Unassociated Document

















 

STOCK
PURCHASE AGREEMENT

 

By and
Among

 

MOMS
PHARMACY, INC.

 

as
Buyer

 

And

 




PAT
IANTORNO, ERIC IANTORNO, JORDAN IANTORNO, JORDAN IANTORNO A/C/F MAX IANTORNO,
MICHAEL WINTERS AND GEORGE MONCADA

COLLECTIVELY,
as Sellers

 










Dated
February 28, 2005

 




 




























 

TABLE OF
CONTENTS

Page







	
      ARTICLE
      1 THE
      TRANSACTION
	
      1




 



	
      1.1
	
      Sale
      and Purchase of the Shares
	
      1

	
      1.2
	
      Purchase
      Price
	
      1

	
      1.3
	
      Transfer
      Taxes
	
      2

	
      1.4
	
      Closing
      Time and Place
	
      2

	
      1.5
	
      Payment
      of Purchase Price at Closing
	
      2

	
      1.6
	
      Delivery
      of the Warrants at Closing
	
      2




 


	
      ARTICLE
      2 REPRESENTATIONS
      AND WARRANTIES OF SELLERS
	
      2




 


	
      2.1
	
      Authorization
      and Enforceability
	
      2

	
      2.2
	
      Title
      to Shares
	
      3

	
      2.3
	
      Organization
	
      3

	
      2.4
	
      Qualification;
      Location of Business and Assets
	
      3

	
      2.5
	
      Capitalization
      and Ownership
	
      3

	
      2.6
	
      Subsidiaries
	
      3

	
      2.7
	
      Minute
      Book, Etc.
	
      3

	
      2.8
	
      Financial
      Statements
	
      4

	
      2.9
	
      No
      Conflicts; No Violation of Law or Agreements
	
      4

	
      2.10
	
      Litigation
      and Claims
	
      5

	
      2.11
	
      Brokers
	
      5

	
      2.12
	
      No
      Undisclosed Liabilities
	
      5

	
      2.13
	
      No
      Changes
	
      5

	
      2.14
	
      Taxes
	
      7

	
      2.15
	
      Accounts
      Receivable
	
      8

	
      2.16
	
      Litigation
      and Claims
	
      8

	
      2.17
	
      Material
      Contracts
	
      8

	
      2.18
	
      Environmental
      Matters; Worker Health & Safety Matters
	
      9

	
      2.19
	
      Compliance
      with Laws
	
      10

	
      2.20
	
      Consents
	
      10

	
      2.21
	
      Real
      Estate
	
      10

	
      2.22
	
      Personal
      Property
	
      11

	
      2.23
	
      Intellectual
      Property
	
      11

	
      2.24
	
      Condition
      and Sufficiency of the Target Assets.
	
      12

	
      2.25
	
      Transactions
      with Related Parties
	
      12

	
      2.26
	
      Employees;
      Officers and Directors
	
      12

	
      2.27
	
      Labor
      Relations
	
      13

	
      2.28
	
      Insurance
	
      13

	
      2.29
	
      Employee
      Benefit Plans
	
      13

	
      2.30
	
      Customers
	
      15

	
      2.31
	
      Accounts;
      Lockboxes and Safe Deposit Boxes
	
      15

	
      2.32
	
      Licenses
	
      15

	
      2.33
	
      Payment
      Programs
	
      15

	
      2.34
	
      Fraud
      and Abuse
	
      16

	
      2.35
	
      Physician
      Self-Referrals
	
      16

	
      2.36
	
      Controlled
      Substances
	
      16

	
      2.37
	
      Disclosure
	
      16






 







-i-













TABLE OF
CONTENTS

Page





	ARTICLE
      3 REPRESENTATION
      AND WARRANTIES OF BUYER	
      16

	 	
      3.1
	
      Organization;
      Qualification; Authority and Enforceability
	
      16

	 	
      3.2
	
      No
      Conflict; No Violation of Laws or Agreements
	
      16

	 	
      3.3
	
      Consents
	
      17

	 	
      3.4
	
      Litigation
      and Claims
	
      17

	 	
      3.5
	
      SEC
      Reports
	
      17

	 	
      3.6
	
      Brokers
	
      17

	 	
      3.4
	
      Investment
      Representations
	
      17

	ARTICLE
      4 CERTAIN
      OBLIGATIONS	
      17

	 	
      4.1
	
      Conduct
      of Business Pending Closing
	
      17

	 	
      4.2
	
      Ordinary
      Course
	
      18

	 	
      4.3
	
      Preservation
      of Businesses
	
      18

	 	
      4.4
	
      Maintenance
      of Employees
	
      18

	 	
      4.5
	
      Insurance
	
      18

	 	
      4.6
	
      Cooperation
	
      19

	 	
      4.7
	
      Access,
      Information, and Documents
	
      19

	 	
      4.8
	
      Acquisition
      Proposals
	
      19

	 	
      4.9
	
      Controlled
      Substances Registration
	
      19

	 	
      4.10
	
      Management
      Representation Letters
	
      19

	ARTICLE
      5 CONDITIONS
      TO CLOSING	
      19

	 	
      5.1
	
      Conditions
      Precedent to Obligations of Buyer
	
      19

	 	
      5.2
	
      Conditions
      Precedent to the Obligations of the Sellers
	
      20

	 	
      5.3
	
      Satisfaction
      of Closing Conditions
	
      21

	ARTICLE
      6 DELIVERIES
      AND PROCEEDINGS AT CLOSING	
      21

	 	
      6.1
	
      Closing
      Deliveries by Seller
	
      21

	 	
      6.2
	
      Deliveries
      By Buyer
	
      22

	ARTICLE
      7 TERMINATION	
      22

	ARTICLE
      8 CERTAIN
      ADDITIONAL COVENANTS	
      22

	 	
      8.1
	
      Costs
      and Expenses
	
      22

	 	
      8.2
	
      No
      Solicitation
	
      22

	 	
      8.3
	
      Non-Competition
	
      23

	 	
      8.4
	
      Confidential
      Information; Confidentiality
	
      23

	 	
      8.5
	
      Section
      338 Election
	
      24

	ARTICLE
      9 INDEMNIFICATION	
      24

	 	
      9.1
	
      Indemnification
      by Sellers
	
      24

	 	
      9.2
	
      Indemnification
      by Buyer
	
      24

	 	
      9.3
	
      Notice
      and Opportunity to Defend
	
      25

	 	
      9.4
	
      Offset
	
      25

	 	
      9.5
	
      Survival
	
      25

	 	
      9.6
	
      No
      Election
	
      25

	ARTICLE
      10 MISCELLANEOUS	
      25

	 	
      10.1
	
      Notices
	
      25

	 	
      10.2
	
      Successors
      and Assigns
	
      26

















-ii-














TABLE OF
CONTENTS

Page



	 	
      10.3
	
      Construction
	
      26

	 	
      10.4
	
      Governing
      Law
	
      27

	 	
      10.5
	
      Consent
      to Jurisdiction
	
      27

	 	
      10.6
	
      Headings
	
      27

	 	
      10.7
	
      Counterparts
	
      27

	 	
      10.8
	
      Further
      Assurances
	
      27

	 	
      10.9
	
      Course
      of Dealing
	
      27

	 	
      10.10
	
      Severability
	
      28

	 	
      10.11
	
      Entire
      Agreement
	
      28







 

 

 

 

 











-iii-












LIST
OF EXHIBITS


 




	
      Exhibit
      A
	
      Definitions

	
      Exhibit
      B
	
      Form
      of Warrant

	
      Exhibit
      C
	
      Form
      of Notes

	
      Exhibit
      D
	
      Form
      of Officers’ Certification 

	
      Exhibit
      E
	
      Form
      of Legal Opinion of Sellers’ Counsel

	
      Exhibit
      F
	
      Form
      of General Release

	
      Exhibit
      G
	
      Form
      of Noncompetition, Nonsolicitation and Confidentiality
      Agreement

	
      Exhibit
      H
	
      Form
      of Tubb Purchase Agreement

	
      Exhibit
      I
	
      Form
      of Parent Guaranty








 








-iv-















STOCK
PURCHASE AGREEMENT

 

This
STOCK PURCHASE AGREEMENT (the “Agreement”), is
made and entered into this February 28, 2005, by and among MOMS PHARMACY, INC.,
a California corporation (“Buyer”), and
Pat Iantorno, Eric Iantorno, Jordan Iantorno, Jordan Iantorno a/c/f Max
Iantorno, Michael Winters and George Moncada (each, a “Seller” and,
together, the
“Sellers”).

 

BACKGROUND:

 

Sellers
own all of the issued and outstanding shares of capital stock of Specialty
Pharmacies, Inc. (“Target”), a
Washington corporation (the “Shares”).


 

Target
operates a specialty retail pharmacy business in the States of California and
Washington (the “Business”).

 

Buyer
desires to purchase, and Sellers desire to sell, transfer and deliver to Buyer,
all the Shares on the terms and conditions of this Agreement. 

 

All
capitalized (and as noted herein, uncapitalized) words or expressions used in
this Agreement (including the Schedules and Exhibits annexed hereto) have the
meanings specified in Exhibit
A hereto
(such meanings to be equally applicable to both the singular and plural forms of
the terms defined).

 

In
consideration of the foregoing, the mutual representations, warranties and
covenants set forth in this Agreement, and for the good and valuable
consideration, the sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:

 

ARTICLE
1


 

THE
TRANSACTION

 

1.1  Sale
and Purchase of the Shares. Upon
the terms and subject to the conditions contained in this Agreement, at the
Closing:

 

(a)  Each
Seller shall sell, transfer, assign and convey the Shares owned by such Seller
to Buyer and shall deliver to Buyer a stock certificate or certificates
representing all of the Shares owned by such Seller, duly endorsed in blank or
with duly executed stock powers attached, with any appropriate transfer stamps
affixed, free and clear of any Lien, provided, that if
any such certificate shall have been lost, stolen or destroyed, an affidavit of
that fact by the person claiming such certificate to be lost, stolen or
destroyed shall be delivered to Buyer and, if required by Buyer, such person
shall post a bond in such reasonable amount and for such reasonable period of
time as Buyer may direct as indemnity against any claim that may be made against
Buyer with respect to such certificate; and

 

(b)  Buyer
shall purchase, acquire and accept from the Sellers all right, title and
interest in and to the Shares.

 




















1.2  Purchase
Price. The
aggregate consideration for the Shares is Six Million Three Hundred Thousand
Dollars ($6,300,000), as adjusted pursuant to Sections 1.7 and 1.8 (the
“Purchase
Price”),
and
warrants to purchase 351,438 shares of common stock of Parent at a price per
share of $6.26, in substantially the form attached hereto as Exhibit
B (the
“Warrants”),
payable in accordance with Section 1.5 and
Section 1.6.

 

1.3  Transfer
Taxes. Sellers
shall pay all stock transfer Taxes, recording fees and other sales, transfer,
use, purchase or similar Taxes resulting from the transactions contemplated
hereby.

 

1.4  Closing
Time and Place. The
closing of the transactions contemplated by this Agreement (the “Closing”) will
take place at the offices of Nixon Peabody LLP at 10:00 a.m. on the date of
this Agreement (the “Closing
Date”).

