-----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, B3/5/F7z25er1oA8nZ/JE3ZQd2DfjT50fm4IHkigOpT5FdQAzfL3X9hzVxMpq8rB GyAvThXcgo1tzxwZpSP5Kg== 0000912057-00-018271.txt : 20000417 0000912057-00-018271.hdr.sgml : 20000417 ACCESSION NUMBER: 0000912057-00-018271 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000414 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: 10-K SEC ACT: SEC FILE NUMBER: 000-22403 FILM NUMBER: 602525 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-K 1 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________ COMMISSION FILE NUMBER: 0-22403 ------------------------ HORIZON PHARMACIES, INC. (Name of registrant in its charter) DELAWARE 75-2441557 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 531 W. MAIN 75020 DENISON, TEXAS (Zip Code) (Address of principal executive offices)
(903) 465-2397 (Registrant's telephone number) Securities Registered Pursuant to Section 12(b) Name of Each Exchange on Which Registered of the Act Common Stock, $.01 par value American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained in this form, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / There were 5,892,463 shares of HORIZON Pharmacies, Inc. common stock, par value $.01 per share, outstanding as of March 27, 2000. The aggregate market value of such common stock held by non-affiliates (based on the closing transaction price on the American Stock Exchange on March 27, 2000) was approximately $24,597,000. DOCUMENTS INCORPORATED BY REFERENCE The HORIZON Pharmacies, Inc. definitive proxy statement to be filed with the Commission on or before April 30, 2000 is incorporated by reference into Part III of this Report. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS. (a) GENERAL DEVELOPMENT OF BUSINESS. HORIZON Pharmacies, Inc. ("HORIZON") owns and operates a chain of retail pharmacies and related businesses located principally in the south central United States. In fiscal 1999 we acquired 7 retail pharmacies and two related businesses at a total cost of $12,636,000, and at December 31, 1999 we owned 52 pharmacies and related businesses. In addition to our retail pharmacy business, we sell and lease home medical equipment and offer home healthcare services through our wholly-owned subsidiary, HORIZON Home Care, Inc. ("HORIZON Home Care"). Additionally, in 1999 we formed a new wholly-owned subsidiary, HorizonScripts.com, Inc., through which we operate our mail order and Internet pharmacy operations and our internal technology applications. We expended $4,717,000 in fiscal 1999 on the acquisition of a combination retail, mail order and Internet pharmacy and the development of HorizonScripts.com and other technology efforts. In March 2000, we entered into a strategic alliance with Informed.com, Inc. to develop a virtual internet pharmacy and to establish ourselves as the exclusive fulfillment center for prescription medicines for Informed.com. In April 2000, we entered into a Cooperative Marketing Agreement with eGrocery.com Inc. whereby eGrocery.com Inc. will, among other things, link our web site to, and display promotional advertisements on, certain web sites operated and maintained by eGrocery.com. We will continue to evaluate other e-commerce strategic relationships and joint ventures during fiscal 2000 to increase our Internet business and presence. The primary source of our revenue is the sale of prescription drugs. Prescription drugs sales were 75.7% of net revenues for fiscal 1999, compared to 73.9% in 1998 and 75.6% in 1997. We expect prescription drugs sales to continue to increase as we expand into new markets such as e-commerce, increase our penetration in existing markets and benefit from both the demographic trend toward an aging population and the continued development of new pharmaceutical products. We expect prescription drugs sales to decrease as a percentage of our total net revenues and gross margins, however, as we expand our home medical equipment and other non-pharmaceutical sales and services which have historically provided higher margins. As of December 31, 1999, we had four freestanding home medical equipment stores and three pharmacies offering intravenous infusion services and home oxygen therapy. We also operate two "institutional" pharmacies which are located inside other facilities. We began operations in 1994 as a S-corporation. In 1997, we changed our corporate structure to a C-corporation as a result of our initial public offering. (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS. Our primary business is the operation of retail pharmacies. (c) NARRATIVE DESCRIPTION OF BUSINESS. (i) PRINCIPAL PRODUCTS PRODUCED AND SERVICES RENDERED. PRESCRIPTIONS. Our primary focus is the sale of prescription and over-the-counter drugs through our retail outlets and through our mail order and Internet pharmacy operations which we formed in June 1999. During 1999, we filled 2,671,169 prescriptions, and sales of prescription drugs generated 75.7% of our total net revenues. We believe the trend toward an older population and the development of new prescription drugs and drug therapies will increase the demand for prescription drugs. In addition, the FDA is approving an increasing number of prescription products for sale over-the-counter which have historically shown significantly increased sales. 1 NONPHARMACEUTICAL MERCHANDISE. In addition to prescription drugs we sell a wide variety of gifts, over-the-counter drugs, home medical equipment, health and beauty care products, greeting cards, gifts and numerous other products. Our stores also offer an assortment of convenience products including candy, food, liquor, tobacco products, books and magazines, household products, seasonal merchandise, school supplies and toys. Certain stores also offer floral arrangements, veterinary supplies, camera and photo accessories, photo processing, sporting goods, small electronics, batteries and audio and video tapes. HOME HEALTHCARE SERVICES. Our Farmington, New Mexico store offers certain home healthcare services under the name HORIZON Home Care. Such services include respiratory therapy and patient services, including nursing, para-professional services and infusion therapy. We are evaluating the possibility of converting additional stores into home healthcare centers at such time as proposed changes to the regulations governing this industry are finalized, which is not expected to occur in the immediate future. WHOLESALE INJECTIBLES. Our Highland Ranch, Colorado operation purchases injectable pharmaceuticals directly from manufacturers and resells them to physicians located in Colorado. The contributions of various product classes to total revenues for each of the last three fiscal years are as follows:
PERCENTAGE ------------------------------ PRODUCT CLASS 1997 1998 1999 - ------------- -------- -------- -------- Prescription Drugs.................................. 75.60 73.92 75.66 Health and Beauty Aids.............................. 10.21 10.23 8.71 Cards, Gifts & Jewelry.............................. 3.00 3.92 4.07 Home Medical Equipment.............................. 2.98 3.84 4.13 Home Health Care Services........................... 4.61 2.42 0.98 Liquor & Tobacco.................................... 0.37 0.85 1.43 Restaurant, Candy & Beverages....................... 1.43 1.56 1.31 Photo............................................... 0.56 0.61 0.46 School Supplies & Toys.............................. 0.44 1.00 0.38 Seasonal & Promotional.............................. 0.80 1.56 2.87 ------ ------ ------ Total Revenues...................................... 100.00 100.00 100.00
EXPANSION. We intend to continue to expand by acquiring small retail pharmacy chains, independent retail pharmacies and other related businesses primarily located in communities having populations of fewer than 50,000 persons, and in high-income metropolitan markets where competition is focused on service. Additionally, we intend to expand our mail order and Internet pharmacy operations through strategic relationships, co-marketing arrangements and joint ventures. Our goal for the next two years is to acquire between 5 and 10 new retail pharmacy operations and between 3 and 5 home medical equipment operations in each of 2000 and 2001. With respect to our mail order and Internet pharmacy operations, our goal is to continue to search for strategic alliances that will enable us to increase both our customer and prescription base. (ii) STATUS OF PRODUCT OR SEGMENT. Not applicable. (iii) SOURCES AND AVAILABILITY OF RAW MATERIALS. We centralized the procurement of most of our inventory by purchasing from McKesson HBOC, Inc. ("McKesson") and a limited number of other vendors, enabling us to benefit from promotional programs and volume discounts offered by such companies. During 1999, McKesson supplied 82.8% of our inventory purchases. 2 (iv) PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESS HELD. We market products under various trademarks and trade names and hold assorted business licenses (pharmacy, occupational, liquor, etc.) having various lives, which are necessary for the normal operation of business. We also own franchises for the sale of hardware and electronics in two of our stores. We do not consider any patent, trademark, license, franchise or concession to be of material importance to our business other than the trade names HORIZON Pharmacies, HorizonRx.com, HorizonScripts.com and HORIZON Home Care and any other trade names under which we operate. In 1999, we filed applications for Federal trademark protection of HorizonScripts and Horizon Scripts.com, which applications are currently pending. Additionally, we filed and received trademark protection for the name HORIZON and such trade names in the State of Texas, and we plan to file for protection in all states in which we operate. (v) SEASONAL VARIATIONS IN BUSINESS. Our revenues and profits should be higher during peak holiday periods and from Christmas through Easter. Sales of health-related products peak during seasonal outbreaks of cough and cold/flu viruses, which typically occur during the winter and spring. Accordingly, revenues and profits should be higher in the first and fourth quarter of each year. (vi) WORKING CAPITAL PRACTICES. During 1999, we financed acquisitions totaling $12,636,000 primarily by using the credit facility provided by McKesson, seller financing and the issuance of common stock. Some retail pharmacy product sales are made for cash. However, a growing percentage of our prescription drug volume consists of sales to customers covered by third-party payment programs. Third-party reimbursements accounted for approximately 79.7% of our prescription drug sales in 1999, 76.9% in 1998, and 73.0% in 1997, and we expect this trend to continue. Although contracts with third-party payors may increase the volume of prescription drug sales and gross profits, third-party payors typically negotiate lower prescription prices than those of non-third-party payors. Accordingly, gross profit margins on sales of prescription drugs have been decreasing, a trend which we expect to continue. (vii) DEPENDENCE UPON LIMITED NUMBER OF CUSTOMERS. We sell to numerous customers including various managed care organizations. Accordingly, we believe that the loss of any one customer or group of customers under common control would not have a material effect on our business. No customer accounts for 10% or more of our consolidated revenue. (viii) BACKLOG ORDERS. Not applicable. (ix) GOVERNMENT CONTRACTS. We are not a party to any material government contracts. (x) COMPETITIVE CONDITIONS. The retail pharmacy business is highly competitive. We compete with other pharmacies primarily on the basis of customer service, convenience of location and store design, price, product mix and selection. We also compete with mass merchants (including discounters and deep discounters), supermarkets, combination food and retail pharmacies, mail order and Internet distributors, hospitals and HMOs. These other formats have experienced significant growth in their market share of the prescription and over-the-counter drug business. Our home healthcare services compete with certain chain operations and independent single unit stores. Many of our competitors have greater financial resources than us. 3 (xi) RESEARCH AND DEVELOPMENT ACTIVITIES. We do not engage in any material research activities. (xii) ENVIRONMENTAL DISCLOSURES. Federal, state and local environmental protection requirements have no material effect upon our capital expenditures, earnings or competitive position. (xiii) NUMBER OF EMPLOYEES. At December 31, 1999, we employed 956 persons, about 362 of whom are part-time employees working less than 30 hours a week. (xiv) STORE LOCATIONS. The following table summarizes the number, location and year of acquisition for each of our pharmacies, home medical equipment operations and our wholesale company through March 30, 2000.
STORE NO. LOCATION ACQUIRED - --------- ------------------------------------------------------------ -------- 1 Winnsboro, TX(1)............................................ 1994 2 Princeton, TX(1)............................................ 1994 3 Cuero, TX(1)................................................ 1994 4 Bonham, TX(1)............................................... 1995 5 Uvalde, TX(1)............................................... 1995 6 Cleburne, TX(3)(8).......................................... 1995 7 McLoud, OK(1)............................................... 1995 8 Farmington, NM(1)(2)(3)..................................... 1996 9 Tomah, WI(1)................................................ 1996 10 Marion, VA(1)............................................... 1996 11 Covington, VA(1)............................................ 1996 12 Mineola, TX(1).............................................. 1997 13 Mt. Vernon, TX(1)........................................... 1997 14 McKinney, TX(1)(2).......................................... 1997 15 Moriarity, NM(1)............................................ 1997 16 Butte, MT(1)................................................ 1997 17 Mesquite, TX(1)............................................. 1997 18 Gering, NE(1)............................................... 1997 19 Trinidad, CO(1)............................................. 1997 20 Canon City, CO(1)........................................... 1997 21 Raton, NM(1)................................................ 1997 22 Lockhart, TX(1)............................................. 1997 Cleburne, TX(2)............................................. 1997 23 Dallas, TX(1)............................................... 1997 24 Brookfield, MO(1)........................................... 1997 25 Floresville, TX(1).......................................... 1998 26 Highland Ranch, CO(1)(3)(4)................................. 1998 20b Canon City, CO(1)(2)(5)..................................... 1998 27 Steelville, MO(1)........................................... 1998 28 Ennis, TX(1)................................................ 1998 29 Belen, NM(1)................................................ 1998 30 St. John, AZ(1)............................................. 1998 31 Peralta, NM (1)(2).......................................... 1998 32 Las Vegas, NM(1)(2)......................................... 1998 32-b Espanola, NM(2)............................................. 1998
4
STORE NO. LOCATION ACQUIRED - --------- ------------------------------------------------------------ -------- 33 Rosemount, MN(1)............................................ 1998 34 Kansas City, MO(1).......................................... 1998 35 Houston, TX(1).............................................. 1998 36 Houston, TX(1).............................................. 1998 37 Houston, TX (1)............................................. 1998 38 Blair, NE (1)(2)............................................ 1998 39 Douglas, WY(1).............................................. 1998 40 Borger, TX(1)(2)............................................ 1998 41 Naperville, IL(1)........................................... 1998 42 Santa Fe, NM(1)(2).......................................... 1998 43 Denison, TX(1).............................................. 1998 44 Yorkville, IL(1)............................................ 1998 45 Sandwich, IL(1)............................................. 1998 46 Pinetop, AZ(1).............................................. 1999 47 Warsaw, IN(1)(2)............................................ 1999 48 Dodge City, KS(1)........................................... 1999 49 Columbia Heights, MN(1)..................................... 1999 50 Canton, OH(1)(6)............................................ 1999 51 Spokane, WA(1)(2)........................................... 1999 52 Deer Park, WA(1)(2)......................................... 1999 943 Denison, TX(2).............................................. 1999 Denison, TX(6).............................................. 1999 Columbia Heights, MN(7)..................................... 1999 Naperville, IL(7)........................................... 1999 Minneola, TX(7)............................................. 1999 Houston, TX(7).............................................. 1999 Gering, NB(7)............................................... 2000
- ------------------------ (1) Free-standing pharmacy. (2) Home medical equipment offered. (3) Closed-door institutional pharmacy. (4) Wholesale company. (5) We also purchased the pharmacy files, inventory and equipment of two other pharmacies located in Canon City, Colorado which we consolidated into this pharmacy. (6) Mail order and Internet pharmacy operation. (7) We also purchased the pharmacy files, inventory and equipment of other pharmacies located in these cities and consolidated them into our existing pharmacy operations. (8) Store sold in March of 2000. (d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES. Not applicable. FORWARD-LOOKING STATEMENTS. Certain information in this annual report, as well as in other public filings, press releases and oral statements made by our representatives, is forward-looking information based on current expectations and plans that involve risks and uncertainties. Forward-looking information includes statements concerning pharmacy sales trends, mail order and Internet operations, prescription margins, number of new store openings and the level of capital expenditures, as well as those that include or are preceded by the words "expects," "estimates," "believes" or similar language. 5 For such statements, we claim the protection of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The following factors, in addition to those discussed elsewhere in this annual report for the fiscal year 1999, could cause results to differ materially from management expectations as projected in such forward-looking statements: changes in economic conditions generally or in the markets served by HORIZON; consumer preferences and spending patterns; competition from other retail pharmacy chains, supermarkets, other retailers and mail order or Internet companies; changes in state or federal legislation or regulations; the efforts of third-party payors to reduce prescription drug costs; the success of planned advertising and merchandising strategies; the availability and cost of real estate and construction; accounting policies and practices; our ability to hire and retain pharmacists and other store and management personnel; our relationships with our suppliers; our ability to successfully implement new computer systems, Internet applications and other technology; and adverse determinations with respect to litigation or other claims. We assume no obligation to update our forward-looking statements to reflect subsequent events or circumstances. ITEM 2. PROPERTIES. Our principal offices are currently located at 531 W. Main, Denison, Texas, 75020, where we own a 15,000 square foot building. We also own a 5,500 square foot building in Princeton, Texas, the pharmacies located in Mt. Vernon and Mineola, Texas, and the furniture and fixtures in each of our stores. Substantially all of our retail stores operate under noncancellable leases, many of which expire within the next five years. In the normal course of business, however, we expect these leases will be renewed or replaced by leases on other properties. No single lease is material to our operations. ITEM 3. LEGAL PROCEEDINGS. From time to time, we may be involved in litigation relating to claims arising out of our normal business operations. No material legal proceedings were pending against HORIZON, any of its subsidiaries or any of their properties as of December 31, 1999, except for the following matters. The Company and certain present and former officers or directors are named as defendants in an action styled FRANK GABLE, ET AL. v. HORIZON PHARMACIES, INC., ET AL., No. 3-99CV-1244-L, United States District Court for the Northern District of Texas, Dallas Division that was filed on May 28, 1999. Plaintiffs seek to certify a class of persons who purchased shares of the Company's common stock during the period between August 14, 1998 and March 3, 1999, inclusive, alleging that defendants failed to timely disclose complications with the Company's prescription pricing communications technology. Plaintiffs seek unspecified compensatory and/or rescisssionary damages. Defendants are vigorously defending against the action. Defendants' motion to dismiss the complaint is pending and no determination has been made whether the matter may proceed as a class action. The Company, a current employee and two former employees of the Company are named as defendants in an action styled MARY BLACKWOOD, ET AL. v. HORIZON PHARMACIES, INC., No. 98-1053-1, 11th Judicial District for San Juan County, New Mexico that was filed on April 13, 1999. The plaintiff alleges injuries as a result of a reaction to a prescription. The case is currently in the initial phase of discovery. Both parties have agreed to submit to mediation on May 8, 2000. The Company's insurer intends to vigorously defend against this action. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of our stockholders during the fourth quarter of 1999. 6 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. MARKET INFORMATION. HORIZON's common stock trades on the American Stock Exchange under the symbol "HZP." The following table shows the high and low closing sales prices per share for the common stock from January 1, 1998 through December 31, 1999.
HIGH LOW ----------- ---------- Fiscal 1998 First Quarter............................................. 11 1/2 8 Second Quarter............................................ 15 7/8 9 5/8 Third Quarter............................................. 16 1/4 7 3/8 Fourth Quarter............................................ 12 5 5/8 Fiscal 1999 First Quarter............................................. 11 7/8 5 Second Quarter............................................ 7 9/16 4 3/4 Third Quarter............................................. 5 5/8 3 Fourth Quarter............................................ 3 7/8 2 5/16
STOCKHOLDERS. As of March 24, 2000, there were 107 holders of record of the common stock according to the records maintained by our transfer agent. As of March 24, 2000, we had approximately 2,457 stockholders, including beneficial owners holding shares in street or nominee names. DIVIDENDS. We did not pay any dividends on the common stock during our two most recent fiscal years and we do not intend to pay any dividends in the foreseeable future. Furthermore, we cannot declare or pay any dividends without McKesson's prior written consent until we fulfill all of our obligations and payments under our agreement with McKesson. RECENT SALES OF UNREGISTERED SECURITIES. Since the filing of our last Quarterly Report on Form 10-Q on November 18, 1999, we issued 9,579 unregistered shares of common stock in connection with the exercise of stock options by a former employee. All such shares were issued to the holder of the options and were deemed exempt from registration pursuant to Section 4(2) of the Securities Act of 1933. 7 ITEM 6. SELECTED FINANCIAL DATA. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA)
YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1995 1996 1997 1998 1999 -------- -------- -------- -------- -------- Income Statement Data: Total net revenues........................... $6,270 $13,136 $28,429 $74,737 $131,756 Gross profit................................. 1,898 4,194 9,297 20,226 34,838 Provision for impairment..................... -- -- -- -- 3,198 Income (loss) from operations................ 279 551 1,025 (1,933) (5,848) Interest expense............................. 110 253 299 803 1,898 Income (loss) before income taxes............ 176 302 807 (2,539) (7,548) Provision (credit) for income taxes(1)....... 61 106 480 (360) -- Net income (loss)............................ 115 196 327 (2,179) (7,548) Basic earnings (loss) per share.............. .08 .13 .12 (.43) (1.30) Diluted earnings (loss) per share............ .08 .13 .11 (.43) (1.30) Cash distributions per share(2).............. .11 .19 .17 -- -- Balance Sheet Data: Working capital.............................. $1,029 $ 1,563 $11,287 $20,438 $ 14,571 Total assets................................. 3,545 6,589 20,654 46,647 59,831 Long-term obligations........................ 930 1,467 3,531 13,512 20,935 Total liabilities............................ 2,266 4,839 8,815 26,219 44,581 Stockholders' equity......................... 1,279 1,750 11,839 20,428 15,250 Number of stores at end of year................ 7 11 24 45 52 Operating Store Months......................... 58 101 193 415 596
- ------------------------ (1) See Note 1 in the accompanying consolidated financial statements regarding pro forma provisions for income taxes for 1997. Pro forma income taxes in 1995 and 1996 were $61 and $106, respectively. (2) Cash distributions were paid to stockholders during periods of S corporation status. No distributions or dividends have been made since the initial public offering in July 1997. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW. HORIZON's principal business strategy since commencing operations in 1994 has been to establish a chain of retail pharmacies through the acquisition of full-line retail pharmacies. In evaluating a retail pharmacy for potential acquisition, we: (i) evaluate the target store's profits and losses for preceding years; (ii) review the store's tax returns for preceding years; (iii) review computer-generated prescription reports showing historical information including prescriptions sold, average price of each prescription, gross margins and trends in prescription sales; (iv) analyze the store's location and competition in the immediate area; (v) review the store's lease agreement, if any; and (vi) assess targeted areas for growth patterns and trends. Based on our analysis of the foregoing items, we prepare an offer to purchase the particular store. To assess the reasonableness of the purchase price offered by a seller in connection with a potential acquisition, we consider the availability and terms of owner financing of approximately one-third of the purchase price, including such terms as rate of return and payback period, with the balance split between cash and other consideration such as our common stock. In 1999, we made a strategic decision to enter the mail order and e-commerce business. In June 1999, we purchased a combination retail, mail order and Internet pharmacy operation for $2,702,000, 8 and in the fourth quarter we started a new Internet pharmacy operation, HorizonScripts.com, which will provide customers online access to thousands of prescription and non-prescription items at competitive prices. We believe this Internet pharmacy will enhance our traditional "brick and mortar" operations, and that the "brick and click" strategy will offer our customers and potential customers convenient sources for the health care needs. By expanding our presence through e-commerce, we believe we will expand our name recognition and revenue base, while also cementing our relationship with our existing customers. In 1997, 1998 and 1999 we acquired 13, 21 and 7 retail pharmacies and 1, 0 and 2 related businesses, respectively. These acquisitions are the principal influence on our results of operations and financial condition. The primary measurement of the effect of acquisitions on our operating performance is the number of store operating months, which is the number of months we owned all of the stores counted during the relevant measuring period. We expect that continuing acquisitions and expansion of our e-commerce activities will be the most significant factors in our growth strategy. Currently, our primary source of revenue is the sale of prescription drugs. During 1997, sales of prescription drugs generated 75.6% of our net revenues; during 1998, prescription drug sales generated 73.9% of revenues; and during 1999, such sales generated 75.7% of total net revenues. We expect our prescription drug business to continue to increase on an annual basis as a result of the demographic trends toward an aging population and the continued development of new pharmaceutical products. However, we anticipate that such sales will decrease as a percentage of our total net revenues and gross margins as we expand our home healthcare and other non-pharmaceutical sales and services which have historically generated higher margins. Our revenues and profits should be higher during peak holiday periods and from Christmas through Easter. Sales of health-related products peak during seasonal outbreaks of cough and cold/flu viruses, which typically occur during the winter and spring. Accordingly, revenues and profits should be highest in the first and fourth quarters of each year. We anticipate entering into strategic alliances with various e-commerce companies, as well as pursuing e-commerce strategies through existing retail centers, such as grocery stores. We recently entered into a relationship with Informed.com, Inc., an e-commerce start-up that provides telemedicine services (e.g., counseling and virtual nursing). We will in essence serve as a wholesale supplier to Informed.com for their online prescription drug and OTC drug orders, and in this capacity and in exchange for 2,000,000 shares of Informed.com common stock and a one-time fee of $1.5 million, and have guaranteed prescription volume levels to allow certain of Informed.com's revenue and gross margin targets will be met. Informed.com will also provide us their e-commerce expertise, as we design and develop kiosks to conduct e-commerce in retail centers. Additionally, we also entered into a Cooperative Marketing Agreement with eGrocery.com, Inc. pursuant to which eGrocery.com, Inc. will, among other things, link our web site to, and display promotional advertisements on, certain web sites operated and maintained by eGrocery.com, Inc. eGrocery.com, Inc. will also endeavor to generate cooperative advertising dollars for us from general merchandise, trade funds and display allowances at the retail stores we own and manage. We will attempt to enter into additional alliances in fiscal 2000 in order to provide us increased visibility in cyberspace and access to high traffic retail centers for electronic kiosks to implement our strategies. 9 RESULTS OF OPERATIONS. The following table sets forth the percentage relationship of certain income statement data for each of the last three fiscal years:
YEAR ENDED DECEMBER 31, ------------------------------ 1997 1998 1999 -------- -------- -------- Income Statement Data Prescription drugs sales.................................. 75.6% 73.9% 75.7% Other sales and services.................................. 24.4% 26.1% 24.3% ----- ----- ----- Total net revenues...................................... 100.0% 100.0% 100.0% ----- ----- ----- Costs and Expenses: Cost of sales--prescription drugs(1)...................... 71.2% 77.6% 76.6% Cost of sales--other(2)................................... 55.3% 59.8% 64.2% Depreciation and amortization(3).......................... 1.2% 1.2% 1.3% Provision for impairment(3)............................... --% --% 2.4% Selling, general and administrative expenses(3)........... 27.9% 28.5% 27.2% Interest expense(3)....................................... 1.1% 1.1% 1.4% Net income (loss)(3)(4)(5)................................ 1.1% (2.9%) (5.7%)
- ------------------------ (1) As a percentage of prescription drugs sales. (2) As a percentage of other sales and services. (3) As a percentage of total net revenues. (4) After pro forma provisions for income taxes in the first six months of 1997. (5) After a one-time provision for deferred income taxes in 1997 resulting from a change in tax status. NET REVENUES. Our total net revenues increased $57,019,000 or 76.3%, to $131,756,000 in 1999 compared to $74,737,000 in 1998 and $28,429,000 in 1997. The increases were attributable primarily to the increase in store operating months from 193 in 1997 to 415 in 1998 to 596 in 1999. Prescription drug sales increased by $44,440,000, or 80.4%, to $99,688,000 in fiscal 1999 compared to $55,248,000 for fiscal 1998 and $21,493,000 for 1997. Third-party reimbursed sales accounted for approximately 79.7% of our total prescription drugs sales in 1999, as compared to 76.9% in 1998 and 73.0% in 1997. Higher reimbursement sales have typically resulted in a decrease in gross margins due to the lower prices negotiated by third-party payors. In 1998, the gross margin on prescription drug sales was down significantly due to unanticipated problems with our communications technology which prevented us from receiving daily updates of average wholesale pharmaceutical prices. In 1999, the gross margin on prescription drug sales was slightly improved over 1998. However, 1999 gross margins on prescription drug sales remained low due to price conversion difficulties encountered in the fourth quarter during our conversion to a new pharmacy computer system and to install a system with a home office function enabling centralized control on a daily basis for prescription pricing and margins. The following tables show our prescription drug gross margins and total revenues margins for 1997, 1998 and 1999:
GROSS MARGINS ON GROSS MARGINS ON TOTAL PRESCRIPTION DRUG SALES REVENUES ------------------------- ------------------------ YEAR AMOUNT PERCENTAGE AMOUNT PERCENTAGE - ---- ------------ ---------- ----------- ---------- 1999........................................... $23,347,000 23.4 $34,838,000 26.4 1998........................................... $12,398,000 22.4 $20,226,000 27.1 1997........................................... $ 6,200,000 28.8 $ 9,298,000 32.7
10 Sales of prescription drugs decreased from 75.6% of total revenues for 1997 to 73.9% of total revenues for 1998 and increased to 75.7% of total revenues for 1999. While there was an increase in prescription drug sales in 1999 as compared to 1998 due to the acquisition of the mail order and Internet pharmacy in 1999, we expect that prescription drug sales will decrease as a percentage of total revenues as we expand our home healthcare and other non-pharmaceutical sales and services, whose gross margins exceed those of pharmaceutical sales. Same store sales for our first 24 stores increased from $27,222,000 in 1997 to $31,000,000 in 1998, an increase of 13.9%. Same store sales for our first 45 stores increased from $74,186,000 in 1998 to $79,631,000 in 1999, an increase of 7.3%. Management believes that these increases are primarily the result of increased advertising and promotions as well as an enhanced product mix. We currently have non-compete agreements with the previous owners of all of the stores we have acquired except for the Marion and Covington, Virginia stores, which were acquired from the Federal Trade Commission, and three stores located in Mineola, Mt. Vernon and McKinney, Texas, which we acquired from True Quality Pharmacies, Inc. COSTS AND EXPENSES. Cost of sales increased $42,407,000, or 77.8 %, to $96,918,000 in 1999 as compared to $54,511,000 in 1998 and $19,132,000 in 1997. This increase is primarily the result of increased sales volume due to the increased number of store operating months for each respective period. Total cost of sales as a percentage of total revenues increased 5.6% from 67.3% in 1997 to 72.9% in 1998 and increased by 0.7% from 72.9% in 1998 to 73.6% in 1999. In 1998, the increase in cost of sales was caused by unexpected communications technology problems in receiving updated pricing information from our primary supplier during the last quarter of 1998. As a result of the problems, our prescription prices to third-party and cash customers were not increased when our cost of those prescription products increased. The problem was identified in February of 1999 and corrected in March of 1999 by switching to another provider for updated pricing information. As a result, our gross margin on prescription drug sales declined from 28.8% in 1997 to 22.4% in 1998, with a significant portion of the decline attributable to the failure to receive updated pricing and the balance due to an increase in prescriptions reimbursed through third-party providers. In 1999, we recovered a portion of the decline in gross margin that occurred in 1998; however, a further recovery was deterred during the conversion of pharmacy computer systems in the fourth quarter of 1999 to install a system with a home office function enabling centralized control on a daily basis of prescription pricing and margins. There was an increase of $13,349,000 in selling, general and administrative expenses from $7,943,000 in 1997 and $21,292,000 in 1998 and an increase of $14,507,000 from 1998 to $35,799,000 in 1999. A portion of the increase is due to increased store count and resulting increased store operating months. A large portion of the increase (approximately $2,015,000) is due to the cost associated with the conversion of pharmacy systems, the installation of a home office pharmacy system to monitor prescription drug costs, prices and margins, the installation of a "frame relay" telecommunications system which ties together our stores, home office and Internet activities, additional personnel added to install, monitor and manage the new systems and the start-up costs of HorizonScripts.com. In total, these selling, general and administrative expenses, expressed as a percentage of net revenues, were 27.9% , 28.5% and 27.2% for 1997, 1998 and 1999, respectively. Depreciation and amortization was $1,689,000 in 1999 compared to $867,000 in 1998 and $329,000 in 1997. The increase primarily resulted from our acquisition of stores in 1999 and 1998. Intangible assets, including but not limited to goodwill, pharmacy files and non-compete covenants, have historically represented a substantial portion of our acquisition costs. Such assets are amortized over a period of not more than 40 years. Accordingly, the amortization of intangible assets is not expected to have a significant effect on our future results of operations. 11 Interest expense was $1,898,000 in 1999 compared to $803,000 in 1998 and $299,000 in 1997. The increase in interest expense resulted primarily from the increase in our indebtedness associated with the acquisition of stores in 1999 and 1998 and for working capital as a result of the operating losses sustained in 1999 and 1998. During the fourth quarter of 1999 we determined that several under-performing stores should be sold or closed and recorded a special charge of $2,985,000 for impairment losses. Additionally, we recorded an impairment provision of $213,000 on another store we plan to continue to operate. EARNINGS. Income (loss) before provision for income taxes was $807,000 (1.1% of net revenues) in 1997, ($2,539,000) (2.9% of net revenues) in 1998 and ($7,548,000) (5.7% of net revenues) in 1999, which is a decrease of $3,346,000 and $5,009,000, respectively, in 1998 and 1999. Because HORIZON operated as an S Corporation prior to its initial public offering, it had not incurred any income taxes prior to such time. As a result of the termination of its S Corporation election in connection with the initial public offering, we became a taxpaying entity subject to the payment of taxes on all non-exempt income at applicable federal and state income tax rates. In 1997, we incurred a noncash, one-time charge for deferred income taxes of $170,000 as a result of the change in tax status. In 1999, we incurred a net loss of $7,548,000, as compared to a net loss of $2,179,000, in 1998 and net income of $327,000 (after the one-time noncash charge for deferred taxes of $170,000) in 1997. The loss in 1999 resulted from the provision for impairment, a decline in gross margin as a result of price conversion difficulties encountered during the pharmacy computer system conversions and the expenses associated with the pharmacy system conversion, the installation of the pharmacy home office computer system, the frame relay network and the start-up expenses associated with our new web site, HorizonScripts.com. The loss in 1998 resulted primarily from revenues which were lost when our computer system failed to receive and/or process daily prescription drugs price updates transmitted electronically from our wholesale supplier. LIQUIDITY AND CAPITAL RESOURCES. Net cash used in operating activities was $3,315,000 in 1999 as compared to $2,072,000 in 1998 and $126,000 in 1997. The net losses in 1999 and 1998, coupled with increased accounts receivable in each of such years, were primarily responsible for the increase in net cash used by operations. The $6,725,000 net proceeds of a private placement that closed June 16, 1998 was used to support an aggressive store acquisition program and for working capital. We believe that based on prior acquisitions, the average acquisition cost per store will be approximately $500,000 to $700,000 plus inventory based on such variables as store sales and profits. Management believes it will be able to obtain seller financing for approximately 30-40% of the cost of each such acquisition. McKesson currently provides us with a $11,000,000 credit facility, due in July 2003 and provides a guaranty for a $7,000,000 revolving credit facility from Bank One, Texas, NA ("Bank One") due in July 2000. Both the McKesson credit facility and the Bank One revolving credit facility are subject to certain restrictive covenants (including financial ratio requirements) which we must meet to maintain the credit facility and revolving line of credit. At December 31, 1999 we were in default of several of these covenants, but McKesson and Bank One waived such defaults pursuant to agreements executed March 30, 2000 and April 14, 2000, respectively. At March 27, 2000, we had borrowed $10,678,000 under the credit facility and $7,000,000 under the revolving credit facility. During February 2000, we acquired the prescription files and inventory of one store in Gering, Nebraska and consolidated it with our existing store. However, as a result of the loss incurred in 1999, we have readjusted our formula we use for acquisitions. Until we are able to raise additional capital or secure additional credit lines for acquisitions, we will seek acquisition opportunities that require less cash and rely more on seller financing and the public or private offering of certain equity or long-term debt securities. 12 Because of the federal moratorium on home healthcare licenses from September 1997 until January 1998, and the uncertainty of the current regulations, we do not plan to expand our home healthcare operations in 2000. We do expect, however, to offer home medical equipment through stores which have not heretofore offered such equipment. The Company's plan for 2000 provides for the Company to improve its financial condition and operating results through the sale or closure of several underperforming pharmacies (including one pharmacy sold in March 2000), increased selling prices, the reduction of receivables and inventories levels, reduction in store operating hours and labor costs and various debt and equity alternatives. In April 2000, the Company issued $2,500,000 in convertible debentures which provided $2,175,000 in net proceeds. As discussed above, the Company's $7,000,000 revolving credit facility from Bank One matures July 31, 2000. We believe that in the event that Bank One does not renew or otherwise extend the credit facility, we will be able to secure replacement financing through a financial institution or supplier at similar terms or otherwise retire the debt with sales proceeds from stores identified as held for disposal in the fourth quarter of 1999. In the event such proceeds are not sufficient or that alternative financing is not arranged, we will sell the assets of certain performing stores (which have previously received unsolicited purchase inquiries) to provide the additional funds to retire the debt. While the sale of such additional stores would reduce future revenues, we do not believe such reduction would have a material adverse effect on the financial position or results of operations of the Company. IMPACT OF INFLATION AND CHANGING PRICES. Inflation continues to cause increases in revenues, as well as product, occupancy and operating expenses, as well as the cost of acquiring capital assets. The effect of higher operating costs is minimized by achieving operating efficiencies and product price increases. FACTORS AFFECTING OPERATIONS. DEPENDENCE ON ACQUISITIONS FOR GROWTH. Our growth strategy is two-fold. First, when we can we will continue to acquire, consolidate and operate existing free-standing pharmacies and related businesses on a profitable basis. We continually review acquisition proposals and are currently engaged in discussions with third parties with respect to possible acquisitions. We compete for acquisition candidates with buyers who have greater financial and other resources and may be able to pay higher acquisition prices than we are able to pay. To the extent we are unable to acquire suitable retail pharmacies, or to successfully integrate such stores into our operations, our ability to expand our business may be reduced significantly. In addition to seeking acquisition opportunities, we are also expanding our operations into, and attempting to redirect revenues through e-commerce through strategic alliances with e-commerce partners. We believe this will allow us to increase both our customer and prescription bases and our revenues. SALES TO THIRD-PARTY PAYORS. We sell a growing percentage of our prescription drugs to customers who are covered by third-party payment programs. Although contracts with third-party payors may increase the volume of prescription drugs sales and gross profits, third-party payors typically negotiate lower prescription prices than non third-party payors. Accordingly, gross profit margins on sales of prescription drugs have been decreasing and are expected to continue to decrease in future periods. RELIANCE ON MEDICARE AND MEDICAID REIMBURSEMENTS. Substantially all of our home healthcare revenues are attributable to third-party payors, including Medicare, Medicaid, private insurers, managed care plans and HMOs. The amounts we receive from government programs and private third-party payors are dependent upon the specific benefits included under the program or the patient's insurance policies. Any substantial delays in reimbursement or significant reductions in the coverage or payment rates of third-party payors, or from patients enrolled in the Medicare or Medicaid programs, would have a material adverse effect on our revenues and profitability. 13 EXPANSION. Our ongoing expansion will require us to implement and integrate enhanced operational and financial systems, and additional management, operational and financial resources. Our inability to implement and integrate these systems and/or add these resources could have a material adverse effect on our results of operations and financial condition. There can be no assurance that we will be able to manage our expanding operations effectively or maintain or accelerate our growth. Although we experienced growth in net revenues in 1997, 1998 and 1999, and were profitable in 1997, we sustained a substantial loss in 1999, as a result of the decline in gross margins in the fourth quarter as a result of price conversion difficulties encountered during the pharmacy computer system conversions and the expenses associated with the conversions, the installation of the home office computer system, the installation of the frame relay telecommunication network, and the start-up expenses associated with new pharmacy web site, HorizonScripts.com, and in 1998, as a result of the malfunction of our computerized pricing system which failed to receive and/or integrate average wholesale price updates electronically transmitted from our primary supplier. While such malfunction has been corrected, there can be no assurance we will not experience other similar problems related to expansion or that we will be able to maintain or increase net revenues. GOVERNMENT REGULATION AND HEALTHCARE REFORM. Pharmacists and pharmacies are subject to a variety of state and federal regulations and may be adversely affected by certain changes in such regulations. In addition, prescription drug sales represent a significant portion of our revenues and profits and are a significant segment of our business. These revenues are affected by regulatory changes, including changes in programs providing for reimbursement of the cost of prescription drugs by third-party payment plans, such as government and private plans, and regulatory changes relating to the approval process for prescription drugs. REGULATION OF HOME HEALTHCARE SERVICES. Our home healthcare business is subject to extensive federal and state regulation. Changes in the law or new interpretations of existing laws could have a material effect on permissible activities, the relative costs associated with doing business and the amount of reimbursement for our products and services paid by government and other third-party payors. MALPRACTICE LIABILITY. The provision of retail pharmacy and home healthcare services entails an inherent risk of claims of medical and professional malpractice liability. We may be named as a defendant in such malpractice lawsuits and subject to the attendant risk of substantial damage awards. While we believe we have adequate professional and medical malpractice liability insurance coverage, there can be no assurance that we will not be sued, that any such lawsuit will not exceed our insurance coverage, or that we will be able to maintain such coverage at acceptable costs and on favorable terms. COMPETITION. The retail pharmacy and home healthcare businesses are highly competitive. We compete with national, regional and local retail pharmacy chains, independent retail pharmacies, deep discount retail pharmacies, supermarkets, discount department stores, mass merchandisers and other retail stores and mail order and Internet operations. Similarly, our home healthcare operations compete with other larger providers of home healthcare services including chain operations and independent single unit stores which are more established in that market and which offer more extensive home healthcare services than we offer. Most of our competitors have financial resources that are substantially greater than ours, and we cannot assure that we will be able to continue to successfully compete with such competitors. GEOGRAPHIC CONCENTRATION. Currently, 19 and 7 of our 52 retail pharmacies are located in Texas and New Mexico, respectively, and we plan to acquire other retail pharmacies located in such states. Consequently, our results of operations and financial condition are dependent upon general trends in the Texas and New Mexico economies and any significant healthcare legislative proposals enacted in those states. 14 SUBSTANTIAL INDEBTEDNESS. We have incurred substantial debt and may incur additional indebtedness in the future in connection with our plan of acquisitions. Our ability to make cash payments to satisfy our debt will depend upon our future operating performance, which is subject to a number of factors including prevailing economic conditions and financial, business and other factors beyond our control. As discussed above, if we are unable to generate sufficient earnings and cash flow to service such debt we may have to refinance certain of these obligations or dispose of certain assets. In the event we are required to refinance all or any part of such debt, there can be no assurance that we will be able to effect such refinancing on satisfactory terms. NEED FOR ADDITIONAL CAPITAL. We believe that a planned reduction in inventory and accounts receivable levels and the sale of certain stores discussed above together with our existing credit facilities will be adequate to satisfy our working capital requirements for the next twelve months, although circumstances, including the acquisition of additional stores and certain alliances and/or joint ventures in e-commerce, will require that we obtain additional equity and/or long or short-term financing to realize certain business opportunities. No assurance can be made that we will be able to obtain such financing. RELIANCE ON SINGLE SUPPLIER. We currently purchase approximately 80% of our inventory from McKesson, which also provides us with order entry machines, shelf labels and other supplies and is our primary lender and guarantor of our indebtedness. We believe that the wholesale pharmaceutical and non-pharmaceutical distribution industry is highly competitive because of the consolidation of the retail pharmacy industry and the practice of certain large retail pharmacy chains to purchase directly from product manufacturers. Although we believe we could obtain our inventory through another distributor at competitive prices and upon competitive payment terms if our relationship with McKesson was terminated, there can be no assurance that the termination of such relationship would not adversely affect our business. POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY. Our results of operations depend significantly upon the net revenues generated during the first and fourth quarters, and any decrease in net revenues for such periods could have a material adverse effect upon our profitability. As a result, we believe that period-to-period comparisons of our results of operations are not and will not necessarily be meaningful, and should not be relied upon as an indication of future performance. ITEM 7.A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS. We are exposed to market risk from changes in interest rates on debt. Our exposure to interest rate risk currently consists of our outstanding borrowings under the McKesson credit facility and the Bank One revolving line of credit. The combined balance outstanding was $16,178,000 at December 31, 1999. The impact on our results of operations of a one-point interest rate change on balances outstanding would be $162,000 on an annual basis. This market risk discussion contains forward-looking statements. Actual results may differ materially from this discussion based upon general market conditions and changes in financial markets. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements required by this Item are set forth beginning on page F-1 hereof. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. There have been no changes in accountants and no disagreements with accountants on any matter of accounting principles or practices or financial statement disclosures during the preceding twenty-four months ended December 31, 1999. 15 PART III The information required in response to Items 10, 11, 12 and 13 shall appear in our definitive proxy statement to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934 in connection with HORIZON's 2000 Annual Meeting, and it shall be incorporated herein by reference when filed. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) FINANCIAL STATEMENTS. The following consolidated financial statements of the Company appear immediately following this Item 14:
PAGES -------- Report of Independent Auditors.............................. F-1 Consolidated Balance Sheets at December 31, 1998 and 1999... F-2 Consolidated Statements of Operations for each of the three years in the period ended December 31, 1999............... F-4 Consolidated Statements of Stockholders' Equity for each of the three years in the period ended December 31, 1999..... F-5 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1999............... F-6 Notes to Consolidated Financial Statements.................. F-8 FINANCIAL STATEMENT SCHEDULES The Company has included the following schedule immediately following this Item 14: Schedule II--Valuation and Qualifying Accounts.............. F-20
The Company has omitted all other schedules because the conditions requiring their filing do not exist or because the required information appears in the Company's Consolidated Financial Statements, including the notes to those financial statements. (b) REPORTS ON FORM 8-K. DURING THE LAST QUARTER OF FISCAL 1999 WE FILED THE FOLLOWING CURRENT REPORTS ON FORM 8-K: In the last quarter of 1999, HORIZON filed two Current Reports on Form 8-K. On October 29, 1999, HORIZON filed a Current Report on Form 8-K regarding the acquisition of Jones Low Priced Drugs. On December 28, 1999, HORIZON filed an Amended Current Report on Form 8-K containing certain financial statements of Jones Low Priced Drugs. (c) EXHIBITS. THE EXHIBITS LISTED BELOW ARE INCLUDED WITH THIS REPORT.
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 electronically on August 14, 1998. 3.2 Bylaws of HORIZON Pharmacies, Inc., incorporated by reference to Exhibit 3.2 of our Quarterly Report on Form 10-QSB filed electronically on August 14, 1998. 4.1 Specimen Certificate of the common stock of HORIZON Pharmacies, Inc. incorporated by reference to Exhibit 4.1 of our Registration Statement on Form S-3 (File No. 333-61987). 4.2 Form of Warrant dated July 11, 1997 between HORIZON Pharmacies, Inc. and Capital West Securities, Inc. and Com Vest Partners, Inc., incorporated herein by reference to Exhibit 4.2 of our Registration Statement on Form S-3 (File No. 333-61987).
16
EXHIBIT NO. NAME OF EXHIBIT - ----------- ------------------------------------------------------------ 4.3 Warrant Agreement dated November 7, 1997 by and between HORIZON Pharmacies, Inc. and Com Vest Partners, Inc. incorporated by reference to Exhibit 4.3 of our Annual Report on Form 10-KSB for the fiscal year ended December 31, 1997 filed electronically on April 15, 1998. 4.4 Form of Warrant dated June 12, 1998 between HORIZON Pharmacies, Inc. and the parties to the Securities Purchase Agreement included herein as Exhibit 10.4, incorporated herein by reference to Exhibit 99.1 of our Current Report on Form 8-K filed electronically on June 25, 1998. 4.5 Amended and Restated Warrant Purchase Agreement dated May 14, 1999 among HORIZON Pharmacies, Inc. and McKesson HBOC, Inc. (filed electronically herewith). 4.6 First Amendment to Amended and Restated Warrant Purchase Agreement dated March 30, 2000 between HORIZON Pharmacies, Inc. and McKesson HBOC, Inc. (filed electronically herewith) 4.7 Warrant dated January 28, 2000 between HORIZON Pharmacies, Inc. and K-2 Financial Corp. (filed electronically herewith) 4.8 Warrant dated February 1, 2000 between HORIZON Pharmacies, Inc. and 5Net5 Corp. (filed electronically herewith) 4.9 Warrant dated March 14, 2000 between HORIZON Pharmacies, Inc. and Informed.com, Inc. (filed electronically herewith) 4.10 Warrant dated March 14, 2000 between HORIZON Pharmacies, Inc. and Informed.com, Inc. (filed electronically herewith) 4.11 Registration Rights Agreement dated March 14, 2000 by and between HORIZON Pharmacies, Inc., and Informed.com, Inc. (filed electronically herewith). 4.12 Warrant dated March 30, 2000 between HORIZON Pharmacies, Inc. and McKesson HBOC, Inc. (filed electronically herewith). 4.13 Warrant dated April 5, 2000 between HORIZON Pharmacies, Inc. and eGrocery.com, Inc., incorporated herein by reference to Exhibit 4.1 of our Current Report on Form 8-K filed electronically on April 14, 2000. 10.1 Supply Agreement dated effective April 30, 1998 by and between HORIZON Pharmacies, Inc. and McKesson Corporation, incorporated herein by reference to Exhibit 10.1 of our Form 10-Q filed electronically on May 15, 1998. 10.2 Letter Agreement dated April 14, 1999 amending the Supply Agreement included herein as Exhibit 10.1 (filed electronically herewith) 10.3 Amendment to the Supply Agreement included as Exhibit 10.1 herein, dated March 30, 2000 between HORIZON Pharmacies, Inc. and McKesson HBOC Inc. (filed electronically herewith) 10.4 Securities Purchase Agreement dated June 15, 1998 by and among HORIZON Pharmacies, Inc. and the Several Purchasers named therein (filed electronically herewith). 10.5 Credit Agreement dated July 2, 1998 by and between the HORIZON Pharmacies, Inc. and McKesson Corporation, incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed electronically on August 4, 1998. 10.6 First Amendment to the Credit Agreement included as Exhibit 10.5 herein, dated as of July 20, 1998 incorporated herein by referenced to Exhibit 10.2 of our Current Report on Form 8-K filed electronically on August 4, 1998. 10.7 Second Amendment to Credit Agreement included as Exhibit 10.5 herein, dated as of August 26, 1998, incorporated herein by reference to Exhibit 10.3 of our Current Report on Form 8-K/A filed electronically on August 31, 1998.
17
EXHIBIT NO. NAME OF EXHIBIT - ----------- ------------------------------------------------------------ 10.8 Third Amendment to Credit Agreement included as Exhibit 10.3 herein, dated as of May 14, 1999 (filed electronically herewith). 10.9 Fourth Amendment to the Credit Agreement included as Exhibit 10.3 herein, dated as of August 16, 1999 (filed electronically herewith). 10.10 Fifth Amendment to the Credit Agreement included as Exhibit 10.3 herein, dated as of April 14, 2000 (filed electronically herewith). 10.11* Form of Employment Agreement by and between HORIZON Pharmacies, Inc. and each of Rick D. McCord, R.Ph., Charlie K. Herr, R.Ph. and Robert D. Mueller, R.Ph., incorporated herein by reference to Exhibit 10.4 to the Registration Statement on Form SB-2 (File No. 333-25257). 10.12 Purchase Agreement dated November 8, 1998 by and between HORIZON Pharmacies, Inc. and Holland's Drug Store, Inc., incorporated herein by reference to Exhibit 2.1 of our Current Report on Form 8-K filed electronically on November 18, 1998. 10.13 Consulting Agreement dated January 28, 2000 between HORIZON Pharmacies, Inc. and K-2 Financial Corp., incorporated herein by reference to Exhibit 10.1 of our Current Report on Form 8-K filed electronically on March 9, 2000. 10.14 Investment Banking Agreement dated January 28, 2000 between HORIZON Pharmacies, Inc. and Waterford Financial, Inc., incorporated herein by reference to Exhibit 10.2 of our Current Report on Form 8-K filed electronically on March 9, 2000. 10.15 Software Development Agreement dated February 1, 2000 between HORIZON Pharmacies, Inc. and 5Net5 Corp., incorporated herein by reference to Exhibit 10.3 of our Current Report on Form 8-K filed electronically on March 9, 2000. 10.16 Amendment to Software Development Agreement dated February 1, 2000 between HORIZON Pharmacies, Inc. and 5Net5 Corp., incorporated herein by reference to Exhibit 10.4 of our Current Report on Form 8-K filed electronically on March 9, 2000. 10.17 Fulfillment and Guaranty Agreement dated March 14, 2000 by and between HORIZON Pharmacies, Inc. and InformedScripts.com, incorporated herein by reference to Exhibit 10.1 of our Current Report on Form 8-K filed electronically on April 6, 2000. 10.18 Limited Waiver and Consent dated March 30, 2000 between HORIZON Pharmacies, Inc. and McKesson HBOC, Inc. (filed electronically herewith). 10.19 Cooperative Marketing Agreement dated April 6, 2000 by and between eGrocery.com, Inc. and HORIZON Pharmacies, Inc, incorporated herein by reference to Exhibit 10.1 of our Current Report on Form 8-K filed electronically on April 14, 2000. 10.20 Letter Agreement, dated April 14, 2000, regarding the Loan Agreement dated July 31, 1999 between HORIZON Pharmacies, Inc. and Bank One, Texas, N.A. (filed electronically herewith). 10.21* HORIZON Pharmacies, Inc. 401(k) Plan incorporated herein by reference to Exhibit 4.2 to our Registration Statement on Form S-8 (File No. 333-43607). 10.22* HORIZON Pharmacies, Inc. 1999 Stock Option Plan (filed electronically herewith). 10.23* HORIZON Pharmacies, Inc. 1998 Stock Option Plan incorporated by reference to Exhibit 4.2 of our Registration Statement on Form S-8 (File No. 333-62805). 10.24 HORIZON Pharmacies, Inc. 1997 Stock Option Plan incorporated herein by reference to Exhibit 4.4 to our Registration Statement on Form SB-2, as amended (File No. 333-25257). 21.1 Subsidiaries of HORIZON Pharmacies, Inc. (filed electronically herewith). 23.1 Consent of Ernst & Young LLP, Independent Auditors (filed electronically herewith). 27.1 Financial data schedule (filed electronically herewith).
