EXHIBIT 10.1
MANAGEMENT SERVICES AGREEMENT
AGREEMENT, dated as of October 27, 2003, between STEEL CITY PHARMACEUTICALS
LLC, a Delaware limited liability company ("SCP"), and RXBAZAAR, INC., a
Delaware corporation ("RxBazaar").
RECITALS
WHEREAS, RxBazaar, either directly or through its subsidiary FPP
Distribution Inc., is engaged in the purchase and resale of pharmaceutical and
medical products, including the purchase of such products on consignment for
resale;
WHEREAS, SCP was recently formed to engage in the business of purchasing
certain inventory from third parties on a spot basis for resale through
RxBazaar; and
WHEREAS, subject to the terms and conditions set forth in this Agreement,
RxBazaar desires to purchase inventory from SCP, and SCP desires to sell such
inventory to RxBazaar.
NOW THEREFORE, in consideration of the mutual covenants set forth herein,
and for other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto covenant and agree as follows:
Section 1. Inventory Purchase.
------------------
1.1 Purchase Opportunity. Subject to the terms and conditions herein,
during the term of this Agreement as set forth in Section 4 (the "Term"),
RxBazaar shall notify SCP of opportunities (a "Purchase Opportunity") for the
purchase of pharmaceutical and medical products, as well as other related
products (the "Spot Merchandise"), from third parties that RxBazaar would accept
for resale. For each Purchase Opportunity, the notice from RxBazaar shall
specify the type, the amount, the price, the payment date, the acceptance date
and any other relevant terms for the purchase of the Spot Merchandise. On or
before the acceptance date, SCP shall notify RxBazaar whether SCP accepts
(including setting forth the expected repayment terms for the purchase) or
rejects the Purchase Opportunity of the offered Spot Merchandise. In the event
that SCP fails to respond to RxBazaar's notice by the acceptance date for such
purchase, it shall be deemed that SCP rejected the Purchase Opportunity.
1.2 Purchase. Upon SCP accepting a Purchase Opportunity, it shall be solely
responsible for the payment of the purchase price of the Spot Merchandise
included in that Purchase Opportunity. RxBazaar shall provide all purchasing,
documentation and receiving functions necessary to complete the transaction and
have the Spot Merchandise delivered in SCP's name and ownership. The Spot
Merchandise shall always be the property SCP, and title will only pass upon
receipt of a third party order to purchase such Spot Merchandise.
1.3 Segregation. RxBazaar shall take all reasonable steps to segregate the
Spot Merchandise from its own inventory and shall not include the Spot
Merchandise on the RxBazaar inventory records. Should any purchase of Spot
Merchandise include controlled substances requiring the purchaser to possess
federal or state licenses, RxBazaar shall maintain ownership and handle that
Merchandise in according to such regulations; provided that SCP may finance the
transaction under the same terms as outlined in Section 3.
1.4 Title and Risk of Loss. Except as otherwise provided herein, SCP shall
have title to the Spot Merchandise from time of its delivery to RxBazaar until
receipt of an order to purchase as provided for in Section 2. SCP may file UCC
financing statements with respect to the Spot Merchandise as notice filing.
Section 2. Sale of Inventory
-----------------
2.1 Sale. RxBazaar shall be responsible for finding a buyer for the Spot
Merchandise. RxBazaar shall seek to sell the Spot Merchandise prior to the sale
of any like items belonging to RxBazaar; provided that RxBazaar has the right to
exchange short dated Spot Merchandise (item for item) with its own inventory as
2
long as the exchange does not effect SCP sales or the gross profit from those
sales. RxBazaar shall "accept ownership" of the Spot Merchandise upon receipt of
a third party order to purchase such Spot Merchandise or forty-five (45) days
from SCP payment for the Spot Merchandise, which ever occurs first. As soon as
RxBazaar "accepts ownership," payment shall be due and payable as outlined in
Section 3.
2.2 Expenses. RxBazaar shall be responsible for any expenses incurred with
the maintenance, sale, delivery and collection of payments (the "Spot
Merchandise Receivables") for the Spot Merchandise.
2.3 Security Interest. In consideration of SCP entering into this Agreement
and to secure their obligations hereunder to SCP, RxBazaar and its wholly-owned
subsidiary FPP Distribution Inc., an Ohio corporation ("FPP"), each hereby
grants to SCP a security interest in the Spot Merchandise Receivables as well as
in the other accounts receivable of RxBazaar and FPP, subject to a prior
security interest of The CIT Group/Business Credit, Inc. or any successor senior
lender to RxBazaar, but senior to the security interest of Able Laboratories,
Inc. SCP agrees to enter into an intercreditor agreement with the other secured
parties setting forth their respective security interests and rights and
obligations thereunder. RxBazaar shall at its expense, on behalf of itself and
FPP, execute and file such financing statements as may be reasonably requested
by SCP to reflect SCP's security interest in the Spot Merchandise Receivables.
