNING LAW. This Agreement shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the laws of said State without reference to principles of conflicts of law. 10. SEVERABILITY. In the event any provision of this Agreement shall be deemed invalid by a court of competent jurisdiction, such invalidity shall be limited solely to the specific term or provision invalidated by such court and, nevertheless, the balance of this Agreement shall remain in full force and effect according to its terms. 11. WAIVER. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate as a waiver of any such breach of any provision of this Agreement by any party. 12. ENTIRE AGREEMENT, AMENDMENT. The terms and provisions of this Agreement shall constitute the entire Agreement between the Company and Consultant with respect to the subject matter hereof and shall supersede any and all prior agreements or understandings between the parties whether written or oral. This Agreement may be amended or modified only by a written instrument executed by the parties. 13. DISPUTE PROCEDURE. Any dispute, claim or controversy arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in New York, New York 5 administered by the American Arbitration Association under its Commercial Arbitration Rules. The parties further agree that they will abide by and perform any award rendered by the Arbitrator(s). Judgment upon any such award rendered may be entered in any court having jurisdiction thereof. 14. TERMINATION. A one-year (12 month) contract from the software agreement date. Either party can terminate after one year by providing 30 day written notice. After six months (180 days) contract will become null and void if funding for capital requirements of this project are not received from a reputable broker/dealer with terms and conditions acceptable to the company. The company may also terminate this agreement upon ten days prior written notice to Consultant if Consultant materially breaches this Agreement and fails to cure such breach within thirty days after the Company gives Consultant written notice of such breach. Upon such termination for cause, the Company will pay the cash consulting fee at the applicable rate set forth above for services rendered through the termination date. The company may also terminate this agreement if the following criteria are not met: 1) consultant collects $25,000 gross revenue for the company 2) consultant provides company research reports and distribution to institutional investors and the e-commerce market and 3) the capital required for the plan accepted by the company from 5net5 presented and accepted by Horizon must be raised within 6 months. 15. ADDITIONAL ELEMENTS. The Consultant shall cause an equity research report on the Company to be written during the term of this agreement, and will cause that equity research report to be distributed to institutional and Internet clients. The Consultant shall post this equity research report to its own website during the term of this agreement. The Company will provide the Consultant free advertising space on the Company's website during the term of this agreement. If the foregoing is acceptable, please date, execute and return the enclosed copy of this letter. Very truly yours, 5NET5 CORP. AGREED AND ACCEPTED: HORIZON PHARMACIES, INC By: /s/ Kethe Cicconi -------------------- Name: Kethe Cicconi Title: President By: /s/ Ricky D. McCord ------------------------ Name: Ricky D. McCord Title: President & CEO Date of Execution: 2/1/2000 6 EX-10.4 5 EXHIBIT 10.4 Exhibit 10.4 5Net5 Corp. 133 Mercer St., Suite 6 New York, New York 10012 Amendment to Paragraph 2, Section A, subsection vi. COMPUTER SOFTWARE DEVELOPMENT AGREEMENT dated Feb. 1, 2000 Horizon Pharmacies, Inc. 531 W. Main St. Suite 100 Denison, TX 75020 Attention: Rick McCord President and CEO Re: COMPUTER SOFTWARE DEVELOPMENT AGREEMENT Dear Mr. McCord: This will amend Paragraph 2, Section A, subsection vi. of our agreement dated Feb. 1, 2000. This will now replace the language of the existing clause of that agreement: A consulting fee of $10,000 per month for one (1) year, payable no later than the 10th calendar day of each month; provided, however, that the first month's fee shall be payable to Consultant on Feb. 1st, 2000. If the publicly traded common stock of the Company closes at a market price greater than, or equal to, $5.00 per share for 10 trading days on a trailing average basis, this consulting fee shall become $20,000 per month for the remainder of the period of this agreement. In addition, the Company shall pay the Consultant retroactively an additional $10,000 for each month of this agreement prior to the month when payment of the $20,000 consulting fee is begun under the above provision. Very truly yours, 5NET5 CORP. By: /s/ Kethe Cicconi ---------------------------- Name: Kethe Cicconi Title: President AGREED AND ACCEPTED HORIZON PHARMACIES, INC. By: /s/ Ricky D. McCord --------------------- Name: Ricky D. McCord Title: President Date of Execution: 2/2/00 -----END PRIVACY-ENHANCED MESSAGE-----