 

1.5  Payment
of Purchase Price at Closing. At the
Closing, Buyer shall pay the Purchase Price as follows:

 

(a)  Four
Million Four Hundred Thousand Dollars ($4,400,000), allocated
between the Sellers or their designees as indicated on Schedule 1.5 of the
Sellers’ Disclosure Schedule, by wire transfer of immediately available funds to
the account of each Seller or its designee as such Seller shall direct in
writing to Buyer on the Closing Date.

 

(b)  Buyer
will deliver promissory notes in the aggregate principal amount of One Million
Nine Hundred Thousand Dollars ($1,900,000), as adjusted pursuant to Section 1.7,
which shall be due and payable no later than the first anniversary of the
Closing Date, allocated between the Sellers as indicated on Schedule
1.5 of the
Sellers’ Disclosure Schedule (the “Notes”).

 

1.6  Delivery
of the Warrants at Closing. At the
Closing, Parent shall deliver the Warrants, allocated between the Sellers as
indicated on Schedule 1.6 of the
Sellers’ Disclosure Schedule.

 

1.7  Working
Capital Adjustment to Purchase Price.


 

(a) Within
105 days after the Closing Date, Buyer shall prepare and deliver to Sellers the
Closing Date Balance Sheet and the Closing Date Net Working Capital based on the
Closing Date Balance Sheet. If the Closing Date Net Working Capital is greater
than $0, the Purchase Price shall be increased by an amount equal to the Closing
Date Net Working Capital. If the Closing Date Net Working Capital is less than
$0, Purchase Price shall be reduced by the absolute value of the amount by which
Closing Date Net Working Capital is less than $0. The Purchase Price shall be
increased or decreased, as the case may be, pursuant to this Section 1.7(a) by a
dollar-for-dollar adjustment to the principal amounts of the Notes, pro rata
among the Sellers in proportion to the amounts set forth on Schedule 1.5 of the
Sellers’ Disclosure Schedule.

 

(d) If
Sellers agree in writing with the Closing Date Balance Sheet, the Closing Date
Balance Sheet will automatically be final and conclusive. If Sellers object to
the 

 







2












Closing
Date Balance Sheet, Buyer shall promptly meet with Sellers and endeavor to reach
agreement on the Closing Date Balance Sheet within 30 days after Sellers’
receipt of the Closing Date Balance Sheet. Any such agreement or objection by
Sellers shall be determined by a vote of the majority of the Shares, with such
numbers to be determined by reference to the date that is immediately prior to
the date of this Agreement. If at any time Sellers and Buyer agree in writing on
the Closing Date Balance Sheet, the Closing Date Balance Sheet shall
automatically be Closing Date and conclusive. If Sellers and Buyer are unable to
reach agreement on the Closing Date Balance Sheet within such 30 days, Buyer and
Sellers shall immediately retain an independent certified public accounting
firm, mutually selected and who has not provided material services to Buyer, the
Target or any Seller during the previous two years, to resolve all disputed
issues on the Closing Date Balance Sheet as soon as reasonably possible. Only
disputed issues shall be submitted to such independent certified public
accounting firm for review. In resolving any disputed issue, such independent
certified public accounting firm may not assign a value to such disputed issue
greater than the highest value for such issue claimed by either party or less
than the lowest value for such issue claimed by either party, in each case as
presented to such independent certified public accounting firm. The resolution
of all open issues on the Closing Date Balance Sheet by such independent
certified public accounting firm shall be Closing Date and binding on Sellers
and Buyer. All fees and disbursements of such independent certified public
accounting firm shall be paid by the party found by such independent certified
public accounting firm to be in the greatest error with respect to their
position on the Closing Date Balance Sheet or, if no such finding is made by
such independent certified public accounting firm, paid evenly by the Buyer, on
the one hand, and Sellers, on the other, with such amounts from Sellers to be
paid pro rata in accordance with the allocations set forth on Schedule
1.5(b).

 

(c) For
purposes of determining the Closing Date Balance Sheet and Closing Date Net
Working Capital, the parties agree that (i) any and all payments made or payable
(whether contingent or otherwise) to Michael Tubb pursuant to the Tubb Purchase
Agreement attached hereto as Exhibit
H (the
“Tubb
Purchase Agreement”) shall
be excluded for all purposes, (ii) amounts in respect of filled prescriptions
that are unbilled pending Medi-Cal treatment authorization requests shall be
deemed to be current assets of Target.

 

1.8 Qualification
for Pilot Program. In the
event the Target qualifies for the Pilot Program and is reimbursed as a result
thereof by Medi-Cal after the Closing Date for amounts in respect of the period
from September 1, 2004 through December 31, 2004, Buyer shall pay to Sellers
from time to time as soon as practicable after those amounts are received by the
Target from Medi-Cal an amount equal to the amounts so received, up to a maximum
of $200,000, with such amounts to be distributed among Sellers pro rata in
accordance with the allocations set forth on Schedule 1.5(b).

 

ARTICLE
2


 

REPRESENTATIONS
AND WARRANTIES OF SELLERS

 

Except as
set forth in the disclosure schedule delivered by the Sellers to Buyer on or
before the date of this Agreement (the “Sellers’
Disclosure Schedule”), each
Seller hereby represents and warrants to Buyer, jointly but not severally, as of
the Closing Date as follows:

 







3












2.1  Authorization
and Enforceability. Each
Seller has all necessary power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. Each Seller’s
execution and delivery of, and the performance of its obligations under, this
Agreement has been authorized to the extent such authorization is necessary for
such Seller to so execute, deliver and perform this Agreement. This Agreement
has been duly executed and delivered by such Seller and constitutes the legal,
valid and binding obligation of such Seller, enforceable against such Seller in
accordance with its terms.

 

2.2  Title
to Shares. Each
Seller owns of record and beneficially all of the Shares set forth opposite its
name on Schedule
2.2 of the
Sellers’ Disclosure Schedule, free and clear of all Liens. Except as set forth
on Schedule
2.2 of the
Sellers’ Disclosure Schedule, there are no outstanding securities, options,
warrants, rights, agreements, calls, subscription commitments, demands or
understandings relating to the sale or disposition of any of the Shares,
obligating either Seller to grant, offer or enter into any of the foregoing, or
relating to the voting or control of any Shares.

 

2.3  Organization. Target
is a corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation. Complete copies of Target’s charter and
bylaws have been delivered to Buyer as in full force and effect.

 

2.4  Qualification;
Location of Business and Assets. Target
is duly qualified and in good standing as a foreign corporation and has all
requisite corporate power and authority to do business in the jurisdictions set
forth on Schedule
2.4 of the
Sellers’ Disclosure Schedule, which jurisdictions are the only jurisdictions
wherein the character of the properties owned or leased or the nature of
activities conducted by Target make such qualification necessary and where the
failure to so qualify would have a Material Adverse Effect on the Target. Set
forth on Schedule
2.4 of the
Sellers’ Disclosure Schedule is each location (specifying state, county and
city) where Target (a) has a place of business, (b) owns or leases real
property, (c) maintains inventory and/or (d) maintains employees.

 

2.5  Capitalization
and Ownership. The
authorized capital stock of Target consists of 5,000,000 shares of common stock,
no par value, of which 933,334 shares are issued and outstanding. The Sellers
are the record and beneficial owner of all the Shares. All the Shares have been
duly authorized and validly issued, and are fully paid and nonassessable, were
not issued in violation of the terms of any agreement or other understanding
binding upon Target or any Seller, and to the best knowledge of Sellers, any
other Person, and were issued in compliance with all applicable federal and
state securities or “blue-sky” laws and regulations. Except as set forth on
Schedule
2.5 of the
Sellers’ Disclosure Schedule, there are no outstanding securities, options,
warrants, rights, agreements, calls, subscription commitments, demands or
understandings of any character whatsoever, fixed or contingent, that directly
or indirectly (i) call for the issuance, sale or other disposition of any
capital stock of Target and there are no securities convertible into or
exchangeable for any capital stock of Target, (ii) obligate any Seller to
grant, offer or enter into any of the foregoing or (iii) relate to the voting or
control of any capital stock of Target. No Person has any right to require
Target or Seller to register any securities of Target under any federal or state
securities laws.

 

2.6  Subsidiaries. Except
as set forth on Schedule
2.6 of the
Sellers’ Disclosure Schedule, Target does not, directly or indirectly, own any
equity ownership interest in any Person.

 







4












2.7  Minute
Book, Etc. The
minute book, stock certificate book and stock record book of Target have been
provided to Buyer and the signatures therein are the true signatures of the
persons purporting to have signed the documents contained therein. Such minute
book contains substantially accurate and complete minutes of all meetings or
written consents to action of the board of directors and shareholders of Target.
All material corporate actions taken by Target have been duly
authorized.

 

2.8  Financial
Statements.

 

(a)  Attached
hereto as Schedule
2.8 of the
Sellers’ Disclosure Schedule are (i) true and correct copies of the unaudited
balance sheets of Target as of December 31, 2002, 2003 and 2004 and the related
consolidated statements of profit and loss and cash flows for each of the fiscal
years then ended (collectively, the “Unaudited
Financial Statements”), and
(ii) the unaudited balance sheet of Target and related statement of profit
and loss as of, and for the period beginning on January 1, 2005 and ended on
January 31, 2005 (collectively, together with the Unaudited Financial
Statements, the “Financial
Statements,” with
the Financial Statements as of and at January 31, 2005 being
referred to herein as the “Interim
Statements”).

 

(b)  The
Financial Statements: (i) were prepared from the Books and Records of Target,
which Books and Records have been maintained in all material respects in
accordance with all legal and accounting requirements applicable thereto (it
being understood that, for purposes of this Section 2.8, the term “Books and
Records” shall mean only those Books and Records related to the preparation of
financial statements in accordance with GAAP); (ii) were prepared in accordance
with GAAP consistently applied; and (iii) present fairly the financial condition
of Target and the results of its operations for the periods covered by, and as
at the dates of, each of the Financial Statements except that the Interim
Statements omit footnote disclosures and do not reflect year-end adjustments
which will not, in the aggregate, be material. The statements of profit and loss
included in the Financial Statements do not contain any material items of
special or non-recurring income or other income not earned in the ordinary
course of business except as expressly specified therein.

 

2.9  No
Conflicts; No Violation of Law or Agreements. Except
to the extent set forth on Schedule
2.9, the
execution and delivery by each Seller of this Agreement does not, and the
consummation by the Sellers of the transactions contemplated hereby and thereby,
will not:

 

(a)  contravene
any provision of Target’s charter or bylaws;

 

(b)  conflict
with, constitute or result in any breach, default or violation of (or an event
which would, with or without the passage of time or the giving of notice or
both, constitute or result in a breach, default or violation of) (i) any of the
terms, conditions or provisions of any indenture, mortgage, loan or credit
agreement, or any other instrument, contract, agreement or commitment to which
either Seller or Target is a party, or by which either Seller or Target is
bound, (ii) any judgment or order of any Governmental Authority applicable to
either Seller or Target, or (iii) any law, rule or regulation;

 

(c)  result in
the creation or imposition of any Lien upon any Shares or upon any Target Assets
or give to others any interests or rights therein; 

 







5












(d)  result in
the acceleration of any liability or obligation of Target (or give others the
right to cause such acceleration); or

 

(e)  result in
the termination or loss of any right (or give others the right to cause such a
termination or loss) under any agreement or contract to which either Seller or
Target is a party or by which any of them may be bound or affected, or to which
any Shares owned by such Seller or any Target Assets may be
subject.