Section 3. Compensation.
------------
3.1 Commitment Fee. In consideration of SCP maintaining $4 million in cash
or in immediately available lines of credit to be used for the purchase of Spot
Merchandise hereunder, RxBazaar shall pay SCP a fee (the "Commitment Fee") equal
to $50,000 per month at the end of each month during the Term of this Agreement.
At the end of each fiscal quarter for each fiscal year during the Term the
amount paid as Commitment Fees for such quarter shall be adjusted to the extent
3
that the aggregate sum paid by RxBazaar as the Commitment Fee and the Profit
Share (as defined below) would exceed $1,200,000 for such fiscal year on an
annualized basis, and with a final adjustment at the end of the fourth quarter
during such fiscal year. In the event this Agreement terminates other than at
the end of a fiscal year, the foregoing adjustment shall be annualized for the
period of the fiscal year that this Agreement was in effect.
3.2 RxBazaar Purchase Price. SCP shall receive a profit share (the "Profit
Share") equal to the greater of (i) 30% of the gross margin on sales by RxBazaar
of Spot Merchandise or (ii) an amount equal to a 20% annual percentage return
(APR) on the purchase price for such Spot Merchandise for the period commencing
on SCP's payment of the purchase price for the Spot Merchandise until SCP is
repaid an amount equal to its payment of the purchase price, based upon the
average daily outstanding amount of the purchase price during such period. In
addition, RxBazaar shall pay to SCP an amount equal to 100% of SCP's purchase
price for the Spot Merchandise. The Profit Share and the repayment of SCP's
purchase price, collectively, the "RxB Purchase Price"
3.3 Payment. RxBazaar shall pay the RxB Purchase Price to SCP as follows:
(a) At the time of each purchase of Spot Merchandise, SCP and RxBazaar
shall determine the dates for payment of the RxB Purchase Price after a sale of
such Spot Merchandise pursuant to Section 2.1.
(b) Should the Spot Merchandise from a specific purchase be resold within
forty-five (45) days after payment by SCP, RxBazaar shall pay to SCP any balance
due on the RxB Purchase Price for such purchase on the earlier of (i) thirty
(30) days after the sale of the Spot Merchandise or (ii) forty-five (45) days
after payment by SCP for the Spot Merchandise.
4
(c) Should all items of Spot Merchandise from a specific purchase not be
resold within forty-five (45) days after payment by SCP, for purposes of
determining the Profit Share, the item(s) not resold shall be deemed resold at
the average sales price received by RxBazaar for such item(s) during such
forty-five (45) day period. RxBazaar shall pay this determined Profit Share,
less any amounts previously paid as the Profit Share on such items, no later
than the fiftieth (50th) day after payment by SCP for such Spot Merchandise.
3.4 Reports. RxBazaar shall send a weekly report via overnight express or
facsimile to SCP detailing any activity of Spot Merchandise. Not later than four
(4) business days after the end of each month during the term of this Agreement,
RxBazaar shall deliver to SCP a report (the "Report") showing the Spot
Merchandise, itemized by type and quantity, as of the end of such month and all
sales of Spot Merchandise during such period. Upon request and during regular
business hours, SCP shall have the right to examine the supporting documentation
of RxBazaar covering the Spot Merchandise and sales thereof to verify the
accuracy of the information in the Report.
3.5 Additional Consideration. As additional consideration for SCP entering
into this Agreement and agreeing to perform hereunder, RxBazaar shall grant to
SCP (i) warrants (the "Warrants") to purchase shares of RxBazaar Common Stock at
an exercise price of $2.00 per share exercisable for five (5) years at the rate
of one Warrant for each $20.00 of equity capital invested in SCP and (ii)
options (the "Options") to purchase up to 1,600,000 shares of RxBazaar Common
Stock at an exercise price of $2.50 per share exercisable during the term of
this Agreement and for a period of sixty (60) days after termination of this
Agreement, except that should SCP reject more than twenty percent (20%) of the
Purchase Opportunities during the first six (6) months of the Term of this
Agreement, the Option shall terminate as to the unexercised shares thereunder.