- ------------------------ * Management contract or compensatory plan or arrangement. 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REGISTRANT: HORIZON PHARMACIES, INC. /s/ RICKY D. MCCORD Date: April 14, 2000 By: ----------------------------------------- PRESIDENT AND CHIEF EXECUTIVE OFFICER /s/ JOHN N. STOGNER Date: April 14, 2000 By: ----------------------------------------- CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- Chairman of the Board of /s/ RICKY D. MCCORD, R.PH. Directors, President and Chief ------------------------------------ Executive Officer, Principal April 14, 2000 Ricky D. McCord, R.Ph. Executive Officer /s/ JOHN N. STOGNER Chief Financial Officer, ------------------------------------ Treasurer, Director, Principal April 14, 2000 John N. Stogner Financial and Accounting Officer /s/ CHARLIE K. HERR ------------------------------------ Senior Vice President, Secretary, April 14, 2000 Charlie K. Herr Director /s/ ROBERT D. MUELLER, R.PH President of ------------------------------------ HorizonScripts.com Inc., April 14, 2000 Robert D. Mueller, R.Ph. Director /s/ MICHAEL F. LOY ------------------------------------ Director April 14, 2000 Michael F. Loy /s/ HERBERT J. FLEMING ------------------------------------ Director April 14, 2000 Herbert J. Fleming /s/ PHILIP H. YEILDING ------------------------------------ Director April 14, 2000 Philip H. Yeilding
19 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders HORIZON Pharmacies, Inc. We have audited the accompanying consolidated balance sheets of HORIZON Pharmacies, Inc. as of December 31, 1998 and 1999, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the financial statement schedule listed in Item 14. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of HORIZON Pharmacies, Inc. at December 31, 1998 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP Oklahoma City, Oklahoma March 31, 2000, except for the third paragraph of Note 7(A) as to which the date is April 14, 2000 F-1 HORIZON PHARMACIES, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------- 1998 1999 -------- -------- (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents................................. $ 6,617 $ 1,263 Certificate of deposit.................................... -- 375 Accounts receivable, less allowance for doubtful accounts of $217,000 in 1998 and $641,770 in 1999: Third-party providers................................... 4,851 8,828 Others.................................................. 2,779 2,922 Inventories, at the lower of specific identification cost or market............................................... 18,084 23,522 Long-lived assets held for sale........................... -- 633 Other..................................................... 814 674 ------- ------- Total current assets........................................ 33,145 38,217 Debt issue costs, net of accumulated amortization of $66,591 in 1998 and $102,553 in 1999, and other................... 69 595 Property, equipment and capital lease assets: Property and equipment, at cost: Land, buildings and improvements........................ 879 1,498 Software and equipment.................................. 3,165 5,509 ------- ------- 4,044 7,007 Less accumulated depreciation............................. 531 1,057 ------- ------- Property and equipment, net............................... 3,513 5,950 Equipment under capital leases, net of accumulated amortization of $184,975 in 1998 and $434,916 in 1999... 530 725 ------- ------- Property, equipment and capital lease assets, net........... 4,043 6,675 Intangibles, at cost: Noncompete covenants and customer lists................... 1,981 2,415 Goodwill.................................................. 8,145 13,299 ------- ------- 10,126 15,714 Less accumulated amortization............................. 736 1,370 ------- ------- Intangibles, net............................................ 9,390 14,344 ------- ------- $46,647 $59,831 ======= =======
F-2 HORIZON PHARMACIES, INC. CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, ------------------- 1998 1999 -------- -------- (IN THOUSANDS) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 7,889 $12,615 Accrued liabilities....................................... 1,438 1,420 Lease termination settlements and other exit costs........ -- 1,367 Notes payable............................................. 109 5,566 Current portion of long-term debt......................... 3,104 2,439 Current portion of obligations under capital leases....... 167 239 ------- ------- Total current liabilities................................... 12,707 23,646 Noncurrent liabilities: Lease termination settlements............................. -- 1,250 Long-term debt............................................ 13,159 19,204 Obligations under capital leases.......................... 353 481 ------- ------- 13,512 20,935 Commitments and contingencies (NOTES 8 AND 11) Stockholders' equity: Preferred stock, $.01 par value, authorized 1,000,000 shares; none issued -- -- Common stock, $.01 par value, authorized 14,000,000 shares; issued 5,623,743 shares in 1998 and 5,888,965 shares in 1999.......................................... 56 59 Additional paid-in capital................................ 22,343 24,710 Accumulated deficit....................................... (1,901) (9,449) ------- ------- 20,498 15,320 Treasury stock (6,081 shares), at cost.................... (70) (70) ------- ------- Total stockholders' equity.................................. 20,428 15,250 ------- ------- $46,647 $59,831 ======= =======
See accompanying notes. F-3 HORIZON PHARMACIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, --------------------------------- 1997 1998 1999 --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net revenues: Prescription drugs sales.................................. $21,493 $55,248 $ 99,688 Other sales and services.................................. 6,936 19,489 32,068 ------- ------- -------- Total net revenues.......................................... 28,429 74,737 131,756 Costs and expenses: Cost of sales and services: Prescription drugs...................................... 15,293 42,850 76,341 Other................................................... 3,839 11,661 20,577 Depreciation and amortization: Property, equipment and capital lease assets............ 192 391 819 Debt issue costs and intangibles........................ 137 476 870 Provision for impairment.................................. -- -- 3,198 Selling, general and administrative expenses.............. 7,943 21,292 35,799 ------- ------- -------- Total costs and expenses.................................... 27,404 76,670 137,604 ------- ------- -------- Income (loss) from operations............................... 1,025 (1,933) (5,848) Other income (expense): Interest and other income................................. 81 197 198 Interest expense.......................................... (299) (803) (1,898) ------- ------- -------- Total other income (expense)................................ (218) (606) (1,700) ------- ------- -------- Income (loss) before provision (credit) for income taxes.... 807 (2,539) (7,548) Provision (credit) for income taxes......................... 480 (360) -- ------- ------- -------- Net income (loss)........................................... $ 327 $(2,179) $ (7,548) ======= ======= ======== Basic earnings (loss) per share............................. $ .12 $ (.43) $ (1.30) ======= ======= ======== Diluted earnings (loss) per share........................... $ .11 $ (.43) $ (1.30) ======= ======= ========
See accompanying notes. F-4 HORIZON PHARMACIES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
RETAINED COMMON STOCK ADDITIONAL EARNINGS TREASURY STOCK TOTAL ------------------- PAID-IN (ACCUMULATED ------------------- STOCKHOLDERS' SHARES AMOUNT CAPITAL DEFICIT) SHARES AMOUNT EQUITY -------- -------- ---------- ------------ -------- -------- ------------- (IN THOUSANDS) Balance at December 31, 1996......... 1,082 $11 $ 1,760 $ (21) -- $ -- $ 1,750 Sales of stock: Initial public offering............ 1,380 14 5,522 -- -- -- 5,536 Private placement.................. 465 4 4,201 -- -- -- 4,205 Issuance of stock in acquisitions.... 28 -- 321 -- -- -- 321 Issuance of stock to reduce debt..... 2 -- 30 -- -- -- 30 Net income, exclusive of pro forma provision for income taxes of $120,000........................... -- -- -- 447 -- -- 447 Distributions to stockholders ($.17 per share)......................... -- -- -- (450) -- -- (450) Reclassification of accumulated deficit as a result of termination of S corporation status............ -- -- (302) 302 -- -- -- Three-for-two stock split effected in the form of a dividend............. 1,479 15 (15) -- -- -- -- ----- --- ------- ------- -------- ---- ------- Balance at December 31, 1997......... 4,436 44 11,517 278 -- -- 11,839 Exercise of warrants................. 33 -- 131 -- -- -- 131 Exercise of stock options............ 116 1 463 -- -- -- 464 Issuance of stock in acquisitions.... 291 3 3,420 -- -- -- 3,423 Issuance of stock to purchase land... 6 -- 50 -- -- -- 50 Issuance of stock to reduce debt..... 5 -- 45 -- -- -- 45 Sale of stock........................ 737 8 6,717 -- -- -- 6,725 Purchase of treasury stock........... -- -- -- -- 6 (70) (70) Net loss............................. -- -- -- (2,179) -- -- (2,179) ----- --- ------- ------- -------- ---- ------- Balance at December 31, 1998......... 5,624 56 22,343 (1,901) 6 (70) 20,428 Exercise of stock options............ 64 1 276 -- -- -- 277 Issuance of stock in acquisitions.... 201 2 1,577 -- -- -- 1,579 Issuance of warrants to lender....... -- -- 514 -- -- -- 514 Net loss............................. -- -- -- (7,548) -- -- (7,548) ----- --- ------- ------- -------- ---- ------- Balance at December 31, 1999......... 5,889 $59 $24,710 $(9,449) 6 $(70) $15,250 ===== === ======= ======= ======== ==== =======
See accompanying notes. F-5 HORIZON PHARMACIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------ 1997 1998 1999 -------- -------- -------- (IN THOUSANDS) OPERATING ACTIVITIES Net income (loss)........................................... $ 327 $(2,179) $(7,548) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization............................. 329 867 1,689 Provision for impairment.................................. -- -- 3,198 (Gain) loss on disposals of assets........................ -- 24 (3) Provision for uncollectible accounts receivable........... 103 147 428 Provision (credit) for deferred income taxes.............. 140 (140) -- Pro forma provision for income taxes...................... 120 -- -- Changes in operating assets and liabilities, net of acquisitions of businesses: Accounts receivable..................................... (2,425) (3,094) (3,342) Inventories............................................. (1,014) (2,089) (2,226) Other current assets.................................... (90) (651) 158 Bank overdraft.......................................... (247) -- -- Accounts payable........................................ 2,178 4,219 4,372 Accrued liabilities..................................... 453 824 (41) ------- ------- ------- Total adjustments........................................... (453) 107 4,233 ------- ------- ------- Net cash used in operating activities....................... (126) (2,072) (3,315) INVESTING ACTIVITIES Purchase of certificate of deposit.......................... -- -- (375) Purchases of property and equipment......................... (657) (1,060) (1,781) Proceeds from disposals of assets........................... -- -- 6 Assets acquired for cash in acquisitions of businesses...... (1,696) (7,448) (5,103) ------- ------- ------- Net cash used in investing activities....................... (2,353) (8,508) (7,253) FINANCING ACTIVITIES Borrowings.................................................. -- 8,811 8,132 Debt issue costs incurred................................... -- (136) (79) Principal payments on debt.................................. (2,817) (2,693) (2,871) Principal payments on obligations under capital leases...... (64) (119) (245) Issuances of stock, net of offering costs................... 9,741 7,320 277 Distributions to stockholders............................... (450) -- -- Purchase of treasury stock.................................. -- (70) -- ------- ------- ------- Net cash provided by financing activities................... 6,410 13,113 5,214 ------- ------- ------- Net increase (decrease) in cash and cash equivalents........ 3,931 2,533 (5,354) Cash and cash equivalents at beginning of year.............. 153 4,084 6,617 ------- ------- ------- Cash and cash equivalents at end of year.................... $ 4,084 $ 6,617 $ 1,263 ======= ======= =======
(CONTINUED ON FOLLOWING PAGE) F-6 HORIZON PHARMACIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED DECEMBER 31, ------------------------------ 1997 1998 1999 -------- -------- -------- (IN THOUSANDS) SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the year for: Interest.................................................. $ 309 $ 693 $ 1,801 Income taxes, net of refunds.............................. -- 503 (264) NONCASH INVESTING AND FINANCING ACTIVITIES Additions to property and equipment financed by debt........ $ 15 $ -- $ -- Equipment leased under capital leases....................... 216 357 445 Issuance of stock to reduce debt............................ 30 45 -- Issuance of stock to purchase land.......................... -- 50 -- Issuance of warrants to lender.............................. -- -- 514 Acquisitions of businesses financed by debt and common stock: Accounts receivable and other............................. $ 459 $ 442 $ 1,224 Inventories............................................... 3,596 8,094 3,212 Property and equipment.................................... 373 1,322 1,329 Noncompete covenants and customer lists................... 614 1,021 681 Goodwill.................................................. 1,066 6,265 6,190 ------- ------- ------- 6,108 17,144 12,636 Less cash paid............................................ 1,696 7,448 5,103 ------- ------- ------- Assets acquired............................................. $ 4,412 $ 9,696 $ 7,533 ======= ======= ======= Financed by: Advance by stockholder.................................... $ 100 $ -- $ -- Accounts payable and accrued liabilities.................. -- -- 378 Debt...................................................... 3,991 6,273 5,576 Common stock.............................................. 321 3,423 1,579 ------- ------- ------- $ 4,412 $ 9,696 $ 7,533 ======= ======= =======
See accompanying notes. F-7 HORIZON PHARMACIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1998 AND 1999 (IN THOUSANDS, EXCEPT SHARE DATA) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS As of December 31, 1999, HORIZON Pharmacies, Inc. (the "Company") owns and operates fifty-two retail pharmacies which sell prescription drugs, health and beauty aids and other products and are located in seventeen states, including nineteen pharmacies located in Texas (NOTE 4). Purchases from the Company's primary supplier were $18,344 in 1997, $51,991 in 1998 and $82,132 in 1999. Accounts payable to the primary supplier were $6,013 at December 31, 1998 and $8,916 at December 31, 1999. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant intercompany accounts and transactions have been eliminated. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to significant concentrations of credit risk consist principally of accounts receivable. Accounts receivable are unsecured and consist principally of receivables from third-party providers (insurance companies and government agencies) under third- party payment plans. Certain of these receivables are recorded net of any allowances provided under the respective plans. Since payments due from certain third-party payers are sensitive to payment criteria changes and legislative actions, the allowance is reviewed continually and adjusted for accounts deemed uncollectible by management. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. CASH EQUIVALENTS Cash equivalents include highly liquid investments with maturities of three months or less when purchased. ADVERTISING Advertising costs are charged to expense as incurred and amounted to $174 in 1997, $649 in 1998 and $806 in 1999. DEPRECIATION AND AMORTIZATION Property and equipment are depreciated on a straight-line basis over the estimated useful lives of thirty years for buildings and three to fifteen years for software and equipment. Leasehold improvements and equipment under capital leases are amortized on a straight-line basis over the estimated useful lives of the assets or over the terms of the leases, whichever are shorter. Intangibles are amortized on a straight-line basis over the terms of the noncompete covenants of two to seven F-8 HORIZON PHARMACIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1998 AND 1999 (IN THOUSANDS, EXCEPT SHARE DATA) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) years and estimated useful lives of customer lists and goodwill of five years and forty years, respectively. Debt issue costs are amortized on a straight-line basis over the term of the related credit agreement. ACCOUNTING FOR LONG-LIVED ASSETS The Company reviews long-lived assets, including intangibles, whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. Assets are grouped and evaluated for impairment at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company has determined that an individual pharmacy is the level at which this review will be applied. The Company's primary test for an indicator of potential impairment is operating losses. If an indication of impairment is determined to be present, the Company estimates the future cash flows expected to be generated from the use of the asset and its eventual disposal. If the sum of undiscounted future cash flows is less than the carrying amount of the asset, an impairment loss is recognized. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The fair value of the asset is measured by calculating the present value of estimated future cash flows using a discount rate equivalent to the rate of return the Company expects to achieve from its investment in new pharmacies. Long-lived assets held for disposal are carried at the lower of depreciated cost or fair value less cost to sell. Fair values are estimated based upon appraisals or other independent assessments of the assets' estimated sales values. During the period in which assets are being held for disposal, depreciation and amortization of such assets are not recognized. SELF-INSURANCE The Company is partially self-insured for losses and liabilities related to health and welfare claims. Losses are accrued based upon the Company's estimates of the aggregate liability for claims incurred using certain actuarial assumptions followed in the insurance industry and based on Company experience. FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used in estimating the fair value disclosures for financial instruments: The carrying amounts reported for cash and cash equivalents, accounts receivable, accounts payable and variable-rate debt approximate their fair values. The fair values of fixed-rate debt are estimated using discounted cash flow analyses, based on current, incremental borrowing rates for similar types of borrowing arrangements. The fair values of notes payable and long-term debt were approximately $16,400 and $26,900 at December 31, 1998 and 1999, respectively. F-9 HORIZON PHARMACIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1998 AND 1999 (IN THOUSANDS, EXCEPT SHARE DATA) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES Prior to completion of an initial public offering (the "Offering") in July 1997, no income taxes were included in the Company's financial statements under provisions of the Internal Revenue Code related to S corporations. Upon completion of the Offering, the S status was automatically terminated and the Company became subject to income taxes. The pro forma provision for income taxes for the period prior to July 1997 is based on an estimated effective tax rate of 35% as though the Company was required to pay income taxes. The 1997 financial statements include a provision for deferred income taxes of $170, resulting from a change in S corporation status related to the tax effect of cumulative temporary differences in financial and tax bases of net assets as of the date of the Offering. STOCK-BASED COMPENSATION The Company grants stock options to employees and directors with exercise prices equal to the fair values at the dates of grants. The Company accounts for stock option grants in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." No compensation expense is recognized with respect to stock options granted at exercise prices equal to the market prices of the Company's common stock at the dates of grants. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings (loss) per share:
1997 1998 1999 --------- --------- --------- Numerator: Net income (loss)......................................... $ 327 $ (2,179) $ (7,548) Denominator: Weighted average shares outstanding--basic................ 2,769,236 5,065,545 5,788,026 Effect of dilutive employee stock options and warrants.... 95,568 -- -- --------- --------- --------- Weighted average shares--diluted............................ 2,864,804 5,065,545 5,788,026 ========= ========= ========= Basic earnings (loss) per share............................. $ .12 $ (.43) $ (1.30) ========= ========= ========= Diluted earnings (loss) per share........................... $ .11 $ (.43) $ (1.30) ========= ========= ========= Anti-dilutive employee stock options and warrants excluded.................................................. -- 359,958 737,642 ========= ========= =========
2. LIQUIDITY AND MANAGEMENT'S PLANS The Company is dependent on existing credit agreements with lenders, including its largest supplier, and proceeds from potential debt and equity offerings in order to fund its operations and pay its obligations. As of December 31, 1999, the Company has working capital lines of credit with two lenders collateralized by receivables, inventories and equipment. These lines of credit are the primary F-10 HORIZON PHARMACIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1998 AND 1999 (IN THOUSANDS, EXCEPT SHARE DATA) 2. LIQUIDITY AND MANAGEMENT'S PLANS (CONTINUED) sources of liquidity for the Company. As of December 31, 1999, the credit agreements provided for borrowings up to $18,000 including the Company's $7,000 bank credit facility which expires on July 31, 2000. As of March 31, 2000, the Company has availability for additional borrowings under the lines of $322. Management's plan for 2000 provides for the Company to improve its financial condition and operating results through the sale or closure of several underperforming pharmacies (including one pharmacy sold in March 2000), increased selling prices, the reduction of receivables and inventories levels, reduction in store operating hours and labor costs and various debt and equity alternatives. In April 2000, the Company issued $2,500 in convertible debentures which provided $2,175 in net proceeds. As discussed above, the Company's $7,000 revolving credit facility from Bank One matures July 31, 2000. The Company believes that in the event that the bank does not renew or otherwise extend the credit facility, it will be able to secure replacement financing at similar terms or otherwise retire the debt with sales proceeds from the stores identified as held for disposal in the fourth quarter of 1999. In the event such proceeds are not sufficient or that alternative financing is not arranged, the Company may have to sell the assets of certain performing stores (which have previously received unsolicited purchase inquiries) to provide the additional funds to retire the debt. While such additional store sales would reduce future revenues, the Company does not believe such reduction would have a material adverse effect on the financial position or results of operation of the Company. 3. ACQUISITIONS All of the Company's retail pharmacies have been acquired from third parties in purchase transactions. Such acquisitions have usually been structured as asset purchases and have included accounts receivable, inventories, property and equipment and the assumption of store operating lease arrangements. The acquisitions generally have been financed by debt to the sellers and/or an inventory supplier. The number of pharmacies acquired amounted to eleven prior to 1997, thirteen in 1997, twenty-one in 1998 and seven in 1999. The following unaudited pro forma results of operations data gives effect to the acquisitions completed in 1997 and 1998 as if the acquisitions had been consummated as of January 1, 1997 and the acquisitions completed in 1999 as if the acquisitions had been consummated as of January 1, 1998. The unaudited pro forma results of operations data is presented for illustrative purposes and is not necessarily indicative of the actual results that would have occurred had the acquisitions been consummated as of January 1, 1997 and January 1, 1998 or of future results of operations. The data reflects adjustments for amortization of intangibles resulting from the purchases, incremental interest F-11 HORIZON PHARMACIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1998 AND 1999 (IN THOUSANDS, EXCEPT SHARE DATA) 3. ACQUISITIONS (CONTINUED) expense resulting from borrowings to finance the acquisitions, adjustments to employee benefits and rent expense and income tax effects.
YEAR ENDED DECEMBER 31, ------------------------------ 1997 1998 1999 -------- -------- -------- Unaudited pro forma information: Net revenues................................. $99,742 $101,209 $141,929 ======= ======== ======== Net income (loss)............................ $ 2,018 $ (897) $ (7,108) ======= ======== ======== Basic earnings (loss) per share.............. $ .73 $ (.17) $ (1.21) ======= ======== ======== Diluted earnings (loss) per share............ $ .70 $ (.17) $ (1.21) ======= ======== ========
4. IMPAIRMENT OF LONG-LIVED ASSETS During the fourth quarter of 1999, the Company identified several underperforming pharmacies with long-lived asset (primarily intangibles) carrying amounts of $1,001 and committed to a plan to sell them. Accordingly, the Company began marketing these pharmacies to potential buyers and plans to sell them during 2000. The Company believes that no buyers would assume any of the facilities leases. In March 2000, the Company sold the customer list of one pharmacy for $92 in cash. The Company estimated the fair values (based primarily on bids received from potential buyers) less costs to sell the pharmacies at $633 and recorded a $2,985 impairment loss, including estimated lease cancellation penalty fees and other exit costs of $2,617. As of December 31, 1999, the remaining aggregate lease commitments related to pharmacies held for sale in excess of the estimated liability recorded by the Company is $821. Management of the Company believes that the liability recorded is adequate based upon discussions with landlords. Net revenues and loss from operations related to these pharmacies for 1997, 1998 and 1999 are as follows:
LOSS FROM NET REVENUES OPERATIONS ------------ ---------- 1997.................................................. $3,987 $ (1) 1998.................................................. 9,331 (362) 1999.................................................. 13,532 (819)
As of December 31, 1999, the Company had identified other underperforming pharmacies whose operating results indicated that long-lived assets of these pharmacies might be impaired. The long-lived assets of these pharmacies had combined carrying amounts of $1,015. As a result of analyses performed, the Company determined that one pharmacy with a then-existing carrying amount of $250 was impaired and recorded a $213 impairment loss. Management's estimate of undiscounted future cash flows indicates that the remaining carrying amounts as of December 31, 1999 are expected to be recovered. However, it is reasonably possible that the estimate of undiscounted cash flows may change in the near future resulting in the need to write-down one or more of the identified assets to fair value. F-12 HORIZON PHARMACIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1998 AND 1999 (IN THOUSANDS, EXCEPT SHARE DATA) 5. NOTES PAYABLE The Company has a loan agreement with a bank which provides for revolving borrowings until July 31, 2000 up to $7,000. Borrowings must be used for working capital and general corporate purposes, excluding acquisitions, bear interest at prime less 2% (effective rate of 6.5% as of December 31, 1999) and are guaranteed by the Company's primary supplier. The Company is obligated to pay a guarantee fee to the primary supplier of 3% of the borrowings outstanding which amounted to $5,500 as of December 31, 1999. The Company is also obligated to indemnify the guarantor for any losses arising from its guarantee. The loan agreement contains provisions which, among other things, limit the Company's ability to sell assets, make loans and enter into transactions with related parties. At December 31, 1999, the Company had not complied with several covenants of the loan agreement for which the Company received a waiver through December 31, 1999 from the bank on April 14, 2000. 6. INCOME TAXES The provision (credit) for income taxes consists of the following:
YEAR ENDED DECEMBER 31, -------------------------------------- 1997 1998 1999 -------- -------- ---------- Current: Federal.............................................. $185 $(185) $ -- State................................................ 35 (35) -- ---- ----- ---------- 220 (220) -- Deferred: Federal.............................................. (25) (120) -- State................................................ (5) (20) -- ---- ----- ---------- (30) (140) -- Deferred resulting from change in tax status........... 170 -- -- Pro forma.............................................. 120 -- -- ---- ----- ---------- Provision (credit) for income taxes.................... $480 $(360) $ -- ==== ===== ==========
F-13 HORIZON PHARMACIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1998 AND 1999 (IN THOUSANDS, EXCEPT SHARE DATA) 6. INCOME TAXES (CONTINUED) The reconciliation of income tax computed at the federal statutory tax rate to provision (credit) for income taxes is:
YEAR ENDED DECEMBER 31, ------------------------------ 1997 1998 1999 -------- -------- -------- Tax at statutory rate................................ $282 $(889) $(2,642) State income taxes, net of federal tax benefit....... 20 (36) (226) Effect of change in tax status....................... 170 -- -- Increase in deferred tax asset valuation allowance... -- 602 2,860 Other................................................ 8 (37) 8 ---- ----- ------- Provision (credit) for income taxes.................. $480 $(360) $ -- ==== ===== =======
At December 31, 1999, the Company had net operating loss carryforwards ("NOLs") of $6,100 for income tax purposes that expire in 2018 and 2019. For financial reporting purposes, a valuation allowance has been recognized to offset the deferred tax asset related to these carryforwards. If realized, the tax benefit for the NOLs will be credited to income taxes. Deferred tax assets and liabilities consist of the following at December 31:
1998 1999 -------- -------- Deferred tax liabilities: Property, equipment and capital lease assets.............. $112 $ 164 Intangibles............................................... 194 154 ---- ------ Deferred tax liabilities.................................... 306 318 Less deferred tax assets: Accounts receivable....................................... 82 244 Inventories............................................... 105 161 Debt issue costs and other................................ 22 68 Accrued liabilities....................................... -- 995 Net operating loss carryforward........................... 699 2,312 ---- ------ 908 3,780 Less valuation allowance.................................. 602 3,462 ---- ------ Net deferred tax assets................................... 306 318 ---- ------ Net deferred tax liabilities................................ $ -- $ -- ==== ======
F-14 HORIZON PHARMACIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1998 AND 1999 (IN THOUSANDS, EXCEPT SHARE DATA) 7. LONG-TERM DEBT Long-term debt consists of the following at December 31:
1998 1999 -------- -------- Borrowings under credit agreement(A)...................... $ 8,500 $10,678 Installment notes due in varying installments (totaling $291 per month as of December 31, 1999), including interest at rates ranging from 8% to 11.5% and maturing on various dates from August 2000 to June 2011.......... 7,763 10,965 ------- ------- 16,263 21,643 Less current portion of long-term debt.................... 3,104 2,439 ------- ------- Long-term debt............................................ $13,159 $19,204 ======= =======
(A) The Company has a credit agreement with its primary supplier which provides for borrowings up to $8,000 under a revolver and $3,000 under a term loan. Borrowings are to be used for acquisitions and working capital purposes and bear interest at prime plus 1% (effective rate of 9.5% at December 31, 1999). Availability of the revolver is subject to a borrowing base determined by the supplier and amounted to $8,000 as of December 31, 1999. Borrowings outstanding at December 31, 1999 consist of $7,678 under the revolver and $3,000 under the term loan and are payable in July 2003. The term loan may be extended as specified in the credit agreement. Mandatory prepayment of borrowings under the revolver is required if the amount of cash and cash equivalents exceeds $8 million. The agreement contains provisions which, among other things, limit the Company's ability to sell assets, incur additional debt and enter into transactions with related parties. The agreement also requires the Company to maintain at least a specified amount of net worth and satisfy certain financial ratios. At December 31, 1999, the Company had not complied with several covenants of the credit agreement. In exchange for warrants to purchase, until March 2010, 10,000 shares of common stock at $5.56 per share and other consideration, the Company received a waiver through December 31, 1999 from the supplier on March 30, 2000. On April 14, 2000, the credit agreement was amended to modify the covenants related to net worth and certain financial ratios. Management of the Company believes that the Company will be able to comply with all covenants during 2000. Accordingly, amounts payable under the credit agreement are classified as non-current in the accompanying financial statements. Long-term debt is collateralized by accounts receivable, inventories and property and equipment. Certain debt is collateralized by guarantees of certain stockholders. Long-term debt maturing during the five years subsequent to 1999 is as follows: 2000--$2,439; 2001--$2,391; 2002--$2,439; 2003--$12,859; 2004--$1,071 and thereafter--$444. F-15 HORIZON PHARMACIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1998 AND 1999 (IN THOUSANDS, EXCEPT SHARE DATA) 8. LEASES The Company leases most of its retail store facilities and certain equipment under noncancelable operating leases, many of which expire within seven years. These leases require the Company to pay for taxes, maintenance and insurance and contain renewal options, certain of which involve rent increases. As of December 31, 1999, the Company has a $375 certificate of deposit pledged to secure certain store lease commitments. Rent expense was $418 in 1997, $1,138 in 1998 and $2,634 in 1999. Components of obligations under capital leases for pharmacy computer equipment are as follows at December 31, 1998 and 1999:
1998 1999 -------- -------- Total minimum lease payments................................ $884 $829 Less amount representing interest........................... 364 109 ---- ---- Present value of net minimum lease payments................. 520 720 Less current portion........................................ 167 239 ---- ---- Amount due after one year................................... $353 $481 ==== ====
At December 31, 1999, the future minimum payments, excluding payments related to pharmacies held for sale (NOTE 4) and contingent rentals which have not been material, under operating and capital leases are as follows:
OPERATING CAPITAL YEAR LEASES LEASES - ---- --------- -------- 2000....................................................... $2,563 $298 2001....................................................... 2,357 269 2002....................................................... 1,936 233 2003....................................................... 1,430 29 2004....................................................... 882 -- Thereafter................................................. 579 -- ------ ---- Total...................................................... $9,747 829 ====== Less amount representing interest.......................... 109 ---- $720 ====
9. STOCKHOLDERS' EQUITY The Board of Directors has the authority to issue preferred stock in one or more classes or series and to fix the number of shares to be included in each such class or series and the designations, preferences, qualifications, limitations, restrictions and rights of the shares of each such class or series. In July 1997, the Company completed the Offering pursuant to which warrants to purchase 180,000 shares of common stock (exercisable until July 2002 at $4 per share) were sold. In October 1997, the Company completed a private placement pursuant to which warrants to purchase 30,000 shares of common stock (exercisable until November 2002 at $6.72 per share) were sold. In May 1997, the F-16 HORIZON PHARMACIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1998 AND 1999 (IN THOUSANDS, EXCEPT SHARE DATA) 9. STOCKHOLDERS' EQUITY (CONTINUED) stockholders of the Company approved a two-for-one split of the Company's common stock. In November 1997, the Board of Directors of the Company approved a three-for-two split of the Company's common stock in the form of a stock dividend. Stockholders received one additional share of common stock for each two shares held. In connection therewith, 1,478,834 shares of stock were issued and $15 was transferred from additional paid-in capital to common stock. The effects of the splits have been reflected retroactively in the accompanying financial statements. In June 1998, the Company completed a private placement pursuant to which warrants to purchase 41,000 shares of common stock (exercisable until June 2003 at $9.50 per share) were sold. During 1998, 32,750 shares of stock were issued upon exercise of warrants sold in the Offering. Pursuant to an agreement with a lender and primary supplier in May 1999, the Company issued warrants to purchase, until May 2009, 201,500 shares of common stock at $5.71 per share. In August 1999, the Company issued additional warrants to purchase, until August 2009, 50,000 shares of common stock at $5.05 per share pursuant to the same agreement. The exercise prices were equal to the market value at dates of grant. The value of these warrants at the dates of issuance totaled $514 and was charged to debt issue costs. At December 31, 1999, 469,750 shares of common stock have been reserved for issuance upon exercise of outstanding warrants at prices ranging from $4 to $9.50 per share. During the period from January 1, 2000 to March 31, 2000, the Company has entered into several agreements for services in exchange for common stock warrants aggregating 1,250,000 shares at exercise prices from $2.63 to $15.00. The exercise prices were equal to the market value at dates of grant. The value of these warrants will be charged to operations over the period of benefit. STOCK OPTIONS Under a 1997 stock option plan, options for 369,364 shares were granted by the Company in July 1997. These options became exercisable in October 1997 and expire in July 2007. Under 1998 and 1999 stock options plans, options for up to 1,050,000 shares of common stock may be granted to employees and directors at prices as specified in the plans on the dates the options are granted. Options granted in 1998 are generally exercisable in three equal annual installments commencing one year from the dates of grants and expire ten years from the dates of grants. Options for 427,900 shares were granted by the Company in 1998. In 1999, options for 544,950 shares of common stock were granted to directors and employees at option prices from $3.38 to $8.69 per share. These options are exercisable in three equal annual installments commencing in June 2000 and expire in June 2009. On September 30, 1999, options for 30,000 shares of common stock were granted to outside directors at an option price of $3.38 per share. These options are exercisable in three annual installments commencing in September 2000 and expire in September 2009. All options granted by the Company have been at option prices equal to the market values of the Company's common stock at the dates of grants. The following pro forma information presents net loss and diluted loss per share information as if the Company had accounted for stock options granted using the fair value method. The fair values of issued stock options were estimated at the dates of F-17 HORIZON PHARMACIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1998 AND 1999 (IN THOUSANDS, EXCEPT SHARE DATA) 9. STOCKHOLDERS' EQUITY (CONTINUED) grants using a Black-Scholes option pricing model with the following assumptions for 1997, 1998 and 1999, respectively: weighted average risk-free interest rates of 5.76%, 5.47% and 5.77%; no dividends over the option terms; stock price volatility factors of .75, .76 and .83, and weighted average expected option lives of two and one-half years, five years and five years. The estimated fair value as determined by the model is amortized to expense over the respective vesting period. The pro forma information presented below is not necessarily indicative of the pro forma effects to be presented in future periods. The pro forma information is as follows for the years ended December 31:
1997 1998 1999 -------- -------- -------- Net loss........................................... $(387) $(2,793) $(8,356) Diluted loss per share............................. $(.14) $ (.55) $ (1.44)
A summary of the Company's stock option activity and related information for the years ended December 31 follows:
1997 1998 1999 ------------------- ------------------- -------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE -------- -------- -------- -------- --------- -------- Outstanding--beginning of year.............. -- $ -- 369,364 $4.00 676,563 $6.72 Granted..................................... 369,364 4.00 427,900 8.33 544,950 5.50 Exercised................................... -- -- (116,101) 4.00 (64,247) 4.00 Forfeited................................... -- -- (4,600) 6.87 (103,600) 7.87 ------- -------- --------- Outstanding--end of year.................... 369,364 $ 4.00 676,563 $6.72 1,053,666 $6.14 ======= ======== ========= Exercisable at end of year.................. 369,364 $ 4.00 271,763 $4.31 319,833 $5.79 ======= ======== ========= Weighted average fair value of options granted during the year................... $ 5.94 $ 13.80 $ 9.33
A summary of the Company's options as of December 31, 1999 follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------- ------------------- WEIGHTED AVERAGE REMAINING WEIGHTED WEIGHTED NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE OF LIFE EXERCISE OF EXERCISE RANGE OF EXERCISE PRICES OPTIONS (YEARS) PRICE OPTIONS PRICE - ------------------------ --------- ----------- -------- -------- -------- $3.38....................................... 30,000 9.9 $ 3.38 -- $ -- $4.00....................................... 187,516 7.5 4.00 187,516 4.00 $5.38 to $5.63.............................. 498,200 9.5 5.62 -- -- $8.25....................................... 283,950 8.1 8.25 114,650 8.25 $8.69 to $8.88.............................. 54,000 8.9 8.87 17,667 8.88 --------- ----- ------- ------- ----- 1,053,666 8.7 $ 6.14 319,833 $5.79 ========= ===== ======= ======= =====
F-18 HORIZON PHARMACIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1998 AND 1999 (IN THOUSANDS, EXCEPT SHARE DATA) 10. EMPLOYEE BENEFIT PLAN The Company has a profit sharing plan for eligible employees whereby each participant in the plan may contribute by payroll deduction up to 15% of their compensation. The Company may make matching contributions of a portion of each participant's contribution. The Company may also make a profit sharing contribution. Profit sharing contributions were none in 1997, $67 in 1998 and $107 in 1999. 11. CONTINGENCIES The Company and certain present and former officers or directors are named as defendants in an action that was filed on May 28, 1999. Plaintiffs seek to certify a class of persons who purchased shares of the Company's common stock during the period between August 14, 1998 and March 3, 1999, inclusive, alleging that defendants failed to timely disclose complications with the Company's prescription pricing communications technology. Plaintiffs seek unspecified compensatory and/or rescissonary damages. The Company is vigorously defending against the action and has filed a motion to dismiss the complaint. No decision has been made by the court as to whether the matter may proceed as a class action. The Company has contingent liabilities for other lawsuits and various other matters occurring in the ordinary course of business. Management of the Company believes that the ultimate resolution of these contingencies will not have a material adverse effect on the Company's financial position or results of operations. F-19 HORIZON PHARMACIES, INC. SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS AMOUNTS BALANCE AT CHARGED TO WRITTEN OFF BALANCE BEGINNING COSTS AND AGAINST THE AT END DESCRIPTION OF YEAR EXPENSES ALLOWANCE RECOVERIES OF YEAR - ----------- ---------- ---------- ----------- ---------- -------- (IN THOUSANDS) Allowance for doubtful accounts receivable: Year ended: December 31, 1997....................... $ 20 $103 $11 $ -- $112 ==== ==== === ========== ==== December 31, 1998....................... $112 $147 $42 $ -- $217 ==== ==== === ========== ==== December 31, 1999....................... $217 $428 $ 3 $ -- $642 ==== ==== === ========== ====
F-20 INDEXT TO 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 electronically on August 14, 1998. 3.2 Bylaws of HORIZON Pharmacies, Inc., incorporated by reference to Exhibit 3.2 of our Quarterly Report on Form 10-QSB filed electronically on August 14, 1998. 4.1 Specimen Certificate of the common stock of HORIZON Pharmacies, Inc. incorporated by reference to Exhibit 4.1 of our Registration Statement on Form S-3 (File No. 333-61987). 4.2 Form of Warrant dated July 11, 1997 between HORIZON Pharmacies, Inc. and Capital West Securities, Inc. and Com Vest Partners, Inc., incorporated herein by reference to Exhibit 4.2 of our Registration Statement on Form S-3 (File No. 333-61987). 4.3 Warrant Agreement dated November 7, 1997 by and between HORIZON Pharmacies, Inc. and Com Vest Partners, Inc. incorporated by reference to Exhibit 4.3 of our Annual Report on Form 10-KSB for the fiscal year ended December 31, 1997 filed electronically on April 15, 1998. 4.4 Form of Warrant dated June 12, 1998 between HORIZON Pharmacies, Inc. and the parties to the Securities Purchase Agreement included herein as Exhibit 10.4, incorporated herein by reference to Exhibit 99.1 of our Current Report on Form 8-K filed electronically on June 25, 1998. 4.5 Amended and Restated Warrant Purchase Agreement dated May 14, 1999 among HORIZON Pharmacies, Inc. and McKesson HBOC, Inc. (filed electronically herewith). 4.6 First Amendment to Amended and Restated Warrant Purchase Agreement dated March 30, 2000 between HORIZON Pharmacies, Inc. and McKesson HBOC, Inc. (filed electronically herewith) 4.7 Warrant dated January 28, 2000 between HORIZON Pharmacies, Inc. and K-2 Financial Corp. (filed electronically herewith) 4.8 Warrant dated February 1, 2000 between HORIZON Pharmacies, Inc. and 5Net5 Corp. (filed electronically herewith) 4.9 Warrant dated March 14, 2000 between HORIZON Pharmacies, Inc. and Informed.com, Inc. (filed electronically herewith) 4.10 Warrant dated March 14, 2000 between HORIZON Pharmacies, Inc. and Informed.com, Inc. (filed electronically herewith) 4.11 Registration Rights Agreement dated March 14, 2000 by and between HORIZON Pharmacies, Inc., and Informed.com, Inc. (filed electronically herewith). 4.12 Warrant dated March 30, 2000 between HORIZON Pharmacies, Inc. and McKesson HBOC, Inc. (filed electronically herewith). 4.13 Warrant dated April 5, 2000 between HORIZON Pharmacies, Inc. and eGrocery.com, Inc., incorporated herein by reference to Exhibit 4.1 of our Current Report on Form 8-K filed electronically on April 14, 2000. 10.1 Supply Agreement dated effective April 30, 1998 by and between HORIZON Pharmacies, Inc. and McKesson Corporation, incorporated herein by reference to Exhibit 10.1 of our Form 10-Q filed electronically on May 15, 1998. 10.2 Letter Agreement dated April 14, 1999 amending the Supply Agreement included herein as Exhibit 10.1 (filed electronically herewith) 10.3 Amendment to the Supply Agreement included as Exhibit 10.1 herein, dated March 30, 2000 between HORIZON Pharmacies, Inc. and McKesson HBOC Inc. (filed electronically herewith)
10.4 Securities Purchase Agreement dated June 15, 1998 by and among HORIZON Pharmacies, Inc. and the Several Purchasers named therein (filed electronically herewith). 10.5 Credit Agreement dated July 2, 1998 by and between the HORIZON Pharmacies, Inc. and McKesson Corporation, incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed electronically on August 4, 1998. 10.6 First Amendment to the Credit Agreement included as Exhibit 10.5 herein, dated as of July 20, 1998 incorporated herein by referenced to Exhibit 10.2 of our Current Report on Form 8-K filed electronically on August 4, 1998. 10.7 Second Amendment to Credit Agreement included as Exhibit 10.5 herein, dated as of August 26, 1998, incorporated herein by reference to Exhibit 10.3 of our Current Report on Form 8-K/A filed electronically on August 31, 1998. 10.8 Third Amendment to Credit Agreement included as Exhibit 10.3 herein, dated as of May 14, 1999 (filed electronically herewith). 10.9 Fourth Amendment to the Credit Agreement included as Exhibit 10.3 herein, dated as of August 16, 1999 (filed electronically herewith). 10.10 Fifth Amendment to the Credit Agreement included as Exhibit 10.3 herein, dated as of April 14, 2000 (filed electronically herewith). 10.11* Form of Employment Agreement by and between HORIZON Pharmacies, Inc. and each of Rick D. McCord, R.Ph., Charlie K. Herr, R.Ph. and Robert D. Mueller, R.Ph., incorporated herein by reference to Exhibit 10.4 to the Registration Statement on Form SB-2 (File No. 333-25257). 10.12 Purchase Agreement dated November 8, 1998 by and between HORIZON Pharmacies, Inc. and Holland's Drug Store, Inc., incorporated herein by reference to Exhibit 2.1 of our Current Report on Form 8-K filed electronically on November 18, 1998. 10.13 Consulting Agreement dated January 28, 2000 between HORIZON Pharmacies, Inc. and K-2 Financial Corp., incorporated herein by reference to Exhibit 10.1 of our Current Report on Form 8-K filed electronically on March 9, 2000. 10.14 Investment Banking Agreement dated January 28, 2000 between HORIZON Pharmacies, Inc. and Waterford Financial, Inc., incorporated herein by reference to Exhibit 10.2 of our Current Report on Form 8-K filed electronically on March 9, 2000. 10.15 Software Development Agreement dated February 1, 2000 between HORIZON Pharmacies, Inc. and 5Net5 Corp., incorporated herein by reference to Exhibit 10.3 of our Current Report on Form 8-K filed electronically on March 9, 2000. 10.16 Amendment to Software Development Agreement dated February 1, 2000 between HORIZON Pharmacies, Inc. and 5Net5 Corp., incorporated herein by reference to Exhibit 10.4 of our Current Report on Form 8-K filed electronically on March 9, 2000. 10.17 Fulfillment and Guaranty Agreement dated March 14, 2000 by and between HORIZON Pharmacies, Inc. and InformedScripts.com, incorporated herein by reference to Exhibit 10.1 of our Current Report on Form 8-K filed electronically on April 6, 2000. 10.18 Limited Waiver and Consent dated March 30, 2000 between HORIZON Pharmacies, Inc. and McKesson HBOC, Inc. (filed electronically herewith). 10.19 Cooperative Marketing Agreement dated April 6, 2000 by and between eGrocery.com, Inc. and HORIZON Pharmacies, Inc, incorporated herein by reference to Exhibit 10.1 of our Current Report on Form 8-K filed electronically on April 14, 2000. 10.20 Letter Agreement, dated April 14, 2000, regarding the Loan Agreement dated July 31, 1999 between HORIZON Pharmacies, Inc. and Bank One, Texas, N.A. (filed electronically herewith). 10.21* HORIZON Pharmacies, Inc. 401(k) Plan incorporated herein by reference to Exhibit 4.2 to our Registration Statement on Form S-8 (File No. 333-43607).
10.22* HORIZON Pharmacies, Inc. 1999 Stock Option Plan (filed electronically herewith). 10.23* HORIZON Pharmacies, Inc. 1998 Stock Option Plan incorporated by reference to Exhibit 4.2 of our Registration Statement on Form S-8 (File No. 333-62805). 10.24 HORIZON Pharmacies, Inc. 1997 Stock Option Plan incorporated herein by reference to Exhibit 4.4 to our Registration Statement on Form SB-2, as amended (File No. 333-25257). 21.1 Subsidiaries of HORIZON Pharmacies, Inc. (filed electronically herewith). 23.1 Consent of Ernst & Young LLP, Independent Auditors (filed electronically herewith). 27.1 Financial data schedule (filed electronically herewith).