 

2.10  Litigation
and Claims. Except
to the extent set forth on Schedule
2.10, there
are no Claims pending, or to the best knowledge of the Seller, threatened which
seek to delay or prevent the consummation of the transactions contemplated by
this Agreement or which would adversely affect or restrict any Seller’s ability
to perform its obligations under this Agreement.

 

2.11  Brokers. No
Seller nor any person acting on behalf of any Seller has engaged, retained or
incurred any liability to any broker, investment banker, finder or agent, or
made any agreement (other than this Agreement) which would cause Target, Buyer
or any Affiliates of Buyer to be obligated to pay any broker’s fee, commission
or other fees with respect to the sale of the Shares or as a result of the
consummation of any of the transactions contemplated hereby.

 

2.12  No
Undisclosed Liabilities. Target
has no liability or obligation of any nature, whether due or to become due,
absolute, contingent or otherwise, whether direct or indirect, except (a) to the
extent reflected as a liability on the Financial Statements and the notes
thereto, (b) liabilities incurred in the ordinary course of business (and not in
violation of this Agreement or any other agreement to which Target is a party or
by which it may be bound), or (c) obligations to perform under the contracts
disclosed in
Schedule
2.17(a) of the
Seller’s Disclosure Schedule.

 

2.13  No
Changes. Since
December 31, 2003, Target has conducted its business only in the ordinary course
of business. Without limiting the generality of the foregoing sentence, since
December 31, 2003 there has not been:

 

(a)  any
change in the financial condition, assets, liabilities, net worth, earning power
or business of Target, except for changes in the ordinary course of business
consistent with past practice, none of which, individually or in the aggregate,
has had or could have a Material Adverse Effect on Target;

 

(b)  any
casualty, damage, destruction or loss, whether or not covered by insurance,
adversely affecting the properties, business or, to the best knowledge of
Seller, prospects of Target, or any deterioration in the operating condition of
the Target Assets, or any accidents in which any employees or other persons have
been killed or seriously injured;

 

(c)  any Lien
placed on any
of the Target Assets;

 

(d)  any
declaration, setting aside or payment of a dividend or other distribution in
respect of any of the Shares or any direct or indirect redemption, purchase or
other acquisition of any of the Shares;

 







6












(e)  any
increase in the salaries or other compensation payable or to become payable to,
or any advance (excluding advances for ordinary business expenses) or loan to
either Seller or any officer, director or employee of Target (except normal
merit increases made in the ordinary course of business and consistent with past
practice), or any increase in, or any addition to, other benefits (including any
bonus, profit-sharing, pension or other plan) to which either Seller or any
officers, directors or employees of Target may be entitled, or any payments to
any pension, retirement, profit-sharing, bonus or similar plan except payments
in the ordinary course of business and consistent with past practice made
pursuant to the Benefit Plans described on Schedule
2.29 of the
Sellers’ Disclosure Schedule or any other payment of any kind to or on behalf of
either Seller or any such officer, director or employee (other than payment of
base compensation and reimbursement for reasonable business expenses in the
ordinary course of business consistent with past practice);

 

(f)  any
making or authorization of any capital expenditures in excess of Ten Thousand
Dollars ($10,000);

 

(g)  any
cancellation or waiver of any right of Target or any cancellation or waiver of
any debts or Claims of Target or any cancellation or waiver of any debts or
Claims of Target against any Related Party;

 

(h)  any sale,
transfer, lease or other disposition of any Target Asset, except for inventory
in the ordinary course of business;

 

(i)  any
termination or amendment to or suspension or termination of, or receipt by
Target or either Seller of any notice of breach or default of, any lease,
contract or other agreement to which Target is a party;

 

(j)  any
payment, discharge or satisfaction of any liability or obligation (whether
accrued, absolute, contingent or otherwise) by Target, other than the payment,
discharge or satisfaction, in the ordinary course of business consistent with
past practice, of liabilities or obligations shown or reflected on the Financial
Statements or incurred in the ordinary course of business since December 31,
2003;

 

(k)  any
adverse change or, to the best knowledge of Seller, any threat of any adverse
change in Target’s relations with, or any loss or, to the best knowledge of
Seller, threat of loss of, suppliers or customers which, individually or in the
aggregate, had or may have
a Material Adverse Effect on Target;

 

(l)  any
write-offs as uncollectible of any notes or accounts receivable of Target or
write-downs of the value of any assets or inventory by Target, other than
immaterial amounts or in the ordinary course of business consistent with past
practice;

 

(m)  except as
set forth on Schedule
2.13 of the
Sellers’ Disclosure Schedule, any change by Target in any method of accounting
or keeping its books of account or accounting practices;

 







7












(n)  any
creation, incurrence, assumption or guarantee by Target of any obligation or
liability (whether absolute, accrued, contingent or otherwise and whether due or
to become due), except in the ordinary course of business consistent with past
practice, or any creation, incurrence, assumption or guarantee by Target of any
indebtedness for money borrowed, except in the ordinary course of business
consistent with past practice;

 

(o)  any
payment, loan or advance of any amount to or in respect of, or the sale,
transfer or lease of any material Target Asset (whether real, personal or mixed,
tangible or intangible) to, or entering into of any agreement, arrangement or
transaction with, any Related Party;

 

(p)  any
disposition of (or failure to keep in effect any rights in, to or for the use
of) any patent, trademark, service mark, trade name or copyright, or any
disclosure to any Person not an employee or other disposal of any
trade secret,
process or know-how; 

 

(q)  any other
transaction, agreement or event outside the ordinary course of Target’s business
or inconsistent with past practice; or

 

(r)  any
agreement or commitment to take or do any of the actions described in
subsections (a) through
(q)
above.

 

2.14  Taxes.

 

(a)  Target
has (i) timely filed all Returns required to be filed by it with respect to all
Taxes, including without limitation Returns for the fiscal year ended December
31, 2003 (which Returns have in all material respects been prepared in
accordance with all applicable laws and requirements and are correct and
complete), (ii) paid or made appropriate reserves on the Financial Statements
for all Taxes required to be paid by it (whether or not shown on any Return),
including without limitation in connection with all Returns for the fiscal year
ended December 31, 2003, and (iii) all Taxes that are required to be
collected or withheld have been duly collected or withheld and any such amounts
that are required to be remitted to any taxing authority have been duly
remitted.

 

(b)  The
accruals for Taxes contained in the Financial Statements are not less than all
unpaid liabilities for Taxes for all periods ended on or before the respective
dates of such Financial Statements and include adequate provisions for all
deferred Taxes, and nothing has occurred subsequent to such dates to make any of
such accruals inadequate. All Taxes for periods beginning after the dates of the
Interim Statements have been paid or are adequately reserved against and will be
reflected in Financial Statements. Target has (i) timely filed all information
returns or reports, including Forms 1099, which are required to be filed and
(ii) accurately reported all information required to be included on such returns
or reports. True copies of federal and state income tax returns of Target
relating to each of the fiscal years ended December 31, 2001 through December
31, 2003 have been delivered to Buyer.

 

(c)  No
representative of any government taxing authority has made a pending proposal in
writing to Target or Seller to assert any deficiency in Taxes, adjust any
Return, or revise the manner in which any Tax liability is determined with
respect to Target. No Return of 

 







8












Target
has been audited by the relevant authorities where any deficiencies or proposed
deficiencies resulting from such audit have not been paid or adequately reserved
in the Financial Statements. Seller has not received any written notice that a
Return is under examination by any taxing authority and, to the best knowledge
of Seller, no Return is under such examination.

 

(d)  Neither
Target nor any of its subsidiaries is a party to or bound by any Tax allocation
or sharing agreement. Neither Target nor any of its subsidiaries (i) has been a
member of an Affiliated Group filing a consolidated federal income tax Return
(other than a group the common parent of which was Target) or (B) has any
liability for the Taxes of any Person (other than Target or any of its
subsidiaries under Treas. Reg. §1.1502-6 (or any similar provision of state,
local or foreign law), as transferee or successor, by contract or
otherwise.

 

2.15  Accounts
Receivable. All of
the accounts and notes receivable of Target represent amounts receivable for
goods and services actually delivered (or in the case of non-trade accounts or
notes represent amounts receivable in respect of other bona-fide business
transactions), have arisen in the ordinary course of business, are free of any
Lien, are not subject to any valid counterclaims or offsets and have been billed
in the ordinary course of business. All of the accounts and notes receivable of
Target are collectible in the normal and ordinary course of business, except to
the extent of a reserve in an amount not in excess of the reserve for doubtful
accounts reflected on the Financial Statements, and provided that following the
Closing Buyer and Target use commercially reasonable efforts, consistent with
past collection practices and methods used by Target prior to the Closing, to
collect such accounts and notes receivable. Schedule
2.15 of the
Sellers’ Disclosure Schedule sets forth the total amount of accounts or notes
receivable of Target outstanding as of a date not more than thirty (30) days
prior to the date hereof.

 

2.16  Litigation
and Claims. Except
to the extent set forth on Schedule
2.16 hereto,
there is no Claim pending or, to the best knowledge of the Sellers, threatened
(and, to the best knowledge of the Sellers, no state of facts exist which may
lead to any such Claim) by, against or, to the best knowledge of the Sellers,
materially affecting Target, the Business or any Target Asset, before any
Governmental Authority or any arbitrator. There are presently no outstanding
judgments, decrees or orders of any Governmental Authority, any arbitrator or
any other Person against or, to the best knowledge of the Sellers, materially
affecting Target, the Business or any Target Asset. 

 

2.17  Material
Contracts.

 

(a)  Contracts. Except
as set forth in Schedule
2.17(a) of the
Sellers’ Disclosure Schedule, there are no contracts, agreements, arrangements,
commitments, instruments, plans or leases, oral or
written (collectively, the “Contracts”) to
which Target is a party or by which it is bound, meeting any of the following
descriptions:

 

(i)  any
Contract for consulting or other services obligating Target to payments of more
than Ten Thousand Dollars ($10,000) annually or having a duration in excess of
one (1) year;

 

(ii)  any
Contract relating to the management of Target; 

 







9












(iii)  any
contract or agreement for the employment of any person with a base annual
compensation of Thirty Thousand Dollars ($30,000) or more;

 

(iv)  any
Contract relating to the lease of machinery, equipment or other personal
property involving payment of fixed rentals in excess of Ten Thousand Dollars
($10,000) in the aggregate for any such lease during the current term thereof or
any renewal term to which Target is bound;

 

(v)  any
Contract for the purchase of any materials or supplies in excess of Five
Thousand Dollars ($5,000);

 

(vi)  any
Contract for the purchase, sale or transfer of equipment or any construction or
other similar agreement involving any expenditure in excess of Ten Thousand
Dollars ($10,000);

 

(vii)  any
Contract evidencing or related to indebtedness, obligations or liability for
borrowed money, or liability for the deferred purchase price of property, in
excess of Ten Thousand Dollars ($10,000) (excluding trade payables incurred in
the ordinary course of business consistent with past practice), or any Contract
of guaranty, indemnification or other similar commitment relating to the
obligations or liabilities of any other Person;

 

(viii)  any
Contract involving a sharing of profits, joint venture or
partnership;

 

(ix)  any
Contract relating to sales agency, brokerage, distribution or similar
matters;

 

(x)  any
Contract containing covenants limiting the freedom of Target to compete in any
line of business or in any area or with any Person;

 

(xi)  any other
Contract relating to orders for future purchase or delivery of goods or
retention of services which is material to Target or which has an aggregate
future liability greater than Ten Thousand Dollars ($10,000); or

 

(xii)  any other
Contract relating to the Business, except (A) Contracts excluded by an express
exception from the descriptions set forth in Subparagraphs 2.17(a)(ii) through
2.17(a)(xi) above
and (B) Contracts which are terminable on less than thirty (30) days’ notice
without penalty or payment or involving expenditures of less than Ten Thousand
Dollars ($10,000) in the aggregate.

