EXHIBIT 10.2
WATERFORD FINANCIAL, INC.
000 XXXXX 0XX XXXXXX, XXXXX 000
XXXXXXXXXXX, XXXXXXXXX 00000
MEMBER NASD & SIPC
TELEPHONE (000) 000-0000
FAX (000) 000-0000 OR 338-0996
E-MAIL: xxxx@xxxxxxxxxxxxxxxxxx.xxx
xxx.xxxxxxxxxxxxxxxxxx.xxx
January 28, 2000
Xx. Xxxx XxXxxx
President & CEO
HORIZON Pharmacies, Inc.
000 X. Xxxx Xxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Dear Xx. XxXxxx:
This letter of intent (the "Agreement") sets forth our mutual understanding and
agreement regarding the establishment of an exclusive investment banking
relationship between HORIZON Pharmacies, Inc., a Delaware corporation (the
"Company") and Waterford Financial, Inc., a Minnesota corporation ("WFI"). WFI
agrees to assist the Company in connection with future financings on the
following terms and conditions:
1. ENGAGEMENT. Subject to PARAGRAPH 7 herein, the Company hereby engages
WFI to act as the Company's exclusive investment banker to assist the
Company with various financing arrangements of up to Twenty-Five
Million dollars ($25,000,000), or such other amounts as shall be
mutually agreed to by the parties, including, inclusive, (i)
subordinated debentures, (ii) convertible and/or redeemable preferred
stock, (iii) common stock, with or without warrants, (iv) convertible
debt, (v) senior secured revolving credit and (vi) senior secured term
loan (collectively, the "Financings"). In connection with any such
Financings, WFI will use its best efforts to review proposals and
advise the Company with respect to such proposals. In addition, WFI
shall be ready to meet with officers or directors of the Company upon
reasonable notice to consult on any financial matters or any items
related to any issue of financing.
Due to the nature of the investment banking relationship, it is
extremely important that all prospects or referrals for investment
during the Engagement Period (as defined in PARAGRAPH 6), be directed
to WFI, subject to PARAGRAPH 7 herein.
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When WFI presents a proposed Financing to the Company, the Company
will either approve or disapprove such Financing in writing.
2. FEES. In consideration of the services to be rendered by WFI pursuant
to this agreement, the Company agrees to pay, WFI a(n):
(a) two percent (2%) fee of any Financing which WFI does not manage
during the shorter of the Engagement Period or the next three (3)
years, except for a Financing arranged, managed or controlled by
an entity set forth in SCHEDULE A attached hereto;
(b) three percent (3%) non-accountable expense allowance on all
consideration raised in a Financing that WFI manages;
(c) underwriter's commission, in the context of a Private Offering
(as defined below) that WFI manages, that is equal to ten percent
(10%) on all gross proceeds raised on behalf of the Company for
equity or convertible debt. As used herein, "Private Offering"
means a debt or equity offering that is not a Public Offering,
subject to PARAGRAPH 7 herein;
(d) underwriter's commission, in the context of a Public Offering (as
defined below) that WFI manages, that is equal to the maximum
amount allowable under the rules of the National Association of
Security Dealers, Inc. (the "NASD") and the American Stock
Exchange ("AMEX"), or, in the event that the Company is no longer
trading its stock over AMEX, then whichever exchange the
Company's stock trades; provided, however, that the underwriter's
commission payable hereunder shall not, in any event, exceed six
percent (6%) of the gross proceeds raised on behalf of the
Company for equity or debt in such Public Offering, subject to
PARAGRAPH 7 herein. As used herein, "Public Offering" means a
debt or equity offering requiring the filing of a registration
statement by the Company under the Securities Act of 1933;
(e) five percent (5%) fee on any merger (a "Merger") or acquisition
(an "Acquisition" and together with a Merger, an "M&A
Transaction") of the Transaction Value (as defined below) with
respect to which WFI provides financial consulting services. To
the extent that the Transaction Value is greater than Five
Million dollars ($5,000,000), then the five percent (5%) fee
shall not apply to such excess amount; rather, the applicable fee
shall be determined with respect to such excess amount by
multiplying such excess amount by the Excess Formula (as defined
below);