- ------------------------ * Management contract or compensatory plan or arrangement. EX-4.5 2 EXHIBIT 4.5 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AMENDED AND RESTATED WARRANT PURCHASE AGREEMENT Among HORIZON PHARMACIES, INC. And McKESSON HBOC, INC. Dated as of May 14, 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
SECTION HEADING PAGE SECTION 1. CERTAIN DEFINITIONS AND TERMS..........................................................................1 SECTION 1.1 DEFINITIONS............................................................................1 SECTION 2. AUTHORIZATION OF WARRANTS..............................................................................3 SECTION 3. SALE AND PURCHASE OF WARRANTS..........................................................................4 SECTION 4. EXERCISE OF WARRANTS AND DETERMINATION OF SHARES.......................................................4 SECTION 5. WARRANT ISSUE DATE AND CONDITIONS TO ISSUANCE..........................................................4 SECTION 6. REPRESENTATIONS AND WARRANTIES.........................................................................5 SECTION 6.1 PURCHASE FOR INVESTMENT................................................................5 SECTION 6.2 SOURCE OF FUNDS........................................................................5 SECTION 7. TRANSFER; REGISTRATION RIGHTS..........................................................................5 SECTION 7.1 RESTRICTIONS ON TRANSFERABILITY........................................................5 SECTION 7.2 NOTICE OF PROPOSED TRANSFER; REGISTRATION NOT REQUIRED.................................5 SECTION 7.3 REQUIRED REGISTRATION..................................................................6 SECTION 7.4 CONDITIONS TO REQUIRED REGISTRATION...................................................11 SECTION 7.5 INCIDENTAL REGISTRATIONS..............................................................11 SECTION 7.6 UNDERWRITTEN OFFERINGS................................................................12 SECTION 7.7 EXPENSES; RELIANCE....................................................................12 SECTION 7.8 INDEMNIFICATION AND CONTRIBUTION......................................................13 SECTION 7.9 ADDITIONAL REGISTRATION RIGHTS........................................................15 SECTION 7.10 RESTRICTIVE LEGENDS...................................................................15 SECTION 7.11 STOCK EXCHANGE LISTING................................................................16 SECTION 7.12 MISCELLANEOUS.........................................................................16 SECTION 8. REDEMPTION OF WARRANTS................................................................................16 SECTION 9. LOST, STOLEN WARRANTS, ETC............................................................................16 SECTION 10. RESTRICTIONS ON CAPITAL STRUCTURE....................................................................17 SECTION 11. INDEX AND CAPTIONS...................................................................................17 SECTION 12. MISCELLANEOUS........................................................................................17 SECTION 12.1 NOTICES...............................................................................17 SECTION 12.2 SUCCESSORS AND ASSIGNS................................................................17 SECTION 12.3 SEVERABILITY..........................................................................17 SECTION 12.4 GOVERNING LAW.........................................................................18 SECTION 12.5 AMENDMENTS............................................................................18
i. Schedule A -- Notice and Payment Instructions Exhibit A -- Warrant ii. AMENDED AND RESTATED WARRANT PURCHASE AGREEMENT THIS AMENDED AND RESTATED WARRANT PURCHASE AGREEMENT (this "AGREEMENT") is entered into as of May 14, 1999, between HORIZON PHARMACIES, INC., a Delaware corporation ("COMPANY"), and McKESSON HBOC, INC., a Delaware corporation formerly known as McKesson Corporation ("MCKESSON"). On July 2, 1998, Company issued its Warrant to purchase 101,500 shares of Common Stock of Company to McKesson in connection with and as a condition to the Loans. Such Warrants were issued pursuant to a Warrant Purchase Agreement dated as of July 2, 1998 between Company and McKesson (the "Original Agreement"). In consideration of certain amendments and waivers to the Credit Agreement, Company has agreed to amend and restate the Original Agreement and to issue new Warrants in exchange for the Warrants issued on July 2, 1998, and to issue additional Warrants both concurrently with the execution and delivery hereof and upon the satisfaction of certain conditions. In consideration of the purchase by McKesson of the Warrants and of the credit facilities extended and to be extended to Company, Company is willing to offer McKesson the rights described herein, including, without limitation, registration rights and rights of indemnity and other rights and privileges relating to the Warrants and the Restricted Shares and Underlying Shares, all as more specifically set forth herein. NOW, THEREFORE, for and in consideration of the foregoing and the mutual covenants herein contained, the parties hereto agree that the Original Agreement is hereby amended and restated to read in full as follows: SECTION 1. CERTAIN DEFINITIONS AND TERMS. SECTION 1.1 DEFINITIONS. Terms not otherwise defined herein shall have the respective meanings assigned thereto in the Credit Agreement. As used herein, the following terms have the meanings indicated: "BUSINESS DAY" shall mean any day other than a Saturday, a Sunday or a day on which commercial banks in Princeton, Texas, or San Francisco, California, are required or authorized to be closed. "CERTIFICATE OF INCORPORATION" shall mean the Certificate of Incorporation of Company as filed with the Delaware Secretary of State on April 27, 1998, without further amendment or modification thereto except as permitted pursuant to the terms of this Agreement or the Warrant. "CLOSING DATE" means the date on which all conditions precedent set forth in Section 4.1 of the Credit Agreement have been satisfied or waived by McKesson. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. "COMMISSION" means the Securities and Exchange Commission, or any other federal agency at the time administering the Securities Act or the Trust Indenture Act of 1939, as amended, as the case may be. 1. "COMMON STOCK" means the shares of common stock, par value of $0.01 per share, of Company described in the Certificate of Incorporation. "CREDIT AGREEMENT" means that certain Credit Agreement dated as of July 2, 1998 between Company and McKesson, as it may be amended from time to time. "CUTBACK DETERMINATION" is defined in SECTION 7.3(a). "DEMAND REGISTRATION" is defined in SECTION 7.3(a). "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. "EXERCISE PERIOD" means the period from but excluding on the fifteenth day after the First Anniversary to and including the Expiration Date. "EXISTING WARRANT AGREEMENTS" means (i) the Warrant Agreement dated November 7, 1997 between Company and ComVest Partners, Inc., (ii) the Warrant Agreement dated July 11, 1997 between Company and Capital West Securities, Inc. and ComVest Partners, Inc. and (iii) the Securities Purchase Agreement dated June 15, 1998 among Company, on the one hand, and Quantum Partners LDC, Collins Capital Diversified Fund, L.P., White Rock Capital Partners, L.P., White Rock Capital Offshore, Ltd., Legion Strategies Limited, Caxton International Limited and White Rock Capital Management, L.P. (#10), in each case excluding any amendments thereto not approved in writing by a majority of the Holders. "EXPIRATION DATE" as to any Warrant means the date and time specified as the "Expiration Date" in such Warrant. "FIRST ANNIVERSARY" means the first anniversary of the Closing Date. "HOLDER" means any beneficial owner of (i) any Restricted Share, or (ii) any Warrant, in each case as the context may require. "INCIDENTAL CUTBACK DETERMINATION" is defined in SECTION 7.5. "INITIAL WARRANT ISSUE DATE" is defined in SECTION 5. "PERMITTED INCIDENTAL REGISTRATION" means the registration of Securities of another Person pursuant to the rights granted by the Company under the Existing Warrant Agreements or the Registration Rights Agreement dated June 15, 1998 among Company, on the one hand, and Quantum Partners LDC, Collins Capital Diversified Fund, L.P., White Rock Capital Partners, L.P., White Rock Capital Offshore, Ltd., Legion Strategies Limited, Caxton International Limited and White Rock Capital Management, L.P. (#10), in each case excluding any amendments thereto not approved in writing by a majority of the Holders. "PERSON" means an individual, partnership, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof. 2. "RESTRICTED SHARES" means the shares of Common Stock of Company issued upon the exercise of any of the Warrants and evidenced by a certificate required to bear the legend specified in SECTION 7.10. "SECOND WARRANT ISSUE DATE" is defined in SECTION 5. "SECURITIES ACT" means the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations promulgated thereunder, all as the same shall be in effect at the time. "SECURITY" or "SECURITIES" shall have the same meaning as in Section 2(1) of the Securities Act. "THIRD AMENDMENT TO CREDIT AGREEMENT" means that certain Third Amendment to Credit Agreement and Limited Waiver dated as of even date herewith between Company and McKesson. "UNDERLYING SHARES" means the shares of Common Stock of Company issuable upon exercise of any of the Warrants in accordance with the Warrants and this Agreement, and any references contained herein to a Holder or Holders of any Underlying Shares shall be deemed to refer to the Holder of the Warrants relating thereto. "WARRANT ISSUE DATE" is defined in SECTION 5. "WARRANT SHARES" means the shares of Common Stock issued upon exercise of the Warrants. "WARRANTS" is defined in SECTION 2. SECTION 2. AUTHORIZATION OF WARRANTS. In consideration of, and as an inducement to, McKesson's entering into the Third Amendment to Credit Agreement and to continue to extend credit to Company under the Credit Agreement, Company will authorize the issuance and sale of, and Company agrees to deliver to McKesson on the Warrant Issue Dates, one or more warrants (all warrants being delivered to McKesson being referred to collectively as the "WARRANTS") substantially in the form attached hereto as Exhibit A to purchase the number of shares of Common Stock of Company as set forth in SECTION 4 of this Agreement for the consideration set forth in the Warrants. The number of shares which may be purchased upon the exercise of the Warrants and the price per share are subject to adjustment in the manner and on the terms and conditions set forth in the Warrants. The rights, powers and terms of and relating to the Common Stock will be provided for in the Certificate of Incorporation, and as otherwise provided by the Delaware General Corporation Law of the State of Delaware. In addition, the Warrants and the shares of Common Stock issuable upon exercise thereof are subject to the terms and provisions specified in this Agreement. 3. SECTION 3. SALE AND PURCHASE OF WARRANTS. Subject to the terms and conditions of this Agreement, Company will issue and sell to McKesson, and McKesson will purchase from Company, at the relevant Warrant Issue Date, the following installments of Warrants: (i) On the Initial Warrant Issue Date, Warrants for 101,500 shares of Common Stock of Company with an initial Exercise Price of $5.71 in exchange for and upon surrender of the Warrants issued on July 2, 1998; (ii) On the Initial Warrant Issue Date, additional Warrants for 100,000 shares of Common Stock of Company with an initial Exercise Price of $5.71; and (iii) On the Second Warrant Issue Date, Warrants for 50,000 shares of Common Stock of Company with an Exercise Price equal to the average closing price of Common Stock of Company for the five business day period commencing on the date of the Approval Notice. The aggregate purchase price for the Warrants shall be McKesson's execution and delivery of the Credit Agreement. Company and McKesson agree that the per share value of the Warrants for tax purposes is $2.55. Company and McKesson agree to report the transaction in a manner consistent with this paragraph. SECTION 4. EXERCISE OF WARRANTS AND DETERMINATION OF SHARES. The Warrants shall be exercisable from time to time at any time during the Exercise Period on an aggregate basis into the number shares of Common Stock specified in the Warrants, subject to adjustment in the manner and on the terms and conditions set forth in the Warrants. SECTION 5. WARRANT ISSUE DATE AND CONDITIONS TO ISSUANCE. The issuance of the first two installments of Warrants under clauses (i) and (ii) of Section 3 shall occur simultaneously with the execution and delivery of the Third Amendment to Credit Agreement by the parties or on such other Business Day within 30 days thereafter as may be agreed upon by Company and McKesson (the "Initial Warrant Issue Date"). The issuance of the third installment of Warrants under clause (iii) of Section 3, if any, shall occur on the tenth day after the date of the Approval Notice or on such other Business Day within 30 days thereafter as may be agreed upon by the Company and McKesson (the "Second Warrant Issue Date" and together with the Initial Warrant Issue Date, the "Warrant Issue Dates"). On each Warrant Issue Date, Company will deliver to McKesson the relevant Warrants, the Warrants to be in the form of a single Warrant (or such greater number of Warrants as McKesson may request) registered in McKesson's name (or in the name of its nominee). If on a Warrant Issue Date Company shall fail to deliver to McKesson such documents as provided in the Credit Agreement or Company shall fail to tender to McKesson the Warrants as provided above in this SECTION 5, or any of the conditions specified in SECTION 5 shall not have been fulfilled to its satisfaction, McKesson shall, at its election, be relieved of all further obligations under this Agreement and the Credit 4. Agreement, without thereby waiving any rights McKesson may have by reason of such failure or such nonfulfillment. SECTION 6. REPRESENTATIONS AND WARRANTIES. SECTION 6.1 PURCHASE FOR INVESTMENT. McKesson represents that it is purchasing the Warrants for its own account and not with a view to the distribution thereof, provided that the disposition of its property shall at all times be within its control. McKesson further represents that it is an accredited investor within the meaning of Rule 501(a) promulgated under the Securities Act. McKesson understands that the Warrants have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that Company is not required to register the Warrants. SECTION 6.2 SOURCE OF FUNDS. McKesson represents that the source of funds to be used by it to pay the purchase price of the Warrants does not include assets of any employee benefit plan. As used in this SECTION 6.2, the term "employee benefit plan" shall have the meaning assigned to such term in Section 3 of ERISA. SECTION 7. TRANSFER; REGISTRATION RIGHTS. SECTION 7.1 RESTRICTIONS ON TRANSFERABILITY. The Warrants and the Restricted Shares shall not be transferable except upon the conditions hereinafter specified, which conditions are intended to ensure compliance with the provisions of the Securities Act and any applicable state securities laws. 1. TRANSFER OF RIGHTS. Subject to SECTION 7.10, the rights granted to McKesson under this SECTION 7 may be transferred to any person or entity acquiring directly or indirectly any shares of Warrants or Restricted Shares, as the case may be, from McKesson. 2. TRANSFEREES. Any transferee to whom rights under SECTION 7 are transferred shall, as a condition to such transfer, agree to be bound by the obligations imposed by SECTION 7 to the same extent as such transferee's transferor was bound hereunder. 3. SUBSEQUENT TRANSFEREES. A transferee to whom rights are transferred pursuant to this Section 7 may only transfer such rights to another person or entity as provided in (a) and (b) of this Section 7. SECTION 7.2 NOTICE OF PROPOSED TRANSFER; REGISTRATION NOT REQUIRED. The Holder of each Warrant or any Restricted Shares, by acceptance thereof, agrees to give prior written notice to Company of such Holder's intention to transfer such Warrant (or the Underlying Shares relating thereto) or such Restricted Shares (or, in each case, any portion thereof), describing briefly the manner and circumstances of the proposed transfer; provided, however, that no such notice shall be required for a transfer under a registration requested in accordance with the provisions of Section 7.3 or in connection with a transfer made in accordance with the exemptions afforded by Rule 144 or Rule 144A of the General Rules and Regulations of the Commission (or any other available exemption from the registration requirements of the 5. Securities Act) and exempt from all applicable registration requirements under state securities laws. SECTION 7.3 REQUIRED REGISTRATION (a) On (and including) or after the twenty-fifth day after the First Anniversary, the Holders of at least 30% of the aggregate then outstanding number of Underlying Shares and Restricted Shares may, upon written request, require Company to effect the registration (a "DEMAND REGISTRATION") or qualification under applicable federal or state securities laws of such Underlying Shares and/or Restricted Shares. Upon receipt of such written request, Company shall promptly give written notice to all Holders of Warrants and Restricted Shares of a proposed registration or qualification, and shall, subject to the conditions of SECTION 7.4, as expeditiously as possible, use its best efforts to effect any such registration or qualification of: (i) such Underlying Shares or such Restricted Shares, or any combination thereof; or (ii) all other Underlying Shares and Restricted Shares of Holders of Warrants or Restricted Shares which shall have advised Company in writing within 30 days after the giving of such written notice by Company of their desire to have their Underlying Shares or Restricted Shares registered or qualified or exempted, with, or notification to or approval of, any governmental authority under any federal or state securities laws, or listing with any securities exchange, which may be required to permit the sale or other disposition of any such Underlying Shares or Restricted Shares which the Holders thereof propose to make, and Company will keep effective such registration, qualification, exemption, notification or approval for such period as may be necessary to effect such sales or dispositions up to a maximum period of nine months after initial effectiveness. If the managing underwriter engaged in connection with an underwritten public offering of such Underlying Shares or Restricted Shares proposed for registration under this SECTION 7.3 determines in good faith and for valid business reasons that registration of such Underlying Shares or Restricted Shares would have an adverse effect on the marketability or the price of such offering (a "CUTBACK DETERMINATION"), such managing underwriter shall give prompt written notice of such Cutback Determination to such requesting Holder or Holders. In such event, Company, upon written notice to the Holders of such Underlying Shares or Restricted Shares, shall have the right to limit such Underlying Shares or such Restricted Shares to be registered, if any, to the largest number which would not result in such adverse effect on marketability or the price of such offering (such limitation being applied to each such requesting Holder of Underlying Shares or Restricted Shares pro rata in respect of the number of shares subject to such request). No Securities of any Person, other than Securities of a Holder or Securities subject to a Permitted Incidental Registration, may be included in any registration pursuant to this SECTION 7.3 without the written consent of the Holders of at least a majority of the Underlying Shares and/or Restricted Shares participating in such offering if, with the inclusion of such Securities, the Holders are not able to include in the registration at least 80% of the Underlying Shares and/or Restricted Shares that they initially requested to be included. 6. (b) REGISTRATION PROCEDURES. In connection with Company's obligations with respect to a Demand Registration pursuant to SECTION 7.3(a) hereof, Company shall use its best efforts to effect or cause the registration or qualification of the Underlying Shares and/or Restricted Shares under the Securities Act and applicable state securities laws to permit the sale of such Underlying Shares and/or Restricted Shares by the Holders thereof in accordance with the intended method of distribution thereof (if such distribution is possible), and pursuant thereto, Company shall: (i) prepare and, within 60 days after receipt of the request pursuant to SECTION 7.3(a) hereof, file with the Commission a registration statement or registration statements with respect to a Demand Registration on any form which may be utilized by Company and which shall permit the disposition of the Underlying Shares and/or Restricted Shares in accordance with the intended method or methods thereof, and use its best efforts to cause such registration statement or registration statements to become effective as expeditiously as possible, but in any event not later than 120 days after receipt of such request; (ii) prepare and file with the Commission such amendments and supplements to a registration statement or statements hereunder and the prospectus used in connection therewith as may be necessary to maintain the effectiveness of such registration statement for the applicable period specified in SECTION 7.3(a) hereof, and comply in all material respects with the provisions of the Securities Act and applicable state securities laws with respect to the disposition of all of the Underlying Shares and/or Restricted Shares to be included in such registration statement during such applicable period in accordance with the intended methods of disposition by the Holders thereof set forth in the registration statement; (iii) provide the Holders of the Underlying Shares and/or Restricted Shares to be included in a registration statement hereunder and the underwriters (which term, for purposes of this Agreement, shall include a Person deemed to be an underwriter within the meaning of Section 2(11) of the Securities Act), if any, of the Securities being sold and counsel for such underwriters and not more than one counsel for such Holders the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment or supplement thereto; and make available for inspection by such Persons such financial and other information, books and records of Company, and cause the officers, directors and employees of Company, and counsel and independent certified public accountants for Company, to respond to such inquiries, as shall be reasonably necessary, in the opinion of the respective counsel to such Holders and such underwriters, to conduct a reasonable investigation within the meaning of the Securities Act; (iv) promptly notify the selling Holders of Underlying Shares and/or Restricted Shares to be included in a registration statement hereunder and the managing underwriters, if any, of the Securities being sold and (if requested by any such Person) confirm such advice in writing, (1) when such registration statement, the prospectus or any prospectus supplement or post-effective amendment has been filed, and, with respect to such registration statement or any post-effective amendment, when the same has 7. become effective, (2) of any request by the Commission for amendments or supplements to such registration statement or the prospectus or for additional or supplemental information, (3) of the issuance by the Commission of any stop order suspending the effectiveness of such registration statement or the initiation of any proceedings for that purpose, (4) if at any time the representations and warranties of Company contemplated by paragraph (xi) below cease to be true and correct in all material respects, (5) of the receipt by Company of any notification with respect to the suspension of the qualification of the Underlying Shares or Restricted Shares for sale in any jurisdiction or the initiation or threat of any proceeding for such purpose, or (6) at any time when a prospectus is required to be delivered under the Securities Act, of the happening of any event as a result of which such registration statement, prospectus, any prospectus supplement, or any document incorporated by reference in any of the foregoing contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (v) make reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of a registration statement hereunder or any post-effective amendment thereto at the earliest practicable date; (vi) if requested by the managing underwriter or underwriters or the Holders of at least a majority of the Underlying Shares and/or Restricted Shares being sold, promptly incorporate in a prospectus supplement or post-effective amendment such information as such managing underwriter or underwriters or such Holders of at least a majority of the Underlying Shares and/or Restricted Shares being sold specify should be included therein relating to the sale of the Underlying Shares and/or Restricted Shares, including, without limitation, information with respect to the number of Underlying Shares and/or Restricted Shares being sold to such underwriters, the purchase price being paid therefor by such underwriters and with respect to any other terms of the underwritten (or best efforts underwritten) offering of the Underlying Shares and/or Restricted Shares to be sold in such offering, except to the extent that Company is advised in a written opinion of outside counsel that the inclusion of such information is reasonably likely to violate the federal securities laws; and make all required filings of such prospectus supplement or post-effective amendment promptly after notification of the matters to be incorporated in such prospectus supplement or post-effective amendment; (vii) furnish to each Holder of Underlying Shares and/or Restricted Shares to be included in a registration statement hereunder and each underwriter, if any, of the Securities being sold such number of copies of such registration statement, each such amendment and supplement thereto (in each case including all exhibits thereto), the prospectus included in such registration statement and such other documents as such Holder and underwriter, if any, may reasonably request in order to facilitate the disposition of the Underlying Shares and/or Restricted Shares owned by such Holder; Company consents to the use of the prospectus or any amendment or supplement thereto by each of the selling Holders of Underlying Shares and/or Restricted Shares and the underwriters in connection with the offering and sale of the Underlying Shares and/or Restricted Shares covered by the prospectus or any supplement or amendment thereto; 8. (viii) use its best efforts to (1) register or qualify the Underlying Shares and/or Restricted Shares to be included in a registration statement hereunder under such other securities laws or Blue Sky laws of such jurisdictions as any Holder of such Underlying Shares and/or Restricted Shares and each underwriter, if any, of the Securities being sold shall reasonably request, (2) keep such registrations or qualifications in effect for so long as the registration statement remains in effect and (3) take any and all such actions as may be reasonably necessary or advisable to enable such Holder and underwriter, if any, to consummate the disposition in such jurisdictions of such Underlying Shares and/or Restricted Shares owned by such Holder; PROVIDED, HOWEVER, that Company shall not be required for any such purpose to (A) qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this paragraph (viii) or (B) consent to general service of process in any such jurisdiction; (ix) use its best efforts to cause all of the Underlying Shares and/or Restricted Shares that are to be included in a registration statement hereunder to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of Company to enable the Holder or Holders thereof to consummate the disposition of such Underlying Shares and/or Restricted Shares; (x) use its best efforts in cooperation with the Holders of the Underlying Shares and/or Restricted Shares to be included in a registration statement hereunder and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Underlying Shares and/or Restricted Shares to be sold and not bearing any restrictive legends; and, in the case of an underwritten offering, enable such Underlying Shares and/or Restricted Shares to be in such denominations and registered in such names as the managing underwriters may request at least two Business Days prior to any sale of the Underlying Shares and/or Restricted Shares; (xi) enter into such customary agreements (including an underwriting agreement, in the event that the shares to be included are to be distributed by means of an underwritten public offering) and take such other actions in connection therewith as the Holders of at least a majority of the Underlying Shares and/or Restricted Shares to be included in a registration statement hereunder shall reasonably request in order to expedite or facilitate the disposition of such Underlying Shares and/or Restricted Shares and in such connection, whether or not an underwriting agreement is entered into and whether or not the disposition is an underwritten offering, (1) make such representations, warranties and indemnities to the Holders of such Underlying Shares and/or Restricted Shares and the underwriters, if any, in form, substance and scope as are customarily made in an underwritten offering; (2) obtain an opinion of counsel to Company in customary form and covering such matters of the type customarily covered by such opinion as the Holders of at least a majority of the Underlying Shares and/or Restricted Shares to be included in such registration statement and the underwriters, if any, may reasonably request, addressed to the selling Holders and the underwriters, if any, and dated the effective date of such registration statement and dated the effective date of a post-effective amendment to the registration statement, if such is filed (or, if such registration statement covers an underwritten offering, dated the date of the closing as specified in the 9. underwriting agreement); (3) obtain a "cold comfort" or procedures letter from the independent certified public accountants of Company addressed to the selling Holders of Underlying Shares and/or Restricted Shares and to the underwriters, if any, dated the effective date of such registration statement and dated the effective date of a post-effective amendment to the registration statement, if such is filed (and, if such registration statement covers an underwritten offering, dated the date of the closing as specified in the underwriting agreement), such letter to be in customary form and covering such matters of the type customarily covered by such letter; and (4) deliver such documents and certificates as may be reasonably requested by the Holders of at least a majority of the Underlying Shares and/or Restricted Shares being sold and the managing underwriters, if any, to evidence compliance with clause (1) above and with any customary conditions contained in the underwriting agreement or other agreement entered into by Company; (xii) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering a period of at least twelve months which shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 of the Commission thereunder; (xiii) provide a transfer agent and registrar for all Underlying Shares and/or Restricted Shares registered pursuant to such registration statement and a CUSIP number for all such Underlying Shares and/or Restricted Shares, in each case not later than the effective date of such registration; and (xiv) use its best efforts to have the Underlying Shares and/or Restricted Shares listed, subject to notice, on the American Stock Exchange or other applicable national securities exchange as Company shall determine to be appropriate. Upon the occurrence of any event contemplated by paragraph (iv) above, Company shall, as soon as reasonably practicable, prepare and furnish to each Holder included in such registration statement and underwriter, if any, a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to the purchasers of the Underlying Shares and/or Restricted Shares, such prospectus shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. Each Holder of Underlying Shares and/or Restricted Shares agrees that upon receipt of any notice from Company of the happening of any event of the kind described in paragraph (iv) hereof, such Holder shall forthwith discontinue the disposition of Underlying Shares and/or Restricted Shares pursuant to the registration statement applicable to such Underlying Shares and/or Restricted Shares until such Holder receives copies of such amended or supplemented registration statement or prospectus, and, if so directed by Company, such Holder shall deliver to Company (at Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the prospectus covering such Underlying Shares and/or Restricted Shares at the time of receipt of such notice. 10. Company may require each Holder of Underlying Shares and/or Restricted Shares as to which any registration is being effected to furnish to Company such information regarding such Holder and the distribution of such Underlying Shares and/or Restricted Shares as Company may from time to time reasonably request in writing in order to comply with the Securities Act. Each Holder of Underlying Shares and/or Restricted Shares as to which any registration is being effected agrees to notify Company as promptly as practicable of any inaccuracy or change in information previously furnished by such Holder to Company or of the happening of any event, in either case as a result of which any prospectus relating to such registration contains an untrue statement of a material fact regarding such Holder or the distribution of such Underlying Shares and/or Restricted Shares or omits to state any material fact regarding such Holder or the distribution of such Underlying Shares and/or Restricted Shares required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and to furnish promptly to Company any additional information required to correct and update any previously furnished information or required so that such prospectus shall not contain, with respect to such Holder or the intended method of distribution of such Underlying Shares and/or Restricted Shares, an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. SECTION 7.4 CONDITIONS TO REQUIRED REGISTRATION. Company shall not be required to register or effect any registration or qualification of Underlying Shares and/or Restricted Shares pursuant to SECTION 7.3: (a) more than one (1) time, PROVIDED that no registration shall be included as a required registration pursuant to this SECTION 7.4(a) until such time, if any, as the registration statement filed in connection therewith shall be declared effective and remain effective until such time as all Shares (and Underlying Shares, as applicable) have been sold under such registration statement or may be freely sold in the public market without registration in reliance upon Rule 144(k) and unless the Holders requesting such registration are able to include in such registration all of the Underlying Shares and/or Restricted Shares that they initially requested to be included; (b) unless there shall have elapsed after a previous registration of Underlying Shares and/or Restricted Shares pursuant to SECTION 7.3 or a registration of other shares in which the Holders of the Underlying Shares or Restricted Shares could participate pursuant to SECTION 7.5 a period of 90 days or such longer period, not to exceed 180 days, as the managing underwriter in any such registration shall have determined to be necessary or desirable in light of then current market conditions; and (c) unless the request therefor is to register not less than 30% of the aggregate number of Underlying Shares and Restricted Shares not theretofore registered pursuant to Section 7.3 or Section 7.5. SECTION 7.5 INCIDENTAL REGISTRATIONS. Company agrees that at any time it proposes to register any of its Securities in a primary or secondary offering of such Securities under the Securities Act (otherwise than pursuant to SECTION 7.3) on Form S-1 or any other form of registration statement (other than Form S-4 or Form S-8) then available for the registration under 11. the Securities Act of Securities of Company, it will give timely written notice to all Holders of outstanding Warrants and Restricted Shares of its intention so to do and upon the written request of the Holder of any such Warrants or Restricted Shares, given within 30 days after receipt of any such notice from Company, Company will in each instance, subject to the next paragraph of this SECTION 7.5, use its best efforts to cause all Underlying Shares or Restricted Shares requested to be included in such registration by any such requesting Holder to be registered under the Securities Act and registered or qualified under any state securities laws, all to the extent necessary to permit the sale or other disposition thereof in the manner stated in such request by the prospective seller of the Securities so registered. Nothing in this SECTION 7.5 shall be deemed to require Company to proceed with any registration of its Securities after giving the notice herein provided. Registration pursuant to this SECTION 7.5 shall be in accordance with, and subject to the provisions of, the "Registration Procedures" set forth in SECTION 7.3(b). If the managing underwriter engaged by Company in connection with an underwritten public offering of Securities proposed for registration as described in this Section 7.5 determines in good faith and for valid business reasons that registration of the Underlying Shares or Restricted Shares proposed for inclusion in such registration would, when combined with the other Securities to be included in such registration, have an adverse effect on the marketability or the price of such offering (an "Incidental Cutback Determination"), such managing underwriter shall give prompt written notice of such Incidental Cutback Determination to such requesting Holder or Holders. In such event Company, upon written notice to the Holders of such Underlying Shares or Restricted Shares, shall have the right to limit such Underlying Shares or such Restricted Shares and such other Securities to be registered, if any, to the largest number which would not result in such adverse effect on marketability or the price of such offering (such limitation being applied to each such requesting Holder of Underlying Shares or Restricted Shares and holder of such other Securities pro rata in respect of the number of shares subject to such request). SECTION 7.6 UNDERWRITTEN OFFERINGS. If the intended method of distributing the Underlying Shares and/or Restricted Shares to be included in a registration pursuant to Section 7.3 or Section 7.5 is an underwritten public offering, then Company shall select the managing underwriter(s) for such offering, subject to the written consent of the Holders of at least 51% of the Underlying Shares and/or Restricted Shares to be included in such registration, which consent shall not be unreasonably withheld. Each Holder of said Underlying Shares and/or Restricted Shares shall enter into an underwriting agreement, custody agreement and power of attorney in such forms as the managing underwriter(s) and Company shall reasonably request, provided that such agreements and documents are in customary form and substance or reasonably acceptable to the Holders of a majority of said Underlying Shares and/or Restricted Shares. Each Holder of the Warrants or Restricted Shares shall refrain from selling Warrants or Restricted Shares for a period not to exceed 90 days from the date of the public offering of any Underlying Shares or Restricted Shares which are not included in registration pursuant to Section 7.3 or Section 7.5. SECTION 7.7 EXPENSES; RELIANCE. Company will pay all expenses, including, without limitation, registration fees, qualification fees, legal expenses (including the reasonable fees and expenses of one counsel to the Holders of Warrants or Restricted Shares whose Underlying Shares or Restricted Shares are being registered), printing expenses and the costs of special 12. audits, if any, and "cold comfort" letters, expenses of underwriters (excluding underwriting discounts and commissions, but including the reasonable fees and expenses of any necessary special experts) in connection with the registration and qualification, notification or exemption requested by any Holder or Holders of Warrants or Restricted Shares pursuant to Section 7.3 or Section 7.5. The Holders of the Underlying Shares and/or Restricted Shares shall be responsible for applicable transfer taxes, brokerage commissions and their share of the underwriting discounts and commissions. SECTION 7.8 INDEMNIFICATION AND CONTRIBUTIO (a) In connection with any registration, qualification, notification, or exemption of Securities under SECTION 7.3 or SECTION 7.5, Company hereby indemnifies each Holder of the Warrants, Underlying Shares and/or Restricted Shares, including each Person, if any, who controls each such Holder within the meaning of Section 15 of the Securities Act, against all losses, claims, damages and liabilities (including, without limitation, any liability of any such Holder or Person to any underwriter participating in any such registration, qualification, notification or exemption) caused by any untrue, or alleged untrue, statement of a material fact contained in any registration statement or prospectus or notification or offering circular (and as amended or supplemented if Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or alleged untrue statement or omission or alleged omission based upon information furnished in writing to Company by such Holder expressly for use therein, and Company and each officer, director and controlling Person of Company shall be indemnified by each Holder of the Underlying Shares and/or Restricted Shares for all such losses, claims, damages and liabilities caused by any untrue statement or alleged untrue statement or omission or alleged omission based upon information furnished in writing to Company by each such Holder thereof expressly for any such use. The foregoing is subject to the condition that, insofar as it relates to any untrue statement, alleged untrue statement or omission or alleged omission made in any preliminary prospectus but eliminated or remedied in the final prospectus (or in any amendment or supplement thereto), the indemnity of Company shall not inure to the benefit of any underwriter from whom the Person asserting any loss, claim or damage purchased the Underlying Shares and/or Restricted Shares which were the subject thereof (or to the benefit of any Person who controls such underwriter), if a copy of the final prospectus (or such amendment or supplement thereto) was not sent or given to such Person at or prior to the time such action is required by the Securities Act. (b) Promptly upon receipt by a party indemnified under this SECTION 7.8 of notice of the commencement of any action against such indemnified party in respect of which indemnity or reimbursement may be sought against any indemnifying party under this SECTION 7.8, such indemnified party shall notify the indemnifying party in writing of the commencement of such action, but the failure so to notify the indemnifying party shall not relieve it of any liability which it may have to any indemnified party (i) under this SECTION 7.8 except to the extent that the indemnifying party is materially prejudiced by such failure to notify, or (ii) otherwise than under this SECTION 7.8. In case notice of commencement of any such action shall be given to the indemnifying party as above provided, the indemnifying party shall be entitled to participate in and, to the extent it may wish, jointly with any other indemnifying party similarly notified, to assume the defense of such action at its own expense, with counsel chosen by it and satisfactory 13. to such indemnified party. The indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, and the fees and expenses of such counsel (other than reasonable costs of investigation) shall be paid by the indemnifying party unless the indemnified party agrees to pay the same. No indemnifying party shall be liable for any settlement entered into without its consent. In addition to its other obligations under this SECTION 7.8, each indemnifying party agrees that, as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding arising out of or based upon any statement or omission, or any alleged statement or omission, described in this SECTION 7.8, it will reimburse each indemnified party on a monthly basis for all reasonable legal and other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the indemnifying party's obligation to reimburse the indemnified party or parties for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. (c) If the indemnification provided for in this SECTION 7.8 from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses to which such indemnified party would be otherwise entitled under SECTION 7.8(a), then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. In no event shall any Holder of Warrants, Underlying Shares or Restricted Shares be required to contribute an amount greater than the dollar amount of the proceeds received by such Person with respect to the sale of any Warrants, Underlying Shares or Restricted Shares. The parties hereto agree that it would not be just and equitable if contribution pursuant to this SECTION 7.8(c) were determined by PRO RATA allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (d) The indemnification and contribution provided for in this SECTION 7.8 shall survive, with respect to a Holder of Underlying Shares of Restricted Shares, the transfer of Underlying Shares or Restricted Shares by such Holder and with respect to a Holder of 14. Underlying Shares or Restricted Shares, shall remain in full force and effect regardless of any investigation made by or on behalf of any indemnified party. (e) In connection with any registration pursuant to Section 7.3 or Section 7.5, Company agrees, and each Holder of Warrants or Restricted Shares (except for McKesson and any other than any such Holder which shall have executed and delivered a counterpart of this Agreement) by acceptance of such Warrants, or Restricted Shares, agrees that it will enter into an agreement containing substantially the indemnification provisions of this Section 7.8. SECTION 7.9 ADDITIONAL REGISTRATION RIGHTS. Company will not grant to any Person at any time after the date hereof the right to request Company to effect the registration or qualification or filing for exemption under applicable federal or state securities laws of any Securities of Company, unless the agreement or agreements providing for such rights specifically provide that the holders of such rights may not participate in any registration requested pursuant to Section 7.3 if such participation would violate the last sentence of Section 7.3(a). SECTION 7.10 RESTRICTIVE LEGENDS. Each Warrant initially issued and each Warrant issued in exchange therefor shall, unless otherwise permitted by the provisions of this SECTION 7.10, bear on the face thereof a legend reading substantially as follows: This Warrant and the shares of Common Stock issuable upon exercise hereof have not been registered or qualified for sale under the Securities Act of 1933, as amended, or any state securities laws and may not be offered for sale, sold or otherwise transferred unless such offer, sale or transfer is registered or qualified pursuant to the registration requirements of such Securities Act and any applicable state securities laws, or is preceded by an opinion of counsel addressed to HORIZON Pharmacies, Inc. that such sale or other transfer is exempt from all such registration requirements. This Warrant and the shares of Common Stock issuable upon exercise hereof are subject to the terms and provisions specified in the Amended and Restated Warrant Purchase Agreement dated as of May 14, 1999, between HORIZON Pharmacies, Inc., and McKesson HBOC, Inc. Each certificate for shares of Common Stock of Company initially issued upon the exercise of any Warrant and each certificate for shares of Common Stock of Company issued to a subsequent transferee of such certificate shall, unless otherwise permitted by the provisions of this SECTION 7.10, bear on the face thereof a legend reading substantially as follows: The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or any state securities laws and may not be sold or transferred in the absence of such registration unless such sale or transfer is preceded by an opinion of counsel addressed to HORIZON Pharmacies, Inc., that such sale or other transfer is exempt from the registration requirements of said Securities Act and any such state securities 15. laws which may be applicable and are subject to of the terms and provisions specified in that certain Amended and Restated Warrant Purchase Agreement dated as of May 14, 1999, between HORIZON Pharmacies, Inc., and McKesson HBOC, Inc. In the event that a registration statement covering Underlying Shares or Restricted Shares shall become effective under the Securities Act and under any applicable state securities laws or in the event that Company shall receive an opinion of its counsel (or, at Company's election, nationally recognized independent counsel to any Holder) that, in the opinion of such counsel, such legend is not, or is no longer, necessary or required (including, without limitation, because of the availability of the exemptions afforded by Rule 144 or Rule 144A of the General Rules and Regulations of the Commission), Company shall, or shall instruct its transfer agents and registrars to, remove such legend from the Warrants and certificates evidencing Restricted Shares or issue new Warrants and certificates without such legend in lieu thereof. Upon the written request of the Holder or Holders of any Warrants or any Restricted Shares, Company covenants and agrees forthwith to request its counsel to render an opinion with respect to the matters covered by this Section 7.10 and any legends set forth on the Warrants and Restricted Share certificates and to bear all reasonable expenses in connection with any opinion of counsel contemplated hereinabove. SECTION 7.11 STOCK EXCHANGE LISTING. In the event Company's Common Stock is listed on a national securities exchange at the time of exercise of a Warrant, Company will, at its expense, also list on such exchange, upon exercise of the Warrant, all shares of Common Stock issuable pursuant to such Warrant. SECTION 7.12 MISCELLANEOUS. Company shall comply with all issuer reporting requirements set forth or referred to in Rule 144 or Rule 144A promulgated under the Securities Act and will do all such other things as may be reasonably necessary to permit the expeditious sale at any time of any Warrants, Restricted Shares or Underlying Shares by the Holder thereof in accordance with and to the extent permitted by said Rule 144 or Rule 144A, as the case may be, or any other similar Rule or Rules promulgated by the Commission from time to time. SECTION 8. REDEMPTION OF WARRANTS. Company shall have no right or option exercisable at its election to redeem or call any Warrant or any Restricted Shares. SECTION 9. LOST, STOLEN WARRANTS, ETC. In case any Warrant shall be mutilated, lost, stolen or destroyed, Company may issue a new Warrant of like date, tenor and denomination and deliver the same in exchange and substitution for and upon surrender and cancellation of the mutilated Warrant, or in lieu of the lost, stolen or destroyed Warrant, upon receipt of evidence satisfactory to Company of the loss, theft or destruction of such Warrant, and upon receipt of indemnity satisfactory to Company (which, in the case of McKesson, shall consist of its unsecured agreement to indemnify Company for a loss in connection with such loss, theft or destruction of such Warrant). 16. SECTION 10. RESTRICTIONS ON CAPITAL STRUCTURE. Company will not, without the written consent of the Holders of at least 75% of the then outstanding Warrants and Restricted Shares (determined on a Common Stock equivalent basis): (i) be bound by or subject to (or permit Company to be bound by or subject to) any debt or other agreement which restricts the right or ability of Company to perform its obligations hereunder or under the Warrants; or (ii) amend or change the Certificate of Incorporation or bylaws (each as currently amended and/or restated) in a manner which could materially and adversely affect this Agreement, the Warrants, the Restricted Shares or the rights of any Holder of any of the foregoing (unless such amendment or change (a) is solely with respect to the rights, preferences and privileges of the outstanding capital stock of Company and (b) affects all shares of Common Stock equally) or violate any of the terms or provisions thereof. SECTION 11. INDEX AND CAPTIONS. The index and the descriptive headings of the various sections of this Agreement are for convenience only and shall not affect the meaning or construction of the provisions hereof. SECTION 12. MISCELLANEOUS. SECTION 12.1 NOTICES. All notices and communications provided for hereunder shall be in writing and sent (a) by telecopy if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (specifying next business day delivery, with charges prepaid). Any such notice must be sent: (i) if to McKesson or its nominee, to McKesson at the address specified for such communications in Schedule A, or at such other address as McKesson shall have specified to Company in writing, or (ii) if to Company, at 275 W. Princeton Drive, Princeton, Texas 75407, or to such other address as Company may designate to the Holders in writing. Notices under this Section 12.1 will be deemed given only when actually received. SECTION 12.2 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon Company and its respective successors and assigns and shall inure to the benefit of McKesson and its successors and permitted assigns, including each successive Holder. SECTION 12.3 SEVERABILITY. Should any part of this Agreement for any reason be declared invalid or unenforceable, such decision will not affect the validity or enforceability of any remaining portion, which remaining portion will remain in force and effect as if this Agreement had been executed with the invalid or unenforceable portion thereof eliminated and it 17. is hereby declared the intention of the parties hereto that they would have executed the remaining portion of this Agreement without including therein any such part or portion which may, for any reason, be hereafter declared invalid or unenforceable. SECTION 12.4 GOVERNING LAW. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of California, excluding choice-of-law principles of the law of such state that would require the application of the laws of a jurisdiction other than such state. SECTION 12.5 AMENDMENTS. This Agreement may be amended only by an instrument in writing executed by the Holders of the Warrants and Restricted Shares then outstanding and Company. The execution hereof by the undersigned shall constitute a contract between Company and McKesson for the uses and purposes hereinabove set forth. This Agreement may be executed in any number of counterparts, each executed counterpart constituting an original but all together only one agreement. HORIZON PHARMACIES, INC. By /s/ John N. Stogner ------------------------------ Its CFO/Treasurer ------------------------- Accepted and agreed to as of May 14, 1999. McKESSON HBOC, INC. By /s/ Alan Pearce ------------------------------ Name Alan Pearce Title Senior Vice President Financial Services 18. SCHEDULE A (TO WARRANT AGREEMENT) NOTICE AND PAYMENT INSTRUCTIONS Notices: McKesson HBOC, Inc. One Post Street, 28th Floor San Francisco, California 94104 Facsimile No.: (415) 983-8464 Attention: Assistant Treasurer with a copy to: McKesson HBOC, Inc. One Post Street, 29th Floor San Francisco, California 94104 Facsimile No.: (415) 983-9369 Attention: Legal Department Payment: McKesson HBOC, Inc. Account No.: 12337-53022 Bank of America, N.T.&S.A. ABA No.: 121000358 19. EX-4.6 3 EXHIBIT 4.6 FIRST AMENDMENT TO AMENDED AND RESTATED WARRANT PURCHASE AGREEMENT This First Amendment to Amended and Restated Warrant Purchase Agreement (this "Amendment") is entered into as of March 30, 2000, between HORIZON Pharmacies, Inc., a Delaware corporation ("Company") and McKesson HBOC, Inc., a Delaware corporation formerly known as McKesson Corporation ("McKesson"). RECITALS WHEREAS, Company and McKesson are parties to that certain Amended and Restated Warrant Purchase Agreement dated as of May 14, 1999 (the "Warrant Purchase Agreement"). Capitalized terms used herein without definition shall have the same meanings herein as ascribed thereto pursuant to the Warrant Purchase Agreement. WHEREAS, Company has requested that McKesson grant Company certain waivers and consents with respect to matters in the Credit Agreement and the Warrant Purchase Agreement, and McKesson is willing to do so upon certain terms and conditions, including but not limited to certain amendments being made in the Warrant Purchase Agreement and an additional Warrant being issued to McKesson. NOW, THEREFORE, in consideration of the promises and agreements, provisions and covenants herein contained, and McKesson's concurrent waiver and consent as to certain matters under the Credit Agreement, the parties hereto agree as follows: SECTION 1. THE ISSUANCE OF NEW WARRANT; AMENDMENTS TO WARRANT PURCHASE AGREEMENT AND WARRANTS. A. The Company hereby agrees to issue a new Warrant under the Warrant Purchase Agreement (as amended pursuant hereto) for 10,000 shares of Company's Common Stock with an exercise price of $5.5625 per share. The date of issuance of such new Warrant shall be deemed to be the "Third Warrant Issue Date", and the definition of "Warrant Issue Dates" in Section 5 of the Warrant Purchase Agreement is hereby amended to mean the Initial Warrant Issue Date, the Second Warrant Issue Date, and the Third Warrant Issue Date. B. Section 3 of the Warrant Purchase Agreement is hereby amended to read in full as follows: SECTION 3. SALE AND PURCHASE OF WARRANTS. Subject to the terms and conditions of this Agreement, Company will issue and sell to McKesson, and McKesson will purchase from Company, at the relevant Warrant Issue Date, the following installments of Warrants: (i) On the Initial Warrant Issue Date, Warrants for 101,500 shares of Common Stock of Company with an initial Exercise Price of $5.71 in exchange for and upon surrender of the Warrants issued on July 2, 1998; (ii) On the Initial Warrant Issue Date, additional Warrants for 100,000 shares of Common Stock of Company with an initial Exercise Price of $5.71; (iii) On the Second Warrant Issue Date, Warrants for 50,000 shares of Common Stock of Company with an Exercise Price equal to the average closing price of Common Stock of Company for the five business day period commencing on the date of the Approval Notice; and (iv) On the Third Warrant Issue Date, Warrants for 10,000 shares of Common Stock of Company with an Initial Exercise Price of $5.5625. The aggregate purchase price for the Warrants described in clauses (i), (ii) and (iii) above shall be McKesson's execution and delivery of the Credit Agreement. The purchase price for the Warrant described in clause (iv) above shall be McKesson's execution and delivery of the Limited Waiver and Consent dated the Third Warrant Issue Date. Company and McKesson agree that the per share value of the Warrants for tax purposes is $2.55. Company and McKesson agree to report the transaction in a manner consistent with this paragraph. C. Section 7.4 of the Warrant Purchase Agreement is hereby amended by substituting in clause (a) thereof the phrase "more than two (2) times" for the phrase "more than one (1) time". D. The form of Exhibit A to the Warrant Purchase Agreement is hereby amended by inserting the following sentence at the end of Section 3.3 thereof. If the price per share at which any holder of Convertible Securities may purchase Additional Shares of Common Stock is modified because of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, then the occurrence of any such change shall be deemed to be a reissuance of such Convertible Securities and such reissuance shall be subject to the provisions of this Section 3.3. Any of the Warrants already issued shall be deemed hereby amended to include such additional sentence. 2 SECTION 2. MISCELLANEOUS A. Reference to and Effect on the Warrant Purchase Agreement and the Other Loan Agreements. (i) On and after the date hereof, each reference in the Warrant Purchase Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Warrant Purchase Agreement, and each reference in the other Loan Documents to the "Warrant Purchase Agreement", "thereunder", "thereof" or words of like import referring to the Warrant Purchase Agreement shall mean and be a reference to the Warrant Purchase Agreement as amended by this Amendment. (ii) Except as specifically amended by this Amendment, the Warrant Purchase Agreement, the Warrants and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. B. COSTS AND EXPENSES. The Company covenants to pay to or reimburse McKesson, upon demand, for all costs, out-of-pocket expenses and reasonable attorneys' fees expended or incurred by McKesson in connection with the development, preparation, negotiation, execution and delivery of this Amendment and the documents and transactions contemplated hereby. C. HEADINGS. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. D. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. E. COUNTERPARTS. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by a party of a facsimile transmitted document purportedly bearing the signature of the other party shall bind the other party with the same force and effect as the delivery of a hard copy original. Any failure by a party to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the other party. 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. HORIZON PHARMACIES, INC. By: /s/ Ricky D. McCord -------------------------------------------- Title: CEO & President ----------------------------------------- McKESSON HBOC, INC. By: /s/ Alan Pearce -------------------------------------------- Title: Senior Vice President Financial Services ----------------------------------------- 4 EX-4.7 4 EXHIBIT 4.7 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED OR QUALIFIED FOR SALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED UNLESS SUCH OFFER, SALE OR TRANSFER IS REGISTERED OR QUALIFIED PURSUANT TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR IS PRECEDED BY AN OPINION OF COUNSEL ADDRESSED TO HORIZON PHARMACIES, INC. THAT SUCH SALE OR OTHER TRANSFER IS EXEMPT FROM ALL SUCH REGISTRATION REQUIREMENTS. THE EXERCISE OF THIS WARRANT, THIS WARRANT, AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE TERMS AND PROVISIONS SPECIFIED IN THE CONSULTING AGREEMENT DATED AS OF JANUARY 28, 2000, BY AND BETWEEN HORIZON PHARMACIES, INC. AND K-2 FINANCIAL CORPORATION. No. WR-2001 WARRANT TO PURCHASE SHARES OF COMMON STOCK OF HORIZON PHARMACIES, INC. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS SECTION 1. EXERCISE OF WARRANT.............................................................................1 SECTION 2. RESERVATION.....................................................................................2 SECTION 3. PROTECTION AGAINST DILUTION.....................................................................2 Section 3.1 Stock Dividends, Subdivisions, and Combinations........................................2 Section 3.2 Issuance of Additional Shares of Common Stock..........................................3 Section 3.3 Issuance of Warrants or Other Rights, Convertible Securities...........................3 Section 3.4 Other Provisions Applicable to Adjustments.............................................4 Section 3.5 Extraordinary Dividends................................................................5 Section 3.6 Adjustment of Number of Shares Purchasable.............................................5 Section 3.7 Minimum Adjustment.....................................................................6 Section 3.8 Notice of Adjustments..................................................................6 SECTION 4. MERGERS, CONSOLIDATIONS, SALES..................................................................7 SECTION 5. DISSOLUTION OR LIQUIDATION......................................................................7 SECTION 6. NOTICE OF DIVIDENDS.............................................................................7 SECTION 7. FRACTIONAL SHARES...............................................................................8 SECTION 8. FULLY PAID STOCK; TAXES.........................................................................8 SECTION 9. CLOSING OF TRANSFER BOOKS.......................................................................8 SECTION 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT.........................................................8 Section 10.1 Partial Exercise.......................................................................8 Section 10.2 Assignment.............................................................................8 SECTION 11. DEFINITIONS.....................................................................................9 SECTION 12. WARRANT HOLDER NOT SHAREHOLDER.................................................................11 SECTION 13. SEVERABILITY...................................................................................11 SECTION 14. GOVERNING LAW..................................................................................11