 

(b)  Contract
Compliance. The
Contracts listed on Schedule
2.17(a) of the
Sellers’ Disclosure Schedule are all of the Contracts which are material to the
Business. Copies of all such Contracts have been provided to Buyer, are true,
correct and complete and have been subject to no amendment, extension or
modification, except such as are described in Schedule
2.17(a) of the
Sellers’ Disclosure Schedule. Each Contract referred to in Schedule
2.17(a) of the
Sellers’ Disclosure Schedule is valid and binding as to Target and, to the best
knowledge of the Sellers, as to any counterparty thereto and, with respect to
such Contracts, there is no default by Target or, to the best knowledge of the
Sellers, by any counterparty thereto, and no event which, 

 







10












with
notice or the passage of time or both, constitute such a default by Target, or,
to the best knowledge of the Sellers, by any counterparty thereto. No party has
any right to cancel, terminate or modify any of the Contracts to which Target is
a party by reason of the transactions contemplated under this
Agreement.

 

2.18  Environmental
Matters; Worker Health & Safety Matters.

 

(a)  No
material quantity of Hazardous Substances has been generated, transported, used,
disposed, stored or treated by Target. No material quantity of Hazardous
Substances has been released, discharged, disposed, transported, placed in, or
on, or been caused or permitted by Target to enter, the soil or water in, under
or upon any real property owned, leased or operated by Target.

 

(b)  Target
has complied with all applicable Environmental Laws (as defined below) in all
material respects. There is no pending or, to the best knowledge of the Sellers,
threatened civil or criminal litigation, written notice of violation, formal
administrative proceeding or investigation, inquiry or information request
directed to Target by any Governmental Entity, relating to any Environmental Law
involving Target. For purposes of this Agreement, “Environmental
Law” means
any federal, state, local or foreign law, statute, rule or regulation or the
common law relating to the protection of human health or the environment,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (“CERCLA”), the
Resource Conservation and Recovery Act of 1976, and any statute, regulation or
order pertaining to (i) the treatment, storage, disposal, generation and
transportation of industrial, toxic or hazardous materials or substances or
solid or hazardous waste; (ii) air, water and noise pollution;
(iii) groundwater and soil contamination; (iv) the release or
threatened release into the environment of industrial, toxic or hazardous
materials or substances, or solid or hazardous waste, including without
limitation emissions, discharges, injections, spills, escapes or dumping of
pollutants, contaminants or chemicals; (v) the protection of wildlife,
marine life and wetlands, including without limitation all endangered and
threatened species; (vi) storage tanks, vessels, abandoned or discarded
barrels, containers and other closed receptacles; (vii) the health and
safety of employees and other persons; and (viii) the manufacture,
processing, use, distribution, treatment, storage, disposal, transportation or
handling of pollutants, contaminants, toxic or hazardous materials or substances
or oil or petroleum products or solid or hazardous waste. As used in this
Section 2.18, the
term “release” shall have the meaning set forth in CERCLA.

 

(c)  Target is
in compliance in all material respects with all requirements of Worker Health
and Safety Laws, and is not subject to any cessation orders or cease and desist
orders issued by any other health and safety regulatory agency.

 

2.19  Compliance
with Laws. The
business, operations and assets of Target have been conducted and are in
compliance in all material respects with all applicable federal, state, local or
foreign laws, rules, regulations, ordinances, judgments, decrees, orders or
other requirements of any Governmental Authority. Neither Seller, nor any of
Target’s officers or employees, nor, to the best knowledge of Seller, Target’s
agents has made any illegal or improper payment to, or provided any illegal or
improper benefit or inducement for, any governmental official, supplier,


 







11












customer
or other Person, in an attempt to influence and such Person to take or to
refrain from taking any action relating to Target. 

 

2.20  Consents. Except
as set forth on Schedule
2.20 of the
Sellers’ Disclosure Schedule, no consent, approval or authorization of, or
registration or filing with, any Person, including any Governmental Authority,
is required in connection with the execution, delivery or performance of this
Agreement by the Sellers or the consummation by the Sellers of the transactions
contemplated hereby or thereby, or for the continuation of the Business after
Closing.

 

2.21  Real
Estate.

 

(a)  Owned
Real Property Interests. Target
does not own any land, or interests in real property, including easements,
rights of way and options. 

 

(b)  Leased
Real Property Interests.
Schedule
2.21(b) of the
Sellers’ Disclosure Schedule lists (i) by legal description reasonably
acceptable to Buyer all real property and interests in real property, including
easements, rights of way and options leased by Target from or to a third person
(the “Real
Property Interests”);
(ii) each lease, sublease, assignment, surface, wheelage and other
agreement, instrument and consent pursuant to which Target leases, occupies or
uses the Real Property Interests, or has subleased or otherwise granted to
others any interests therein, copies of which have been previously provided to
Buyer (collectively, the “Realty
Leases”); and
(iii) the identity of each lessor, lessee, consenting party, guarantor, if
applicable, and any other party to any of the Realty Leases. Each of the Realty
Leases is valid and binding without further sublease or assignment and in full
force and effect as to Target and, to the best knowledge of the Sellers, as to
any other party. There is no default by Target or, to the best knowledge of the
Sellers, by any other party, under any of the Realty Leases and there is no
event which, with notice or the passage of time or both, may constitute such
default by Target or, to the best knowledge of the Sellers, by any other party
under any of the Realty Leases. Except as set forth on Schedule
2.21(b) of the
Sellers’ Disclosure Schedule, upon consummation of the transactions contemplated
under this Agreement, Target will remain entitled to the full economic, legal
and other benefits under the Realty Leases on their present terms, and no party
has any right to cancel, terminate or modify any of the Realty Leases by reason
of the transactions contemplated under this Agreement.

 

(c)  Condemnation. There
is no pending condemnation, expropriation, eminent domain or similar proceeding
affecting all or a material portion of the Real Property Interests and, to the
best knowledge of the Sellers, no such proceeding is contemplated.

 

(d)  Disclosure.
Schedule
2.21(d) of the
Sellers’ Disclosure Schedule contains a complete list of all deeds, leases,
subleases and other instruments and documents in the possession of Target or any
Seller evidencing the ownership, leasing or right to use of the Real Property
Interests. 

 

2.22  Personal
Property. Set
forth on Schedule
2.22 of the
Sellers’ Disclosure Schedule hereto is a complete list and summary description
of all equipment, machinery, motor vehicles, furniture, trademarks, patents and
other tangible and intangible personal property (the “Personal


 







12












Property”) owned
or leased by Target, except for (a) any item of owned personal property with an
invoice cost of less than One Thousand Dollars ($1,000) and (b) supplies which
have a short-term useful life and are expensed, together with a statement as to
the location of each item of Personal Property identified therein. Target has
good title to all the owned Personal Property and good and valid leasehold
interests in all leased Personal Property, reflected in Schedule
2.22 of the
Sellers’ Disclosure Schedule, free and clear of all Liens.

 

2.23  Intellectual
Property. Set
forth on Schedule
2.23 of the
Sellers’ Disclosure Schedule hereto is a true and correct list of all patents
and patent applications, and all registrations or applications of trademarks,
trade names, service marks and copyrights that are held by or on behalf of
Target (collectively, together with all know-how and trade secrets currently
used by, or developed by the employees of, Target that relate to the operations
of Target, the “Intellectual
Property”). To
the knowledge of Sellers, Target does not use any intellectual property rights
held by any third party, other than intellectual property rights used pursuant
to software license agreement. Target owns (free and clear of all Liens) or has
the right to use under a license, without payment to any other party (other than
under a license described on Schedule
2.17 of the
Sellers’ Disclosure Schedule), the Intellectual Property. No claims have been
made in writing to Target or any Seller by any person challenging or questioning
the right of Target to use the Intellectual Property or the validity or scope
thereof. No person has claimed in writing to Target or any Seller the right to
use any Intellectual Property owned or used under license, other than any rights
granted by a Target pursuant to a license described on Schedule
2.17 of the
Sellers’ Disclosure Schedule. No claims of patent, trademark, trade name,
service mark or copyright infringement have been made in writing by any person
with respect to the right of Target to continue to sell any product or service
or to conduct its operations without payment of a royalty or license fee (other
than payments that are currently subject to a license described on Schedule
2.17 of the
Sellers’ Disclosure Schedule). No patent or trademark owned by Target has been
declared unenforceable or otherwise invalid by any court or governmental
authority. All patent and trademark registrations or applications which
constitute Intellectual Property have been duly registered in, filed in, or
issued by, the U.S. Patent and Trademark Office, or other applicable foreign
patent and trademark office as listed on Schedule
2.23 of the
Sellers’ Disclosure Schedule, and have been properly maintained and renewed in
accordance with all applicable laws.

 

2.24  Condition
and Sufficiency of the Target Assets. The
Target Assets have been properly maintained and are in good operating condition
and repair, subject only to ordinary wear and tear. The Target Assets are all of
the assets necessary for the conduct of the Business in substantially the same
manner as presently conducted and as presently contemplated to be
conducted. 

 

2.25  Transactions
with Related Parties. No
Related Party:

 

(a)  has
borrowed money from, or loaned money to, Target which has not been
repaid;

 

(b)  has
guaranteed the performance of Target under any Contract or other agreement or
instrument which is still in effect or remains outstanding or had its
performance under any contract, lease or other agreement or instrument
guaranteed by Target;

 







13












(c)  has any
contractual or other Claim, express or implied, of any kind whatsoever against
Target; 

 

(d)  has any
interest in any Target Asset; or

 

(e)  has been
engaged in any other transaction with Target. 

 

2.26  Employees;
Officers and Directors.
Schedule
2.26 of the
Sellers’ Disclosure Schedule sets forth the names, titles and current annual
salary or other compensation, including any bonus, if applicable, of all present
officers, directors and employees of Target with annual base compensation of
Thirty Thousand Dollars ($30,000) or more, together with a statement of the full
amount of all remuneration paid to each such person and to any director during
the twelve-month period preceding the date hereof.

 

2.27  Labor
Relations. Target
is not and has never been a party to nor are any of its employees otherwise
subject to any collective bargaining agreement. Currently and during the past
three (3) years there neither are nor have been any: (a) activities or
proceedings of any labor union or representatives thereof to organize any
employees of Target; (b) unfair labor practice complaints or grievances against
Target; or (c) labor strike, dispute, slowdown, work stoppage, picketing,
lockout or threat thereof against Target. Target has not received any unresolved
or outstanding notice of the intent of any federal, state or local agency or
instrumentality having jurisdiction and responsibility for the enforcement of
labor or employment laws to conduct an investigation with respect to or relating
to Target, and no such investigation is in progress.