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(i) As used herein, "Transaction Value" means all consideration
payable to the seller(s) in connection with an M&A
Transaction, including but not limited to (i) deferred
installments of the purchase price, provided that any fees
paid in respect of such deferred amounts shall be payable
(without interest) only when and if such deferred amounts
are actually received by the seller(s), (ii) any portion of
the purchase price held in escrow subsequent to closing
which is actually released to the seller(s) pursuant to the
terms of the escrow arrangement and (iii) payments made to
the seller(s) after closing upon the occurrence of certain
contingencies or conditions or the satisfaction of certain
earnings, sales levels or other performance objectives which
are agreed to on or before the date of closing. In an
Acquisition involving the purchase of assets where the
Company assumes or repays all or a portion of the target
company's, or, if more than one target company, companies'
debt, the Transaction Value shall also include the aggregate
amount of debt assumed or repaid by the purchaser(s). The
Transaction Value shall not include debt assumed or repaid
in situations where the M&A Transaction is a Merger,
consolidation or purchase or exchange of capital stock;
(ii) In the event that all or any portion of the Transaction
Value is paid in stock or other securities, deferred
installments or consideration other than cash at closing,
the amount of the success fee payable with respect thereto
shall be determined on the basis of the cash equivalent of
such non-cash consideration as of the closing date of the
M&A Transaction. If WFI and the Company are unable to agree
on the cash equivalent of such non-cash consideration within
thirty (30) days after the closing date, the determination
of the cash equivalent shall be made promptly by an
investment banker or other person experienced in valuing
securities mutually acceptable to both WFI and the Company,
such determination shall be binding on both WFI and the
Company, and WFI and the Company shall each be responsible
for paying one-half (1/2) of the fees of such investment
banker or other person; and
(iii) If requested by the Company, WFI will determine whether the
consideration to be paid in the M&A Transaction is fair to
shareholders from a financial point of view. If WFI
determines the consideration to be paid in the M&A
Transaction is fair to the shareholders from a financial
point of view, WFI will render a written opinion to that
effect to the Board of Directors or to the
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Special Committee of the Board of Directors of the Company.
Such opinion shall be consistent with the generally accepted
standards of practice in the investment banking industry for
fairness opinions and WFI acknowledges that the Company may
rely upon the opinion, in addition to such factors it deems
appropriate, in determining whether to consummate the M&A
Transaction. At the time the Company requests WFI to make a
fairness determination, the Company will pay WFI a
non-refundable fee of Twenty-Five Thousand dollars
($25,000); provided, however, that such fee shall be
credited against any success fee payable as a result of the
M&A Transaction;
(iv) As used herein, "Excess Formula" means a four percent (4%)
fee on excess amounts less than One Million dollars
($1,000,000), then a three percent (3%) fee on excess
amounts equal to or greater than One Million dollars
($1,000,000) but less then Two Million dollars ($2,000,000),
then a two percent (2%) fee on excess amounts equal to or
greater than Two Million dollars ($2,000,000) but less than
Three Million dollars ($3,000,000), then a one percent fee
(1%) on any excess amounts greater than or equal to Three
Million dollars ($3,000,000);
(f) five percent (5%) fee on any non-convertible debt; and
(g) in any transaction involving a Financing in which the common
stock, par value $.01 per share, of the Company (the "Common
Stock") is issued in connection therewith, a non-cancelable
warrant to purchase an aggregate of ten (10) percent of shares
sold in such Financing at an exercise price per share of 120% of
the issuance price per share. Any such warrants shall expire
within five (5) years of the date of grant and contain a cashless
exercise provision with customary piggyback registration rights.