5
Section 4. Term. This Agreement shall be for a Term commencing as of the
date hereof and terminating on August 31, 2006, subject to earlier termination
(i) by SCP at any time with or without cause upon thirty (30) days prior written
notice to RxBazaar, or (ii) by RxBazaar at any time after one (1) year of
execution of this Agreement with or without cause upon thirty (30) days written
notice to SCP, provided that RxBazaar may terminate this Agreement earlier
should SCP have rejected more than twenty percent (20%) of the Purchase
Opportunities during the first six (6) months of the Term of this Agreement.
Upon termination of this Agreement by RxBazaar, any unsold Spot Merchandise
shall be deemed sold as of the termination date hereof at a price equal to the
average sales price received by RxBazaar during the thirty (30) days preceding
the termination date for the items constituting such unsold Spot Merchandise.
Section 5. Representations, Warrants and Covenants. SCP hereby represents
and warrants to RxBazaar as follows:
5.1 Formation. SCP has been duly organized and is validly existing as a
limited liability company in the State of Delaware and is qualified as a foreign
limited liability company in all jurisdictions in which qualification may be
required. SCP shall maintain its existence during the Term of this Agreement.
5.2 Capital. At all times during the Term of this Agreement the total of
the SCP equity capital plus availability under outstanding bank credit lines
obtained by SCP shall not be less than $4 million which shall be used for the
purchase of Spot Merchandise.
5.3 Purpose. SCP was formed for the sole purpose of entering into this
Agreement and performing its obligations hereunder. SCP shall not change its
purpose during the Term of this Agreement.
Section 6. Notices. Except as otherwise provided herein, any notice or
other communication required hereunder shall be in writing and shall be
6
considered to have been delivered if delivered personally, sent by facsimile
transmission (provided that confirmation of receipt of all pages is provided by
the receiving facsimile marking) or sent by FedEx or another nationally
recognized overnight delivery service, or by registered or certified mail,
postage prepaid, addressed as set forth below, or to such other address as
either party hereto may hereafter give to the other party:
If to SCP:
---
Steel City Pharmaceuticals LLC
00000 Xxxxxx Xxxx Xxxxx
Xxxxxx Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx, Managing Member
Tel: (000) 000-0000
Fax: (000) 000-0000
If to RxBazaar:
--------
RxBazaar, Inc.
0000 Xxxxxx Xxxxxx Xxxxx
Xxxxxxxxxx, Xxxx 00000
Att: Xxxxx X. Xxxxxx, President
Tel: (000) 000-0000
Fax: (000) 000-0000
Section 7. Miscellaneous.
-------------
7.01 Binding. This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns, provided that
neither party may assign all or any part of this Agreement without the prior
written consent of the other party, which consent may be withheld in the sole
discretion of the consenting party. This Agreement is for the sole benefit of
the parties hereto, and no provision of this Agreement shall be deemed to confer
upon any third party (including the members of SCP) any remedy, claim,
liability, reimbursement, cause of action or other right.
7.02 Entire Agreement. This Agreement sets forth the entire agreement
between the parties as to the subject matter herein, and supersedes all prior
7
agreements and understandings (written or oral) between the parties hereto. This
Agreement cannot be amended or modified except by a writing executed by the
parties hereto.
7.03 Severability. If any provision of this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality or enforceability of
the other provisions hereof shall not be affected hereby, and there shall be
deemed substituted for such provision at issue a valid, legal and enforceable
provision as similar as possible to the provision at issue.
7.04 Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, without regard to conflicts or choice of law provisions.
7.05 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as the day
and year first above written.
RXBAZAAR, INC. STEEL CITY PHARMACEUTICALS LLC
By /s/ Xxxxx X. Xxxxxx By /s/ Xxxxxxx X. Xxxxxxx
-------------------------------- ------------------------------------
Name: Xxxxx X. Xxxxxx Name: Xxxxxxx X. Xxxxxxx
Title: President and Chief Title: Managing Member
Operating Officer
THE UNDERSIGNED AGREES TO BE BOUND BY THIS AGREEMENT TO THE SAME EXTENT AS
RxBAZAAR, INC. AS TO ALL MATTERS FOR WHICH IT PERFORMS OR ASSUMES ANY
OBLIGATIONS OF RxBAZAAR, INC. UNDER THIS AGREEMENT. ACKNOWLEDGED:
FPP DISTRIBUTION INC.
By: /s/ Xxxxx X. Xxxxxx, President
---------------------------------
Xxxxx X. Xxxxxx, President
8