 

2.28  Insurance.
Attached hereto as Schedule
2.28 of the
Sellers’ Disclosure Schedule is a complete and correct list of all policies of
insurance of which Target is the owner, insured or beneficiary, or which covers
Target or any of the Target Assets. Copies of such policies have been made
available to Buyer. To the best knowledge of Seller, all such policies are in
full force and effect. There is no default with respect to any provision
contained in any such policy by Target or, to the best knowledge of the Sellers,
any other party thereto, or any event which, with notice or the passage of time
or both may constitute such a default, nor has there been any failure to give
any notice or present any Claim under any such policy in a timely fashion or in
the manner or detail required by the policy. There are no outstanding unpaid
premiums or Claims under such policies. No notice of cancellation or non-renewal
with respect to, or disallowance of any Claim under, any such policy has been
received by Target. During the last five (5) years, target has not been refused
any insurance, nor has any coverage been limited by any insurance carrier to
which an application for insurance was made or with which insurance was
carried.

 

2.29  Employee
Benefit Plans.

 

(a)  Schedule
2.29 of the
Sellers’ Disclosure Schedule sets forth a complete and correct list of all
employee benefit plans, as defined in Section 3(3) of ERISA, and all employment,
compensation, bonus, stock option, stock purchase, restricted stock, incentive,
deferred compensation, retiree medical or life insurance, split dollar
insurance, supplemental retirement, severance, change of control, loans or other
benefit plans, programs, arrangements or fringe benefits, in each case, which
are provided, maintained, contributed to or sponsored by 

 







14












Target on
behalf of current or former directors, officers or employees of Target, or for
which Target has any liability, contingent or otherwise (collectively, the
“Benefit
Plans”). 

 

(b)  Sellers
have furnished Buyer with a complete and accurate copy of (i) the plan document
or other governing contract for each Benefit Plan, as amended, and a summary of
any unwritten Benefit Plans, (ii) the most recently distributed summary plan
description and summary of material modifications, (iii) each trust or other
funding agreement with respect to each Benefit Plan, (iv) the most recently
filed IRS Form 5500 (including schedules and attachments) with respect to each
Benefit Plan, (v) the most recently received IRS determination letter and
application therefor, and (vi) the most recently prepared actuarial report and
financial statements for each Benefit Plan.

 

(c)  The
Benefit Plans have been operated and administered in material compliance with
their terms and the applicable requirements of ERISA, the Code and any other
applicable governing law except where any noncompliance, individually or in the
aggregate, has not had and would not reasonably be expected to have a Material
Adverse Effect on Target. All contributions and all payments and premiums
required to have been made to or under any Benefit Plan have been timely and
properly made (or otherwise properly accrued if not yet due), and nothing has
occurred with respect to the operation of the Benefit Plans that would cause the
imposition of any liability, penalty or tax under ERISA, the Code or governing
law (including, without limitation, applicable foreign laws).

 

(d)  No
Benefit Plan is subject to Title IV of ERISA, or a multiemployer plan within the
meaning of Section 3(37)(A) of ERISA. Neither Target nor any trade or business
(whether or not incorporated) which is or has ever been treated as a single
employer with Target under Section 414(b), (c), (m) or (o) of the Code
(“ERISA Affiliates”) has
incurred any liability under title IV of ERISA or Section 412 of the Code,
except for such liability that has been paid in full. No event
or fact exists which could give rise to any liability to Target or any ERISA
Affiliate under Title IV of ERISA or Section 412 of the Code.

 

(e)  For each
Benefit Plan that is a defined benefit pension plan within the meaning of
Statement of Financial Accounting Standard No. 87 (“SFAS
87”), and
including, without limitation, any such foreign Benefit Plan), the “projected
benefit obligation” of each such plan does not exceed the market value of its
“plan assets” as of December 31, 2004, as such terms are defined in SFAS
87.

 

(f)  There are
no pending or, to best knowledge of the Sellers, threatened suits, audits,
examinations, actions, litigation or claims (excluding claims for benefits
incurred in the ordinary course) with respect to any of the Benefit
Plans.

 

(g)  Each of
the Benefit Plans which is intended to be “qualified” within the meaning of
Section 401 of the Code has received a favorable determination letter or opinion
letter from the IRS and no event has occurred and no condition exists which
would reasonably be expected to result in the revocation of any such
determination letter or otherwise result in the loss of its qualified status.
Any voluntary employee benefit association which provides benefits to current or
former employees of Target, or their beneficiaries, has been operated in
material compliance with Section 501(c)(9) of the Code.

 







15












(h)  Neither
the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby (alone or together with any other event) will
(i) result in any payment becoming due to any current or former employee or
director of Target, (ii) increase any benefits under any Benefit Plan, or (iii)
result in the acceleration of the time of payment, vesting or other rights with
respect to any such benefits. No
payments or other benefits under any Benefit Plan or other agreement with the
Target or ERISA Affiliate will be considered an excess parachute payment under
Section 280G of the Code or result in a deduction limitation under Section
162(m) of the Code.

 

(i)  Target
does not maintain or have an obligation to contribute to, or provide coverage
under, any retiree life or retiree health plans or arrangements which provide
for continuing benefits or coverage for current or former officers, directors or
employees of Target, except (i) as may be required under part 6 of Title I of
ERISA and at the sole expense of the participant or the participant’s
Beneficiary, or (ii) pursuant to a medical expense reimbursement account
described in Section 125 of the Code.

 

(j)  None of
the assets of any Benefit Plan is stock of Target or any of their Affiliates, or
property leased to or jointly owned by Target or any of its
Affiliates.

 

2.30  Customers.
Schedule
2.30 (to be
delivered by Sellers to Target within two (2) days after the Closing Date) of
the Sellers’ Disclosure Schedule sets forth a true and complete list of Target’s
top ten (10) referral sources (e.g., physicians and clinics) for individuals
purchasing drugs from Target for each of the last three (3) calendar years, and
for the period from January 1, 2004 to December 31, 2004, based on the number of
referrals received by Target from such sources during such period.

 

2.31  Accounts;
Lockboxes and Safe Deposit Boxes.
Schedule 2.31 of the
Sellers’ Disclosure Schedule sets forth a list of: (a) the names of each bank,
savings and loan association, securities, or commodities or other financial
institution in which Target has an account, (b) the location of all lockboxes
and safe deposit boxes of each, and (c) the names of all Persons holding powers
of attorney, including signature authority for each such account indicated in
subparagraph (a) hereof or having access to each such lockbox or safe deposit
box indicated in subparagraph (b) hereof.

 

2.32  Licenses. The
Sellers have made available to Buyer true and complete copies of all permits,
licenses, registrations, franchises, certificates, concessions and other
governmental approvals and authorizations held by Target pertaining to the Real
Property Interests or the operations of Target, as amended, supplemented and
modified through the date hereof (the “Licenses
and Permits”).
Schedule
2.18(a) of the
Sellers’ Disclosure Schedule contains a list of all such material Licenses and
Permits. Target and each of its employees or agents providing services at the
pharmacy, as applicable, (i) hold all material Licenses and Permits required for
the operation of the Business, including, without limitation, all material
Licenses and Permits required by federal, state and local law and all applicable
regulatory agencies, and (ii) are in compliance in all material respects with
all applicable laws, regulations and agreements. All such material Licenses and
Permits are in full force and effect and Seller is not in default in any respect
with respect to any such material Licenses
and Permits. No notice from any authority with respect to the revocation,
termination, suspension or limitation of any such material 

 







16












Licenses
and Permits has been served on or issued or given to Target, nor is Seller aware
of the proposed or threatened issuance of any such notice.

 

2.33  Payment
Programs. Neither
Seller, nor
any of Target’s officers or employees, nor, to the best knowledge of Seller,
Target’s agents has received written notice that it is subject to any
restriction or limitation on the receipt of payment under the Medicare or
Medicaid programs, any other federally funded health care program or any other
third party payor (collectively, the “Payment
Programs”).
Target has valid and current provider agreements with the Payment Programs.
Target is in compliance in all material respects with the conditions of
participation for the Payment Programs. Neither Seller, nor any of Target’s
officers or employees, nor, to the best knowledge of Seller, Target’s agents has
received written notice that a Payment Program has requested or threatened any
recoupment, refund or set-off from Target, or imposed any fine, penalty or other
sanction on Target, nor has Target been excluded from participation in a Payment
Program. Target has not submitted to a Payment Program any false or fraudulent
claim for payment, nor has Target at any time violated in any material respect
any condition for participation, or any published rule, regulation, policy or
standard of a Payment Program.

 

2.34  Fraud
and Abuse. Neither
Seller, nor any of Target’s officers or employees, nor, to the best knowledge of
Seller, Target’s agents has engaged in any activities that are prohibited under
Federal Medicare and Medicaid statutes, 42 U.S.C. §§ 1320a-7, 1320a-7a, 1320a-7b
or the Federal False Claims Act, 31 U.S.C. § 3729 et seq., the regulations
promulgated pursuant to such statutes, or any related state or local statutes or
regulations.

 

2.35  Physician
Self-Referrals.
Target’s operations relating to the Business are in compliance in all material
respects with and do not otherwise violate the Federal Medicare and Medicaid
statutes regarding physician self-referrals, 42 U.S.C. §§ 1395nn and 1396b(s),
the regulations promulgated pursuant to such statutes, or any related state or
local statutes or regulations. Neither
Seller, nor any of Target’s officers or employees, nor, to the best knowledge of
Seller, Target’s agents has violated any such statute or
regulation.

 

2.36  Controlled
Substances. Target
has not engaged in any activities which are prohibited under the Federal
Controlled Substances Act, 21 U.S.C. § 801 et seq., or the regulations
promulgated pursuant to such statute or any related state or local statutes or
regulations concerning the dispensing and sale of controlled
substances.

 

2.37  Disclosure. No
representation or warranty in this Agreement, and no exhibit, document,
statement, certificate or schedule furnished or to be furnished to Buyer
pursuant hereto, or in connection with the transactions contemplated hereby,
contains any untrue statement of a material fact, or omits to state a material
fact necessary to make the statements or facts contained herein or therein not
misleading in light of the circumstances in which they were made.

 







17












ARTICLE
3


 

REPRESENTATION
AND WARRANTIES OF BUYER

 

Buyer
hereby represents and warrants to Sellers, as of the Closing Date, as
follows:

 

3.1  Organization;
Qualification; Authority and Enforceability. Buyer
is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of California, and has all requisite corporate power and
authority (a) to do business in the jurisdictions wherein the character of the
properties owned or leased or the nature of the activities by it make such
qualification necessary, (b) to execute and deliver this Agreement, and
(c) to perform its obligations hereunder, including the payment of the
Purchase Price and the issuance of the Notes. Buyer’s execution and delivery of
this Agreement, and the performance of its obligations hereunder, have been duly
authorized by all necessary corporate action on the part of Buyer. This
Agreement has been duly executed and delivered by Buyer, and constitutes the
legal, valid and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms.