The fees set forth in this PARAGRAPH 2 shall apply to any source (or
source or contact of a source) introduced to the Company by WFI, or
referred to WFI by the Company (a "Source"), during the Engagement
Period and for twenty-four (24) months thereafter (the "Tail Period");
provided, however, that (i) under no circumstance shall any entity
listed on SCHEDULE A attached hereto, or any such entities' employees,
agents, officers, directors or representatives be considered a Source
for purposes of this Agreement, (ii) if a Financing is consummated
after the Engagement Period and is subject to the Tail Period, the
three percent (3%) nonaccountable fee to be received by WFI hereunder
shall be offset by amounts previously paid under PARAGRAPH 3 and (iii)
the Tail Period shall not apply if the
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Company terminates this Agreement for Cause or if WFI has received
fees under subparagraphs (c), (d), (e), (f) or (g) of this PARAGRAPH
2.
In the event that a corporate transaction involving more than one of
the services for which WFI has been engaged is successfully concluded
pursuant to this Agreement, WFI shall be paid the applicable fee
designated in this Paragraph 2 for each of the services provided, but
only in proportion to the extent such service or financing is
proportionate to the entire corporate transaction. For instance, if in
connection with an acquisition pursuant to subparagraph (e) the
Company issues a non-convertible note that would also trigger a fee
payable in accordance with subparagraph (f), then, with respect to
such transaction, WFI would receive the designated fee for (i) Merger
and Acquisition services calculated only upon the acquisition value
included in the transaction and (ii) placement of the non-convertible
note only for the value of the note. No fee designated in this
PARAGRAPH 2 would apply to, or be paid for, any service or component
of the corporate transaction subject to a fee designated under a
separate provision of this PARAGRAPH 2.
3. EXPENSES. In the event a Financing does not occur during the
Engagement Period, the Company will reimburse WFI for the following
expenses incurred by WFI in relation to this Agreement:
(a) The cost of printing and distributing the offering documents,
private placement memorandum and blue sky memorandum and any
additional agreements and/or disclosure documents required by WFI
or its counsel;
(b) The filing fees of the Securities and Exchange Commission (the
"SEC"), the NASD, state blue sky filings and all regulatory
filings, and any legal fees incurred by WFI in connection
therewith;
(c) The cost associated with publishing a "Tombstone" advertisement,
not to exceed in size more than one-fourth of a standard size
newspaper page, to be published in the Minneapolis and/or St.
Xxxx papers, or a similar publication, to be chosen by WFI; and
(d) All costs incurred for legal representation related to a
Financing; provided, however, that such costs shall not exceed
Twenty-Five Thousand dollars ($25,000).
4. OBLIGATION TO PAY FEES. If, and only if, WFI shall have produced a
commitment (the "Commitment") from a lender or investor which the
Company, in its sole discretion, accepts in writing, then WFI shall be
deemed to have earned the
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applicable fee as set forth above in PARAGRAPH 2. The Company shall
pay such fee(s) to WFI on (i) the date it receives the proceeds of
such loan or investment, and in the event such proceeds are to be
paid to the Company in deferred installments, then the fee(s) payable
to WFI shall be payable in amounts proportionate to each of the
deferred installments, or (ii) if the Company fails to accept funding
against an accepted commitment, on the expiration date of the accepted
commitment; provided, however, if a funding against an accepted
commitment does not occur as a result of (A) withdrawal by a lender or
investor, (B) the Company is unable to agree with the lender or
investor after negotiating in good faith on definitive documentation
or (C) there are material changes either to the transaction or to the
circumstances surrounding such transaction that (I) arise after the
execution of the Company's acceptance of the Commitments or (II) are
proposed by the lender or investor, then the Company shall have no
obligation to pay the applicable fee set forth above in PARAGRAPH 2.
5. THIRD PARTY RIGHTS. This Agreement has been and is made solely for the
benefit of WFI and the Company and for their respective agents,
employees, officers and directors and any successors, assigns and
heirs. No other person shall acquire or have any right under or by
virtue of this Agreement.
6. TERM; TERMINATION. WFI's right under this Agreement shall extend from
the date hereof for a period of twelve (12) months or after such
period until either WFI, upon ninety (90) days written notification,
or the Company, immediately upon such notification, communicates to
the other party that it wishes to terminate this Agreement (the
"Engagement Period"); provided, however, that the provisions of
PARAGRAPHS 2, 8 and 9 will survive such expiration or termination
except as otherwise set forth herein. For purposes herein, the
effective date of Termination shall be deemed to have occurred upon
the earlier of the actual or constructive date of delivery of the
written notification.