i Warrant No. WR-2001 WARRANT TO PURCHASE SHARES OF COMMON STOCK OF HORIZON PHARMACIES, INC. THIS IS TO CERTIFY that, for value received and subject to the provisions hereinafter set forth, K-2 FINANCIAL CORP. or its permitted assigns, is entitled to purchase from HORIZON Pharmacies, Inc., a Delaware corporation ("COMPANY"), at any time and from time to time during the Exercise Period, up to 200,000 shares of Common Stock, par value $0.01 per share, of Company, subject to the terms, provisions and conditions hereinafter set forth at a price per share equal to $2.75. The price per share is subject to adjustment as hereinafter provided (such price, or such price as last adjusted, as the case may be, being herein referred to as the "PER SHARE WARRANT PRICE"). The said number of shares purchasable hereunder is likewise subject to adjustment as hereinafter provided. The aggregate price of the Common Stock purchasable hereunder shall at all times be equal to the price per share set forth in the preceding paragraph multiplied by the number of shares initially purchasable hereunder. The aggregate price is herein sometimes referred to as the "Aggregate Warrant Price" and is not subject to adjustment. The terms which are capitalized herein shall have the meanings specified in Section 11 unless the context shall otherwise require. SECTION 1. EXERCISE OF WARRANT. Subject to the conditions hereinafter set forth and to the condition set forth in Paragraph 4 of the Consulting Agreement, dated as of January 28, 2000, by and between the Company and K-2 Financial Corporation, this Warrant may be exercised in whole or in part at any time and from time to time during the Exercise Period by the surrender of this Warrant (with the subscription from at the end hereof duly executed) at the principal office of Company in Denison, Texas, and upon payment to Company of a sum equal to the per share Warrant Price multiplied by the number of shares purchased in such exercise, which payment shall be made by the wire transfer or other delivery to Company of one or more types of Permitted Consideration. 1 In the event that Warrants shall be delivered to Company as payment of all or any portion of the purchase price payable hereunder, the amount of such purchase price deemed to be paid by means of such delivery shall equal (a) the aggregate number of shares of Underlying Shares related to any Warrants so delivered, multiplied by (b) the result, not less than zero, equal to (i) the Current Market Price then in effect (with the date of the exercise of the Warrant being deemed to be the "Issuance Date" for purposes of making determinations under the definition of "Current Market Price") MINUS (ii) the per share Warrant Price then in effect. If this Warrant is exercised in respect of less than all of the shares of Common Stock at the time purchasable hereunder, following such exercise this Warrant shall be returned to the holder hereof and shall remain exercisable in respect of such number of shares of Common Stock as may thereafter be determined hereunder. This Warrant and all rights and options hereunder shall expire to the extent that it has not been exercised on or before the Expiration Date. Company shall pay all reasonable expenses, stamp, documentary and transfer taxes and other charges payable in connection with the preparation, execution and delivery of stock certificates pursuant to this Section, regardless of the name or names in which such stock certificates shall be registered. SECTION 2. RESERVATION. Company will at all times reserve and keep available such number of authorized shares of its Common Stock, solely for the purpose of issue upon the exercise of the rights represented by this Warrant as herein provided for, as may at any time be issuable (based upon the number of shares of Common Stock outstanding at any such time) upon the exercise of this Warrant. SECTION 3. PROTECTION AGAINST DILUTION. The per share Warrant Price and the number of shares deliverable hereunder shall be adjusted from time to time as hereinafter set forth: SECTION 3.1 STOCK DIVIDENDS, SUBDIVISIONS, AND COMBINATIONS. In case after the date hereof Company shall: (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend and declared to be payable in, or other declared distribution of, Common Stock, or (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then the per share Warrant Price shall be adjusted to that price determined by multiplying the per share Warrant Price in effect immediately prior to such event by a fraction (i) the numerator of 2 which shall be the total number of outstanding shares of Common Stock immediately prior to such event, and (ii) the denominator of which shall be the total number of outstanding shares of Common Stock immediately after such event. SECTION 3.2 ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In case after the date hereof Company shall (except as hereinafter provided) issue any Additional Shares of Common Stock for a consideration less than the Current Market Price per share, then the per share Warrant Price on each such issuance shall be adjusted to that price determined by multiplying the per share Warrant Price in effect immediately prior to such event by a fraction: (a) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such Additional Shares of Common Stock plus the number of full shares of Common Stock which the aggregate consideration for the total number of such Additional Shares of Common Stock so issued would purchase at the Current Market Price per share, and (b) the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such Additional Shares of Common Stock plus the number of such Additional Shares of Common Stock so issued. The provisions of this Section 3.2 shall not apply to any Additional Shares of Common Stock which are distributed to holders of Common Stock as a stock dividend or subdivision, for which an adjustment is provided for under Section 3.1. No adjustment of the share per Warrant Price shall be made under this Section 3.2 upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Convertible Securities, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Convertible Securities (or upon the issuance of any warrants or other rights therefor) pursuant to Section 3.3. SECTION 3.3 ISSUANCE OF WARRANTS OR OTHER RIGHTS, CONVERTIBLE SECURITIES. In case Company shall issue any warrants or other rights to subscribe for or purchase any Additional Shares of Common Stock or issue Convertible Securities and the consideration per share for which Additional Shares of Common Stock may at any time thereafter be issuable pursuant to such warrants or other rights or pursuant to the terms of such Convertible Securities shall be less than the Current Market Price per share, then the per share Warrant Price shall be adjusted as provided in Section 3.2 above on the basis that: (a) the maximum number of Additional Shares of Common Stock issuable pursuant to all such warrants or other rights or necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued as of the earlier of: (i) the date on which Company shall enter a firm contract or commitment for the issuance of such warrants, other rights or Convertible Securities or (ii) the date of actual issuance of such warrants, other rights or Convertible Securities, and (b) the aggregate consideration for such maximum number of Additional Shares of Common Stock shall be deemed to be the minimum consideration received and receivable 3 by Company for the issuance of such Additional Shares of Common Stock pursuant to such warrants or other rights or pursuant to the terms of such Convertible Securities. No adjustment of the per share Warrant Price shall be made under this Section 3.3 upon the issuance of any Convertible Securities which are issued pursuant to the exercise of any warrants or other subscription or purchase rights therefor, to the extent such adjustment shall previously have been made upon the issuance of such warrants or other rights pursuant to this Section 3.3. SECTION 3.4 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS. The following provisions shall be applicable to the making of adjustments in the per share Warrant Price hereinbefore provided in this Section 3: (a) COMPUTATION OF CONSIDERATION. To the extent that any Additional Shares of Common Stock or any Convertible Securities or any warrants or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities shall be issued for a cash consideration, the consideration received by Company therefor shall be deemed to be the amount of the cash received by Company therefor, or, if such Additional Shares of Common Stock or Convertible Securities or warrants or other rights are offered by Company for subscription, the subscription price, or, if such Additional Shares of Common Stock or Convertible Securities or warrants or other rights are sold to underwriters or dealers for public offering without a subscription offering, the offering price, in any such case excluding any amounts paid or receivable for accrued interest or accrued dividends and without deduction of any compensation, discounts or expenses paid or incurred by Company for and in the underwriting thereof, or otherwise in connection with the issue thereof. To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of Company. The consideration for any Additional Shares of Common Stock issuable pursuant to any warrants or other rights to subscribe for or purchase the same shall be the consideration received by Company for issuing such warrants or other rights plus the additional consideration payable to Company upon the exercise of such warrants or other rights. The consideration for any Additional Shares of Common Stock issuable pursuant to the terms of any Convertible Securities shall be the consideration received by Company for issuing any warrants or other rights to subscribe for or purchase such Convertible Securities plus the consideration paid or payable to Company in respect of the subscription for or purchase of such Convertible Securities plus the additional consideration, if any, payable to Company upon the exercise of the right of conversion or exchange of such Convertible Securities. In case of the issuance at any time of any Additional Shares of Common Stock or Convertible Securities in payment or satisfaction of any dividend upon any class of equity securities other than Common Stock, Company shall be deemed to have received for such Additional Shares of Common Stock or Convertible Securities a consideration equal to the amount of such dividend so paid or satisfied. (b) READJUSTMENT OF PER SHARE WARRANT PRICE. Upon expiration of the right of exercise, conversion or exchange of any Convertible Securities, or upon the expiration of any rights, options or warrants, or upon the termination of any firm contract or commitment for the issuance of such rights, options, warrants or Convertible Securities, or upon any increase 4 in the minimum consideration receivable by Company for the issuance of Additional Shares of Common Stock pursuant to such Convertible Securities, rights, options or warrants, if any such Convertible Securities shall not have been exercised, converted or exchanged, or if any such rights, options or warrant shall not have been exercised, the number of shares of Common Stock deemed to be issued and outstanding by any reason of the fact that they were issuable upon exercise, conversion or exchange of any such Convertible Securities or upon exercise of any such rights, options or warrants shall no longer be computed as set forth above, and the per share Warrant Price shall forthwith be readjusted and thereafter be the price which it would have been (but reflecting any other adjustments in the per share Warrant Price made pursuant to the provisions of this Section 3 after the issuance of such Convertible Securities, rights, options or warrants) had the adjustment of the per share Warrant Price made upon the issuance or sale of such Convertible Securities or the issuance of such rights, options or warrants been made on the basis of the issuance only of the number of Additional Shares of Common Stock actually issued upon exercise, conversion or exchange of such Convertible Securities or upon the exercise of such rights, options or warrants, or upon the basis of such increased minimum consideration, as the case may be, and thereupon only the number of Additional Shares of Common Stock actually so issued plus the number thereof then issuable upon the basis of such increased minimum consideration shall be deemed to have been issued and only the consideration actually received plus increased minimum consideration receivable by Company (computed in accordance with Section 3.4(a)) shall be deemed to have been received by Company. (c) ROUNDING OF PER SHARE WARRANT PRICE. Any determination of per share Warrant Price hereunder shall be expressed in United States Dollars, cents and portions of cents and shall be rounded to the nearest 1/1000 of one cent or, if there is no nearest 1/1000 of one cent, to the next highest 1/1000 of one cent. SECTION 3.5 EXTRAORDINARY DIVIDENDS. In case Company shall declare a dividend upon its Common Stock (except a dividend payable in shares of Common Stock referred to in Section 3.1(a) or a dividend payable in warrants, rights or Convertible Securities referred to in Section 3.3) payable otherwise than out of earnings or surplus (other than revaluation surplus or paid-in surplus), the per share Warrant Price in effect immediately prior to the declaration of such dividend shall be reduced by an amount equal, in the case of a dividend in cash, to 10% of the amount thereof payable per share of Common Stock or, in the case of any other dividend, to the fair value thereof per share of Common Stock as determined in good faith by the Board of Directors of Company. For the purposes of the foregoing, a dividend payable other than in cash shall be considered payable out of earnings or surplus (other than revaluation surplus or paid-in surplus) only to the extent that such earnings or surplus are charged an amount equal to the fair value of such dividend as determined by the Board of Directors of Company. If such dividend is paid or Company declares and becomes legally liable to pay such dividend, such reduction shall take effect as of the date on which a record is taken for the purpose of such dividend or, if a record is not taken, the date as of which the holders of the Common Stock of record entitled to such dividend are to be determined. Appropriate readjustment of the per share Warrant Price shall be made in the event that any dividend referred to in this Section 3.5 shall be lawfully abandoned. SECTION 3.6 ADJUSTMENT OF NUMBER OF SHARES PURCHASABLE. Upon each adjustment of the per share Warrant Price, the number of shares of Common Stock purchasable hereunder shall be 5 adjusted by multiplying the number of shares of Common Stock purchasable hereunder immediately prior to such adjustment of the per share Warrant Price by a fraction, the numerator of which shall be the per share Warrant Price in effect immediately prior to such adjustment and the denominator of which shall be the per share Warrant Price in effect immediately following such adjustment. SECTION 3.7 MINIMUM ADJUSTMENT. Except as hereinafter provided, no adjustment of the per share Warrant Price hereunder shall be made if such adjustment results in a change of the per share Warrant Price then in effect of less than 1%. Any adjustment of less than 1% shall be carried forward and shall be made at the time of and together with any subsequent adjustment which, together with the adjustment or adjustments so carried forward, amounts to 1% or more of the per share Warrant Price then in effect. However, upon the exercise of this Warrant, Company shall make all necessary adjustments not theretofore made to the per share Warrant Price up to and including the date upon which this Warrant is exercised. SECTION 3.8 NOTICE OF ADJUSTMENTS. (a) Whenever the per share Warrant Price or number of shares deliverable upon exercise of this Warrant shall be adjusted pursuant to this Section 3, Company shall promptly prepare a certificate signed by the President or a Vice President and by the Treasurer of Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated (including a description of the basis on which the Board of Directors of Company made any determination hereunder), and shall promptly cause copies of such certificate to be mailed in the manner provided in Section 12.1 of the Warrant Agreement to the holder of this Warrant. (b) The adjustment set forth in the certificate furnished pursuant to Section 3.8(a) shall be final and binding unless, within 90 days after receipt thereof, the Majority Holders of the Warrants deliver to Company a written statement of objection to such adjustment. (i) In the event of any such statement of objection by said Majority Holders, Company's accountants and a firm of independent public accountants selected by said Majority Holders shall attempt to prepare a computation in which both accountants concur. Any such joint computation shall be set forth in a joint certificate to each holder of the Warrants and Company and shall be final and binding. (ii) If Company's accountants and said Majority Holders' accountants are unable to resolve their differences within 30 days after the receipt by Company of said Majority Holders' statement of objection, they shall submit the matter to a third firm of independent certified public accountants of nationally recognized standing agreed upon by said Majority Holders and Company or, if said Majority Holders and Company are unable to agree within 10 days after the expiration of said 30-day period, to such firm designated by the then president of the state society of certified public accountants for the state in which Company maintains its principal place of business. Such third firm of accountants shall thereupon compute the amount of the adjustment and, upon completion of such computation, shall transmit its certificate to each holder of the Warrants and Company setting forth such computations, which shall be final and binding. 6 (iii) The fees and expenses of all accountants referred to in this Section 3.8(b) shall be borne by Company. SECTION 4. MERGERS, CONSOLIDATIONS, SALES. In the case of any consolidation or merger of Company with another entity, or the sale of all or substantially all of its assets to another entity, or any reorganization, recapitalization or reclassification of the Common Stock or other equity securities of Company, then, as a condition of such consolidation, merger, sale, reorganization, recapitalization or reclassification, lawful and adequate provision shall be made whereby the holder of this Warrant shall thereafter have the right to receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore purchasable hereunder, such shares of stock, securities or assets as may (by virtue of such consolidation, merger, sale, reorganization or reclassification) be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of shares of Common Stock immediately theretofore so purchasable hereunder had such consolidation, merger, sale, reorganization, recapitalization or reclassification not taken place. In any such case, appropriate provisions shall be made with respect to the rights and interest of the holder of this Warrant to the end that the provisions hereof shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon exercise of this Warrant. Company shall not effect any such consolidation, merger or sale, unless prior to or simultaneously with the consummation thereof, the successor entity (if other than Company) resulting from such consolidation or merger or the entity purchasing such assets shall assume by written instrument executed and mailed or delivered to the holder of this Warrant, the obligation to deliver to such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to receive. SECTION 5. DISSOLUTION OR LIQUIDATION. In the event of any proposed distribution of the assets of Company in dissolution or liquidation except under circumstances when the foregoing Section 4 shall be payable, Company shall mail notice thereof to the holder of this Warrant and shall make no distribution to shareholders until the expiration of 30 days from the date of mailing of the aforesaid notice and, in any such case, the holder of this Warrant may exercise the purchase rights with respect to this Warrant within 30 days from the date of mailing such notice and all rights herein granted not so exercised within such 30-day period shall thereafter become null and void. SECTION 6. NOTICE OF DIVIDENDS. If the Board of Directors of Company proposes to declare any dividend or other distribution on its Common Stock, except by way of a stock dividend payable on its Common Stock, Company shall mail notice thereof to the holder of this Warrant as soon as possible (such notice being referred to as the "DISTRIBUTION NOTICE"). Company shall not fix a record date until the lapse of a 10-day period beginning on the date of delivery of the Distribution Notice. The holder of this Warrant shall not participate in such dividend or other distribution or be entitled to any rights on account or as a result thereof unless and to the extent that this Warrant is exercised prior to such record date. The provisions of this paragraph shall not apply to distributions made in connection with transactions covered by Section 4. 7 SECTION 7. FRACTIONAL SHARES. No fractional shares may be issued upon the exercise of this Warrant. In the event that a Holder would otherwise be entitled to a fractional share except for the operation of the previous sentence, in lieu of such fractional share such Holder shall be paid a cash amount equal to (i) such fraction multiplied by (ii) the Current Market Value of one full share of Common Stock on the date of exercise. SECTION 8. FULLY PAID STOCK; TAXES. Company covenants and agrees that the shares of stock represented by each and every certificate for its Common Stock to be delivered on the exercise of the purchase rights and the payment of the applicable purchase price herein provided for shall, at the time of such delivery, be validly issued and outstanding and be fully paid and nonassessable. Company further covenants and agrees that it will pay when due and payable any and all federal and state taxes (other than income taxes) which may be payable in respect of this Warrant or any Common Stock or certificates therefor upon the exercise of the rights herein and in the Warrant Agreement provided for pursuant to the provisions hereof and thereof. Company shall not, however, be required to pay any tax which may be payable solely in respect of any transfer and delivery of stock certificates in a name other than that of the holder exercising this Warrant, and any such tax shall be paid by such holder at the time of presentation. SECTION 9. CLOSING OF TRANSFER BOOKS. The right to exercise this Warrant shall not be suspended during any period that the stock transfer books of Company for its Common Stock may be closed. Company shall not be required, however, to deliver certificates of its Common Stock upon such exercise while such books are duly closed for any purpose, but Company may postpone the delivery of the certificates for such Common Stock until the opening of such books, and they shall, in such case, be delivered forthwith upon the opening thereof, or as soon as practicable thereafter. SECTION 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT. SECTION 10.1 PARTIAL EXERCISE. If this Warrant is exercised in part only, the holder hereof shall surrender this Warrant upon such exercise for endorsement thereon of the number of shares of Common Stock as to which it has been exercised. No partial exercise of this Warrant shall be made in respect of shares of Common Stock of Company representing less than 1% of Pro Forma Shares. SECTION 10.2 ASSIGNMENT. (a) Subject to the conditions set forth in Section 10.2(b) hereof, this Warrant may be assigned either in whole or in part by surrender of this Warrant at the principal office of Company in Denison, Texas (with the assignment or, as the case may be, partial assignment form at the end hereof duly executed). If this Warrant is being assigned in whole, the assignee shall receive a new Warrant (registered in the name of such assignee or its nominee) which new Warrant shall cover 100% of the number of shares of Common Stock then purchasable hereunder and shall set forth the Aggregate Warrant Price. If this Warrant is being assigned in part, the assignor and assignee shall each receive a new Warrant (which, in the case of the assignee, shall be registered in the name of the assignee or its nominee), which new Warrants shall cover the number of shares of 8 Common Stock then purchasable hereunder not so assigned and so assigned, respectively, and shall set forth the proportionate Aggregate Warrant Price applicable to such shares. (b) Neither this Warrant nor any Warrant Shares may be sold, assigned or otherwise transferred unless such sale, assignment or transfer is registered or qualified pursuant to the registration requirements of the Securities Act of 1933, as amended, and all applicable state securities laws, or is preceded by an opinion of counsel addressed to Company that such sale, assignment or other transfer is exempt from all such registration requirements; PROVIDED, HOWEVER, that no such opinion of counsel shall be required in connection with any such sale, assignment or transfer to any affiliate of the holder of this Warrant or any Warrant Shares issued in respect hereof. The fees and expenses of such counsel incurred in respect of such sales, assignments or transfers shall be paid by the holder of this Warrant or any Warrant Shares which are the subject of such proposed sale, assignment or transfer. All certificates representing the Warrant Shares shall be stamped or imprinted with an appropriate restrictive legend, substantially as set forth on the cover page hereof. SECTION 11. DEFINITIONS. Terms not otherwise defined herein shall have the respective meanings assigned thereto in the Warrant Agreement and the Credit Agreement. In addition to the terms defined elsewhere in this Warrant, the following terms have the following respective meanings: "ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of Common Stock issued by Company after the Closing Date, except: (a) Common Stock issued upon exercise of the Warrants; (b) Common Stock issued upon exercise of warrants issued under the Existing Warrant Agreements; and (c) Common Stock issued to officers, directors or employees of, or consultants to, Company pursuant to any existing or future stock option, incentive, bonus or compensation plan or program approved by the Company's shareholders (no later than 12 months following adoption of the plan or program by the Company's Board of Directors). "AGGREGATE WARRANT PRICE" has the meaning specified on the first page of this Warrant. "COMMON STOCK" shall mean the shares of Common Stock, par value $0.01 per share, of Company described in the Certificate of Incorporation. "CONVERTIBLE SECURITIES" shall mean evidences of indebtedness, equity, rights, options, warrants or other securities which are convertible into or exchangeable for shares of Common Stock, either immediately or upon the arrival of a specified date or the happening of a specified event, or otherwise. "CURRENT MARKET PRICE" shall mean, at the date of determination thereof, an amount equal to the market price on the Business Day occurring most recently prior to the subject issuance of such shares of Common Stock (the "ISSUANCE DATE"). The market price for such Business Day shall be 9 the last sale price on such day on the American Stock Exchange, or, if the Common Stock is not then listed or admitted to trading on the American Stock Exchange, on such other principal stock exchange on which such shares are then listed or admitted to trading, or, if no sale takes place on such day on any such exchange, the average of the closing bid and asked prices on such day as officially quoted on any such exchange, or, if the Common Stock is not then listed or admitted to trading on any stock exchange, the market price for each such Business Day shall be the last reported sale price on such day on The Nasdaq Stock Market's National Market or The Nasdaq Stock Market's Small Cap Market, as furnished by Nasdaq, or, if no sale takes place on such day on such system, the average of the closing bid and asked prices on such day as officially quoted by Nasdaq, or, if such price at the time is not available from such system, the market price for such Business Day shall be the average of the reported closing bid and asked prices on such day in the over-the-counter market, as furnished by Nasdaq, or, if such price at the time is not available from such system, such price shall be determined in good faith by Company's Board of Directors, which shall be evidenced by a notice setting forth such determination in reasonable detail (including computations and assumptions used) (THE "CMP COMPUTATION NOTICE") to each holder of the Warrants not later than 30 days after the issuance date of the Common Stock giving rise to such determination (the "CMP COMPUTATION DATE") setting forth such determination and setting forth in detail the rights and procedures the holders of the Warrants may take in the event the Majority Holders do not agree with the valuation set forth in the CMP Computation Notice, PROVIDED, that if the Majority Holders of such Warrants shall object to the valuation contained in the CMP Computation Notice in writing to Company within 15 days of the CMP Computation Date, an Appraiser, the expenses of whom shall be paid by said Majority Holders, shall be selected by Company and said Majority Holders (on behalf of all of the holders of the Warrants as a class), or, if said Majority Holders and Company are unable to agree upon the selection of an Appraiser within 10 days of the date of the written notice from said Majority Holders to Company objecting to the CMP Computation Notice, by the American Arbitration Association. Said Majority Holders and Company shall be jointly responsible for engaging the Appraiser finally selected. In the event that the Majority Holders do not object to the CMP Computation Notice within 15 days after receiving the CMP Computation Notice, then the value shall be that which was determined solely by Company's Board of Directors. The Appraiser appointed pursuant to the foregoing procedure shall be instructed to determine such value within 15 days after the selection of such Appraiser, and any such determination made by the Appraiser shall be final and binding upon the parties. Notwithstanding the foregoing, in the event that, on the Issuance Date, shares of Common Stock shall be offered for sale to the public in connection with an underwritten public offering, the Current Market Price in respect of said Issuance Date shall be deemed to be the price at which said shares are initially sold to the public. "Exercise Date" shall mean a date on which this Warrant is exercised. "Expiration Date" means from and after 5:00 p.m. Denison, Texas time on February 28, 2010 tenth anniversary of issuance of Warrant. "MAJORITY HOLDERS" shall mean, at the time of any determination, the holders of a majority of the Warrants (determined by the number of shares of Common Stock represented by each such Warrant as if exercised). "PER SHARE WARRANT PRICE" is defined in the first paragraph of this Warrant. 10 "PERMITTED CONSIDERATION" shall mean each of the following (or any combination thereof): (a) cash or other funds immediately available to Company; and (b) Warrants. "PRO FORMA SHARES" shall mean, as of the date of any determination thereof, the sum of (i) the total number of outstanding shares of Common Stock, plus (ii) the total number of shares of Common Stock issuable upon exercise of the Warrants and any other warrants, options or other rights and upon the exercise of any conversion or exchange rights with respect to Convertible Securities. "UNDERLYING SHARES" shall mean the shares of Common Stock issuable upon exercise of any of the Warrants and any references contained herein to a holder or holders of any Underlying Shares shall be deemed to refer to the holder of the Warrants relating thereto. "WARRANT PRICE" - see the definition of "per share Warrant Price". "WARRANT SHARES" shall mean shares of Common Stock issued upon exercise of the warrants. "WARRANTS" as used herein shall refer to, collectively, this Warrant and all other warrants issued in exchange or substitution for this Warrant. SECTION 12. WARRANT HOLDER NOT SHAREHOLDER. This Warrant does not confer upon the holder hereof any right to vote or to consent or to receive notice as a shareholder of Company, as such, in respect of any matters whatsoever, or any other rights or liabilities as a shareholder, prior to the exercise hereof as hereinbefore provided. SECTION 13. SEVERABILITY. Should any part of this Warrant for any reason be declared invalid or unenforceable, such decision shall not affect the validity or enforceability of any remaining portion, which remaining portion shall remain in force and effect as if this Warrant had been executed with the invalid or unenforceable portion thereof eliminated, and it is hereby declared the intention of the parties hereto that they would have executed and accepted the remaining portion of this Warrant without including therein any such part, parts or portion which may, for any reason, be hereafter declared invalid or unenforceable. SECTION 14. GOVERNING LAW. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Texas excluding choice-of-law principles of the law of such state that would require the application of the laws of a jurisdiction other than such state. 11 IN WITNESS WHEREOF, Company has caused this Warrant to be signed by a duly authorized officer and to be dated this 28th day of January, 2000. HORIZON PHARMACIES, INC. By: /s/ Ricky D. McCord ------------------------------------------ Ricky D. McCord President and Chief Executive Officer S-1 EX-4.8 5 EXHIBIT 4.8 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED OR QUALIFIED FOR SALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED UNLESS SUCH OFFER, SALE OR TRANSFER IS REGISTERED OR QUALIFIED PURSUANT TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR IS PRECEDED BY AN OPINION OF COUNSEL ADDRESSED TO HORIZON PHARMACIES, INC. THAT SUCH SALE OR OTHER TRANSFER IS EXEMPT FROM ALL SUCH REGISTRATION REQUIREMENTS. THE EXERCISE OF THIS WARRANT, THIS WARRANT, AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE TERMS AND PROVISIONS SPECIFIED IN THE CONSULTING AGREEMENT DATED AS OF FEBRUARY 1, 2000, BY AND BETWEEN HORIZON PHARMACIES, INC. AND 5NET5 CORP. No. WR-2002 WARRANT TO PURCHASE SHARES OF COMMON STOCK OF HORIZON PHARMACIES, INC. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS SECTION 1. EXERCISE OF WARRANT.............................................................................1 SECTION 2. RESERVATION.....................................................................................2 SECTION 3. PROTECTION AGAINST DILUTION.....................................................................2 Section 3.1 Stock Dividends, Subdivisions, and Combinations........................................2 Section 3.2 Issuance of Additional Shares of Common Stock..........................................3 Section 3.3 Issuance of Warrants or Other Rights, Convertible Securities...........................3 Section 3.4 Other Provisions Applicable to Adjustments.............................................4 Section 3.5 Extraordinary Dividends................................................................5 Section 3.6 Adjustment of Number of Shares Purchasable.............................................6 Section 3.7 Minimum Adjustment.....................................................................6 Section 3.8 Notice of Adjustments..................................................................6 SECTION 4. MERGERS, CONSOLIDATIONS, SALES..................................................................7 SECTION 5. DISSOLUTION OR LIQUIDATION......................................................................7 SECTION 6. NOTICE OF DIVIDENDS.............................................................................7 SECTION 7. FRACTIONAL SHARES...............................................................................8 SECTION 8. FULLY PAID STOCK; TAXES.........................................................................8 SECTION 9. CLOSING OF TRANSFER BOOKS.......................................................................8 SECTION 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT.........................................................8 Section 10.1 Partial Exercise.......................................................................8 Section 10.2 Assignment.............................................................................8 SECTION 11. PIGGYBACK REGISTRATION RIGHTS...................................................................9 Section 11.1 Right to Piggyback.....................................................................9 Section 11.2 Priority on Registration...............................................................9 SECTION 12. DEFINITIONS....................................................................................10 SECTION 13. WARRANT HOLDER NOT SHAREHOLDER.................................................................12 SECTION 14. SEVERABILITY...................................................................................13 SECTION 15. GOVERNING LAW..................................................................................13
i Warrant No. WR-2002 WARRANT TO PURCHASE SHARES OF COMMON STOCK OF HORIZON PHARMACIES, INC. THIS IS TO CERTIFY that, for value received and subject to the provisions hereinafter set forth, 5NET5 CORP. or its permitted assigns, is entitled to purchase from HORIZON Pharmacies, Inc., a Delaware corporation ("COMPANY"), at any time and from time to time during the Exercise Period, up to 300,000 shares of Common Stock, par value $0.01 per share, of Company, subject to the terms, provisions and conditions hereinafter set forth at a price per share equal to $2.63. The price per share is subject to adjustment as hereinafter provided (such price, or such price as last adjusted, as the case may be, being herein referred to as the "PER SHARE WARRANT PRICE"). The said number of shares purchasable hereunder is likewise subject to adjustment as hereinafter provided. The aggregate price of the Common Stock purchasable hereunder shall at all times be equal to the price per share set forth in the preceding paragraph multiplied by the number of shares initially purchasable hereunder. The aggregate price is herein sometimes referred to as the "Aggregate Warrant Price" and is not subject to adjustment. The terms which are capitalized herein shall have the meanings specified in Section 12 unless the context shall otherwise require. SECTION 1. EXERCISE OF WARRANT. Subject to the conditions hereinafter set forth and to the condition set forth in Paragraph 2A of the Consulting Agreement, dated as of February 1, 2000, by and between the Company and 5Net5 Corp., this Warrant may be exercised in whole or in part at any time and from time to time during the Exercise Period by the surrender of this Warrant (with the subscription from at the end hereof duly executed) at the principal office of Company in Denison, Texas, and upon payment to Company of a sum equal to the per share Warrant Price multiplied by the number of shares purchased in such exercise, which payment shall be made by the wire transfer or other delivery to Company of one or more types of Permitted Consideration. 1 In the event that Warrants shall be delivered to Company as payment of all or any portion of the purchase price payable hereunder ("Cashless Exercise"), the amount of such purchase price deemed to be paid by means of such delivery shall equal (a) the aggregate number of shares of Underlying Shares related to that portion of the Warrants so delivered, multiplied by (b) the result, not less than zero, equal to (i) the Current Market Price then in effect as to which exercise is being effected (with the date of the exercise of the Warrant being deemed to be the "Issuance Date" for purposes of making determinations under the definition of "Current Market Price") MINUS (ii) the per share Warrant Price then in effect. The number of shares of Common Stock to be issued to 5Net5 Corp. would equal the result of the previous equation divided by Current Market Price.
Example of the herein described Cashless Exercise Warrant Exercise Provision (Example assumes a Current Market Price of $6.00) ------------------------------------------------------------------------------------------------------------------------------- Shares of Current Warrant Current Px Value Current Common Stock Market Exercise MINUS of Warrants Market Issuable Price Price Warr. Ex. Px Warrant being Delivered Price to 5Net5 Corp. ------------ ------------ --------------- ----------- ------------------ -------- ------------------ $6.00 - $2.63 = $3.57 X 300,000 = $1,001,000 / $6.00 = 168,500
If this Warrant is exercised in respect of less than all of the shares of Common Stock at the time purchasable hereunder, following such exercise this Warrant shall be returned to the holder hereof and shall remain exercisable in respect of such number of shares of Common Stock into which the warrant remains exercisable. This Warrant shall expire to the extent that it has not been exercised on or before the Expiration Date. Company shall pay all reasonable expenses, stamp, documentary and transfer taxes and other charges payable in connection with the preparation, execution and delivery of stock certificates pursuant to this Section, regardless of the name or names in which such stock certificates shall be registered. SECTION 2. RESERVATION. Company will at all times reserve and keep available such number of authorized shares of its Common Stock, solely for the purpose of issue upon the exercise of the rights represented by this Warrant as herein provided for, as may at any time be issuable (based upon the number of shares of Common Stock outstanding at any such time) upon the exercise of this Warrant. SECTION 3. PROTECTION AGAINST DILUTION. The per share Warrant Price and the number of shares deliverable hereunder shall be adjusted from time to time as hereinafter set forth: SECTION 3.1 STOCK DIVIDENDS, SUBDIVISIONS, AND COMBINATIONS. In case after the date hereof Company shall: (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend and declared to be payable in, or other declared distribution of, Common Stock, or 2 (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then the per share Warrant Price shall be adjusted to that price determined by multiplying the per share Warrant Price in effect immediately prior to such event by a fraction (i) the numerator of which shall be the total number of outstanding shares of Common Stock immediately prior to such event, and (ii) the denominator of which shall be the total number of outstanding shares of Common Stock immediately after such event. SECTION 3.2 ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In case after the date hereof Company shall (except as hereinafter provided) issue any Additional Shares of Common Stock for a consideration per share less than the Current Market Price per share, then the per share Warrant Price on each such issuance shall be adjusted to that price determined by multiplying the per share Warrant Price in effect immediately prior to such event by a fraction: (a) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such Additional Shares of Common Stock plus the number of full shares of Common Stock which the aggregate consideration for the total number of such Additional Shares of Common Stock so issued would purchase at the Current Market Price per share, and (b) the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such Additional Shares of Common Stock plus the number of such Additional Shares of Common Stock so issued. The provisions of this Section 3.2 shall not apply to any Additional Shares of Common Stock which are distributed to holders of Common Stock as a stock dividend or subdivision, for which an adjustment is provided for under Section 3.1. No adjustment of the Warrant Price shall be made under this Section 3.2 upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Convertible Securities, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Convertible Securities (or upon the issuance of any warrants or other rights therefor) pursuant to Section 3.3. SECTION 3.3 ISSUANCE OF WARRANTS OR OTHER RIGHTS, CONVERTIBLE SECURITIES OR WARRANTS TO PURCHASE CONVERTIBLE SECURITIES. In case Company shall issue any warrants or other rights to subscribe for or purchase any Additional Shares of Common Stock or issue Convertible Securities and the consideration per share for which Additional Shares of Common Stock may at any time thereafter be issuable pursuant to such warrants or other rights or pursuant to the terms of such Convertible Securities shall be less than the Current Market Price per share, then the per share Warrant Price shall be adjusted as provided in Section 3.2 above on the basis that: (a) the maximum number of Additional Shares of Common Stock issuable pursuant to all such warrants or other rights or necessary to effect the conversion or exchange 3 of all such Convertible Securities shall be deemed to have been issued as of the earlier of: (i) the date on which Company shall enter a firm contract or commitment for the issuance of such warrants, other rights or Convertible Securities or (ii) the date of actual issuance of such warrants, other rights or Convertible Securities, and (b) the aggregate consideration for such maximum number of Additional Shares of Common Stock shall be deemed to be the minimum consideration received and receivable by Company for the issuance of such Additional Shares of Common Stock pursuant to such warrants or other rights or pursuant to the terms of such Convertible Securities. No adjustment of the per share Warrant Price shall be made under this Section 3.3 upon the issuance of any Convertible Securities which are issued pursuant to the exercise of any warrants or other subscription or purchase rights therefor, to the extent such adjustment shall previously have been made upon the issuance of such warrants or other rights pursuant to this Section 3.3. SECTION 3.4 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS. The following provisions shall be applicable to the making of adjustments in the per share Warrant Price hereinbefore provided in this Section 3: (a) COMPUTATION OF CONSIDERATION. To the extent that any Additional Shares of Common Stock or any Convertible Securities or any warrants or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities shall be issued for a cash consideration, the consideration received by Company therefor shall be deemed to be the amount of the cash received by Company therefor, or, if such Additional Shares of Common Stock or Convertible Securities or warrants or other rights are offered by Company for subscription, the subscription price, or, if such Additional Shares of Common Stock or Convertible Securities or warrants or other rights are sold to underwriters or dealers for public offering without a subscription offering, the offering price, in any such case excluding any amounts paid or receivable for accrued interest or accrued dividends and without deduction of any compensation, discounts or expenses paid or incurred by Company for and in the underwriting thereof, or otherwise in connection with the issue thereof. To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of Company. The consideration for any Additional Shares of Common Stock issuable pursuant to any warrants or other rights to subscribe for or purchase the same shall be the consideration received by Company for issuing such warrants or other rights plus the additional consideration payable to Company upon the exercise of such warrants or other rights. The consideration for any Additional Shares of Common Stock issuable pursuant to the terms of any Convertible Securities shall be the consideration received by Company for issuing any warrants or other rights to subscribe for or purchase such Convertible Securities plus the consideration paid or payable to Company in respect of the subscription for or purchase of such Convertible Securities plus the additional consideration, if any, payable to Company upon the exercise of the right of conversion or exchange of such Convertible Securities. In case of the issuance at any time of any Additional Shares of Common Stock or Convertible Securities in payment or satisfaction of any dividend upon any class of equity securities other than Common Stock, Company shall 4 be deemed to have received for such Additional Shares of Common Stock or Convertible Securities a consideration equal to the amount of such dividend so paid or satisfied. (b) READJUSTMENT OF PER SHARE WARRANT PRICE. Upon expiration of the right of exercise, conversion or exchange of any Convertible Securities, or upon the expiration of any rights, options or warrants, or upon the termination of any firm contract or commitment for the issuance of such rights, options, warrants or Convertible Securities, or upon any increase in the minimum consideration receivable by Company for the issuance of Additional Shares of Common Stock pursuant to such Convertible Securities, rights, options or warrants, if any such Convertible Securities shall not have been exercised, converted or exchanged, or if any such rights, options or warrant shall not have been exercised, the number of shares of Common Stock deemed to be issued and outstanding by reason of the fact that they were issuable upon exercise, conversion or exchange of any such Convertible Securities or upon exercise of any such rights, options or warrants shall no longer be computed as set forth above, and the per share Warrant Price shall forthwith be readjusted and thereafter be the price which it would have been (but reflecting any other adjustments in the per share Warrant Price made pursuant to the provisions of this Section 3 after the issuance of such Convertible Securities, rights, options or warrants) had the adjustment of the per share Warrant Price made upon the issuance or sale of such Convertible Securities or the issuance of such rights, options or warrants been made on the basis of the issuance only of the number of Additional Shares of Common Stock actually issued upon exercise, conversion or exchange of such Convertible Securities or upon the exercise of such rights, options or warrants, or upon the basis of such increased minimum consideration, as the case may be, and thereupon only the number of Additional Shares of Common Stock actually so issued plus the number thereof then issuable upon the basis of such increased minimum consideration shall be deemed to have been issued and only the consideration actually received plus increased minimum consideration receivable by Company (computed in accordance with Section 3.4(a)) shall be deemed to have been received by Company. (c) ROUNDING OF PER SHARE WARRANT PRICE. Any determination of per share Warrant Price hereunder shall be expressed in United States Dollars, cents and portions of cents and shall be rounded to the nearest 1/1000 of one cent or, if there is no nearest 1/1000 of one cent, to the next highest 1/1000 of one cent. SECTION 3.5 EXTRAORDINARY DIVIDENDS. In case Company shall declare a dividend upon its Common Stock (except a dividend payable in shares of Common Stock referred to in Section 3.1(a) or a dividend payable in warrants, rights or Convertible Securities referred to in Section 3.3) payable otherwise than out of earnings or surplus (other than revaluation surplus or paid-in surplus), the per share Warrant Price in effect immediately prior to the declaration of such dividend shall be reduced by an amount equal, in the case of a dividend in cash, to 10% of the amount thereof payable per share of Common Stock or, in the case of any other dividend, to the fair value thereof per share of Common Stock as determined in good faith by the Board of Directors of Company. For the purposes of the foregoing, a dividend payable other than in cash shall be considered payable out of earnings or surplus (other than revaluation surplus or paid-in surplus) only to the extent that such earnings or surplus are charged an amount equal to the fair value of such dividend as determined by the Board of Directors of Company. If such dividend is paid or Company declares and becomes legally liable to pay such dividend, such reduction shall take effect as of the date on which a record is taken for 5 the purpose of such dividend or, if a record is not taken, the date as of which the holders of the Common Stock of record entitled to such dividend are to be determined. Appropriate readjustment of the per share Warrant Price shall be made in the event that any dividend referred to in this Section 3.5 shall be lawfully abandoned. SECTION 3.6 ADJUSTMENT OF NUMBER OF SHARES PURCHASABLE. Upon each adjustment of the per share Warrant Price, the number of shares of Common Stock purchasable hereunder shall be adjusted by multiplying the number of shares of Common Stock purchasable hereunder immediately prior to such adjustment of the per share Warrant Price by a fraction, the numerator of which shall be the per share Warrant Price in effect immediately prior to such adjustment and the denominator of which shall be the per share Warrant Price in effect immediately following such adjustment. SECTION 3.7 MINIMUM ADJUSTMENT. Except as hereinafter provided, no adjustment of the per share Warrant Price hereunder shall be made if such adjustment results in a change of the per share Warrant Price then in effect of less than 1%. Any adjustment of less than 1% shall be carried forward and shall be made at the time of and together with any subsequent adjustment which, together with the adjustment or adjustments so carried forward, amounts to 1% or more of the per share Warrant Price then in effect. However, upon the exercise of this Warrant, Company shall make all necessary adjustments not theretofore made to the per share Warrant Price up to and including the date upon which this Warrant is exercised. SECTION 3.8 NOTICE OF ADJUSTMENTS. (a) Whenever the per share Warrant Price or number of shares deliverable upon exercise of this Warrant shall be adjusted pursuant to this Section 3, Company shall promptly prepare a certificate signed by the President or a Vice President and by the Treasurer of Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated (including a description of the basis on which the Board of Directors of Company made any determination hereunder), and shall promptly cause copies of such certificate to be mailed in the manner provided in Section 12.1 of the Warrant Agreement to the holder of this Warrant. (b) The adjustment set forth in the certificate furnished pursuant to Section 3.8(a) shall be final and binding unless, within 90 days after receipt thereof, the Majority Holders of the Warrants deliver to Company a written statement of objection to such adjustment. (i) In the event of any such statement of objection by said Majority Holders, Company's accountants and a firm of independent public accountants selected by said Majority Holders shall attempt to prepare a computation in which both accountants concur. Any such joint computation shall be set forth in a joint certificate to each holder of the Warrants and Company and shall be final and binding. (ii) If Company's accountants and said Majority Holders' accountants are unable to resolve their differences within 30 days after the receipt by Company of said Majority Holders' statement of objection, they shall submit the matter to a third firm of independent certified public accountants of nationally recognized standing agreed upon by said Majority Holders and Company or, if said Majority Holders and Company are unable to agree within 10 days after the expiration of said 30-day 6 period, to such firm designated by the then president of the state society of certified public accountants for the state in which Company maintains its principal place of business. Such third firm of accountants shall thereupon compute the amount of the adjustment and, upon completion of such computation, shall transmit its certificate to each holder of the Warrants and Company setting forth such computations, which shall be final and binding. (iii) The fees and expenses of all accountants referred to in this Section 3.8(b) shall be borne by Company. SECTION 4. MERGERS, CONSOLIDATIONS, SALES. In the case of any consolidation or merger of Company with another entity, or the sale of all or substantially all of its assets to another entity, or any reorganization, recapitalization or reclassification of the Common Stock or other equity securities of Company, then, as a condition of such consolidation, merger, sale, reorganization, recapitalization or reclassification, lawful and adequate provision shall be made whereby the holder of this Warrant shall thereafter have the right to receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore purchasable hereunder, such shares of stock, securities or assets as may (by virtue of such consolidation, merger, sale, reorganization or reclassification) be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of shares of Common Stock immediately theretofore so purchasable hereunder had such consolidation, merger, sale, reorganization, recapitalization or reclassification not taken place. In any such case, appropriate provisions shall be made with respect to the rights and interest of the holder of this Warrant to the end that the provisions hereof shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon exercise of this Warrant. Company shall not effect any such consolidation, merger or sale, unless prior to or simultaneously with the consummation thereof, the successor entity (if other than Company) resulting from such consolidation or merger or the entity purchasing such assets shall assume by written instrument executed and mailed or delivered to the holder of this Warrant, the obligation to deliver to such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to receive. SECTION 5. DISSOLUTION OR LIQUIDATION. In the event of any proposed distribution of the assets of Company in dissolution or liquidation except under circumstances when the foregoing Section 4 shall be payable, Company shall mail notice (including specific details and amounts to be distributed) thereof to the holder of this Warrant and shall make no distribution to shareholders until the expiration of 30 days from the date of receipt of the aforesaid notice and, in any such case, the holder of this Warrant may exercise the purchase rights with respect to this Warrant within 30 days from the date of receipt such notice and all rights herein granted not so exercised within such 30-day period shall thereafter become null and void. SECTION 6. NOTICE OF DIVIDENDS. If the Board of Directors of Company proposes to declare any dividend or other distribution on its Common Stock, except by way of a stock dividend payable on its Common Stock, Company 7 shall mail notice thereof to the holder of this Warrant as soon as possible (such notice being referred to as the "DISTRIBUTION NOTICE"). Company shall not fix a record date until the lapse of a 10-day period beginning on the date of delivery of the Distribution Notice. The holder of this Warrant shall not participate in such dividend or other distribution or be entitled to any rights on account or as a result thereof unless and to the extent that this Warrant is exercised prior to such record date. The provisions of this paragraph shall not apply to distributions made in connection with transactions covered by Section 4. SECTION 7. FRACTIONAL SHARES. No fractional shares may be issued upon the exercise of this Warrant. In the event that a Holder would otherwise be entitled to a fractional share except for the operation of the previous sentence, in lieu of such fractional share such Holder shall be paid a cash amount equal to (i) such fraction multiplied by (ii) the Current Market Value of one full share of Common Stock on the date of exercise. SECTION 8. FULLY PAID STOCK; TAXES. Company covenants and agrees that the shares of stock represented by each and every certificate for its Common Stock to be delivered on the exercise of the purchase rights and the payment of the applicable purchase price herein provided for shall, at the time of such delivery, be validly issued and outstanding and be fully paid and nonassessable. Company further covenants and agrees that it will pay when due and payable any and all federal and state taxes (other than income taxes) which may be payable in respect of this Warrant or any Common Stock or certificates therefor upon the exercise of the rights herein and in the Warrant Agreement provided for pursuant to the provisions hereof and thereof. Company shall not, however, be required to pay any tax which may be payable solely in respect of any transfer and delivery of stock certificates in a name other than that of the holder exercising this Warrant, and any such tax shall be paid by such holder at the time of presentation. SECTION 9. CLOSING OF TRANSFER BOOKS. The right to exercise this Warrant shall not be suspended during any period that the stock transfer books of Company for its Common Stock may be closed. Company shall not be required, however, to deliver certificates of its Common Stock upon such exercise while such books are duly closed for any purpose, but Company may postpone the delivery of the certificates for such Common Stock until the opening of such books, and they shall, in such case, be delivered forthwith upon the opening thereof, or as soon as practicable thereafter. SECTION 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT. SECTION 10.1 PARTIAL EXERCISE. If this Warrant is exercised in part only, the holder hereof shall surrender this Warrant upon such exercise for endorsement thereon of the number of shares of Common Stock as to which it has been exercised. SECTION 10.2 ASSIGNMENT. (a) Subject to the conditions set forth in Section 10.2(b) hereof, this Warrant may be assigned either in whole or in part by surrender of this Warrant at the principal office of Company in Denison, Texas (with the assignment or, as the case may be, partial assignment 8 form at the end hereof duly executed). If this Warrant is being assigned in whole, the assignee shall receive a new Warrant (registered in the name of such assignee or its nominee) which new Warrant shall cover 100% of the number of shares of Common Stock then purchasable hereunder and shall set forth the Aggregate Warrant Price. If this Warrant is being assigned in part, the assignor and assignee shall each receive a new Warrant (which, in the case of the assignee, shall be registered in the name of the assignee or its nominee), which new Warrants shall cover the number of shares of Common Stock then purchasable hereunder not so assigned and so assigned, respectively, and shall set forth the proportionate Aggregate Warrant Price applicable to such shares. (b) Neither this Warrant nor any Warrant Shares may be sold, assigned or otherwise transferred unless such sale, assignment or transfer is registered or qualified pursuant to the registration requirements of the Securities Act of 1933, as amended, and all applicable state securities laws, or is preceded by an opinion of counsel addressed to Company that such sale, assignment or other transfer is exempt from all such registration requirements; PROVIDED, HOWEVER, that no such opinion of counsel shall be required in connection with any such sale, assignment or transfer to any affiliate of the holder of this Warrant or any Warrant Shares issued in respect hereof. The fees and expenses of such counsel incurred in respect of such sales, assignments or transfers shall be paid by the holder of this Warrant or any Warrant Shares which are the subject of such proposed sale, assignment or transfer. All certificates representing the Warrant Shares shall be stamped or imprinted with an appropriate restrictive legend, substantially as set forth on the cover page hereof. SECTION 11. PIGGYBACK REGISTRATION RIGHTS. SECTION 11.1 RIGHT TO PIGGYBACK. Each time the Company proposes to register any of its equity securities under the Securities Act of 1933 for sale to the public, whether for the account of the Company or otherwise for the account of any securityholder of the Company, and the form of registration statement to be used permits the registration of Registrable Shares, the Company shall give prompt written notice to 5Net5 Corp. (which notice shall be given not less than 30 days prior to the effective date of the Company's registration statement), which notice shall offer 5Net5 Corp. the opportunity to include any or all of its Registrable Shares in such registration statement, subject to the limitations contained in Section 11.2 hereof. If 5Net5 Corp. desires to have its Registrable Shares included in such registration statement, it shall so advise the Company in writing (stating the number of shares desired to be registered) within 20 days after the date of such notice from the Company. 5Net5 Corp. shall have the right to withdraw its request for inclusion of its Registrable Shares in any registration statement pursuant to this Section 11.1 by giving written notice to the Company of such withdrawal. Subject to Section 11.2 below, the Company shall include in such registration statement all such Registrable Shares so requested to be included therein; provided, however, that the Company may at any time withdraw or cease proceeding with any such registration if it shall at the same time withdraw or cease proceeding with the registration of all other equity securities originally proposed to be registered. SECTION 11.2 PRIORITY ON REGISTRATION. If, in connection with a proposed registration of the Company's equity securities, the managing underwriter advises the Company that the inclusion of Registrable Shares would have a material adverse effect on the price or success of the offering, then (i) the number of 5Net5 Corp.'s Registrable Shares to be included in the registration statement shall be reduced to an amount which, in the judgment of the managing underwriter, would eliminate such 9 material adverse effect or (ii) if no such reduction would, in the judgment of the managing underwriter, eliminate such material adverse effect, then the Company shall have the right to exclude all such Registrable Shares from such registration statement. Any partial reduction in the number of Registrable Shares to be included in the registration statement pursuant to clause (i) of the immediately preceding sentence shall be effected PRO RATA based on the ratio which 5Net5 Corp.'s requested shares bear to the total number of shares requested to be included in such registration statement by all persons who have requested that their shares be included in such registration statement pursuant to piggyback registration rights. It is acknowledged by the Company and 5Net5 Corp., that pursuant to the foregoing provision, the securities to be included in such registration shall be allocated (x) if such registration has been initiated by the Company for securities to be offered by the Company, (1) first, to the Company, and (2) second, to 5Net5 Corp. and all other persons that have piggyback registration rights with respect to such registration and who request that securities be included therein in accordance with the above described ratio, and (y) if such registration is a demand registration, (1) first, to securities offered by persons exercising their right to cause a demand registration, (2) second, to the Company, and (3) third, to 5Net5 Corp. and all other persons that have piggyback registration rights with respect to such registration and who request that securities be included therein in accordance with the above described ratio. If as a result of the provisions of this Section 11.2 5Net5 Corp. shall not be entitled to include all Registrable Securities in a registration that 5Net5 Corp. has requested to be so included, 5Net5 Corp. may withdraw its request to include Registrable Shares in such registration statement. 5Net5 Corp. may only participate in any registration statement hereunder if 5Net5 Corp. (x) agrees to sell its Registrable Shares on the basis provided in any underwriting arrangements approved by the Company and (y) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements, and other documents reasonably required under the terms of such underwriting arrangements. 5Net5 Corp. shall be entitled to exercise its right to have its Registrable Shares included in a registration statement only on two separate occasions and thereafter 5Net5 Corp. shall no longer have any rights, and the Company shall no longer have any obligations to 5Net5 Corp. under Section 11. SECTION 12. DEFINITIONS. Terms not otherwise defined herein shall have the respective meanings assigned thereto in the Warrant Agreement and the Credit Agreement. In addition to the terms defined elsewhere in this Warrant, the following terms have the following respective meanings: "ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of Common Stock issued by Company after the Closing Date, except: (a) Common Stock issued upon exercise of the Warrants; (b) Common Stock issued upon exercise of warrants issued under the Existing Warrant Agreements; and (c) Common Stock issued to officers, directors or employees of, or consultants to, Company pursuant to any existing or future stock option, incentive, bonus or compensation plan or program approved by the Company's shareholders (no later than 12 months following adoption of the plan or program by the Company's Board of Directors). 10 "AGGREGATE WARRANT PRICE" has the meaning specified on the first page of this Warrant. "CASHLESS EXERCISE" has the meaning specified in Section 1. "COMMON STOCK" shall mean the shares of Common Stock, par value $0.01 per share, of Company described in the Certificate of Incorporation. "CONVERTIBLE SECURITIES" shall mean evidences of indebtedness, equity, rights, options, warrants or other securities which are convertible into or exchangeable for shares of Common Stock, either immediately or upon the arrival of a specified date or the happening of a specified event, or otherwise. "CURRENT MARKET PRICE" shall mean, at the date of determination thereof, an amount equal to the market price on the Business Day occurring most recently prior to the subject issuance of such shares of Common Stock (the "ISSUANCE DATE"). The market price for such Business Day shall be the last sale price on such day on the American Stock Exchange, or, if the Common Stock is not then listed or admitted to trading on the American Stock Exchange, on such other principal stock exchange on which such shares are then listed or admitted to trading, or, if no sale takes place on such day on any such exchange, the average of the closing bid and asked prices on such day as officially quoted on any such exchange, or, if the Common Stock is not then listed or admitted to trading on any stock exchange, the market price for each such Business Day shall be the last reported sale price on such day on The Nasdaq Stock Market's National Market or The Nasdaq Stock Market's Small Cap Market, as furnished by Nasdaq, or, if no sale takes place on such day on such system, the average of the closing bid and asked prices on such day as officially quoted by Nasdaq, or, if such price at the time is not available from such system, the market price for such Business Day shall be the average of the reported closing bid and asked prices on such day in the over-the-counter market, as furnished by Nasdaq, or, if such price at the time is not available from such system, such price shall be determined in good faith by Company's Board of Directors, which shall be evidenced by a notice setting forth such determination in reasonable detail (including computations and assumptions used) (THE "CMP COMPUTATION NOTICE") to each holder of the Warrants not later than 30 days after the issuance date of the Common Stock giving rise to such determination (the "CMP COMPUTATION DATE") setting forth such determination and setting forth in detail the rights and procedures the holders of the Warrants may take in the event the Majority Holders do not agree with the valuation set forth in the CMP Computation Notice, PROVIDED, that if the Majority Holders of such Warrants shall object to the valuation contained in the CMP Computation Notice in writing to Company within 15 days of the CMP Computation Date, an Appraiser, the expenses of whom shall be paid by said Majority Holders, shall be selected by Company and said Majority Holders (on behalf of all of the holders of the Warrants as a class), or, if said Majority Holders and Company are unable to agree upon the selection of an Appraiser within 10 days of the date of the written notice from said Majority Holders to Company objecting to the CMP Computation Notice, by the American Arbitration Association. Said Majority Holders and Company shall be jointly responsible for engaging the Appraiser finally selected. In the event that the Majority Holders do not object to the CMP Computation Notice within 15 days after receiving the CMP Computation Notice, then the value shall be that which was determined solely by Company's Board of Directors. The Appraiser appointed pursuant to the foregoing procedure shall be instructed to determine such value within 15 days after the selection of such Appraiser, and any such determination made by the Appraiser shall be final and binding upon the parties. 11 Notwithstanding the foregoing, in the event that, on the Issuance Date, shares of Common Stock shall be offered for sale to the public in connection with an underwritten public offering, the Current Market Price in respect of said Issuance Date shall be deemed to be the price at which said shares are initially sold to the public. "EXERCISE DATE" shall mean a date on which this Warrant is exercised. "EXERCISE PERIOD" means from the Exercise Date until, and including, the Expiration Date. "EXPIRATION DATE" means from and after 5:00 p.m. Denison, Texas time on February 1, 2010, the tenth anniversary of issuance of this Warrant. "MAJORITY HOLDERS" shall mean, at the time of any determination, the holders of a majority of the Warrants (determined by the number of shares of Common Stock represented by each such Warrant as if exercised). "PER SHARE WARRANT PRICE" is defined in the first paragraph of this Warrant. "PERMITTED CONSIDERATION" shall mean each of the following (or any combination thereof): (a) cash or other funds immediately available to Company; and (b) Warrants. "PRO FORMA SHARES" shall mean, as of the date of any determination thereof, the sum of (i) the total number of outstanding shares of Common Stock, plus (ii) the total number of shares of Common Stock issuable upon exercise of the Warrants and any other warrants, options or other rights and upon the exercise of any conversion or exchange rights with respect to Convertible Securities. "REGISTRABLE SHARES" shall mean the shares of Common Stock purchasable under the Warrant. "UNDERLYING SHARES" shall mean the shares of Common Stock issuable upon exercise of any of the Warrants and any references contained herein to a holder or holders of any Underlying Shares shall be deemed to refer to the holder of the Warrants relating thereto. "WARRANT PRICE" - see the definition of "per share Warrant Price". "WARRANT SHARES" shall mean shares of Common Stock issued upon exercise of the warrants. "WARRANTS" as used herein shall refer to, collectively, this Warrant and all other warrants issued in exchange or substitution for this Warrant. SECTION 13. WARRANT HOLDER NOT SHAREHOLDER. This Warrant does not confer upon the holder hereof any right to vote or to consent or to receive notice as a shareholder of Company, as such, in respect of any matters whatsoever, or any other rights or liabilities as a shareholder, prior to the exercise hereof as hereinbefore provided. 12 SECTION 14. SEVERABILITY. Should any part of this Warrant for any reason be declared invalid or unenforceable, such decision shall not affect the validity or enforceability of any remaining portion, which remaining portion shall remain in force and effect as if this Warrant had been executed with the invalid or unenforceable portion thereof eliminated, and it is hereby declared the intention of the parties hereto that they would have executed and accepted the remaining portion of this Warrant without including therein any such part, parts or portion which may, for any reason, be hereafter declared invalid or unenforceable. SECTION 15. GOVERNING LAW. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Texas excluding choice-of-law principles of the law of such state that would require the application of the laws of a jurisdiction other than such state. [Remainder of page intentionally left blank.] 13 IN WITNESS WHEREOF, Company has caused this Warrant to be signed by a duly authorized officer and to be dated this 1st day of February, 2000. HORIZON PHARMACIES, INC. By: /s/ Ricky D. McCord ------------------------------------------- Ricky D. McCord President and Chief Executive Officer S-1 EX-4.9 6 EXHIBIT 4.9 Exhibit 4.9 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED OR QUALIFIED FOR SALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED UNLESS SUCH OFFER, SALE OR TRANSFER IS REGISTERED OR QUALIFIED PURSUANT TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR IS PRECEDED BY AN OPINION OF COUNSEL ADDRESSED TO HORIZON PHARMACIES, INC. THAT SUCH SALE OR OTHER TRANSFER IS EXEMPT FROM ALL SUCH REGISTRATION REQUIREMENTS. No. WR-_____ WARRANT TO PURCHASE SHARES OF COMMON STOCK OF HORIZON PHARMACIES, INC. March 14, 2000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS SECTION 1. EXERCISE OF WARRANT....................................................1 SECTION 2. RESERVATION............................................................2 SECTION 3. PROTECTION AGAINST DILUTION............................................2 Section 3.1 Stock Dividends, Subdivisions, and Combinations..................2 Section 3.2 Issuance of Additional Shares of Common Stock....................3 Section 3.3 Issuance of Warrants or Other Rights, Convertible Securities.....3 Section 3.4 Other Provisions Applicable to Adjustments.......................4 Section 3.5 Extraordinary Dividends..........................................5 Section 3.6 Adjustment of Number of Shares Purchasable.......................6 Section 3.7 Minimum Adjustment...............................................6 Section 3.8 Notice of Adjustments............................................6 SECTION 4. MERGERS, CONSOLIDATIONS, SALES.........................................7 SECTION 5. DISSOLUTION OR LIQUIDATION.............................................7 SECTION 6. NOTICE OF DIVIDENDS....................................................8 SECTION 7. FRACTIONAL SHARES......................................................8 SECTION 8. FULLY PAID STOCK; TAXES................................................8 SECTION 9. CLOSING OF TRANSFER BOOKS..............................................8 SECTION 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT................................8 Section 10.1 Partial Exercise.................................................8 Section 10.2 Assignment.......................................................9 SECTION 11. DEFINITIONS............................................................9 SECTION 12. WARRANT HOLDER NOT SHAREHOLDER........................................11 SECTION 13. SEVERABILITY..........................................................12 SECTION 14. GOVERNING LAW.........................................................12