 

3.2  No
Conflict; No Violation of Laws or Agreements. The
execution and delivery of this Agreement does not and the consummation of the
transactions contemplated hereunder and the compliance with the terms,
conditions and provisions of this Agreement by Buyer will not: (a) contravene
any provision of Buyer’s charter or bylaws, or (b) conflict with, or constitute,
or result in any breach, default, violation of (or an event which would, with or
without the passage of time or the giving of notice or both constitute or result
in a breach, default or violation of) (i) any of the terms, conditions, or
provisions of any indenture, mortgage, loan, credit agreement, or any other
instrument, contract, agreement or commitment to which Buyer is a party, or by
which any of its assets may be bound or affected or (ii) any judgment or order
of any Governmental Authority applicable to Buyer, or (iii) any law, rule
or regulation applicable to Buyer.

 

3.3  Consents. No
consent, approval, or authorization of, or registration or filing with, any
Person, including any Governmental Authority, is required in connection with
Buyer’s execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereunder by Buyer.

 

3.4  Litigation
and Claims. There
are no Claims pending or, to the best knowledge of Buyer, threatened which seek
to delay or prevent the consummation of the transactions contemplated by this
Agreement or which would adversely affect or restrict Buyer’s ability to perform
its obligations under this Agreement.

 

3.5  SEC
Reports. The
forms, reports and documents filed by Parent with the Securities and Exchange
Commission since January 1, 2003 (including all exhibits, notes, and schedules
thereto and documents incorporated by reference therein) (collectively, the
“Parent
SEC Reports”) did
not at the time filed or at the time of their respective effective dates, as the
case may be (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing), contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements in such Parent SEC Reports, in the light of the circumstances under
which they were made, not misleading.

 







18












3.6  Brokers. Neither
Buyer nor anyone acting on its behalf has engaged, retained or incurred any
liability to any broker, investment banker, finder or agent, or made any
agreement or taken any other action which would cause Target or Buyer, or any of
their Affiliates, to be obligated to pay any brokers fee, commission or other
fees with respect to the purchase of the Shares or as a result of the
transactions contemplated by this Agreement.

 

3.7  Investment
Representations. Buyer
understands that the Shares have not been registered under the Securities Act of
1933, as amended (the “Securities
Act”). Buyer
also understands that the Shares are being offered and sold pursuant to an
exemption from registration contained in the Securities Act based in part upon
Buyer’s representations contained in the Agreement. Buyer hereby represents and
warrants as follows: Buyer has substantial experience in evaluating and
investing in private placement transactions of securities in companies similar
to Target so that it is capable of evaluating the merits and risks of its
purchase of the Shares and has the capacity to protect its own interests. Buyer
must bear the economic risk of this investment indefinitely unless the Shares
are registered pursuant to the Securities Act, or an exemption from registration
is available. Buyer understands that Target has no present intention of
registering the Shares. Buyer also understands that there is no assurance that
any exemption from registration under the Securities Act will be available and
that, even if available, such exemption may not allow Buyer to transfer all or
any portion of the Shares under the circumstances, in the amounts or at the
times Buyer might propose. Buyer is acquiring the Shares for Buyer’s own account
for investment only, and not with a view towards their distribution. Buyer
represents that by reason of its, or of its management’s, business or financial
experience, Buyer has the capacity to protect its own interests in connection
with the transactions contemplated in this Agreement. Further, Buyer is aware of
no publication of any advertisement in connection with the transactions
contemplated in the Agreement. Buyer represents that it is an accredited
investor within the meaning of Regulation D under the Securities
Act.

 

ARTICLE
4


 

CERTAIN
OBLIGATIONS

 

4.1  Controlled
Substances Registration. Within
ten (10) business days following the date hereof, Buyer shall file or supply, or
cause to be filed or supplied, all necessary applications and information
required for Buyer’s Controlled Substances Registration Certificate with the
Drug Enforcement Administration. 

 

4.2  Management
Representation Letters. The
Sellers will execute management representation letters reasonably requested by
Parent’s outside auditors in connection with the audit of Target.

 

ARTICLE
5


 

CONDITIONS
TO CLOSING

 

[RESERVED]

 







19












ARTICLE
6

 

DELIVERIES
AND PROCEEDINGS AT CLOSING

 

6.1  Closing
Deliveries by Sellers. Subject
to the terms and conditions of this Agreement, at the Closing, Sellers shall
deliver or cause to be delivered to Buyer the following documents, all in form
and content reasonably satisfactory to Buyer:

 

(a)  Corporate
Documents.

 

(i)  Certificates
of corporate good standing or legal existence, and tax status certificates, of
Target as of a recent date; 

 

(ii)  The duly
executed resignation, effective as of the Closing, of each of the officers and
directors and of each of the trustees, plan administrators and fiduciaries of
Target;


 

(iii)  Evidence
reasonably acceptable to Buyer that the authority of the persons holding powers
of attorney or having signature authority or access to lockboxes or safe deposit
boxes as indicated on Schedule
2.31 of the
Sellers’ Disclosure Schedule has been terminated;

 

(iv)  Certifications
by the President and Secretary of Target as to the accuracy of the Financial
Statements in the form attached hereto as Exhibit D; 

 

(v)  A legal
opinion of Cooley Godward LLP in the form of Exhibit E;

 

(vi)  Resolution
of the Board of Directors of Target, effective prior to the Closing, terminating
Target’s 2002 Stock Option Plan and any options to acquire capital stock issued
thereunder; and

 

(vii)  Evidence
of termination, effective prior to the Closing, of the Shareholders Agreement,
dated January 9, 2002, by and among Target, Pat Iantorno, George Moncada and
Mike Winters.

 

(b)  Transfer
of Shares.

 

(i)  Stock
certificates (or affidavits of loss as contemplated by Section 1.1(a) hereof)
evidencing the Shares accompanied by stock powers duly executed in blank and any
other documents that are necessary to transfer to Buyer good title to the
Shares, free and clear of all Liens; and

 

(ii)  One or
more certificates of the non-foreign status of Seller required to be delivered
under Treas. Reg. Section 1.1445-2 in order to relieve Buyer of the requirements
to withhold United States Taxes under Section 1445 of the Code.

 







20












(c)  Related
Agreements.

 

(i)  A General
Release in the form of Exhibit F, executed by each Seller;

 

(ii)  A
Noncompetition, Nonsolicitation and Confidentiality Agreement in the form of
Exhibit G, executed by each Seller, other than Max Iantorno;

 

(iii)  The Tubb
Purchase Agreement, executed by Michael Tubb;

 

(iv)  All
consents and approvals listed on Schedule
2.20 of
Sellers’ Disclosure Schedules; and

 

(v)  An
appropriate power of attorney, in connection with Buyers’ application for a
pharmacy license and new DEA registration, in form and substance reasonably
satisfactory to each of the parties.

 

6.2  Deliveries
By Buyer. Subject
to the terms and conditions of this Agreement, at the Closing, Buyer shall
deliver or cause to be delivered to Sellers the following, all in form and
content reasonably satisfactory to Sellers:

 

(a)  Corporate
Documents.

 

(i)  Certificates
of corporate good standing or legal existence of Buyer as of a recent
date.

 

(b)  Purchase
Price Payment. 

 

(i)  Four
Million Four Hundred Thousand Dollars ($4,400,000) by wire transfer of
immediately available funds; and

 

(ii)  One
Million Nine Hundred Thousand Dollars ($1,900,000), as adjusted pursuant to
Section 1.7, by delivery of the Notes, executed by Buyer.

 

(c)  Related
Agreements.

 

(i)  The
Warrants, executed by Parent; and

 

(ii)  The
Parent Guaranty in the form of Exhibit I, executed by Parent.

 

ARTICLE
7


 

TERMINATION

 

[RESERVED]

 







21












ARTICLE
8


 

CERTAIN
ADDITIONAL COVENANTS

 

8.1  Costs
and Expenses. Each
party hereto will pay its own costs and expenses, including legal and accounting
fees, in connection with the negotiation, execution, performance of and
compliance with this Agreement.

 

8.2  Tax
Matters.

 

(a) (i) Sellers
shall be liable for and shall indemnify Buyer and Target for Taxes attributable
to Target for any taxable years or periods that ends on or before the Closing
Date and, with respect to any taxable years or periods beginning before and
ending after the Closing Date, the portion of such taxable years ending on and
including the Closing Date, provided that Sellers shall not be liable for any
tax, penalties, interest or additions to tax resulting from Buyer’s late filing
of any Return.




(ii) Buyer
shall be liable for and shall indemnify Sellers for Taxes of Target for any
taxable years or periods that begins after the Closing Date and, with respect to
any taxable years or periods beginning before and ending after the Closing, the
portion of the taxable years beginning on the day after the Closing
Date.




(iii) For
purposes of subparagraphs (a)(i) and (a)(ii) above, whenever it is necessary to
determine the liability for Taxes of Target for a portion of a taxable year or
period that begins before and ends after the Closing Date, the determination of
such Taxes for the portion of the year or period ending on, and the portion of
the year or period beginning after, the Closing Date, shall be determined by
assuming that Target had a taxable year or period which ended at the close of
business on the Closing Date, except that exemptions, allowances or deductions
that are calculated on an annual basis, such as the deduction for depreciation,
shall be apportioned based on the number of days in the year elapsed to and
including the Closing Date.




(iv) Any
payment by Sellers or Buyer under this Section 8.5 will be treated for tax
purposes as an adjustment to the Purchase Price.




(b) Sellers
shall cause Target to file when due all Returns that are required to be filed by
Target for taxable years or periods ending on or before the Closing Date, and
Buyer shall file or cause to be filed when due all other Returns that are
required to be filed by or with respect to Target, provided that Buyer shall
provide to Sellers at least 30 days prior to filing any Returns of Target which
include periods or items for which Sellers may have an indemnification
obligation pursuant to this Section 8.2 and shall make any changes requested by
Sellers to such Returns prior to filing which are approved by Buyer, such
approval not to be unreasonably withheld.




(c) After the
Closing Date, Sellers, on the one hand, and Buyer, on the other hand, shall:
(i) assist
the other party in all reasonable respects in preparing any Returns or reports
which such other party is responsible for preparing and filing in accordance
with this 

 







22












Section
8.5; (ii)
cooperate in all reasonable respects in preparing for any audits of, or disputes
with taxing authorities regarding, and tax returns of Target; (iii) make
available to the other and to any taxing authority as reasonably requested all
information, records and documents relating to taxes of Target; (iv) provide
timely notice to the other in writing of any pending or threatened tax audit or
assessments of Target for taxable periods for which the other may have a
liability under this Section 8.5; and (v) furnish
the other with copies of all correspondence received from any taxing authority
in connection with any tax audit or information request with respect to any such
taxable period.

 



(d)  Buyer
shall notify Sellers in writing upon receipt by Buyer of notice of any pending
or threatened Federal, state, local or foreign tax audits or assessments which
may materially affect the Tax liabilities of Target for which Sellers would be
required to indemnify Buyer and Target. Sellers shall be entitled, at their
expense, to control any audit or litigation related to such assessments or
liabilities to the extent solely related to matters for which Sellers would be
required to indemnify Buyer and Target.




(e)  Each
Seller shall notify Buyer in writing upon receipt by such Seller of notice of
any pending or threatened Federal, state, local or foreign tax audits or
assessments which may adversely affect the Tax liabilities of Target for which
Buyer and Target would be required to indemnify Sellers.