Notwithstanding anything in this Agreement to the contrary, the
Company can terminate this Agreement at any time for Cause (as defined
below). If the Company elects to terminate this Agreement for Cause,
then (i) the Company shall owe none of the fees set forth in PARAGRAPH
2 to WFI under any circumstance whatsoever, including any fees that
might arise during the Tail Period and (ii) the Company shall
reimburse WFI only for those accountable expenses incurred in
connection with this Agreement in accordance with PARAGRAPH 3, and
(iii) the Company shall not be obligated to indemnify WFI as it
otherwise would be required to do pursuant to PARAGRAPH 8. For
purposes of this Agreement, "Cause" means (i) a breach of WFI's duties
or obligations under this Agreement or (ii) WFI's gross negligence or
misfeasance in performing its duties and obligations under this
Agreement.
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7. EXCLUSIVITY AND WFI'S FUTURE RIGHTS. During the term of this Agreement
neither the Company, its officers, directors, shareholders or agents
shall engage any other entity to secure Financings, nor shall the
Company, its officers, directors, shareholders or agents initiate or
pursue discussion with potential financing sources for the purpose of
obtaining loans on equity funds for Financings, except in conjunction
with and/or acknowledgment by WFI; provided, however, that this
Agreement shall not prohibit the Company from engaging in discussions
or entering into any kind of financial arrangement, with any entity
identified on SCHEDULE A attached hereto or their respective
successors-in-interest, and nothing in this Agreement shall be
applicable or enforceable with respect to any such arrangement that
the Company discusses or enters into with those entities identified on
SCHEDULE A attached hereto or their respective successors-in-interest.
If a Financing is consummated during the term of this Agreement, WFI
or a party designated on SCHEDULE A shall be designated as the
placement agent. The fee structure for any such consummated Financing,
or any additional Financing consummated during the Engagement Period,
shall be determined in accordance with the provisions of PARAGRAPH 2
herein. If a Financing is consummated during the Engagement Period for
which WFI provided substantial services and the Company desires to
undertake an additional Financing (a "Subsequent Financing") through
either a Private Offering or a Public Offering during the succeeding
twelve months, the Company shall provide WFI with written notice of
the proposed Subsequent Financing. WFI will respond by written
notification to the Company within fifteen (15) days of such notice if
it desires to act as placement agent for such Subsequent Financing. If
WFI responds within such time period, then the Company will appoint
WFI as the placement agent for such Subsequent Financing upon terms
and conditions mutually acceptable to both the Company and WFI.
8. INDEMNITY.
(a) In addition to the amounts which the Company has herein agreed to
pay to WFI, the Company shall indemnify and hold WFI and its
officers, directors, agents and controlling persons harmless
against any losses, claims, damages or liabilities to which WFI
or any of them may become subject insofar as the same arises from
an action which alleges or is based upon the alleged untrue
statement of a material fact, or omission of a material fact, or
any other violation of applicable securities or other laws, by
the Company or its officers, directors, agents and controlling
persons and to reimburse WFI for any legal or other expenses
reasonably incurred by it in connection with investigating,
settling or defending any action or claim in connection
therewith; provided, however, that the Company shall not be
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liable in any such case to the extent that any such loss, claim,
damage or liability: (i) is found in a final judgment of a court
of competent jurisdiction to have resulted from a breach of WFI's
obligations to the Company in connection with the performance by
WFI of the services pursuant hereto or from WFI's gross
negligence or misfeasance in performing such services or (ii)
arises out of, or is based upon, any untrue statement of a
material fact or omission of a material fact made in any written
communication or any amendment or supplement thereto in reliance
upon, and in conformity with, information furnished to the
Company by WFI expressly for use therein.