i Warrant No. WR-___ WARRANT TO PURCHASE SHARES OF COMMON STOCK OF HORIZON PHARMACIES, INC. THIS IS TO CERTIFY that, for value received and subject to the provisions hereinafter set forth, INFORMED.COM, INC. or its permitted assigns, is entitled to purchase from HORIZON Pharmacies, Inc., a Delaware corporation ("COMPANY"), at any time and from time to time during the Exercise Period, up to 300,000 shares of Common Stock, par value $0.01 per share, of Company, subject to the terms, provisions and conditions hereinafter set forth at a price per share equal to $5.00. The price per share is subject to adjustment as hereinafter provided (such price, or such price as last adjusted, as the case may be, being herein referred to as the "PER SHARE WARRANT PRICE"). The said number of shares purchasable hereunder is likewise subject to adjustment as hereinafter provided. The aggregate price of the Common Stock purchasable hereunder shall at all times be equal to the price per share set forth in the preceding paragraph multiplied by the number of shares initially purchasable hereunder. The aggregate price is herein sometimes referred to as the "AGGREGATE WARRANT PRICE" and is not subject to adjustment. The terms which are capitalized herein shall have the meanings specified in Section 11 unless the context shall otherwise require. SECTION 1. EXERCISE OF WARRANT. Subject to the conditions hereinafter set forth, this Warrant may be exercised in whole or in part at any time and from time to time during the Exercise Period by the surrender of this Warrant (with the subscription from at the end hereof duly executed) at the principal office of Company in Denison, Texas, and upon payment to Company of a sum equal to the per share Warrant Price multiplied by the number of shares purchased in such exercise, which payment shall be made by wire transfer or other delivery to Company of one or more types of Permitted Consideration. In the event that Warrants shall be delivered to Company as payment of all or any portion of the purchase price payable hereunder, the amount of such purchase price deemed to be paid by means of such delivery shall equal (a) the aggregate number of shares of Underlying Shares related 1 to any Warrants so delivered, multiplied by (b) the result, not less than zero, equal to (i) the Current Market Price then in effect (with the date of the exercise of the Warrant being deemed to be the "Issuance Date" for purposes of making determinations under the definition of "Current Market Price") MINUS (ii) the per share Warrant Price then in effect. If this Warrant is exercised in respect of less than all of the shares of Common Stock at the time purchasable hereunder, following such exercise this Warrant shall be returned to the holder hereof and shall remain exercisable in respect of such number of shares of Common Stock as may thereafter be determined hereunder. This Warrant and all rights and options hereunder shall expire to the extent that it has not been exercised on or before the Expiration Date. In the event that Informed.com, Inc. completes an initial public offering of its common stock, par value $___ per share, within two (2) years from the date hereof, this Warrant shall be exercised in whole no later than twelve (12) months from the date of completion of such initial public offering. Company shall pay all reasonable expenses, stamp, documentary and transfer taxes and other charges payable in connection with the preparation, execution and delivery of stock certificates pursuant to this Section, regardless of the name or names in which such stock certificates shall be registered. SECTION 2. RESERVATION. Company will at all times reserve and keep available such number of authorized shares of its Common Stock, solely for the purpose of issue upon the exercise of the rights represented by this Warrant as herein provided for, as may at any time be issuable (based upon the number of shares of Common Stock outstanding at any such time) upon the exercise of this Warrant. SECTION 3. PROTECTION AGAINST DILUTION. The per share Warrant Price and the number of shares deliverable hereunder shall be adjusted from time to time as hereinafter set forth: SECTION 3.1 STOCK DIVIDENDS, SUBDIVISIONS, AND COMBINATIONS. In case after the date hereof Company shall: (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend and declared to be payable in, or other declared distribution of, Common Stock, or (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, 2 then the per share Warrant Price shall be adjusted to that price determined by multiplying the per share Warrant Price in effect immediately prior to such event by a fraction (i) the numerator of which shall be the total number of outstanding shares of Common Stock immediately prior to such event, and (ii) the denominator of which shall be the total number of outstanding shares of Common Stock immediately after such event. SECTION 3.2 ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In case after the date hereof Company shall (except as hereinafter provided) issue any Additional Shares of Common Stock for a consideration less than the Current Market Price per share (other than pursuant to options or other rights to purchase Additional Shares of Common Stock awarded to employees, officers, or directors pursuant to compensatory or other arrangements approved by the Board of Directors), then the per share Warrant Price on each such issuance shall be adjusted to that price determined by multiplying the per share Warrant Price in effect immediately prior to such event by a fraction: (a) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such Additional Shares of Common Stock plus the number of full shares of Common Stock which the aggregate consideration for the total number of such Additional Shares of Common Stock so issued would purchase at the Current Market Price per share, and (b) the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such Additional Shares of Common Stock plus the number of such Additional Shares of Common Stock so issued. The provisions of this Section 3.2 shall not apply to any Additional Shares of Common Stock which are distributed to holders of Common Stock as a stock dividend or subdivision, for which an adjustment is provided for under Section 3.1. No adjustment of the share per Warrant Price shall be made under this Section 3.2 upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Convertible Securities, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Convertible Securities (or upon the issuance of any warrants or other rights therefor) pursuant to Section 3.3. SECTION 3.3 ISSUANCE OF WARRANTS OR OTHER RIGHTS, CONVERTIBLE SECURITIES. In case Company shall issue any warrants or other rights to subscribe for or purchase any Additional Shares of Common Stock or issue Convertible Securities and the consideration per share for which Additional Shares of Common Stock may at any time thereafter be issuable pursuant to such warrants or other rights or pursuant to the terms of such Convertible Securities shall be less than the Current Market Price per share (other than pursuant to options or other rights to purchase Additional Shares of Common Stock awarded to employees, officers, or directors pursuant to compensatory or other arrangements approved by the Board of Directors), then the per share Warrant Price shall be adjusted as provided in Section 3.2 above on the basis that: (a) the maximum number of Additional Shares of Common Stock issuable pursuant to all such warrants or other rights or necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued as of the earlier of: 3 (i) the date on which Company shall enter a firm contract or commitment for the issuance of such warrants, other rights or Convertible Securities or (ii) the date of actual issuance of such warrants, other rights or Convertible Securities, and (b) the aggregate consideration for such maximum number of Additional Shares of Common Stock shall be deemed to be the minimum consideration received and receivable by Company for the issuance of such Additional Shares of Common Stock pursuant to such warrants or other rights or pursuant to the terms of such Convertible Securities. No adjustment of the per share Warrant Price shall be made under this Section 3.3 upon the issuance of any Convertible Securities which are issued pursuant to the exercise of any warrants or other subscription or purchase rights therefor, to the extent such adjustment shall previously have been made upon the issuance of such warrants or other rights pursuant to this Section 3.3. SECTION 3.4 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS. The following provisions shall be applicable to the making of adjustments in the per share Warrant Price hereinbefore provided in this Section 3: (a) COMPUTATION OF CONSIDERATION. To the extent that any Additional Shares of Common Stock or any Convertible Securities or any warrants or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities shall be issued for a cash consideration, the consideration received by Company therefor shall be deemed to be the amount of the cash received by Company therefor, or, if such Additional Shares of Common Stock or Convertible Securities or warrants or other rights are offered by Company for subscription, the subscription price, or, if such Additional Shares of Common Stock or Convertible Securities or warrants or other rights are sold to underwriters or dealers for public offering without a subscription offering, the offering price, in any such case excluding any amounts paid or receivable for accrued interest or accrued dividends and without deduction of any compensation, discounts or expenses paid or incurred by Company for and in the underwriting thereof, or otherwise in connection with the issue thereof. To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of Company. The consideration for any Additional Shares of Common Stock issuable pursuant to any warrants or other rights to subscribe for or purchase the same shall be the consideration received by Company for issuing such warrants or other rights plus the additional consideration payable to Company upon the exercise of such warrants or other rights. The consideration for any Additional Shares of Common Stock issuable pursuant to the terms of any Convertible Securities shall be the consideration received by Company for issuing any warrants or other rights to subscribe for or purchase such Convertible Securities plus the consideration paid or payable to Company in respect of the subscription for or purchase of such Convertible Securities plus the additional consideration, if any, payable to Company upon the exercise of the right of conversion or exchange of such Convertible Securities. In case of the issuance at any time of any Additional Shares of Common Stock or Convertible Securities in payment or satisfaction of any dividend upon any class of equity securities other than Common Stock, Company shall 4 be deemed to have received for such Additional Shares of Common Stock or Convertible Securities a consideration equal to the amount of such dividend so paid or satisfied. (b) READJUSTMENT OF PER SHARE WARRANT PRICE. Upon expiration of the right of exercise, conversion or exchange of any Convertible Securities, or upon the expiration of any rights, options or warrants, or upon the termination of any firm contract or commitment for the issuance of such rights, options, warrants or Convertible Securities, or upon any increase in the minimum consideration receivable by Company for the issuance of Additional Shares of Common Stock pursuant to such Convertible Securities, rights, options or warrants, if any such Convertible Securities shall not have been exercised, converted or exchanged, or if any such rights, options or warrant shall not have been exercised, the number of shares of Common Stock deemed to be issued and outstanding by any reason of the fact that they were issuable upon exercise, conversion or exchange of any such Convertible Securities or upon exercise of any such rights, options or warrants shall no longer be computed as set forth above, and the per share Warrant Price shall forthwith be readjusted and thereafter be the price which it would have been (but reflecting any other adjustments in the per share Warrant Price made pursuant to the provisions of this Section 3 after the issuance of such Convertible Securities, rights, options or warrants) had the adjustment of the per share Warrant Price made upon the issuance or sale of such Convertible Securities or the issuance of such rights, options or warrants been made on the basis of the issuance only of the number of Additional Shares of Common Stock actually issued upon exercise, conversion or exchange of such Convertible Securities or upon the exercise of such rights, options or warrants, or upon the basis of such increased minimum consideration, as the case may be, and thereupon only the number of Additional Shares of Common Stock actually so issued plus the number thereof then issuable upon the basis of such increased minimum consideration shall be deemed to have been issued and only the consideration actually received plus shall increased minimum consideration receivable by Company (computed in accordance with Section 3.4(a)) shall be deemed to have been received by Company. (c) ROUNDING OF PER SHARE WARRANT PRICE. Any determination of per share Warrant Price hereunder shall be expressed in United States Dollars, cents and portions of cents and shall be rounded to the nearest 1/1000 of one cent or, if there is no nearest 1/1000 of one cent, to the next highest 1/1000 of one cent. SECTION 3.5 EXTRAORDINARY DIVIDENDS. In case Company shall declare a dividend upon its Common Stock (except a dividend payable in shares of Common Stock referred to in Section 3.1(a) or a dividend payable in warrants, rights or Convertible Securities referred to in Section 3.3) payable otherwise than out of earnings or surplus (other than revaluation surplus or paid-in surplus), the per share Warrant Price in effect immediately prior to the declaration of such dividend shall be reduced by an amount equal, in the case of a dividend in cash, to 10% of the amount thereof payable per share of Common Stock or, in the case of any other dividend, to the fair value thereof per share of Common Stock as determined in good faith by the Board of Directors of Company. For the purposes of the foregoing, a dividend payable other than in cash shall be considered payable out of earnings or surplus (other than revaluation surplus or paid-in surplus) only to the extent that such earnings or surplus are charged an amount equal to the fair value of such dividend as determined by the Board of Directors of Company. If such dividend is paid or Company declares and becomes legally liable to pay such dividend, such reduction shall take effect as of the date on which a record is taken for 5 the purpose of such dividend or, if a record is not taken, the date as of which the holders of the Common Stock of record entitled to such dividend are to be determined. Appropriate readjustment of the per share Warrant Price shall be made in the event that any dividend referred to in this Section 3.5 shall be lawfully abandoned. SECTION 3.6 ADJUSTMENT OF NUMBER OF SHARES PURCHASABLE. Upon each adjustment of the per share Warrant Price, the number of shares of Common Stock purchasable hereunder shall be adjusted by multiplying the number of shares of Common Stock purchasable hereunder immediately prior to such adjustment of the per share Warrant Price by a fraction, the numerator of which shall be the per share Warrant Price in effect immediately prior to such adjustment and the denominator of which shall be the per share Warrant Price in effect immediately following such adjustment. SECTION 3.7 MINIMUM ADJUSTMENT. Except as hereinafter provided, no adjustment of the per share Warrant Price hereunder shall be made if such adjustment results in a change of the per share Warrant Price then in effect of less than 1%. Any adjustment of less than 1% shall be carried forward and shall be made at the time of and together with any subsequent adjustment which, together with the adjustment or adjustments so carried forward, amounts to 1% or more of the per share Warrant Price then in effect. However, upon the exercise of this Warrant, Company shall make all necessary adjustments not theretofore made to the per share Warrant Price up to and including the date upon which this Warrant is exercised. SECTION 3.8 NOTICE OF ADJUSTMENTS. (a) Whenever the per share Warrant Price or number of shares deliverable upon exercise of this Warrant shall be adjusted pursuant to this Section 3, Company shall promptly prepare a certificate signed by the President or a Vice President and by the Treasurer of Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated (including a description of the basis on which the Board of Directors of Company made any determination hereunder), and shall promptly cause copies of such certificate to be mailed in the manner provided in Section 12.1 of the Warrant Agreement to the holder of this Warrant. (b) The adjustment set forth in the certificate furnished pursuant to Section 3.8(a) shall be final and binding unless, within 90 days after receipt thereof, the Majority Holders deliver to Company a written statement of objection to such adjustment. (i) In the event of any such statement of objection by said Majority Holders, Company's accountants and a firm of independent public accountants selected by said Majority Holders shall attempt to prepare a computation in which both accountants concur. Any such joint computation shall be set forth in a joint certificate to each holder of the Warrants and Company and shall be final and binding. (ii) If Company's accountants and said Majority Holders' accountants are unable to resolve their differences within 30 days after the receipt by Company of said Majority Holders' statement of objection, they shall submit the matter to a third firm of independent certified public accountants of nationally recognized standing 6 agreed upon by said Majority Holders and Company or, if said Majority Holders and Company are unable to agree within 10 days after the expiration of said 30-day period, to such firm designated by the then president of the state society of certified public accountants for the state in which Company maintains its principal place of business. Such third firm of accountants shall thereupon compute the amount of the adjustment and, upon completion of such computation, shall transmit its certificate to each holder of the Warrants and Company setting forth such computations, which shall be final and binding. (iii) The fees and expenses of all accountants referred to in this Section 3.8(b) shall be borne by Company. SECTION 4. MERGERS, CONSOLIDATIONS, SALES. In the case of any consolidation or merger of Company without another entity, or the sale of all or substantially all of its assets to another entity, or any reorganization, recapitalization or reclassification of the Common Stock or other equity securities of Company, then, as a condition of such consolidation, merger, sale, reorganization, recapitalization or reclassification, lawful and adequate provision shall be made whereby the holder of this Warrant shall thereafter have the right to receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately therefore purchasable hereunder, such shares of stock, securities or assets as may (by virtue of such consolidation, merger, sale, reorganization or reclassification) be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of shares of Common Stock immediately theretofore so purchasable hereunder had such consolidation, merger, sale, reorganization, recapitalization or reclassification not taken place. In any such case, appropriate provisions shall be made with respect to the rights and interest of the holder of this Warrant to the end that the provisions hereof shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon exercise of this Warrant. Company shall not effect any such consolidation, merger or sale, unless prior to or simultaneously with the consummation thereof, the successor entity (if other than Company) resulting from such consolidation or merger or the entity purchasing such assets shall assume by written instrument executed and mailed or delivered to the holder of this Warrant, the obligation to deliver to such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to receive. SECTION 5. DISSOLUTION OR LIQUIDATION. In the event of any proposed distribution of the assets of Company in dissolution or liquidation except under circumstances when the foregoing Section 4 shall be payable, Company shall mail notice thereof to the holder of this Warrant and shall make no distribution to shareholders until the expiration of 30 days from the date of mailing of the aforesaid notice and, in any such case, the holder of this Warrant may exercise the purchase rights with respect to this Warrant within 30 days from the date of mailing such notice and all rights herein granted not so exercised within such 30-day period shall thereafter become null and void. 7 SECTION 6. NOTICE OF DIVIDENDS. If the Board of Directors of Company proposes to declare any dividend or other distribution on its Common Stock, except by way of a stock dividend payable on its Common Stock, Company shall mail notice thereof to the holder of this Warrant as soon as possible (such notice being referred to as the "DISTRIBUTION NOTICE"). Company shall not fix a record date until the lapse of a 10-day period beginning on the date of delivery of the Distribution Notice. The holder of this Warrant shall not participate in such dividend or other distribution or be entitled to any rights on account or as a result thereof unless and to the extent that this Warrant is exercised prior to such record date. The provisions of this paragraph shall not apply to distributions made in connection with transactions covered by Section 4. SECTION 7. FRACTIONAL SHARES. No fractional shares may be issued upon the exercise of this Warrant. In the event that a Holder would otherwise be entitled to a fractional share except for the operation of the previous sentence, in lieu of such fractional share such Holder shall be paid a cash amount equal to (i) such fraction multiplied by (ii) the Current Market Value of one full share of Common Stock on the date of exercise. SECTION 8. FULLY PAID STOCK; TAXES. Company covenants and agrees that the shares of stock represented by each and every certificate for its Common Stock to be delivered on the exercise of the purchase rights and the payment of the applicable purchase price herein provided for shall, at the time of such delivery, be validly issued and outstanding and be fully paid and nonassessable. Company further covenants and agrees that it will pay when due and payable any and all federal and state taxes (other than income taxes) which may be payable in respect of this Warrant or any Common Stock or certificates therefor upon the exercise of the rights herein and in the Warrant Agreement provided for pursuant to the provisions hereof and thereof. Company shall not, however, be required to pay any tax which may be payable solely in respect of any transfer and delivery of stock certificates in a name other than that of the holder exercising this Warrant, and any such tax shall be paid by such holder at the time of presentation. SECTION 9. CLOSING OF TRANSFER BOOKS. The right to exercise this Warrant shall not be suspended during any period that the stock transfer books of Company for its Common Stock may be closed. Company shall not be required, however, to deliver certificates of its Common Stock upon such exercise while such books are duly closed for any purpose, but Company may postpone the delivery of the certificates for such Common Stock until the opening of such books, and they shall, in such case, be delivered forthwith upon the opening thereof, or as soon as practicable thereafter. SECTION 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT. SECTION 10.1 PARTIAL EXERCISE. If this Warrant is exercised in part only, the holder hereof shall surrender this Warrant upon such exercise for endorsement thereon of the number of shares of 8 Common Stock as to which it has been exercised. No partial exercise of this Warrant shall be made in respect of shares of Common Stock of Company representing less than 1% of Pro Forma Shares. SECTION 10.2 ASSIGNMENT. (a) Subject to the conditions set forth in Section 10.2(b) hereof, this Warrant may be assigned either in whole or in part by surrender of this Warrant at the principal office of Company in Denison, Texas (with the assignment or, as the case may be, partial assignment form at the end hereof duly executed). If this Warrant is being assigned in whole, the assignee shall receive a new Warrant (registered in the name of such assignee or its nominee) which new Warrant shall cover 100% of the number of shares of Common Stock then purchasable hereunder and shall set forth the Aggregate Warrant Price. If this Warrant is being assigned in part, the assignor and assignee shall each receive a new Warrant (which, in the case of the assignee, shall be registered in the name of the assignee or its nominee), which new Warrants shall cover the number of shares of Common Stock then purchasable hereunder not so assigned and so assigned, respectively, and shall set forth the proportionate Aggregate Warrant Price applicable to such shares. (b) Neither this Warrant nor any Warrant Shares may be sold, assigned or otherwise transferred unless such sale, assignment or transfer is registered or qualified pursuant to the registration requirements of the Securities Act of 1933, as amended, and all applicable state securities laws, or is preceded by an opinion of counsel addressed to Company that such sale, assignment or other transfer is exempt from all such registration requirements; PROVIDED, HOWEVER, that no such opinion of counsel shall be required in connection with any such sale, assignment or transfer to any affiliate of the holder of this Warrant or any Warrant Shares issued in respect hereof. The fees and expenses of such counsel incurred in respect of such sales, assignments or transfers shall be paid by the holder of this Warrant or any Warrant Shares which are the subject of such proposed sale, assignment or transfer. All certificates representing the Warrant Shares shall be stamped or imprinted with an appropriate restrictive legend, substantially as set forth on the cover page hereof. SECTION 11. DEFINITIONS. In addition to the terms defined elsewhere in this Warrant, the following terms have the following respective meanings: "ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of Common Stock issued by Company after the Closing Date, except: (a) Common Stock issued upon exercise of the Warrants; (b) Common Stock issued upon exercise of warrants issued under the Existing Warrant Agreements; and (c) Common Stock issued to officers, directors or employees of, or consultants to, Company pursuant to any existing or future stock option, incentive, bonus or compensation plan or program approved by the Company's shareholders (no later than 12 months following adoption of the plan or program by the Company's Board of Directors). "AGGREGATE WARRANT PRICE" has the meaning specified on the first page of this Warrant. 9 "BUSINESS DAY" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in the United States are generally authorized or obligated by law or executive order to close. "COMMON STOCK" shall mean the shares of Common Stock, par value $0.01 per share, of Company described in the Certificate of Incorporation. "CONVERTIBLE SECURITIES" shall mean evidences of indebtedness, equity, rights, options, warrants or other securities which are convertible into or exchangeable for shares of Common Stock, either immediately or upon the arrival of a specified date or the happening of a specified event, or otherwise. "CURRENT MARKET PRICE" shall mean, at the date of determination thereof, an amount equal to the market price on the Business Day occurring most recently prior to the subject issuance of such shares of Common Stock (the "ISSUANCE DATE"). The market price for such Business Day shall be the last sale price on such day on the American Stock Exchange, or, if the Common Stock is not then listed or admitted to trading on the American Stock Exchange, on such other principal stock exchange on which such shares are then listed or admitted to trading, or, if no sale takes place on such day on any such exchange, the average of the closing bid and asked prices on such day as officially quoted on any such exchange, or, if the Common Stock is not then listed or admitted to trading on any stock exchange, the market price for each such Business Day shall be the last reported sale price on such day on The Nasdaq Stock Market's National Market, as furnished by Nasdaq, or, if no sale takes place on such day on such system, the average of the closing bid and asked prices on such day as officially quoted by Nasdaq, or, if such price at the time is not available from such system, the market price for such Business Day shall be the average of the reported closing bid and asked prices on such day in the over-the-counter market, as furnished by Nasdaq, or, if such price at the time is not available from such system, such price shall be determined in good faith by Company's Board of Directors, which shall be evidenced by a notice setting forth such determination in reasonable detail (including computations and assumptions used) (THE "CMP COMPUTATION NOTICE") to each holder of the Warrants not later than 30 days after the issuance date of the Common Stock giving rise to such determination (the "CMP COMPUTATION DATE") setting forth such determination and setting forth in detail the rights and procedures the holders of the Warrants may take in the event the Majority Holders do not agree with the valuation set forth in the CMP Computation Notice, PROVIDED, that if the Majority Holders of such Warrants shall object to the valuation contained in the CMP Computation Notice in writing to Company within 15 days of the CMP Computation Date, an Appraiser, the expenses of whom shall be paid by said Majority Holders, shall be selected by Company and said Majority Holders (on behalf of all of the holders of the Warrants as a class), or, if said Majority Holders and Company are unable to agree upon the selection of an Appraiser within 10 days of the date of the written notice from said Majority Holders to Company objecting to the CMP Computation Notice, by the American Arbitration Association. Said Majority Holders and Company shall be jointly responsible for engaging the Appraiser finally selected. In the event that the Majority Holders do not object to the CMP Computation Notice within 15 days after receiving the CMP Computation Notice, then the value shall be that which was determined solely by Company's Board of Directors. The Appraiser appointed pursuant to the foregoing procedure shall be instructed to determine such value within 15 days after the selection of such Appraiser, and any such determination made by the Appraiser shall be final and binding upon the parties. Notwithstanding the foregoing, in the event that, on the Issuance Date, shares of 10 Common Stock shall be offered for sale to the public in connection with an underwritten public offering, the Current Market Price in respect of said Issuance Date shall be deemed to be the price at which said shares are initially sold to the public. "EXERCISE DATE" shall mean a date on which this Warrant is exercised. "EXERCISE PERIOD" shall mean the period beginning on, and including, the date hereof through the Expiration Date. "EXPIRATION DATE" shall mean from and after 5:00 p.m. Denison, Texas time on the third anniversary of issuance of Warrant. "MAJORITY HOLDERS" shall mean, at the time of any determination, the holders of a majority of the Warrants (determined by the number of shares of Common Stock represented by each such Warrant as if exercised). "PER SHARE WARRANT PRICE" is defined in the first paragraph of this Warrant. "PERMITTED CONSIDERATION" shall mean each of the following (or any combination thereof): (a) cash or other funds immediately available to Company; and (b) Warrants. "PRO FORMA SHARES" shall mean, as of the date of any determination thereof, the sum of (i) the total number of outstanding shares of Common Stock, plus (ii) the total number of shares of Common Stock issuable upon exercise of the Warrants and any other warrants, options or other rights and upon the exercise of any conversion or exchange rights with respect to Convertible Securities. "UNDERLYING SHARES" shall mean the shares of Common Stock issuable upon exercise of any of the Warrants and any references contained herein to a holder or holders of any Underlying Shares shall be deemed to refer to the holder of the Warrants relating thereto. "WARRANT PRICE" - see the definition of "per share Warrant Price". "WARRANT SHARES" shall mean shares of Common Stock issued upon exercise of the warrants. "WARRANTS" as used herein shall refer to, collectively, this Warrant and all other warrants issued in exchange or substitution for this Warrant. SECTION 12. WARRANT HOLDER NOT SHAREHOLDER. This Warrant does not confer upon the holder hereof any right to vote or to consent or to receive notice as a shareholder of Company, as such, in respect of any matters whatsoever, or any other rights or liabilities as a shareholder, prior to the exercise hereof as hereinbefore provided. 11 SECTION 13. SEVERABILITY. Should any part of this Warrant for any reason be declared invalid or unenforceable, such decision shall not affect the validity or enforceability of any remaining portion, which remaining portion shall remain in force and effect as if this Warrant had been executed with the invalid or unenforceable portion thereof eliminated, and it is hereby declared the intention of the parties hereto that they would have executed and accepted the remaining portion of this Warrant without including therein any such part, parts or portion which may, for any reason, be hereafter declared invalid or unenforceable. SECTION 14. GOVERNING LAW. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Texas excluding choice-of-law principles of the law of such state that would require the application of the laws of a jurisdiction other than such state. [SIGNATURE PAGE TO FOLLOW] 12 IN WITNESS WHEREOF, Company has caused this Warrant to be signed by a duly authorized officer and to be dated this 14th day of March, 2000. HORIZON PHARMACIES, INC. By: /s/ Ricky D. McCord ----------------------------------------- Ricky D. McCord President S-1 EX-4.10 7 EXHIBIT 4.10 Exhibit 4.10 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED OR QUALIFIED FOR SALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED UNLESS SUCH OFFER, SALE OR TRANSFER IS REGISTERED OR QUALIFIED PURSUANT TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR IS PRECEDED BY AN OPINION OF COUNSEL ADDRESSED TO HORIZON PHARMACIES, INC. THAT SUCH SALE OR OTHER TRANSFER IS EXEMPT FROM ALL SUCH REGISTRATION REQUIREMENTS. No. WR-_____ WARRANT TO PURCHASE SHARES OF COMMON STOCK OF HORIZON PHARMACIES, INC. March 14, 2000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS SECTION 1. EXERCISE OF WARRANT.....................................................1 SECTION 2. RESERVATION.............................................................2 SECTION 3. PROTECTION AGAINST DILUTION.............................................2 Section 3.1 Stock Dividends, Subdivisions, and Combinations....................2 Section 3.2 Issuance of Additional Shares of Common Stock......................3 Section 3.3 Issuance of Warrants or Other Rights, Convertible Securities.......3 Section 3.4 Other Provisions Applicable to Adjustments.........................4 Section 3.5 Extraordinary Dividends............................................5 Section 3.6 Adjustment of Number of Shares Purchasable.........................6 Section 3.7 Minimum Adjustment.................................................6 Section 3.8 Notice of Adjustments..............................................6 SECTION 4. MERGERS, CONSOLIDATIONS, SALES..........................................7 SECTION 5. DISSOLUTION OR LIQUIDATION..............................................7 SECTION 6. NOTICE OF DIVIDENDS.....................................................8 SECTION 7. FRACTIONAL SHARES.......................................................8 SECTION 8. FULLY PAID STOCK; TAXES.................................................8 SECTION 9. CLOSING OF TRANSFER BOOKS...............................................8 SECTION 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT.................................8 Section 10.1 Partial Exercise...................................................8 Section 10.2 Assignment.........................................................9 SECTION 11. DEFINITIONS.............................................................9 SECTION 12. WARRANT HOLDER NOT SHAREHOLDER.........................................11 SECTION 13. SEVERABILITY...........................................................12 SECTION 14. GOVERNING LAW..........................................................12
i Warrant No. WR-___ WARRANT TO PURCHASE SHARES OF COMMON STOCK OF HORIZON PHARMACIES, INC. THIS IS TO CERTIFY that, for value received and subject to the provisions hereinafter set forth, INFORMED.COM, INC. or its permitted assigns, is entitled to purchase from HORIZON Pharmacies, Inc., a Delaware corporation ("COMPANY"), at any time and from time to time during the Exercise Period, up to 400,000 shares of Common Stock, par value $0.01 per share, of Company, subject to the terms, provisions and conditions hereinafter set forth at a price per share equal to $15.00. The price per share is subject to adjustment as hereinafter provided (such price, or such price as last adjusted, as the case may be, being herein referred to as the "PER SHARE WARRANT PRICE"). The said number of shares purchasable hereunder is likewise subject to adjustment as hereinafter provided. The aggregate price of the Common Stock purchasable hereunder shall at all times be equal to the price per share set forth in the preceding paragraph multiplied by the number of shares initially purchasable hereunder. The aggregate price is herein sometimes referred to as the "AGGREGATE WARRANT PRICE" and is not subject to adjustment. The terms which are capitalized herein shall have the meanings specified in Section 11 unless the context shall otherwise require. SECTION 1. EXERCISE OF WARRANT. Subject to the conditions hereinafter set forth, this Warrant may be exercised in whole or in part at any time and from time to time during the Exercise Period by the surrender of this Warrant (with the subscription from at the end hereof duly executed) at the principal office of Company in Denison, Texas, and upon payment to Company of a sum equal to the per share Warrant Price multiplied by the number of shares purchased in such exercise, which payment shall be made by wire transfer or other delivery to Company of one or more types of Permitted Consideration. In the event that Warrants shall be delivered to Company as payment of all or any portion of the purchase price payable hereunder, the amount of such purchase price deemed to be paid by means of such delivery shall equal (a) the aggregate number of shares of Underlying Shares related 1 to any Warrants so delivered, multiplied by (b) the result, not less than zero, equal to (i) the Current Market Price then in effect (with the date of the exercise of the Warrant being deemed to be the "Issuance Date" for purposes of making determinations under the definition of "Current Market Price") MINUS (ii) the per share Warrant Price then in effect. If this Warrant is exercised in respect of less than all of the shares of Common Stock at the time purchasable hereunder, following such exercise this Warrant shall be returned to the holder hereof and shall remain exercisable in respect of such number of shares of Common Stock as may thereafter be determined hereunder. This Warrant and all rights and options hereunder shall expire to the extent that it has not been exercised on or before the Expiration Date. In the event that Informed.com, Inc. completes an initial public offering of its common stock, par value $___ per share, within two (2) years from the date hereof, this Warrant shall be exercised in whole no later than twelve (12) months from the date of completion of such initial public offering. Company shall pay all reasonable expenses, stamp, documentary and transfer taxes and other charges payable in connection with the preparation, execution and delivery of stock certificates pursuant to this Section, regardless of the name or names in which such stock certificates shall be registered. SECTION 2. RESERVATION. Company will at all times reserve and keep available such number of authorized shares of its Common Stock, solely for the purpose of issue upon the exercise of the rights represented by this Warrant as herein provided for, as may at any time be issuable (based upon the number of shares of Common Stock outstanding at any such time) upon the exercise of this Warrant. SECTION 3. PROTECTION AGAINST DILUTION. The per share Warrant Price and the number of shares deliverable hereunder shall be adjusted from time to time as hereinafter set forth: SECTION 3.1 STOCK DIVIDENDS, SUBDIVISIONS, AND COMBINATIONS. In case after the date hereof Company shall: (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend and declared to be payable in, or other declared distribution of, Common Stock, or (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, 2 then the per share Warrant Price shall be adjusted to that price determined by multiplying the per share Warrant Price in effect immediately prior to such event by a fraction (i) the numerator of which shall be the total number of outstanding shares of Common Stock immediately prior to such event, and (ii) the denominator of which shall be the total number of outstanding shares of Common Stock immediately after such event. SECTION 3.2 ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In case after the date hereof Company shall (except as hereinafter provided) issue any Additional Shares of Common Stock for a consideration less than the Current Market Price per share (other than pursuant to options or other rights to purchase Additional Shares of Common Stock awarded to employees, officers, or directors pursuant to compensatory or other arrangements approved by the Board of Directors), then the per share Warrant Price on each such issuance shall be adjusted to that price determined by multiplying the per share Warrant Price in effect immediately prior to such event by a fraction: (a) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such Additional Shares of Common Stock plus the number of full shares of Common Stock which the aggregate consideration for the total number of such Additional Shares of Common Stock so issued would purchase at the Current Market Price per share, and (b) the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such Additional Shares of Common Stock plus the number of such Additional Shares of Common Stock so issued. The provisions of this Section 3.2 shall not apply to any Additional Shares of Common Stock which are distributed to holders of Common Stock as a stock dividend or subdivision, for which an adjustment is provided for under Section 3.1. No adjustment of the share per Warrant Price shall be made under this Section 3.2 upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Convertible Securities, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Convertible Securities (or upon the issuance of any warrants or other rights therefor) pursuant to Section 3.3. SECTION 3.3 ISSUANCE OF WARRANTS OR OTHER RIGHTS, CONVERTIBLE SECURITIES. In case Company shall issue any warrants or other rights to subscribe for or purchase any Additional Shares of Common Stock or issue Convertible Securities and the consideration per share for which Additional Shares of Common Stock may at any time thereafter be issuable pursuant to such warrants or other rights or pursuant to the terms of such Convertible Securities shall be less than the Current Market Price per share (other than pursuant to options or other rights to purchase Additional Shares of Common Stock awarded to employees, officers, or directors pursuant to compensatory or other arrangements approved by the Board of Directors), then the per share Warrant Price shall be adjusted as provided in Section 3.2 above on the basis that: (a) the maximum number of Additional Shares of Common Stock issuable pursuant to all such warrants or other rights or necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued as of the earlier of: 3 (i) the date on which Company shall enter a firm contract or commitment for the issuance of such warrants, other rights or Convertible Securities or (ii) the date of actual issuance of such warrants, other rights or Convertible Securities, and (b) the aggregate consideration for such maximum number of Additional Shares of Common Stock shall be deemed to be the minimum consideration received and receivable by Company for the issuance of such Additional Shares of Common Stock pursuant to such warrants or other rights or pursuant to the terms of such Convertible Securities. No adjustment of the per share Warrant Price shall be made under this Section 3.3 upon the issuance of any Convertible Securities which are issued pursuant to the exercise of any warrants or other subscription or purchase rights therefor, to the extent such adjustment shall previously have been made upon the issuance of such warrants or other rights pursuant to this Section 3.3. SECTION 3.4 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS. The following provisions shall be applicable to the making of adjustments in the per share Warrant Price hereinbefore provided in this Section 3: (a) COMPUTATION OF CONSIDERATION. To the extent that any Additional Shares of Common Stock or any Convertible Securities or any warrants or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities shall be issued for a cash consideration, the consideration received by Company therefor shall be deemed to be the amount of the cash received by Company therefor, or, if such Additional Shares of Common Stock or Convertible Securities or warrants or other rights are offered by Company for subscription, the subscription price, or, if such Additional Shares of Common Stock or Convertible Securities or warrants or other rights are sold to underwriters or dealers for public offering without a subscription offering, the offering price, in any such case excluding any amounts paid or receivable for accrued interest or accrued dividends and without deduction of any compensation, discounts or expenses paid or incurred by Company for and in the underwriting thereof, or otherwise in connection with the issue thereof. To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of Company. The consideration for any Additional Shares of Common Stock issuable pursuant to any warrants or other rights to subscribe for or purchase the same shall be the consideration received by Company for issuing such warrants or other rights plus the additional consideration payable to Company upon the exercise of such warrants or other rights. The consideration for any Additional Shares of Common Stock issuable pursuant to the terms of any Convertible Securities shall be the consideration received by Company for issuing any warrants or other rights to subscribe for or purchase such Convertible Securities plus the consideration paid or payable to Company in respect of the subscription for or purchase of such Convertible Securities plus the additional consideration, if any, payable to Company upon the exercise of the right of conversion or exchange of such Convertible Securities. In case of the issuance at any time of any Additional Shares of Common Stock or Convertible Securities in payment or satisfaction of any dividend upon any class of equity securities other than Common Stock, Company shall 4 be deemed to have received for such Additional Shares of Common Stock or Convertible Securities a consideration equal to the amount of such dividend so paid or satisfied. (b) READJUSTMENT OF PER SHARE WARRANT PRICE. Upon expiration of the right of exercise, conversion or exchange of any Convertible Securities, or upon the expiration of any rights, options or warrants, or upon the termination of any firm contract or commitment for the issuance of such rights, options, warrants or Convertible Securities, or upon any increase in the minimum consideration receivable by Company for the issuance of Additional Shares of Common Stock pursuant to such Convertible Securities, rights, options or warrants, if any such Convertible Securities shall not have been exercised, converted or exchanged, or if any such rights, options or warrant shall not have been exercised, the number of shares of Common Stock deemed to be issued and outstanding by any reason of the fact that they were issuable upon exercise, conversion or exchange of any such Convertible Securities or upon exercise of any such rights, options or warrants shall no longer be computed as set forth above, and the per share Warrant Price shall forthwith be readjusted and thereafter be the price which it would have been (but reflecting any other adjustments in the per share Warrant Price made pursuant to the provisions of this Section 3 after the issuance of such Convertible Securities, rights, options or warrants) had the adjustment of the per share Warrant Price made upon the issuance or sale of such Convertible Securities or the issuance of such rights, options or warrants been made on the basis of the issuance only of the number of Additional Shares of Common Stock actually issued upon exercise, conversion or exchange of such Convertible Securities or upon the exercise of such rights, options or warrants, or upon the basis of such increased minimum consideration, as the case may be, and thereupon only the number of Additional Shares of Common Stock actually so issued plus the number thereof then issuable upon the basis of such increased minimum consideration shall be deemed to have been issued and only the consideration actually received plus shall increased minimum consideration receivable by Company (computed in accordance with Section 3.4(a)) shall be deemed to have been received by Company. (c) ROUNDING OF PER SHARE WARRANT PRICE. Any determination of per share Warrant Price hereunder shall be expressed in United States Dollars, cents and portions of cents and shall be rounded to the nearest 1/1000 of one cent or, if there is no nearest 1/1000 of one cent, to the next highest 1/1000 of one cent. SECTION 3.5 EXTRAORDINARY DIVIDENDS. In case Company shall declare a dividend upon its Common Stock (except a dividend payable in shares of Common Stock referred to in Section 3.1(a) or a dividend payable in warrants, rights or Convertible Securities referred to in Section 3.3) payable otherwise than out of earnings or surplus (other than revaluation surplus or paid-in surplus), the per share Warrant Price in effect immediately prior to the declaration of such dividend shall be reduced by an amount equal, in the case of a dividend in cash, to 10% of the amount thereof payable per share of Common Stock or, in the case of any other dividend, to the fair value thereof per share of Common Stock as determined in good faith by the Board of Directors of Company. For the purposes of the foregoing, a dividend payable other than in cash shall be considered payable out of earnings or surplus (other than revaluation surplus or paid-in surplus) only to the extent that such earnings or surplus are charged an amount equal to the fair value of such dividend as determined by the Board of Directors of Company. If such dividend is paid or Company declares and becomes legally liable to pay such dividend, such reduction shall take effect as of the date on which a record is taken for 5 the purpose of such dividend or, if a record is not taken, the date as of which the holders of the Common Stock of record entitled to such dividend are to be determined. Appropriate readjustment of the per share Warrant Price shall be made in the event that any dividend referred to in this Section 3.5 shall be lawfully abandoned. SECTION 3.6 ADJUSTMENT OF NUMBER OF SHARES PURCHASABLE. Upon each adjustment of the per share Warrant Price, the number of shares of Common Stock purchasable hereunder shall be adjusted by multiplying the number of shares of Common Stock purchasable hereunder immediately prior to such adjustment of the per share Warrant Price by a fraction, the numerator of which shall be the per share Warrant Price in effect immediately prior to such adjustment and the denominator of which shall be the per share Warrant Price in effect immediately following such adjustment. SECTION 3.7 MINIMUM ADJUSTMENT. Except as hereinafter provided, no adjustment of the per share Warrant Price hereunder shall be made if such adjustment results in a change of the per share Warrant Price then in effect of less than 1%. Any adjustment of less than 1% shall be carried forward and shall be made at the time of and together with any subsequent adjustment which, together with the adjustment or adjustments so carried forward, amounts to 1% or more of the per share Warrant Price then in effect. However, upon the exercise of this Warrant, Company shall make all necessary adjustments not theretofore made to the per share Warrant Price up to and including the date upon which this Warrant is exercised. SECTION 3.8 NOTICE OF ADJUSTMENTS. (a) Whenever the per share Warrant Price or number of shares deliverable upon exercise of this Warrant shall be adjusted pursuant to this Section 3, Company shall promptly prepare a certificate signed by the President or a Vice President and by the Treasurer of Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated (including a description of the basis on which the Board of Directors of Company made any determination hereunder), and shall promptly cause copies of such certificate to be mailed in the manner provided in Section 12.1 of the Warrant Agreement to the holder of this Warrant. (b) The adjustment set forth in the certificate furnished pursuant to Section 3.8(a) shall be final and binding unless, within 90 days after receipt thereof, the Majority Holders deliver to Company a written statement of objection to such adjustment. (i) In the event of any such statement of objection by said Majority Holders, Company's accountants and a firm of independent public accountants selected by said Majority Holders shall attempt to prepare a computation in which both accountants concur. Any such joint computation shall be set forth in a joint certificate to each holder of the Warrants and Company and shall be final and binding. (ii) If Company's accountants and said Majority Holders' accountants are unable to resolve their differences within 30 days after the receipt by Company of said Majority Holders' statement of objection, they shall submit the matter to a third firm of independent certified public accountants of nationally recognized standing 6 agreed upon by said Majority Holders and Company or, if said Majority Holders and Company are unable to agree within 10 days after the expiration of said 30-day period, to such firm designated by the then president of the state society of certified public accountants for the state in which Company maintains its principal place of business. Such third firm of accountants shall thereupon compute the amount of the adjustment and, upon completion of such computation, shall transmit its certificate to each holder of the Warrants and Company setting forth such computations, which shall be final and binding. (iii) The fees and expenses of all accountants referred to in this Section 3.8(b) shall be borne by Company. SECTION 4. MERGERS, CONSOLIDATIONS, SALES. In the case of any consolidation or merger of Company without another entity, or the sale of all or substantially all of its assets to another entity, or any reorganization, recapitalization or reclassification of the Common Stock or other equity securities of Company, then, as a condition of such consolidation, merger, sale, reorganization, recapitalization or reclassification, lawful and adequate provision shall be made whereby the holder of this Warrant shall thereafter have the right to receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately therefore purchasable hereunder, such shares of stock, securities or assets as may (by virtue of such consolidation, merger, sale, reorganization or reclassification) be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of shares of Common Stock immediately theretofore so purchasable hereunder had such consolidation, merger, sale, reorganization, recapitalization or reclassification not taken place. In any such case, appropriate provisions shall be made with respect to the rights and interest of the holder of this Warrant to the end that the provisions hereof shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon exercise of this Warrant. Company shall not effect any such consolidation, merger or sale, unless prior to or simultaneously with the consummation thereof, the successor entity (if other than Company) resulting from such consolidation or merger or the entity purchasing such assets shall assume by written instrument executed and mailed or delivered to the holder of this Warrant, the obligation to deliver to such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to receive. SECTION 5. DISSOLUTION OR LIQUIDATION. In the event of any proposed distribution of the assets of Company in dissolution or liquidation except under circumstances when the foregoing Section 4 shall be payable, Company shall mail notice thereof to the holder of this Warrant and shall make no distribution to shareholders until the expiration of 30 days from the date of mailing of the aforesaid notice and, in any such case, the holder of this Warrant may exercise the purchase rights with respect to this Warrant within 30 days from the date of mailing such notice and all rights herein granted not so exercised within such 30-day period shall thereafter become null and void. 7 SECTION 6. NOTICE OF DIVIDENDS. If the Board of Directors of Company proposes to declare any dividend or other distribution on its Common Stock, except by way of a stock dividend payable on its Common Stock, Company shall mail notice thereof to the holder of this Warrant as soon as possible (such notice being referred to as the "DISTRIBUTION NOTICE"). Company shall not fix a record date until the lapse of a 10-day period beginning on the date of delivery of the Distribution Notice. The holder of this Warrant shall not participate in such dividend or other distribution or be entitled to any rights on account or as a result thereof unless and to the extent that this Warrant is exercised prior to such record date. The provisions of this paragraph shall not apply to distributions made in connection with transactions covered by Section 4. SECTION 7. FRACTIONAL SHARES. No fractional shares may be issued upon the exercise of this Warrant. In the event that a Holder would otherwise be entitled to a fractional share except for the operation of the previous sentence, in lieu of such fractional share such Holder shall be paid a cash amount equal to (i) such fraction multiplied by (ii) the Current Market Value of one full share of Common Stock on the date of exercise. SECTION 8. FULLY PAID STOCK; TAXES. Company covenants and agrees that the shares of stock represented by each and every certificate for its Common Stock to be delivered on the exercise of the purchase rights and the payment of the applicable purchase price herein provided for shall, at the time of such delivery, be validly issued and outstanding and be fully paid and nonassessable. Company further covenants and agrees that it will pay when due and payable any and all federal and state taxes (other than income taxes) which may be payable in respect of this Warrant or any Common Stock or certificates therefor upon the exercise of the rights herein and in the Warrant Agreement provided for pursuant to the provisions hereof and thereof. Company shall not, however, be required to pay any tax which may be payable solely in respect of any transfer and delivery of stock certificates in a name other than that of the holder exercising this Warrant, and any such tax shall be paid by such holder at the time of presentation. SECTION 9. CLOSING OF TRANSFER BOOKS. The right to exercise this Warrant shall not be suspended during any period that the stock transfer books of Company for its Common Stock may be closed. Company shall not be required, however, to deliver certificates of its Common Stock upon such exercise while such books are duly closed for any purpose, but Company may postpone the delivery of the certificates for such Common Stock until the opening of such books, and they shall, in such case, be delivered forthwith upon the opening thereof, or as soon as practicable thereafter. SECTION 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT. SECTION 10.1 PARTIAL EXERCISE. If this Warrant is exercised in part only, the holder hereof shall surrender this Warrant upon such exercise for endorsement thereon of the number of shares of 8 Common Stock as to which it has been exercised. No partial exercise of this Warrant shall be made in respect of shares of Common Stock of Company representing less than 1% of Pro Forma Shares. SECTION 10.2 ASSIGNMENT. (a) Subject to the conditions set forth in Section 10.2(b) hereof, this Warrant may be assigned either in whole or in part by surrender of this Warrant at the principal office of Company in Denison, Texas (with the assignment or, as the case may be, partial assignment form at the end hereof duly executed). If this Warrant is being assigned in whole, the assignee shall receive a new Warrant (registered in the name of such assignee or its nominee) which new Warrant shall cover 100% of the number of shares of Common Stock then purchasable hereunder and shall set forth the Aggregate Warrant Price. If this Warrant is being assigned in part, the assignor and assignee shall each receive a new Warrant (which, in the case of the assignee, shall be registered in the name of the assignee or its nominee), which new Warrants shall cover the number of shares of Common Stock then purchasable hereunder not so assigned and so assigned, respectively, and shall set forth the proportionate Aggregate Warrant Price applicable to such shares. (b) Neither this Warrant nor any Warrant Shares may be sold, assigned or otherwise transferred unless such sale, assignment or transfer is registered or qualified pursuant to the registration requirements of the Securities Act of 1933, as amended, and all applicable state securities laws, or is preceded by an opinion of counsel addressed to Company that such sale, assignment or other transfer is exempt from all such registration requirements; PROVIDED, HOWEVER, that no such opinion of counsel shall be required in connection with any such sale, assignment or transfer to any affiliate of the holder of this Warrant or any Warrant Shares issued in respect hereof. The fees and expenses of such counsel incurred in respect of such sales, assignments or transfers shall be paid by the holder of this Warrant or any Warrant Shares which are the subject of such proposed sale, assignment or transfer. All certificates representing the Warrant Shares shall be stamped or imprinted with an appropriate restrictive legend, substantially as set forth on the cover page hereof. SECTION 11. DEFINITIONS. In addition to the terms defined elsewhere in this Warrant, the following terms have the following respective meanings: "ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of Common Stock issued by Company after the Closing Date, except: (a) Common Stock issued upon exercise of the Warrants; (b) Common Stock issued upon exercise of warrants issued under the Existing Warrant Agreements; and (c) Common Stock issued to officers, directors or employees of, or consultants to, Company pursuant to any existing or future stock option, incentive, bonus or compensation plan or program approved by the Company's shareholders (no later than 12 months following adoption of the plan or program by the Company's Board of Directors). "AGGREGATE WARRANT PRICE" has the meaning specified on the first page of this Warrant. 9 "BUSINESS DAY" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in the United States are generally authorized or obligated by law or executive order to close. "COMMON STOCK" shall mean the shares of Common Stock, par value $0.01 per share, of Company described in the Certificate of Incorporation. "CONVERTIBLE SECURITIES" shall mean evidences of indebtedness, equity, rights, options, warrants or other securities which are convertible into or exchangeable for shares of Common Stock, either immediately or upon the arrival of a specified date or the happening of a specified event, or otherwise. "CURRENT MARKET PRICE" shall mean, at the date of determination thereof, an amount equal to the market price on the Business Day occurring most recently prior to the subject issuance of such shares of Common Stock (the "ISSUANCE DATE"). The market price for such Business Day shall be the last sale price on such day on the American Stock Exchange, or, if the Common Stock is not then listed or admitted to trading on the American Stock Exchange, on such other principal stock exchange on which such shares are then listed or admitted to trading, or, if no sale takes place on such day on any such exchange, the average of the closing bid and asked prices on such day as officially quoted on any such exchange, or, if the Common Stock is not then listed or admitted to trading on any stock exchange, the market price for each such Business Day shall be the last reported sale price on such day on The Nasdaq Stock Market's National Market, as furnished by Nasdaq, or, if no sale takes place on such day on such system, the average of the closing bid and asked prices on such day as officially quoted by Nasdaq, or, if such price at the time is not available from such system, the market price for such Business Day shall be the average of the reported closing bid and asked prices on such day in the over-the-counter market, as furnished by Nasdaq, or, if such price at the time is not available from such system, such price shall be determined in good faith by Company's Board of Directors, which shall be evidenced by a notice setting forth such determination in reasonable detail (including computations and assumptions used) (THE "CMP COMPUTATION NOTICE") to each holder of the Warrants not later than 30 days after the issuance date of the Common Stock giving rise to such determination (the "CMP COMPUTATION DATE") setting forth such determination and setting forth in detail the rights and procedures the holders of the Warrants may take in the event the Majority Holders do not agree with the valuation set forth in the CMP Computation Notice, PROVIDED, that if the Majority Holders of such Warrants shall object to the valuation contained in the CMP Computation Notice in writing to Company within 15 days of the CMP Computation Date, an Appraiser, the expenses of whom shall be paid by said Majority Holders, shall be selected by Company and said Majority Holders (on behalf of all of the holders of the Warrants as a class), or, if said Majority Holders and Company are unable to agree upon the selection of an Appraiser within 10 days of the date of the written notice from said Majority Holders to Company objecting to the CMP Computation Notice, by the American Arbitration Association. Said Majority Holders and Company shall be jointly responsible for engaging the Appraiser finally selected. In the event that the Majority Holders do not object to the CMP Computation Notice within 15 days after receiving the CMP Computation Notice, then the value shall be that which was determined solely by Company's Board of Directors. The Appraiser appointed pursuant to the foregoing procedure shall be instructed to determine such value within 15 days after the selection of such Appraiser, and any such determination made by the Appraiser shall be final and binding upon the parties. Notwithstanding the foregoing, in the event that, on the Issuance Date, shares of 10 Common Stock shall be offered for sale to the public in connection with an underwritten public offering, the Current Market Price in respect of said Issuance Date shall be deemed to be the price at which said shares are initially sold to the public. "EXERCISE DATE" shall mean a date on which this Warrant is exercised. "EXERCISE PERIOD" shall mean the period beginning on, and including, the date hereof through the Expiration Date. "EXPIRATION DATE" shall mean from and after 5:00 p.m. Denison, Texas time on the third anniversary of issuance of Warrant. "MAJORITY HOLDERS" shall mean, at the time of any determination, the holders of a majority of the Warrants (determined by the number of shares of Common Stock represented by each such Warrant as if exercised). "PER SHARE WARRANT PRICE" is defined in the first paragraph of this Warrant. "PERMITTED CONSIDERATION" shall mean each of the following (or any combination thereof): (a) cash or other funds immediately available to Company; and (b) Warrants. "PRO FORMA SHARES" shall mean, as of the date of any determination thereof, the sum of (i) the total number of outstanding shares of Common Stock, plus (ii) the total number of shares of Common Stock issuable upon exercise of the Warrants and any other warrants, options or other rights and upon the exercise of any conversion or exchange rights with respect to Convertible Securities. "UNDERLYING SHARES" shall mean the shares of Common Stock issuable upon exercise of any of the Warrants and any references contained herein to a holder or holders of any Underlying Shares shall be deemed to refer to the holder of the Warrants relating thereto. "WARRANT PRICE" - see the definition of "per share Warrant Price". "WARRANT SHARES" shall mean shares of Common Stock issued upon exercise of the warrants. "WARRANTS" as used herein shall refer to, collectively, this Warrant and all other warrants issued in exchange or substitution for this Warrant. SECTION 12. WARRANT HOLDER NOT SHAREHOLDER. This Warrant does not confer upon the holder hereof any right to vote or to consent or to receive notice as a shareholder of Company, as such, in respect of any matters whatsoever, or any other rights or liabilities as a shareholder, prior to the exercise hereof as hereinbefore provided. 