8.3  Section
338 Election. Sellers
acknowledge that Buyer will have the option to make an election under Section
338 of the Code with respect to the transactions contemplated by this
Agreement. If Buyer
exercises its option to make such election, Buyer will indemnify and hold
harmless each Seller from and against any additional Taxes (including Taxes paid
as a result of such indemnification) paid by such Seller in respect of the
acquisition of such Seller’s Shares as a result of Buyer’s determination to make
such election (the “Additional
Taxes”).
Promptly after Buyer’s determination to make such election, Buyer shall deliver
to Sellers its calculation of Additional Taxes. If Sellers object to Buyer’s
calculation of Additional Taxes, Buyer shall promptly meet with Sellers and
endeavor to reach agreement on the calculation of Additional Taxes within 30
days after Sellers’ receipt of Buyer’s calculation. Any such agreement or
objection by Sellers shall be determined by a vote of the majority of the
Shares, with such numbers to be determined by reference to the date that is
immediately prior to the date of this Agreement. If at any time Sellers and
Buyer agree in writing on the calculation of Additional Taxes, such calculation
shall automatically be final and conclusive. If Sellers and Buyer disagree on
the amount of Additional Taxes, and are unable to reach agreement on the amount
of Additional Taxes within such 30 days, Buyer and Sellers shall immediately
retain an independent certified public accounting firm, mutually selected and
who has not provided material services to Buyer, the Target or any Seller during
the previous two years, to resolve the dispute on the calculation of Additional
Taxes as soon as reasonably possible. The resolution of all open issues on the
calculation of Additional Taxes by such independent certified public accounting
firm shall be final and binding on Sellers and Buyer. All fees and disbursements
of such independent certified public accounting firm shall be paid by the party
found by such independent certified public accounting firm to be in the greatest
error with respect to their position on the calculation of Additional Taxes or,
if no such finding is made by such independent certified public accounting firm,
paid evenly by the Buyer, on the one hand, and Sellers, on the other, with such
amounts from Sellers to be paid pro rata in accordance with the allocations set
forth on Schedule
1.5(b).

 







23












ARTICLE
9


 

INDEMNIFICATION

 

9.1  Indemnification
by Sellers. Each
Seller does hereby severally (to the extent of his proportionate ownership of
the Shares, and not jointly, indemnify and hold harmless Buyer and Parent, and
their respective Affiliates, directors, officers, employees and other agents and
representatives from and against any and all liabilities, judgments, claims,
settlements, losses, damages, fees, Liens, Taxes, penalties, obligations and
expenses (collectively, “Losses”) incurred or suffered by any such Person
arising from, by reason of or in connection with:

 

(a)  any
misrepresentation or breach of any representation, warranty, covenant or
agreement of such Seller contained in this Agreement or any certificate
delivered by such Seller hereunder or thereunder;

 

(b)  claims
arising from, by reason of or in connection with any of the following, to the
extent that it relates to matters prior to or on the Closing Date,

 



		(i)	Bay
      Area Specialty Pharmacies;





		(ii)	Michael
      Tubb, except for claims under the Tubb Purchase
Agreement;




		(iii)	The
      matters listed on Schedule
      2.16;




		(iv)	Any
      claim of attorneys, accountants and other professionals engaged by Target
      or Sellers for fees and expenses incurred in connection with this
      Agreement and the transactions contemplated hereby;
and




		(v)	Any
      options issued, or alleged to be issued by Target, including under any
      plan or resolution of the Board of Directors of
Target;






(c)  the
failure of such Seller to comply with Article 8 or any Federal, state or local
tax laws applicable to the transactions contemplated by this Agreement;
and

 

(d)  any and
all actions, suits, proceedings, demands, judgments, costs and legal and other
expenses incident to any of the matters referred to in clauses (a) through (c)
of this Section 9.1;

 

provided,
however, that notwithstanding the foregoing, (W) the indemnification to be
provided by Sellers in respect of any matter referred to in clause (a) above
(other than for breach of any representation or warranty set forth in Sections
2.1, 2.2, 2.5, 2.14, 2.18, 2.29, 2.33, 2.34, 2.35 and 2.36) shall not exceed,
with respect to any Seller, an amount equal to the original principal amount of
such Seller’s Note; (X) the indemnification to be provided by Sellers in respect
of a breach of any representation or warranty set forth in Sections 2.1, 2.2,
2.5, 2.14, 2.18, 2.29, 2.33, 2.34, 2.35 or 2.36, or any matter referred to in
clause (b) above, shall not exceed, with respect to any Seller, an amount equal
to the Purchase Price payable to such Seller under Section 1.2; (Y)


 







24












Sellers
will have no indemnification obligation in respect of any matter referred to in
clause (a) above (other than for breach of any covenant or agreement, or breach
of representation or warranty set forth in Sections 2.1, 2.2, 2.5, 2.14, 2.18,
2.29, 2.33, 2.34, 2.35 and 2.36) until the aggregate amount of all Losses with
respect to such matters exceeds $100,000 and then for the amount of all such
Losses; and (Z) the liability of Sellers shall be joint and several to the
extent, but only to the extent, that Buyer shall have the right to offset any
Losses that are indemnifiable by any Seller hereunder against any Notes payable
to any Seller.

 

9.2  Indemnification
by Buyer. Buyer
does hereby indemnify and hold harmless Sellers and their respective agents and
representatives from and against any and all Losses incurred or suffered by any
such Person arising from, by reason of or in connection with:

 

(a)  any
misrepresentation or breach of any representation, warranty, covenant or
agreement of Buyer contained in this Agreement or any certificate delivered by
Buyer hereunder or thereunder;

 

(b)  subject
to Section 1.3, the failure of Buyer to comply with any Federal, state or local
tax laws applicable to Buyer as a result of the transaction contemplated by this
Agreement; and

 

(c)  any and
all actions, suits, proceedings, demands, judgments, costs and legal and other
expenses incident to any of the matters referred to in clauses (a) through (b)
of this Section 9.2.

 

9.3  Notice
and Opportunity to Defend. In case
any Claim or litigation which may give rise to any obligation of a party under
the indemnity provisions of this Agreement (each an “Indemnifying
Party”) shall
come to the attention of the party seeking indemnification hereunder (the
“Indemnified
Party”), the
Indemnified Party shall notify in writing promptly the Indemnifying Party of the
existence and amount thereof. Failure to give such notice shall not effect the
rights of the Indemnified Party hereunder, except to the extent that the
Indemnifying Party shall have been materially prejudiced by such failure. The
Indemnifying Party shall be entitled to participate in and if (i) in the
judgment of the Indemnified Party such claim can properly be resolved by money
damages alone and the Indemnifying Party has the financial resources to pay such
damages and (ii) the Indemnifying Party admits that this indemnity fully covers
the claim or litigation, the Indemnifying Party shall be entitled to direct the
defense of any claim at its expense, but such defense shall be conducted by
legal counsel reasonably satisfactory to the Indemnified Party.

 

9.4  Offset. Buyer
shall be entitled to offset against amounts due Sellers under the Notes any
Losses for which Buyer is entitled to indemnification under Section
9.1.

 

9.5  Survival. The
indemnification obligations hereunder shall remain in full force and effect and
survive the Closing as follows: (a) the representations and warranties in
Article 2 (other than the representations and warranties set forth in Sections
2.1, 2.2, 2.5, 2.14, 2.18, 2.29, 2.33, 2.34, 2.35 and 2.36) shall survive the
Closing only for a period of eighteen (18) months after the Closing Date, (b)
the representations and warranties in Sections 2.14 shall survive for seven (7)
years after the Closing Date and (c) the covenants and agreements, and the
representations and warranties in Section 2.1, 2.2, 2.5, 2.18, 2.29, 2.33, 2.34,
2.35 and 2.36, shall survive for three (3) years after the Closing
Date.

 







25












9.6  Exclusive
Remedy. The
right of each party hereto to assert indemnification claims and receive
indemnification payments pursuant to this Section 9 shall be the sole and
exclusive right and remedy for damages exercisable by such party with respect to
any breach by the other party hereto of this Agreement, including any
representation, warranty or covenant in this Agreement or any certificate
delivered by the Sellers hereunder.

 

ARTICLE
10


 

MISCELLANEOUS

 

10.1  Notices. All
notices, requests, demands and other communications hereunder shall be in
writing and shall be deemed to have been duly given if personally delivered by
courier, or if mailed, when mailed by United States first-class, certified or
registered mail, postage prepaid, to the other party at the following addresses
or by telecopy, receipt confirmed (or at such other address as shall be given in
writing by any party to the other):

 

If to
Buyer, to:

 

Allion
Healthcare, Inc.

1660 Walt
Whitman Road

Melville,
New York 11747

Fax:
(631) 547-6532

Attention:
Michael P. Moran

 

With a
copy to:

 

Nixon
Peabody LLP

990
Stewart Avenue, 3rd
Floor

Garden
City, New York 11530

Fax:
(516) 832-7555

Attention:
Allan H. Cohen

 







26












If to
Sellers, to the addresses set forth on the signature page hereto.

 

With a
copy to:

 

Cooley
Godward LLP

4401
Eastgate Mall

San
Diego, California 92121

Fax:
(858) 550-6420

Attention:
Steven Przesmicki




10.2  Successors
and Assigns. This
Agreement, and all rights and powers granted hereby, will bind and inure to the
benefit of the parties hereto and their respective successors and assigns, but
neither this Agreement nor any of the rights, interests, or obligations
hereunder shall be assigned by any of the parties hereto without the prior
written consent of the other parties hereto, except that Buyer is entitled to
assign all or part of its rights and obligations under this Agreement to an
Affiliate of Buyer, provided,
however, that
Buyer shall remain fully responsible for the performance of its obligations
hereunder.

 

10.3  Construction. The
parties have participated jointly in the negotiation and drafting of this
Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the parties
and no presumption or burden of proof shall arise favoring or disfavoring any
party by virtue of the authorship of any of the provisions of this Agreement.
Any reference to any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise. The word “including” shall mean including
without limitation. The parties intend that each representation, warranty and
covenant contained herein shall have independent significance. All pronouns and
any variations thereof refer to the masculine, feminine or neuter, singular or
plural, as the identity of the Person or Persons may require. All references
herein to Articles, Sections (other than Sections of the Code or any other
statute) and subsections shall be deemed to be references to Articles, Sections
and subsections of this Agreement unless the context shall otherwise
require.

 

10.4  Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws of the
State of California, without regard to the conflicts of law provisions
thereof. 

 

10.5  Consent
to Jurisdiction. The
Parties hereby agree that any action, proceeding or claim against it arising out
of, or relating in any way to, this Agreement may be brought and enforced in the
courts of the State of California, County of San Diego or of the United States
of America located in the State of California, County of San Diego, and
irrevocably submits to such jurisdiction for such purpose. The Parties hereby
irrevocably waive any objection to such jurisdiction or inconvenient forum. Any
such process or summons to be served upon any of the Parties (at the option of
the party bringing such action, proceeding or claim) may be served by
transmitting a copy thereof, by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
10.1 hereof.
Such mailing shall be deemed personal service and shall be legal and binding
upon the Party so served in any action, proceeding or claim. 

 







27












10.6  Headings. The
headings preceding the text of the sections and subsections hereof are inserted
solely for convenience of reference and shall not constitute a part of this
Agreement, nor shall they affect its meaning, construction, or
effect.

 

10.7  Counterparts. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but which together shall constitute one and the same
instrument.
Facsimile copies shall be deemed binding originals.