(b) WFI shall indemnify and hold the Company and its officers,
directors, agents and controlling persons harmless against any
losses, claims, damages or liabilities to which the Company may
become subject in connection with the transactions contemplated
herein, insofar as such losses, claims, damages or liabilities
arise out of, or are based upon (i) any untrue statement or
misleading omissions made by WFI in writing expressly for use in
connection with a Financing (other than untrue statements of a
material fact or omission of a material fact made by WFI in
reliance on information supplied to WFI by the Company) or (ii)
WFI's gross negligence, misfeasance or breach of WFI's obligation
hereunder to the Company. WFI shall reimburse the Company for any
legal or other reasonable expenses incurred by it in connection
with investigating, settling or defending any such action or
claim.
(c) Upon receipt by WFI or its officers, directors, agents or
controlling persons (for purposes of PARAGRAPH 8(a)), or the
Company or its officers, directors, agents or controlling persons
(for purposes of PARAGRAPH 8(b)) (in each case the "Indemnified
Party"), of notice of any action, suit, proceeding, claim, demand
or assessment against the Indemnified Party that might give rise
to a claim pursuant to this section, the Indemnified Party shall
give written notice thereof within ten days (the "Notice of
Claim") to the Company, for purposes of PARAGRAPH 8(a), or WFI,
for purposes of PARAGRAPH 8(b) (in each case the "Indemnifying
Party"), indicating the nature of such claim and the basis
therefor. The Notice of Claim shall specify all facts known to
the Indemnified Party giving rise to such claim and the amount of
estimate of the amount of liability arising therefrom. Any delay
or failure to notify the Indemnifying Party shall relive the
Indemnifying Party of its obligations hereunder only to the
extent, if at all, that it is prejudiced by reason of such delay
or failure.
(d) Promptly after a claim is made for which the Indemnified Party
seeks indemnity, the Indemnified Party, at its option and
expense, to assume the
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defense of such action, suit, proceeding, claim, demand or
assessment with full authority to conduct such defense and the
Indemnified Party will cooperate fully with such defense. The
Indemnified Party shall have the right to employ separate counsel
in any of the foregoing actions, claims or proceedings and to
participate in the defense thereof, and the Indemnifying Party
shall pay the reasonable fees and expenses of such counsel in
advance at the request of the Indemnified Party. Anything in this
section to the contrary notwithstanding, the Indemnified Party
shall not, without the Indemnifying Party's prior written
consent, settle or compromise any action or claim or proceeding
or consent to entry of any judgment with respect to any such
action or claim that requires the payment of money damages by the
Indemnified Party or in any way is binding upon or affects the
Indemnifying Party.
(e) The respective reimbursement and indemnity obligation of WFI and
the Company pursuant to subparagraphs (a) and (b) of this
PARAGRAPH 8 shall be in addition to any liability which WFIP or
the Company may otherwise have and shall be binding upon, and
inure to the benefit of, their respective successors, assigns,
heirs, and personal representatives.
(f) Except as stated otherwise herein, the respective indemnify
agreements of WFI and the Company contained in subparagraphs (a)
and (b) of this PARAGRAPH 8 shall remain operative and in full
force and effect regardless of any termination of this Agreement
or of any investigation made by or on behalf of this Company or
WFI.
9. CONFIDENTIAL INFORMATION. WFI acknowledges that as a consequence of or
through its engagement by the Company, it will acquire information
concerning the Company's business, products and services. All such
information shall be "Confidential Information" regardless of whether
it is reduced to writing, used or practiced during the Engagement
Period. As a condition to the Company's entering into this Agreement,
WFI agrees that it shall not at any time for a term beginning on the
date hereof and ending two years after the termination of WFI's
engagement hereunder, either directly or indirectly, use for the
benefit of itself or communicate or divulge to any other person,
partnership, association, corporation or other entity for their use or
benefit, any Confidential Information known by, or then in the
possession of, WFI without the prior written consent of the Company.
The foregoing restriction shall not apply to Confidential Information
that, at the time of disclosure to WFI, has become a part of the
public domain through publication or communication by the Company or
others, unless such matters become part of the public domain in
connection with or as a result of a violation of this restriction by
WFI.
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10. BOARD OBSERVER. WFI shall have the right to appoint an individual to
act as a non-voting observer of all meetings of the Board of Directors
of the Company, subject to the terms and conditions of a Board
Observer Agreement substantially in the form as the Board Observer
Agreement attached hereto as EXHIBIT A.