11 SECTION 13. SEVERABILITY. Should any part of this Warrant for any reason be declared invalid or unenforceable, such decision shall not affect the validity or enforceability of any remaining portion, which remaining portion shall remain in force and effect as if this Warrant had been executed with the invalid or unenforceable portion thereof eliminated, and it is hereby declared the intention of the parties hereto that they would have executed and accepted the remaining portion of this Warrant without including therein any such part, parts or portion which may, for any reason, be hereafter declared invalid or unenforceable. SECTION 14. GOVERNING LAW. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Texas excluding choice-of-law principles of the law of such state that would require the application of the laws of a jurisdiction other than such state. [SIGNATURE PAGE TO FOLLOW] 12 IN WITNESS WHEREOF, Company has caused this Warrant to be signed by a duly authorized officer and to be dated this 14th day of March, 2000. HORIZON PHARMACIES, INC. By: /s/ Ricky D. McCord ------------------------------------------ Ricky D. McCord President S-1 EX-4.11 8 EXHIBIT 4.11 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT ("Registration Rights Agreement") dated as of March 14, 2000, is entered into by and between Informed.com, Inc., a Florida corporation (the "Holder"), and HORIZON Pharmacies, Inc., a Delaware corporation (the "Company"). Pursuant to that certain Stock Purchase Agreement, dated as of the date hereof (the "Purchase Agreement"), by and between the Company and the Holder, the Holder is acquiring (the "Acquisition") the capital stock of InformedScripts.com, Inc., a Delaware corporation and wholly-owned subsidiary of the Company, as further described in the Purchase Agreement. As part of the Acquisition, the Holder is receiving two warrants to purchase an aggregate of 700,000 shares of common stock, par value $.01 per share (the "Common Stock"), of the Company under the terms of the respective warrants (the "Registrable Shares"). In consideration of the premises, mutual covenants and agreements hereinafter contained and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE 1 REGISTRATION RIGHTS Section 1.1 INTENTIONALLY OMITTED. Section 1.2 PIGGYBACK REGISTRATIONS. 1.2.1 RIGHT TO PIGGYBACK. Each time the Company proposes to register any of its equity securities under the Securities Act for sale to the public, whether for the account of the Company or otherwise for the account of any securityholder of the Company, and the form of registration statement to be used permits the registration of Registrable Shares, the Company shall give prompt written notice to the Holder of Registrable Shares (which notice shall be given not less than 30 days prior to the effective date of the Company's registration statement), which notice shall offer the Holder the opportunity to include any or all of its Registrable Shares in such registration statement, subject to the limitations contained in Section 1.2.2 hereof. If the Holder desires to have its Registrable Shares included in such registration statement, it shall so advise the Company in writing (stating the number of shares desired to be registered) within 20 days after the date of such notice from the Company. The Holder shall have the right to withdraw its request for inclusion of its Registrable Shares in any registration statement pursuant to this Section 1.2.1 by giving written notice to the Company of such withdrawal. Subject to Section 1.2.2 below, the Company shall include in such registration statement all such Registrable Shares so requested to be included therein; provided, however, that the Company may at any time withdraw or cease proceeding with any such registration if it shall at the same time withdraw or cease proceeding with the registration of all other equity securities originally proposed to be registered. 1.2.2 PRIORITY ON REGISTRATIONS. If the Registrable Shares requested to be included in the registration statement by the Holder differ from the type of securities proposed to be registered by the Company and the managing underwriter advises the Company that due to such differences the inclusion of such Registrable Shares would have a Material Adverse Effect, then (i) the number of the Holder's Registrable Shares to be included in the registration statement shall be reduced to an amount which, in the judgment of the managing underwriter, would eliminate such Material Adverse Effect or (ii) if no such reduction would, in the judgment of the managing underwriter, eliminate such Material Adverse Effect, then the Company shall have the right to exclude all such Registrable Shares from such registration statement provided no other securities of such type are included and offered for the account of any other person in such registration statement. Any partial reduction in the number of Registrable Shares to be included in the registration statement pursuant to clause (i) of the immediately preceding sentence shall be effected PRO RATA based on the ratio which the Holder's requested shares bears to the total number of shares requested to be included in such registration statement by all persons who have requested that their shares be included in such registration statement. If the Registrable Shares requested to be included in the registration statement are of the same type as the securities being registered by the Company and the managing underwriter advises the Company that the inclusion of such Registrable Shares would cause a Material Adverse Effect, the Company will be obligated to include in such registration statement, as to the Holder, only a portion of the shares the Holder has requested be registered equal to the ratio which the Holder's requested shares bears to the total number of shares requested to be included in such registration statement by all persons (other than the Company, if such registration has been initiated by the Company for securities to be offered by the Company who have requested that their shares be included in such registration statement. It is acknowledged by the Company and the Holder, that pursuant to the foregoing provision, the securities to be included in such registration shall be allocated (x) first, to the Company, if such registration has been initiated by the Company for securities to be offered by the Company, (y) second, to securities offered by persons exercising their right to cause a demand registration, if such registration is a demand registration and (z) third, to the Holder and all other persons requesting securities to be included therein in accordance with the above described ratio. If as a result of the provisions of this Section 1.2.2 the Holder shall not be entitled to include all Registrable Securities in a registration that the Holder has requested to be so included, the Holder may withdraw its request to include Registrable Shares in such registration statement. No person may participate in any registration statement hereunder unless such person (x) agrees to sell such person's Registrable Shares on the basis provided in any underwriting arrangements approved by the Company and (y) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements, and other documents reasonably required under the terms of such underwriting arrangements; provided, however, that no such person shall be required to make any representations or warranties in connection with any such registration other than representations and warranties as to (i) such person's ownership of its Registrable Shares to be sold or transferred free and clear of all liens, claims, and encumbrances, (ii) such person's power and authority to effect such transfer, and (iii) such matters pertaining to compliance with securities laws as may be reasonably requested; provided further, however, that the obligation of such person to indemnify pursuant to any such underwriting arrangements shall be several, not joint and several, among such persons selling Registrable Shares, and the liability of each such person will be in proportion to, and provided further that such liability will be limited to, the net amount received by such person from the sale of its Registrable Shares pursuant to such registration. The Holder shall be entitled to exercise its right to have its Registrable Shares included in a registration statement only on two separate occasions and thereafter the Holder shall no longer have any rights, and the Company shall no longer have any obligations to the Holder, under Section 1.2. 1.3 HOLDBACK AGREEMENT. Unless the managing underwriter otherwise agrees, the Holder agrees that, in connection with any underwritten registration, it will not effect any public sale or private offer or distribution of any Common Stock during the ten business days prior to the effectiveness under the Securities Act of any underwritten registration and during such time period after the effectiveness under the Securities Act of any underwritten registration (not to exceed 180 days) (except, if applicable, as part of such underwritten registration) as the Company and the managing underwriter may agree. 2 1.4 REGISTRATION PROCEDURES. Whenever the Holder has requested that any Registrable Shares be registered pursuant to this Registration Rights Agreement, the Company will use its commercially reasonable efforts to effect the registration and the sale of such Registrable Shares in accordance with the intended method of disposition thereof, and pursuant thereto the Company will as expeditiously as possible: (i) prepare and file with the SEC a registration statement on any appropriate form under the Securities Act with respect to such Registrable Shares and use its commercially reasonable efforts to cause such registration statement to become effective; (ii) prepare and file with the SEC such amendments, post-effective amendments, and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 180 days (or such lesser period as is necessary for the underwriters in an underwritten offering to sell unsold allotments) and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement; (iii) furnish to each seller of Registrable Shares and the underwriters of the securities being registered such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus), any documents incorporated by reference therein and such other documents as such seller or underwriters may reasonably request in order to facilitate the disposition of the Registrable Shares owned by such seller or the sale of such securities by such underwriters (it being understood that, subject to Section 1.5 and the requirements of the Securities Act and applicable State securities laws, the Company consents to the use of the prospectus and any amendment or supplement thereto by each seller and the underwriters in connection with the offering and sale of the Registrable Shares covered by the registration statement of which such prospectus, amendment or supplement is a part); (iv) use its commercially reasonable efforts to register or qualify such Registrable Shares under such other securities or blue sky laws of such jurisdictions as the managing underwriter reasonably requests; use its commercially reasonable efforts to keep each such registration or qualification (or exemption therefrom) effective during the period in which such registration statement is required to be kept effective; and do any and all other acts and things which may be reasonably necessary or advisable to enable each seller to consummate the disposition of the Registrable Shares owned by such seller in such jurisdictions (provided, however, that the Company will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph or (B) consent to general service of process in any such jurisdiction); (v) promptly notify each seller and each underwriter and (if requested by any such Person) confirm such notice in writing (A) when a prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to a registration statement or any post-effective amendment, when the same has become effective, (B) of the issuance by any state securities or other regulatory authority of any order suspending the qualification or exemption from qualification of any of the Registrable Shares under state securities or "blue sky" laws or the initiation of any proceedings for that purpose, and (C) of the happening of any event which makes any statement made in a registration statement or related prospectus untrue or which requires the making of any changes in such registration statement, prospectus or documents so that they will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and, as promptly as practicable thereafter, prepare and file with the SEC and furnish a supplement or amendment to such 3 prospectus so that, as thereafter deliverable to the purchasers of such Registrable Shares, such prospectus will not contain any untrue statement of a material fact or omit a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (vi) make generally available to the Company's securityholders an earnings statement satisfying the provisions of Section 11(a) of the Securities Act no later than 30 days after the end of the 12-month period beginning with the first day of the Company's first fiscal quarter commencing after the effective date of a registration statement, which earnings statement shall cover said 12-month period, and which requirement will be deemed to be satisfied if the Company timely files complete and accurate information on Forms 10-Q, 10-K and 8-K under the Securities Exchange Act of 1934 (the "Exchange Act") and otherwise complies with Rule 158 under the Securities Act; (vii) if requested by the managing underwriter or any seller, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or any seller reasonably requests to be included therein, including, without limitation, with respect to the Registrable Shares being sold by such seller, the purchase price being paid therefor by the underwriters and, with respect to any other terms of the underwritten offering of the Registrable Shares to be sold in such offering, and promptly make all required filings of such prospectus supplement or post-effective amendment; (viii) as promptly as practicable after filing with the SEC of any document which is incorporated by reference into a registration statement (in the form in which it was incorporated), deliver a copy of each such document to each seller; (ix) cooperate with the sellers and the managing underwriter to facilitate the timely preparation and delivery of certificates (which shall not bear any restrictive legends unless required under applicable law) representing securities sold under any registration statement, and enable such securities to be in such denominations and registered in such names as the managing underwriter or such sellers may request and keep available and make available to the Company's transfer agent prior to the effectiveness of such registration statement a supply of such certificates; (x) promptly make available for inspection by any seller, any underwriter participating in any disposition pursuant to any registration statement, and any attorney, accountant or other agent or representative retained by any such seller or underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information requested by any such Inspector in connection with such registration statement; provided, that, unless the disclosure of such Records is necessary to avoid or correct a misstatement or omission in the registration statement or the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, the Company shall not be required to provide any information under this subparagraph (x) if (A) the Company believes, after consultation with counsel for the Company, that to do so would cause the Company to forfeit an attorney-client privilege that was applicable to such information or (B) if either (1) the Company has requested and been granted from the SEC confidential treatment of such information contained in any filing with the SEC or documents provided supplementally or otherwise or (2) the Company reasonably determines in good faith that such Records are confidential and so notifies the Inspectors in writing unless prior to furnishing any such information with respect to (A) or (B) the Holder of Registrable Securities requesting such information agrees to enter into a confidentiality agreement in customary form and subject to customary exceptions; and provided, further that the Holder of Registrable Securities agrees that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the 4 Company at its expense, to undertake appropriate action and to prevent disclosure of the Records deemed confidential; (xi) furnish to each seller underwriter a signed counterpart of (A) an opinion or opinions of counsel to the Company, and (B) a comfort letter or comfort letters from the Company's independent public accountants, each in customary form and covering such matters of the type customarily covered by opinions or comfort letters, as the case may be, as the sellers or managing underwriter reasonably requests; (xii) cause the Registrable Shares included in any registration statement to be (A) listed on each securities exchange, if any, on which similar securities issued by the Company are then listed, or (B) authorized to be quoted and/or listed (to the extent applicable) on the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") or the NASDAQ National Market System if the Registrable Shares so qualify; (xiii) provide a CUSIP number for the Registrable Shares included in any registration statement not later than the effective date of such registration statement; (xiv) cooperate with each seller and each underwriter participating in the disposition of such Registrable Shares and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. ("NASD"); (xv) during the period when the prospectus is required to be delivered under the Securities Act, promptly file all documents required to be filed with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act; (xvi) notify each seller of Registrable Shares promptly of any request by the SEC for the amending or supplementing of such registration statement or prospectus or for additional information; (xvii) prepare and file with the SEC promptly any amendments or supplements to such registration statement or prospectus which, in the opinion of counsel for the Company or the managing underwriter, is required in connection with the distribution of the Registrable Shares; (xviii) enter into such agreements (including underwriting agreements in the managing underwriter's customary form) as are customary in connection with an underwritten registration; and (xix) advise each seller of such Registrable Shares, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the SEC suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for such purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued. 1.5 SUSPENSION OF DISPOSITIONS. The Holder agrees that, upon receipt of any notice (a "Suspension Notice") from the Company of the happening of any event of the kind described in Section 1.4(v)(C), the Holder will forthwith discontinue disposition of Registrable Shares until the Holder's receipt of the copies of the supplemented or amended prospectus, or until it is advised in writing (the "Advice") by the Company that the use of the prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the prospectus, and, if so directed by the Company, the Holder will deliver to the Company all copies, other than permanent file copies then in the Holder's possession, of the prospectus covering such Registrable Shares current at the time of receipt of 5 such notice. In the event the Company shall give any such notice, the time period regarding the effectiveness of registration statements set forth in Section 1.4(ii) hereof shall be extended by the number of days during the period from and including the date of the giving of the Suspension Notice to and including the date when each seller of Registrable Shares covered by such registration statement shall have received the copies of the supplemented or amended prospectus or the Advice. The Company shall use its commercially reasonable efforts and take such actions as are reasonably necessary to render the Advice as promptly as practicable. 1.6 REGISTRATION EXPENSES. All expenses incident to the Company's performance of or compliance with this Article 1 including, without limitation, all registration and filing fees, all fees and expenses associated with filings required to be made with the NASD (including, if applicable, the fees and expenses of any "qualified independent underwriter" as such term is defined in Schedule E of the By-Laws of the NASD, and of its counsel), as may be required by the rules and regulations of the NASD, fees and expenses of compliance with securities or "blue sky" laws (including reasonable fees and disbursements of counsel in connection with "blue sky" qualifications of the Registrable Shares), rating agency fees, printing expenses (including expenses of printing certificates for the Registrable Shares in a form eligible for deposit with Depository Trust Company and of printing prospectuses if the printing of prospectuses is requested by a holder of Registrable Shares), messenger and delivery expenses, the Company's internal expenses (including without limitation all salaries and expenses of its officers and employees performing legal or accounting duties), the fees and expenses incurred in connection with any listing of the Registrable Shares, fees and expenses of counsel for the Company and its independent certified public accountants (including the expenses of any special audit or "cold comfort" letters required by or incident to such performance), securities acts liability insurance (if the Company elects to obtain such insurance), the fees and expenses of any special experts retained by the Company in connection with such registration, and the fees and expenses of other persons retained by the Company and reasonable fees and expenses of one firm of counsel for the sellers (which shall be selected by the holders of a majority of the Registrable Shares being included in any particular registration statement) (all such expenses being herein called "Registration Expenses") will be borne by the Company whether or not any registration statement becomes effective; provided that, except as expressly otherwise provided above, in no event shall Registration Expenses include any underwriting discounts, commissions, or fees attributable to the sale of the Registrable Shares or any counsel, accountants, or other persons retained or employed by the Holder. 1.7 INDEMNIFICATION. 1.7.1 The Company agrees to indemnify and reimburse, to the fullest extent permitted by law, each seller of Registrable Shares, and each of its employees, advisors, agents, representatives, partners, officers, and directors and each Person who controls such seller (within the meaning of the Securities Act or the Exchange Act) and any agent or investment advisor thereof (collectively, the "Seller Affiliates") (A) against any and all losses, claims, damages, liabilities, and expenses, joint or several (including, without limitation, attorneys' fees and disbursements except as limited by Section 1.7.3) based upon, arising out of, related to or resulting from any untrue or alleged untrue statement of a material fact contained in any registration statement, prospectus, or preliminary prospectus or any amendment thereof or supplement thereto, or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, (B) against any and all loss, liability, claim, damage, and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation or investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon, arising out of, related to or resulting from any such untrue statement or omission or alleged untrue statement or omission, and (C) against any and all costs and expenses (including reasonable fees and disbursements of counsel) as may be reasonably incurred in investigating, preparing, or defending against any litigation, or investigation or proceeding by any governmental agency or body, commenced or 6 threatened, or any claim whatsoever based upon, arising out of, related to or resulting from any such untrue statement or omission or alleged untrue statement or omission, to the extent that any such expense or cost is not paid under subparagraph (A) or (B) above; except insofar as the same are made in reliance upon and in strict conformity with information furnished in writing to the Company by such seller or any Seller Affiliate for use therein or arise from such seller's or any Seller Affiliate's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Company has furnished such seller or Seller Affiliate with a sufficient number of copies of the same. The reimbursements required by this Section 1.7.1 will be made by periodic payments during the course of the investigation or defense, as and when bills are received or expenses incurred. 1.7.2 In connection with any registration statement in which a seller of Registrable Shares is participating, each such seller will furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such registration statement or prospectus and, to the fullest extent permitted by law, each such seller will indemnify the Company and its directors and officers and each Person who controls the Company (within the meaning of the Securities Act or the Exchange Act) against any and all losses, claims, damages, liabilities, and expenses (including, without limitation, reasonable attorneys' fees and disbursements except as limited by Section 1.7.3) resulting from any untrue statement or alleged untrue statement of a material fact contained in the registration statement, prospectus, or any preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission is contained in any information or affidavit so furnished in writing by such seller or any of its Seller Affiliates specifically for inclusion in the registration statement; provided that the obligation to indemnify will be several, not joint and several, among such sellers of Registrable Shares, and the liability of each such seller of Registrable Shares will be in proportion to, and provided further that such liability will be limited to, the net amount received by such seller from the sale of Registrable Shares pursuant to such registration statement; provided, however, that such seller of Registrable Shares shall not be liable in any such case to the extent that prior to the filing of any such registration statement or prospectus or amendment thereof or supplement thereto, such seller has furnished in writing to the Company information expressly for use in such registration statement or prospectus or any amendment thereof or supplement thereto which corrected or made not misleading information previously furnished to the Company. 1.7.3 Any Person entitled to indemnification hereunder will (A) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give such notice shall not limit the rights of such Person) and (B) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided, however, that any person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such person unless (x) the indemnifying party has agreed to pay such fees or expenses, or (y) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such person. If such defense is not assumed by the indemnifying party as permitted hereunder, the indemnifying party will not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent will not be unreasonably withheld). If such defense is assumed by the indemnifying party pursuant to the provisions hereof, such indemnifying party shall not settle or otherwise compromise the applicable claim unless (1) such settlement or compromise contains a full and unconditional release of the indemnified party or (2) the indemnified party otherwise consents in writing. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more 7 than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party, a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the reasonable fees and disbursements of such additional counsel or counsels. 1.7.4 Each party hereto agrees that, if for any reason the indemnification provisions contemplated by Section 1.7.1 or Section 1.7.2 are unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, liabilities, or expenses (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, liabilities, or expenses (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party in connection with the actions which resulted in the losses, claims, damages, liabilities or expenses as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or indemnified party, and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 1.7.4 were determined by pro rata allocation (even if the Holders or any underwriters or all of them were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 1.7.4. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities, or expenses (or actions in respect thereof) referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such indemnified party in connection with investigating or, except as provided in Section 1.7.3, defending any such action or claim. Notwithstanding the provisions of this Section 1.7.4, the Holder shall not be required to contribute an amount greater than the dollar amount by which the proceeds received by the Holder with respect to the sale of any Registrable Shares exceeds the amount of damages which the Holder has otherwise been required to pay by reason of such statement or omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holder's obligations in this Section 1.7.4 to contribute shall be several in proportion to the amount of Registrable Shares registered by them and not joint. If indemnification is available under this Section 1.7, the indemnifying parties shall indemnify each indemnified party to the full extent provided in Section 1.7.1 and Section 1.7.2 without regard to the relative fault of said indemnifying party or indemnified party or any other equitable consideration provided for in this Section 1.7.4. 1.7.5 The indemnification and contribution provided for under this Section 1.7 will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director, or controlling Person of such indemnified party and will survive the transfer of securities. ARTICLE 2 TERMINATION The provisions of this Agreement shall terminate on the availability of Holder to transfer, without limitation, shares pursuant to Rule 144 of the Securities Act. 8 ARTICLE 3 MISCELLANEOUS Section 3.1 NOTICES. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by telex, by telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows (or at such other address as may be substituted by notice given as herein provided): If to the Holder: Informed.com, Inc. 4404 Ivy Commons II Route 250 West Charlottesville, VA 22903 Attention: Michael R. Kerouac Copies to: Akerman Senterfitt Citrus Center, 17th Floor Orlando, FL 32801 Attention: Patrick T. Christiansen If to the Company: HORIZON Pharmacies, Inc. 531 West Main Street Denison, Texas 75020 Attention: Rick McCord Copies to: Vinson & Elkins L.L.P. 3700 Trammell Crow Center 2001 Ross Avenue Dallas, Texas 75201 Attention: Jay H. Hebert Any notice or communication hereunder shall be deemed to have been given or made as of the date so delivered if personally delivered; when answered back, if telexed; when receipt is acknowledged, if telecopied; and five calendar days after mailing if sent by registered or certified mail (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). If a notice or communication is mailed in the manner provided above, it is duly given whether or not the addressee receives it. 9 Section 3.2 GOVERNING LAW; JURISDICTION. THIS REGISTRATION AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Section 3.3 SUCCESSORS AND ASSIGNS. Whether or not an express assignment has been made, provisions of this Registration Rights Agreement that are for the Holder's benefit as the holder of any Registrable Shares are also for the benefit of, and enforceable by, all subsequent holders of Registrable Shares, except as otherwise expressly provided herein. This Registration Rights Agreement shall be binding upon the Company, the Holder, and their respective successors and assigns. Section 3.4 DUPLICATE ORIGINALS. All parties may sign any number of copies of this Registration Rights Agreement. Each signed copy shall be an original, but all of them together shall represent the same agreement. Section 3.5 SEVERABILITY. In case any provision in this Registration Rights Agreement shall be held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and the remaining provisions shall not in any way be affected or impaired thereby. Section 3.6 NO WAIVERS; AMENDMENTS. 3.6.1 No failure or delay on the part of the Company or the Holder in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to the Company or the Holder at law or in equity or otherwise. 3.6.2 Any provision of this Registration Rights Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Company and the Holder. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 10 SIGNATURES TO REGISTRATION RIGHTS AGREEMENT IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed, all as of the date first written above. HOLDER: INFORMED.COM, INC. By: /s/ Michael R. Kerouac ----------------------------------- Michael R. Kerouac President COMPANY: HORIZON PHARMACIES, INC. By: /s/ Ricky D. McCord ----------------------------------- Ricky D. McCord President S-1 EX-4.12 9 EXHIBIT 4.12 =============================================================================== THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED OR QUALIFIED FOR SALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED UNLESS SUCH OFFER, SALE OR TRANSFER IS REGISTERED OR QUALIFIED PURSUANT TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR IS PRECEDED BY AN OPINION OF COUNSEL ADDRESSED TO HORIZON PHARMACIES, INC. THAT SUCH SALE OR OTHER TRANSFER IS EXEMPT FROM ALL SUCH REGISTRATION REQUIREMENTS. THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE TERMS AND PROVISIONS SPECIFIED IN THE AMENDED AND RESTATED WARRANT PURCHASE AGREEMENT DATED AS OF MAY 14, 1999, BETWEEN HORIZON PHARMACIES, INC. AND McKESSON HBOC, INC., AS IT MAY BE AMENDED FROM TIME TO TIME. No. WR-5 WARRANT TO PURCHASE SHARES OF COMMON STOCK OF HORIZON PHARMACIES, INC. ===============================================================================
TABLE OF CONTENTS HEADING PAGE SECTION 1. EXERCISE OF WARRANT............................................................................1 SECTION 2. RESERVATION....................................................................................2 SECTION 3. PROTECTION AGAINST DILUTION....................................................................2 Section 3.1 Stock Dividends, Subdivisions and Combinations.........................................2 Section 3.2 Issuance of Additional Shares of Common Stock..........................................3 Section 3.3 Issuance of Warrants or Other Rights, Convertible Securities...........................3 Section 3.4 Other Provisions Applicable to Adjustments.............................................4 Section 3.5 Extraordinary Dividends................................................................5 Section 3.6 Adjustment of Number of Shares Purchasable.............................................6 Section 3.7 Minimum Adjustment.....................................................................6 Section 3.8 Notice of Adjustments..................................................................6 SECTION 4. MERGERS, CONSOLIDATIONS, SALES.................................................................7 SECTION 5. DISSOLUTION OR LIQUIDATION.....................................................................8 SECTION 6. NOTICE OF DIVIDENDS............................................................................8 SECTION 7. FRACTIONAL SHARES..............................................................................8 SECTION 8. FULLY PAID STOCK; TAXES........................................................................8 SECTION 9. CLOSING OF TRANSFER BOOKS......................................................................8 SECTION 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT........................................................9 Section 10.1 Partial Exercise.......................................................................9 Section 10.2 Assignment.............................................................................9 SECTION 11. DEFINITIONS....................................................................................9 SECTION 12. WARRANT HOLDER NOT SHAREHOLDER................................................................12 SECTION 13. SEVERABILITY..................................................................................12 SECTION 14. GOVERNING LAW.................................................................................12
No. WR-1 WARRANT TO PURCHASE SHARES OF COMMON STOCK OF HORIZON PHARMACIES, INC. THIS IS TO CERTIFY that, for value received and subject to the provisions hereinafter set forth, McKESSON HBOC, INC. or its permitted assigns, is entitled to purchase from HORIZON Pharmacies, Inc., a Delaware corporation ("COMPANY"), at any time and from time to time during the Exercise Period, up to 10,000 shares of Common Stock, par value $0.01 per share, of Company, subject to the terms, provisions and conditions hereinafter set forth at a price per share equal to $5.5625. The price per share is subject to adjustment as hereinafter provided (such price, or such price as last adjusted, as the case may be, being herein referred to as the "PER SHARE WARRANT PRICE"). The said number of shares purchasable hereunder is likewise subject to adjustment as hereinafter provided. The aggregate price of the Common Stock purchasable hereunder shall at all times be equal to the price per share set forth in the preceding paragraph multiplied by the number of shares initially purchasable hereunder. The aggregate price is herein sometimes referred to as the "Aggregate Warrant Price" and is not subject to adjustment. The terms which are capitalized herein shall have the meanings specified in Section 11 unless the context shall otherwise require. SECTION 1. EXERCISE OF WARRANT. Subject to the conditions hereinafter set forth, this Warrant may be exercised in whole or in part at any time and from time to time during the Exercise Period by the surrender of this Warrant (with the subscription form at the end hereof duly executed) at the principal office of Company in Princeton, Texas, and upon payment to Company of a sum equal to the per share Warrant Price multiplied by the number of shares purchased in such exercise, which payment shall be made by the wire transfer or other delivery to Company of one or more types of Permitted Consideration. In the event that Notes shall be delivered to Company as payment of all or any portion of the purchase price payable hereunder, the portion of such purchase price to be paid by means of such delivery shall equal the principal amount of Notes so delivered (or such lesser principal -1- amount as shall be designated by the holder hereof) and interest on such principal amount and the like portion of principal and interest of the Notes shall be deemed paid. In the event that Notes shall be delivered to Company as payment of all or any portion of the purchase price payable hereunder and the principal amount of said Notes shall be in excess of the amount of principal sought to be applied by the holder of this Warrant in respect of the purchase price payable hereunder, said holder shall provide Company with notice to such effect and Company shall (without charge to the holder) issue to said holder a new Note or Notes in an aggregate principal amount equal to such excess and dated the date of such issue and shall pay the holder all accrued but unpaid interest on the unapplied principal of the surrendered Note through such date. In the event that Warrants shall be delivered to Company as payment of all or any portion of the purchase price payable hereunder, the amount of such purchase price deemed to be paid by means of such delivery shall equal (a) the aggregate number of shares of Underlying Shares related to any Warrants so delivered, multiplied by (b) the result, not less than zero, equal to (i) the Current Market Price then in effect (with the date of the exercise of the Warrant being deemed to be the "Issuance Date" for purposes of making determinations under the definition of "Current Market Price") MINUS (ii) the per share Warrant Price then in effect. If this Warrant is exercised in respect of less than all of the shares of Common Stock at the time purchasable hereunder, following such exercise this Warrant shall be returned to the holder hereof and shall remain exercisable in respect of such number of shares of Common Stock as may thereafter be determined hereunder. This Warrant and all rights and options hereunder shall expire to the extent that it has not been exercised on or before the Expiration Date. Company shall pay all reasonable expenses, stamp, documentary and transfer taxes and other charges payable in connection with the preparation, execution and delivery of stock certificates pursuant to this Section, regardless of the name or names in which such stock certificates shall be registered. SECTION 2. RESERVATION. Company will at all times reserve and keep available such number of authorized shares of its Common Stock, solely for the purpose of issue upon the exercise of the rights represented by this Warrant as herein provided for, as may at any time be issuable (based upon the number of shares of Common Stock outstanding at any such time) upon the exercise of this Warrant. SECTION 3. PROTECTION AGAINST DILUTION. The per share Warrant Price and the number of shares deliverable hereunder shall be adjusted from time to time as hereinafter set forth: SECTION 3.1 STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. In case after the date hereof Company shall: -2- (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend and declared to be payable in, or other declared distribution of, Common Stock, or (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then the per share Warrant Price shall be adjusted to that price determined by multiplying the per share Warrant Price in effect immediately prior to such event by a fraction (i) the numerator of which shall be the total number of outstanding shares of Common Stock immediately prior to such event, and (ii) the denominator of which shall be the total number of outstanding shares of Common Stock immediately after such event. SECTION 3.2 ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In case after the date hereof Company shall (except as hereinafter provided) issue any Additional Shares of Common Stock for a consideration less than the Current Market Price per share, then the per share Warrant Price upon each such issuance shall be adjusted to that price determined by multiplying the per share Warrant Price in effect immediately prior to such event by a fraction: (a) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such Additional Shares of Common Stock plus the number of full shares of Common Stock which the aggregate consideration for the total number of such Additional Shares of Common Stock so issued would purchase at the Current Market Price per share, and (b) the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such Additional Shares of Common Stock plus the number of such Additional Shares of Common Stock so issued. The provisions of this Section 3.2 shall not apply to any Additional Shares of Common Stock which are distributed to holders of Common Stock as a stock dividend or subdivision, for which an adjustment is provided for under Section 3.1. No adjustment of the per share Warrant Price shall be made under this Section 3.2 upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Convertible Securities, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Convertible Securities (or upon the issuance of any warrants or other rights therefor) pursuant to Section 3.3. SECTION 3.3 ISSUANCE OF WARRANTS OR OTHER RIGHTS, CONVERTIBLE SECURITIES. In case Company shall issue any warrants or other rights to subscribe for or purchase any Additional Shares of Common Stock or issue Convertible Securities and the consideration per share for which Additional Shares of Common Stock may at any time thereafter be issuable pursuant to such warrants or other rights or pursuant to the terms of such Convertible Securities shall be less -3- than the Current Market Price per share, then the per share Warrant Price shall be adjusted as provided in Section 3.2 above on the basis that: (a) the maximum number of Additional Shares of Common Stock issuable pursuant to all such warrants or other rights or necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued as of the earlier of: (i) the date on which Company shall enter a firm contract or commitment for the issuance of such warrants, other rights or Convertible Securities or (ii) the date of actual issuance of such warrants, other rights or Convertible Securities, and (b) the aggregate consideration for such maximum number of Additional Shares of Common Stock shall be deemed to be the minimum consideration received and receivable by Company for the issuance of such Additional Shares of Common Stock pursuant to such warrants or other rights or pursuant to the terms of such Convertible Securities. No adjustment of the per share Warrant Price shall be made under this Section 3.3 upon the issuance of any Convertible Securities which are issued pursuant to the exercise of any warrants or other subscription or purchase rights therefor, to the extent such adjustment shall previously have been made upon the issuance of such warrants or other rights pursuant to this Section 3.3. SECTION 3.4 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS. The following provisions shall be applicable to the making of adjustments in the per share Warrant Price hereinbefore provided in this Section 3: (a) COMPUTATION OF CONSIDERATION. To the extent that any Additional Shares of Common Stock or any Convertible Securities or any warrants or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities shall be issued for a cash consideration, the consideration received by Company therefor shall be deemed to be the amount of the cash received by Company therefor, or, if such Additional Shares of Common Stock or Convertible Securities or warrants or other rights are offered by Company for subscription, the subscription price, or, if such Additional Shares of Common Stock or Convertible Securities or warrants or other rights are sold to underwriters or dealers for public offering without a subscription offering, the offering price, in any such case excluding any amounts paid or receivable for accrued interest or accrued dividends and without deduction of any compensation, discounts or expenses paid or incurred by Company for and in the underwriting thereof, or otherwise in connection with the issue thereof. To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of Company. The consideration for any Additional Shares of Common Stock issuable pursuant to any warrants or other rights to subscribe for or purchase the same shall be the consideration received by Company for issuing such warrants or other rights plus the additional consideration payable to Company upon the exercise of such warrants or other rights. The consideration for any Additional Shares of Common Stock issuable pursuant to the terms of any Convertible Securities shall be the consideration received by -4- Company for issuing any warrants or other rights to subscribe for or purchase such Convertible Securities plus the consideration paid or payable to Company in respect of the subscription for or purchase of such Convertible Securities plus the additional consideration, if any, payable to Company upon the exercise of the right of conversion or exchange of such Convertible Securities. In case of the issuance at any time of any Additional Shares of Common Stock or Convertible Securities in payment or satisfaction of any dividend upon any class of equity securities other than Common Stock, Company shall be deemed to have received for such Additional Shares of Common Stock or Convertible Securities a consideration equal to the amount of such dividend so paid or satisfied. (b) READJUSTMENT OF PER SHARE WARRANT PRICE. Upon expiration of the right of exercise, conversion or exchange of any Convertible Securities, or upon the expiration of any rights, options or warrants, or upon the termination of any firm contract or commitment for the issuance of such rights, options, warrants or Convertible Securities, or upon any increase in the minimum consideration receivable by Company for the issuance of Additional Shares of Common Stock pursuant to such Convertible Securities, rights, options or warrants, if any such Convertible Securities shall not have been exercised, converted or exchanged, or if any such rights, options or warrants shall not have been exercised, the number of shares of Common Stock deemed to be issued and outstanding by reason of the fact that they were issuable upon exercise, conversion or exchange of any such Convertible Securities or upon exercise of any such rights, options or warrants shall no longer be computed as set forth above, and the per share Warrant Price shall forthwith be readjusted and thereafter be the price which it would have been (but reflecting any other adjustments in the per share Warrant Price made pursuant to the provisions of this Section 3 after the issuance of such Convertible Securities, rights, options or warrants) had the adjustment of the per share Warrant Price made upon the issuance or sale of such Convertible Securities or the issuance of such rights, options or warrants been made on the basis of the issuance only of the number of Additional Shares of Common Stock actually issued upon exercise, conversion or exchange of such Convertible Securities or upon the exercise of such rights, options or warrants, or upon the basis of such increased minimum consideration, as the case may be, and thereupon only the number of Additional Shares of Common Stock actually so issued plus the number thereof then issuable upon the basis of such increased minimum consideration shall be deemed to have been issued and only the consideration actually received plus such increased minimum consideration receivable by Company (computed in accordance with Section 3.4(a)) shall be deemed to have been received by Company. (c) ROUNDING OF PER SHARE WARRANT PRICE. Any determination of per share Warrant Price hereunder shall be expressed in United States Dollars, cents and portions of cents and shall be rounded to the nearest 1/1000 of one cent or, if there is no nearest 1/1000 of one cent, to the next highest 1/1000 of one cent. SECTION 3.5 EXTRAORDINARY DIVIDENDS. In case Company shall declare a dividend upon its Common Stock (except a dividend payable in shares of Common Stock referred to in Section 3.1(a) or a dividend payable in warrants, rights or Convertible Securities referred to in Section 3.3) payable otherwise than out of earnings or surplus (other than revaluation surplus or paid-in surplus), the -5- per share Warrant Price in effect immediately prior to the declaration of such dividend shall be reduced by an amount equal, in the case of a dividend in cash, to 10% of the amount thereof payable per share of Common Stock or, in the case of any other dividend, to the fair value thereof per share of Common Stock as determined in good faith by the Board of Directors of Company. For the purposes of the foregoing, a dividend payable other than in cash shall be considered payable out of earnings or surplus (other than revaluation surplus or paid-in surplus) only to the extent that such earnings or surplus are charged an amount equal to the fair value of such dividend as determined by the Board of Directors of Company. If such dividend is paid or Company declares and becomes legally liable to pay such dividend, such reduction shall take effect as of the date on which a record is taken for the purpose of such dividend or, if a record is not taken, the date as of which the holders of the Common Stock of record entitled to such dividend are to be determined. Appropriate readjustment of the per share Warrant Price shall be made in the event that any dividend referred to in this Section 3.5 shall be lawfully abandoned. SECTION 3.6 ADJUSTMENT OF NUMBER OF SHARES PURCHASABLE. Upon each adjustment of the per share Warrant Price, the number of shares of Common Stock purchasable hereunder shall be adjusted by multiplying the number of shares of Common Stock purchasable hereunder immediately prior to such adjustment of the per share Warrant Price by a fraction, the numerator of which shall be the per share Warrant Price in effect immediately prior to such adjustment and the denominator of which shall be the per share Warrant Price in effect immediately following such adjustment. SECTION 3.7 MINIMUM ADJUSTMENT. Except as hereinafter provided, no adjustment of the per share Warrant Price hereunder shall be made if such adjustment results in a change of the per share Warrant Price then in effect of less than 1%. Any adjustment of less than 1% shall be carried forward and shall be made at the time of and together with any subsequent adjustment which, together with the adjustment or adjustments so carried forward, amounts to 1% or more of the per share Warrant Price then in effect. However, upon the exercise of this Warrant, Company shall make all necessary adjustments not theretofore made to the per share Warrant Price up to and including the date upon which this Warrant is exercised. SECTION 3.8 NOTICE OF ADJUSTMENTS. (a) Whenever the per share Warrant Price or number of shares deliverable upon exercise of this Warrant shall be adjusted pursuant to this Section 3, Company shall promptly prepare a certificate signed by the President or a Vice President and by the Treasurer of Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated (including a description of the basis on which the Board of Directors of Company made any determination hereunder), and shall promptly cause copies of such certificate to be mailed in the manner provided in Section 12.1 of the Warrant Agreement to the holder of this Warrant. (b) The adjustment set forth in the certificate furnished pursuant to Section 3.8(a) shall be final and binding unless, within 90 days after receipt thereof, the Majority Holders of the Warrants deliver to Company a written statement of objection to such adjustment. (i) In the event of any such statement of objection by said Majority Holders, Company's accountants and a firm of independent public accountants -6- selected by said Majority Holders shall attempt to prepare a computation in which both accountants concur. Any such joint computation shall be set forth in a joint certificate to each holder of the Warrants and Company and shall be final and binding. (ii) If Company's accountants and said Majority Holders' accountants are unable to resolve their differences within 30 days after the receipt by Company of said Majority Holders' statement of objection, they shall submit the matter to a third firm of independent certified public accountants of nationally recognized standing agreed upon by said Majority Holders and Company or, if said Majority Holders and Company are unable to agree within 10 days after the expiration of said 30-day period, to such firm designated by the then president of the state society of certified public accountants for the state in which Company maintains its principal place of business. Such third firm of accountants shall thereupon compute the amount of the adjustment and, upon completion of such computation, shall transmit its certificate to each holder of the Warrants and Company setting forth such computations, which shall be final and binding. (iii) The fees and expenses of all accountants referred to in this Section 3.8(b) shall be borne by Company. SECTION 4. MERGERS, CONSOLIDATIONS, SALES. In the case of any consolidation or merger of Company with another entity, or the sale of all or substantially all of its assets to another entity, or any reorganization, recapitalization or reclassification of the Common Stock or other equity securities of Company, then, as a condition of such consolidation, merger, sale, reorganization, recapitalization or reclassification, lawful and adequate provision shall be made whereby the holder of this Warrant shall thereafter have the right to receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore purchasable hereunder, such shares of stock, securities or assets as may (by virtue of such consolidation, merger, sale, reorganization or reclassification) be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of shares of Common Stock immediately theretofore so purchasable hereunder had such consolidation, merger, sale, reorganization, recapitalization or reclassification not taken place. In any such case, appropriate provisions shall be made with respect to the rights and interests of the holder of this Warrant to the end that the provisions hereof shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon exercise of this Warrant. Company shall not effect any such consolidation, merger or sale, unless prior to or simultaneously with the consummation thereof, the successor entity (if other than Company) resulting from such consolidation or merger or the entity purchasing such assets shall assume by written instrument executed and mailed or delivered to the holder of this Warrant, the obligation to deliver to such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to receive. -7- SECTION 5. DISSOLUTION OR LIQUIDATION. In the event of any proposed distribution of the assets of Company in dissolution or liquidation except under circumstances when the foregoing Section 4 shall be applicable, Company shall mail notice thereof to the holder of this Warrant and shall make no distribution to shareholders until the expiration of 30 days from the date of mailing of the aforesaid notice and, in any such case, the holder of this Warrant may exercise the purchase rights with respect to this Warrant within 30 days from the date of mailing such notice and all rights herein granted not so exercised within such 30-day period shall thereafter become null and void. SECTION 6. NOTICE OF DIVIDENDS. If the Board of Directors of Company proposes to declare any dividend or other distribution on its Common Stock, except by way of a stock dividend payable on its Common Stock, Company shall mail notice thereof to the holder of this Warrant as soon as possible (such notice being referred to as the "DISTRIBUTION NOTICE"). Company shall not fix a record date until the lapse of a 10-day period beginning on the date of delivery of the Distribution Notice. The holder of this Warrant shall not participate in such dividend or other distribution or be entitled to any rights on account or as a result thereof unless and to the extent that this Warrant is exercised prior to such record date. The provisions of this paragraph shall not apply to distributions made in connection with transactions covered by Section 4. SECTION 7. FRACTIONAL SHARES. No fractional shares may be issued upon the exercise of this Warrant. In the event that a Holder would otherwise be entitled to a fractional share except for the operation of the previous sentence, in lieu of such fractional share such Holder shall be paid a cash amount equal to (i) such fraction multiplied by (ii) the Current Market Value of one full share of Common Stock on the date of exercise. SECTION 8. FULLY PAID STOCK; TAXES. Company covenants and agrees that the shares of stock represented by each and every certificate for its Common Stock to be delivered on the exercise of the purchase rights and the payment of the applicable purchase price herein provided for shall, at the time of such delivery, be validly issued and outstanding and be fully paid and nonassessable. Company further covenants and agrees that it will pay when due and payable any and all federal and state taxes (other than income taxes) which may be payable in respect of this Warrant or any Common Stock or certificates therefor upon the exercise of the rights herein and in the Warrant Agreement provided for pursuant to the provisions hereof and thereof. Company shall not, however, be required to pay any tax which may be payable solely in respect of any transfer and delivery of stock certificates in a name other than that of the holder exercising this Warrant, and any such tax shall be paid by such holder at the time of presentation. SECTION 9. CLOSING OF TRANSFER BOOKS. The right to exercise this Warrant shall not be suspended during any period that the stock transfer books of Company for its Common Stock may be closed. Company shall not be -8- required, however, to deliver certificates of its Common Stock upon such exercise while such books are duly closed for any purpose, but Company may postpone the delivery of the certificates for such Common Stock until the opening of such books, and they shall, in such case, be delivered forthwith upon the opening thereof, or as soon as practicable thereafter. SECTION 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT. SECTION 10.1 PARTIAL EXERCISE. If this Warrant is exercised in part only, the holder hereof shall surrender this Warrant upon such exercise for endorsement thereon of the number of shares of Common Stock as to which it has been exercised. No partial exercise of this Warrant shall be made in respect of shares of Common Stock of Company representing less than 1% of Pro Forma Shares. SECTION 10.2 ASSIGNMENT (a) Subject to the conditions set forth in Section 10.2(b) hereof, this Warrant may be assigned either in whole or in part by surrender of this Warrant at the principal office of Company in Princeton, Texas (with the assignment or, as the case may be, partial assignment form at the end hereof duly executed). If this Warrant is being assigned in whole, the assignee shall receive a new Warrant (registered in the name of such assignee or its nominee) which new Warrant shall cover 100% of the number of shares of Common Stock then purchasable hereunder and shall set forth the Aggregate Warrant Price. If this Warrant is being assigned in part, the assignor and assignee shall each receive a new Warrant (which, in the case of the assignee, shall be registered in the name of the assignee or its nominee), which new Warrants shall cover the number of shares of Common Stock then purchasable hereunder not so assigned and so assigned, respectively, and shall set forth the proportionate Aggregate Warrant Price applicable to such shares. (b) Neither this Warrant nor any Warrant Shares may be sold, assigned or otherwise transferred unless such sale, assignment or transfer is registered or qualified pursuant to the registration requirements of the Securities Act of 1933, as amended, and all applicable state securities laws, or is preceded by an opinion of counsel addressed to Company that such sale, assignment or other transfer is exempt from all such registration requirements; PROVIDED, HOWEVER, that no such opinion of counsel shall be required in connection with any such sale, assignment or transfer to any affiliate of the holder of this Warrant or any Warrant Shares issued in respect hereof. The fees and expenses of such counsel incurred in respect of such sales, assignments or transfers shall be paid by the holder of this Warrant or any Warrant Shares which are the subject of such proposed sale, assignment or transfer. All certificates representing the Warrant Shares shall be stamped or imprinted with an appropriate restrictive legend, substantially as set forth on the cover page hereof. SECTION 11. DEFINITIONS. Terms not otherwise defined herein shall have the respective meanings assigned thereto in the Warrant Agreement and the Credit Agreement. In addition to the terms defined elsewhere in this Warrant, the following terms have the following respective meanings: "ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of Common Stock issued by Company after the Closing Date, except: -9- (a) Common Stock issued upon exercise of the Warrants; (b) Common Stock issued upon exercise of warrants issued under the Existing Warrant Agreements; and (c) Common Stock issued to officers, directors or employees of, or consultants to, Company pursuant to any existing or future stock option, incentive, bonus or compensation plan or program approved by the Company's shareholders (no later than 12 months following adoption of the plan or program by the Company's Board of Directors). "AGGREGATE WARRANT PRICE" has the meaning specified on the first page of this Warrant. "COMMON STOCK" shall mean the shares of Common Stock, par value $0.01 per share, of Company described in the Certificate of Incorporation. "CONVERTIBLE SECURITIES" shall mean evidences of indebtedness, equity, rights, options, warrants or other securities which are convertible into or exchangeable for shares of Common Stock, either immediately or upon the arrival of a specified date or the happening of a specified event, or otherwise. "CURRENT MARKET PRICE" shall mean, at the date of determination thereof, an amount equal to the market price on the Business Day occurring most recently prior to the subject issuance of such shares of Common Stock (the "ISSUANCE DATE"). The market price for such Business Day shall be the last sale price on such day on the American Stock Exchange, or, if the Common Stock is not then listed or admitted to trading on the American Stock Exchange, on such other principal stock exchange on which such shares are then listed or admitted to trading, or, if no sale takes place on such day on any such exchange, the average of the closing bid and asked prices on such day as officially quoted on any such exchange, or, if the Common Stock is not then listed or admitted to trading on any stock exchange, the market price for each such Business Day shall be the last reported sale price on such day on The Nasdaq Stock Market's National Market, as furnished by Nasdaq, or, if no sale takes place on such day on such system, the average of the closing bid and asked prices on such day as officially quoted by Nasdaq, or, if such price at the time is not available from such system, the market price for such Business Day shall be the average of the reported closing bid and asked prices on such day in the over-the-counter market, as furnished by Nasdaq, or, if such price at the time is not available from such system, such price shall be determined in good faith by Company's Board of Directors, which shall be evidenced by a notice setting forth such determination in reasonable detail (including computations and assumptions used) (the "CMP COMPUTATION NOTICE") to each holder of the Warrants not later than 30 days after the issuance date of the Common Stock giving rise to such determination (the "CMP COMPUTATION DATE") setting forth such determination and setting forth in detail the rights and procedures the holders of the Warrants may take in the event the Majority Holders do not agree with the valuation set forth in the CMP Computation Notice, PROVIDED, that if the Majority Holders of such Warrants shall object to the valuation contained in the CMP Computation Notice in writing to Company within 15 days of the CMP Computation Date, an Appraiser, the expenses of whom shall be paid by Company, shall be selected by Company and said Majority Holders (on behalf of all of the holders of the Warrants as a class), -10- or, if said Majority Holders and Company are unable to agree upon the selection of an Appraiser within 10 days of the date of the written notice from said Majority Holders to Company objecting to the CMP Computation Notice, by the American Arbitration Association. Said Majority Holders and Company shall be jointly responsible for engaging the Appraiser finally selected. In the event that the Majority Holders do not object to the CMP Computation Notice within 15 days after receiving the CMP Computation Notice, then the value shall be that which was determined solely by Company's Board of Directors. The Appraiser appointed pursuant to the foregoing procedure shall be instructed to determine such value within 15 days after the selection of such Appraiser, and any such determination made by the Appraiser shall be final and binding upon the parties. Notwithstanding the foregoing, in the event that, on the Issuance Date, shares of Common Stock shall be offered for sale to the public in connection with an underwritten public offering, the Current Market Price in respect of said Issuance Date shall be deemed to be the price at which said shares are initially sold to the public. "EXERCISE DATE" shall mean a date on which this Warrant is exercised. "EXPIRATION DATE" means from and after 5:00 p.m. Princeton, Texas time on March 30, 2010. "MAJORITY HOLDERS" shall mean, at the time of any determination, the holders of a majority of the Warrants (determined by the number of shares of Common Stock represented by each such Warrant as if exercised). "NOTE" shall mean any of the Notes issued to McKesson pursuant to the Credit Agreement. "PER SHARE WARRANT PRICE" is defined in the first paragraph of this Warrant. "PERMITTED CONSIDERATION" shall mean each of the following (or any combination thereof): (a) cash or other funds immediately available to Company; (b) any Note issued under the Credit Agreement; and (c) Warrants. "PRO FORMA SHARES" shall mean, as of the date of any determination thereof, the sum of (i) the total number of outstanding shares of Common Stock, plus (ii) the total number of shares of Common Stock issuable upon exercise of the Warrants and any other warrants, options or other rights and upon the exercise of any conversion or exchange rights with respect to Convertible Securities. "UNDERLYING SHARES" shall mean the shares of Common Stock issuable upon exercise of any of the Warrants and any references contained herein to a holder or holders of any Underlying Shares shall be deemed to refer to the holder of the Warrants relating thereto. -11- "WARRANT AGREEMENT" shall mean that certain Amended and Restated Warrant Purchase Agreement between Company and McKesson HBOC, Inc. dated as of May 14, 1999. "WARRANT PRICE" - see the definition of "per share Warrant Price". "WARRANT SHARES" shall mean shares of Common Stock issued upon exercise of the warrants. "WARRANTS" as used herein shall refer to, collectively, this Warrant and all other warrants issued in exchange or substitution for this Warrant. SECTION 12. WARRANT HOLDER NOT SHAREHOLDER. This Warrant does not confer upon the holder hereof any right to vote or to consent or to receive notice as a shareholder of Company, as such, in respect of any matters whatsoever, or any other rights or liabilities as a shareholder, prior to the exercise hereof as hereinbefore provided. SECTION 13. SEVERABILITY. Should any part of this Warrant for any reason be declared invalid or unenforceable, such decision shall not affect the validity or enforceability of any remaining portion, which remaining portion shall remain in force and effect as if this Warrant had been executed with the invalid or unenforceable portion thereof eliminated, and it is hereby declared the intention of the parties hereto that they would have executed and accepted the remaining portion of this Warrant without including therein any such part, parts or portion which may, for any reason, be hereafter declared invalid or unenforceable. SECTION 14. GOVERNING LAW. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of California excluding choice-of-law principles of the law of such state that would require the application of the laws of a jurisdiction other than such state. In WITNESS WHEREOF, Company has caused this Warrant to be signed by a duly authorized officer and to be dated this 30th day of March 2000. HORIZON PHARMACIES, INC. By: /s/ Ricky D. McCord -------------------------------------- Its: President and Chief Executive Officer -------------------------------------- -12- SUBSCRIPTION HORIZON PHARMACIES, INC. The undersigned, ____________________, pursuant to the provisions of the within Warrant, hereby elects to purchase ________ shares of Common Stock pursuant to the attached Warrant. Signature -------------------------------- Address -------------------------------- Dated: ASSIGNMENT FOR VALUE RECEIVED ______________________ hereby sells, assigns and transfers unto ____________________ the within Warrant and all rights evidenced thereby and does irrevocably constitute and appoint ________________________, attorney, to transfer the said Warrant on the books of HORIZON Pharmacies, Inc. Signature -------------------------------- Address -------------------------------- Dated: PARTIAL ASSIGNMENT FOR VALUE RECEIVED ______________________ hereby sells, assigns and transfers unto ____________________ that portion of the within Warrant and the rights evidenced thereby which will on the date hereof entitle the holder to purchase _________________ shares of Common Stock of HORIZON Pharmacies, Inc. and irrevocably constitutes and appoints ________________________, attorney, to transfer that part of the said Warrant on the books of HORIZON Pharmacies, Inc. Signature -------------------------------- Address -------------------------------- Dated: EX-10.2 10 EXHIBIT 10.2 April 14, 1999 Mr. Rick McCord, CEO Horizon Pharmacies, Inc. 531 West Main St. Denison, TX 75020 Subject: New Supply and Technology Agreements Dear Rick: Pursuant to our discussions yesterday, McKesson HBOC, Inc. ("McKesson") and Horizon Pharmacies, Inc. ("Horizon") agree to the following: 1) Supply Agreement Horizon will execute a new five year wholesale supply agreement with McKesson effective May 1, 1999 on terms substantially similar to the current wholesale supply agreement, including exclusions therein from cost of goods, subject to: a) Cost of goods sold based on current 45 day terms: (EXCEPT ITEMS THAT May 1, 1999 through April 30, 2000 - cost plus 0.2% ARE NET BILLED May 1, 2000 through April 30, 2001 - cost plus 0.1% PURSUANT TO THE May 1, 2001 through April 30, 2002 - cost plus 0.0% CURRENT SUPPLY May 1, 2002 through April 30, 2003 - cost minus 0.2% AGREEMENT) May 1, 2003 through April 30, 2004 - cost minus 0.2% For purposes of this section, "cost of goods" and "cost" shall have the same meaning as applicable under the current wholesale supply agreement. b) The above cost of goods sold margins shall be firm, with no reopener rights during the term of the five year wholesale supply agreement. c) McKesson will pay to Horizon the conversion allowance specified in Section 6 of the current wholesale supply agreement based on purchases through April 30, 1999. It is expressly understood that the repayment formula specified in Section 6.B. of the current wholesale supply agreement in the event of early termination or Horizon's failure to meet its purchase volume commitment shall continue in full force and effect under the new agreement. Mr. Rick McCord, CEO April 14, 1999 Page 2 d) Unlike the current contract, there will not be a 50 bp rebate for first year purchases commencing May 1, 1999. e) Current contract language with respect to waiver of return charges during the annual clean-up period will be clarified as follows: i) Horizon shall submit to McKesson, annually no later than May 31st of each year, dates for which individual stores have been scheduled for their annual clean-up of return merchandise. ii) Each store's clean-up period shall be for five contiguous business days only and shall commence on the dates scheduled, unless another commencement date shall be approved by McKesson iii) Accept during the annual clean-up period for which there shall be no return item charges, each store will be billed 15% and 25% for salable and non-salable merchandise (as defined in the current supply agreement), respectively. f) In consideration of the substantial pricing concessions made by McKesson under the proposed new supply agreement Horizon agrees that the following sums shall be payable to McKesson as liquidated damages in the event of cancellation of the new supply contract by either party for any reason whatsoever prior to its expiration on April 30, 2004, regardless of cause: If termination occurs during the first year - $800,000 If termination occurs during the second year - $600,000 If termination occurs during the third year - $400,000 If termination occurs during the fourth year - $200,000 If termination occurs during the fifth year (other than by expiration on April 30, 2004) - $100,000 2) Financing Agreements a) McKesson hereby grants Horizon upon execution of this letter by both parties a waiver on all breaches of financial covenants and such other defaults as to which Horizon has specifically requested a waiver under the current credit facility for Horizon's fiscal year ending December 31, 1998 and quarter ending March 31, 1999. b) Notwithstanding any waivers granted by McKesson, McKesson will reinstate the original credit facility commitment of $15 million for acquisitions and operating capital only upon McKesson's approval, which shall be in McKesson's sole discretion, of Horizon's twelve month profitable operating plan. c) McKesson will provide a $7 million guarantee to Bank One to facilitate the bank's offering an unsecured revolving credit facility to Horizon designed to more efficiently accommodate Horizon's daily fluctuations in cash flow. The amount of commitment under the original McKesson credit facility will be reduced by the aggregate amount guaranteed under the Bank One facility, should Horizon decide to accept the bank's offer. Mr. Rick McCord, CEO April 14, 1999 Page 3 As a condition to providing the guarantee to the bank McKesson will require the same protections available to McKesson under the original credit facility, which among other conditions will include a requirement that Horizon indemnify McKesson for any payment that McKesson shall be obligated to pay Bank One pursuant to the guarantee. Such indemnity shall be secured pursuant to the terms of the existing security agreement. d) In consideration of the proposed December 31, 1998 and March 31, 1999 waivers under the current credit facility, Horizon agrees to provide McKesson warrants under substantially the same terms and conditions as the original warrants granted to McKesson to purchase common stock of Horizon, as follows: - 100,000 new warrants priced at the average closing price of Horizon stock for the five days ending April 16, 1999. - Cancellation of the original 101,500 warrants and reissuance of an additional $101,500 of new warrants priced at the average closing price of Horizon stock for the five days ending April 16, 1999. - 50,000 new warrants priced at the average closing price of Horizon stock for the five day period commencing on the date McKesson advises Horizon that it has reinstated the original credit facility commitment. 3) Technology Agreement Horizon agrees to enter into a five year Technology Agreement no later than 30 days following McKesson Pharmacy Systems ("MPS") delivery of a fully operational Multi-Site Back Office System ("Host System"), in which Horizon commits to installing MPS point of sales systems ("POS") in all of its current and future store locations and further agrees to installing a minimum of 100 POS systems, including existing installations, in its stores by April 30, 2004. The cost of the new POS systems, training, scheduling and other applicable services and conditions relevant to the POS services, shall be the same as afforded by MPS to Horizon for the current 23 installations, after adjusting for specific system configurations pursuant to price quotations that MPS has previously provided Horizon. McKesson acknowledges that this commitment is contingent upon MPS delivering a fully operational Host System by October 15, 1999. McKesson agrees to pay Horizon as compensation for its increased costs, a penalty of $500 per day for each day the Host System is delayed beyond October 31, 1999. Should McKesson determine that it is unable or unwilling to provide the Host System, McKesson will give notice to Horizon of its intent not to deliver the system in which case McKesson's obligation to pay the penalty shall cease 30 days after giving notice. In the event McKesson provides a Host System and Horizon fails to purchase a minimum of 77 new POS systems then Horizon shall pay McKesson on April 30, 2004 the sum of $2,000 multiplied times the difference between 77 and the actual number of new POS system Purchased during term of the Technology Agreement. Mr. Rick McCord, CEO April 14, 1999 Page 4 4) Reimbursement for and Release of Disputes In exchange for the payment by McKesson of $1 million, and for undertaking the other obligations of McKesson set forth in this letter, as full and final consideration for unresolved disputes arising in 1998 and the first calendar quarter of 1999, Horizon agrees to the release of claims set forth below, which shall be effective upon execution and delivery of this letter, and to undertake the other obligations of Horizon that are set forth in this letter. RELEASE OF CLAIMS For the consideration set forth above, Horizon on behalf of itself, its employees, successors, predecessors, officers, directors, stockholders, subsidiaries, insurers, and each and all of them (collectively, the "Horizon"), hereby forever releases and discharges, McKesson and its employees, attorneys, successors, predecessors, officers, directors, stockholders, subsidiaries, insurers, assigns, representatives and agents (collectively, the "Releasees"), and hereby indemnifies the Releasees and holds them harmless from and against any and all losses or costs of any kind (including without limitation reasonable attorneys' fees and costs) arising from Claims (as defined below) by its stockholders, in each case from any and all manner of actions, claims, demands, damages, liabilities, costs, or causes of action of any kind or nature whatever, liquidated or unliquidated, known or unknown, matured or unmatured, asserted or unasserted, fixed or contingent (collectively, "Claims"), whether based in tort, contract or any other theory of recovery, including without limitation court costs, expenses and attorney fees, which they may have against Releasees based on facts occurring on or before April 15, 1999 arising out of the relationship (contractual or otherwise) between any Horizon and any Releasee, including but not limited to the Credit Agreement and the Supply Agreement (collectively the "Released Claims"). THIS RELEASE EXTENDS TO CLAIMS RELEASED TO AND INCLUDED AMONG THE RELEASED CLAIMS WHICH HORIZON DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR, WHICH IF KNOWN BY HORIZON WOULD HAVE MATERIALLY AFFECTED ITS DECISION TO ENTER INTO THIS RELEASE. HORIZON EXPRESSLY WAIVES AND RELINQUISHES, WITH RESPECT TO THE RELEASED CLAIMS, ANY RIGHTS OR BENEFIT WHICH IT HAS OR MAY HAVE UNDER ANY STATUTE OR LEGAL PRINCIPLE WITH THE EFFECT THAT A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE RELEASOR DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WITHOUT LIMITING THE FOREGOING, HORIZON EXPRESSLY WAIVES AND RELINQUISHES ANY RIGHTS OR BENEFIT WHICH HAS OR MAY HAVE UNDER PARAGRAPH 1542 OF THE CIVIL CODE OF THE STATE OF CALIFORNIA, WHICH PROVIDES AS FOLLOWS: Mr. Rick McCord, CEO April 14, 1999 Page 5 A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. Horizon acknowledges that after executing this Release it may discover Claims in addition to or different from those which it now has or believes to exist with respect to the Released Claims, but that it is Horizon's intention hereby to fully settle and release all of the Released Claims, known or unknown, which now exist, may exist, or heretofore may have existed. In furtherance of this intention, the release herein given shall be and will remain in effect as full and complete release of the Released Claims and Claims arising out of the Released Claims notwithstanding the discovery or existence of any such additional or different Claim or fact. This release shall become effective upon the execution and delivery of this letter. Horizon hereby represents and warrants that (i) it has exclusive authority to execute this Release, (ii) none of the Released Claims has been assigned to any person not a party bound by this Release, and (iii) all of the Released Claims are owned by Horizon and by no other Person(s). This Release constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior negotiations and agreements, whether written or oral, relating to its subject matter, and is binding upon and inures to the benefit of the parties' respective successors, assigns and representatives. This Release may not be altered, amended, or modified, except by another written agreement that specifically refers to this Release, duly executed by another written agreement that specifically refers to Release, duly executed by authorized representatives of each of Horizon and McKesson. This Release shall be governed by the laws of the State of California, and by executing this Release each party hereby waives any claim of inconvenient forum, lack of jurisdiction or similar claim contesting the ability of the courts of the State of California to decide any disputes arising hereunder. 5) Public Disclosures Horizon agrees to provide McKesson drafts of all press releases and other forms of written public disclosure regarding the above agreements for review and approval by McKesson prior to release. Furthermore, Horizon agrees to refrain from any verbal discussion regarding the agreements other than to reiterate information contained in written disclosures that have been approved by McKesson. The draft press release dated April 14, 1999 entitled "HORIZON Pharmacies, Inc. Negotiates New Technology and Supply Agreement with Primary Supplier" is satisfactory to McKesson. Mr. Rick McCord, CEO April 14, 1999 Page 6 The following signatures authorize approval by both companies of all criteria as stated above. Bill Hamik, McKesson HBOC, Inc. /s/ Bill Hamik Date: April 14, 1999 -------------------------- -------------- Rick McCord, Horizon Pharmacies, Inc. /s/ Ricky D. McCord Date: April 14, 1999 -------------------- -------------- EX-10.3 11 EXHIBIT 10.3 AMENDMENT TO SUPPLY AGREEMENT This Amendment to Supply Agreement (this "Amendment") is entered into as of March 30, 2000, between HORIZON Pharmacies, Inc., a Delaware corporation ("Horizon"), and McKesson HBOC, Inc., a Delaware corporation formerly known as McKesson Corporation ("McKesson"). RECITALS WHEREAS, Horizon and McKesson are parties to that certain Strategic Partnership Supply Agreement dated as of April 30, 1998, as amended by that certain letter agreement dated April 14, 1999 (as so amended, the "Supply Agreement"). Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Supply Agreement. WHEREAS, Horizon has requested certain waivers and consents under the Supply Agreement and the Credit Agreement dated as of July 2, 1998 between Horizon and Mckesson (as amended from time to time, the "Credit Agreement"), and McKesson is willing to grant such waivers and consents on certain terms and conditions, including the execution and delivery of this Amendment. NOW, THEREFORE, in consideration of the promises and agreements, provisions and covenants herein contained, and the granting of the waivers and consents referred to above, the parties hereto agree as follows: SECTION 1. AMENDMENT TO SUPPLY AGREEMENT The Supply Agreement is hereby amended by deleting therefrom the "45 Day Extended Payment Terms" referred to in Section 4.A of the Supply Agreement, effective as of June 1, 2000. Horizon shall have the choice of the other options set forth in Section 4.A of the Supply Agreement and agrees that by June 1, 2000, it will be in full compliance with the option chosen for all amounts incurred prior to June 1, 2000. SECTION 2. MISCELLANEOUS A. Reference to and Effect on the Supply Agreement. (i) Each reference in the Supply Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Supply Agreement, and each reference in the Loan Documents (as defined in the Credit Agreement) to the "Supply Agreement", "thereunder", "thereof" or words of like import referring to the Supply Agreement shall mean and be a reference to the Supply Agreement as amended by this Amendment. (ii) Except as specifically amended by this Amendment, the Supply Agreement shall remain in full force and effect and are hereby ratified and confirmed. B. COSTS AND EXPENSES. The Horizon covenants to pay to or reimburse McKesson, upon demand, for all costs, out-of-pocket expenses and reasonable attorneys' fees expended or incurred by McKesson in connection with the development, preparation, negotiation, execution and delivery of this Amendment and the documents and transactions contemplated hereby. C. HEADINGS. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. D. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. E. COUNTERPARTS. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by a party of a facsimile transmitted document purportedly bearing the signature of the other party shall bind the other party with the same force and effect as the delivery of a hard copy original. Any failure by a party to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the other party. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. HORIZON PHARMACIES, INC. By: /s/ Ricky D. McCord --------------------------------------------- Title: CEO & President ------------------------------------------ McKESSON HBOC, INC. By: /s/ Alan Pearce --------------------------------------------- Title: Senior Vice President Financial Services ------------------------------------------ 2 EX-10.4 12 EXHIBIT 10.4 SECURITIES PURCHASE AGREEMENT BY AND AMONG HORIZON PHARMACIES, INC. AND THE SEVERAL PURCHASERS NAMED IN SCHEDULE I DATED AS OF JUNE 15, 1998
TABLE OF CONTENTS Page ---- ARTICLE I DEFINITIONS.....................................................................................1 ARTICLE II PURCHASE AND SALE OF SECURITIES.................................................................2 ARTICLE III SECURITIES PURCHASE AGREEMENT...................................................................2 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS................................................4 ARTICLE V PURCHASERS' CONDITIONS TO CLOSING...............................................................4 ARTICLE VI COMPANY CONDITIONS TO CLOSING...................................................................5 ARTICLE VII MISCELLANEOUS...................................................................................5
SCHEDULES: - ---------- Schedule I - Purchasers Schedule II - Financial Statements ANNEXES: - -------- Annex "A" - Warrant Annex "B" - Registration Rights Agreement SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of June 15, 1998, by and among HORIZON Pharmacies, Inc., a Texas corporation (the "Company"), and the several purchasers named in the attached Schedule I (collectively, the "Purchasers"). WITNESSETH WHEREAS, the Company wishes to sell and issue to the Purchasers for an aggregate purchase price of $7,000,000, 736,838 shares of Common Stock (as hereinafter defined) at a price of $9.50 per share, and 41,000 Warrants (as hereinafter defined) at a price of $.001 per share (collectively, the "Securities"); and WHEREAS, the Purchasers wish to purchase the Securities on the terms and subject to the conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein, the parties agree as follows: ARTICLE I DEFINITIONS For purposes hereof, the following terms shall have the meanings set forth below: 1.01 "ARTICLES OF INCORPORATION" shall have the meaning given such term in Section 3.02. 1.02 "AUDITED BALANCE SHEET" shall have the meaning given such term in Section 3.05. 1.03 "BEST KNOWLEDGE" or "BEST OF ITS KNOWLEDGE" shall mean the due inquiry of the person making such statement of its officers, directors and appropriate employees and advisors who would reasonably be anticipated to have knowledge of such matter. 1.04 "CLOSING" shall have the meaning set forth in Section 2.02. 1.05 "CLOSING DATE" shall be the date of the Closing, which will be held at such time or times as provided in Section 2.02. 1.06 "COMMISSION" shall mean the Securities and Exchange Commission. 1.07 "COMMON STOCK" shall mean the common stock of the company, par value $0.01 per share. 1.08 "COMPANY" shall mean HORIZON Pharmacies, Inc., a Texas corporation. 1.09 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. 1.10 "FINANCIAL STATEMENTS" shall have the meaning given such term in Section 3.05. 1.11 "PERSON" shall mean an individual, corporation, trust, partnership, joint venture, unincorporated organization, government agency or any agency or political subdivision thereof, or other entity. 1.12 "PURCHASERS" shall have the meaning given in the preamble to this Agreement. 1.13 "SEC REPORTS" shall have the meaning given such term in Section 3.06. 1.14 "SECURITIES" shall mean the Common Stock and Warrants to be purchased by the Purchasers. 1.15 "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. 1.16 "WARRANTS" shall mean warrants to purchase shares of the Common Stock on the terms set forth herein. ARTICLE II PURCHASE AND SALE OF SECURITIES 2.01 SALE OF SECURITIES. Subject to all of the terms and conditions herein stated, the Company agrees to sell, assign, transfer and deliver to the Purchasers and the Purchasers agree to purchase from the Company on the Closing Date, the Securities at an aggregate purchase price of $7,000,000. 2.02 TERMS OF WARRANTS. Each Warrant shall entitle the Purchasers to purchase one share of Common Stock at a purchase Price of $9.50 per share, upon terms and conditions substantially the same as those set forth in the Warrant attached hereto as Annex "A." 2.03 CLOSING. The closing of the sale (the "Closing") referred to in Section 2.01 of this Agreement shall take place at 1:00 p.m. at the offices of Phillips McFall McCaffrey McVay & Murrah, P.C. 211 N.Robinson, 12th Floor, Oklahoma City, Oklahoma 73102, on June 15, 1998 (the "Closing Date"), or at such time or place as the parties hereto shall by written instrument designate. 2.04 CLOSING DELIVERIES. At Closing, the Company shall issue and deliver to the Purchasers certificates in definitive form registered in the name of such Purchasers and representing the Common Stock and Warrants. As payment in full for the Securities, and against delivery of the certificates therefor as aforesaid, on the Closing Date each of the Purchasers shall: (i) deliver to the Company a check, payable to the order of HORIZON Pharmacies, Inc. in the amount set forth opposite the name of such Purchaser on Schedule 1, (ii) transfer such sum to the account of the Company by wire transfer; or (iii) deliver or transfer such sum to the Company by any combination of such methods of payments. 2.05 BROKERS' FEE. The Company agrees to pay at Closing and out of the proceeds of the sale of the Securities hereunder, to any broker agreed upon by the parties, a brokers' fee of no more than $150,000. 2.06 REGISTRATION RIGHTS. At the Closing, the Company and each Purchaser shall enter into a Registration Rights Agreement having substantially the terms set forth in Appendix "B" attached hereto. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY 3.01 ORGANIZATION AND QUALIFICATIONS. The Company (i) has been duly incorporated, and is validly existing as a corporation in good standing under the laws of the jurisdiction of its organization; and (ii) is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the ownership or leasing of its properties or the conduct of its business requires such qualification except where the failure to be so qualified or to be in good standing would not have a material adverse effect on the Company's condition (financial or otherwise), earnings, operations, business or business prospects. 3.02 AUTHORIZATION. The execution and delivery by the Company of this Agreement and the performance by the Company of its obligations hereunder, including but not limited to the execution and delivery by the Company of the Warrant and the Registration Rights Agreement and the issuance, sale and delivery of the Securities, have been duly authorized by all requisite corporate action and will not violate any provision of law, any order of any court or other agency of government, the Articles of Incorporation of the Company, as amended (the "Articles of Incorporation"), or the Bylaws of the Company, as amended, or any provision of any indenture, agreement or other instrument to which the Company or any of its properties or assets is bound, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such Indenture, agreement or other instrument, or result in the creation or 2 imposition of any lien, charge, restriction, claim or encumbrance of any nature whatsoever upon any of the properties or assets of the Company. 3.03 VALIDITY. This Agreement, the Warrant and the Registration Rights Agreement have been duly exercised and delivered by the Company and constitute the legal, valid and binding obligations of the company, enforceable in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization and moratorium laws and other laws affecting enforcement of creditors' rights generally and by general principles of equity. 3.04 AUTHORIZED CAPITAL STOCK. The authorized capital stock of the Company consists of (i) 14,000,000 shares of Common Stock, $.01 par value, of which 4,517,387 shares were outstanding at June 1, 1998; and (ii) 1,000,000 shares of Preferred Stock, none of which were outstanding immediately prior to Closing. The designations, powers, preferences, rights qualifications, limitations and restrictions in respect of each class and series of authorized capital stock of the Company are as set forth in the Articles of Incorporation and all such designations, powers, preferences, rights, qualifications, limitations and restrictions are valid, binding and enforceable and in accordance with all applicable laws. Upon receipt of payment for the Securities, such Securities will be validly issued, fully paid and nonassessable and shall not be subject to any preemptive rights. 3.05 FINANCIAL STATEMENTS. The Company has furnished to the Purchasers the audited consolidated balance sheet (the "Audited Balance Sheet") of the Company as of December 31, 1997 and the related audited consolidated statements of income, shareholders' equity and cash flows of the Company for the years ended December 31, 1996 and 1997, and the unaudited consolidated balance sheet of the Company as of March 31, 1998 and the related unaudited consolidated statements of income, shareholders' equity and cash flows of the Company for the three months ended March 3, 1998 (collectively, the "Financial Statements"). All such Financial Statements have been prepared in accordance with generally accepted accounting principles consistently applied (except that such unaudited financial statements do not contain all of the required footnotes) and fairly present the financial position of the Company as of December 31, 1996 and 1997, respectively, and the results of the company's operations and cash flows for the years ended December 31, 1996 and 1997 and the three months ended March 31, 1998, respectively. 3.06 NO MATERIAL MISREPRESENTATIONS. The Company has filed all reports (the "SEC Reports") required to be filed under the Exchange Act, and the SEC Reports, as of their respective dates, contained no untrue statement of a material fact or omission? to state a material fact necessary in order to make the statement made therein, in light of the circumstances under which they were made, not misleading. None of the written statements, documents or certificates delivered to the Purchasers in connection with the transactions contemplated hereby contains an untrue statement of a material fact or omits a material fact necessary to make the statements contained therein not misleading. There is no fact which the Company has not disclosed to the Purchasers of which the Company is aware which materially and adversely affects or could materially and adversely affect the business, prospects, financial conditions, operations, property or affairs of the Company. Except as disclosed on the Company's quarterly report on Form 10-QSB for the period ended March 31, 1998, there have been no material developments with the Company since December 31, 1997. 3.07 RECORD DATE. Since April 7, 1998, the record date for the Company's annual meeting of shareholders, the Company has not established any record date for a dividend or other corporate action, and the Company will not establish such a record date as of a date prior to the date each Purchaser becomes a recordholder of the Securities. 3.08 FIRPTA. Collectively, the Company and its subsidiary are not a "United States real property holding corporation" within the meaning of Section 897(c)(2) of the Internal Revenue Code of 1986, as amended. 3.09 NO RESTRICTIONS. There are no restrictions in the Company's Articles of Incorporation or Bylaws, nor any contractual restrictions or other legal restrictions that would adversely affect any Purchaser in any manner different from any other security holder of the Company which owns less than 15% of the total number of shares of Common stock outstanding. 3 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS 4.01 SUITABILITY. Each Purchaser represents and warrants to the Company that: (a) it is an "accredited investor" within the meaning of Rule 501 under the Securities Act and was not organized for the specific purpose of acquiring the Securities or an investment company as defined in the Investment Company Act of 1940, as applicable; (b) it has sufficient knowledge and experience in investing in companies similar to the Company in forms of the Company's stage of development so as to be able to evaluate the risks and merits of an investment in the Securities and is able financially to bear the risks thereof; (c) it has had access to the SEC Reports and has been provided an opportunity to discuss the Company's business, management and financial affairs with the Company's management; (d) the Securities being issued to it are being acquired for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof in violation of the Securities Act; and (e) it understands that (i) the Securities have not been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under the Securities Act; (ii) the Securities must be held a minimum of one year unless a settlement disposition thereof is registered under the Securities Act or is exempt from such registration; (iii) the Securities will bear a legend to such effect; and (iv) the Company will make a notation on its transfer books to such effect. ARTICLE V PURCHASERS' CONDITIONS TO CLOSING The obligation of each Purchaser to purchase the Securities under Article II is, at its option, subject to the satisfaction, on or before the Closing Date of the following conditions: 5.01 DOCUMENTS AND PROCEEDINGS. All documents and instruments to be delivered by the Company and all corporate and other proceedings in connection with this transaction shall have been so delivered and performed and shall be reasonably satisfactory to the Purchasers and their legal counsel. 5.02 REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The representations and warranties contained in Article III shall be true, complete and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date. 5.03 PERFORMANCE. The Company shall have performed and complied with all agreements contained herein required to be performed or complied with by it prior to or at the Closing Date. 5.04 SIMULTANEOUS TRANSACTIONS. The obligations of each of the Purchasers hereunder are subject to all of the transactions contemplated hereby closing automatically. 4 ARTICLE VI COMPANY CONDITIONS TO CLOSING The obligations of the Company to consummate the Closing hereunder and sell the Securities shall be subject to the satisfaction at or before the Closing of the following conditions: 6.01 DOCUMENTS AND PROCEEDINGS. All documents and instruments to be delivered by the Purchasers and all corporate and other proceedings in connection with this transaction shall have been so delivered and performed and shall be reasonably satisfactory to the Company and its legal counsel. 6.02 PERFORMANCE OF AGREEMENT. The Purchasers shall have performed and complied with all agreements contained herein required to be performed or complied with by them prior to or at the Closing Date. 6.03 REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The representations and warranties of the Purchasers contained in Article IV of this Agreement shall be true, complete and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date. ARTICLE VII MISCELLANEOUS 7.01 EXPENSES. Except as provided in Section 2.05(d), each party hereto will pay its own expenses in connection with the transactions contemplated hereby, whether or not such transactions shall be consummated. 7.02 SURVIVAL OF AGREEMENTS. All covenants, agreements, representations and warranties made herein or in any instrument delivered to the Purchasers pursuant to or in connection with this Agreement shall survive the execution and delivery of this Agreement, the issuance, sale and delivery of the Securities, and all statements contained in any instrument delivered by the Company hereunder or thereunder or in connection herewith or therewith shall be deemed to constitute representations and warranties made by the Company. 7.03 PARTIES IN INTEREST. All representations, covenants and agreements contained in this Agreement by or on behalf of either of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. Without limiting the generality of the foregoing, all representations, covenants and agreements benefiting the Purchasers shall inure to the benefit of any and all subsequent holders from time to time of the Securities. 7.04 NOTICES. All notices, requests, consents and other communications hereunder shall be in writing and shall be delivered in person, mailed by certified or registered mail, return receipt requested or sent by telecopier or telex, addressed as follows: (a) if to the Company, at 275 West Princeton Drive, Princeton, Texas 75407, Attention: Ricky D. McCord, President, with a copy to B. Kay Carol, Esq., Phillips McFall McCaffrey McVay and Murrah, P.C., 211 North Robinson, 12th Floor, Oklahoma City, Oklahoma 73102?; and (b) if to the Purchasers, c/o White Rock Capital, Inc., at 3131 Turtle Creek Blvd., Suite 100, Dallas, Texas 75210?; or, in any such case, at such other address or addresses as shall have been furnished in writing by such party to the other. 7.05 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas; 5 7.06 ENTIRE AGREEMENT. This Agreement, including the Schedules hereto, constitutes the sale and entire agreement of the parties with respect to the subject matter hereof. All Schedules are hereby incorporated herein by reference. 7.07 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same counterpart. 7.08 AMENDMENTS. This Agreement may not be amended or modified, and no provisions hereof may be waived, without the written consent of the Company. 7.09 SEVERABILITY. If any provision of this Agreement shall be declared void or unenforceable by any judicial or administrative authority, the validity of any other provision and of the entire Agreement shall not be affected thereby. 7.10 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are for convenience only and are not to be considered in construing or interpreting any term or provision of this Agreement. 6 IN WITNESS WHEREOF, the Company and each of the Purchasers have executed this Agreement as of the day and year first above written. COMPANY: HORIZON PHARMACIES, INC., a Texas corporation By: /s/ Ricky D. McCord ----------------------------------- Ricky D. McCord, President PURCHASER: QUANTUM PARTNERS INC. By: ----------------------------------- Joseph V. Barton COLLINS CAPITAL DIVERSIFIED FUND, L.P. By: ----------------------------------- Joseph V. Barton WHITE ROCK CAPITAL PARTNERS, L.P. By: ----------------------------------- Joseph V. Barton WHITE ROCK CAPITAL OFFSHORE, LTD. By: ----------------------------------- Joseph V. Barton LEGION STRATEGIES LIMITED By: ----------------------------------- Joseph V. Barton CAXTON INTERNATIONAL LIMITED By: ----------------------------------- Joseph V. Barton WHITEROCK CAPITAL MANAGEMENT, L.P. By: ----------------------------------- Joseph V. Barton 7
SCHEDULE I PURCHASERS NUMBER OF NUMBER OF AGGREGATE PURCHASER SHARES WARRANTIES PURCHASE PRICE --------- ------ ---------- -------------- Quantum Partners LDC 206,300 11,500 $1,959,860 White Rock Capital Partners, L.P. 117,900 6,600 1,120,060 White Rock Capital Offshore, Ltd. 184,300 10,000 1,750,860 Canton International Limited 116,000 6,400 1,083,000 Legion Strategies Limited 81,200 4,500 771,400 White Rock Capital Management, L.P. (#10) 11,138 700 105,820 Collins Capital Diversified Fund, L.P. 22,000 1,300 209,000 -------- -------- ------------ Total 736,838 41,000 $7,000,000
SCHEDULE II FINANCIAL STATEMENTS Attached. ANNEX "A" WARRANT ANNEX "B" REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into this 15th day of June, 1998, by and among HORIZON Pharmacies, Inc., a Texas corporation (the "Corporation"), and Quantum Partners LDC, Collins Capital Diversified Fund, L.P., White Rock Capital Partners, L.P., White Rock Capital Offshore, Ltd., Legion Strategies Limited Caxton International Limited and White Rock Capital Management, L.P. (#10) (collectively, the "Selling Shareholders"). W I T N E S S E T H: WHEREAS, the Selling Shareholders have agreed to purchase an aggregate 736,838 shares (the "Shares") of the Corporation's common stock, $.01 par value (the "Common Stock"), and an aggregate 41,000 Common Stock purchase warrants (the "Warrants") pursuant to that certain Securities Purchase Agreement of even date herewith (the "Securities Purchase Agreement"), by and among the Corporation and the Selling Shareholders; and WHEREAS, pursuant to the terms of the Securities Purchase Agreement, the Corporation has granted to the Selling Shareholders certain registration rights with regard to the Securities; NOW, THEREFORE, for and in consideration of the premises, the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "COMMISSION" shall mean the Securities and Exchange Commission, or any other Federal agency at the time administering the Securities Act. "COMMON STOCK" shall mean the Corporation's common stock, $.01 par value, as constituted as of the date of this Agreement. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "REGISTRABLE SHARES" shall mean the Shares and/or Warrant Shares, as the context requires. "REGISTRATION EXPENSES" shall mean the expenses as described in Section 4. "SHARES" shall have the meaning set forth in the recitals hereto and as adjusted for events under Section 6, but excluding Shares which have been (a) registered under the Securities Act pursuant to an effective registration statement filed thereunder and disposed of in accordance with the registration statement covering them; or (b) publicly sold pursuant to Rule 144 under the Securities Act. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "SELLING EXPENSES" shall mean the expenses so described in Section 4. "SELLING SHAREHOLDERS" shall have the meaning set forth in the preamble to this Agreement. "WARRANTS" shall have the meaning set forth in the recitals hereto and as adjusted for events under Section 6. "WARRANT SHARES" shall have the meaning given such term in Section 2. 2. REQUIRED REGISTRATION. (a) The Corporation shall promptly within 75 days following the date of this Agreement, file a registration statement on Form S-3 under the Securities Act for all of the Shares held by the Selling Shareholders, on the terms set forth herein. The Corporation shall be obligated to register Shares pursuant to this Section 2(a) on one occasion only; provided, however, that such obligation shall be deemed satisfied only when a registration statement covering all such Shares shall have become and remain effective as contemplated in Section 3(a). 3. REGISTRATION PROCEDURES. For any registration statement the Corporation is required to file under Section 2 above, the Corporation will: (a) prepare and file with the Commission a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective until such time as all Shares (and Warrant Shares, as applicable) have been sold under such registration statement or may be freely sold in the public market without registration in reliance upon Rule 144(k); (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for the period specified in paragraph (a) above and comply with the provisions of the Securities Act with respect to the disposition of all Registrable Shares covered by such registration statement in accordance with the Selling Shareholders' intended method of disposition set forth in such registration statement for such period. (c) furnish to the Selling Shareholders and to each underwriter such number of copies of the registration statement and the prospectus included therein (including such preliminary prospectus) as such persons reasonably may request in order to facilitate the public sale or other disposition of the Registrable Shares covered by such registration statement; (d) use its best efforts to register or qualify the securities covered by such registration statement under the securities or "blue sky" laws of such jurisdictions as the Selling Shareholders provided, however, that the Corporation shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; (e) use its best efforts to list the Registrable Shares covered by such registration statement with any securities exchange on which the Common Stock of the corporation is then listed; (f) immediately notify the Selling Shareholders at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event of which the Corporation has knowledge as a result of which the prospectus contained in such registration statement, as then in effect, includes an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and use its best efforts to prepare and file post-effective amendment(s) to such prospectus disclosing the occurrence of such event and correcting such untrue or misleading statement; and (g) make available for inspection by the Selling Shareholders and any attorney, accountant or other agent retained by the Selling Shareholders all financial and other records, pertinent corporate documents and properties of the Corporation and cause the Corporation's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement. In connection with each registration hereunder, the Selling Shareholders will furnish to the Corporation in writing such information with respect to them and the proposed distribution by them as reasonably shall be necessary in order to assure compliance with Federal and applicable state securities laws. 4. EXPENSES. All expenses incurred by the Corporation in complying with Section 3 including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Corporation, fees and expenses (including counsel fees) incurred in connection with complying with state securities or "blue sky" laws, fees of the National Association of Securities Dealers, Inc., transfer taxes, fees of 2 transfer agents and registrars ad costs of insurance, but excluding any Selling Expenses, are called "Registration Expenses." The Corporation will pay all Registration Expenses in connection with such registration statement under Section 3. all Selling Expenses in connection with each registration statement under Section 3 shall be borne by the Selling Shareholders in proportion to the number of Registrable Shares sold by them to the number of shares sold by participating sellers other than the Corporation (except to the extent the Corporation shall be a seller) as they may agree. 5. INDEMNIFICATION AND CONTRIBUTION. (a) In the event of a registration of any of the Registrable Shares under the Securities Act pursuant to Section 3, the Corporation will indemnify and hold harmless the Selling Shareholders, each underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such seller, underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Registrable Shares was registered under the Securities Act pursuant to Section 3, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading and will reimburse the Selling Shareholders, each such underwriter and each such controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, that the Corporation will not be liable in any such case if and to the extent that any such loss, claim damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by the Selling Shareholders, any such underwriter or any such enrolling person in writing specifically for use in such registration statement or prospectus. (b) In the event of a registration of any of the Registrable Shares under the Securities Act pursuant to Section 3, the Selling Shareholders will indemnify and hold harmless the Corporation, each person, if any, who controls the corporation within the meaning of the Securities Act, each officer of the Corporation who signs the registration statement, each director of the Corporation, each underwriter and each person who controls any underwriter within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Corporation or such officer, director, underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such leases, claims damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such securities were registered under the Securities Act pursuant to Section 3, any preliminary prospectus or fiscal prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Corporation and each such officer, director, underwriter and controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, that the Selling Shareholders will be liable hereunder in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information pertaining to the Selling Shareholders, as sellers, furnished in writing to the Corporation by the Selling Shareholders specifically for use in such registration statement or prospectus, and provided, further, however, that the liability of the Selling Shareholders hereunder shall be limited to the proportion of any such loss, claim, damage, liability or expenses which is equal to the proportion that the public offering price of the shares sold by the Selling Shareholders under such registration statement bears to the total public offering price of all securities from the sale of the Registrable Shares covered by such registration statement. (c) Promptly after receipt by the indemnified party of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to such indemnified party other than under this Section 5 and shall only relieve it from any liability which it may have to such indemnified party under this Section 5 if and to the extent the indemnifying party is prejudiced by such omission. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such indemnified party, 3 and, after notice form the indemnifying party to such indemnified party of its election so to assure and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 5 for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected, provided, however, that, if the defendants in any such action included both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the indemnifying party or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified party shall have the right to select a separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred. (d) In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) the Selling Shareholders, or any controlling person thereof, makes a claim for indemnification pursuant to this Section 5 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to approve or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 5 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of the Selling Shareholder or pay such controlling person in circumstances for which indemnification is provided under this Section 5; then, and in each such case, the Corporation and the Selling Shareholders will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that the Selling Shareholders are responsible for the portion represented by the percentage that the public offering price of their Shares offered by the registration statement bears to the public offering price of all securities offered by such registration statement, and the Corporation is responsible for the remaining portion; provided, however, that, in any such case, (A) the Selling Shareholders will not be required to contribute any amount in excess of the public offering price of all such Registrable Shares offered by it pursuant to such registration statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. 6. CHANGES IN CAPITAL STOCK. If, and as often as, there is any change in the Common Stock of the Corporation by way of a stock split, stock dividend, combination or reclassification, or through a merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions hereof so that the rights and privileges granted hereby shall continue with respect to the Common Stock as so changed. 7. RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Registrable Shares to the public without registration, at all times after 90 days after any registration statement covering a public offering of securities of the Corporation under the Securities Act shall have become effective, the Corporation agrees to: (a) take and keep public information available, as those terms are understood and defined in Rule 144 and under the Securities Act; (b) use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Corporation under the Securities Act and the Exchange Act; and (c) furnish to the Selling Shareholders forthwith upon request a written statement by the Corporation as to its compliance with the reporting requirements of such Rule 144 and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Corporation, and rush other reports and documents so filed by the Corporation as such holder may reasonably request in availing itself of any rule or regulations of the Commission allowing the Selling Shareholders to sell any securities without registration. 8. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION. The Corporation represents and warrants to the Selling Shareholders as follows: (a) The execution, delivery and performance of this Agreement by the Corporation have been duly authorized by all requisite corporate action and will not violate any provisions of law, any order of any court or other agency of government, the Articles of Incorporation or Bylaws of the Corporation or any provision of any 4 indenture, agreement or other instrument to which it or any of its properties or assets is bound, conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument or result in the creation or imposition of any lien, charge of encumbrance of any nature whatsoever upon any of the properties or assets of the Corporation. (b) This Agreement has been executed and delivered by the Corporation and constitutes the legal, valid and binding obligation of the Corporation, enforceable in accordance with its terms. 9. MISCELLANEOUS. (a) All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including without limitation transferees of any Shares or Warrant Shares), whether so expressed or not (b) Any notice relating to this Agreement shall be deemed sufficiently given and served for all purposes if given by a telegram filed, charges prepaid, or a writing deposited in the United States mail, postage prepaid and registered or certified within the Continental United States, addressed as follows: If to the Corporation: Horizon Pharmacies, Inc. Attention: Ricky D. McCord, President 275 W. Princeton Drive Princeton, Texas 75207 with copies to: Phillips McFall McCaffrey McVay & Murrah, P.C. Attention: B. Kay Carrol, Esq. 12th Floor, 211 N. Robinson Oklahoma City, Oklahoma 73102 If to the Selling Shareholders: c/o White Rock Capital, Inc. 3131 Turtle Creek Blvd. Suite 800? Dallas, Texas 75219 Any notice so duly sent by mail shall be deemed given two (2) days after deposit in a proper governmental mailing facility and nay notice given by telegram shall be deemed given on the day such notice is delivered to the telegram company, charges paid. (c) This Agreement shall be governed by and construed in accordance with the laws of the State of Texas. (d) This Agreement may not be amended or modified, and no provisions hereof may be waived, without the written consent of the Corporation and the Selling Shareholders. (e) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. (f) Notwithstanding the provisions of Section 3(a), the Corporation's obligation to file a registration statement, or cause such registration statement to become and remain effective, shall be suspended for a 5 period not to exceed 60 days in any 24-month period if there exists at the time material non-public information relating to the Corporation which, in the reasonable opinion of the Corporation, should not be disclosed. (g) The Corporation shall not grant to any third party any registration rights more favorable than or inconsistent with any of those contained herein, so long as any of the registration rights under this Agreement remain in effect. (h) If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provisions of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first written above. CORPORATION: HORIZON PHARMACIES, INC., a Texas corporation By: ----------------------------------- Ricky D. McCord, President SELLING SHAREHOLDERS: QUANTUM PARTNERS INC. By: ----------------------------------- COLLINS CAPITAL DIVERSIFIED FUND, L.P. By: ----------------------------------- WHITE ROCK CAPITAL PARTNERS, L.P. By: ----------------------------------- WHITE ROCK CAPITAL OFFSHORE, LTD. By: ----------------------------------- LEGION STRATEGIES LIMITED By: ----------------------------------- 6 CAXTON INTERNATIONAL LIMITED By: ----------------------------------- WHITEROCK CAPITAL MANAGEMENT, L.P. (#10) By: ----------------------------------- 7 EX-10.8 13 EXHIBIT 10.8 THIRD AMENDMENT TO CREDIT AGREEMENT AND LIMITED WAIVER This THIRD AMENDMENT TO CREDIT AGREEMENT AND LIMITED WAIVER (this "AMENDMENT") is dated as of May 14, 1999 between HORIZON Pharmacies, Inc., a Delaware corporation ("BORROWER"), and McKesson HBOC, Inc., a Delaware corporation formerly known as McKesson Corporation ("MCKESSON"). RECITALS WHEREAS, Borrower and McKesson are parties to that certain Credit Agreement dated as of July 2, 1998, as amended by a First Amendment to Credit Agreement dated as of July 20, 1998 and a Second Amendment to Credit Agreement dated as of August 26, 1998 (as so amended, the "CREDIT AGREEMENT"). Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. WHEREAS, Borrower has requested that McKesson consent to the amendment or waiver of certain covenants and other provisions set forth in the Credit Agreement, and McKesson is willing to do so upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the promises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT A. The Credit Agreement is hereby amended to add a new Section 1.9 to read as follows: SECTION 1.9 GUARANTY OF BANK FACILITY. If requested by Borrower, McKesson will provide a guaranty to Bank One (the "McKesson Guaranty") of up to $7,000,000 of indebtedness under an unsecured revolving credit facility from Bank One to Borrower not in excess of $7,000,000 (the "Bank One Facility"), subject to McKesson's reasonable approval of the form of McKesson Guaranty and related documentation. If the McKesson Guaranty is issued by McKesson, the figure "$15,000,000" in Section 1.1(a) and in clause (i) of Section 1.8 above shall be reduced by the maximum amount of the McKesson Guaranty. As a condition to McKesson's issuing the McKesson Guaranty, Borrower shall execute and deliver to McKesson an Indemnification Agreement substantially in the form of Exhibit J hereto (the "Indemnification 1. Agreement") and the Security Documents shall be amended as appropriate so that Borrower's obligations under the Indemnification Agreement are secured under the terms of the Security Documents. If the McKesson Guaranty is issued by McKesson, Borrower agrees to pay to McKesson a guaranty fee on the maximum dollar amount guaranteed under the McKesson Guaranty at a rate per annum equal to the Guaranty Fee Amount, payable quarterly in arrears on the last Business Day of each calendar quarter (commencing on the first such date after the McKesson Guaranty is issued) and on the date the McKesson Guaranty is released or otherwise terminated in accordance with its terms. B. Section 2.3(b)(i) of the Credit Agreement is hereby amended by changing the figure of "$5,000,000" therein to "$8,000,000." C. The Credit Agreement is hereby amended by adding a new Section 4.3 to read as follows: SECTION 4.3 CONDITIONS PRECEDENT TO LOANS AFTER APRIL 1, 1999. The obligation of McKesson to make any Loan on or after April 1, 1999 shall be subject to (a) McKesson's approval, which shall be in McKesson's sole discretion, of Borrower's twelve month profitable operating plan for the twelve months commencing January 1, 1999; (b) The Warrant Purchase Agreement shall have been amended and restated substantially in the form of Exhibit K hereto; (c) Borrower shall have issued to McKesson a new Warrant under the Warrant Purchase Agreement (as amended pursuant to clause (b) above) for 101,500 shares of Borrower's Common Stock with an exercise price of $5.71 per share in exchange for the cancellation of the Warrant issued under the Warrant Purchase Agreement on July 2, 1998; (d) Borrower shall have issued to McKesson a Warrant for 100,000 shares of Borrower's Common Stock in addition to those described in clause (c) above but upon the same terms and conditions as those described in clause (c) above; and (e) Upon or promptly after McKesson's notice to Borrower that the condition in clause (a) above has been met (the "Approval Notice"), Borrower shall have issued a Warrant for 50,000 shares of Borrower's Common Stock with an exercise price per share equal to the average closing price on the American Stock Exchange of Borrower's Common Stock for the five Business Day period commencing on the date on which McKesson gives the Approval Notice and with a termination date on the tenth anniversary of the date of the Approval Notice. 2. D. Section 5.3(e) of the Credit Agreement is hereby amended and restated as follows: (e) by the twentieth day of each calendar month, a completed Borrowing Base Certificate as of the last day of the preceding calendar month duly executed by the Treasurer or Chief Financial Officer of Borrower; PROVIDED, HOWEVER, that, notwithstanding the foregoing, effective 30 days after the date on which Borrower has installed the McKesson Pharmacy Systems Multi-Site Back Office System ("Host System"), Borrower shall deliver each such completed Borrowing Base Certificate duly executed by the Treasurer or Chief Financial Officer of Borrower by no later than the tenth day of each calendar month; E. Section 5.3 of the Credit Agreement is hereby further amended by adding a new clause (g) at the end thereof to read as follows: (g) Within 45 days after the end of each fiscal quarter, an inventory report as to the pharmaceutical inventory of Borrower and its Subsidiaries as of the end of such fiscal quarter. F. Section 6.1(a) of the Credit Agreement is hereby amended by adding the word "Permitted" before "Acquisition" in clause (ii) thereof. G. Section 6.9(d) of the Credit Agreement is amended by adding the word "Permitted" before "Acquisition" in the last line thereof. H. Section 8.1 of the Credit Agreement is amended by adding the following definitions in appropriate alphabetical order: "BANK ONE FACILITY" has the meaning set forth in Section 1.9. "GUARANTY FEE AMOUNT" means, on any date, a rate per annum (greater than zero) equal to the difference between (i) the rate of interest that would apply to the principal amount of the Loans outstanding hereunder on such date (regardless of whether any such amounts are then outstanding hereunder) MINUS (ii) the rate of interest that would apply to the principal amount of indebtedness outstanding under the Bank One Facility on such date (regardless of whether any such amounts are then outstanding under the Bank One Facility). "INDEMNIFICATION AGREEMENT" has the meaning set forth in Section 1.9. "MCKESSON GUARANTY" has the meaning set forth in Section 1.9. I. The definition of "Loan Documents" in Section 8.1 of the Credit Agreement is amended to add ", the Indemnification Agreement" after "the Warrant Documents." 3. J. The definition of "Permitted Acquisition" in Section 8.1 of the Credit Agreement is amended by inserting after the word "Borrower" in the first line thereof the following: (and, if after April 30, 1999, approved in writing by McKesson) K. The definition of "Permitted Guaranty" in Section 8.1 of the Credit Agreement is amended by adding the word "Permitted" before "Acquisition" in the last line thereof. L. The definition of "Seller" in Section 8.1 of the Credit Agreement is amended by adding the word "Permitted" before "Acquisition" wherever that word appears in such definition. M. Section 9.2(a) of the Credit Agreement is amended and restated as follows: If to Borrower: HORIZON Pharmacies, Inc. 501 West Main Street Denison, TX 75020 Attn: Chief Financial Officer Facsimile: (903) 465-6769 with a copy to: Jay H. Hebert, Esq. Vinson & Elkins 2001 Ross, Suite 3700 Dallas, TX 75201 Facsimile: (214) 999-7745 N. The Credit Agreement is hereby amended to add Exhibits J and K attached hereto as Exhibits to the Credit Agreement. SECTION 2. LIMITED WAIVER McKesson hereby gives a limited one-time waiver as to: (a) Borrower's failure to comply with Section 2.3(b)(i) at any time prior to the date of this Amendment; (b) Borrower's failure to comply with the conditions of Section 4.2(d) with regard to any Loan made on or prior to March 31, 1999; (c) Borrower's failure to comply with Section 5.3(d) of the Credit Agreement insofar as Borrower has failed to timely deliver a completed Compliance Certificate for 4. the fiscal year ended December 31, 1998, duly executed by the Treasurer or Chief Financial Officer of Borrower; PROVIDED that Borrower delivers such completed and duly executed Compliance Certificate for the fiscal year ended December 31, 1998, by no later than the Third Amendment Date. (d) Borrower's failure to comply with Section 5.3(e) of the Credit Agreement with regard to the calendar month of April 1999 or any prior calendar month, provided that (i) a completed Borrowing Base Certificate as of the last day of April 1999 duly executed by the Treasurer or Chief Financial Officer of Borrower be delivered to McKesson by no later than May 20, 1999; (e) Borrower's failure to comply with the requirements of Section 5.9(b) of the Credit Agreement with respect to any fiscal quarter ending on or before March 31, 1999; (f) Borrower's failure to comply with the requirements of Section 5.9(f) of the Credit Agreement with respect to any fiscal quarter ending on or before March 31, 1999; (g) Borrower's failure to comply with the requirements of Section 5.9(g) of the Credit Agreement with respect to any fiscal quarter ending on or before December 31, 1998; and (h) The existence of a Material Adverse Change under Section 7.1(j) resulting from the loss of approximately $3,004,000 incurred by Borrower during fiscal quarter ended December 31, 1998, and Borrower's failure to comply with the conditions of Section 4.2(b) and 4.2(c) as a result thereof. SECTION 3. CONDITIONS TO EFFECTIVENESS This Amendment shall become effective as of the first date (the "THIRD AMENDMENT DATE") on or before May 18, 1999 upon which the following conditions have been satisfied: (i) Borrower and McKesson shall have delivered to one another duly executed counterparts of this Amendment; (ii) all the representations and warranties in Section 4 below (after giving effect to any amendments to the Representation Certificate delivered to McKesson prior to the date of this Amendment) shall be true and correct as of the date of this Amendment; (iii) no Default shall have occurred and be continuing on the date of this Amendment (other than Defaults which are not the subject of the limited waiver in Section 2 above which might occur under Section 5.9 of the Credit Agreement with respect to the fiscal quarter ending March 31, 1999, as to which Borrower currently makes no representation and McKesson gives no waiver in this Amendment) or will result from the consummation of this Amendment (after giving effect to this Amendment); 5. (iv) Borrower shall have executed and delivered UCC financing statements satisfactory to McKesson for filing with appropriate officers of the states of Illinois, Indiana and Kansas. (v) Borrower and McKesson shall have executed and delivered to one another the documentation concerning the Amended and Restated Warrant Purchase Agreement and the Warrants described in clauses (b), (c) and (d) of Section 4.3 of the Credit Agreement as added by this Amendment; and (vi) Borrower shall have delivered to McKesson an opinion of counsel, satisfactory to McKesson in form and substance, concerning the Amended and Restated Warrant Purchase Agreement and the Warrants described in clauses (b), (c) and (d) of Section 4.3 of the Credit Agreement as added by this Amendment. When and if this Amendment becomes effective, the amendments set forth in Section 1 shall be deemed effective as of April 14, 1999. SECTION 4. BORROWER'S REPRESENTATIONS AND WARRANTIES In order to induce McKesson to enter into this Amendment, to amend the Credit Agreement in the manner provided herein and to grant the waivers contained herein, Borrower represents and warrants to McKesson that the following statements are true, correct and complete: A. CORPORATE POWER AND AUTHORITY. Borrower has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the "AMENDED AGREEMENT"). B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this Amendment and the performance of the Amended Agreement have been duly authorized by all necessary corporate action on the part of Borrower. C. NO CONFLICT. The execution and delivery by Borrower of this Amendment does not and will not contravene (i) any law or any governmental rule or regulation applicable to Borrower or any of its Subsidiaries, (ii) the Certificate of Incorporation or Bylaws of Borrower, (iii) any order, judgment or decree of any court or other agency of government binding on Borrower or any of its Subsidiaries or (iv) any material agreement or instrument binding on Borrower or any of its Subsidiaries. D. GOVERNMENTAL CONSENTS. The execution and delivery by Borrower of this Amendment and the performance by Borrower of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. 6. E. BINDING OBLIGATION. This Amendment and the Amended Agreement have been duly executed and delivered by Borrower and are the binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except in each case as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors' rights. F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT AGREEMENT. The representations and warranties contained in Article III of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the date of this Amendment to the same extent as though made on and as of such date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. G. ABSENCE OF DEFAULT. No event has occurred and is continuing as of the date of this Amendment (other than Defaults which are not the subject of the limited waiver in Section 2 above which might occur under Section 5.9 of the Credit Agreement with respect to the fiscal quarter ending March 31, 1999, as to which Borrower currently makes no representation and McKesson gives no waiver in this Amendment) or will result from the consummation of the transactions contemplated by this Amendment that would constitute a Default or an Event of Default (as determined after giving effect to the amendments made by this Amendment). H. CASH AND CASH EQUIVALENTS. Borrower would not have been in violation of Section 2.3(b)(i) at any time prior to the date of this Amendment if the figure of "$5,000,000" contained in such section had read "$8,000,000." I. PERMITTED LIENS. Each of the following UCC financing statements evidences a security interest securing only indebtedness permitted under Section 6.9(d) of the Credit Agreement (as amended by this Amendment):
State File No. Secured Party ----- -------- ------------- New Mexico 981102069 Ronald Paynter New Mexico 981207058 Kenn's Pharmacy, Inc. Texas 95001121142 Econo RX, Inc. Texas 9800155379 David DeVido Texas 9800172367 Moore's Home Health Care, Inc. Texas 9800177834 Borger Pharmacy, Inc.