 

10.8  Further
Assurances. After
Closing, each party shall cooperate and take such action as may be reasonably
requested by another party in order to more fully carry out the provisions and
purposes of this Agreement and the transactions contemplated
hereby.

 

10.9  Course
of Dealing. No
course of dealing and no delay on the part of any party hereto in exercising any
right, power, or remedy conferred by this Agreement shall operate as a waiver
thereof or otherwise prejudice such party’s rights, powers and remedies. The
failure of any of the parties to this Agreement to require the performance of a
term or obligation under this Agreement or the waiver by any of the parties to
this Agreement of any breach hereunder shall not prevent subsequent enforcement
of such term or obligation or be deemed a waiver of a subsequent breach
hereunder. No single or partial exercise of any rights, powers or remedies
conferred by this Agreement shall preclude any other or further exercise thereof
or the exercise of any other right, power or remedy.

 

10.10  Severability.
If any
provision of this Agreement or any part of any such provision is held under any
circumstances to be invalid or unenforceable in any jurisdiction, then: (a) such
provision or part thereof shall, with respect to such circumstances and in such
jurisdiction, be deemed amended to conform to applicable laws so as to be valid
and enforceable to the fullest possible extent; (b) the invalidity or
unenforceability of such provision or part thereof under such circumstances and
in such jurisdiction shall not affect the validity or enforceability of such
provision or part thereof under any other circumstances or in any other
jurisdiction; and (c) such invalidity or enforceability of such provision or
part thereof shall not affect the validity or enforceability of the remainder of
such provision or the validity or enforceability of any other provision of this
Agreement. Each provision of this Agreement is separable from every other
provision of this Agreement, and each part of each provision of this Agreement
is separable from every other part of such provision.

 

10.11  Entire
Agreement. This
Agreement and the schedules, exhibits and certificates hereto, each of which is
hereby incorporated herein, set forth all of the promises, covenants,
agreements, conditions and undertakings between the parties hereto with respect
to the subject matter hereof and supersede all prior and contemporaneous
agreements and understandings, inducements or conditions, express or implied,
oral or written. This Agreement may not be amended except by an instrument in
writing signed by the party sought to be charged with effect of such
amendment.

 

[signature
page follows]










28















 


IN
WITNESS WHEREOF, the parties hereto have executed this Agreement the day and
year first above written.

 

MOMS
PHARMACY, INC.

 

By:
/s/
Michael Moran___________

        Name:
Michael Moran

Title:
President and CEO

 

SELLERS:

 

/s/ Pat
Iantorno   

Pat
Iantorno

5445
Calzada del Bosque

P.O. Box
2495

Rancho
Santa Fe, California 92067




/s/ Eric
Iantorno   

Eric
Iantorno

522
Orpheus Avenue

Encinitas,
California 92024




/s/
Jordan Iantorno   

Jordan
Iantorno

5445
Calzada del Bosque

P.O. Box
2495

Rancho
Santa Fe, California 92067




/s/
Jordan Iantorno a/c/f Max Iantorno

Jordan
Iantorno a/c/f Max Iantorno

5445
Calzada del Bosque

P.O. Box
2495

Rancho
Santa Fe, California 92067




/s/
Michael Winters   

Michael
Winters

2033 San
Elijo Avenue, #231

Cardiff,
California 92007




/s/
George Moncada   

George
Moncada

13457
Wyngate Point

San
Diego, California 92130


























 

Exhibit
A

 

DEFINITIONS

 

“Affiliate” means,
when used with respect to any Person, any other Person which directly or
indirectly, through one or more intermediaries controls, is controlled by, or is
under common control with, such Person.

 

“Agreement” has the
meaning specified in the Introduction hereto.

 

“Audited
Financial Statements” has the
meaning specified in Section 2.8(a)
hereto.

 

“Beneficiary” means
the Person(s) designated by an employee, former employee, by operation of law or
otherwise, as the party entitled to compensation, benefits, damages, insurance
coverages, indemnification, or any other goods or services under any Benefit
Plan.

 

“Benefit
Plans” has the
meaning specified in Section 2.29(a).

 

“best
knowledge of the Sellers” and
similar phrases are limited to the actual knowledge of the individual Sellers
and means that no such individual has such knowledge of any state of facts which
is different from the facts described in this Agreement or the schedules and, in
the case of Pat Iantorno and George Moncada, includes such knowledge after due
inquiry and investigation.

 

“Books
and Records”
includes the original and all copies of reports, books, manuals, financial
statements or reports, price books, confirmations, telegrams, receipts,
inventory books, contracts, printed matters, computer printouts, teletypes,
invoices, transcripts, analyses, Returns, minutes, accounts, estimates,
projections, comparisons, press releases, reviews, opinions, studies and
investigations, graphic representations of any kind (including photographs,
charts, graphs, videotape and motion pictures, electronic and mechanical
records, tapes, cassettes, discs and recordings, whether preserved in writing,
phone record, film, tape, videotape or computer record).

 

“Business” has the
meaning specified in the Introduction hereto.

 

“Buyer” has the
meaning specified in the Introduction hereto.

 

“CERCLA” has the
meaning specified in Section 2.18(b)
hereto.

 

“Claim” means
an action, suit, proceeding, hearing, investigation, litigation, charge,
complaint, claim or demand.

 

“Closing” has the
meaning specified in Section 1.4.

 

“Closing
Date” has the
meaning specified in Section 1.4.

 







F-2












“Closing
Date Balance Sheet” means a
balance sheet for the Target as of the Closing Date, prepared in accordance with
GAAP consistently applied by Buyer.

 

“Closing
Date Working Capital” means,
subject to Section 1.7(c), all current assets of the Target as shown on the
Closing Date Balance Sheet minus all current liabilities of the Target as shown
on the Closing Date Balance Sheet (it being understood that, for purposes of
calculating current assets of the Target, amounts received in respect of the
Pilot Program referred to in Section 1.8 hereof shall not be taken into
consideration).

 

“Code” means
the Internal Revenue Code of 1986 and valid interpretations thereof, as
reflected in Treasury regulations, published IRS rulings and court
decisions.

 

“Contracts” has the
meaning specified in Section 2.17(a).

 

“Disclosure
Schedules” shall
mean the Sellers’ Disclosure Schedules delivered to Buyer in connection with the
transactions contemplated hereby.

 

“Environmental
Laws” has the
meaning specified in Section 2.18(b).

 

“ERISA” means
the Employee Retirement Income Security Act of 1974, as amended.

 

“ERISA
Affiliate” has the
meaning specified in Section 2.29(d).

 

“Financial
Statements” has the
meaning specified in Section 2.8(a).

 

“GAAP” means
United States generally accepted accounting principles as of the date
hereof.

 

“Governmental
Authority” means
all agencies, instrumentalities, departments, commissions, courts, tribunals or
boards of any government, whether foreign, federal, state or local.

 

“Hazardous
Substances” means
any pollutant, hazardous substance, radioactive substance, toxic substance,
hazardous waste, medical waste, radioactive waste, special waste, petroleum or
petroleum-derived substance or waste, asbestos, polychlorinated biphenyls, or
any hazardous or toxic constituent thereof and includes, but is not limited to,
any substance defined in or regulated under Environmental Laws.

 

“Indemnified
Party” has the
meaning specified in Section 9.3.

 

“Indemnifying
Party” has the
meaning specified in Section 9.3.

 

“Intellectual
Property” has the
meaning specified in Section 2.23.

 

“Interim
Statements” has the
meaning specified in Section 2.8(a)

 

“IRS” means
the Internal Revenue Service and any similar or successor agency of the federal
government of the United States of America administering the Code. 

 

“Licenses
and Permits” has the
meaning specified in Section 2.32.

 







F-3












“Lien” means,
with respect to any asset or right, any mortgage, deed of trust, pledge,
hypothecation, assignment, security interest, lien, charge, restriction, adverse
claim or right whatsoever, title defect or encumbrance of any kind (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any assignment or other conveyance of any right to receive income and
any assignment of receivables with recourse against assignor), any filing of any
financing statement as debtor under the Uniform Commercial Code or comparable
law of any jurisdiction and any agreement to give or make any of the foregoing
except with respect to securities, restrictions on transferability imposed by
federal and state securities laws.

 

“Losses” has the
meaning specified in Section 9.1.

 

“Material Adverse
Effect” on a
Person means a material adverse impact or effect on the business, operations,
assets, liabilities or financial condition of such Person.

 

“Notes” has the
meaning specified in Section 1.5(b).

 

“Oris” has the
meaning specified in 6.1(c)(iv).

 

“Parent” means
Allion Healthcare, Inc. a Delaware corporation.

 

“Parent
SEC Reports” has the
meaning specified in Section 3.5.

 

“Payment
Programs” has the
meaning specified in Section 2.33.

 

“Person” means
any natural person, corporation, business trust, trust, estate, partnership,
limited partnership, limited liability company, limited liability partnership,
association, joint venture, or other entity.

 

“Personal
Property” has the
meaning specified in Section 2.22.

 

“Pilot
Program” means
the Medi-Cal program applied for by the Target pursuant to Pilot Bill 1367,
which program if the Target’s application is granted, shall result in certain
sums being paid to the Target by Medi-Cal in respect of the period September 1,
2004 through December 31, 2004.

 

“Purchase
Price” has the
meaning specified in Section 1.2.

 

“Real
Property Interests” has the
meaning specified in Section 2.21(b).

 

“Realty
Leases” has the
meaning specified in Section 2.21(b).

 

“Related
Party” means
any Seller, any of the members, managers, officers or directors of any Seller or
any Affiliate of any Seller or any of their respective members, managers,
officers, directors or family members, or any Person in which any Seller has any
direct or indirect interest.

 

“Returns” means
all reports, estimates, declarations of estimated tax, information statements,
forms, and returns relating to, or required to be filed in connection with, any
Taxes, including information returns or reports with respect to backup
withholding and other payments to third parties.

 







F-4












“Seller” and
“Sellers” have the
respective meanings specified in the Introduction hereto.

 

“Sellers’
Disclosure Schedule” has the
meaning specified in the introduction to Article
2.

 

“SFAS
87” has the
meaning specified in Section 2.29(e).

 

“Shares” has the
meaning specified in the Introduction hereto.

 

“Target” has the
meaning specified in the Introduction hereto.

 

“Target
Assets” means
the assets or rights of Target used or held for use in the
Business.

 

“Taxes”
or “Tax” means
all taxes, however, denominated, including any interest, penalties or other
additions to tax that may become payable in respect thereof, imposed by any
federal, territorial, state, local or foreign government or any agency or
political subdivision of any such government, which taxes shall include, without
limiting the generality of the foregoing, all income or profits taxes (including
federal income taxes and state income taxes), real property gains taxes, payroll
and employee withholding taxes, unemployment insurance taxes, social security
taxes, sales and use taxes, ad valorem taxes, excise taxes, franchise taxes,
occupation taxes, real and personal property taxes, stamp taxes, environmental
taxes, transfer taxes and other governmental charges, and other obligations of
the same or of a similar nature to any of the foregoing, which any Target is
required to pay, withhold or collect.

 

“Worker
Health and Safety Laws” shall
mean all federal, state or local laws, including ordinances, requirements,
rules, regulations, licenses, permits, orders, injunctions, judgments or decrees
relating to or addressing workplace or worker safety and health.

 

“Warrants” has the
meaning specified in Section 1.2.

 




 










F-5