11. NOTICES. All notices, requests consents and other communications
hereunder shall be in writing and shall be delivered in person, mailed
by certified or registered mail, return receipt requested, sent by
telecopier, telex or delivered by Federal Express, United Parcel
Service or another similar company, addressed as follows:
(a) if to the Company, at 000 X. Xxxx Xxxxxx, Xxxxx 000, Xxxxxxx,
Xxxxx 00000, Attention: Xxxxx X. XxXxxx, with a copy to Xxxxxx &
Xxxxxx L.L.P., 3700 Xxxxxxxx Xxxx Center, 0000 Xxxx Xxxxxx,
Xxxxxx, Xxxxx 00000, Attention: Xxx X. Xxxxxx and
(b) if to WFI, at 000 Xxxxx 0xx Xxxxxx, Xxxxx 000, Xxxxxxxxxxx,
Xxxxxxxxx 00000, Attention: Xxxx X. Xxxxxxxxxx, with a copy to
Xxxx des Hotels.
(c) Any notice or communication hereunder shall be deemed to have
been given or made as of the date so delivered if personally
delivered; when answered back, if telexed; when receipt is
acknowledged, if telecopied; and five calendar days after mailing
if sent by registered or certified mail (except that a notice of
change of address shall not be deemed to have been given until
actually received by the addressee). If a notice or communication
is mailed in the manner provided above, it is duly given, whether
or not the addressee receives it.
12. GENERAL. This Agreement may not be modified except in writing. This
Agreement represents the entire understanding between the Company and
WFI and all prior discussions and negotiations and all prior
engagement letters are merged into it.
13. ARBITRATION. Any dispute or controversy arising out of this Agreement
shall be determined by arbitration in accordance with the rules of the
National Association of Securities Dealers, Inc. as then in effect and
at a location mutually acceptable to both parties. Any arbitration
award shall be final and binding upon the Company and WFI, and
judgment upon the award may be entered in any court having
jurisdiction.
14. ASSIGNABILITY. WFI cannot assign its rights under this Agreement
without the written consent of the Company.
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15. SURVIVAL. Compensation, reimbursement, confidentiality and indemnity
obligations of the Company and WFI, as applicable, under this
Agreement shall survive any assignment of this Agreement and shall be
binding upon and entered into the benefit of any successors, assigns,
heirs and personal representatives of the Company and WFI.
16. COUNTERPARTS. This Agreement may be executed in counterparts, and all
counterparts will be considered as part of one agreement binding on
all parties to this Agreement.
17. FACSIMILE SIGNATURES. The parties may execute this Agreement by
facsimile, which signature[s] shall be deemed an original and binding
upon such party.
18. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Minnesota.
If this letter correctly states our agreement, please so indicate by
signing below and returning a signed copy to us. Upon receipt of a signed copy
of this letter, the terms of such letter shall constitute a binding agreement
between WFI and the Company.
[Signature page follows]
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WATERFORD FINANCIAL, INC.
By /s/ Xxxx X. Xxxxxxxxxx
------------------------------
Xxxx X. Xxxxxxxxxx
President
Accepted this 28 day of January, 2000
HORIZON PHARMACIES, INC.
By: /s/ Xxxx XxXxxx
------------------------
Xxxx XxXxxx
President & CEO
SCHEDULE A
ENTITIES
--------
Allegiance Capital
AmeriSource
Amersco
Bank Boston
Bank of America
Bank One
Bergen Xxxxxxxx
Xxxxxxx Western
Cardinal Distribution
C.A.S.E.
Chase Bank
Citicorp
Deep Haven Capital
Drug Emporium
Finova
First Union & Congress Financial
Fleet Capital
Fred's
GE Capital
GTCR (Xxxxxx Xxxx)
Xxxxxx Financial
X. X. Xxxxxxx, LLC
LaSalle Bank
McKesson HBOC
Xxxxxxxxx International
USA Drug
EXHIBIT A
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FORM OF
BOARD OBSERVER AGREEMENT