7. UCC Financing Statement 970903045 filed in New Mexico in favor of Checkpoint Financial Services evidences a security interest in connection with a lease permitted by Section 6.9(b) of the Credit Agreement. UCC Financing Statement 9700028567 filed in Texas in favor of Banker's Trust Company evidences a security interest in connection with factoring arrangements with Pharmacy Fund as to which all indebtedness has been paid by Borrower. SECTION 5. RESERVATION OF RIGHTS Borrower acknowledges and agrees that the execution and delivery by McKesson of this Amendment shall not be deemed to create a course of dealing or otherwise obligate McKesson to forebear or execute similar amendments under the same or similar circumstances in the future. SECTION 6. MISCELLANEOUS A. Reference to and Effect on the Credit Agreement and the Other Loan Agreements. (i) On and after the Third Amendment Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. (ii) Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. (iii) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of McKesson under, the Credit Agreement or any of the other Loan Documents nor to create any course of dealing or otherwise obligate McKesson to forebear or execute similar amendments or any waiver in similar circumstances in the future. B. COSTS AND EXPENSES. The Company covenants to pay to or reimburse McKesson, upon demand, for all costs, out-of-pocket expenses and reasonable attorneys' fees expended or incurred by McKesson in connection with the development, preparation, negotiation, execution and delivery of this Amendment and the documents and transactions contemplated hereby. C. HEADINGS. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. D. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE 8. INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. E. COUNTERPARTS. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by a party of a facsimile transmitted document purportedly bearing the signature of the other party shall bind the other party with the same force and effect as the delivery of a hard copy original. Any failure by a party to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the other party. F. RELATION TO APRIL 14 LETTER. This Amendment, among other things, implements the provisions of Section 2 of that certain letter dated April 14, 1999 between Borrower and McKesson (the "April 14 Letter"). In the event of any inconsistency between this Amendment and Section 2 of the April 14 Letter, this Amendment shall govern. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. HORIZON PHARMACIES, INC. By: /s/ John N. Stogner ------------------------------ Title: CFO/Treasurer --------------------------- McKESSON HBOC, INC., FORMERLY KNOW AS McKESSON CORPORATION By: /s/ Alan Pearce ------------------------------ Title: Senior Vice President Financial Services --------------------------- 9. ACKNOWLEDGMENT AND CONSENT OF GUARANTOR The undersigned in its capacity as a guarantor under that certain Guaranty dated as of July 2, 1998 made in favor of McKesson hereby (i) acknowledges and consents to the execution, delivery and performance by Borrower of the foregoing Third Amendment to Credit Agreement and Limited Waiver (the "Amendment"), (ii) acknowledges that the undersigned's consent is being sought purely as a protective measure and understands that the terms of the Credit Agreement dated as of July 2, 1998 may be amended without prior notice to or consent of the undersigned and without discharging or otherwise affecting the liability of the undersigned under the Guaranty, and (iii) reaffirms that it will continue to be bound by all of the provisions of the Guaranty and that such Guaranty will remain in full force and effect notwithstanding the execution and delivery by Borrower of the Amendment referred to above. HORIZON HOME CARE, INC. By: /s/ John N. Stogner ------------------------------ Its: CFO/Treasurer ----------------------------- 10. EX-10.9 14 EXHIBIT 10.9 FOURTH AMENDMENT TO CREDIT AGREEMENT This FOURTH AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is dated as of August 16, 1999 between HORIZON Pharmacies, Inc., a Delaware corporation ("BORROWER"), and McKesson HBOC, Inc., a Delaware corporation formerly known as McKesson Corporation ("MCKESSON"). RECITALS WHEREAS, Borrower and McKesson are parties to that certain Credit Agreement dated as of July 2, 1998, as amended by a First Amendment to Credit Agreement dated as of July 20, 1998, a Second Amendment to Credit Agreement dated as of August 26, 1998 and a Third Amendment to Credit Agreement (the "THIRD AMENDMENT") dated as of May 14, 1999 (as so amended, the "CREDIT AGREEMENT"). Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. WHEREAS, Borrower and McKesson wish to amend certain provisions set forth in the Credit Agreement, upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the promises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT A. Section 1.9 of the Credit Agreement is (as added by the Third Amendment) hereby amended to read in full as follows: SECTION 1.9 GUARANTY OF BANK FACILITY. If requested by Borrower, McKesson will provide a guaranty to Bank One (the "McKesson Guaranty") of up to $7,000,000 of indebtedness under an unsecured revolving credit facility from Bank One to Borrower not in excess of $7,000,000 (the "Bank One Facility"), subject to McKesson's reasonable approval of the form of McKesson Guaranty and related documentation. If the McKesson Guaranty is issued by McKesson, the figure "$15,000,000" in Section 1.1(a) and in clause (i) of Section 1.8 above shall be reduced by the maximum amount of the McKesson Guaranty and clause (ii) of Section 1.1(a) shall be amended by adding at the end thereof: LESS (E) the principal and interest outstanding under the Bank One Facility. 1. As a condition to McKesson's issuing the McKesson Guaranty, Borrower shall execute and deliver to McKesson an Indemnification Agreement substantially in the form of Exhibit J hereto (the "Indemnification Agreement") and the Security Documents shall be amended as appropriate so that Borrower's obligations under the Indemnification Agreement are secured under the terms of the Security Documents. If the McKesson Guaranty is issued by McKesson, Borrower agrees to pay to McKesson a guaranty fee on the maximum dollar amount guaranteed under the McKesson Guaranty at a rate per annum equal to the Guaranty Fee Amount, payable quarterly in arrears on the last Business Day of each calendar quarter (commencing on the first such date after the McKesson Guaranty is issued) and on the date the McKesson Guaranty is released or otherwise terminated in accordance with its terms. B. Section 8.1 of the Credit Agreement as hereby amended by replacing the definition of "Permitted Acquisition" by the following: "PERMITTED ACQUISITION" means the acquisition by a Borrower of a retail pharmacy or pharmacies, durable medical equipment and/or home medical equipment operations, intravenous infusion operations, home healthcare agencies, closed door institutional pharmacies, mail order pharmacies and other pharmaceutical and healthcare related businesses (including in each case, at such Borrower's option, the Rx Files thereof) from an unaffiliated Person or Persons so long as such business is located in the United States; PROVIDED THAT any indebtedness by the Seller to McKesson is either assumed by Borrower or paid as a condition to the closing of the acquisition. C. The Credit Agreement is hereby amended by substituting Exhibit B attached hereto for Exhibit B to the Credit Agreement. SECTION 2. CONDITIONS TO EFFECTIVENESS This Amendment shall become effective as of the first date (the "FOURTH AMENDMENT DATE") on or before August 25, 1999 upon which the following conditions have been satisfied: (i) Borrower and McKesson shall have delivered to one another duly executed counterparts of this Amendment; (ii) all the representations and warranties in Section 3 below (after giving effect to any amendments to the Representation Certificate delivered to McKesson prior to the date of this Amendment) shall be true and correct as of the date of this Amendment; and (iii) no Default shall have occurred and be continuing on the date of this Amendment or will result from the consummation of this Amendment (after giving effect to this Amendment). 2. When and if this Amendment becomes effective, the amendments set forth in Section 1 shall be deemed effective as of the Fourth Amendment Date. SECTION 3. BORROWER'S REPRESENTATIONS AND WARRANTIES In order to induce McKesson to enter into this Amendment, to amend the Credit Agreement in the manner provided herein and to grant the waivers contained herein, Borrower represents and warrants to McKesson that the following statements are true, correct and complete: A. CORPORATE POWER AND AUTHORITY. Borrower has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the "AMENDED AGREEMENT"). B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this Amendment and the performance of the Amended Agreement have been duly authorized by all necessary corporate action on the part of Borrower. C. NO CONFLICT. The execution and delivery by Borrower of this Amendment does not and will not contravene (i) any law or any governmental rule or regulation applicable to Borrower or any of its Subsidiaries, (ii) the Certificate of Incorporation or Bylaws of Borrower, (iii) any order, judgment or decree of any court or other agency of government binding on Borrower or any of its Subsidiaries or (iv) any material agreement or instrument binding on Borrower or any of its Subsidiaries. D. GOVERNMENTAL CONSENTS. The execution and delivery by Borrower of this Amendment and the performance by Borrower of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. E. BINDING OBLIGATION. This Amendment and the Amended Agreement have been duly executed and delivered by Borrower and are the binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except in each case as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors' rights. F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT AGREEMENT. The representations and warranties contained in Article III of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the date of this Amendment to the same extent as though made on and as of such date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. 3. G. ABSENCE OF DEFAULT. No event has occurred and is continuing as of the date of this Amendment or will result from the consummation of the transactions contemplated by this Amendment that would constitute a Default or an Event of Default (as determined after giving effect to the amendments made by this Amendment). SECTION 4. RESERVATION OF RIGHTS Borrower acknowledges and agrees that the execution and delivery by McKesson of this Amendment shall not be deemed to create a course of dealing or otherwise obligate McKesson to forebear or execute similar amendments under the same or similar circumstances in the future. SECTION 5. MISCELLANEOUS A. Reference to and Effect on the Credit Agreement and the Other Loan Agreements. (i) On and after the Fourth Amendment Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. (ii) Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. (iii) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of McKesson under, the Credit Agreement or any of the other Loan Documents nor to create any course of dealing or otherwise obligate McKesson to forebear or execute similar amendments or any waiver in similar circumstances in the future. B. COSTS AND EXPENSES. The Company covenants to pay to or reimburse McKesson, upon demand, for all costs, out-of-pocket expenses and reasonable attorneys' fees expended or incurred by McKesson in connection with the development, preparation, negotiation, execution and delivery of this Amendment and the documents and transactions contemplated hereby. C. HEADINGS. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. D. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE 4. INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. E. COUNTERPARTS. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by a party of a facsimile transmitted document purportedly bearing the signature of the other party shall bind the other party with the same force and effect as the delivery of a hard copy original. Any failure by a party to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the other party. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. HORIZON PHARMACIES, INC. By: /s/ John N. Stogner ------------------------------ Title: CFO/Treasurer --------------------------- McKESSON CORPORATION By: /s/ Lincoln Walworth ------------------------------ Title: Assistant Treasurer --------------------------- 5. ACKNOWLEDGMENT AND CONSENT OF GUARANTOR The undersigned in its capacity as a guarantor under that certain Guaranty dated as of July 2, 1998 made in favor of McKesson hereby (i) acknowledges and consents to the execution, delivery and performance by Borrower of the foregoing Fourth Amendment to Credit Agreement (the "Amendment"), (ii) acknowledges that the undersigned's consent is being sought purely as a protective measure and understands that the terms of the Credit Agreement dated as of July 2, 1998 may be amended without prior notice to or consent of the undersigned and without discharging or otherwise affecting the liability of the undersigned under the Guaranty, and (iii) reaffirms that it will continue to be bound by all of the provisions of the Guaranty and that such Guaranty will remain in full force and effect notwithstanding the execution and delivery by Borrower of the Amendment referred to above. HORIZON HOME CARE, INC. By: /s/ John N. Stogner ----------------------------- Its: CFO/Treasurer ----------------------------- 6. EX-10.10 15 EXHIBIT 10.10 FIFTH AMENDMENT TO CREDIT AGREEMENT This FIFTH AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is dated as of April 14, 2000 between HORIZON Pharmacies, Inc., a Delaware corporation ("BORROWER"), and McKesson HBOC, Inc., a Delaware corporation formerly known as McKesson Corporation ("MCKESSON"). RECITALS WHEREAS, Borrower and McKesson are parties to that certain Credit Agreement dated as of July 2, 1998, as amended by a First Amendment to Credit Agreement dated as of July 20, 1998, a Second Amendment to Credit Agreement dated as of August 26, 1998, a Third Amendment to Credit Agreement dated as of May 14, 1999 and a Fourth Amendment to Credit Agreement dated as of August 16, 1999 (as so amended, the "CREDIT AGREEMENT"). Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. WHEREAS, Borrower and McKesson wish to amend certain provisions set forth in the Credit Agreement, upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the promises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT A. Section 1.1(a) of the Credit Agreement is hereby amended to read in full as follows: REVOLVING LOANS. McKesson agrees, on the terms and conditions hereinafter set forth, to make revolving loans denominated in U.S. Dollars (each a "REVOLVING LOAN" and, collectively, the "REVOLVING LOANS") to Borrower from time to time on any Business Day during the period from the Closing Date until the Revolving Loans Maturity Date, in an aggregate principal amount up to but not exceeding at any time outstanding the Revolving Facility Commitment; PROVIDED, HOWEVER, that immediately after giving effect to any Revolving Loans, the aggregate principal amount of Revolving Loans then outstanding shall not exceed the lesser of (i) $8,000,000 and (ii) at any time, the sum of (without duplication) (A) 70% of Eligible Pharmaceutical Inventory then in effect, PLUS (B) 50% of Eligible Other Inventory then in effect, PLUS (C) 85% of Eligible Insurer Accounts Receivable then in effect, PLUS (D) 50% Eligible Other Accounts Receivable 1 then in effect, PLUS (E) the Eligible Rx Files Value then in effect (except that the Eligible Rx Files Value shall not be included during the calendar year 2000) LESS (F) the principal and interest outstanding under the Bank One Facility. Within the foregoing limits, during such period Borrower may borrow Revolving Loans, repay the Revolving Loans in whole or in part, and reborrow Revolving Loans, all in accordance with the terms and conditions hereof. If the Bank One Facility is not renewed prior to July 1, 2000 and no Event of Default has occurred and is continuing and Borrower is in full compliance with Section 2.3(b)(ii) without regard to the proviso contained therein, then McKesson shall negotiate with Borrower with respect to an amendment of this Agreement to provide for McKesson either (x) guarantying a replacement line of credit for the Bank One Facility or (y) increasing the $8,000,000 limit set forth in clause (i) of the preceding paragraph, in each case with McKesson's total credit exposure under this Agreement and any guaranty of a replacement line of credit not to exceed an amount in excess of $15,000,000, it being understood that both parties reserve the right in their sole discretion to place terms and conditions upon any such amendment. B. Section 2.3(b)(ii) of the Credit Agreement as hereby amended to read in full as follows: If at any time the aggregate principal amount of the outstanding Revolving Loans shall exceed the maximum borrowing limits set forth in Section 1.1(a), Borrower, upon becoming aware of such excess, shall immediately prepay the outstanding principal amount of the Revolving Loans in an amount equal to such excess; provided that any excess amount in existence as of April 6, 2000 shall not need to be prepaid until September 30, 2000, provided that the Borrower shall immediately apply as a mandatory prepayment to any such excess any amount received by Borrower from (x) up to $5,000,000 of the net proceeds of the issuance by Borrower or its Subsidiaries of any debt or equity securities on or after April 6, 2000 and (y) up to $1,500,000 of any funds received from Informed (less amounts received from Informed used to bring Borrower into compliance with the terms of the Supply Agreement as amended on March 30, 2000). C. Section 4.2(d) of the Credit Agreement as hereby amended to read in full as follows: CERTAIN FINANCIAL TESTS. Borrower's ratio of Consolidated EBITDA to Sales as at the last day of the fiscal quarter ended immediately prior to the proposed Loan shall not be less than the ratio set forth opposite such fiscal quarter: 2
FISCAL QUARTER ENDING IN: RATIO ------------------------- ----- any quarter in 1998 .02:1.0 any quarter in 1999 .02:1.0 March 2000 (.015:1.0) June 2000 .01:1.0 September 2000 .03:1.0 December 2000 .035:1.0 any quarter in 2001 .035:1.0 any quarter in 2002 .035:1.0 any quarter in 2003 .035:1.0
Numbers in parentheses are negative numbers. For the avoidance of doubt, (12) is less than (10). D. Section 5.9 of the Credit Agreement as hereby amended to read in full as follows: FINANCIAL CONDITION. Maintain the consolidated financial condition of Borrower and its Subsidiaries according to the following schedules: (a) a minimum Current Ratio of 1.3:1.0 as at the end of each fiscal quarter; (b) a ratio of Consolidated EBITDA to Consolidated Interest Expense as at the end of each fiscal quarter of not less than the ratio set forth opposite such fiscal quarter:
FISCAL QUARTER ENDING IN: RATIO ------------------------- ----- any quarter in 1998 1.3:1.0 any quarter in 1999 1.3:1.0 March 2000 (0.9:1.0) June 2000 0.5:1.0 September 2000 1.5:1.0 December 2000 2.0:1.0 any quarter in 2001 2.0:1.0 any quarter in 2002 2.0:1.0 any quarter in 2003 2.0:1.0
(c) a minimum Net Worth as at the end of each fiscal quarter of not less than (i) $12,700,000 PLUS (ii) 50% of cumulative quarterly Consolidated Net Income (but not losses) after December 31, 1999 PLUS (iii) 75% of the Net Cash Proceeds received by Borrower or any Subsidiary from the sale or issuance of equity securities to any Person after December 31, 1999; 3 (d) a maximum ratio of (i) Debt of Borrower and its Subsidiaries on a consolidated basis to (ii) Capital as at the end of the fiscal quarter ending March 31, 2000 of not greater than 0.90:1.0, as at the end of the fiscal quarter ending June 30, 2000 of not greater than 0.85:1.0, and as at the end of any other fiscal quarter of not greater than 0.75:1.0. (e) a minimum Quick Ratio as at the end of each fiscal quarter of not less than 0.4:1.0. (f) a ratio of Consolidated EBIT to Consolidated Interest Expense as at the end of each fiscal quarter set forth below of not less than the ratio set forth opposite such fiscal quarter:
FISCAL QUARTER ENDING IN: RATIO ------------------------- ----- any quarter in 1998 0.8:1.0 any quarter in 1999 1.0:1.0 March 2000 (1.7:1.0) June 2000 (0.3:1.0) September 2000 0.85:1.0 December 2000 1.5:1.0 any quarter in 2001 1.5:1.0 any quarter in 2002 1.5:1.0 any quarter in 2003 1.5:1.0
(g) a ratio of Consolidated EBITDA to Sales as at the end of each fiscal quarter of not less than the ratio set forth opposite such fiscal quarter:
FISCAL QUARTER ENDING IN RATIO ------------------------ ----- any quarter in 1998 0 any quarter in 1999 0 March 2000 (.015:1.0) June 2000 .01:1.0 September 2000 .02:1.0 December 2000 .02:1.0 any quarter in 2001 .02:1.0 any quarter in 2002 .02:1.0 any quarter in 2003 .02:1.0
E. Section 5.12 of the Credit Agreement is hereby amended by correcting the reference to Section 5.14 in line 8 thereof to Section 5.12. 4 F. Exhibit B to the Credit Agreement is hereby amended to read in full as set forth on Exhibit B hereto. SECTION 2. CONDITIONS TO EFFECTIVENESS This Amendments set forth in Section 1 shall become effective as of the first date (the "FIFTH AMENDMENT DATE") on or before April 18, 2000 upon which the following conditions have been satisfied: (i) Borrower and McKesson shall have delivered to one another duly executed counterparts of this Amendment; (ii) all the representations and warranties in Section 3 below (after giving effect to any amendments to the Representation Certificate delivered to McKesson prior to the date of this Amendment) shall be true and correct as of the date of this Amendment; and (iii) no Default shall have occurred and be continuing on the date of this Amendment or will result from the consummation of this Amendment (after giving effect to this Amendment). When and if this Amendment becomes effective, the amendments set forth in Section 1 shall be deemed effective as of the Fifth Amendment Date. SECTION 3. BORROWER'S REPRESENTATIONS AND WARRANTIES In order to induce McKesson to enter into this Amendment, to amend the Credit Agreement in the manner provided herein and to grant the waivers contained herein, Borrower represents and warrants to McKesson that the following statements are true, correct and complete: A. CORPORATE POWER AND AUTHORITY. Borrower has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the "AMENDED AGREEMENT"). B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this Amendment and the performance of the Amended Agreement have been duly authorized by all necessary corporate action on the part of Borrower. C. NO CONFLICT. The execution and delivery by Borrower of this Amendment does not and will not contravene (i) any law or any governmental rule or regulation applicable to Borrower or any of its Subsidiaries, (ii) the Certificate of Incorporation or Bylaws of Borrower, (iii) any order, judgment or decree of any court or other agency of government binding on 5 Borrower or any of its Subsidiaries or (iv) any material agreement or instrument binding on Borrower or any of its Subsidiaries. D. GOVERNMENTAL CONSENTS. The execution and delivery by Borrower of this Amendment and the performance by Borrower of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. E. BINDING OBLIGATION. This Amendment and the Amended Agreement have been duly executed and delivered by Borrower and are the binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except in each case as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors' rights. F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT AGREEMENT. The representations and warranties contained in Article III of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the date of this Amendment to the same extent as though made on and as of such date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. G. ABSENCE OF DEFAULT. No event has occurred and is continuing as of the date of this Amendment or will result from the consummation of the transactions contemplated by this Amendment that would constitute a Default or an Event of Default (as determined after giving effect to the amendments made by this Amendment). SECTION 4. RESERVATION OF RIGHTS Borrower acknowledges and agrees that the execution and delivery by McKesson of this Amendment shall not be deemed to create a course of dealing or otherwise obligate McKesson to forebear or execute similar amendments under the same or similar circumstances in the future. SECTION 5. MISCELLANEOUS A. Reference to and Effect on the Credit Agreement and the Other Loan Agreements. (i) On and after the Fifth Amendment Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. 6 (ii) Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents and the Supply Agreement (including the Amendment to Supply Agreement dated March 30, 2000) shall remain in full force and effect and are hereby ratified and confirmed. (iii) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of McKesson under, the Credit Agreement or any of the other Loan Documents nor to create any course of dealing or otherwise obligate McKesson to forebear or execute similar amendments or any waiver in similar circumstances in the future. B. COSTS AND EXPENSES. The Company covenants to pay to or reimburse McKesson, upon demand, for all costs, out-of-pocket expenses and reasonable attorneys' fees expended or incurred by McKesson in connection with the development, preparation, negotiation, execution and delivery of this Amendment and the documents and transactions contemplated hereby. C. HEADINGS. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. D. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. E. COUNTERPARTS. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by a party of a facsimile transmitted document purportedly bearing the signature of the other party shall bind the other party with the same force and effect as the delivery of a hard copy original. Any failure by a party to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the other party. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. 7 HORIZON PHARMACIES, INC. By: /s/ Ricky D. McCord ----------------------------------- Title: President and CEO -------------------------------- McKESSON CORPORATION By: /s/ Ana Schrank ----------------------------------- Title: Director Financial SVCS -------------------------------- 8 ACKNOWLEDGMENT AND CONSENT OF GUARANTOR The undersigned in its capacity as a guarantor under that certain Guaranty dated as of July 2, 1998 made in favor of McKesson hereby (i) acknowledges and consents to the execution, delivery and performance by Borrower of the foregoing Fifth Amendment to Credit Agreement (the "Amendment"), (ii) acknowledges that the undersigned's consent is being sought purely as a protective measure and understands that the terms of the Credit Agreement dated as of July 2, 1998 may be amended without prior notice to or consent of the undersigned and without discharging or otherwise affecting the liability of the undersigned under the Guaranty, and (iii) reaffirms that it will continue to be bound by all of the provisions of the Guaranty and that such Guaranty will remain in full force and effect notwithstanding the execution and delivery by Borrower of the Amendment referred to above. HORIZON HOME CARE, INC. By: /s/ John N. Stogner ----------------------------------- Its: CFO / Treasurer ---------------------------------- 9 EX-10.18 16 EXHIBIT 10.18 LIMITED WAIVER AND CONSENT This LIMITED WAIVER AND CONSENT (this "LIMITED WAIVER") is dated as of March 30, 2000 between HORIZON Pharmacies, Inc., a Delaware corporation ("BORROWER"), and McKesson HBOC, Inc., a Delaware corporation formerly known as McKesson Corporation ("MCKESSON"). RECITALS WHEREAS, Borrower and McKesson are parties to that certain Credit Agreement dated as of July 2, 1998, as amended from time to time (the "CREDIT AGREEMENT"). Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. WHEREAS, Borrower has requested that McKesson grant Borrower a one-time limited waiver of certain covenants set forth in the Credit Agreement and in certain related documents and that McKesson consent to certain transactions by Borrower, and McKesson is willing to do so upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the promises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: SECTION 1. LIMITED WAIVER AND CONSENT A. McKesson hereby gives a limited one-time waiver as to Borrower's failure to comply with: (i) Section 5.9(b) of the Credit Agreement for the fiscal quarter ending December 31, 1999, provided that the ratio of Consolidated EBITDA to Consolidated Interest Expense for such quarter is not less than a negative 11.5 to 1.0 (for the avoidance of any doubt, a negative 13.0 to 1.0 is less than a negative 12.0 to 1.0); (ii) Section 5.9(c) of the Credit Agreement for the fiscal quarter ending December 31, 1999, provided that Net Worth as of the end of such quarter is not less than $15,250,000; (iii) Section 5.9(d) of the Credit Agreement for the fiscal quarter ending December 31, 1999, provided that the ratio of Debt of Borrower and its Subsidiaries on a consolidated basis to Capital for such quarter is not greater than 0.8 to 1.0; 1. (iv) Section 5.9(f) of the Credit Agreement for the fiscal quarter ending December 31, 1999, provided that the ratio of Consolidated EBIT to Consolidated Interest Expense for such quarter is not less than a negative 12.3 to 1.0; (v) Section 5.9(g) of the Credit Agreement for the fiscal quarter ending December 31, 1999, provided that the ratio of Consolidated EBITDA to Sales for such quarter is not less than a negative 1.9 to 1.0; and (vi) Section 6.6 of the Credit Agreement resulting from the Borrower's loans to Rick McCord, Charlie Herr and Robert Mueller on or about September 30, 1999 in the aggregate amount of approximately $107,000 , provided that all such loans were repaid to Borrower on or before November 15, 1999. B. McKesson hereby consents to the Borrower's incurrence of $5,000,000 in principal amount of indebtedness under that certain Convertible Debenture Purchase Agreement (the "Debenture Agreement") dated on or about the date hereof among Borrower, Advantage Fund II Ltd. and Koch Investment Group Ltd. (the "Debenture Investors") and as anticipated by that certain letter agreement dated on or about the date hereof among the parties to the Debenture Agreement. Nothing in this Limited Waiver shall amend or waive McKesson's rights under any provisions protecting against dilution in any Warrants issued to McKesson (including but not limited to rights under Section 3 of the Warrants) resulting from the issuance of the Debentures or the operation of any adjustment to the Conversion Price (as those terms are defined in the Debenture Agreement). C. McKesson hereby grants a limited one-time waiver under Section 7.1(d) of the Credit Agreement with respect to Borrower's failure to pay certain of the amounts due to McKesson under the Supply Agreement for periods prior to March 15, 2000, provided that all such amounts due on or prior to March 15, 2000 are paid on or prior to June 1, 2000 (except for amounts subject to disputes submitted to McKesson in writing prior to March 26, 2000) and that all other amounts incurred under the Supply Agreement prior to the date hereof are not delinquent as of the date hereof (except for amounts subject to disputes submitted to McKesson in writing prior to March 26, 2000). D. McKesson hereby waives its rights under Section 7.5 of the Amended and Restated Warrant Purchase Agreement dated as of May 14, 1999 between Borrower and McKesson (the "Warrant Purchase Agreement") to participate in the offering of Borrower's Securities contemplated by Section 2 of the Registration Rights Agreement among Borrower and the Debenture Investors dated as of even date herewith (the "Debenture Registration Rights Agreement"). E. McKesson hereby gives a limited one-time waiver as to Borrower's failure to comply with Section 7.9 of the Warrant Purchase Agreement with respect to warrants issued to 5Net5 Corp., Informed.com, Inc. and K-2 Financial Corp. on or prior to March 15, 2000 (the last sentence of Section 7.9). 2. SECTION 2. CONDITIONS TO EFFECTIVENESS This Limited Waiver shall become effective as of the first date upon which the following conditions have been satisfied: (i) Borrower and McKesson shall have delivered to one another duly executed counterparts of this Limited Waiver; (ii) all the representations and warranties in Section 3 below (after giving effect to any amendments to the last Representation Certificate delivered to McKesson prior to the date of this Limited Waiver) shall be true and correct as of the date of this Limited Waiver; (iii) no Default shall have occurred and be continuing on the date of this Limited Waiver (other than Defaults which are the subject of the waiver in Section 1 above); (iv) Borrower and McKesson shall have executed and delivered to one another a First Amendment to the Amended and Restated Warrant Purchase Agreement as well as other ancillary documents related thereto in form and substance satisfactory to McKesson; (v) Borrower shall have issued to McKesson a Warrant for 10,000 shares of Borrower's Common Stock in addition to those described in clause 4.3(c) of the Credit Agreement as set forth in the Warrant Purchase Agreement; (vi) Borrower shall have paid to McKesson a waiver fee in the amount of $17,600; and (vii) Borrower and McKesson shall have delivered to one another a duly executed counterpart of an amendment to the Supply Agreement substantially in the form of Exhibit A hereto. SECTION 3. BORROWER'S REPRESENTATIONS AND WARRANTIES In order to induce McKesson to enter into this Limited Waiver, Borrower represents and warrants to McKesson that the following statements are true, correct and complete: A. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT AGREEMENT. The representations and warranties contained in Article III of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the date of this Limited Waiver to the same extent as though made on and as of such date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. B. ABSENCE OF DEFAULT. No Event of Default has occurred and is continuing as of the date of this Limited Waiver (other than Defaults which are the subject of the waiver in Section 1 above). 3. SECTION 4. RESERVATION OF RIGHTS Borrower acknowledges and agrees that the execution and delivery by McKesson of this Limited Waiver shall not be deemed to create a course of dealing or otherwise obligate McKesson to forebear or execute similar waivers under the same or similar circumstances in the future. SECTION 5. MISCELLANEOUS A. Reference to and effect on the Credit Agreement and the Other Loan Agreements. (i) Except as specifically modified by this Limited Waiver, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. (ii) The execution, delivery and performance of this Limited Waiver shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of McKesson under, the Credit Agreement or any of the other Loan Documents nor to create any course of dealing or otherwise obligate McKesson to forebear or execute similar waivers or any waivers in similar circumstances in the future. B. COSTS AND EXPENSES. The Company covenants to pay to or reimburse McKesson, upon demand, for all costs, out-of-pocket expenses and reasonable attorneys' fees expended or incurred by McKesson in connection with the development, preparation, negotiation, execution and delivery of this Limited Waiver and the documents and transactions contemplated hereby. C. HEADINGS. Section and subsection headings in this Limited Waiver are included herein for convenience of reference only and shall not constitute a part of this Limited Waiver for any other purpose or be given any substantive effect. D. APPLICABLE LAW. THIS LIMITED WAIVER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. E. COUNTERPARTS. This Limited Waiver may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by a party of a facsimile transmitted document purportedly bearing the signature of the other party shall bind the other party with the same force and effect as the delivery of a hard copy original. Any failure by a party to receive the hard copy executed original of such document shall not 4. diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the other party. IN WITNESS WHEREOF, the parties hereto have caused this Limited Waiver to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. HORIZON PHARMACIES, INC. By: /s/ Ricky D. McCord ------------------------------------------------ Title: CEO & President --------------------------------------------- McKESSON HBOC, INC. By: /s/ Alan Pearce ------------------------------------------------ Title: Senior Vice President and Financial Services --------------------------------------------- 5. EX-10.18 17 EXHIBIT 10.18 April 14, 2000 Horizon Pharmacies, Inc. 275 West Princeton Drive Princeton, Texas 75407 Re: Loan Agreement dated July 31, 1999 (the "Loan Agreement") between Horizon Pharmacies, Inc. ("Borrower") and Bank One, Texas, National Association ("Bank"); capitalized terms used in this letter shall have the same meaning as set forth in the Loan Agreement Ladies and Gentlemen: Borrower has informed Bank that as of December 31, 1999 Borrower has failed to comply with PARAGRAPH 7.(e) of the Loan Agreement. The failure to comply with PARAGRAPH 7.(e) of the Loan Agreement constitutes an Event of Default thereunder pursuant to PARAGRAPH 9.(b) thereof. Borrower has also notified Bank that as of December 31, 1999 one or more events of default have occurred with respect to obligations owing by Borrower to McKesson HBOC, Inc. and Banc One Leasing Corporation. The occurrence of such events of default constitute an Event of Default pursuant to PARAGRAPH 9.(e) of the Loan Agreement. Borrower has requested that Bank waive the above described Events of Default as of December 31, 1999. This letter confirms that Bank hereby waives the Events of Default described above; PROVIDED that this waiver is expressly limited as provided herein and all other requirements of the Loan Agreement, including, without limitation, the requirement of Borrower to comply with PARAGRAPH 7.(e) at all times and the Events of Default set forth in PARAGRAPH 9.(b) and PARAGRAPH 9.(e), shall remain in full force and effect. The waiver contained in this letter shall be limited strictly as written and shall not be deemed to constitute a waiver of, or any consent to noncompliance with, any term or provision of the Loan Agreement except as expressly set forth herein. Further, the waiver contained herein shall not constitute a waiver of any future default or Event of Default that may occur under the Loan Agreement. No delay or omission by Bank in exercising any power, right, or remedy shall impair such power, right, or remedy or be construed as a waiver thereof or an acquiescence therein, and no single or partial exercise of any such power, right, or remedy shall preclude other or further exercise 1 thereof or the exercise of any other power, right, or remedy under the Loan Agreement, the other Loan Documents, or otherwise. BANK ONE, TEXAS, NATIONAL ASSOCIATION By: /s/ Alan Miller ----------------------------------- Alan Miller Division Manager ACKNOWLEDGED AND ACCEPTED: - -------------------------- HORIZON PHARMACIES, INC. By: /s/ John N. Stogner --------------------- Name: JOHN N. STOGNER ------------------- Title: CFO / Treasurer ------------------ 2 The undersigned hereby consents to Borrower and Bank entering into the waiver described on the foregoing letter and agrees that the Guaranty, the Tri-Party Agreement, and any other Loan Documents to which it is a party shall remain in full force and effect and shall continue to be the legal, valid, and binding obligation of the undersigned enforceable against it in accordance with their respective terms. AGREED AS OF THIS 14th DAY OF APRIL: MCKESSON HBOC, INC. By: /s/ Ana Schrank ---------------------------------- Name: Ana Schrank -------------------------------- Title: Director - Financial Sevices ------------------------------- 3 EX-10.20 18 EXHIBIT 10.20 HORIZON PHARMACIES, INC. 1999 STOCK OPTION PLAN 1. PURPOSE. The purposes of the Plan are to enable the Company to attract and retain the services of employees and directors and to provide them with increased motivation and incentive to exert their best efforts on behalf of the Company by enlarging their personal stake in the Company's success. 2. DEFINITIONS. As used in the Plan, the following definitions apply to the terms indicated below: "BOARD" means the Board of Directors of the Company. "CHANGE IN CONTROL" means the occurrence of any of the following: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), hereinafter an "Acquiring Person")) becomes the "beneficial owner" (as such term is defined in Rule 13d-3 promulgated under the Exchange Act, hereinafter a "Beneficial Owner"), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities; (ii) an Acquiring Person becomes the Beneficial Owner, directly or indirectly of securities of the Company representing 10% or more of the combined voting power of the Company's then outstanding securities and, during the two-year period commencing at the time such Acquiring Person becomes the Beneficial Owner of such securities, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof; (iii) the Company's stockholders approve an agreement to merge or consolidate the Company with another corporation (other than a corporation 50% or more of which is controlled by, or is under common control with, the Company) and, during the period commencing six months before such approval and ending two years after such approval, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof; and (iv) during any two year period, individuals who at the date on which the period commences constitute a majority of the Board cease to constitute a majority thereof as a result of one or more contested elections for positions on such Board. "COMMITTEE" means the committee appointed by the Board from time to time to administer the Plan pursuant to Section 4 hereof. "COMPANY" means HORIZON Pharmacies, Inc., a Delaware corporation. "FAIR MARKET VALUE" of a Share on a given day means, if Shares are listed on an established stock exchange or exchanges, the highest closing sales price of a Share as reported on such stock exchange or exchanges; or if not so reported, the average of the bid and asked prices, as reported on the National Association of Securities Dealers Automated Quotation System. If the price of a share shall not be so quoted, the Fair Market Value shall be determined by the Committee taking into account all relevant facts and circumstances. "INCENTIVE STOCK OPTION" means an Option that qualified as an incentive stock option within the meaning of Section 422 of the Code and which is identified as an Incentive Stock Option in the agreement by which it is evidenced. "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time. "OPTION" means a right to purchase shares under the terms and conditions of the Plan as evidenced by an option certificate in such form not inconsistent with the Plan, as the Committee may adopt for general use or for specific cases from time to time. "NONQUALIFIED STOCK OPTION" means an Option that is not an Incentive Stock Option and which is identified as a Nonqualified Stock Option in the agreement by which it is evidenced. "PARTICIPANT" means any employee or director eligible to participate in the Plan under Section 5 hereof, to whom an Option is granted under the Plan. "PLAN" means the HORIZON Pharmacies, Inc. 1999 Stock Option Plan, including any amendments to the Plan. "SHARES" means shares of the Company's Common Stock, $.01 par value, now or hereafter owned by the Company as treasury stock or authorized but unissued shares of the Company's Common Stock, subject to adjustment as provided in the Plan. "SUBSIDIARY" means any corporation, now or hereafter existent, in which the Company owns, directly or indirectly, stock comprising 50% or more of the total combined voting power of all classes of stock of such corporation. A-2 3. PLAN ADOPTION AND TERM. A. The Plan shall become effective upon its adoption by the Board, and Options may be issued upon such adoption and from time to time thereafter; provided, however, that the Plan shall be submitted to the Company's stockholders f or their approval at the next annual meeting of stockholders, or prior thereto at a special meeting of stockholders expressly called for such purpose, or by a unanimous consent of all stockholders executed in writing; and provided further, that the approval of the Company's stockholders shall be obtained within 12 months of the date of adoption of the Plan. If the Plan is not approved at the annual meeting or special meeting by the affirmative vote of a majority of all shares entitled to vote upon the matter, or by unanimous written consent of all stockholders, then the Plan and all Options then outstanding shall forthwith automatically terminate and be of no force and effect. B. Subject to the provisions hereinafter contained relating to amendment or discontinuance, the Plan shall continue in effect for 10 years from the date of its adoption by the Board. No Option may be granted hereunder after such 10-year period. 4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Committee, consisting of not less than two persons, who shall be directors of the Company, who shall not be employees of the Company, and who shall be appointed by the Board to serve at the pleasure of the Board. Except as otherwise expressly provided in the Plan, the Committee shall have sole and final authority to interpret the provisions of the Plan and the terms of any Option issued under it and to promulgate and interpret such rules and regulations relating to the Plan and Options as it may deem necessary or desirable for the administration of the Plan. Without limiting the foregoing, the Committee shall, subject to Section 6 and to the extent and in the manner contemplated herein, determine who shall receive Options under the Plan and how many Shares shall be subject to each such Option. The Committee shall report to the Board the names of those granted Options and the terms and conditions of each Option granted by it. The Committee may correct any defect in the Plan or any Option in the manner and to the extent it shall deem expedient to carry the Plan into effect and shall be the sole and final judge of such expediency. No member of the Committee shall be liable for any action taken or omitted or any determination made by him in good faith relating to the Plan, and the Company shall indemnify and hold harmless each member of the Committee and each other director or employee of the Company to whom any duty or power relating to the administration or interpretation of the Plan has been delegated against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Committee) arising out of any act or omission in connection with the Plan, unless arising out of such person's own fraud or bad faith. 5. ELIGIBILITY. The employees and directors of the Company and its Subsidiaries, who, in the opinion of the Committee, have a capacity for contributing in a substantial measure to the A-3 success of the Company and its Subsidiaries, shall be eligible to participate in the Plan. No options intended to qualify as Incentive Stock Options shall be granted under the Plan to any person who, before or after the grant or exercise of any Option, owns or would own, directly or indirectly, more than 10% of the total combined voting power of all classes of stock of the Company, or its parent or any Subsidiary, or who is not an employee or director of the Company. 6. STOCK SUBJECT TO THE PLAN. Subject to adjustment as provided in Section 13 hereof, Options may be granted pursuant to the Plan with respect to a number of shares that, in the aggregate, does not exceed Six Hundred Thousand (600,000) Shares. 7. OPTIONS. A. All Options granted under the Plan shall be clearly identified either as Incentive Stock Options or as Nonqualified Stock Options. All Options granted under the Plan shall be evidenced by agreements in such form, not inconsistent with the Plan, as the Committee may adopt for general use or for specific use from time to time. An Option shall be deemed "granted" under the Plan on the date on which the Committee, by appropriate action, awards the Option to a Participant, or on such subsequent date as the Committee may designate. B. (i) The aggregate Fair Market Value of Shares with respect to which Incentive Stock Options granted under the Plan are exercisable for the first time by a Participant during any calendar year under the Plan and any other stock option plan of the Company (and its parent and subsidiary corporations as those terms are used in Section 422 of the Code) shall not exceed $100,000. Such Fair Market Value shall be determined as of the date on which each such Incentive Stock Option is granted. To the extent that the aggregate Fair Market Value of Shares with respect to such Incentive Stock Options exceeds $100,000, such Incentive Stock Options shall be treated as Nonqualified Options, but all other terms and provisions of such Incentive Stock Options shall remain unchanged. (ii) Subparagraph (i) of this Paragraph B shall be applied by taking Options into account in the order in which they were granted. 8. OPTION PRICE. The price per share at which Shares may be purchased pursuant to any Option granted under the Plan shall be not less than 100% of the Fair Market Value of a Share on the date the Option is granted. 9. DURATION OF OPTIONS. No Option granted hereunder shall be exercisable after the expiration of 10 years from the date such Option was granted. All Options shall be subject to earlier termination as provided elsewhere in the Plan. 10. CONDITIONS RELATING TO EXERCISE OF OPTIONS. A-4 A. The Board may, at its discretion, provide that an Option may not be exercised in whole or in part for any period or periods of time specified in the Option agreement. Except as provided in the Option agreement, an Option may be exercised in whole or in part at any time during its term. No Option may be exercised for a fractional share of stock. B. No Option shall be transferable by a Participant otherwise than by will or the laws of descent and distribution and Options shall be exercisable during the lifetime of a Participant only by such Participant. C. An Option shall be exercised by the delivery to the Company of a written notice signed by the Participant, which specifics the number of Shares with respect to which the Option is being exercised and the date of the proposed exercise. Such notice shall be delivered to the Company's principal office, to the attention of its Secretary, no less than three business days in advance of the date of the proposed exercise and shall be accompanied by the applicable option certificate evidencing the Option. A Participant may withdraw such notice at any time prior to the close of business on the proposed date of exercise, in which case the option certificate evidencing the Option shall be returned to the Participant. D. Payment for Shares purchased upon exercise of an Option shall be made at the time of exercise either in cash, by certified check or bank cashier's check or in Shares owned by the Participant and valued at their Fair Market Value on the date of exercise, or partly in Shares with the balance in cash or by certified check or bank cashier's check. Any payment in Shares shall be effected by their delivery to the Secretary of the Company, endorsed in blank or accompanied by stock powers executed in blank. E. Certificates for Shares purchased upon exercise of Options shall be issued and delivered as soon as practicable following the date the Option is exercised. Certificates for Shares purchased upon exercise of Options shall be issued in the name of the Participant. F. Notwithstanding any other provision in the Plan, no Option may be exercised unless and until the shares to be issued upon the exercise thereof have been registered under the Securities Act of 1933 and applicable state securities laws, or are, in the opinion of counsel to the Company, exempt from such registration. Prior to the occurrence of a change in Control, the Company shall not be under any obligation to register under applicable federal or state securities laws any Shares to be issued upon the exercise of an Option granted hereunder, or to comply with an appropriate exemption from registration under such laws in order to permit the exercise of an Option and the issuance and sale of the Shares subject to such Option. If the Company chooses to comply with such an exemption from registration, the shares issued under the Plan may, at the discretion of the Committee, bear an appropriate restrictive legend restricting the transfer or pledge of the Shares represented thereby, and the Committee may also give appropriate stop-transfer instructions to the transfer agent to the Company. On or after the occurrence of a Change in Control, A-5 the Company shall be under an obligation to register under applicable Federal or state securities law any Shares to be issued upon the exercise of an Option granted hereunder, or to comply with an appropriate exemption from registration under state or Federal securities laws in order to permit the exercise of an Option and the issuance and sale of the Shares subject to such Option. G. Any person exercising an Option or transferring or receiving Shares shall comply with all regulations and requirements of any governmental authority having jurisdiction over the issuance, transfer, or sale of capital stock of the Company, and as a condition to receiving any Shares, shall execute all such instruments as the Company in its sole discretion may deem necessary or advisable. H. Notwithstanding Paragraph A of this Section 10, the Committee may, in its sole discretion, accelerate the date on which any Option granted under the Plan, and outstanding at such time, shall became exercisable. I. Notwithstanding Paragraph A of this Section 10, upon the occurrence of a Change in Control any Option granted under the Plan and outstanding at such time shall become fully and immediately exercisable and shall remain exercisable until its expiration or termination as provided in the Plan. J. In the event of termination of a Participant's employment by reason of such Participant's retirement in accordance with an applicable retirement plan, any outstanding Option held by such Participant shall be or immediately become fully exercisable as to the total number of Shares subject thereto (whether or not exercisable to that extent prior to termination of employment) and shall remain so exercisable but only for a period of three months after commencement of such retirement, at the end of which time it shall terminate (unless such Option expires earlier by its terms). K. In the event of termination of a Participant's employment by reason of such Participant's disability within the meaning of Section 22(e)(3) of the Code, any outstanding Option held by such Participant shall be or immediately become fully exercisable as to the total number of Shares subject thereto (whether or not exercisable to that extent prior to termination of employment) and shall remain so exercisable but only for a period of one year after termination of employment for such disability, at the end of which time it shall terminate (unless such Option expires earlier by its terms). L. In the event of the death of any Participant (including death during an approved leave of absence or following a Participant's retirement or disability, any Option then held by him which shall not have lapsed or terminated prior to his death shall be or immediately become fully exercisable by the executors, administrators, legatees, or distributees of his estate, as may be appropriate, as to the total number of Shares subject thereto (whether or not exercisable to that extent A-6 at the time of death) and shall remain so exercisableb ut only for a period of one year after death, at the end of which time it shall terminate (unless such Option expires earlier by its terms). M. In the event of the termination of the Participant's employment otherwise than as described in paragraphs J, K and L, any outstanding Option held by such Participant shall be exercisable to the extent exercisable at the time of such termination and remain so exercisable for a period of 30 days following such termination. Whether an authorized leave of absence, or absence in military or government service, shall constitute termination of employment shall be determined by the Committee. 11. NO EMPLOYMENT RIGHTS. Nothing contained in the Plan or any Option shall confer upon any Participant any right with respect to the continuation of his employment by the Company or interfere in any way with the right of the Company, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or to increase or decrease the compensation of the Participant from the rate in existence at the time of the grant of an Option. 12. RIGHTS OF A STOCKHOLDER. No person shall have any rights with respect to any Shares covered by or relating to any grant hereunder of an Option until the date of issuance of a certificate to him evidencing such shares. Except as otherwise expressly provided in the Plan, no adjustment to any Option shall be made for dividends or other rights for which the record date occurs prior to the date such certificate is issued. 13. ADJUSTMENT UPON CHANGES IN CAPITAL STOCK. A. If the capital stock of the Company shall be subdivided or combined, whether by reclassification, stock dividend, stock split, reverse stock split or other similar transaction, then the number of shares authorized under the Plan, the number of shares then subject to or relating to unexercised Options granted hereunder and the exercise price per Share will be adjusted proportionately. A stock dividend shall be treated as a subdivision of the whole number of shares equal to such whole number of shares so outstanding plus the number of Shares issued as a stock dividend. B. In the case of any capital reorganization or any reclassification of the capital stock of the Company (except pursuant to a transaction described in Paragraph A of this Section 13) (a "Reorganization"), appropriate adjustment may be made by the Committee in the number and class of shares authorized to be issued under the Plan and the number and class of shares subject to or relating to Options awarded under the Plan and outstanding at the time of such Reorganization. A-7 C. Each Participant will be notified of any adjustment made pursuant to this Section 13 and any such adjustment, or the failure to make such adjustment, shall be binding on the Participant. D. Except as expressly set forth herein, the number and kind of Shares subject to Options, shall not be affected by any transaction (including, without limitation, any merger, recapitalization, stock split, stock dividend, issuance of stock or similar transaction) affecting the capital stock of the Company and no Participant shall be entitled to any additional Options on account thereof. 14. WITHHOLDING TAXES. A. Whenever Shares are to be issued upon the exercise of an Option, the Company shall have the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy Federal, state and local withholding tax requirements, if any, prior to the delivery of any certificate or certificates for such shares. B. Notwithstanding Paragraph A of this Section 14, at the election of a Participant, subject to the approval of the Committee, when shares are to be issued upon the exercise of an Option, the Participant may tender to the Company a number of Shares, or the Company shall withhold a number of such shares, the Fair Market Value of which is sufficient to satisfy the Federal, state and local tax requirements, if any, attributable to such exercise or occurrence. The Committee hereby grants its approval to any election made pursuant to this Paragraph B, but reserves the right, in its absolute discretion, to withdraw such approval in case of any such election effective upon its delivery of notice thereof to the Participant. C. Notwithstanding Paragraph E of Section 10 hereof, if a Participant subject to the provisions of Section 16(b) of the Exchange Act who has not made an election pursuant to Section 83(b) of the Code, makes an election described in Paragraph B of this Section 14 to have Shares withheld with respect to an Option, then the Company shall hold as custodian for the Participant certificates evidencing the total number of Shares required to be issued pursuant to the exercise of the Option until the expiration of six months following the date of such exercise. Upon the expiration of such six-month period, the Company shall deliver to such Participant certificates evidencing such Shares minus a number of such Shares, the Fair Market Value of which on the date on which such period expires is sufficient to satisfy the Federal, state and local tax requirements attributable to such exercise. D. Notwithstanding any other provisions of the Plan, an individual who is subject to Section 16(b) of the Exchange Act, may not make either of the elections described in Paragraph B of this Section 14 prior to the expiration of six months after the date on which the applicable Option was granted. Such elections must be made either (i) during the 10-day window period described in A-8 Section (e)(3)(iii) of Rule 16b-3 promulgated under such Section 16(b) of the Exchange Act, or (ii) at least six months prior to the date as of which the income attributable to the exercise of the related Option is recognized under the Code. Such elections shall be irrevocable and shall be made by the delivery to the Company's principal office, to the attention of its Secretary, of a written notice signed by Participant. 15. AMENDMENT OF THE PLAN. A. The Board may at any time and from time to time suspend, discontinue, modify or amend the Plan in any respect whatsoever except that the Board may not suspend, discontinue, modify or amend the Plan so as to adversely affect the rights of a Participant with respect to any grants that have theretofore been made to such Participant without such Participant's approval. B. No amendment to or modification of the Plan which (i) materially increases the benefits accruing to Participants; (ii) except as provided in Sections 6 and 13 hereof, increases the number of Shares that may be issued under the Plan; or (iii) modifies the requirements as to eligibility for participation under the Plan shall be effective without stockholder approval. 16. MISCELLANEOUS. A. It is expressly understood that the Plan grants powers to the Committee but does not require their exercise nor shall any person, by reason of the adoption of the Plan, be deemed to be entitled to the grant of any Option; nor shall any rights be deemed to accrue under the Plan except as Options may be granted hereunder. B. All rights hereunder shall be governed by and construed in accordance with the laws of Delaware. C. All expenses of the Plan, including the cost of maintaining records, shall be borne by the Company. Approved by the Board of Directors March 24, 1999; Adopted by the Stockholders June 28, 1999. A-9 EX-21.1 19 EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF THE COMPANY
STATE OF INCORPORATION ENTITY NAME OR ORGANIZATION - ----------------------------------------- --------------------------------- HORIZON HOME CARE, Inc. Texas HorizonScripts.com Inc. Texas Jones Low Priced Drugs, Inc. Delaware
EX-23.1 20 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-40533) pertaining to the HORIZON Pharmacies, Inc. 1997 Stock Option Plan, the Registration Statement (Form S-8 No. 333-43607) pertaining to the HORIZON Pharmacies, Inc. 401(k) Plan and the Registration Statement (Form S-8 No. 333-62805) pertaining to the HORIZON Pharmacies, Inc. 1998 Stock Option Plan of our report dated March 31, 2000, except for the third paragraph of Note 7(A) as to which the date is April 14, 2000, with respect to the consolidated financial statements and schedule of HORIZON Pharmacies, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 1999. /s/ ERNST & YOUNG LLP Oklahoma City, Oklahoma April 14, 2000 EX-27.1 21 EXHIBIT 27.1
5 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 1,638 0 12,392 642 23,522 38,217 7,007 1,057 59,831 23,646 20,935 0 0 59 15,191 59,831 131,756 131,756 96,918 137,604 0 3,198 1,898 (7,548) 0 0 0 0 0 (7,548) (1.30) (1.30)
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